Economics

Since 1982, United States and Canada have been embroiled in a bitter trade dispute involving the lumber industry. The dispute, Lumber I, II, and III have had negative effects on the trade relationship between these neighbors. Although the two countries have avoided lumber disputes for long, a new dispute emerged in 2001 and it has not been amicably resolved (Crook 28). This paper looks into the U.S-Canada Lumber dispute and how it has affected the trade relationships between the two neighbors.

U.S-Canada lumber dispute mainly involves the United States and Canada. Although the two countries are neighbors and core members of NAFTA, they have been able to resolve other trade conflicts but lumber trade dispute keeps on coming now and then. Canada has asserted that British Columbia, which makes up more than 60 of Canadian exports to the Untied States, is the main target of this dispute, a fact U.S is not ready to acknowledge (Government of British Columbia).

The lumber trade dispute between United States and Canada has been long and consistent, mainly caused by countervailing duty cases.  Under the United States trade law, countervailing duty case mainly involves investigation into a subsidy which means the exporter is gaining advantage over other exporters in the U. S market.  United States has contended that British Columbia provincial stumpage and log export restriction amounts to subsidy to the lumber producers. United States has also alleged that other provincial programs in Canada also contribute to subsidies in the lumber industry.

In 1982, U.S Department of Commerce carried out an investigation on a stumpage programs in B.C, Ontario, Quebec, and Alberta, now known as Lumber I. The investigations ended up in 1983 with findings showing that the stumpage did not amount to subsidy (Crook 18). In May 1986, the department started investigation into Lumber II and with the influence of Coalition for Fair Lumber Imports in U.S., found that there was a subsidy and consequently imposed a 15 tariff (Government of British Columbia). This conflict ended in 1986 when Canada agreed to impose 15 export duty on lumber products to U.S. However, this brought about pressure inside Canada, especially in B.C., and in 1991, Canada did away with the agreement (Makarenko).

U.S government responded with more restriction polices as it imposed duty rate of 6.51 on Canada Lumbar products. Canada appealed to International Trade Commission and in 1994 U.S government revoked the countervailing duty, after both countries agreed to pursue trade talks to settle the dispute.  United States agreed to refund 500 million it had collected in duty imposed on Lumber III (Government of British Columbia). However the conflict was still boiling underground. For example during WTO Uruguay Round agreement, U.S was forced to amend its trade law to ensure that Canada could not make a simple appeal as it had done in Lumber III. In 1996, both countries agreed on Softwood Lumber Agreement, a five year deal that would limit Canada lumber export to U.S to just 14.7 billion board feet annually.

Currently, the two countries are locked in another dispute, Lumber IV, since 2001 which started after expiry of the five year agreement. U.S Coalition for Fair Lumber Imports filed petition for countervailing duty, the first of its antidumping petition against Canada Lumber. U.S Department of Commerce preliminary ruled that Canadian Lumber is subsidized by more than 19.31 (Government of British Columbia). The final department ruling in 2002 found that the subsidy rate was 18.7 and significant case of specific company dumping was also found. In combination, countervailing duty and company dumping rate was aggregated to 27.22.  As a result of the ruling, U.S customers ask for cash deposits for duties for all lumber products from Canada.

In response to the conflict, Canadian government has taken a number of steps to mitigate its effects. In 2002, Canadian Minister of Forests set aside about 20 million for international market diversification (CBC News). In May 2002, the government also announced a 29.1 million wood export program in order to expand its international market for lumber products.  The government has provided funds since then to assist lumber industry cope with the effects of the dispute. It has also launched challenges to both WTO and NAFTA in regard to U.S decision.

This dispute lies with the mandate of international trade agreements. In the course of dispute, Canada has appealed to international trade bodies and agreement in a bid to resolve the deadlock (British Columbia).  Canadian Federal government and the provinces have consequently taken a number of challenges to WTO. These challenges are meant to consider whether U.S had breached obligations as outlined by WTO. On the other hand, NAFTA challenges are meant to asses whether the U.S really applied the trade laws in the correct manner.