Possible 'Handshake Agreement'' Reached in U.S.-Canada Lumber Dispute

SBCA recently communicated with the Honorable Judy Rising Reinke, Acting Director General for the U.S. and Foreign Commercial Service and Assistant Secretary for Global Markets with the U.S. Department of Commerce (DOC). In an email correspondence dated May 31, 2017, she stated the following:

Dear Mr. Grundahl,

I see that Jacqueline is helping you with your ACCESS registration – I hope that is satisfactorily resolved now.  For your information, I’m copying my counterpart, Ron Lorentzen, who is the Acting Assistant Secretary for Enforcement and Compliance (my name seems to have gotten out there as a POC, which isn’t a problem, since I work closely with the E&C team!).  Thank you for providing input from SBCA on this important topic.

Kind regards,
Judy Reinke

Hence, SBCA has been engaged in providing the DOC requested input with respect to the potential for harm that can take place to our manufacturing industry in North America, given the free market distortions that an antidumpting and countervailing duty (AD/CVD) action will cause.

At times SBCA’s position on software lumber trade can be misunderstood. SBCA has always been an advocate for free trade of lumber and free trade generally. The reason for this is that any distortion of the lumber market due to any type of regulation, which often has the effect of creating winners and losers, always seems to harm SBCA small business members.

During a conversation on July 7, with a non-DOC source directly involved in the U.S.-Canadian softwood lumber agreement (SLA) negotiations, SBCA learned there is a ‘handshake’ agreement between DOC Secretary Wilbur Ross and Canadian Minister of Foreign Affairs Chrystia Freeland that is in the process of being finalized. This proposal has terms and conditions very similar to, if not identical to, the following:

(Impacts to the U.S. structural components industry are in parentheses)

1.   The agreement would last for ten years.

(This is a similar timeframe to the previous SLA and is great for SBCA members because it will provide greater lumber market stability for a set amount of time).

2.   The agreement will contain negotiated restriction of Canadian softwood lumber shipments into the US market.  Initially, this will be along the lines of an import quota that will limit Canadian softwood lumber market share in the U.S. to 31 percent over the first six months from a date agreed upon.

For the next 12 months after the first 6 months, the market share cap would be lowered to 29 percent.

For the remainder of the agreement, the market share cap would be set at 28 percent.

3.   The Canadian government would administer the export caps and as long as their market share remains below the cap there will not be duties, taxes or export charges assessed on Canadian lumber. Punitive action for exceeding the prescribed market share caps has yet to be defined.

(For comparison, Canada’s U.S. market share of softwood lumber has historically been between 30-33 percent.  With sustained SPF stumpage rate restrictions soon to take effect in British Columbia (B.C.), these market share reductions may have occurred naturally. This agreement would be close to a free trade agreement).

4.   The Canadian government would have the ability to adjust exports from various provinces to remain under the market share cap.  For example, as lumber exports out of B.C. decline, exports from Quebec could increase.  It’s important to note that exports coming out of the Atlantic Provinces will be exempt and will not contribute to the market share cap. When lumber milled in Canada comes from logs purchased in the US, the resulting lumber will also be exempt.

5.   The market share cap will be computed over a one-year period.  This would allow the Canadian government the flexibility to export a quantity of lumber exceeding the cap over a period of a few weeks or months, as long as total exports did not exceed the cap over the full year.

(This flexibility is also very good for SBCA members as it will allow lumber supply to adjust to the seasonal demands of construction in the U.S.).

6.   The cost of lumber will also be a factor when it comes to the export cap. It has been suggested that the Random Lengths composite framing lumber index  be used as a trigger to either increase Canada’s allowable market share cap or even eliminate the cap while the cost is above a predetermined level (somewhere between $380/MBF and $390/MBF, for example).

(This is a good thing for all softwood lumber users. If supply becomes constrained in the U.S. due to the market share cap and costs rise above a certain amount, then the restriction on Canadian exports would be lessened).

7.   The 2006 softwood lumber agreement will serve as the foundation for all calculated triggers and punitive actions.

In SBCA’s opinion, if the foregoing framework indeed becomes part of the new SLA, this will be a significant win for everyone (given that in a negotiation no one is ever 100 percent satisfied).

It is well known that SBCA members are typical of US entrepreneurial businesses that flourish best in unencumbered markets, because they are very bright and creative business folks. If these are the proposed terms, they will allow all North American SBCA members to continue to be creative and flourish as there will be much less market distortion than was otherwise expected.

SBCA will continue to monitor these developments closely and will publish new information as soon as it is confirmed.

 

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