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The news from Ottawa this week that trade missions are being organized to help build markets in the Asia Pacific for Canadian wood products is encouraging. Yet, we are always keenest to diversify when the U.S. causes us trade grief – over any commodity.
Unfortunately, we’ve been all too willing to run back into the welcoming arms of the U.S. as soon as conditions approve. Let’s not make that mistake again this time around with softwood.
Attracting new customers for Canadian softwood is possible; recent successes in China provide a roadmap for doing so. Canada went from sending less than one per cent of total softwood exports to China in 2006, to a high of 21 per cent in 2011. Recently, however, exports to China have been declining while exports to the U.S. are increasing as its housing sector recovers. Last week’s trade mission to China by the federal trade and finance ministers and softwood sector representatives is an attempt to once again increase exports to that country. Growing market share in the markets outside the U.S. where Canada is already a player (China and Japan) will help Canadian softwood exporters – particularly those in B.C. and Alberta with access to west coast ports – pivot some exports from the U.S. to Asia to avoid U.S. duties.
There are also markets beyond China with an increasing demand for softwood lumber. Vietnam, Thailand and Indonesia, for example, have booming packaging and furniture sectors that use softwood. Our competitors, including Chile and New Zealand, are way ahead of us in aggressively targeting these markets. There is no reason Canada cannot also compete here – we already hold a majority market share in the Philippines.
Expanding our customer base obviously makes us less reliant on the U.S. It also gives us more leverage with the U.S when we sit down to negotiate a new softwood lumber agreement – or push for softwood to be included in NAFTA. The U.S. does not have enough domestic softwood production to meet demand; it relies on imports to fill the gap, with 96 per cent of those coming from Canada. It has always been our number one softwood customer, so when duties are imposed, exporters have had little choice but to pay the extra charges – or go out of business. This time, our customer base for softwood is more diverse than the last time the U.S. slapped duties on our lumber in the early 2000s. But even better than two strong customers outside the U.S. would be five or 10.
The downside to market diversification is that it takes time, and Canadian softwood exports are facing extra charges on their shipments into the U.S. right now. There are a couple other lines of defence that Canada can pursue in the more immediate term: appeal the latest duties and work with our allies within the U.S. put a spotlight on the impact softwood duties will have on American consumers.
Ottawa has already signaled its intent to litigate this most recent round of export taxes, and history is on our side. Since the 1980’s, Canada has won every appeal of U.S. duties we have made to NAFTA and World Trade Organizations fighting U.S. But this also takes time – the appeal process will drag on for at least two years. In the meantime, Canadian companies exporting lumber to the U.S. must pay the U.S. duties.
Our best hope for a quick resolution is to get the new U.S. administration onside. At first glance, this may seem like a pipe dream, but softwood duties have noticeable economic impacts on both sides of the border. Canada should be working with our natural allies in the U.S. such as the home builders and lumber retailers to reiterate that message. In the U.S., it is the consumer that will be hardest hit – the family that can no longer afford to buy a new home, and workers in construction, real estate, and mattress bed frame manufacturing who will face jobs and wage losses as the dispute runs on. Canadian softwood plays a role in U.S. economic growth, and restricting its import through duties will hurt most the very people who voted President Trump into office.
We have only just begun the latest softwood battle, but Canada has multiple weapons to use in the fight. Victory will only be achieved if we use them all.
Naomi Christensen is the senior policy analyst at the Canada West Foundation.
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