The looming uncertainty of
softwood lumber
How can your business weather the storm?
Learning from history
The 8,891 km boundary between Canada and
the United States is often referred to as “the
world’s longest undefended border,” but that’s
only in a military sense. Despite free trade
agreements, disputes over softwood lumber
have been ongoing since 1982, stemming,
largely, from US sentiment that the Canadian
softwood lumber industry is unfairly subsidized.
With multiple investigations, appeals and
decisions over more than 30 years, it’s not hard
to see a pattern:
1. The US lumber industry lobbies for tariffs
to increase the price of Canadian imports.
2. Tariffs are imposed by the US
government.
3. Canada appeals to a North American Free
Trade Agreement (NAFTA panel, or the
World Trade Organization (WTO)).
4. A decision is rendered.
5. The United States challenges the decision,
if the decision is in favour of Canada.
6. An agreement is reached.
Negotiations usually take years. When the 1996
Softwood Lumber Agreement expired on April
2, 2001, the final legal text of the next
agreement was not signed until July 1, 2006, and
resulted in the return of $4 billion of the $5
billion in tariffs charged to Canadian companies
between 2002 and 2006. 1
Learning from the present
History tells us to expect a lengthy negotiation
period, but what about the present? Let’s
explore the current circumstances that could
have an impact on the duration, or difficulty, of
the agreement process:
• A growing tide of protectionism. Between
Britain voting to leave the European Union,
and both US Presidential candidates
opposing the Trans-Pacific Partnership Free
Trade Agreement, it’s clear that import
restrictions are increasing in popularity across
the globe—in both emerging and established
economies.
• The US election. This election, in particular,
is creating increased uncertainty overall, and
will likely result in a reduced focus in
“Summary and Explanation of the U.S.-Canada
Lumber Dispute”, Penn State Law,
https://pennstatelaw.psu.edu/_file/aglaw/Lumber_
Trade.pdf (accessed November 1, 2016).
1
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© Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd. All rights reserved.
reaching an agreement, at least in the short
term.
• The underlying cause of the lumber
dispute remains. Canadian lumber is
cheaper to harvest and export than American
lumber.
Preparing for the future
Both countries are bracing to head back to
court in this longstanding dispute. There is
speculation that the US lumber industry will file
a case for tariffs by the end of October, after
which the US Department of Commerce would
have up to 20 days to begin an investigation,
and a further 65 to 130 days to issue a
preliminary determination. 2 This could mean
that tariffs could start to be applied by early
2017.
Speak up
The US softwood lumber industry has a strong
lobbying voice in the form of the US Lumber
Coalition—an alliance of large and small
softwood lumber producers from across
America. Their singular purpose is to address
what they refer to as the “gross under-pricing of
timber” and they will lead the industry in the
development of new petitions against Canadian
softwood imports, should an agreement not be
reached quickly.
Given the pressure expected from the US
lumber industry, it’s important for Canadian
companies to stand up and be heard as well.
Lobbying and legal expenses should be factored
into your plans and budgets, whether you speak
for just your company, or collaboratively with
the rest of the industry.
So how can you prepare?
Plan, plan, plan
When you consider the potential effects on
your business, what impact will a protracted
dispute have on your revenue and sales
projections? Will you have enough to cover
your fixed and variable costs, both short term
and long term? If not, how can you reduce your
expenses, or what financing options could be
available to inject cash into your operations
without creating a crippling debt burden?
It’s important to plan ahead, thinking about not
just the most likely, but also the worst case,
scenarios to ensure your business can survive
and thrive in challenging times.
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2“Answers
to frequently asked questions in the trade
dispute”, Random Lengths,
http://www.randomlengths.com/in-depth/uscanada-lumber-trade-dispute/ (accessed November
1, 2016).
Audit • Tax • Advisory
© Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd. All rights reserved.