Lumber dispute tests free trade
The US lumber industry filed last week to have duties imposed on Canadian softwood.
As 34 nations in North and South America gear up for a summit on hemisphere-wide free trade this month, this continent's two largest trading partners are verging on a full-blown trade war.Skip to next paragraph
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Canada and the United States are trading accusations in the latest phase of a century-long dispute over softwood lumber, considered one of their most important trade commodities. Canada exports vast supplies of its wood to the US, doing about US $11 billion in trade annually. The US has long accused Canada of subsidizing its industry - a claim it has never been able to prove.
The dispute reignited last week after a five-year agreement expired on March 31. The Softwood Lumber Agreement (SLA) capped Canada's duty-free exports at 14.7 billion board feet, and in return, the US agreed not to launch any trade offensives against Canada.
Last Monday, the US timber industry resumed its battle, petitioning the US Commerce Department to impose countervailing duties as high as 76 percent, or nearly $5 billion a year. The lobby represents mill operators, landowners, and wood-product manufacturers. Canada accuses the US of engaging in protectionism.
The whole dispute has a particular irony in light of the upcoming Summit of the Americas, where nations from Canada to Chile will be hammering out the Free Trade Agreement of the Americas. Free trade is one of the top priorities in US President George W. Bush's foreign policy.
The irony is not lost on Kelly Rommel, an unemployed timber forklift operator from British Columbia. "How can they keep talking about free trade, then deny it to the softwood lumber industry?" says Mr. Rommel, who has two children. "If we're going to have free trade, then let's have it."
At the heart of the dispute is a history of mistrust about the two countries' fundamentally different ways of managing softwood forests of pine, spruce, and fir.
In Canada, almost all of the woodlands - about 94 percent - are owned primarily by provincial governments. In the US, 95 percent of forests are privately owned and timber is sold by auction. When Canadian timber is harvested, companies pay "stumpage fees" calculated by governments, which factor in such costs as replenishing woods and building roads.
But the US lumber industry says these government-set stumpage fees are so low they are tantamount to a subsidy, since Canadian softwood sells for about a quarter of US market prices.
Canadian lumber producers say they merely have a competitive advantage: their softwood is more plentiful, it's made cheaper by the country's weak dollar, and therefore it's more economical for US consumers. But Canadians are hurting, too, they say.
In recent years, jobs have been lost, profits have been slim, and mills have closed. With the expiration of the softwood agreement, there was speculation that Canadian lumber would flood into the US. But so far, producers are hesitating for fear of massive retroactive duties. They're also still threatening to close mills because of uncertainty over the trade dispute.