Softwood Lumber – Some Lessons from the Last Softwood (Lumber IV) Dispute

The checkered history of softwood lumber disputes between Canada and its southern neighbour stretches back to the 1800s, with five of them occurring since 1982. Two years ago, the settlement obtained in 2006 expired and most Canadian softwood lumber exporters now face a combined countervailing and anti-dumping duty rate from the Americans of around 27 per cent. On the surface, the last dispute, known as Lumber IV, appeared to be a squabble over subsidization and dumping of Canadian softwood lumber exports. However, closer scrutiny revealed that this dispute was really about commercial interests triumphing over policy – the U.S. lumber industry wanted to ensure it kept a certain share of the market at the highest price possible. Complicating attempts to resolve any dispute is the fact that Canada is not a single entity in the lumber business; interest in quota or duties varies across regions as do the countervailing (CVD) and anti-dumping (AD) rates that the U.S. imposes on particular Canadian producers. These variations thus create almost a divide-and-conquer situation in which one group of producers feels others are getting an advantage. The Canadian industry instead should be standing together as much as possible, creating a united front in any dispute with the U.S. Drafting new policy and resorting to litigation to settle Lumber IV failed because the potential settlement got bogged down by the drawbacks of both of those routes. Policy failed because it quickly became clear that the U.S. was going to act with impunity to determine whether there was a subsidy, regardless of what the trade rules permitted. And litigation created an endless loop in which contradictory rulings were handed back and forth between NAFTA panels and the U.S. International Trade Commission, stalling any resolution. Lumber IV also taught the Canadians that taking their complaints to both NAFTA and the World Trade Organization, which does not order a refunding of wrongly collected duties, only further muddied the hoped-for outcome. It took political will on the part of both the U.S. and Canada to finally reach a solution. Nevertheless, Chapter 19 of NAFTA played a key role in establishing the 2006 softwood lumber accord between the U.S. and Canada, and the return to Canada of approximately $4 billion of the $5 billion worth of duties deemed to have been wrongly collected by the Americans. A renegotiation of NAFTA that would see the elimination of Chapter 19, which the U.S. has called for, would make the settlement of Lumber V much more difficult, politicized and litigious. The absence of Chapter 19 could also threaten other Canadian industries should the U.S. proceed with industry requests to impose CVD and/or AD duties (Boeing and its complaint against Bombardier being the most recent example).