U.S. lumber producers like a Trump administration move to drop part of the North American Free Trade Agreement’s dispute resolution system they say handcuffs their ability to fight unfair Canadian timber sales.
But Canadian timber analysts warn the move could further muddy a wood market already clouded by political maneuvers.
“We applaud U.S. Trade Representative Robert Lighthizer for pushing the removal of the Chapter 19 dispute panel system from NAFTA,” U.S. Lumber Coalition spokesperson Zoltan van Heyningen wrote in an email Tuesday. “The Chapter 19 system is unconstitutional, unworkable in practice, and for decades has seriously undermined the enforcement of U.S. law against unfair trade practices by Canada and Mexico, to the detriment of U.S. industries and workers.”
NAFTA’s Chapter 19 provides a case-by-case negotiating court where governments can argue legal claims about unfair trade practices. The U.S. Department of Commerce believes Canada’s federal government unfairly subsidizes wood harvested from its national forests, giving Canadian sawmills an advantage when they export the finished lumber to the United States.
Commerce Department attorneys also claim Canadian exporters sell their lumber below fair market value to U.S. buyers. But their case also must pass the Chapter 19 panel to be internationally binding.
“The NAFTA dispute mechanism is unlike any other mechanism or trade agreement we’re party to,” van Heyningen said Tuesday. “It’s unique because it allows foreign citizens, in this case Canadians, to sit on a panel that makes a binding decision interpreting U.S. law. They get to tell the U.S. government how to apply U.S. law to Canadian imports.”
The now-expired U.S.-Canada Softwood Lumber Agreement specifically excluded that Chapter 19 panel in favor of a weaker international trade court. Since it collapsed last year, U.S.-Canada lumber disputes may now get settled under the NAFTA rules. The Chapter 19 dispute panels appoint two U.S. and two Canadian members, with a tie-breaking fifth member chosen by coin-toss.
Van Heyningen argued that system still hurts the United States because the panel members aren’t government trade officials. They come from a pool of private trade lawyers and professionals who, van Heyningen claimed, too often have conflicting loyalties to foreign clients.
“They almost always side against the United States,” van Heyningen said. “The Canadians say to themselves, 'At the end of the day we’ll use the panel system to dismantle U.S. trade cases, flood the U.S. market and cost U.S. jobs.' We think that’s unfair and needs to be addressed.”
In contrast, International Woods Market Group President Russ Taylor in Vancouver, British Columbia, argues the stiffening U.S. trade stance will result in higher prices for U.S. homebuyers.
“We estimate that the U.S. can produce only about 70 percent of its own lumber demand, and, with Canada’s market share in the U.S. dropping further, the way is paved for an increase in imported lumber from Europe, Russia and other countries — and at higher prices,” Taylor wrote Tuesday. “It seems that the objectives of the American side are clear: to raise lumber prices (and log prices) and create a windfall for U.S. sawmills and timberland owners, but with the consumer (and Canadian mills) paying for it.”
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According to Taylor’s analysis, the United States’ main timber source in the Southeast region has more trees than it can mill. That has kept log prices there down at a time when lumber prices for construction are rising.
The situation is different in the U.S. West, according to Taylor, because log exports to China and Japan have kept log prices up. He reported that Douglas fir sawlogs in the West were selling for $658 per thousand board-feet, compared to $178 per thousand board-feet for southern pine sawlogs.
Taylor wrote that “2018 could be a tough year for higher-cost Canadian mills, as the full bite of U.S. duties will be in effect and may lead to numerous curtailments across the country.”
“By 2019 the U.S. will need more Canadian lumber, so we anticipate that higher prices will begin to allow curtailed mills to restart," Taylor wrote. "The U.S. will need rising imports — if not from Canada, then from Europe and the Southern Hemisphere — and this means high prices for both logs and lumber.”
Softwood includes tree species like pine, fir and spruce traditionally used for construction. From 2006 to 2015, the United States and Canada used a Softwood Lumber Agreement to manage imports and exports across the border. The now-expired treaty set import taxes for various levels of Canadian lumber shipments into the United States.
The U.S. Lumber Coalition and the Trump administration now propose a quota limiting the amount of lumber allowed to cross the border, with high tax penalties for any shipments above the quota.
Last year, Canada sent about 54 percent of its timber harvest to the United States, where it provided about a third of the U.S. lumber supply. Most of the U.S. lumber comes from private timberlands, with about one tree in five coming from public land such as national forests. Several measures are before Congress to open up more federal forest to timber harvest.
In the western half of North America, sawmills in British Columbia and Alberta compete with loggers in Washington, Oregon, Idaho and Montana. Van Heyningen rejected Taylor’s claims, saying the U.S. tariffs might add a few hundred dollars to the average $6,000 worth of lumber that goes into the average new American home.
“The consumer isn’t affected at all,” van Heyningen said. “It just means the Canadian producer can’t enjoy the subsidy as much, and the home builder can’t benefit from subsidized lumber. Taylor knows in a heartbeat the math doesn’t add up.”
Taylor maintains his math fairly looks at both sides of the border, and factors in the possible impacts of trade outside of North America. He warned that European lumber sellers await the rise in prices coming from the U.S.-Canada border tariffs, while Asian markets will also be competing for logs.
“The mills in Washington and Oregon in particular are not making much money,” Taylor said. “With the log supply tight, they’re getting better returns selling to China and Japan. From the facts I’ve got, it tells me a different story.”