The timber industry may be in for more uncertainty as the lumber dispute moves to NAFTA

According to the Missoulian, if the United States (U.S.) drops a part of the North American Free Trade Agreement (NAFTA) dispute resolution system, lumber producers would be able to better fight unfair Canadian timber sales. However, Canadian timber analysts foresee the move further clouding an arena already troubled by various political manoeuvres.

“We applaud U.S. Trade Representative Robert Lighthizer for pushing the removal of the Chapter 19 dispute panel system from NAFTA,” spokesperson for the U.S. Lumber Coalition, Zoltan can Heyningen, told Missoulian in an interview. “The Chapter 19 system is unconstitutional, unworkable in practice, and for decades has seriously undermined the enforcement of U.S. law against unfair trade practices by Canada and Mexico, to the detriment of U.S. industries and workers.”

NAFTA’s Chapter 19 offers a case-by-case negotiating court where governments can debate and argue over legal claims on unfair trade practices. The U.S. Department of Commerce believes that the Canadian federal government unfairly subsidises timber harvested from national forests, thereby giving Canadian sawmills an advantage when they export the lumber to the U.S.

Attorneys for the Department of Commerce also claim that Canadian exporters sell their lumber at a below fair market value, though their case must pass the Chapter 19 panel in order to be internationally binding.

“The NAFTA dispute mechanism is unlike any other mechanism or trade agreement we’re party to,” van Heyningen said. “It’s unique because it allows foreign citizens, in this case Canadians, to sit on a panel that makes a binding decision interpreting U.S. law. They get to tell the U.S. government how to apply U.S. law to Canadian imports.”

The latest Softwood Lumber had excluded the Chapter 19 panel for a weaker international court, but as the lumber dispute drags on, it may be settled under NAFTA, where the Chapter 19 dispute panels would select two members from the U.S. and Canada, with a fifth member chosen via coin-toss.

But van Heyningen argues against the system, saying that the members of the panels are not government trade officials, and drawn from a pool of private trade lawyers and professionals instead, and claiming that they come with conflicting interests and loyalties to foreign clients.

“They almost always side against the United States,” can Heyningen claimed. “The Canadians say to themselves, ‘At the end of the day we’ll use the panel system to dismantle U.S. trade cases, flood the U.S. market and cost U.S. jobs.’ We think that’s unfair and needs to be addressed.”

However, president of International Woods Market Group based in Vancouver, British Columbia, Russ Taylor, sees it differently, arguing that the U.S. stance on trade will bring about higher prices for homebuyers in the U.S.

“We estimate that the U.S. can produce only about 70 per cent of its own lumber demand, and, with Canada’s market share in the U.S. dropping further, the way is paved for an increase in imported lumber from Europe, Russia and other countries – and at higher prices,” Taylor told the Missoulian. “It seems that the objectives of the American side are clear: To raise lumber prices (and log prices) and create a windfall for U.S. sawmills and timberland owners, but with the consumer (and Canadian mills) paying for it.”

But according to Taylor, while the main timber source in the Southeast region in the U.S. has more trees than it can possibly mill and keeping log prices low, in the West of the U.S., log exports to China and Japan have kept log prices up.

“2018 could be a tough year for higher-cost Canadian mills, as the full bite of U.S. duties will be in effect and may lead to numerous curtailments across the country,” Taylor said. “By 2019 the U.S. will need more Canadian lumber, so we anticipate that higher prices will begin to allow curtailed mills to restart. The U.S. will need rising imports – if not from Canada, then from Europe and the Southern Hemisphere – and this means high prices for both logs and lumber.”

Now, the U.S. Lumber Coalition and the Trump Administration are proposing a quota that limits the amount of lumber that crosses the border, complete with high tax penalties for shipments that are above the given quota.

In 2016, Canada exported an estimated 54 per cent of its harvested timber to the United States, where it provides around a third of the lumber supply of the U.S. Most of the lumber produced in the U.S. comes from private timberlands, with about one in five trees coming from public land, like national forests. Presently, however, there are a number of measures before Congress in order to open more federal forests to harvest.

Van Heyningen dismissed Taylor’s claims that the tariffs on Canadian softwood lumber would lead to rising prices.

“The consumer isn’t affected at all,” van Heyningen said. “It just means the Canadian producer can’t enjoy the subsidy as much, and the home builder can’t benefit from subsidised lumber. Taylor knows in a heartbeat the math doesn’t add up.”

But Taylor trusts in his math as he observes the goings-on at both sides of the border, and also takes in possible impacts of lumber trade outside of North America into account. He cautioned that lumber sellers in Europe are just waiting for the prices to rise due to the tariffs, while the markets in Asia would also compete for the logs.

“The mills in Washington and Oregon in particular are not making much money,” Taylor explained. “With the log supply tight, they’re getting better returns selling to China nad Japan. From the fact I’ve got, it tells me a different story.”


Source: The Missoulian