Resolving the Softwood Lumber Dispute
| Jurisdiction | United States,Federal |
| Citation | Vol. 32 No. 02 |
| Publication year | 2008 |
I. Introduction
As international trade increases, domestic demands and regional trade disputes can strain relations among nations and produce intractable situations in which economics and politics conspire to impair long-term solutions. Such is the case in the decades-long dispute between Canada and the United States over trade in softwood lumber,(fn1) the building blocks of the United States housing industry.(fn2) The United States lumber industry is facing plummeting demand.(fn3) New housing starts are expected to reach fewer than half of the starts in 2005, the lowest amount since World War II.(fn4) This decline has led to layoffs and mill closures. Simultaneously, lumber delivery costs are rising with the price of oil,(fn5) which reached record highs in 2008.(fn6) Although low lending rates and a weak dollar mitigate against the complete demise of the United States lumber industry, its short-term outlook is grim.(fn7) The outlook for Canada's lumber industry is not much better. Canadian lumber mills are also operating under capacity.(fn8) Low lumber prices, thus, are taxing the lumber industry on both sides of the border, and prices continue to drop.(fn9) Meanwhile, anti-free trade rhetoric grows in depressed local economies as American and Canadian jobs are outsourced, making a failing lumber industry and a backlash against free trade inevitable.
Against this backdrop, the United States faces a lumber war against Canada. For the last quarter of a century, the United States has accused Canada of dumping(fn10) subsidized lumber into the United States marketplace at the expense of American lumber producers. Neither country, however, can claim the high ground when government involvement in Canada gives rise to allegations of unfair subsidies and when powerful lobbying in the United States subverts the nation's professed allegiance to free trade. Moreover, the dispute resolution mechanisms that were supposed to settle the dispute have only exacerbated the tension between the two countries.
The latest attempt to settle the dispute are proving as contentious as previous attempts. On September 12, 2006, the United States and Canada signed the Softwood Lumber Agreement ("SLA 2006").(fn11) Under its terms, the two countries would end litigation over softwood lumber and allow free trade when market conditions were favorable.(fn12) The agreement seemed promising: as U.S. Trade Representative Susan Schwab announced, "[the United States has] closed this long-running dispute that has for too long created friction with our largest trading partner."(fn13) Within a year of the agreement, however, the United States had initiated arbitration proceedings in the London Court of International Arbitration ("LCIA") (fn14) to "compel Canada to live up to its trade obligations."(fn15) Two months before the arbitration panel issued its decision settling the dispute,(fn16) the United States filed a second request for arbitration.(fn17)
As this current dispute and years of conflict demonstrate, the softwood lumber dispute is too political to be resolved by any legal regime. Although the efficiency, the technical expertise, and the apolitical nature of the LCIA make it the best mechanism so far in settling trade agreement battles, the political and economic pressures inherent in this interminable lumber war mean that future battles are inevitable.
This Comment argues that the LCIA will be able to resolve disputes involving softwood lumber but not resolve the softwood lumber dispute. Part II reviews the history of the dispute. Part III discusses the lessons that Canada and the United States have learned about resolving trade disputes, several of which are reflected in the current agreement. Part IV examines why, although the current agreement provides a degree of neutrality and finality to the dispute that prior regimes lacked, inherent political pressures will prove too large for even this agreement. Finally, Part V concludes that the dispute might only be resolved with an economic compromise.
II. The Softwood Lumber Dispute
This Part describes the tumultuous history of the softwood lumber dispute. Section A discusses factors that have aggravated the dispute. Sections B through D describe the battles of the dispute known as Lumber I, Lumber II, Lumber III, and Lumber IV and the agreements that partitioned them. Finally, Section E summarizes the 2006 Softwood Lumber Agreement.
Because the United States lumber industry can only satisfy 50%(fn18) of the housing industry's demand for building material,(fn19) it imports a large percentage of its lumber from Canada.(fn20) Canada has an ample supply of accessible softwood lumber,(fn21) which it has had only limited success exporting to countries other than the United States.(fn22) Although this exchange seems mutually beneficial, two factors(fn23) make the trade relationship problematic:(fn24) (1) different systems of forest management and (2) international oversight of the domestic laws that govern the trade relationship.
1. Different Systems of Forest Management
First, and perhaps most significantly, the United States and Canada have different ways of managing their lumber resources. In the United States, private companies own most of the forests and sell short-term cutting rights to their timber in arm's-length transactions, either through auctions or through private contracts.(fn25) Market demand, thus, determines the price of the timber and directly affects the cost of turning the timber into lumber.(fn26)
In contrast, most of the forests in Canada are located on Crown (public) lands, which the provincial governments control.(fn27) Provincial control ensures an adequate timber supply to the local mills and stabilizes employment within the mill towns.(fn28) Each province has its own system of forest management and uses a different method to calculate the amount that harvesters must pay for the right to cut timber.(fn29) This system of timber pricing is difficult to change because harvesting rights are often embedded in long-term arrangements or licenses between harvesters and the provinces.(fn30)
The fundamental differences between the two systems result in what critics in the United States call an unfair subsidy for Canadian lumber producers (i.e., cheap timber) and what defenders in Canada call a "competitive advantage."(fn31) For the United States, the issue of subsidy is clear: when prices fall, United States lumber producers must reduce production to remain competitive, whereas the more insulated Canadian lumber producers are able to sell their lumber at low prices for a longer period, minimizing the need to cut production.(fn32) Canada, however, argues that the situation is more complicated: many United States markets prefer Canadian lumber;(fn33) the United States system is bogged down by environmental regulation;(fn34) the United States lumber mills are not as efficient; and trees in the United States are less accessible.(fn35)
Given, however, the tumultuous history of the dispute, these semantics-whether the "competitive advantage" amounts to a subsidy-are largely irrelevant. As long as the lumber industries in both Canada and the United States perceive each other as anti-competitive and continue to lobby their governments to protect their domestic interests, the dispute will not end, despite the availability of recourse to international dispute settlement forums.
2. International Oversight of Domestic Laws
Another aggravating factor that hinders the dispute's resolution is international oversight of domestic trade laws. Both Canada and the United States have countervailing duty(fn36) and antidumping(fn37) laws to limit foreign competition with domestic industries.(fn38) Countries implementing these laws maintain that the laws' purpose is to ensure fair trade, while countries exporting goods maintain that the laws' purpose is to protect domestic industries by discouraging cheap imports.(fn39)
In the United States, countervailing duty and antidumping cases begin when a domestic industry files a compliant alleging that a foreign government is subsidizing or dumping an export in the United States market to the detriment of a domestic industry.(fn40) The Department of Commerce ("Commerce")(fn41) conducts countervailing duty and antidumping investigations and determines whether the import is, in fact, being subsidized and dumped into the market.(fn42) Simultaneously, the International Trade Commission ("ITC" or "Commission")(fn43) investigates whether the subsidized import is causing an injury, or is threatening to cause an injury, to a domestic industry.(fn44) If an import is subsidized, and if that subsidization is injuring a domestic market, then the authorities will impose duties(fn45) to correct the market distortion.(fn46)
Because countervailing duty and antidumping laws affect international trade, bilateral and multilateral trade treaties regulate their application. In April 1994, after eight years of negotiations to reform the rules governing international trade,(fn47) the ministers of 117 countries signed the agreement that created the World Trade Organization ("WTO").(fn48) The WTO is an international...
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