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U.S.-Canada Trade Dispute

Last update:  September 23, 2016
Click here for the timeline from 1982 to present (below this article).

Answers to frequently asked questions in the trade dispute

(The following is an article published in the Sept. 23, 2016 issue of Random Lengths.)

 

When the Softwood Lumber Agreement ended its nine-year run in October 2015, a one-year standstill period when neither the U.S. nor Canada could file a trade case was included in the negotiations.

That period will expire in mid-October, which has generated plenty of questions from traders regarding what the next steps will be in the longstanding trade dispute. Below is the list of the most common questions we’ve heard, and our best attempt to provide the most up-to-date answers.

Q. If a settlement isn’t negotiated in the next few weeks, what is the earliest that countervailing and/or anti-dumping duty cases could be filed?  A. October 13.

Q. If a duty case is filed, can the two countries continue negotiations toward a settlement?  A. Yes. In fact, when the Softwood Lumber Agreement was signed in October 2006, the U.S. was collecting CVD and AD duties from Canada at the time.

Q. How long does it usually take from when a CVD and/or AD case is filed to when there is a preliminary ruling?  A. It depends. An investigation is initiated 20 days after a petition is filed, although this can be extended 20 additional days in rare circumstances. Then, the U.S. Department of Commerce has between 65 and 130 days to issue a preliminary CVD determination, and 140 to 190 days to issue a preliminary AD determination.

Q. Some traders have speculated that it could be next spring before any cash deposits would be required from Canadian shippers. Is this accurate?  A. Cash deposits begin to apply when Commerce publishes its preliminary CVD and AD determinations. Because of the complexity of this case, Commerce could very well take the full 130 days to issue a preliminary CVD determination.

If a case is filed on October 13 and you allow 20 days for initiation of the investigation, 130 days for a preliminary CVD determination, and another week for it to get published in the Federal Register, that would take the timeline to late March 2017 for the period when cash deposits could begin. There are a lot of variables to consider, which could alter that timeline in either direction.

Q. Could duties be applied retroactively?  A. Yes. In ordinary cases, cash deposits are required beginning on the date the preliminary CVD or AD determination is published in the Federal Register.

In some instances — the technical term is “critical circumstances” — the duty requirements can be retroactive for up to 90 days. If the preliminary CVD determination were published in late March as was outlined in the previous paragraph, that could make CVD duties retroactive to late December. Again, this is an estimate of how a duty case could transpire, but several variables could alter that timeline.

There are several criteria to meet “critical circumstances.” Among them are if imports of softwood lumber from Canada to the U.S. have recently increased significantly, and if the International Trade Commission finds that the remedial effect of the CVD/AD orders would be undermined by not making the duties retroactive.

Q. How is the amount of the duties determined, and is there a maximum rate?  A. CVD duties are equal to the subsidy found to exist by Commerce. For the main alleged subsidy — the provision of standing timber on government land to lumber producers — the amount has in the past been calculated as the total amount by which Canadian timber used in sawmills over a 12-month period was priced below market value, divided by the total value of the production of sawmills (lumber and byproducts) in the same period.

AD duties for an individual company are equal to the amount by which lumber was sold in the U.S. by that company at less than fair value during a 12-month period, divided by that company’s total U.S. sales.

There is no maximum duty rate.

Q. Who collects duties?  A. The U.S. government collects countervailing and anti-dumping duties. In the case of the SLA, taxes imposed on Canadian lumber shipments to the U.S. were collected by the Canadian government.

Q. Are trade officials from Canada and the U.S. still working toward a negotiated settlement?  A. Yes, although it currently appears unlikely that a deal will be reached before the end of the standstill period in mid-October. Here are the latest statements issued on the topic by each government:

U.S. Trade Representative Michael Froman: “U.S. and Canadian negotiators are working intensively to try to reach an agreement consistent with the joint statement issued by President Obama and Prime Minister Trudeau at the North American Leaders’ Summit on June 29. The leaders agreed that a new agreement would be designed to maintain Canadian imports at or below an agreed U.S. market share. While these are difficult negotiations and significant gaps remain, the United States is committed to continued engagement with Canada to see if a new agreement can be achieved.”

Canada’s International Trade Minister Chrystia Freeland: “This is a notoriously, historically tough and complicated issue to resolve. We know it may not be possible, but we are working hard at it. We are looking for a good deal, but we are not looking for any deal.”

Q. If CVD and/or AD duties are imposed on Canadian lumber shipments to the U.S., what appeals or challenges can be filed?  A. There are two kinds of appeals. One can be filed by Canada or by any private party that participated in the proceeding, claiming that Commerce, in its final AD/CVD determinations, or the International Trade Commission, which rules on injury, acted inconsistently with U.S. law. Normally these cases are heard in the U.S. Court of International Trade, which is a specialized federal district court in New York. Further appeals could be made to the Court of Appeals for the Federal Circuit in Washington, D.C., or rarely to the Supreme Court.

Because the case involves Canada, NAFTA provides that — at the request of any party — all of these cases are decided by special binational panels formed under NAFTA with Canadian and U.S. members.

Another possible type of challenge can be made only by the Government of Canada, which would be to initiate a dispute in the World Trade Organization in Geneva, Switzerland, alleging that the U.S. breached some obligation in the WTO agreements governing AD and CVD cases.

1982 to present

Last update:  September 23, 2016

Information about the current U.S.-Canada trade deal

Answers to frequent questions about the tentative agreement  - This special report in PDF format was transmitted to all Random Lengths fax and EMS subscribers at 4:00 p.m. Pacific Time, May 12, 2006. Other information helpful to understanding the new U.S.-Canada lumber deal is below:

Explanation of the Random Lengths Framing Lumber Composite Price (pdf format) , designed to answer common questions about how the Random Lengths Framing Lumber Composite is calculated.

Items used in the composite, and the monthly averages for the Random Lengths Framing Lumber Composite from 1995 to present, can be found by going to www.rlpi.com > In Depth > Useful Data > Monthly Composite Prices


Canadian Tax Levels

Prevailing Monthly
Price*
Option A1 - Export Charge (Expressed as a % of Export Price) Option B2 - Export Charge
(Expressed as a % of Export Price) with Export Allocation
Over
$US355
No Export Charge
No Export Charge and no volume restraint
$US336-355
5%
2.5% Export Charge + maximum volume that can be exported to the United States cannot exceed the Region's share of 34% of Expected U.S. Consumption for the month
$US316-335
10%
3% Export Charge + maximum volume that can be exported to the United States cannot exceed the Region's share of 32% of Expected U.S. Consumption for the month
$US315 or under
15%
5% Export Charge + maximum volume that can be exported to the United States cannot exceed the Region's share of 30% of Expected U.S. Consumption for the month
*Four-week average of Random Lengths Framing Lumber Composite Price.
1 - Applies to B.C. and Alberta.
2 - Applies to Quebec, Ontario, Manitoba, and Saskatchewan.

2015 dates used to determine the monthly trigger price

To determine the monthly tax rate under the SLA, the most recent four-week average of the FLCP that is available 21 days before the beginning of the month is used. Here are the dates to determine the monthly trigger price through the expiration in October 2015:

Months From To
January 2015
November 14, 2014 December 5, 2014
February 2015 December 19, 2014 January 9, 2015
March 2015 January 16, 2015 February 6, 2015
April 2015 February 13, 2015 March 6, 2015
May 2015 March 20, 2015 April 10, 2015
June 2015 April 17, 2015 May 8, 2015
July 2015 May 15, 2015 June 5, 2015
August 2015 June 19, 2015 July 10, 2015
September 2015 July 17, 2015 August 7, 2015
October 2015 August 14, 2015 September 4, 2015
November 2015    
December 2015    
January 2016    

 

The dates are projections, and could be challenged by either government.


 Effective SLA Export Tax on Western Canadian Shipments to the U.S.

(Percentages)

  Jan Feb Mar Apr May Jun Jul Aug Sep Oct  Nov  Dec
2006                   15 15 15
2007 15 15 15 15 15 15 15 15 15 15 15 15
2008 15 15 15 15 15 15 15 15 15 15 15 15
2009 15 15 15 15 15 15 15 15 15 15 15 15
2010 15 15 15 15 10 0 10 15 15 15 15 15
2011 15 15 15 15 15 15 15 15 15 15 15 15
2012 15 15 15 15 15 10 5 10 10 5 10 10
2013 0 0 0
0
0
0  0
10
5
5
0
0 
2014 0  0 0 0 0  0  0 0  0  0  0  0
2015 0 0  0  5   5  10 15   5   5  15    
Reduced Tax Months: 0% 5% 10%

 


 

U.S.-Canada Trade Dispute Timeline, from 1982 to present (in PDF file format)

A document showing the U.S.-Canada Trade Dispute Timeline, from 1982 to present (in PDF file format) provides background information year by year on the dispute, covers the process that created the current Trade Agreement, and the results of the agreement since. Updates for the current year are also added below, on this page.

Additional Information on the U.S.-Canada Lumber Trade Issue is available on the Random Lengths Web site at:
Daily WoodWire — U.S.-Canada Lumber Trade Issue: The latest developments in the dispute over Canadian lumber exports to the U.S.


2006

FEBRUARY 2006  --  Stephen Harper is elected Prime Minister of Canada, and promises a new level of cordiality in relations with the U.S.  Lumber traders wait to see how the political change affects the lumber trade dispute, especially since former Canfor CEO David Emerson is named Minister of International Trade.  The NAFTA panel reviewing the final CVD determination delays its ruling until March 17.

MARCH 2006 -- A NAFTA panel denies a challenge filed by the Coalition for Fair Lumber Imports, which was fighting to keep the CVD in place.  The U.S. government has until late April to decide whether to request an Extraordinary Challenge Committee in the case.  If an ECC is not requested, the U.S. would be required to revoke the CVD order.  The anti-dumping duty, which represents 2.1% of the 10.8% duty total, was not affected by this decision.  A spokesperson for the U.S. government says that even if the CVD order is revoked, the U.S. would not be required to return the duty money to Canada.  The U.S. position is that the duties could only be refunded as part of a negotiated settlement.  At a North American summit meeting in Cancun, Mexico, in late March, President Bush and Prime Minister Harper announce that the two countries will look into the possibility of returning to negotiations in the softwood dispute.

APRIL 2006 --  Trade officials begin preliminary discussions to see if a settlement in the lumber dispute is possible.  Canada's International Trade Minister David Emerson describes April 27 as "a very important date," because that is the deadline when the U.S. has to announce if it will request an Extraordinary Challenge Committee in the CVD case.  On the eve of that deadline, Canada and the U.S. announce they have reached a tentative seven-year agreement, with an option for two additional years.  The deal calls for the U.S. to revoke softwood duties, and for Canada to implement border measures.  Taxes ranging from 5-15% and/or quotas on Canadian shipments to the U.S. would kick in when the Random Lengths Framing Lumber Composite Price is at $355 or lower.  Each province is allowed to choose whether they will pay taxes only, or a lower tax combined with a quota.  Of the estimated $US5 billion collected since the duties were implemented in May 2002, $4 billion would be refunded to Canadian shippers and $1 billion would stay in the U.S., with half of that going to members of the Coalition for Fair Lumber Imports.  Officials estimate the deal will take two to three months to finalize all the details.  Duties will continue to be collected until a final agreement is signed.

JULY 2006 -- Government negotiators continue to work toward finalizing the U.S.-Canada lumber agreement, but obstacles still have to be cleared before it is finalized.  Most of the framework has been agreed to, but sticking points such as a termination clause are still being negotiated.  The fate of the SLA is further muddied when a U.S. court rules that the U.S. can't legally collect duties on lumber shipped from Canada.  The U.S. threatens to appeal the ruling from the U.S. Court of International Trade, and a Canadian government spokesman says Canada plans to move forward with the negotiated settlement. 

AUGUST 2006 -- The tentative lumber deal appears in jeopardy due to growing complaints in Canada about terms of the settlement.  After meeting with Canadian CEOs, International Trade Minister David Emerson is optimistic that the deal will be finalized.  Canadian Prime Minister Stephen Harper announces in late August that the agreement has received "a clear majority of support from companies in all regions."  Harper plans to put the SLA before Parliament in September for approval, and hopes to have it in place by October. 

SEPTEMBER 2006 -- Trade officials from Canada and the U.S. sign the Softwood Lumber Agreement on September 12, and hope to have it in effect by October 1.  Instead of facing a 10.8% duty on lumber shipments, Canadian suppliers will pay an export tax ranging from 5-15%, depending on which option each province chooses.  The agreement is scheduled to last seven years, with an option for two additional years.  However, there is a clause that would allow either country to opt out of the deal after two years.  On the eve of the expected implementation of the deal, Canada announces it may be delayed.  One prerequisite of the deal is that all Canadian companies that have filed lawsuits against the U.S. related to the lumber dispute must withdraw the litigation.  Some companies have yet to pull their lawsuits, leading to a delay.

OCTOBER 2006 -- After some last-minute amendments are ironed out, the Softwood Lumber Agreement is implemented October 12.  All provinces covered under the SLA will pay a 15% tax for the remainder of 2006 unless the Random Lengths Framing Lumber Composite Price monthly average rises to $316 or higher.  All covered provinces are charged under Option A.  In January 2007, Option B is scheduled to be available to provinces that choose to have a smaller tax combined with a quota restriction.  The agreement began with plenty of angst, as Canadians got word a day after the SLA was implemented that the U.S. Court of International Trade ruled that Canada should be refunded the full amount of the duties.  Because the SLA had already been signed, the ruling was considered moot.  The B.C. Coast, B.C. Interior, and Alberta announce that they will select Option A, which has a higher tax but no quota.  Mills in Quebec, Ontario, Manitoba, and Saskatchewan choose Option B, which Canada says it will be ready to implement in January 2007.  Because the provinces that chose Option B will begin paying the higher tax amount, they will receive a refund of the difference between the taxes under Options A and B. 

DECEMBER 2006 -- The Canadian government releases lumber shipment data for November, the first full month since the SLA went into effect October 12.  Only Ontario, which shipped 98.3% of its quota allotment, comes close to shipping the monthly volume to the U.S. that it is allowed.     

2007

JANUARY 2007 -- The B.C. Ministry of Forests and Range sends a notice to producers in the province warning that the B.C. Interior "is at risk of surging in January."  Using data received from the Department of Foreign Affairs and International Trade, the B.C. government warns that if Interior producers continue to ship at the same average daily rate as they have through January 24, month-end shipments will be about 99% of the adjusted surge trigger.  If the surge trigger is exceeded, the 15% export tax would increase to 22.5% retroactively for January.  By the end of the month, DFAIT updates its shipment data, which shows that no producing regions in Canada are at risk of hitting the surge trigger in January.  Much of the confusion appears to be based on how the surge trigger is calculated.  The monthly allowances are figured in part by U.S. consumption data.  Whether an adjustment factor is applied to calculate the surge trigger has been debated by the U.S. and Canada.  Based on the shipment figures released, it appears Canada will not use the adjustment factor.

MARCH 2007 --  Quebec and Ontario introduced aid packages to benefit their forest industries. U.S. officials complain to Ottawa that provincial aid efforts put Canada at risk of violating the Softwood Lumber Agreement. U.S. officials also claim that Canadian lumber export data to the U.S. is inaccurate.  They say if U.S. consumption levels were adjusted as instructed in the SLA, that the B.C. Interior would have exceeded its surge trigger in January, and Ontario and Quebec would have exceeded their allowable quota volumes for that month.  Canadian officials argue that the adjustment factor does not apply to Option A provinces, and that it won't apply to Option B provinces until the third quarter of 2007, at the earliest.  If the two countries can't resolve the dispute, the issue could be taken to the London Court of International Arbitration for a binding ruling.

APRIL 2007 --  U.S. and Canadian officials hold formal consultations in Ottawa in an effort to iron out their differences in the implementation of the Softwood Lumber Agreement.  It appears that little headway is made in the dispute.  U.S. officials indicate that if their grievances are not resolved they may request a binding ruling before the London Court of International Arbitration in May.  If the case goes before the LCIA, a decision would not be expected until early 2008.

AUGUST 2007 -- U.S. officials request a binding ruling from the London Court of International Arbitration, alleging that Canada is failing to live up to the Softwood Lumber Agreement.  The two countries differ on their interpretations of the so-called "surge mechanism," which increases taxes and decreases quota allotments when certain criteria are met.  The U.S. argues that Canada has not collected enough taxes under the SLA, and has allowed too much lumber to ship to the U.S., according to the quota.  If the London court finds that Canada has violated the SLA, it would have the authority to increase the export taxes on lumber shipments to the U.S. and/or reduce the quota volumes allowed by provinces operating under Option B of the agreement.

SEPTEMBER 2007 -- U.S. officials decide to seek two separate panels through the London Court of International Arbitration.  The first will rule on whether Canada failed to cap its export volumes or properly apply an import surge mechanism.  A second panel will be requested to rule on U.S. allegations that the provinces of Ontario and Quebec assisted its lumber industry through programs that violate the SLA, but the U.S. has not yet formally requested that panel.  A panel of three arbitrators will be selected to rule on each dispute.  A ruling from the first panel is expected in early 2008.

2008

JANUARY 2008 --  The U.S. files its second arbitration case with the LCIA, alleging that Ontario and Quebec provided subsidies to their lumber industries that violate terms of the SLA.  After arbitration is requested, there is an approximately two-month process to select the arbitrators.  Then the tribunal is to issue its decision within six months.  In a separate development, U.S. officials sent a formal letter to Canadian officials, expressing concern about the proposed creation of a $1 billion Community Development Trust, which includes aid to Canada's forestry sector.   

MARCH 2008 — The London Court of International Arbitration issues a split decision in a case in which the U.S. accused Canada of failing to properly implement the Softwood Lumber Agreement.  The three-person tribunal ruled that B.C. and Alberta did not violate terms of the SLA.  The U.S. accused those provinces of failing to increase the tax they pay on lumber shipments to the U.S. when volumes hit a certain trigger, the so-called “surge mechanism.” However, the LCIA ruled that eastern provinces failed to properly implement their quota allocations during the first six months of 2007. The LCIA will no determine how much those provinces’ quotas will be reduced, and over what period of time.

MAY 2008 — Shippers in Alberta are notified that they will be required to pay additional taxes for lumber they sent to the U.S. in March 2007. The Canada Revenue Agency issued a notice that Alberta exceeded the monthly trigger volume for that month. Some permits for exports from Alberta were attributed to another region, and when the totals were corrected, Alberta had exceeded the allowable volume. A 7.5% additional tax will be added to the current 15% rate for that month.

OCTOBER 2008 — A pending decision in the softwood lumber dispute is delayed by the LCIA, which has asked both governments for another brief in the issue over quota shipments from eastern provinces to the U.S. Sources who are following the case say it will likely be the end of December or early 2009 before a final decision is announced.

2009

JANUARY 2009 — The lumber trade dispute between the U.S. and Canada heats up again following an announcement from British Columbia that the government is lowering the rate it charges companies to harvest trees on Crown land in the Coast region. The new stumpage rate on the Coast will average less than $5 per cubic meter, or about 70% lower than was charged a year ago.

FEBRUARY 2009 —  An LCIA tribunal rules that because Quebec, Ontario, Manitoba, and Saskatchewan violated terms of the Softwood Lumber Agreement, an additional 10% export tax will be added to the 5% currently being paid until $C68.26 million has been collected. The LCIA had previously ruled that those four provinces failed to properly calculate their quotas during the first six months of 2007.

APRIL 2009 — Instead of implementing a prescribed 10% additional tax on lumber shipments from eastern provinces to the U.S., Canada offered a lump sum payment to the U.S. government of $C46.7 million. An international tribunal had directed Canada to impose the additional tax until $C68.26 million had been collected. The U.S. government rejects Canada’s offer, and implements an immediate 10% duty on lumber shipments from the four eastern provinces. It will remain in place until $US54.8 million has been collected, which is the equivalent of $C68.26 million at the time of the ruling. Canada challenges the U.S.-imposed duty, and asks the LCIA for further clarification on the case.

SEPTEMBER 2009 — The LCIA rules that Canada’s offer to pay the U.S. government $C46.7 million did not cure its breach of the Softwood Lumber Agreement.  Canada can either collect its own 10% tax on shipments from the affected provinces or allow the U.S. to keep collecting the additional 10% tax.

2010

APRIL 2010 — For the first time since the Softwood Lumber Agreement went into effect in October 2006, the tax rate that Canadians pay on lumber shipments to the U.S. will drop in May. When the monthly average of the Random Lengths Framing Lumber Composite Price is $315 or less, the highest tax levels are assessed. The average for the four weeks that determine the May tax rate is $325. For B.C. and Alberta, the tax rate falls from 15% to 10%. Shippers in Quebec, Ontario, Manitoba, and Saskatchewan see tax rates drop from 15% to 13%.

MAY 2010 — The rally in lumber prices jumps the Random Lengths Framing Lumber Composite Price to a high enough level to rescind the tax and quotas for June. This gives an advantage to western mills, because eastern provinces will still have to pay the 10% penalty tax for not properly calculating their quotas during the first six months of 2007. The four weeks of the FLCP used to determine the June tax rate (April 16-May 7) averaged $361, the highest since the SLA’s inception.

JUNE 2010 — Canadian softwood lumber shipments to the U.S. during June totaled 971 million board feet, up from 690 mmbf in May and the largest shipping month so far of the year. Canadian producers were exempt from export taxes and quotas for the month because of an earlier surge in lumber prices that triggered the first monthly exemption since the SLA took effect in 2006. Eastern provinces still had to pay the 10% penalty tax for not properly calculating their quotas during the first six months of 2007.

SEPTEMBER 2010 — U.S. trade officials mull whether to launch formal consultations with Canada regarding timber pricing practices in British Columbia. Sen. Max Baucus, D-Mont., wrote U.S. Trade Representative Ron Kirk that “the provincial government of British Columbia is selling government-owned timber used for softwood lumber production at fire sale stumpage prices.” U.S. and Canadian trade officials have met about this issue, but the U.S. has yet to seek formal consultations under provisions of the SLA.

OCTOBER 2010 — U.S. Trade Representative Ron Kirk announces that the U.S. is requesting consultations with Canada regarding “the apparent unfair under-pricing of timber harvested from public lands in the Interior region of British Columbia.” If the two countries cannot resolve this dispute within 40 days, the U.S. can seeking a binding decision from the London Court of International Arbitration. If the U.S. takes this case before the LCIA, it will be the third time under the SLA.

NOVEMBER 2010 — It appears that the U.S. and Canada will be headed to arbitration for the third time under the SLA after no apparent settlement is reached after the 40-day consultation period between the two countries. The U.S. is allowed to seek a binding decision from the LCIA anytime after November 17, but had yet to seek such a decision by the end of the year.

2011

JANUARY 2011 — Consultations in an effort to settle longstanding differences between the U.S. and Canada regarding the B.C. stumpage system prove futile, and U.S. officials announce they are taking the case to the London Court of International Arbitration. The crux of the issue involves U.S. officials’ contention that B.C. is incorrectly assigning public timber to salvage grade 4, and then selling it to lumber producers at a fixed rate of 25 cents per cubic meter in violation of the SLA. B.C. officials contend that they have not violated the SLA, and that the province’s practices and procedures involving timber sales were grandfathered into the SLA. In a separate case under the LCIA that was filed in 2008, the arbitration panel rules that Quebec and Ontario implemented certain programs that violated the SLA, and additional export charges of 2.6% and 0.1% for Quebec and Ontario, respectively, would bring them into compliance.

JULY 2011 — The 10% penalty tax paid by Eastern Canadian lumber producers on exports to the U.S. expires on July 1. Producers in the four eastern provinces covered under the SLA have been paying the tax since April 2009 to cover a $C68.26 million penalty imposed by the LCIA. The court ruled that Canada did not properly calculate quotas for those provinces during the first six months of 2007.

NOVEMBER 2011 — The expiration of the 2006 Softwood Lumber Agreement is still two years away, but preliminary discussions are under way between U.S. and Canadian officials to extend the agreement for two years. The original seven-year agreement expires in October 2013, but negotiated into the deal was the possibility of extending it to October 2015. Meanwhile, Canada submits its defense in the $C500 million case filed by the U.S. alleging that Canada violated the SLA through its timber pricing policy in the B.C. Interior. Canada’s 207-page defense chiefly revolves around the impact of the mountain pine beetle infestation. A hearing before the LCIA is scheduled for February 2012.

2012

JANUARY 2012 — Even though the Softwood Lumber Agreement hasn’t been without its challenges, U.S. and Canadian government officials were apparently happy enough with it that they agreed to extend its expiration until October 2015. The original deal was a seven-year pact, but featured a two-year extension if both sides agreed.

FEBRUARY 2012 — The U.S., acting on new information and adjustments to previous calculations, lowers its alleged subsidy that it says sawmills in the B.C. Interior received from the mispricing of sawtimber in violation of the SLA. The adjustments reduce the alleged subsidy from $C499 million to $C303.6 million. The U.S. is asking the LCIA to remedy the alleged breach of the SLA by imposing an additional export charge of 8.2% on exports from the B.C. Interior, until $C303.6 million has been collected.

MAY 2012 — For only the fourth time since the SLA was signed in 2006, the monthly tax rates on Canadian lumber shipments to the U.S. will be reduced. Because the four-week average of the Random Lengths Framing Lumber Composite Price from April 20-May 11 was $321, the tax on shipments from B.C. and Alberta will be reduced from 15% to 10%, beginning June 1. The tax on eastern provinces will drop from 5% to 3%.

JUNE 2012 — The run-up in framing lumber prices results in Canadians paying an even smaller tax on their shipments to the U.S. during July. The FLCP four-week average was $343 in the applicable weeks, which reduces the tax from B.C. and Alberta to 5% in July. The tax on eastern provinces falls to 2.5%.

JULY 2012 — The London Court of International Arbitration rules that B.C.’s timber-pricing system did not violate the SLA, so no additional charges will be added to the export taxes paid by producers in that province. Details of the ruling have not yet been released. All LCIA decisions are final, and cannot be appealed. In another development, the amount of tax Canadians will pay in August on lumber shipments to the U.S. will rise, but not to the highest levels allowed under the SLA. The FLCP four-week average was $323 in the applicable weeks, which means the tax on shipments from B.C. and Alberta rises from 5% to 10%, and the tax on eastern provinces rises from 2.5% to 3%.

AUGUST 2012— The LCIA releases a 132-page document, detailing its ruling on the B.C. stumpage pricing case. In explaining its ruling on each of the U.S. allegations, the LCIA either ruled that it could not find a direct link between any action by the Canadian or B.C. government to a violation of the SLA, or that a policy was grandfathered into the SLA, and therefore not a violation.

DECEMBER 2012 — Rising levels of the Random Lengths FLCP have resulted in lower taxes on shipments from Canada to the U.S. and an increase in those shipments. According to figures tracked by Foreign Affairs and International Trade Canada, daily shipments tend to spike toward or above 40 million board feet when the tax on Western Canadian shipments falls to 0-5% (and to 0-2.5% for eastern provinces). The tax goes to zero when the four-week average of the FLCP is higher than $355. Daily shipments tend to range from 32-35 million feet when the composite is around $250, and climbs into the upper 30s when the composite tops $300. For the second time since the Softwood Lumber Agreement was signed in 2006, Canadians will be allowed to ship tax-free to the U.S. in January.

2013

JANUARY 2013 — More than six years after the SLA went into effect, traders have seen both extremes of the accord’s tax structure. When it comes to the architects of the agreement — the governments from both countries — there is clear agreement. Government officials from both sides agreed to extend the SLA until October 2015, well ahead of its original expiration. When it comes to traders who are directly affected by the SLA, opinions are mixed.

MARCH 2013 — Less than a year after winning an arbitration case involving its timber policies, British Columbia has again drawn the ire of the U.S. Lumber Coalition. As part of its 10-year forest inventory plan, B.C. announced changes to its log export policy. The Coalition contends that log export restrictions insulate B.C. lumber mills from world market prices for logs, and allow them to pay below-market prices. The Coalition believes the policy change could be in violation of the SLA, and has raised the issue with U.S. government officials.

JUNE 2013 — By the slimmest of margins, Canadians will still be able to ship lumber to the U.S. tax-free in July. According to terms of the SLA, there is no tax or volume quota in place if the four-week average of the Random Lengths Framing Lumber Composite Price is higher than $355. For the period that determines the July tax, the average was $356. Canadians have been able to ship to the U.S. tax-free from all provinces since December 2012.

JULY 2013 — In August, Canadian softwood lumber producers will be subject to taxes on exports to the U.S. for the first time since last December. Western provinces will pay a 10% tax during the month, while Ontario and Quebec exporters will pay a 3% charge and will be subject to volume restrictions as prescribed by the SLA. The export taxes will be in effect as a result of lumber prices falling through much of the second quarter.

AUGUST 2013 — Framing lumber prices have rebounded from their second-quarter collapse, but not enough to eliminate the tax on Canadian exports to the U.S. in September. During the month, exports from western provinces will be assessed a 5% tax, while suppliers from eastern provinces will face a 2.5% tax, plus quota restrictions.

OCTOBER 2013 — Canadian producers will once again enjoy tax-free shipping to the U.S. in November, ending a three-month string when taxes were required. Lumber price gains pushed well past the threshold required under the SLA to achieve zero-tax status. A review of Canadian shipments to the U.S. shows that average daily shipments have ranged from 31-39 million board feet in months in which a tax of 10% or 15% has been in effect. In months in which the western province tax was either 5% or zero, average daily shipments have ranged from 40-49 mmbf.

DECEMBER 2013 — For the 10th time in the last 13 months, Canadians will pay zero taxes and face no quota restrictions on softwood lumber shipments to the U.S. in January. The applicable four-week average of the Random Lengths Framing Lumber Composite Price to determine the January tax was $396. Any average higher than $355 results in zero taxes for the month.

2014

APRIL 2014 — Canadian lumber mills have enjoyed a zero base tax on shipments to the U.S. since last November, and for the first time since 2011 eastern provinces will not pay a penalty tax either. The London Court of International Arbitration assessed a 2.6% tax on producers in Quebec and a 0.1% tax on Ontario mills in 2011 when it ruled the provinces provided illegal subsidies to producers. The LCIA expected $59 million to be collected in penalty taxes by the time the SLA was originally scheduled to expire in October 2013. Even though only about $20 million was actually collected by that time, the LCIA ruled late last month that the penalty taxes should have ended in October 2013, and all taxes collected since then would be returned.

MAY 2014 — For an unprecedented eighth straight month, Canada will not have a base tax on lumber shipments to the U.S. The applicable four-week average of the Random Lengths Framing Lumber Composite Price to determine the June tax rate was $368. The last time Canadians were required to pay the base tax was in October 2013, which is the longest tax-free stretch since the Softwood Lumber Agreement was signed in October 2006.

SEPTEMBER 2014 — The U.S. Lumber Coalition tells attendees at an industry meeting in Portland, Ore., that the group is opposed to the Softwood Lumber Agreement being extended in its current form. The Coalition cites shifting cost factors and a lack of confidence that the current agreement can be enforced equitably as the reasons for its objections.The group urges both countries to begin negotiations on a new deal.

OCTOBER 2014 — With one year to go before the expiration of the Softwood Lumber Agreement, the string of zero-tax months for Canadian lumber shipments to the U.S. hits 13 months. It is the longest current zero-tax streak, and is the 20th month out of the last 23 with no taxes.

2015

FEBRUARY 2015 — The expiration of the Softwood Lumber Agreement is still eight months away, but chatter has already begun about whether a new agreement can be reached, and if so, when. Most Canadians are in favor of re-signing the current agreement with few, if any, alterations. The U.S. Lumber Coalition, which represents much of the U.S. industry, says rubber-stamping the current SLA is a nonstarter. If the SLA expires in October without a new agreement in place, no trade cases can be filed for at least a year.

APRIL 2015 — By the slimmest possible margin, Canadians will retain the same tax levels in May as they are currently paying in April. Shippers in B.C. and Alberta will pay a 5% tax on lumber shipments to the U.S., while those in Quebec, Ontario, Manitoba, and Saskatchewan will pay 2.5% plus face quota restrictions.

MAY 2015 — For the first time since August 2013, the tax under the Softwood Lumber Agreement hit 10% for Western Canadians. Since the inception of the SLA, the monthly tax level has been at 10% or 15% for 73 months out of a total 104. However, Canadian exporters to the U.S. have operated under a zero tax in 24 of the 29 months since January 2013.

JUNE 2015 — With the SLA set to expire in October after nine years, it doesn’t appear serious negotiations between Canada and the U.S. are underway to sign a replacement agreement. A section of the SLA stipulates that after it expires on October 12, no lumber trade cases can be filed for at least one year. Many Canadians have said they would be amenable to renewing the SLA in its current form. The U.S. Lumber Coalition, which represents much of the U.S. industry, is against rubber-stamping the SLA. In other SLA news, producers and secondary suppliers in Saskatchewan report a “race to the border” amid a squeeze in quota. Suppliers say they expect to hit their cap on quota in mid-June, at which time shipping to the U.S. will come to a halt.

JULY 2015 — Traders widely expect Western Canadian producers to resume shipping to the U.S. in earnest in August, when the SLA tax falls to 5% from 15% in July. But there’s another driver making the U.S. market look more attractive to Canadian producers in August: currency exchange. The Canadian dollar per one U.S. dollar recently rose to $C1.30, after having hovered in a $C1.21-1.26 range through much of the year to date. Since trading near par in early 2013, the loonie per one greenback has been on a steady climb.

AUGUST 2015 — With the expiration of the Softwood Lumber Agreement only two months away, it appears unlikely that negotiations toward a new agreement will happen in the short term. There are no signs any serious negotiations are currently taking place, and it’s unlikely any negotiations will happen until after Canada’s federal election, scheduled for October 19.

SEPTEMBER 2015 — Speculation about a possible extension of the SLA makes the rounds in lumber markets, but no credible sources have indicated that either side is angling toward that end. Canadian sources report there have been informal discussions regarding a path forward, but goals and expectations widely differ among producers within the various provinces. The current agreement calls for a one-year standstill in which no litigation may be filed after expiration.

OCTOBER 2015 — The nine-year Softwood Lumber Agreement expires on October 12, and Canadians no longer face taxes or quota restrictions on lumber shipments to the U.S. Many traders anticipated that lumber prices would weaken upon the SLA’s expiration, but markets rally instead. Many buyers stayed out of the market in early October, and the need to buy jolted the market into action in mid-October. In regard to trade negotiations, some traders wonder if the trend toward Canadian ownership in the U.S. will carry any weight in discussions. The U.S. Lumber Coalition is emphatic that its legal standing to petition the U.S. Commerce Department to file a new case is secure, despite the fact that Canadian ownership of U.S. sawmills is now up to about 40. Canada elects a new prime minister as Justin Trudeau unseats Stephen Harper.

NOVEMBER 2015 — As U.S. officials prepare for the Thanksgiving break, little has happened in the softwood lumber file as Justin Trudeau begins his reign as prime minister of Canada. No official negotiations toward a new softwood lumber accord have been scheduled. Some in Western Canada reiterate their desire for an agreement similar to the previous SLA, while Quebec pushes its case for exemption from further lumber taxes and/or quotas. The U.S. Lumber Coalition believes the 2006 SLA is outdated due to the evolution of global timber and lumber markets, and would like to see a revised agreement.

2016

FEBRUARY 2016 — Canadian Prime Minister Justin Trudeau is scheduled to visit the White House in March. Softwood lumber is scheduled to be part of the agenda during the visit. Several factors may be on the table when official talks begin toward a new SLA. Currency exchange rates could be included as part of the discussions, as well as potential caps on imports, changes to the previous tax structure, protection against import surges, and other factors.

MARCH 2016 — Optimism for the U.S. and Canada negotiating a new Softwood Lumber Agreement gained steam when Canadian Prime Minister Justin Trudeau visited the White House March 10. Trudeau and President Obama instructed trade officials from both countries to explore all options for solving the trade dispute, and report back within 100 days. Neither side can file a new trade case until October. So trade officials have plenty to do in working through what Canada’s international trade minister called “the fiendish complexity” of the softwood lumber issue.

MAY 2016 — Negotiators from the U.S. and Canada met in Ottawa May 26, and it appears that talks toward reaching a new accord between the countries are still in the preliminary stages. The leaders of both countries were hoping to see progress on the softwood lumber dispute before they met in Ottawa June 29 for the so-called Three Amigos Summit that includes Mexico’s president.  Spokespersons from each country issued statements that made it clear that progress has been difficult to this point.

JULY 2016 — In a joint statement issued by President Obama and Prime Minister Trudeau following a meeting in Ottawa in late June, softwood lumber talks between the countries are termed “challenging but productive.” Although they agree that significant differences remain regarding parameters of a new SLA, negotiators are not at an impasse. “Our dialogue will continue and, building on the progress achieved to date, our ministers will maintain an intensive pace of engagement with a view to achieving a mutually acceptable agreement this fall.”

AUGUST 2016 — With two months to go before the one-year standstill period expires in October, most lumber traders in the U.S. and Canada are bracing for the two countries to head back to court in the longstanding dispute. The last time the U.S. filed a case seeking countervailing and anti-dumping duties against Canadian lumber imports was in April 2001. Canada’s chief negotiator, speaking before a parliamentary committee, acknowledged that reaching a deal by mid-October would be a challenge. “Although discussions have been constructive and have led to a better understanding of each party’s positions and concerns, Canada and the U.S. — I have to be honest — we do remain far apart on several key issues,” said Martin Moen. “Nonetheless, Canadian stakeholders continue to tell us very clearly that no deal is better than a bad deal.”

Saturday, March 25, 2017

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