Contents

• Introduction
• Background
• Stakeholders in the U.S.-Canada Softwood Lumber Dispute
• U.S. Softwood Lumber Consumption
• Alleged Subsidies to Canadian Lumber Producers
• Different Land Ownership and Management Regimes
• Different Fee Systems
• History of the Dispute
• The 2006 Softwood Lumber Agreement
• Canadian Provinces Covered by the SLA
• Initiatives Funded by the 2006 SLA
• The 2008 Softwood Lumber Act
• Analysis of the 2006 Softwood Lumber Agreement
• Protecting U.S. Lumber Producers
• Stabilizing the Lumber Market
• Dispute Resolution
• Opposition to the 2006 SLA
• Issues for Negotiation
• Log Export Restrictions
• Quebec Reforms
Lumber IV and the 2006 Softwood Lumber Agreement
• Lumber V
• Litigation
• Issues for Congress
• Summary and Conclusion

Summary

Softwood lumber imports from Canada have been ofa persistent concern to Congress for many years. Under the Constitution, Congress has the power to regulate interstate commerce and exercises authority over trade relations with foreign nations. Lumberfor Congress for decades. Canada is an important trading partner for the United States, but lumber production is a significant industry in many states, and. U.S. lumber producers are concernedclaim they are at an unfair competitive disadvantage in the domestic market against Canadian lumber producers because of Canada's timber pricing policies. This has resulted in fourfive major disputes (so-called "lumber wars") between the United States and Canada since the 1980s. The last major dispute was resolved The current dispute (Lumber V) started when the 2006 Softwood Lumber Agreement (SLA) was signed. Under theexpired on October 12, 2015. Under that agreement, Canadian softwood lumber shipped to the United States was subject to export charges and quota limitations when the price of U.S. softwood products fell below a certain level. That agreement expired on October 12, 2015, and both countries are prohibited from filing for trade protections until October 12, 2016.

Tension between the United States and Canada over softwood lumber tradingAfter a year-long grace period, a coalition of U.S. lumber producers filed trade remedy petitions on November 25, 2016, which claim that Canadian firms dump lumber in the U.S. market and that Canadian provincial forestry policies subsidize Canadian lumber production. These petitions subsequently were accepted by the two agencies that administer the trade remedy process: the International Trade Commission (ITC) and the International Trade Administration (ITA). In a preliminary determination on April 24, 2017, the ITA determined that the Canadian industry was subsidized and then imposed preliminary countervailing duties upward of 20% on Canadian lumber. Final determinations are due by September. Tension between the United States and Canada over the softwood lumber trade has been persistent and may be inevitable. Both countries have extensive forest resources, but they have quite different population levels and development pressures. Vast stretches of Canada are still largely undeveloped, whilewhereas relatively fewer areas in the United States (outside Alaska) remain undeveloped. These differences have ledcontributed to different forest management policies.

For decades, U.S. lumber producers have argued that they have been injured by subsidies given to their Canadian competitors in the form of lost market share and lost revenue. In the United States, the majority of the timberlands are privately owned and prices are determined by competitive bidding in an open market. In Canada, the majority of the timberlands are ; private markets dominate the allocation and pricing of timber, although federally owned forests are regionally significant. In Canada, forests are largely owned by the provincial governments and leased to private firms. The provinces administratively setestablish the price of timber through a stumpage fee, a per unit volume fee charged for the right to harvest trees. Some assert U.S. lumber producers argue that the stumpage fees charged by the Canadian provinces are subsidized, or priced at less than their market value, providing an unfair competitive advantage in supplying the U.S. lumber market. The Canadian provinces and lumber producers dispute the subsidy allegations. Directly comparing Canadian and U.S. lumber prices is difficult and often inconclusive, however, due to major differences in tree species, sizes, and grades; measurement systems; requirements for harvesters; environmental protection; and other factors.

The softwood lumber trade

With the expiration of the SLA and the pending expiration of the one-year period before trade protections may be filed, the softwood lumber trade relationship between the United States and Canada may be of interest to Congress. On March 10, 2016, President Obama and Prime Minister Trudeau charged their trade representatives with identifying the key features necessary to address the dispute within 100 days (by June 18, 2016). The U.S. lumber industry is in favor of applying quotas on Canadian imports, among other potential measures. U.S. lumber consumers, however, would prefer the free trade of softwood lumber, although consumers do not have standing under U.S. trade laws. Congress may consider legislation or provide oversight on these issues.

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Introduction

Softwood lumber imports from Canada have been of concern to Congress for many years. Lumber production is a significant industry in many states. Canada is an important trading partner, and the U.S. lumber producers are a powerful economic influence. This has resulted in four major disputes (so-called "lumber wars") between the United States and Canada since the 1980s, with the U.S. industry filing for various trade protection measures and both countries taking their issues to various dispute settlement venues.¹ The last major dispute was resolved when the 2006 Softwood Lumber Agreement (SLA) was signed. The SLA applied export charges or quota limitations on Canadian softwood lumber shipped to the United States whenever the price of U.S. softwood lumber products was below a specified level.

The SLA expired on October 12, 2015, without any formal negotiations between the counties taking place. Under the terms of the agreement, neither country may file claims until October 2016, which effectively provides another year for negotiations. On March 10, 2016, President Obama and Prime Minister Trudeau announced the start of discussions to "explore all options" regarding the dispute, charging their trade representatives with reporting back within 100 days (before June 18, 2016).² In addition, the negotiation goals of many of the stakeholders may have shifted due to recent events. The U.S. lumber industry identified perceived flaws in the SLA arbitration process and was in favor of letting the agreement expire. The Canadian government and Canadian lumber producers have generally supported free trade but have been amendable to trade agreements that ensure access to the U.S. market.

Tension between the United States and Canada over softwood lumber trade has been persistent. Both countries have extensive forest resources, but quite different population levels and development pressures. Vast stretches of Canada are still largely undeveloped, while fewer areas in the United States (outside Alaska) remain undeveloped. These different situations have led in part to different forest policies. In Canada, the forests are largely owned by the provincial governments, which have allocated and priced timber to encourage the development of the extensive timber reserves. In the United States, the majority of timberlands are privately owned; private markets dominate the allocation and pricing of timber, although U.S. federal and other government-owned forests are regionally important. U.S. lumber producers view the Canadian policies as more favorable for timber production, and thus as an unfair competitive advantage in supplying the U.S. lumber market, especially when the market is weak. However, since the U.S. and Canadian governments influence timber production in different ways (because of different histories, purposes, and situations), comparing the relative competitiveness of U.S. and Canadian lumber producers is difficult, at best.

Under the Constitution, Congress has the power to regulate interstate commerce and trade relations with foreign nations. At issue for Congress is whether it desires to see the SLA continued, amended, or abandoned upon its expiration. This report examines the status and current issues surrounding Canadian softwood lumber imports since 2006. After providing background information on what constitutes softwood lumber, the stakeholders in the dispute, and the history of the dispute, the report introduces the 2006 SLA and analyzes its impacts on the U.S. lumber industry as well as on the trade relationship between the United States and Canada. Finally, the report discusses the potential issues Congress may consider with the expiration of the agreementis of interest to Congress due to the controversy between Canadian and U.S. lumber producers and the larger implications it might have on trade between the two countries. The potential renegotiation of the North American Free Trade Agreement (NAFTA) may provide Congress an opportunity to weigh in on this issue, given its constitutional authority over trade policy, as well as authority granted under the 2015 Trade Promotion Authority (TPA). Congress may consider legislation or conduct oversight on these issues. Softwood Lumber Imports from Canada: Current Issues Since the 1980s, there have been five major disputes (so-called lumber wars) between the United States and Canada, interspersed by three different trade agreements.¹ The latest dispute, Lumber V, started after the expiration of the 2006 Softwood Lumber Agreement (SLA) in October 2015.² The U.S. lumber industry petitioned for trade protections shortly thereafter. This report provides background information on the dispute, summarizes the key issues leading to the tensions between the United States and Canada over softwood lumber, and examines current developments in Lumber V.

Background

Softwood lumber, for purposes of this report, is lumber produced from conifer trees. The definition of the term had been an issue leading up to the signing of the 2006 agreement and is discussed more thoroughly in the Appendix. The SLA definition is based on twofour tariff items under the Harmonized Tariff Schedule of the United States (HTSUS) and includes essentially all traditional softwood lumber items intended for residential construction.³ Because softwood lumber is primarily used for residential construction, repair, and remodeling, the demand for softwood lumber is a secondary demand, derived substantially from the demand for new or remodeled houses and other buildings.⁴

Both the U.S. and Canadian softwood lumber industries are largely driven by the U.S. housing market in general and the new construction or remodeling market specifically. In the early to mid-2000s, the U.S. and Canadian softwood lumber industries enjoyed a period of prosperity as the residential real estate market boomed. However, the softwood lumber industry began to struggle when the real estate market began to crash in 2007. For example, from 2005 to 2009 the number of new home construction starts declined by 74%.⁵ Over that same period, the use of softwood lumber in the United States decreased by 41%.⁶ Further, the number of sawmills (used to process lumber) decreased by 17%, sawmill capacity decreased by 11%, and sawmill production decreased by nearly 30%.⁷ Since 2010, the U.S. housing and softwood lumber markets have made a modest recovery. New home construction starts have increased annually.⁸ U.S. consumption of softwood lumber has increased annually since 2009, although it remains well below the rates of the early 2000s and at levels not seen since the early 1980s1990s.⁹

As a secondary demand, softwood lumber is largely price-inelastic. This means that modest changes in construction demand cause relatively large changes in lumber prices, but the price of lumber does not affect the supply or demand of lumber, or, debatably, the price of construction. For example, wood products are arguably a relatively generally a minor component of construction costs. While some claim that wood products represent up to 15% of construction costs,¹⁰ using the 2014 average framing lumber composite price of $383 per thousand board feet (MBF),¹¹ framing lumber in an average (2,690-square foot) new home would cost $7,512—3% of the 2014 median price of a new home.¹² In contrast, the price of lumber dropped significantly as a result of the housing market crash. In 2009, the price of lumber fell below $200 MBF for several months, for the first time since the 1980s (see Figure 1). Although prices have begun to rise, when adjusted for inflationSince the expiration of the 2006 SLA, lumber prices have risen steadily, and they were above $400 MBF for both March and April 2017. When adjusted for inflation, however, the price of lumber remains relatively low, hovering belowcomparable to the prices of the late 1970searly 2000s but below prices seen in the 1970s, 1980s, and 1990s in real terms.

Stakeholders in the U.S.-Canada Softwood Lumber Dispute

In the United States, the major stakeholders in the dispute include timber producers (forest land owners), lumber producers, and lumber consumers (homebuilders and home buyers). Timber producers are included with lumber producers, since many lumber producers also own significant tracts of forest land. In Canada, the major stakeholders include the Canadian lumber producers and the provincial governments, as the timber landtimberland owners.¹³

The U.S. lumber producers support trade restrictions on Canadian imports.¹⁴ In contrast, U.S. lumber consumers prefer access to affordable lumber and therefore many generally oppose trade restrictions on Canadian imports.¹⁵ The National Association of Home Builders (NAHB), representing the interests of U.S. lumber consumers, arguescontends that American home buyers are the ones who eventually pay for the cost of the trade restrictions and that unrestricted trade benefits the U.S. economy onas a whole.¹⁶15 Further, they maintain that the restrictions have "reduced the incentive for U.S. producers to adopt new and innovative technology to increase production and improve efficiency of their mills so as to be internationally competitive."¹⁷16 In response to the expiration of the agreement, NAHB and other partners have formed the American Alliance of Lumber Consumers to advocate for trade on lumber.¹⁸17 However, under U.S. trade remedy laws,¹⁹18 U.S. lumber consumers do not have standing in the dispute and may only participate as an interested party.²⁰

19

Figure 1. Average Monthly Composite Prices for Framing Lumber in Current (Nominal) and 20152016 Dollars

Source: Random Lengths Publications, Inc., at http://www.randomlengths.com/ on April 27, 201612, 2017. Notes: Adjusted to 20152016 dollars using the Consumer Price Index for All Urban Consumers (CPI-U) published by the Bureau of Labor Statistics. MBF = thousand board feet.

U.S. Softwood Lumber Consumption

Historically, Canada has been the largest foreign supplier of softwood lumber in the United States, accounting for 95% of imports since 1965 (see Figure 2 and Figure 3).²¹20 In 1965, the United States imported less than 5 billion board feet (BBF) of Canadian lumber, accounting for only 14% of U.S. consumption. However, Canadian imports rose to more than 20 BBF in 2004 and 2005, including an 80% increase from 1990. In comparison, U.S. lumber production for the domestic market (i.e., excluding U.S. lumber exports) during that same period increased by only 56%. The Canadian share of the U.S. market peaked at more than 35% in 1995-1996 and fluctuated around 33% until 2005. Over the first sevennine years of the 2006 SLA was in place, the Canadian share of the U.S. market averaged 28% annually.

Figure 2. U.S. Lumber Consumption by Source

Sources: Congressional Research Service (CRS); James L. Howard, U.S. Timber Production, Trade, Consumption, and Price Statistics 1965– 2002, Res. Pap. FPL–RP–615 (Madison, WI: USDA Forest Service, December 2003), Table 28, p. 52 and Table 31, p. 55. Data update provided via personal correspondence. Notes: Black line indicates when the 2006 SLA was entered in force.

Figure 3. U.S. Lumber Consumption by Source Percentage

Sources: CRS; James L. Howard, U.S. Timber Production, Trade, Consumption, and Price Statistics 1965– 2002, Res. Pap. FPL–RP–615 (Madison, WI: USDA Forest Service, December 2003), Table 28, p. 52 and Table 31, p. 55. Data update provided through personal correspondence with USDA. Notes: Black line indicates when the 2006 SLA entered into force.

Alleged Subsidies to Canadian Lumber Producers

The main basis of the United States-Canada softwood lumber dispute is the allegation that Canadian lumber production is subsidized by the Canadian government. U.S. lumber producers allege that these subsidies give Canadian lumber producers an unfair advantage in the U.S. market, causing injury to U.S. producers.²²21 The U.S. Lumber Coalition, which represents the U.S. lumber industry, has argued that absent a trade agreement or other trade protection measures, Canadian imports have risen due to government programs in Canada.²³22 In particular, they assert that the fees set by the provinces for government-owned timber are less than prices in a competitive free market in North America would be. However, comparing the relative competitiveness of U.S. and Canadian lumber producers is difficult, at bestchallenging. This is due to differences in land ownership and thus timber supply, pricing and allocation systems, and measurement systems, among other factors, as described below.

Different Land Ownership and Management Regimes

The United States and Canada both have vast forest resources, but the ownership patterns, development pressures, and forest management policies in each country are very different. In Canada, about 9294% of the timberlands are "crown lands" owned and administered by the federal and provincial governments.²⁴23 Overall, the provinces own 90% of the timberlands, the Canadian federal government owns 2%, and 6% is in private ownership, although the provincial ownership percentage varies by province. Most of the federally owned timberlands are northern boreal forests located in the Yukon, Nunavut, and Northwest Territories that do not produce significant amounts of softwood lumber. This contrasts with U.S. timberlands, where 42% are owned by the government (31% federal, 9% state, and 2% local) and 58% are privately owned.²⁵24 As a result, the United States lumber industry relies more heavily on private timber sources and, whereas the Canadian lumber industry relies mostly on public sources of timber.

Each Canadian province has its own forestry laws, regulations, and standards, and Quebec enacted forestry reforms in 2013 in part as an effort to employ the "exit ramp" provisions of the SLA (see "Quebec Reforms").2006 SLA.²⁵ In general, the provinces require management plans for forested areas, typically prepared by certified professional foresters and subject to participation or review by a broad spectrum of users and interests.²⁶ The provinces also allocate timber harvest. The provinces typically use tenure agreements, or leases, which grant exclusive rights to the specific annual harvest level with various management obligations (e.g., road construction and reforestation).²⁷ The tenure agreements may be long-term (5-25 years) or short-term (as brief as 6 months, with fewer management obligations). Many provinces also have other agreements for selling various types of timber to specific, often quite small or family-operated firms.

Figure 4. Forest Cover in Canadian Provinces Sources: Map created by CRS using Esri Basemaps. British Columbia Forest Region boundary files were created by Data BC, a pilot project of the British Columbian government, current as of 1/13/2005, at https://apps.gov.bc.ca/pub/geometadata/metadataDetail.do?recordUID=32891&recordSet=ISO19115. Forest cover boundaries provided by the World Wildlife Fund Terrestrial Ecoregions data, current as of 2005. Notes: Province names in dark print were subject to export restrictions in the 2006 SLA; provinces in light print were excluded. Different Fee Systems

In large part due to the different land management regimes in the differenttwo countries, the United States and Canada each rely on different price allocation systems to determine the cost of lumber. In the United States, prices are established in competitive markets between willing buyers and willing sellers, often through auctions. This is the situation for wood product manufacturers and private timberland owners and, arguably, federal timber sales in areas with competitive bidding.²⁸ Thus, much of the timber from lands in the United States is probably sold at sold at relatively fair market values. This may not be the case in Canada, where leases (rather than competitive bids) are used to allocate timber.

In Canada, the provinces charge fees for timberland leases and timber harvests. There is generally a flat annual fee for maintaining the leases, and a stumpage fee—a per unit of -unit-of-volume fee charged for the right to harvest the trees—for the timber harvested. In many of the provinces, stumpage fees are determined administratively, and range from a fixed, province-wide fee to fees established separately for each tenure agreement. These fees are adjusted periodically to reflect changes in the market prices of lumber and other wood products.

While the As discussed above, while the 2006 SLA was in force, at least one provinceQuebec modified its stumpage pricing systems. In 2013, Quebec passed the Sustainable Forest Development Act,²⁹ which, among other provisions, established that 25% of the annual allowable crown harvest was to be sold at auction starting in 2013. The price received at auction was then factored into the timber agreements covering the remaining 75% of the harvest.

The stumpage fees administratedadministered by the Canadian provinces may not match market-determined prices, because the fees are determined by agency personnel who some argue have an incentive to set the fees below market value to assure the competitiveness of their products.³⁰ The U.S. lumber industry asserts that the provinces have intentionally set the fees substantially below market prices, to assure the competitiveness of the Canadian producers.³¹ Whether provincial administrative stumpage fees approximate market values or are substantially below market values can only be determined by examining provincial fees and U.S. prices for comparable timber, but such comparisons are difficult, as discussed below.

Comparing U.S. and Canadian Stumpage Fees

Allegations that Canadian lumber production is subsidized by the Canadian government rest in part on the claims that Canadian stumpage prices—which are set administratively—are lower than the market-determined stumpage prices in the United States. This resultsIf this is the case, it would result in a lower cost of production for Canadian firms compared to U.S. firms, and is believed by many to be and might be considered a subsidy from the Canadian government. However, evidence to demonstrate the possible disparity between U.S. and Canadian stumpage fees is widespread, but inconclusive. Some reports have found significantly higher stumpage fees in Canada, while other reports have found the United States to have higher stumpage fees.³² Also, throughout the history of the dispute, the U.S. International Trade Commission (ITC) and the U.S. International Trade Administration (ITA) have found significant differences in stumpage fees in various examinations dating back to 1982. However, other analyses have shown little or no difference between U.S. and Canadian fees.³³

Several factors can explain such apparent contradictions. First, U.S. timber and Canadian timber are measured differently. In the United States, trees and lumber are measured in board feet (linear), as described above. In Canada, trees and lumber are measured in cubic meters (volume). The conversion—how many board feet of lumber can be produced from a cubic meter of logs—depends on the diameter of the log, ranging from about 130 board feet per cubic meter for a 6-inch diameter, 16-foot log to more than 275 board feet per cubic meter for a 44-inch, 16-foot log.³⁴ Thus, the conversion rate chosen (i.e., different assumptions about log diameters) can have a significant effect on the resulting price.

Second, except for the occasional forest plantation, forests are not uniform monocultures—forests may contain several species of trees, each of which varies in diameter, height, and quality. U.S. and Canadian forests differ in their species mix (percentage of trees or timber volume in each species) as well as in the size and quality of the trees of each species. Comparisons typically use a single dominant species (e.g., douglas-Douglas fir), but the stumpage fee for the dominant species can be affected by the fee for other species. In U.S. federal timber sales, for example, competitive bidding is generally limited to the dominant species, with the other species being sold at the appraised price; this leads to an overall balance, but limits the validity of the fees for comparing the prices of timber in different areas. Adjusting for these differences is difficult, under the best of circumstances.

Other factors also affect stumpage fees. For example, management responsibilities imposed on timber purchasers differ. In Canada, licensees are generally responsible for reforestation and for some forest protection.³⁵ In U.S. federal forests, timber purchasers generally make deposits to pay for agency reforestation efforts, and some of those deposits are typically reported as part of the stumpage fees. Road construction and road maintenance responsibilities and labor compensation also differ.

History of the Dispute

The dispute between the United States and Canada regarding softwood lumber trade dates back to the 1930s, but the so-called lumber wars began in the 1980s when the United States first considered trade protection measures.³⁶ Table 1 summarizes the major periods of trade dispute and agreement from 1982 to the present.

The 2006 Softwood Lumber Agreement

On April 26, 2006, the United States and Canada announced a tentative agreement to terminate antidumping and countervailing duties and related litigation.³⁷ An early version of the agreement was signed on July 1, 2006, and the Softwood Lumber Agreement Between the Government of Canada and the Government of the United States of America (SLA 2006) entered into force on October 12, 2006. The SLA was set to expire in 2013 but included a one-time option to be renewed for an additional two years. Nearly two years prior to the expiration, on January 23, 2012, the United States and Canada both agreed to the two-year extension. The SLA expired on October 12, 2015.

Under the agreement, the United States revoked countervailing and antidumping orders on Canadian lumber and, and included a one-year grace period that precluded any trade-protection petitions.

2016

Trade Dispute: Lumber V

After the expiration of the grace period in October 2016, the U.S. lumber industry filed a new countervailing duty petition. A preliminary determination imposed countervailing duties of 20% on Canadian lumber imports on April 24, 2017. A final determination is due by September 2017.

Lumber IV and the 2006 Softwood Lumber Agreement Between 2001 and 2006, the United States collected approximately $5.3 billion from duties on Canadian lumber (Lumber IV).³⁷ Duty collection and related litigation was terminated with the signing of the SLA in October 2006.³⁸ Under the agreement, the United States returned about $4 billion that was collected from the duties to the importers of record. The remaining deposits (about $1 billion) were split evenly between the U.S. lumber industry and jointly agreed-upon initiatives (see below, "Initiatives Funded by the 2006 SLA"). In exchange, the parties agreed to terminate, or in some cases dismiss, all North American Free Trade Agreement (NAFTA), World Trade Organization (WTO),international and domestic court claims filed by Canada, Canadian producers, the United States, and the U.S. industry as represented by the CFLI (now known as the U.S. Lumber Coalition). The SLA precluded new cases, investigations and petitions, and actions to circumvent the commitments in the agreement. The SLA also and included an agreement by which the participating U.S. producers would not file new antidumping or countervailing duties petitions or investigations for a period of 12 months after the agreement's termination or expiration. The SLA also established a third-party arbitration system to handle any disputes under the agreement. The SLA established export charges on softwood lumber originating from specific Canadian provinces when the price of lumber fell below $355 per thousand board feet (MBF),³⁹ with the rate charged varying based on the prevailing composite price.⁴⁰termination or expiration of the agreement. This one-year grace period will end on October 12, 2016.

The SLA established export charges on Canadian softwood lumber when the Random Lengths' Framing Lumber and Composite Price fell below $355 per thousand board feet (MBF),³⁸ with the rate charged varying based on the prevailing composite price.³⁹ The export charges were significantly reduced for Canadian producing regions that also agreed to volume restraints, which become increasingly restrictive as the average price dropped (see Table 2). During the first six years the SLA was in effect, the prevailing lumber prices largely remained below $315 MBF (see Figure 4) and only exceeded the trigger briefly for three months in 2010. From January 2013 through March 2015, lumber prices exceeded $355 MBF every month except three (August 2013 through October 2013), meaning that no export measures were applied during those months. Prices began to fall in each successive month starting in March 2015. Export measures were applied in April 2015 and continued through the end of the SLA in October 2015, with the prevailing lumber price ending at $315 MBF.⁴⁰

Figure 4. Prevailing Monthly Lumber Prices (Current Dollars) and Export Provisions Under the 2006 SLA

Sources: CRS. Prevailing month price data from published reports on the Government of Canada's Foreign Affairs, Trade and Development website, http://www.international.gc.ca/controls-controles/prod/index.aspx. Notes: MBF = thousand board feet. The prevailing monthly price was calculated as the most recent four-week average of the weekly framing lumber composite price, available 21 days before the beginning of the month that the prevailing monthly price would be applied.

There were several additional provisions relating to export charges and volumes. A third-country trigger would have allowed export charge refunds if, for consecutive quarters, the third-country share of U.S. lumber consumption grew, the U.S. share increased, and the Canadian share decreased. A surge mechanism would have provided for substantially greater export charges if a Canadian region's exports exceeded 100% of its allocated share of total Canadian exports. For high-value products—those valued at more than $500 per MBF—the export charges were calculated as if they were priced at $500 per MBF.

The SLA also established a third-party arbitration system to handle any disputes under the agreement, discussed below.

In Article XV, the SLA set forth information collection and exchange requirements that both the United States and Canada submit monthly reports aggregated to the Canadian regional level, along with quarterly data reconciliation requirements. These reports were required to be made publicly available.⁴¹

Canadian Provinces Covered by the SLA

The SLA applied export measures to lumber products from timber harvested in the provinces of Alberta, British Columbia Coastal, British Columbia Interior, Manitoba, Ontario, Quebec, and Saskatchewan (See Figure 5). The export measures did not apply to lumber products from timber harvested in the Yukon, Northwest, or Nunavut Territories. Lumber produced in the Atlantic Provinces, as well as lumber certified as originating in the state of Maine, was also exempt. In addition, 32 companies—so-called border mills primarily from Quebec but also from Ontario—were named in the SLA as being exempt, subject to certain quota limitations. At the time of negotiation, these provinces had significant private timber land holdings, so they were not seen as benefiting from a subsidy.

Figure 5. Canadian Provinces Covered by the SLA

Source: Map created by CRS using Esri Basemaps. British Columbia Forest Region boundary files were created by Data BC, a pilot project of the British Columbian government, current as of 1/13/2005: https://apps.gov.bc.ca/pub/geometadata/metadataDetail.do?recordUID=32891&recordSet=ISO19115. Forest cover boundaries provided by the World Wildlife Fund Terrestrial Ecoregions data, current as of 2005.

Initiatives Funded by the 2006 SLA

Prior to the enactment of the 2006 SLA, the United States collected approximately $5.3 billion under the antidumping and countervailing duty orders on Canadian softwood lumber imports. As part of the SLA, the United States returned $4 billion to the importers of record. The remaining deposits were split evenly among the U.S. lumber industry, a binational panel to advance softwood lumber, and three types of initiatives in the United States. The initiatives were to provide (1) promotion of sustainable forest management practices; (2) assistance for timber reliant communities; and (3) low income housing and disaster relief.⁴² The recipients of the initiative funds include $200 million for the United States Endowment for Forestry and Communities; $150 million for the American Forest Foundation; and $100 million for Habitat for Humanity.

The 2008 Softwood Lumber Act

The 2008 farm bill (P.L. 110-246) included a provision (§3301) establishing a softwood lumber importer declaration program to ensure compliance with the SLA. The 2008 Softwood Lumber Act (codified at 19 U.S.C. §§1683-1683g) required the Department of the Treasury (later delegated to the U.S. Customs and Border and Protection in the Department of Homeland Security) to verify and reconcile data on softwood lumber imports from Canada. However, according to a 2009 Government Accountability Office report, the additional record-keeping requirements "do not provide the U.S. government with additional assurance of compliance with the bilateral trade agreement."⁴³ GAO further recommended that U.S. Customs and Border Protection develop and report to Congress plans to fulfill the requirements of the act upon the expiration of the SLA.

Analysis of the 2006 Softwood Lumber Agreement

The enactment of the 2006 SLA ended the fourth major "lumber war" and trade dispute between the United States and Canada. In the period between the expiration of the 1996 Agreement in 2001 and the signing of this agreement in 2006, both countries had been engaged in a series of domestic and international legal challenges. The United States was collecting dumping and countervailing duties on Canadian imports of softwood lumber, which was having impacts down the supply chain to U.S. lumber consumers, as well as causing overall tension between the two neighboring countries. Given that context, the primary goals of the 2006 SLA were to protect the U.S. lumber industry, stabilize the U.S. lumber market, resolve ongoing disputes between the U.S. and Canada, create an alternative dispute resolution system, and maintain U.S.-Canadian relationships. The following sections of this report will analyze the extent to which the SLA has achieved those goals, survey what issues persist now that the agreement has expired, and discuss the opposition to the trade protection measures.

Protecting U.S. Lumber Producers

One of the primary aims of the U.S. negotiators to the 2006 SLA was to protect the U.S. lumber industry in the domestic market. The U.S. lumber producers were losing market share to Canadian producers, who were believed to have an unfair competitive advantage due to provincially subsidized pricing practices. The Canadian share of the U.S. market had been steadily rising while the U.S. share had been falling. As noted earlier, prior to the 1996 Softwood Lumber Agreement, Canada's market share peaked at 35%, while the domestic U.S. market share was 63% (See Figure 3).⁴⁴ From 2001 through 2006, Canada's market share averaged 33%, while the U.S. share averaged 63%. When the 2006 SLA went into force, the Canadian market share declined to a low of 26% in 2011 and averaged 28%, whereas the U.S. market share averaged 71%. Therefore, in terms of market share, the SLA appears to have contributed to increasing the U.S. lumber producer's share of the U.S. market and decreasing the Canadian competition's share.

During the first 75 months the agreement was in effect (through December 2012), lumber prices were so low that the highest export measures applied during 68 of those months (see Figure 1). Lumber prices then rose above the trigger for 24 of the next 27 months (through March 2015), meaning that goods flowed freely across the border for most of those years. Over the last seven months of the agreement, lumber prices dropped and fluctuated below the trigger, with the price dropping to a three-year low ($313 MBF) during the last month of the agreement (October 2015). Therefore, in terms of shielding the U.S. lumber industry from allegedly subsidized and unfair Canadian competition, the SLA appears to have worked when the U.S. lumber market was in a downturn.

Stabilizing the Lumber Market

U.S lumber producers and consumers are both interested in having a stable lumber market, in terms of price and supply. Lumber consumers have argued that the overall softwood lumber dispute, and the enactment of trade protection measures, has harmed them by increasing the volatility of lumber prices. Relative volatility can be assessed by examining the average and standard deviation of lumber prices. Table 3 shows the annual average and standard deviation for the weekly Random Lengths framing lumber composite price, and the ratio of standard deviation to average, to allow comparison of years with different averages.

These data indicate no obvious trend. Volatility (measured by the standard deviation-to-average ratio) appears to be higher during the years that Canada and the United States were negotiating the start or end of a trade agreement (1991, 2000, 2001, 2006) or when an active dispute was ongoing (1984, 1993, 2004). However, volatility has also been high during years when an agreement was in place and no active negotiating occurred (2010), suggesting that the changes in volatility are likely affected by factors other than the SLA and trade restrictions. The demand for softwood lumber, which relies heavily on the U.S. housing market, arguably also contributes to volatility and could explain the 2010 spike.

Dispute Resolution

The SLA appeared to at least temporarily quiet long-running disagreements about the level of Canadian imports of softwood lumber into the United States, although disputes persisted. In Article XIV, the SLA created a dispute resolution process that precluded either country from initiating any litigation or other dispute settlement proceedings, such as those under NAFTA or the WTO.⁴⁵ Under the dispute resolution process, the parties had to begin with bilateral consultation and then either party could request nonbinding mediation by a neutral third party or binding arbitration through the London Court of International Arbitration (LCIA). Three disputes were resolved through the arbitration process.

The first dispute began in August 2007, when U.S. officials requested a ruling from the LCIA on the export quota volumes and export tax levels for earlier that year. In March 2008, the LCIA ruled that Canada had violated the export quota volumes for Manitoba, Ontario, Quebec, and Saskatchewan for the first six months of 2007, but was not required to collect taxes related to export surges from Alberta and British Columbia during that period. To comply with the above ruling, Canada was ordered to collect an additional 10% ad valorem export charges from the four provinces until C$68.26 million (then valued at US$54.8 million) had been collected. The USTR rejected a Canadian offer of a compensation payment of US$36.66 million, and on April 15, 2009, began collecting 10% duties on lumber from the four provinces. The United States removed its duty after Canada began collecting the 10% export charge on September 1, 2011.⁴⁶ Canada announced that it had completed collection of the C$68 million as of July 1, 2011.⁴⁷

The second dispute began in January 2008, when the United States requested arbitration over ten provincial forest sector assistance programs in Quebec and Ontario which the United States believed violated the anti-circumvention provision of the SLA. In January 2011, the LCIA found that four out of the 10 examined programs encouraged Canadian exports to the U.S. market, and thus breached the SLA. Canada began imposing additional charges on lumber exported from Quebec (2.6%) and Ontario (0.1%) to collect an estimated $59.4 million in additional export taxes, a figure short of the $1.86 billion sought by the United States.⁴⁸ A subsequent LCIA ruling affirmed Canada's decision to terminate the export charges upon the initial expiration of the SLA on October 2013, despite its extension until October 2015.⁴⁹

The third dispute concerns certain timber pricing practices in the British Columbia (BC) Interior region. On January 18, 2011, the United States filed a request for arbitration over allegations the region was falsely downgrading lumber classifications. The United States claimed that the BC government had been classifying an increasing amount of its cut as salvage Grade 4 lumber, which is priced less than better grades, resulting in a subsidy for Canadian timber processors because the amount of lumber produced did not decrease. Canada attributed this increase to an infestation of mountain pine beetles. U.S producers disputed this, claiming that BC changed its grading procedures and producers were heating lumber prior to grading, resulting in greater cracks and defects. In July 2012, the LCIA held that it could not conclude that the increase in Grade 4 lumber was based on specific pricing and grading policies of the BC government, and that the United States did not back it claims with specific and quantifiable evidence. Thus, the tribunal could not conclude that Canada had violated the SLA.

While Canada and the British Columbia provincial government welcomed the ruling, USTR expressed disappointment and noted that the tribunal "did not sanction pricing practices in British Columbia," and criticized "a flawed approach to evaluating evidence before it."⁵⁰ The U.S. Lumber Coalition maintained that the ruling "clearly defined the limitations" of the SLA and that the industry would need to "assess the value of the SLA at the appropriate time."⁵¹ Others observed that the tribunal's burden of proof exercised in this proceeding made it difficult to pursue other allegations that Canada had violated the SLA, which may have dampened enthusiasm among U.S. lumber producers to advocate for the United States to negotiate a new agreement.⁵²

Opposition to the 2006 SLA

The National Association of Home Builders (NAHB), representing many U.S. lumber consumers (i.e., home builders, home building supply stores, home buyers), opposed the original 2006 agreement, and opposed extending the SLA to 2015.⁵³ The NAHB also was opposed to using the Trans Pacific Partnership (TPP) to renegotiate the SLA.⁵⁴ As the end-users of softwood lumber, the consumer interest is in access to affordable softwood lumber, which is best achieved through unrestricted free trade. The NAHB argues that they largely assume the costs of the trade protection measures, but due to the structure of U.S. trade law, are not able to directly participate in the trade remedy process.⁵⁵ To further support the position of the U.S. lumber consumers, one analyst argues the position of most economists: that unrestricted free trade benefits the overall U.S. economy while trade protections decrease overall welfare.⁵⁶

Issues for Negotiation

If negotiations commence to extend or replace the SLA, those discussions could include various issues that have been raised by stakeholders. For example, log export restrictions, discussed below, may be an issue. Dispute resolution may also be an issue. Another point of negotiation may be to revisit providing exemptions to certain provinces or companies. Further, negotiations may also include provisions to address the conditions under which a province may become exempt in the future, as discussed in the "Quebec Reforms" section below.

Log Export Restrictions

The U.S. Lumber Coalition is seeking to eliminate restrictions on Canadian log exports. Such restrictions were exempted from NAFTA, as well as from free trade agreements (FTAs) Canada has negotiated with TPP partners Chile and Peru. Under these restrictions, timber harvested on crown lands must be manufactured into lumber in the province or, in the case of Ontario, within Canada. Some exceptions exist for surplus timber, or timber that is not bid upon by domestic manufacturers, although a "fee in lieu of manufacturing" is levied on BC timber exports. By restricting the export of unprocessed timber, the U.S. Lumber Coalition maintains that Canada is driving down the price of raw logs, and hence providing a subsidy to its lumber processors. This practice, according to the U.S. Lumber Coalition, shields Canadian producers from the world timber price and promotes domestic manufacturing.⁵⁷ The United States also maintains log export restrictions on timber harvested from western national forests, but the U.S. Lumber Coalition claims that these restrictions have a negligible impact because most of the U.S. lumber supply is derived from private forests.⁵⁸

Quebec Reforms

The SLA includes an "exit ramp" provision (Article XII) that allows for the creation of a commission to determine the circumstances under which a province could be removed from the export measures under the SLA to encourage the adoption of market pricing mechanism. However, this commission was never created. In April 2013, the Province of Quebec's Sustainable Forest Development Act came into effect, which created a timber marketing board to sell lumber from provincial land by auction. This board replaced a system in which processing mills in Quebec held long-term contracts for all provincially harvested lumber from public forests. The government of Quebec and its producers contends that this change satisfies the requirements to be exempted from the SLA and has sought the Canadian federal government to push for the activation of this panel to consider this system. A subsequent SLA may address the creation of a panel as envisioned by Article XII and the specific request of Quebec to be excluded from a potential follow-on agreement.

Issues for Congress

The 2006 SLA expired on October 12, 2015, nine years after it entered into force. Under the terms of the agreement, neither country may initiate trade actions for one year after the agreement expires, meaning the United States and Canada have until October 2016 to negotiate an agreement. Although SLA negotiations historically have been conducted by the executive branch, Congress can signal through oversight, legislation, or resolution how it desires to see the trade relationship moving forward.

Congress may seek to examine several issues relating to a potential future agreement. For example, Congress may examine the current arbitration provisions and the evidentiary standards that U.S. lumber producers allege have resulted in a decision unfavorable to its side in the third SLA decision (see above). Likewise, Congress may seek the removal of export log restrictions on any future agreement with Canada. Congress may also consider the extent to which U.S. lumber consumers are affected by the removal of the agreement and the possibility of renewed anti-dumping and countervailing duties being placed on softwood lumber.

Summary and Conclusion

Concerns about softwood lumber imports from Canada have been raised for decades. In 2006, the United States and Canada signed a Softwood Lumber Agreement (SLA) to end the most recent dispute. Among other things, the nine-year agreement provided for the settlement of pending litigation and established Canadian export charges, varying by weighted average lumber prices and lower if the Canadian exporting regions also accepts volume restraints. The United States revoked the existing antidumping and countervailing duty orders, with at least 80% of the duty deposits being returned to the importers of record. The remaining 20% is being used to fund lumber-related entities and initiatives provided for in the agreement.

U.S. lumber producers assert they have been injured by Canadian subsidies that have given Canadian lumber producers an unfair advantage in selling lumber in the U.S. market. These two conditions—subsidies and injury—are prerequisites for a countervailing duty under U.S. trade law. One alleged subsidy is Canadian provincial stumpage fees (fees for the right to harvest trees) which may be less than the value of the timber in a competitive market. In the 10 Canadian provinces, 90% of the timberland is owned by the provinces. The majority of provincial timber is allocated to lumber producers under long-term area tenure agreements, which specify harvest levels, management requirements, and stumpage fees. The stumpage fees are generally set administratively, and adjusted periodically to reflect changes in lumber markets. This contrasts with the situation in the United States, where most of timberlands are privately owned, and timber from federal and state lands is typically offered for sale at competitive auctions. Administered fees are not likely to match market values, but could be higher or lower, depending on the purpose and methods by which they are established; critics have claimed that the fees are set low to assure profitable production, regardless of market conditions. Several studies have shown significantly lower Canadian stumpage fees, but other studies have found comparable cross-border prices. These contradictory results may be explained by the adjustments made to account for differences in timber measurement systems (one cubic meter of Canadian logs yields 125–275 board feet of U.S. lumber, depending on the logs' diameters); in tree species, sizes, and grades; in requirements imposed on the timber purchaser (e.g., reforestation and road construction); and in other factors. Analyses of the differences are difficult and generally problematic.

Injury to the U.S. lumber industry remains a complex issue. The Canadian share of the U.S. softwood lumber market grew substantially over the past 60 years, from less than 7% in 1952 to more than 35% in 1996. During that period, U.S. lumber production for domestic consumption grew slowly (from nearly 30 billion board feet (BBF) The export charges were significantly reduced for Canadian producing regions that also agreed to volume restraints, which become increasingly restrictive as the average price dropped.

The SLA was first set to expire in 2013 but included a one-time option to be renewed for an additional two years. Nearly two years prior to the expiration, on January 23, 2012, the United States and Canada both agreed to the two-year extension. The SLA then expired on October 12, 2015, without any formal negotiations for a new agreement between the counties taking place. The U.S. lumber industry identified perceived flaws in the SLA arbitration process and was in favor of letting the agreement expire. The Canadian government and Canadian lumber producers generally have supported free trade but have been amenable to trade agreements that ensure access to the U.S. market.

Lumber V

As mentioned above, the 2006 SLA expired on October 12, 2015, although a one-year cooling-off period prevented trade litigation from being introduced until after October 12, 2016. On March 10, 2016, President Obama and Prime Minister Trudeau announced the start of discussions to "explore all options" regarding the dispute, charging their trade representatives with reporting back within 100 days.⁴¹ The result of this exercise was a set of negotiating goals, which included, among other elements:

• "an appropriate structure, designed to maintain Canadian exports at or below an agreed U.S. market share to be negotiated, with the stability, consistency and flexibility necessary to achieve the confidence of both industries;
• provisions for regional or company exclusions, if justified; and
• provisions promoting regional policies that eliminate the underlying causes of trade frictions, including a regional exits process that is meaningful, effective and timely, recognizing that should an exit be granted, it would be reversible if the circumstances justifying the exit change."⁴²

These goals would effectively limit softwood lumber exports to specified market share, but they left for negotiating the method to achieve this end: through a quota system, an export tax, or a combination of both. The goals also reflect the Canadian desire for flexibility by region and the ability to exit out of market share system based on adoption of market pricing. In subsequent talks, the following concepts were discussed:

• Market restraint mechanism: Canada proposed an export tax on its lumber to achieve a certain market share in the United States. Canada also sought provincial flexibility—quota, export tax, or a combination—to achieve the market access goal. U.S. producers have criticized an export tax as not guaranteeing a certain market share; they claim such a tax would only penalize Canadian producers for exporting above target. As such, U.S. producers are in favor of a quota-only system.
• Market Access: The Canadian proposal reportedly is based on a 32% market share. The U.S. producers reportedly sought a 28% share gradually lowered to 22% during the term of an agreement.
• Regional flexibility: Canada also sought continued exclusions for largely private-held timber from the maritime provinces. They also favored a province's ability to exit the market access restraints if it adopts market based systems, as Quebec claims it has done. The previous SLA contained such a provision, which Canada criticized as ineffectual.

These discussions did not make headway during the last months of the Obama Administration and have not been picked up by the Trump Administration to date.

Litigation The Committee Overseeing Action for Lumber International Trade Investigations or Negotiations (COALITION) petitioned the International Trade Administration (ITA) of the Department of Commerce and the U.S. International Trade Commission (ITC) to initiate antidumping (AD) and countervailing duty (CVD) proceedings against Canadian softwood lumber on November 25, 2016 (see Table 2). Under AD and CVD procedures, ITA must first determine whether the petition has merit and whether further investigation is warranted. ITA decided in the affirmative on December 15, 2016. ITC then determines whether there is a reasonable indication of injury. ITC made a positive determination on January 9, 2017. If ITC had found no reasonable indication of injury, the proceedings would have ended.⁴³

In the next phase, ITA is to investigate the existence and extent of the unfair trade practice and, if it finds an unfair trade practice, to make a preliminary estimate of dumping or subsidy margins. On April 24, 2017, ITA determined the existence of a subsidy of between 3.02% and 24.12% on five major companies and an "all other" rate of 19.88%. As a result of this decision, U.S. Customs and Border Protection (CBP), in turn, suspended liquidation (i.e., delayed the computation of duties until the proceedings are finished) and required importers to post cash deposits or bonds to cover the potential duties resulting from the estimated subsidy margin. ITA also found "critical circumstances" for some companies, meaning that retroactive duties from 90 days prior to the preliminary determination will be imposed on them. The ITA preliminary dumping determination is due June 23, 2017.

ITA and ITC are then to continue their respective investigations to a final phase. At this time, ITA will make a final determination as to whether dumping or subsidies exist and a final calculation of the subsidy or dumping margin. If the determination is negative, the process will end, the shipments will be liquidated, and the bonds will be returned. If the ITA makes a determination of subsidy or dumping, then the ITC will determine if practices caused "material injury" to the U.S. industry. If it finds that material injury has occurred, ITA will impose a duty order equivalent to the calculated subsidy or dumping margin. If ITC does not find material injury, CBP will liquidate the goods, return the deposits, and end the case.

Table 2. Softwood Lumber: Trade Remedy Investigation Timeline  

Antidumping Investigation

Countervailing Duty Investigation

Petitions Filed

November 25, 2016

November 25, 2016

ITA Initiation Date

December 15, 2016

December 15, 2016

ITC Preliminary Determinations

January 9, 2017

January 9, 2017

ITA Preliminary Determinations

May 4, 2017

(postponed to June 23, 2017)

February 21, 2017

(postponed to April 24, 2017)

ITA Final Determinations

July 18, 2017

(postponed to September 6, 2017)

May 4, 2017

(postponed to September 6, 2017)

ITC Final Determinations

September 1, 2017

June 19, 2017

Issuance of Orders

September 8, 2017

June 26, 2017

Issues for Congress

While the softwood lumber litigation plays out, Congress may seek to influence any settlement of the softwood lumber dispute through potential renegotiation of the North American Free Trade Agreement (NAFTA).⁴⁴ During the campaign and in office, President Trump has vowed to renegotiate or withdraw from NAFTA. However, under Trade Promotion Authority (TPA),⁴⁵ the President must give advanced notice to Congress for any renegotiation and must consult with Congress before and during the negotiations. This process affords Congress the opportunity to influence and direct the course of negotiations.

In this fashion, Congress may seek to examine several issues relating to a potential future agreement. For example, Members may seek to shape an agreement within the context of NAFTA itself. Congress may seek the removal of export log restrictions as part of any NAFTA package. Some Members of Congress favor the removal of the NAFTA Chapter 19 dispute settlement arbitration panels, which Canada has used to challenge the decisions of the U.S. agencies. Congress also may consider the extent to which U.S. home builders and home buyers are affected by the possibility of renewed antidumping and countervailing duties being placed on softwood lumber.

Summary and Conclusion

The end of the 2006 SLA and the commencement of trade remedy litigation is a recurring pattern in the decades-long softwood lumber dispute. The determination of injury from subsidy and dumping likely will be followed, as it has in the past, by Canadian appeals to the World Trade Organization and NAFTA dispute settlement. Then, the parameters of a new export restraint agreement may be explored.

U.S. lumber producers assert that they have been injured by Canadian subsidies that have given Canadian lumber producers an unfair advantage in selling lumber in the U.S. market. These two conditions—subsidies and injury—are prerequisites for a countervailing duty under U.S. trade law. One alleged subsidy is Canadian provincial stumpage fees (fees for the right to harvest trees), which may be less than the value of the timber in a competitive market. In the 10 Canadian provinces, 90% of the timberland is owned by the provinces. The majority of provincial timber is allocated to lumber producers under long-term area-tenure agreements, which specify harvest levels, management requirements, and stumpage fees. The stumpage fees generally are set administratively and adjusted periodically to reflect changes in lumber markets. This situation contrasts with that in the United States, where most timberlands are privately owned and timber from federal and state lands typically is offered for sale at competitive auctions. Administered fees are not likely to match market values but could be higher or lower, depending on the purpose and methods by which they are established; critics have claimed that the Canadian administrative fees are set low to assure profitable production, regardless of market conditions. Several studies have shown significantly lower Canadian stumpage fees, but other studies have found comparable cross-border prices. These contradictory results may be explained by the adjustments made to account for differences in timber measurement systems (one cubic meter of Canadian logs yields 125–275 board feet of U.S. lumber, depending on the logs' diameters); in tree species, sizes, and grades; and in requirements imposed on the timber purchaser (e.g., reforestation and road construction), among other factors. Analyses of the differences are difficult and generally problematic.

Injury to the U.S. lumber industry remains a complex issue. The Canadian share of the U.S. softwood lumber market grew substantially over the past 60 years, from less than 7% in 1952 to more than 35% in 1996. During that period, U.S. lumber production for domestic consumption grew slowly (from nearly 30 billion board feet [BBF] in the early 1950s to 35 BBF in 1999), while imports of Canadian lumber rose substantially (from less than 3 BBF in the early 1950s to more than 18 BBF in 1999). Under the 1996 agreement, imports remained at a relatively stable rate, fluctuating around 33%-34%. Under the 2006 SLA, Canadian imports declined to around 28%. This decline is likely attributable—at least in part—to the SLA and a drastically decreased demand for softwood lumber due to the crisis in the U.S. housing market.

Other factors might also be important in the dispute over lumber imports from Canada. Some believe the persistence of the dispute is due, at least in part, to the conflict between a U.S. trade policy focused on the removal of trade barriers and the process for obtaining industry protection under U.S. trade law. Others contend that the dispute is fueled by interest-group politics, and that the U.S. lumber industry is better organized and more influential than U.S. lumber consumers, who mostly feel the cost impacts of the trade protection measures.⁵⁹46 In addition, environmental laws and policies probablymay differ, and the impact of those laws and policies for lumber production costs complicatecomplicates any cross-border analyses. Finally, the dispute may be alleviated in part due to increasing cross-border firm integration.⁶⁰47 In other words, lumber producers may increasingly become globalized, with holdings in both the United States and Canada, and as such may begin to question these border protection measures.

The 2006 SLA appears to have appeased Canadian interests, but U.S. lumber producers mostly signaled displeasure with the agreement. Given the complexity of the issues at play in the dispute—different land ownership patterns, pricing and management policies, and measuring systems—the approach of export taxes and quota limitations when lumber is priced below a specified trigger level does not appear to be achieving satisfactory results for all sides of the issue.

Appendix. What Is Softwood Lumber?

The definition of "softwood lumber" subject to the SLA had been an issue leading up to the signing of the 2006 agreement.⁶¹48

Softwood is a classification of tree species and contrasts with the other major classification, hardwood. Both, however, are misnomers. Some hardwoods, "such as aspen and poplar, are softer (less dense) than many softwoods," such as yellow pines.⁶²49 Softwood species are all in the order Coniferales—the conifers. Conifers generally have needle-like leaves and cones for reproduction. These plants are often called evergreens, because most retain their needles in winter.⁶³50 The hardwood timber species are in the phylum Anthophyta—the angiosperms, or flowering plants. These plants are often called deciduous, because most species in temperate climates lose their leaves in the winter; however, some temperate-climate species (e.g., holly) and most tropical and subtropical species are evergreen, retaining their leaves throughout the year. Despite the imprecision, softwood is the term of art for conifer species and is used in this report to indicate lumber produced from conifer species. This use is also consistent with the definition of softwood lumber in the harmonized tariff schedules and in the 2006 SLA. (See below.)

Lumber is the collective term for products sawn from logs. This contrasts with the panel products—plywood, particleboard, etc.—where the logs are sliced, peeled, or chipped and the wood pieces are then glued together to form sheets or panels.⁶⁴51 It also contrasts with paper products, where wood chips are dissolved to remove the lignin and the fibers adhere by being pressed together under heat. Lumber is grouped into different categories based on cross-sectional dimensions. Boards are lumber products of less than 2 inches in nominal thickness—typically 1 inch thick and 1 inch to 12 inches wide (in 2-inch increments).⁶⁵52 Dimension lumber are products of 2 inches to 5 inches in nominal thickness—most commonly 2 inches thick and 2 inches to 12 inches wide (in 2-inch increments) in nominal dimensions. Timbers are lumber products at least 5 inches thick and wide, and timbers include products destined for further processing. The vast majority of softwood lumber—nearly 75%—is used for residential construction, remodeling, and repair.⁶⁶

53

For purposes of the dispute, softwood lumber is defined in Annex 1A of the SLA using twofour tariff items under the Harmonized Tariff Schedule of the United States (HTSUS):⁶⁷

54

Softwood lumber products include all products classified under tariff items 4407.1000, 4409.1010, 4409.1020, and 4409.1090 (for purposes of description only):

coniferous wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or finger-jointed, of a thickness exceeding 6 mm [about ¹/₄ inch];

coniferous wood, coniferous wood siding and coniferous wood flooring (including strips and friezes for parquet flooring, not assembled) continuously shaped (tongued, grooved, rebated, chamfered, V-jointed, beaded, moulded, rounded or the like) along any of its edges or faces (other than wood mouldings and wood dowel rods), whether or not planed, sanded or finger-jointed ...⁶⁸

55

These tariff items include essentially all the traditional softwood lumber items intended for residential construction, as described above, including softwood drilled and notched lumber and angle-cut lumber and excluding logs, poles, wood fencing, and railway sleepers (cross-ties). The definitions also allow for products that are classified under certain other HTSUS subheadings but meet the SLA's definition of softwood lumber products. This definition also excludes certain products, including windows and doors (with frames), garage doors, box springs, pallets, roof trusses, and other fabricated wood products.

Author Contact Information

Acknowledgments

This report was informed by previous reports written by Ross Gorte, retired CRS specialist in Natural Resources Policy.

Footnotes

National Association of Home Builders, "Statement from NAHB Chairman Granger MacDonald on Comments by Commerce Secretary Ross Regarding Canadian Lumber Tariffs," press release, April 25, 2017, at http://www.nahb.org/en/news-and-publications/press-releases/2017/04/statement-from-nahb-chairman-on-comments-by-commerce-secretary-regarding-canadian-lumber.aspx. See also James W. Tobin III, Comments submitted to the U.S. Department of Commerce on behalf of the National Association of Home Buildings Regarding Subsidy Programs Provided by Countries Exporting Softwood Lumber and Softwood Lumber Products to the United States, National Association of Home Builders, May 29, 2014.

For more information, see CRS Report R44851, The 2006 U.S.-Canada Softwood Lumber Trade Agreement (SLA): In Brief, by [author name scrubbed] and [author name scrubbed].

The SLA applied export measures to lumber products from timber harvested in the provinces of Alberta, British Columbia Coastal, British Columbia Interior, Manitoba, Ontario, Quebec, and Saskatchewan. This figure, $355 MBF,$355 MBF was the average monthly composite price for lumber between May 2002 and April 2006, as calculated by Random Lengths, Inc. Website:Seehttp://www.randomlengths.com.

48.

1.	For a complete background of the dispute up to the 2006 Softwood Lumber Agreement (SLA), see CRS Report RL33752, Softwood Lumber Imports from Canada: Issues and Events, by [author name scrubbed] and [author name scrubbed]; and CRS Report RL30826, Softwood Lumber Imports From Canada: History and Analysis of the Dispute, by [author name scrubbed].
2.	White House, "Fact Sheet: US-Canada Relationship," press release, March 10, 2016. For more information on the 2006 SLA, see CRS Report R44851, The 2006 U.S.-Canada Softwood Lumber Trade Agreement (SLA): In Brief, by [author name scrubbed] and [author name scrubbed].
3.	The SLA definitions also includes some products that are classified under certain other Harmonized Tariff Schedule of the United States (HTSUS) subheadings, but also excludes certain products, including windows and doors (with frames), garage doors, box springs, pallets, roof trusses, and other fabricated wood products.
4.	Henry Spelter, David McKeever, and Daniel Toth, Profile 2009: Softwood Sawmills in the United States and Canada, US Forest Service, FPL-RP-659, Madison, WI, 2009, https://www.treesearch.fs.fed.us/pubs/34525. (Hereinafter referred to as Spelter et al., Profile 2009.)Spelter et al., Profile 2009.
5.	See New Residential Construction data statistics published by the U.S. Census Bureau, http://www.census.gov/construction/nrc/index.html.
6.	James L. Howard, U.S. Timber Production, Trade, Consumption, and Price Statistics. Consumption, and Price Statistics 1965– 2002, Res. Pap. FPL–RP–615 (Madison, WI: USDA Forest Service, December 2003), Table 28, p. 52 and Table 31, p. 55. Data update provided via personal correspondence, April 2017. (Hereinafter referred to as Howard, U.S. Timber Statistics.)
7.	Spelter et al., Profile 2009. Production is calculated from 2005 to 2008, because 2009 numbers were not published.
8.	See New Residential Construction data statistics published by the U.S. Census Bureau, http://www.census.gov/construction/nrc/index.html.
9.	James L. Howard, U.S. Timber Production, Trade, Consumption, and Price Statistics.
10.	The National Association of Home Builders estimates that wood products represent 15% of the construction cost of an average home. However, there are some concerns about the methodology used to arrive at this estimate. Specifically, the results rely on a small number of self-reported responses (2% response rate, with 44 responses from N=2,185) and it is unclear if the estimate also includes the cost of labor. Heather Taylor, New Construction Cost Breakdown, National Association of Home Builders, November 1, 2011.
11.	This is a weighted average of U.S. and framing lumber prices calculated weekly by Random Lengths, Inc., a wood products price reporting firm located in Eugene, OR. Website:See http://www.randomlengths.com.
12.	According to the U.S. Census Bureau, in 2014 the average size of a new single family home was 2,690 square feet, and the median sales price of a new single family homes was $282,800 (http://www.census.gov/construction/chars/sold.html).
13.	Daowei Zhang, The Softwood Lumber War: Politics, Economics, and the Long U.S.-Canadian Trade Dispute (Washington, DC: Resources for the Future, 2007). (Hereinafter cited as Zhang, The Softwood Lumber War, 2006.)
14.	Andrew Kentz, David A. Yocis, and Jordan C. Kahn, Comments Submitted to the Office of the United States Trade Representative on Behalf of the U.S. Lumber Coalition Regarding the Two-Year Extension of the Softwood Lumber Agreement, U.S. Lumber Coalition, October 14, 2011 (Hereinafter referred to as U.S. Lumber Coalition Comments to the USTR).
15.	Gerald Howard, Comments Submitted to the Office of the United States Trade Representative on Behalf of the National Association of Home Builders Regarding the Two-Year Extension of Softwood Lumber Agreement, National Association of Home Builders, October 14, 2011. (Hereinafter referred to NAHB Comments to the USTR).
16.	See for example, U.S. Lumber Coalition, "U.S. Lumber Industry Applauds Commerce Department Finding of Massive Canadian Subsidies," press release, April 24, 2017, at http://www.uslumbercoalition.org/doc/USLC%20Press%20Release%20Re%20Lumber%20V%20CVD%20Prelim%20FINAL%2004242017.pdf.	15.
1716.	NAHB Comments to the USTR.
18Gerald Howard, Comments Submitted to the Office of the United States Trade Representative on Behalf of the National Association of Home Builders Regarding the Two-Year Extension of Softwood Lumber Agreement, National Association of Home Builders, October 14, 2011. 17.	Other members of the coalition include the National Retail Federation and the National Lumber and Building Material Dealers Association. National Association of Home Builders (NAHB), NAHB Forms Coalition Dedicated to Free Lumber Trade, March 30, 2016, at http://nahbnow.com/2016/03/nahb-forms-coalition-dedicated-to-free-lumber-trade/.
1918.	For more information on U.S. trade remedies, see CRS Report RL32371, Trade Remedies: A Primer, by [author name scrubbed].
2019.	19 U.S.C. §1677 (9).
2120.	James L. Howard, U.S. Timber Production, Trade, Consumption, and Price Statistics 1965– 2002, Res. Pap. FPL–RP–615 (Madison, WI: USDA Forest Service, December 2003), Table 28, p. 52 and Table 31, p. 55. Data from 2002-2010 provided via personal correspondence. (Hereafter referred to as Howard, U.S. Timber Statistics). Howard, U.S. Timber Statistics.
2221.	Zhang, The Softwood Lumber War, 2006.
2322.	U.S. Lumber Coalition Comments to the USTR.
2423.	Natural Resources Canada, Canadian Forest Service, The State of Canada's Forests: 201416 (Ottawa, ON, Canada: 2011), p. 6at http://www.nrcan.gc.ca/forests/canada/ownership/17495.
2524.	U.S. Dept. of Agriculture, Forest Service, "Table B-2–Forest Land Area in the United States by Ownership. Region, and Subregion, and State, 2012," Forest Resources of the United States, 2012, GTR WO-91. at http://www.treesearch.fs.fed.us/pubs/47322.	25.
26.	Natural Resources Canada, Canadian Forest Service, Sustainable Forest Management: A Continued Commitment in Canada, Monograph No. 9 (Ottawa, ON, Canada: 2000).
27.	David Haley and Martin K. Luckert, Forest Tenures in Canada: A Framework for Policy Analysis, Information Report E-X-43 (Ottawa, ON, Canada: Forestry Canada, 1990). (Hereinafter cited as Haley and Luckert, Forest Tenures in Canada.)
28.	Some may argue that the U.S. government is not comparable to a traditional private "willing seller," since the U.S. government does not make investments or sales based on profitability, as a private landowner presumably would. However, since the U.S. federal government only owns 33% of U.S. timberlands, it likely has a significant but less substantial impact on timber markets than do the Canadian provinces. However, this may vary in terms of the regional impact of federal land ownership and regional lumber markets.
29.	Sustainable Forest Management Act, CQLR c A-18.1, http://canlii.ca/t/ks3n.
30.	See USLC Comments to the USTRAndrew Kentz, David A. Yocis, and Jordan C. Kahn, Comments Submitted to the Office of the United States Trade Representative on Behalf of the U.S. Lumber Coalition, U.S. Lumber Coalition, November 26, 2014; and John A. Ragosta, Harry L. Clark, Carloandrea Meacci, and Gregory I. Hume, Canadian Governments Should End Lumber Subsidies and Adopt Competitive Timber Systems: Comments Submitted to the Office of the United States Trade Representative on Behalf of the Coalition for Fair Lumber Imports, unpublished report (Washington, DC: Dewey Ballantine LLP, April 14, 2000), Appendix 1.
31.	Ibid.
32.	See Henry Spelter, "If America Had Canada's Stumpage System," Forest Science, vol. 52, no. 4 (2006); Coopers & Lybrand, Certain Forest Products From Canada, Before the United States Department of Commerce International Trade Administration: Valuation of Stumpage Subsidy, unpublished report (Washington, DC: October 1982), 18 p; and Dewey Ballantine Comments for the CFLI to the USTR.
33.	See Zhang, The Softwood Lumber War, 2006; The Council of Forest Industries of B.C., A Brief Examination of Comparative Factors Affecting the Forest Industries of the U.S. Pacific Northwest and British Columbia, unpublished report (Vancouver, BC, Canada: October 1981), Brink Lindsay, Mark A. Groombridge, and Prakash Loungani, Nailing the Homeowner: The Economic Impact of Trade Protection of the Softwood Lumber Industry (Washington, DC: Cato Institute, 2000), 15 pp. (HereafterHereinafter referred to as Cato Institute, Nailing the Homeowner.)
34.	David A. Hartman, William A. Atkinson, Ben S. Bryant, and Richard O. Woodfin, Jr., Conversion Factors for the Pacific Northwest Forest Industry (Seattle, WA: University of Washington, Institute of Forest Products, n.d.), p. 11; with conversion of cubic feet to cubic meters (at 35 cubic feet per cubic meter) by CRS.
35.	Haley and Luckert, Forest Tenures in Canada.
36.	For a complete background of the dispute up to the 2006 Softwood Lumber Agreement, see CRS Report RL33752, Softwood Lumber Imports from Canada: Issues and Events, by [author name scrubbed] and [author name scrubbed], and CRS Report RL30826, Softwood Lumber Imports From Canada: History and Analysis of the Dispute, by [author name scrubbed].
37.	For more information, see CRS Report RL33752, Softwood Lumber Imports from Canada: Issues and Events, by [author name scrubbed] and [author name scrubbed].
38.	For more information on the 2006 SLA, see CRS Report R44851, The 2006 U.S.-Canada Softwood Lumber Trade Agreement (SLA): In Brief, by [author name scrubbed] and [author name scrubbed].	39.
3940.	As established in the SLA, the Canadian government calculated the prevailing monthly price to determine if export measures were to apply for any given month. The prevailing monthly price was calculated as the most recent 4-week average of the weekly framing lumber composite price, available 21 days before the beginning of the month that the prevailing monthly price was to be applied.
40.	Government of Canada, Foreign Affairs, Trade and Development, Monthly Reports on Softwood Lumber Prices and Consumption, http://www.international.gc.ca/controls-controles/softwood-bois_oeuvre/index.aspx?lang=eng&view=d.
41.	The United States' monthly reports are available from the U.S. Census Bureau website: http://www.census.gov/foreign-trade/Press-Release/softwood_index.html. The Canadian monthly reports are available from the Foreign Affairs and International Trade Canada website: http://www.international.gc.ca/controls-controles/softwood-bois_oeuvre/index.aspx?lang=eng&view=d. The monthly data reconciliation reports are also available from the Foreign Affairs and International Trade Canada website: http://www.international.gc.ca/controls-controles/softwood-bois_oeuvre/other-autres/other-info-supp.aspx?lang=eng&menu_id=71&view=d.
42.	Office of the United States Trade Representative, "Schwab Announces Plans for Disposition of Funds for Meritorious Initiatives under the United States-Canada Softwood Lumber Agreement," press release, September 12, 2006, http://www.ustr.gov/archive/Document_Library/Press_Releases/2006/September/Schwab_Announces_Plans_for_Disposition_of_Funds_for_Meritorious_Initiatives_under_the_United_States-Canada_Softwood_Lumber_Agree.html.
43.	U.S. Government Accountability Office, Softwood Lumber Act of 2008, 10-220, December 2009, p. 141. White House, "Fact Sheet: US-Canada Relationship," press release, March 10, 2016.
4442.	Howard, U.S. Timber Statistics.
45.	"Article XIV, Dispute Settlement," Softwood Lumber Agreement Between the Government of the United States of America and the Government of Canada (Washington, DC: October 12 2006) at http://www.ustr.gov/webfm_send/3254. White House Press Release, Joint Statement by the Prime Minister of Canada and the President of the United States on Softwood Lumber.
4643.	For more information on the trade remedy process, see CRS Report RL32371, Trade Remedies: A Primer, by [author name scrubbed].
44.	For more information on NAFTA, see CRS Report R42965, The North American Free Trade Agreement (NAFTA), by [author name scrubbed] and [author name scrubbed], and CRS In Focus IF10047, North American Free Trade Agreement (NAFTA), by [author name scrubbed].
45.	Bipartisan Comprehensive Trade Promotion and Accountability Authority (P.L. 114-26). For more information, see CRS In Focus IF10038, Trade Promotion Authority (TPA), by [author name scrubbed].
46.	Zhang, The Softwood Lumber War, 2006.
47.	Ibid.
"USTR Lifts Duty on Softwood Lumber from Provinces as Canada Begins Collection," International Trade Reporter, September 9, 2010.
47.	Canada Gazette, July 6, 2011, http://www.gazette.gc.ca/rp-pr/p2/2011/2011-07-06/html/sor-dors130-eng.html.
48.	"U.S. Prevails on Lumber Dispute with Canada, But Falls Short on Remedy," Inside U.S. Trade, January 28, 2011.
49.	"Tribunal Upholds Canada's Position on Termination of Softwood Lumber Charges," International Trade Reporter, April 3, 2014.
50.	"Statement by the Office of the U.S. Trade Representative in Response to Decision in Third Softwood Lumber Arbitration," July 18, 2012.
51.	"U.S. Lumber Coalition Disappointed by Arbitral Decision Regarding British Columbia Softwood Lumber Agreement Timber Pricing Violations," http://www.uslumbercoalition.org/doc/press_release_07-18-12.pdf.
52.	"U.S. Loses Softwood Lumber Case; Ruling Could Impact Future of SLA," Inside U.S. Trade, July 20, 2012.
53.	NAHB Comments to the USTR.
54.	Gerald Howard, Written Comments Submitted to the Office of the United States Trade Representative on Behalf of the National Association of Home Builders Regarding Participation of Canada in the Trans-Pacific Partnership Trade Negotiations, National Association of Home Builders, September 4, 2012.
55.	NAHB Comments to the USTR.
56.	Zhang, The Softwood Lumber War, 2006.
57.	See, U.S. Lumber Coalition, "Negotiating Objectives with Respect to Canada's Participation in the Proposed Trans-Pacific Partnership Trade Agreement (Docket No. USTR-2012-0015), September 4, 2012.
58.	Ibid.
59.	Zhang, The Softwood Lumber War, 2006.
60.	Ibid.
61.	The definition of which softwood lumber products would be subject to the quota had been at issue in the years leading up to the 2006 SLA. In previous agreements, only standard construction lumber was included in the quota calculations and specialty products (such as builders' joinery) were outside of the quota. Drilled studs were originally classified as builders' joinery, but were reclassified by the U.S. Customs Service in the late 1990s as softwood lumber subject to quota limitations in the agreement, along with various other items previously classified as builders' joinery. The issue, essentially, was whether various products were specialty products with particular construction applications or standard construction lumber with minor modifications to avoid the quota. The items continue to be classified under tariff item 4407 and are subject to the quota limitations in the 2006 SLA.
6249.	The major softwood species—the pines, firs, and spruces—are generally softer (less dense) than the major hardwood tree species of temperate climates—the oaks and maples.
6350.	Trees of the larch genus (Larix spp.) are deciduous, with bare limbs in winter.
6451.	A process similar to plywood production can be used to produce lumber-sized products. Known as parallel-laminated veneer (PLV) lumber, the product is made of wood layers glued together in parallel (in contrast to the perpendicular layers in plywood) and then sawn to traditional lumber sizes. The process has been used for producing large wooden beams (timbers) for many years, but is uncommon for traditional lumber products because the production costs are higher than for traditional products.
6552.	Lumber is identified in nominal sizes, rather than actual dimensions. The nominal sizes were the original dimensions of green, rough-sawn lumber; the actual dimensions are the minimum sizes for dry, finished lumber as specified by the American Lumber Standards Committee, a committee of lumber producers, distributors, and users who have developed voluntary product standards and methods for grading, testing, and marking lumber products, under the aegis of the National Institute of Standards and Technology. See 71 Federal Register 61399 (October 16, 2006) for the softwood lumber agreement.
6653.	Henry Spelter, David McKeever, and Daniel Toth, Profile 2009: Softwood Sawmills in the United States and Canada, USDA Forest Service, Research Paper FPL-RP-659, October 2009, http://www.fpl.fs.fed.us/documnts/fplrp/fpl_rp659.pdf. (hereafterHereinafter referred to as Spelter et al., Profile 2009). .)
6754.	"Annex IA Softwood Lumber Products," Softwood Lumber Agreement Between the Government of the United States of America and the Government of Canada (Washington, DC: October 12 2006) at http://www.ustr.gov/webfm_send/3254.
6855.	Ibid.