Political Economy of the U.S.-Canada Softwood Lumber Dispute

Article excerpt

The United States and Canada enjoy the benefits of the world's largest bilateral trading relationship. The United States accounts for about eighty percent of Canada's total foreign trade, and Canada accounts for more than twenty percent of the goods and services trade of the United States. The two-way trade amounts to well over U.S.$1 billion per day. For the most part this trade flows smoothly and frictions concerning it rarely arise. However, United States-Canada trade is plagued by recurrent disputes within natural resource industries--the most important and persistent of these disputes is that concerning trade in softwood lumber. The intractability of this dispute is rooted in differences in ownership and management of natural resources in the United States and Canada, which in turn are reflections of different attitudes toward the role of the state in the two countries. Because these differences are unlikely to change within the foreseeable future, a permanent solution to the softwood lumber dispute is unlikely. The greatest hope for resolution is continued integration of the United States and Canadian softwood lumber industries. However, whether even increased integration of the industries can resolve the dispute is uncertain so long as differences in ownership and management of natural resources in the two countries persist.

I. BACKGROUND

Softwood lumber trade between the United States and Canada has been a matter of some contention from the time that the Canadian Constitution gave provinces the rights to forest resources in 1867. (1) While arguments on both sides have taken on increased sophistication during the past quarter-century, the dispute is rooted in the longstanding structural differences in the Canadian and United States forestry industries. Some historical perspective reveals that attempts to restrict softwood lumber imports into the United States are nothing new.

For a brief period of time in the mid-nineteenth century free trade in softwood lumber between the United States and Canada existed by virtue of the Reciprocity Treaty of 1854 which "provided for the free entrance into either country of natural products and unmanufactured raw material from the other." (Lower, 1938) However, the United States abrogated the Reciprocity Treaty in 1866 and imposed a twenty percent tariff on Canadian lumber, which was countered by a Canadian export tax of one dollar per thousand feet on pine logs (later increased to two dollars). (Lower, 1938)

In 1890 the United States reduced its tariff by one-half in return for Canada's removing its export tax on logs which were desired as inputs by the United States lumber industry. For a brief period from 1894 to 1897, free trade again prevailed between the United States and Canada in lumber products. However, with the Dingley Tariff of 1897 the United States lumber industry succeeded in having a $2 per thousand board feet import tariff on lumber reimposed. (Lower, 1938)

Early in the twentieth century the United States proposed another reciprocity treaty providing for free trade in natural resource products, but this time Canada rejected the proposal. In the Underwood-Simmons Tariff Act of 1913, despite pressures for continued protection by the domestic lumber industry, the United States Congress removed the tariff from softwood lumber. (Braudo and Trebilcock, 2002) This situation did not last for long, however. The Fordney-McCumber Tariff of 1922 established an average tariff rate on "Wood and manufactures" at 7.97 percent. (Taussig, 1931) The Smoot-Hawley Tariff of 1930 placed a specific tariff of $1 per thousand board feet on softwood lumber. (2) This act was amended in 1932 to raise the rate to almost twenty-five percent ad valorem equivalent, with severe economic impact on the Canadian industry. The tariff was reduced by about one-half by a trade pact agreed in 1935. (Reed, 2001) Subsequent trade negotiations reduced the tariff further so that by the 1950s the rate of protection was relatively low. …