Anatomy of a Trade Dispute: The Question of Softwood Lumber

Abstract

It has been called "the longest and messiest trade war Canada and the United States have ever had." Without a doubt, the issue of softwood lumber pricing has long been a major irritant in Canada-United States trade relations. On three separate occasions, the United States has launched a countervailing duty investigation into Canadian timber pricing practices. Softwood lumber plays a key role in the economies of several Canadian provinces and American states. The stakes are not only high for softwood lumber products, but any decision made on softwood lumber could also have an enormous impact on other forest products and the trade in natural resources as a whole. The softwood lumber case illustrates the controversy over valuation and possible subsidization of natural resources by posing two fundamental questions: 1) Do natural resource subsidies constitute countervailable domestic subsidies under article XVI of the General Agreement on Tariffs and Trade (GATT)? 2) If natural resource subsidies are considered countervailable, do Canadian practices with regard to softwood lumber stumpage fees constitute such a subsidy? The answers to both questions are not clear. This study traces the development of the softwood lumber dispute and United States trade law as they relate to both issues, including potential future actions and political implications. The key points raised by this study rest on the definition of "subsidy" and whether a countervailable subsidy has been provided to Canadian softwood lumber producers, especially in the four major softwood producing provinces: British Columbia, Alberta, Ontario, and Quebec. The internal United States process for determining whether a countervailing duty should be imposed is made up of two components. The first requires an injury to an American industry, which is determined by the United States International Trade Commission (ITC). While this process might also merit analysis, the main areas of dispute for softwood lumber are over findings from the second element of a countervailing duty investigation. This second component of the investigation is carried out by the United States International Trade Administration (ITA). The ITA decides whether the practices in question are ones that can be subject to a countervailing duty under United States trade law. Thus, this study focuses on the criteria used by the IT A and how they fit into international trade law under the Free Trade Agreement (FTA) and the General Agreement on Tariffs and Trade.