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:
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.
2010 dates used to determine the monthly trigger price
To determine the monthly tax rate under the Softwood Lumber Agreement, the most recent four-week average of the Random Lengths Framing Lumber Composite Price that is available 21 days before the beginning of the month is used. For the rest of 2010, here are the dates that will be used to determine the monthly trigger price:
June: April 16-May 7 July: May 14-June 4 August: June 18-July 9 September: July 16-August 6 October: August 20-September 10 November: September 17-October 8 December: October 15-November 5.
These dates are based on the projections of Random Lengths, and could be challenged by either government.
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.
Pete Malliris
Associate Editor,
Editor, RL International
News and reporting assignments, contact information, and more on the new RL Staff page
U.S.-Canada Trade Dispute
