U.S. Trade Representative Katherine Tai will meet with her Canadian and Mexican counterparts on Monday to review progress in the new North American trade agreement, but she is already under pressure from home builders and lawmakers to cut U.S. tariffs on Canadian lumber.
To put it as simply as possible, the Biden administration is being asked to address the “softwood lumber” dispute that has been going on between Canada and the U.S. for a number of decades. The dispute centers on American claims that Canada unfairly subsidizes its lumber industry through stumpage fees, or the prices charged to harvest timber on Crown land.
What is a stumpage rate?
In the US, most wood from publicly owned forested land is sold by auction on the open market. Wood from privately owned forested land is sold on the open market through a variety of buyer/seller agreements.
In Canada, about 70 percent of wood that comes from public lands, is “sold” – meaning title is transferred from the public owner to a private owner, at a stumpage rate set by the provincial government. In this method, provencial governments will set ba stumpage rate that regflects local markets, ensuring that the rate can respond to changes in the market.
According to the U.S. lumber industry, with Canadian wood from public lands being sold at a stumpage rate set by the government – this rate is too low. As such, they believe these stumpage rates provide a subsidy to the Canadian forest industry.
In 2018, The Trump administration imposed 20 percent tariffs on Canadian lumber, citing the stumpage fees as being subsidies as well as accusing Canadian lumber firms of “dumping,” referring to the sale of Canadian softwood lumber in the US at prices below those of comparable sales in Canada, or at prices below the cost of production. That tariff was reduced to 9 percent last November.
The current situation with the lumber dispute
Interestingly, Republican lawmakers have sided with the National Association of Home Builders (NAHB), in asking Tai during hearings in Congress last week to eliminate the 9 percent tariff on Canadian softwood lumber imports, according to Reuters.
The global pandemic, along with shortages of lumber and soaring building costs have put affordable homes out of the reach of working families, says Senator John Thune of South Dakota, telling Tai that high lumber costs were “having a tremendous impact on the ground” in his home state of South Dakota.
“The Biden administration must address these unprecedented lumber and steel costs and broader supply-chain woes or risk undermining the economic recovery,” said Stephen Sandherr, chief executive officer of the Associated General Contractors of America. “Without tariff relief and other measures, vital construction projects will fall behind schedule or be canceled.”
Tai told the Senators last week that despite the high prices, the tariffs were allowed under the trade agreement signed by Mexico, Canada and the U.S., adding that the fundamental dispute remains and there have been no talks on a new lumber quota arrangement.
“In order to have an agreement and in order to have a negotiation, you need to have a partner. And thus far, the Canadians have not expressed interest in engaging,” Tai said.
Canada disagrees, with Youmy Han, a spokeswoman for Canada’s trade ministry, saying that Prime Minister Justin Trudeau had spoken with President Joe Biden about the trade agreement. “Our government believes a negotiated agreement is possible and in the best interests of both countries,” Han said in an emailed statement to Reuters.
We’ll know more after Monday’s meeting, hopefully. As it stands right now, builders are growing frustrated with a lack of high-level engagement with high-level Biden administration officials on the issue as they watch lumber prices rise.
