Author: Naomi Christensen
The Softwood Lumber Agreement (SLA) between Canada and the United States will expire on Oct. 12, 2015. In an ideal world, Canada and the United States would have free trade in softwood lumber. However, as Canadians know, the softwood world has not been perfect for many years. Rather, it has been characterized by fierce trade disputes, protracted negotiations and, ultimately, softwood lumber agreements designed to bring temporary stability to the file.
Much has changed over the nine years that the latest SLA has been in place. Canadian timber supply is decreasing and poses less of a market threat to U.S. producers. Prices have been high enough that, until very recently, we were operating outside of the agreement (as though we had free trade). With more housing starts in the U.S., our southern neighbour needs to import our softwood lumber to meet demand. And, the focus of the U.S. Administration is on other trade issues, like negotiating multi-nation trade agreements.
All of this means that the United States has little economic, market-share or political incentive to instigate trade action. Yet, Canadians who have been through drawn-out softwood battles with the U.S. are wary. After all, both history and President Barack Obama’s refusal to approve the Keystone XL pipeline illustrate plainly that trade irritants can burn bright or flare up in a hurry.
If, for example, the U.S. economy struggles or the value of the Canadian dollar continues to fall against the U.S. dollar, protectionist elements in the U.S. could reignite the desire to restrict entry of Canadian softwood lumber. The Canadian government and industry both want another SLA to bring a measure of certainty to the industry. This is understandable.
However, since it is highly unlikely that another SLA will be reached, it is time for Canada to adopt a new trade strategy for softwood lumber. It would be prudent for Canada to take a dual approach to protect its forest sector and insulate itself against the risk of future trade disputes with the United States. The prongs of this strategy should be:
1) Refocus on market diversification, beyond China
As growth in China slows and the U.S. recovers, Canada is susceptible to once again becoming overly reliant on one customer. Efforts to break into new markets are necessary to prevent this from occurring. Canada’s competitors are already targeting countries like Vietnam, Thailand and Indonesia, where demand for imported softwood is on the rise; there is little knowledge about Canadian products in the region. Mexico is accessible to western Canada and relies on imports to meet domestic softwood demand.
2) Improve value in trade with the U.S.
The U.S. has always been, and will continue to be, an important market for Canadian softwood lumber. There are actions Canada can take to improve the value of our trade with the U.S. and mitigate future trade disputes. These include actions within the U.S. market like seeking new value-added product markets and continuing to promote the Canadian brand, as well as bi-national cooperation such as advancing joint Canada-U.S. initiatives to grow the global softwood lumber market