Developments with Softwood Lumber Agreement

Fast on the heels of a London Court of Arbitration (LCIA) ruling this week on a penalty charged to Ontario and Quebec softwood lumber exporters to the US is an item Thursday in the Globe and Mail featuring a statement by the Conseil dè l’industrie forestiere du Québec (QFIC).

2006 Softwood Lumber Agreement

In an open letter to certain media outlets, the lobby group representing Quebec’s forestry companies said Thursday the Canadian government has failed to respond to repeated requests it live up to the spirit of the 2006 Softwood Lumber Agreement by pushing the United States to agree to a bilateral review of the province’s stumpage system.
The Conseil argues that, since Quebec “revised radically” its stumpage system last year, the province’s system is more market-oriented than what exists in the Atlantic and yet the latter are excluded from export taxes and other restrictions but not Quebec.
A provision of the lumber agreement provides for the provinces to have their stumpage systems examined if they are shown to be “market-determined” and can satisfy the US that sawmills are not benefiting from illegal subsidies.
In response the QFIC, Foreign Affairs and International Trade Canada (FAITC) released a statement saying, “The Softwood Lumber Agreement continues to enjoy strong support from industry and all provincial governments for the stability and predictability it provides. At current market prices, all Canadian exports of softwood lumber have duty free and quota free access to the US market as a result of the agreement.
“The 2006 Softwood Lumber Agreement is set to expire in October of 2015 and the federal government wants to extend it beyond that for another five years or more,” said FAITC, according to the Globe and Mail.
Elsewhere this week, in response to an LCIA ruling on penalties collected under an SLA ruling in January 2011, Canada’s Trade Minister, Ed Fast, said in a news release Wednesday that Ottawa will now cease collecting export charges from Quebec and Ontario producers and refund any that were collected after October 2013.
The levies were applied as a result of a ruling that assistance provided to the troubled forest industry by those two provincial governments constituted subsidies and thus violated the softwood lumber agreement.
At the time, the LCIA found that Quebec and Ontario had provided new subsidies to softwood lumber producers in breach of the SLA. The LCIA tribunal determined that additional export taxes on lumber shipments from those provinces to the US were necessary to compensate US industry for these violations.
The Tribunal expected these export taxes to amount to $59 million by the then-scheduled expiration date of the SLA in October 2013. However, as of mid-2013, less than $20 million had actually been collected, according to a release by the US Lumber Coalition Thursday.
It is puzzling to Madison’s that the forest industry in Quebec would need to petition the federal government, and outrageous that there has been no response — according to the QFIC — when there is a mechanism in the SLA to address such regional issues.
According to Article XII of the Agreement, the Canadian and US governments were supposed to establish a Working Group on Regional Exemptions within three months of signing the SLA. This Working Group, one of several mentioned in the Agreement, was meant to “develop substantive criteria and procedures for establishing if and when a Region uses market-determined timber pricing and forest management systems” so its exports of Softwood Lumber Products to the United States qualify for exemption from the Export Measures.
“The Parties shall make best efforts to incorporate the results of the Working Group’s work into an addendum to the SLA 2006 within 18 months after the Effective Date,” states the SLA.
In its October 12, 2006 announcement of the signing of the SLA, the US Commerce Department website mentions the Committee to Oversee Future Implementation of the agreement, which includes supervising working groups that are established to address specific issues. One working group will also develop substantive criteria and procedures for establishing whether a region in Canada uses market-determined timber pricing and forest management systems, which could exempt that region’s softwood lumber from the agreement’s export measures. The Commerce Department will play a significant role in the Softwood Lumber Committee and the working groups, says the website.
Madison’s couldn’t find a single reference on all of the internet to any work or meetings at all by the Working Group on Regional Exemptions to the present.
Anecdotal evidence suggests that this Working Group was never formed.
In it’s own statement released Wednesday, the US Lumber Coalition said it believes that any new trade agreement with Canada governing softwood lumber trade should provide for more automatic adjustments to export measures that reflect, using objective and results-based measures, the benefits that Canadian lumber producers receive from government timber pricing systems and other subsidies. This would allow for adjustments to offset any increased benefits without resort to arbitration, while offering Canadian provinces incentives to adopt verifiable improvements in market pricing for timber, says the US Lumber Coalition.
The 2006 Softwood Lumber Agreement was initially set to expire in October 2013. Quebec has always wanted to talk about exit ramps for provinces making changes to its stumpage rates, and embarked in earnest on a market system for timber in April 2013. Now both countries have agreed to extend the current agreement until October 2015.
If Canada’s foreign affairs department really wants to “extend it beyond that for another five years or more” as FAITC is quoted in the Globe and Mail, then it seems the full intent of the initial agreement should be put into play first.
Mechanisms which exist in the current agreement to address regional concerns, such as those brought up by Quebec, are not being used. It seems premature, at best, to talk about renewing the agreement as long as this omission exists.
Mid-Friday Tembec, out of Montreal, QC, released a statement reiterating support for the SLA. The statement reads, in part:
Recent media reports have made broad generalizations about the views of the Quebec forestry industry, we would like to correct the record.
As recently as this week, the Softwood Lumber Agreement again proved its effectiveness in supporting the interests of the Quebec and Ontario forestry industry. On March 26, 2014, a Softwood Lumber Agreement Tribunal ruled in favor of Canada, resolving an ongoing dispute with the United States over when a 2011 award issued by the same Tribunal is satisfied. This demonstrates Canada’s close relationship with the United States and its ability to efficiently resolve matters related to the Softwood Lumber Agreement. The embedded process in the Softwood Lumber Agreement to resolve issues as they arise between the two countries will ensure an enduring agreement.
Tembec is pleased with the ruling and appreciates the Government of Canada defending the interests of the softwood lumber industry and for its recognition of the vital economic importance this agreement has for all regions across Canada.