What it is

• The Softwood Lumber Agreement is an international trade agreement between the Canadian and U.S. governments.
• The agreement restricts Canadian lumber exports to the U.S. when the price of lumber drops to specified levels.
• The agreement expires Oct. 12, 2015.
• Under the terms of the agreement, the U.S. is precluded from launching trade action against Canada for a period of one year after the agreement expires.

History

• Since 1982, Canada and the U.S. have had four significant trade disputes pertaining to softwood lumber. The central issue in these disputes is the U.S. claim that Canadian provinces subsidize timber sales to lumber manufacturers.
• British Columbia’s market pricing system for timber is based on auctions meaning that timber is priced according to markets. Despite this, the U.S. continues to argue that B.C. timber is subsidized.
• Trade disputes are costly to industry and provincial and federal governments, create uncertainty for producers and consumers, and harm the relationship between the Canada and the U.S.
• The current Softwood Lumber Agreement signed in 2006 ended five years of litigation and returned $4 billion of $5 billion in duties collected by the U.S. to Canadian producers, with over half ($2.4 billion) returned to B.C. companies.
• The U.S. lumber industry share of the U.S. market has increased from 62% to 71% during the term of the agreement, while the Canadian market share has decreased from 33% when the agreement was signed to 29% in 2014. Expected declines in B.C. and other provinces’ timber supply and diversification of exports to Asia mean that Canadian share of the U.S. market is unlikely to reach previous levels.

Impact of Agreement

• The Softwood Lumber Agreement has provided improved market certainty for lumber manufacturers in B.C. and Canada, while enabling the province to manage its forest resources and maintain access to the U.S. market.
• It provided the parties a venue for settling disputes.
• The agreement also facilitated the creation of the Bi-National Softwood Lumber Council and Softwood Lumber Board that have improved cross-border relations and grown the market for wood in the U.S.

Why it Matters

• B.C. is Canada’s largest producer of softwood lumber accounting for 55% of Canada’s lumber exports to the U.S.
• While B.C. has made great strides in opening up Asian markets, the U.S. is still B.C.’s number one market for softwood lumber. In 2014, the value of B.C. lumber exports to the U.S. was $3 billion.
• Forestry is one of B.C.’s key economic drivers and key employers – providing more than 145,000 direct and indirect jobs. About 40% of B.C.’s rural communities are dependent on forestry.
• If trade litigation resumes again, B.C. companies face the prospect of paying unwarranted duties to the U.S. instead of re-investing in B.C. to support B.C. jobs and B.C. communities.