The never-ending softwood saga

After a nine-year "truce," the Canada-US dispute over softwood lumber is about to return with a bang.

In the history of international trade in Canada, no dispute with the US has garnered as much attention and created as many jobs for lobbyists and lawyers as the one over softwood lumber. Absent from the media in recent years, the dispute is about to return with a bang.

After a nine-year "truce," Canadian producers fear that the agreement with their neighbours south of the border, set to expire in October (even if it provides for a one-year standstill on trade remedy actions), will not be renewed. Considering the powerful lobby groups defending US producers, Canadian companies can expect the worst. Indeed, the dispute over softwood is a prime example of the way special-interest groups influence politicians’ rhetoric about free trade.

I’ve wondered for some time why the US softwood lumber lobby is so effective at convincing elected officials to impose tariffs on Canadian wood. After all, Canada has allies in the US, including softwood lumber users who can counterbalance the US lobby. Homebuilders and construction material retailers, among others, want easy access to Canadian lumber, which is cheaper than its US counterpart. Combined, these businesses account for 30 times more US jobs than producers do. What’s more, they have more financial leverage and they outnumber them. So why are they always on the losing end of the political battles, while US producers get the protection they want?

The answer is complex, as I realized while doing academic research on the issue. US softwood lumber consumers are unable to promote their interests because softwood is but one input among many in their production processes. Also, their interests extend across various industries, from retailers such as Home Depot to furniture manufacturers, making it difficult to set common priorities. Lastly, these industries are spread out across the US, negating one of the key factors in mobilizing and effectively advancing one’s interests with Washington politicians, namely geographic convergence (in a county or state).

Softwood producers are concentrated in the southern and western states, and most of the politicians who supported bills restricting Canadian imports hail from these reasons.

As for Canadian producers, their efforts were not as coordinated as they could have been. The softwood lumber issue was not approached from the same angle by all provinces. For example, BC has large, good-quality trees, while the eastern part of the country has smaller trees that are more expensive to cut and process. In addition, parasites have forced some producers to quickly harvest enormous quantities of wood doomed to be wasted. Producers in BC wanted to export large amounts of lumber quickly, and given that their lumber costs less, they were able to generate profits, despite the quotas and tariffs.

Conversely, US producers concerted their efforts and acted effectively.

So how can this seemingly never-ending dispute be resolved?

Cross-ownership of North American pulp and paper — as a way to "eliminate" the border and the inevitable disputes — could be a solution. For example, in October 2014 the Financial Post reported that the Canadian company Interfor recently acquired a US producer whose CEO was once at the helm of the US Lumber Coalition, a lobby group actively involved in the dispute. According to the article ("The granddaddy of all Canadian-US trade disputes is about to rear its ugly head again"), three Canadian companies today own 12% of softwood production in the southeast US — an interesting development as the dispute is possibly about to resume. Like the old saying goes: if you can’t beat them, join them!