Global Softwood Lumber Trade Complications

Global Softwood Lumber Trade Complications

The biggest issue by far for Canada’s forest products industry as 2019 comes to a close is: complications to global trade.
There are two major unknowns right now; one in each of the political arenas Canada uses to battle the never-ending disputes with the United States over softwood lumber duties.

BC Coast Log Prices vs Lumber Prices: Douglas Fir Gang logs and Douglas Fir 2x4s December 2019
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At the World Trade Organization, where Canada is right now in hearings, a dearth of judges threatens to stall all dispute resolution cases. Due to a refusal by member states to approve new appointees, two of the remaining three judges are facing retirement in December 2019. This circumstance is unprecedented, so it is currently unknown what will happen in January. Even an extension of the tenure for these two judges is a temporary band-aid solution at best. It could, however, provide enough time for Canada to complete this current softwood lumber tribunal process.

The other legal arena for Canada-US softwood lumber disputes is NAFTA. There is now a new North American free trade agreement, the CUSMA if you’re Canadian or the USMCA if you’re American. Details such as dispute-resolution will be forthcoming, in January apparently. However Madison’s noticed a troubling reference in some of the early examinations, regarding Chapter 11 of NAFTA.

NAFTA’s Chapter 11, giving investors a special way to fight government decisions, is (mostly) gone.

Madison's Weekly Movers & Shakers Softwood Lumber and Panel Prices Chart DEC 19
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Formally termed “investor–state dispute settlement” (ISDS), investment disputes can be resolved only in Canadian or US courts, or through state-to-state diplomatic proceedings. These alternatives are neither fast nor impartial; and veteran forestry players will remember before 1982 when there was no impartial or international arena to resolve lumber disputes, and court cases were being carried out within individual US states or federally in Canada. These authorities had no real power to impose their decisions.

Robust ISDS was a triumph of the original NAFTA.

Madison's Historical Softwood Dimension Lumber Price Comparison Table DEC 2019
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Under USMCA’s Chapter 14, which would replace NAFTA’s Chapter 11, future investor-state arbitration between US and Canadian parties would not exist under the new free trade agreement. US investors in Canada with grievances would have fewer options, and may be forced to bring their claims in Canadian courts.

Madison’s will have more details early next year, as they are released.

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