Softwood Lumber Dispute – Canada and United States – November 26, 2016By: Paul Young, CPA, CGADate: November 26, 2016

Paul Young, CPA, CGA Bio• 26+ years if experience in finance, accounting, costing,

business strategy, taxation, mergers/acquisition, academia, internal audit/controls, risk management, financial solutions• Email: Paul_Young_CGA@Hotmail.com

Agenda• What is Softwood

• Softwood Exports

• Softwood Destinations

• Softwood Issues

• Return to Protectionism policies

What is Softwood LumberSoftwood is wood from gymnosperm trees such as conifers.Softwood is the source of about 80% of the world's production of timber, with traditional centres of production being the Baltic region (including Scandinavia and Russia), North America and China.The term is opposed to hardwood, which is the wood from angiosperm trees. Softwoods are not necessarily softer than hardwoods. In both groups there is an enormous variation in actual wood hardness, with the range in density in hardwoods completely including that of softwoods; some hardwoods (e.g. balsa) are softer than most softwoods, while the hardest hardwoods are much harder than any softwood. The woods of longleaf pine, douglas fir, and yew are much harder in the mechanical sense than severalhardwoods.

Source: https://en.wikipedia.org/wiki/Softwood

Canada Leading Softwood Lumber Producers

• Source: https://www.eics-scei.gc.ca/report-rapport/SWL%20monthly%20Exports%20Report_201609.htm

Analysis• ½ of softwood

lumber comes from BC

• Ontario, Quebec, Maritimes and Alberta have sizable softwood exports

Softwood Destination/canada

• In 2015, the value of Canada’s forest product exports increased by 6.3% over 2014, rising to $32.7 billion from $30.8 billion.

• On the wood product side, the U.S. housing recovery continued to drive Canadian softwood lumber exports. In 2015, softwood lumber exports totalled $8.6 billion, a 3% increase over 2014. The value of wood panel exports increased by 18%, to $2.68 billion, with significant increases in all panel types, especially plywood (29%) and fibreboard (28%).

• As for pulp and paper, wood pulp exports increased 6.5% over 2014 levels, to $7.7 billion. In 2015, exports of printing and writing paper barely grew (by 1%), while newsprint exports fell 10% from the previous year

• Source: https://www.nrcan.gc.ca/forests/report/economy/16558

United States Softwood Lumber Issues• Forest Ownership

• Outside of the Maritimes, most forests in Canada are provincially-owned, while in the U.S. they’re privately-owned. The U.S. has long alleged that allows Canadian producers to sell their lumber at a lower price, undercutting American producers in the process. The Americans claim that amounts to a subsidy, a claim Canada has fought (largely successfully) at the World Trade Organization.

• Ongoing issues • This is the fifth battle between the U.S. and Canada over softwood lumber. The dispute goes back to the

early 1980s. Since then, during periods when deals have expired, the U.S has collected billions of dollars from duties imposed on Canadian lumber. Some of that has been returned eventually.

• There are two types of duties that can be imposed: countervailing and anti-dumping. The duties act as a tax on Canadian lumber exported to the U.S. and can cripple the Canadian industry.

• Source - http://globalnews.ca/news/2999152/5-things-to-know-about-canadas-softwood-lumber-trade-war-with-us/

United States Softwood Lumber Issues• Sticking Point

• There are nine issues being negotiated in an effort to reach a long-term deal but the biggest sticking point appears to be market share. The U.S. wants a hard cap on Canada’s share of the American market. The Canadian and American ideas of what that cap should be, though, are said to be at least five percent apart and each percentage point is significant.

• In a joint statement following President Obama’s visit to Ottawa last June, market share was established as an issue for negotiation. Today, the U.S. Lumber Coalition claimed, “to date, Canada has continued to insist on frameworks that are inconsistent with the joint statement.”

• Job Losses• According to Statistics Canada, as of 2013 , about 360,000 Canadians were employed by the forestry industry. Job losses

are a reality if duties are imposed.• In the early 2000s, for example, the U.S. imposed a combined duty of 27.22 percent and within months 15,000 workers

in B.C. were laid off. Ongoing negotiations are so tenuous, Canadian producers refused to comment on potential job losses or hits to the industry.

• Source - http://globalnews.ca/news/2999152/5-things-to-know-about-canadas-softwood-lumber-trade-war-with-us/

Are Protectionism Policies returning• With slow growth there is more pressure on government to

protect key industry from foreign pressures

• Industries in different countries will argue that industries in other countries are subsidize. The problem is defining what classifies as subsidy.

• Increase protectionism can lead to higher prices due to duties/tariffs. The end consumer could pay the price for expansion of protectionism policies.

Softwood Lumber Deal Expiration Date• Negotiations between United States and Canada on a new

Softwood Lumber deal have been ongoing for over a year

• The biggest problem has been there has been shift in Government in Canada as well as federal election in the USA. Changes in government can complicate negotiation, especially in election years.

• Source: - http://www.cbc.ca/news/politics/softwood-lumber-standstill-expires-thursday-1.3801771

Key comments• Canadian lumber and government officials told the U.S. trade

representative that any new softwood lumber agreement must reflect the differences in forestry regimes across the country. http://www.plant.ca/general/canadian-lumber-execs-press-softwood-deal-us-trade-rep-162346/

• Canadian softwood lumber executives will meet this week with America's trade ambassador as they brace for the prospect of U.S. tariffs that they say could result in mill closures and layoffs. U.S. Trade Representative Michael Froman will speak with the Canadian lumber industry in Toronto on Wednesday, days before U.S. producers could start petitioning Washington to impose new duties on Canadian softwood. Source: http://www.tsn.ca/u-s-trade-ambassador-to-meet-with-canadian-lumber-executives-before-softwood-deadline-1.578396

• A spokesman for International Trade Minister Chrystia Freeland says the U.S. Lumber Coalition is expected to submit petitions to the Department of Commerce on Friday, requesting an investigation in the ongoing softwood lumber dispute.

• Softwood lumber is excluded from the continental trade agreement and lumber producers in both countries continually bicker over whether Canadian companies have cheap access to public forests and whether that constitutes an illegal subsidy.

• Freeland's press secretary, Alex Lawrence, says Canada is prepared for any situation and the government will "vigorously defend" the interests of Canadian workers and producers.• Trump leak on lumber confuses tricky file that costs $30M to manage• Lumber industry hopes for 'good deal for Canadians'

• At the APEC summit in Peru last weekend, Prime Minister Justin Trudeau discussed the dispute with U.S. President Barack Obama and Freeland met with U.S. trade representative Michael Froman.

• The U.S. industry must sign on to any softwood lumber agreement, as it must agree to suspend its legal rights to petition for trade remedy relief for the duration of the agreement.

• Source - http://www.cbc.ca/news/politics/softwood-lumber-dispute-investigation-commerce-dept-1.3866975

Comments / November 2016

•  The softwood lumber dispute reignited Friday after the U.S. Lumber Coalition said it formally petitioned the American government to impose duties against Canadian softwood lumber producers.

• The lobby group said it asked the U.S. Department of Commerce and the U.S. International Trade Commission to restore the conditions of "fair trade" for softwood lumber.

• The coalition alleges that provincial governments, which own most of Canada's vast timberlands, provide trees to Canadian producers at rates far below market value, along with other subsidies. As a result, the group says Canadian lumber is being sold for less than fair value in the United States.

• "The coalition's legal action seeks for the United States to impose duties to offset the harm caused to U.S. mills, workers and communities by Canadian softwood lumber production subsidies and Canadian producers dumping the subsidized merchandise on the U.S. market," the U.S. Lumber Coalition said in a statement.

• Softwood producers in Canada dispute the U.S. Lumber Coalition's assertions. Montreal-based Resolute Forest Products said producers in Quebec and Ontario pay market prices and should have access to free trade with the United States.

• Source - http://www.montrealgazette.com/business/newsalert+lumber+group+files+petition+against+canadian+softwood/12434955/story.html

Comments/November 2016