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GOVERNMENT RESPONSE TO THE SECOND REPORT OF THE STANDING COMMITTEE ON INTERNATIONAL TRADE: SOFTWOOD LUMBER AGREEMENT BETWEEN CANADA AND THE UNITED STATES

INTRODUCTION

The Government of Canada is pleased to respond to the Second Report of the House of Commons Standing Committee on International Trade, entitled Softwood Lumber Agreement between Canada and the United States. The Government shares the Committee’s commitment to ensuring that any future softwood lumber agreement reflects the best interests of regions, stakeholders and interlocutors across Canada.

The Government of Canada appreciates the work of the Committee and welcomes its analysis, views and recommendations, based on consultation of softwood lumber stakeholders across the country. The Government has carefully reviewed the Committee’s report and in its response welcomes the opportunity to respond to each recommendation individually. The Government would like to thank the Committee for its report and for its continued interest in the softwood lumber file.

SOFTWOOD LUMBER AND THE CANADIAN ECONOMY

Softwood lumber is a significant component of Canada’s highly integrated forest sector. Communities across the country, particularly in rural areas, are heavily reliant on this sector, which employs almost 200,000 Canadians. Softwood lumber production in particular is an important driver of economic growth in Canada, contributing over $20 billion to Canada’s GDP in 2015.

The softwood lumber industry is highly dependent on international trade, particularly with the United States (U.S.); in 2015 Canada’s softwood lumber exports totalled $8.7 billion, $6 billion (69%) of which were destined for the U.S market. Yet trade in softwood lumber has been the subject of a long-standing dispute between Canada and the United States grounded in difference in forest management practices in both countries. The 2006 Canada-United States Softwood Lumber Agreement (2006 SLA) ended the most recent round of the dispute, resulting in greater stability and certainty for Canadian softwood lumber producers.

In its report the Committee recognizes the importance of the softwood lumber industry to the Canadian economy and Canadian livelihoods, and acknowledges the importance of the 2006 SLA in creating stability for the sector on both sides of the border. The Committee also highlights differences in regional preferences as to Canada’s negotiating strategy and recognizes the significance of differences in regional forest management practices. To this end, the report recommends that any future softwood lumber agreement include sufficient flexibility to enable regions to choose between different border regimes and urges the Government to evaluate long-term approaches to the management of softwood lumber trade with the United States, including by enhancing other export opportunities. 

RECOMMENDATIONS

Recommendation 1:

That, on a priority basis and as soon as possible, the Government of Canada establish the parameters of a new softwood lumber agreement with its American counterpart. The agreement should reflect the best interests of Canadians.

The Government of Canada supports this recommendation. The Government recognizes the importance of securing access to the U.S. market for Canadian softwood lumber products. A new softwood lumber agreement would facilitate this access, and provide greater certainty and predictability to softwood lumber producers on both sides of the border. To this end, on March 10, 2016, Prime Minister Trudeau and President Obama instructed their respective ministers to “intensively explore all possible options and report back within 100 days on the key features that would address this issue.” Leaders reiterated their commitment to achieving a durable and equitable softwood lumber agreement during President Obama’s official visit to Canada on June 29, 2016, as part of the North America Leaders’ Summit.

In their June 29 Joint Statement on Softwood Lumber, the Leaders set out the  possible parameters of a new softwood lumber agreement by identifying nine key features anticipated to facilitate future negotiations. These include issues repeatedly identified by Canadian stakeholders as critical to any new agreement, such as a need for regime flexibility; provisions for region or company exclusions; a meaningful, effective and timely regional exits process; effective enforcement tools; commitments regarding the use of trade remedies; and provisions to address other issues, including remanufacturers and joint market development. These features are expected to serve as a work program for Canadian and U.S. officials as the negotiation process moves forward.

A timely conclusion of the negotiations would provide Canadian softwood lumber exporters with greater stability and certainty of access to the U.S. market. Nonetheless, as the report itself recommends, the Government of Canada will only sign an agreement that is in the best interests of Canadian stakeholders. To this end, the Government is simultaneously preparing for all eventualities, and is prepared to vigorously protect and defend the interests of its softwood lumber producers should there be a return to trade action.

Recommendation 2:

That the Government of Canada ensure that its consultations regarding the negotiations for a new softwood lumber agreement with the United States include stakeholders that may have been overlooked in the past, especially Aboriginal stakeholders and small producers.

The Government of Canada supports this recommendation, recognizing the importance of broad, in-depth and timely consultation of key softwood lumber stakeholders and interlocutors, including Indigenous (Aboriginal) groups as well as small producers. To this end, following the expiry of the 2006 SLA in October 2015, the federal government undertook a series of consultations across Canada in order seek views on the Government of Canada’s strategy going forward. These consultations consisted of meetings with provincial governments, industry, including small and large producers as well as producers of different types of softwood lumber products, Indigenous groups, as well as unions. Since these consultations, the Government of Canada has provided regular updates to provincial and territorial officials, industry representatives, other stakeholders and Indigenous groups via dedicated consultation mechanisms, and arranged face-to-face meetings as well as bilateral calls with provinces, industry, other stakeholders and First Nations as appropriate and in response to stakeholder requests.

The Government of Canada is making efforts to reach out to interlocutors that may have been overlooked in the past, particularly Indigenous peoples such as First Nations groups, and will continue to do so through a variety of consultation means, including face-to-face meetings where appropriate.

The Government also recognizes that large and small softwood lumber producers have different needs, interests and perspectives. The Government has met with representatives of small companies as well as remanufacturers during face-to-face consultations, and has regularly engaged with these stakeholders through other mechanisms. The Government will continue to make a concerted effort to consult with companies of different sizes and products, revenue streams and business models in order to obtain a better understanding of the potential impact of a new softwood lumber agreement on different components of the industry. Softwood lumber is a complex file and finalization of a new agreement will require the reconciling of different regional as well as company interests and perspectives.

Recommendation 3:

That the Government of Canada insist that provinces with market-based stumpage systems be excluded from any border measures in a future softwood lumber agreement with the United States if such measures limit softwood lumber exports from these provinces.

The Government of Canada supports this recommendation. In the June 29 Joint Statement on Softwood Lumber, Leaders agreed that the conclusion of a future agreement would be facilitated by focusing on, inter alia, “provisions for region […] exclusions” where justified, as well as provisions to acknowledge policy reform through a “regional exits process that is meaningful, effective and timely”. Federal officials will continue to press for U.S. recognition of forest management policy reforms undertaken by Canadian regions and for continued regional and company exclusions in cases where such exclusions are justified and particularly where they existed under the previous agreement.

Recommendation 4:

That the Government of Canada insist that a future softwood lumber agreement with the United States be flexible and provide – to the regions of Canada that would not be excluded from the border measures included in a future agreement – options regarding export duties or volume restraints.

The Government of Canada supports this recommendation. Differences in forest management practices, timber pricing methodologies and forestry programs are at the heart of the softwood lumber dispute between Canada and the United States, highlighting the importance of flexibility in a new agreement. In response to the preferences of a number of key provincial and industry stakeholders, therefore, Canadian officials have consistently expressed to U.S. counterparts that any future softwood lumber agreement must include “optionality”, or the ability to choose between an export charge-based regime or volume restraint-based regime. To this end, in their June 29 Joint Statement, Prime Minister Trudeau and President Barack Obama agreed that efforts to finalize a new softwood lumber agreement would be facilitated by the adoption of a border regime with the “flexibility necessary to achieve the confidence of both industries”.

The Government of Canada will continue to stress the importance of flexibility in its negotiations with the United States, recognizing that flexible border management approaches will enable softwood lumber producers on both sides of the border to better respond to market conditions and fluctuations. 

Recommendation 5:

That, in the future, the Government of Canada evaluate the options in relation to a long-term solution with respect to Canadian softwood lumber trade with the United States. As part of the evaluation, the government should explore measures that would enhance export opportunities in other markets.

The Government of Canada supports this recommendation, recognizing that finding a long-term solution to this dispute is in the interests of softwood lumber stakeholders on both sides of the border. The Government is also cognizant, however, of the cyclical nature of this dispute and the significant obstacles to a permanent resolution. Efforts in the past to reach a long-term solution have not been successful in light of industry interests in the United States to obtain protection from competition from imports of Canadian softwood lumber, either through border measures or trade action.

Nonetheless, recognizing the importance of ensuring the long-term viability of the forest sector in Canada and in part to diminish the exposure of Canada’s softwood lumber producers to periodic, recurring trade action by the United States, the Government supports programs and initiatives that aim to expand third country export markets for softwood lumber as well as promote innovation within the forest sector. For example, softwood lumber exports to China have increased significantly in recent years, and now account for 14% of Canada’s total exports, up from less than 1% in 2006. British Columbia in particular has made efforts to grow demand for softwood lumber in the Asian region. The Government also supports research, development and technology transfer in Canada’s forest sector as a means to increase investment in higher value-added components of the forest sector value chain and transformative technologies that promote new and strategic uses for wood. Likewise, the Government has supported investment in new technologies and next-generation building products through a competitive call for proposal process for industry.

Growing the market for wood products in North America has been the focus of joint market initiatives between industry in Canada and the United States developed under the auspices of the 2006 SLA. The Bi-national Softwood Lumber Council, for example, was established to improve cross-border industry relations and support market development as a means to grow demand for wood products in North America. The Softwood Lumber Board Check-Off Program, administered by the United States Department of Agriculture, funds promotion of softwood lumber in residential, non-residential and new market segments by levying a fee on softwood lumber products shipped within or exported to the United States. Likewise, Wood Works U.S. and Wood Works Canada have worked to expand wood use in their respective construction markets.

Such initiatives are considered an integral component of Canada’s long-term vision for management of the forest sector, including trade in softwood lumber between Canada and the United States.