“Cap-and-trade” has become a familiar phrase in energy policy discussions. Where U.S.-Canadian lumber imports are involved, it’s more about “cap or trade.”
Last week, Montana’s senators Jon Tester and Steve Daines added their signatures to a call for faster resolution of a softwood lumber dispute on the northern border. A new agreement could impose a cap on how much Canadian lumber can come south, or set trade rules for the amount of customs duties each truckload has to pay.
Softwood means the conifer wood used for 2-by-4s and other housing construction boards. A 10-year agreement governing how the two nations would manage imports of Canadian softwood expired last October, and a one-year standstill intended to provide bargaining time for a new deal nears its deadline, too.
“Subsidized and unfairly traded lumber imports continue to severely harm United States mills, workers and communities,” Tester and Daines wrote in a letter co-signed Tuesday by 23 other senators. “Indeed, current import data show that Canadian imports are capturing an ever larger market share, displacing domestic manufacturing.”
“It’s definitely very important for us,” said Tony Colter of Sun Mountain Lumber, a mill in Deer Lodge. “They (Canadian mills) don’t compete for stumpage, so their pricing isn’t on a fair market value. It’s a negotiated thing for them, and we think it’s an unfair advantage.”
Colter said American lumber production has risen along with a renewed housing market lately. This year appears on track to have 1.2 million housing starts nationwide. That’s below the industry norm of 1.5 million. But it’s much better than the 450,000 starts recorded 2009, when the recent recession was at its depth.
Canadian mills compete to supply boards to that U.S. building sector. Colter said right now, the Canadians also benefit from a currency exchange rate that makes northern lumber even more economical. A U.S. dollar buys around $1.30 Canadian.
And the Canadians need the American softwood market, because a once-thriving trade with Asia has cooled along with the Chinese economy. During the one-year standstill, neither the United States nor Canada can impose duties or quotas on lumber moving across the border.
The old agreement was based on trade charges in turn based on the price of lumber. According to an analysis by Tester’s congressional staff, that benefited the Canadian side because its low prices rarely triggered the tariff, allowing it to flood the American housing market with cheap 2-by-4s. So this time, U.S. trade representatives have pushed for a volume restriction, limiting the number of wood shipments regardless of price.
That doesn’t sit well with the Canadians, who disagree with the premise of the U.S. position. They maintain the the cost of the previous trade agreement was a $4 billion loss.
On Wednesday, Canadian Ambassador David MacNaughton responded with a letter of his own to Sen. Ron Wyden, the lead author of the U.S. letter. He warned that “inflated rhetoric” and “mischaracterizations” about the nature of Canadian lumber complicated the negotiations.
“It is for this reason that I am disappointed with some of the inaccurate language that is contained in your letter" to U.S. Trade Ambassador Michael Froman, MacNaughton wrote. “A successful negotiation is not guaranteed.”
Part of that may stem from Canada’s lack of a national bargaining position. While much of British Columbia’s timber is owned by the provincial or federal government, eastern Canada's forests are much more in private hands. A contentious negotiating point has been whether individual regions or companies can stay out of the deal and cut separate trade arrangements.
Montana’s delegation has been bird-dogging the negotiations since the previous agreement expired last year, according to Daines’ office staff. In September, Daines and Rep. Ryan Zinke wrote letters to Forest Service Chief Tom Tidwell seeking relief for sawmills as foreign exchange rates rocked the timber industry. The whole state delegation met with Canadian Ambassador Gary Doer in October, asking for Canadian commitments to work on a renewed softwood agreement.
Daines and Zinke sent another letter to Prime Minister Justin Trudeau shortly after the Canadian leader was elected last winter. In addition to congratulations on the new position, the Montanans asked Trudeau to prioritize talks on the softwood agreement. They repeated the concerns to Froman, the trade ambassador, in advance of Trudeau’s state visits with President Obama.
The next scheduled U.S.-Canada trade meeting takes place Tuesday.
“Canada needs to come to the table and stop propping up its domestic industry to the detriment of Montana’s lumber mills and their workers,” Daines said in an email. “Renegotiating an effective Softwood Lumber Agreement is critical, and it also highlights the importance of forest management reform to get more Montana logs to our mills and get folks back to work.”