SOFTWOOD LUMBER IMPORTS FROM CANADA: HISTORY AND ANALYSIS OF THE DISPUTE
CRS Report for Congress
Softwood Lumber Imports From Canada:
History and Analysis of the Dispute
February 2, 2001
Ross W. Gorte
Natural Resource Economist and Senior Policy Analyst
Resources, Science, and Industry Division
Congressional Research Service The Library of Congress
Softwood Lumber Imports From Canada:
History and Analysis of the Dispute
Softwood lumber imports from Canada have been of concern to U.S. lumber
producers for many years because of questions about Canadian government timber
pricing policies. In 1996, the United States and Canada reached a 5-year agreement
on restrictions — a fee on lumber imports from four Canadian provinces in excess of
the specified quota — that expires on March 31, 2001. Resolutions and bills have
been introduced in recent Congresses that, had they been enacted, would have
restricted lumber imports from Canada or eliminated the basis for restricting thoseth
imports. The 107 Congress may also consider legislation on this issue.
U.S. lumber producers argue that they have been injured by subsidies to their
Canadian competitors. Stumpage fees (for the right to harvest trees) charged by the
provinces are asserted to be subsidized (priced at less than their market value). In
Canada, provincial government timberlands dominate the supply system, with long-
term leases to private firms to assure stable timber supplies, and with timber priced
administratively to assure financially feasible production. Private timberlands
dominate the U.S. supply system, with competitive bidding to allocate and price most
public timber. The use of administered prices by the provincial governments opens
the possibility that the Canadian system results in transfers to the private sector at less
than the fair market value. Major differences in tree species, sizes, and grades, in
measurement systems, in requirements on harvesters, in environmental protection, and
in other factors, however, make comparisons difficult, controversial, and generally
Canadian log export restrictions are also asserted to be subsidies, because the
restrictions assure more supply (less competition for timber) for Canadian producers.
Evidence from the U.S. Pacific Northwest, where private logs can be exported but
public timber cannot, indicates a substantial price differential, with higher prices for
exported logs. However, Canada has recently challenged as GATT violations the
U.S. trade law provisions that include export restrictions as subsidies.
Injuries to U.S. lumber producers have also been difficult to establish decisively.
Canada’s share of the U.S. lumber market has risen substantially, from less than 7%
in the early 1950s to more than 35% in the mid-1990s. Under the 1996 agreement,
the quantity of imports has continued to rise, but the market share has been relatively
stable. In the past two years, the dispute has also included whether certain softwood
products are modified construction lumber subject to the 1996 restrictions (the U.S.
view) or are specialty products outside the agreement (the Canadian view). The
impact of import restrictions on domestic lumber prices is not easily estimated, but
supply/demand theory suggests that restrictions would put upward pressure on U.S.
Other factors are also important. The persistence of the dispute may reflect
tensions between increasingly free-trade U.S. policies and protection from imports
available under U.S. trade law. Also, probable differences in environmental
protection complicate cross-border comparisons.
History of the Dispute............................................2
The 1982–1983 Investigation...................................2
The 1986 Memorandum of Understanding.........................3
The 1992 Countervailing Duty..................................5
The 1996 Agreement.........................................7
Protection Under U.S. Trade Law...................................9
Safeguards ............................................. 9
Section 301 Action.......................................9
Analysis: Subsidies and Injury.....................................10
What is Softwood Lumber?...................................10
Subsidies to Canadian Lumber Producers.........................12
Canadian Stumpage Fees.................................13
Administrative Stumpage Fees.........................14
BC Appraised Stumpage Fees..........................14
Comparing Canadian and U.S. Stumpage Fees
Injuries to U.S. Lumber Producers..............................19
Canadian Share of the U.S. Lumber Market...................19
U.S. Lumber Prices.....................................21
Other Factors Affecting the Trade Dispute........................25
U.S. Trade Law Structure................................26
Summary and Conclusions........................................27
List of Figures
Figure 1. U.S. Lumber Consumption in Percentage.....................19
Figure 2. Lumber Consumption in Billion Board Feet (BBF)..............20
Figure 3. Random Lengths Average Monthly Composite Prices
for Framing Lumber in Current (Nominal) Dollars..................22
Figure 4. Random Lengths Average Monthly Composite Price
for Framing Lumber in Real (1999) Dollars
(adjusted to 1999 dollars with the CPI-U)........................23
List of Tables
Table 1. The Annual Average and Standard Deviation for the Random Length’s
Framing Lumber Weekly Composite Price........................25
Softwood Lumber Imports From Canada:
History and Analysis of the Dispute
In April 1996, the United States and Canada reached a 5-year agreement to
impose a fee on imports above a specified level of Canadian softwood lumber shipped
to the United States. Despite hopes that this agreement would quiet a long-running
dispute over increasing imports of softwood lumber from Canada, disagreements over
the products covered and the price impacts of the agreement have persisted. The
agreement is scheduled to terminate on March 31, 2001. Some interests would like
to see the agreement renewed or modified, others would like to see it ended with
alternative approaches to resolving the dispute, and still others would like to see no
restrictions on imports of Canadian lumber. Legislation has been introduced in past
Congresses both to restrict Canadian lumber imports and to end import restrictions.
The 107th Congress may also consider legislation on this issue.
Tension between the United States and Canada over softwood lumber trade may
be inevitable. Both countries have extensive forest resources, but vastly different
population levels and development pressures. Vast stretches of Canada are still
largely undeveloped, while relatively fewer areas in the United States (outside Alaska)
have remained relatively pristine. These different situations have led to different
forest policies. In Canada, the forests are largely owned by the provincial
governments, which have allocated and priced the timber to encourage the
development of the extensive timber reserves. In the United States, the majority of
timberlands are privately owned; private markets dominate the allocation and pricing
of timber, although U.S. federal and other government-owned forests are regionally
important. The U.S. Forest Service used timber as a tool to foster western expansion
in its early years, but rising population pressures and changing demands for the goods
and services provided by forests have altered its approach to management of U.S.
federal forests and general U.S. environmental policy as it affects public and private
forest management. U.S. lumber producers view the Canadian policies as more
favorable for timber production, and thus as an unfair competitive advantage in
supplying the U.S. lumber market, especially when the market is weak. However,
since the U.S. and Canadian governments influence timber production in different
ways (because of different histories, purposes, and situations), comparing the relative
competitiveness of U.S. and Canadian lumber producers is difficult, at best.
These uncertainties are exacerbated by the differing views of U.S. lumber
producers and U.S. lumber consumers on lumber prices. Producers and consumers
would probably agree that policies which raise lumber prices by increasing production
costs (e.g., by additional state forest practice regulations) were undesirable, because
consumers could be harmed without benefitting producers. However, policies that
might raise lumber prices without increasing lumber production costs, such as by
restricting lumber imports, would generally be supported by producers and opposed
by consumers. These different domestic views, combined with the problems in
comparing relative competitiveness, make resolving this dispute difficult, and help
explain why the dispute has persisted for at least the past 20 years.
This CRS report summarizes the 20-year history of the current debate and the
various actions taken to restrict imports of Canadian lumber. It provides a brief
summary of U.S. trade law protection provisions, and then examines several aspects
of the dispute: what constitutes softwood lumber; allegations of Canadian subsidies
and of injury to U.S. producers; and other relevant factors.
History of the Dispute
The debate over restrictions on imports of Canadian lumber began early in the
20th Century. In 1930 (during the Great Depression), a duty of $1 per thousand board
feet (MBF)1 was assessed on Canadian lumber.2 This rose to $4 per MBF by 1935,
when trade negotiations reduced the duty back to $1 per MBF. In 1937, lumber
producers in Oregon and Washington unsuccessfully petitioned the U.S. federal
government for protection from unfair Canadian competition.
Imports of Canadian lumber increased slowly in subsequent decades. Finally, in
1962, western U.S. lumber producers became distressed enough by the rise in
Canadian share of the U.S. lumber market (which had risen to 12% up from 7% in the
early 1950s) that they sought protection from Canadian lumber imports. The U.S.
Lumbermen’s Economic Survival Committee prompted congressional hearings and
a White House task force and petitioned the U.S. Tariff Commission (now the U.S.
International Trade Commission) for restrictions on Canadian lumber imports. In
1963, the Tariff Commission chose not to impose restrictions, and efforts to restrict
lumber imports abated.
The 1982–1983 Investigation
In 1981, following a brief but steep recession, the Northwest Independent Forest
Manufacturers (a regional U.S. wood products trade association) alleged that
subsidies to Canadian lumber producers had increased unemployment in the U.S.
Pacific Northwest. In response to these concerns, House Ways and Means
Committee Chairman Sam Gibbons (FL) and Senate Finance Committee Chairman
1Thousand board feet (MBF) is the standard measure for logs and lumber in the United States.
One board foot is a 1-foot long segment of a board that is 1 inch thick and 12 inches wide (=
144 cubic inches). For logs, the MBF volume is estimated using “log rules,” tables or
equations that predict the volume of lumber that could be produced from a log of a given
diameter and length; today, the volume of lumber produced from a given log can be much
greater than the log rule estimate, because of technological improvements since the rules were
developed. For lumber, the MBF volume is greater than the actual lumber volume, because
drying and finishing reduces the lumber from its original rough-cut dimensions; for example,
a 2x4 was originally 2 inches thick and 4 inches wide when cut from the log, but today a dry,
finished 2x4 must be at least 1.5 inches thick and 3.5 inches wide.
2Random Lengths, What’s New This Week? U.S.-Canada Trade Dispute Timeline, at [http://
www.randomlengths.com/newtimeline.html], on May 2, 2000.
Bob Dole (KS), together with committee members Bob Packwood (OR) and John
Danforth (MO), sent letters to the International Trade Commission (ITC) requesting
an investigation of the complaints.
In addition, a group of U.S. lumber producers, the Coalition for Fair Canadian
Lumber Imports, came together, and in October 1982, filed a countervailing duty
petition3 with the International Trade Administration (ITA) of the U.S. Department
of Commerce, arguing that the Canadian provinces were subsidizing their lumber
producers, and with the ITC, arguing that the U.S. lumber industry had been harmed
by subsidized Canadian provincial stumpage fees.4 In November 1982, the ITC
reached its preliminary finding that there was a “reasonable indication” that the U.S.5
lumber industry had been “materially injured” by imports of Canadian lumber.
However, the ITA issued its preliminary finding in March 1983 that Canadian
subsidies were de minimis (less than 0.5%), and that stumpage fees were not subsidies
because they were generally available to all industries (even though only one group
of industries was interested), were established using the same process for all stumpage
purchasers (i.e., were not preferential), and did not relieve the purchasers of any
statutory or contractual obligations or production costs.6 The final ITA finding was
consistent with the preliminary, and thus, no countervailing duty was established.7
The 1986 Memorandum of Understanding
In March 1985, the U.S. Trade Representative (USTR) asked the ITC to update
its 1982 study on injury to U.S. lumber producers. The ITC completed its study in
October 1985, reporting that major production costs are lower for Canadian lumber
producers.8 The findings were widely touted by the Coalition for Fair Lumber
Imports (CFLI) as evidence of Canadian subsidies and of the need for restrictions.
The CFLI apparently decided that political action would be needed to reverse the
1983 ITA ruling.9 Numerous bills were introduced in 1985 to restrict Canadian
lumber imports directly, or indirectly by revising statutory definitions of natural
3Brief descriptions of the countervailing duty process and other protection provisions of U.S.
trade law are provided after this historical account.
4“Stumpage” is the term used for fees or prices paid to timberland owners by lumber
producers for the right to cut the standing trees and remove them from the site.
547 Federal Register 54183-54189 (Dec. 1, 1982).
648 Federal Register 10395-10418 (March 11, 1983).
748 Federal Register 24159-24183 (May 31, 1983).
8U.S. International Trade Commission, Conditions Relating to the Importation of Softwood
Lumber Into the United States; Report to the President on Investigation No. 332-210 Under
Section 332 of the Tariff Act of 1930, USITC Publication 1765 (Washington, DC: October
9Benjamin Cashore, Flights of the Phoenix: Explaining the Durability of the Canada-US
Softwood Lumber Dispute (Orono, ME: Canadian-American Center, Dec. 1997), 58 p.
(Hereafter referred to as Cashore, Flights of the Phoenix.)
resource subsidies.10 At the same time, the Reagan Administration was seeking
congressional approval of “fast-track” authority for the U.S.-Canada Free Trade
Agreement then being negotiated. In February 1986, Sen. Max Baucus led a floor
discussion about concerns over Canadian lumber imports, and promised opposition
to the free trade agreement if the lumber trade dispute was not resolved first.11
In addition, on October 4, 1985, the U.S. Court of International Trade (CIT)
issued a ruling which, in part, reversed the ITA standard for determining the
countervailable benefits on carbon black (a petroleum product) imports from the
Mexican government.12 This was viewed by some as a precedent for natural resources
generally, and thus for reversing the ITA decision on Canadian stumpage fees,13
although other CIT rulings apparently conflicted with the ruling on carbon black.
The combination of these events led the CFLI to file a new countervailing duty
petition with the ITA and the ITC on May 19, 1986. In July, the ITC again reached
a preliminary decision that there was “a reasonable indication” that the U.S. industry
had been “materially injured” by imports of Canadian lumber.14 On October 22, the
ITA reversed its 1983 decision, with a preliminary finding that Canadian stumpage
was actually provided to a single industry at preferential rates, and that the “estimated15
net subsidy is 15.00 percent ad valorem” (i.e., 15% of lumber market prices). This
finding established a preliminary 15% ad valorem countervailing duty on Canadian
softwood lumber imports, pending the final ITA subsidy determination due on
December 31, 1986.
After initially rejecting the notion of a negotiated settlement, the Canadian
provincial premiers voted 9-1 (with Ontario opposed) in November to enter into
negotiations with the U.S. Commerce Department.16 On December 30, 1986, the day
before the final ITA subsidy determination, the two countries signed a Memorandum
of Understanding (MOU). The MOU established a 15% tax on Canadian softwood
lumber exports to the United States, to be replaced by higher provincial stumpage fees
within 5 years; the CFLI withdrew its petition and the U.S. Department of Commerce
returned the bonds and deposits collected under the preliminary duty.
Also on December 30, 1986, President Reagan determined that the Canadian
federal government would not be able to collect the export fees for several days, and
10See CRS Report IB85178, Canadian Lumber Imports: Impacts on the U.S. Lumber
Industry (archived Feb. 9, 1987).
11Hon. Max Baucus, “Special Order Session on Canadian Lumber Imports,” Congressional
Record, v. 132, Part 2 (Feb. 26, 1986), pp. 2794-2818.
12Cabot Corporation v. United States, 620 F.Supp. 722 (CIT 1985).
13Cashore, Flights of the Phoenix, p. 13.
1451 Federal Register 25752 (July 16, 1986).
1551 Federal Register 37453-37469 (Oct. 22, 1986).
16Random Lengths, What’s New This Week? U.S.-Canada Trade Dispute Timeline: Histor-
ical Background Information, 1982-1994, at [http://www.randomlengths.com/newtimeline-
history.html], on May 2, 2000.
that this situation was within the parameters of §301 of the Trade Act of 1974 (19
U.S.C. §2411). Thus, a duty was imposed on Canadian softwood lumber imports
until the Commerce Department determined that Canada had begun collecting the
export tax, on January 8, 1987.
The 1992 Countervailing Duty
Two Canadian provinces responded to the MOU by raising stumpage fees and
reducing their export taxes. In the fall of 1987, the British Columbia (BC) provincial
government implemented higher stumpage fees and the Canadian government17
rescinded the 15% export tax in December. The U.S. Commerce Department also
agreed to lowering the export fee for Quebec lumber exports to 8% in April 1988,
and to 6.2% in November 1990, because of higher stumpage fees in that province.
In September 1991, the Canadian federal government announced that it would
withdraw from the MOU, because most of the provinces had raised their stumpage
fees. Canada officially terminated the MOU on October 4. The USTR announced
that, because of Canada’s action, it had begun a §301 investigation of Canada’s laws18
and policies affecting softwood lumber exports. The USTR also determined that the
Canadian practices were “unreasonable and burden or restrict United States
commerce, and that expeditious action in this matter is required.” Using its §301
authority, the USTR imposed duties on imports of Canadian lumber from certain
provinces of up to 15% ad valorem “contingent upon affirmative final subsidy and
injury determinations in the countervailing duty investigation ....”19
On October 31, the ITA self-initiated a countervailing duty investigation.20 In
December, the ITC found “a reasonable indication” that the U.S. lumber industry had
been “materially injured” by imports of Canadian lumber.21 On March 12, 1992, the
ITA issued its preliminary determination that the net subsidies to Canadian lumber
producers were 14.48% ad valorem.22 The determination was based partly on
allegedly subsidized stumpage fees and partly on BC restrictions on log exports that
depressed domestic timber prices. The final ITA determination was issued on May
28, and established a countervailing duty of 6.51% ad valorem.23 The determination
was confirmed by the ITC in July when it reported that the U.S. lumber industry had24
indeed been “materially injured” by imports of Canadian lumber.
1856 Federal Register 50738-50740 (Oct. 8, 1991). Section 301 protection is described later
in this report.
19Ibid., p. 50739.
2056 Federal Register 56055-56058 (Oct. 31, 1991).
2156 Federal Register 67099 (Dec. 27, 1991).
2257 Federal Register 8800-8817 (March 12, 1992).
2357 Federal Register 22570-22624 (May 28, 1992).
2457 Federal Register 31389 (July 15, 1992).
The Canadian federal and provincial governments objected strongly to what they
believed was a politically-driven countervailing duty that infringed on their sovereign
rights.25 In August 1992, the Canadian federal government filed appeals of both the
ITA finding of subsidies and ITC finding of injury to bi-national review panels under
Chapter 19 of the U.S.-Canada Free Trade Agreement (FTA).26 In May 1993, the
subsidy panel remanded the ITA finding of subsidies, finding that the ITA had not
properly applied the agency’s “specificity” guidelines or provided evidence that the27
stumpage fees had distorted markets.
The ITA reviewed its original decision and the findings of the bi-national review
panel, and in September, affirmed its previous determination of Canadian subsidies,28
but increased the estimated level to 11.54% ad valorem. In December, the bi-
national review panel ordered a second remand, and directed the ITA to find that
there were no subsidies; on January 6, 1994, the ITA’s second redetermination
complied with this order, and the bi-national panel accepted this redetermination on29
February 23, 1994.
On April 6, using a provision of the FTA, the USTR requested an Extraordinary
Challenge Committee (ECC) to review the bi-national panels’ decisions.30 On August
3, 1994, the ECC dismissed the request “for failure to meet the standards of an
extraordinary challenge set forth under FTA Article 1904.13.”31 The ECC order also
25Cashore, Flights of the Phoenix, p. 22.
26Canada also challenged the U.S. action under the terms of the General Agreement on Tariffs
and Trade (GATT). A GATT panel ruled in December that the United States was within its
rights to self-initiate a countervailing duty investigation, but acted improperly in imposing
interim bonds on lumber imports during the investigation. See [http://www.random
27United States-Canada Free Trade Agreement, Article 1904 Binational Panel Review, In the
Matter Certain Softwood Lumber Products From Canada, Decision of the Panel, U.S.A.-92-
2858 Federal Register 69345 (Dec. 30, 1993).
2959 Federal Register 12584 (March 17, 1994).
3059 Federal Register 21754 (April 26, 1994). In July 1993, the bi-national injury panel
remanded the ITC finding of injury, because of inadequate evidence that Canadian lumber had
caused injury. [Article 1904 Binational Panel Review Under the United States-Canada Free
Trade Agreement, In the Matter of: Softwood Lumber From Canada, Decision of the Panel
Reviewing the Final Determination of the U.S. International Trade Commission, USA-92-
by affirming its original finding of injury to the U.S. industry. On January 28, 1994, the bi-
national panel remanded part of the ITC redetermination. [59 Federal Register 6946 (Feb.
14, 1994).] The ITC held firm, and on July 6, 1994, the bi-national injury panel again
remanded part of the ITC redetermination. [59 Federal Register 37744 (July 25, 1994).]
However, the ITC and bi-national injury panel determinations became moot after the
Extraordinary Challenge Panel was dismissed in August 1994.
31Article 1904 Extraordinary Challenge Committee Pursuant t o the United States-Canada
Free Trade Agreement, In the Matter Of: Certain Softwood Lumber Products From Canada,
directed that the bi-national subsidy panel’s decisions were to remain in effect, and
affirmed the panel’s order dated February 23, 1994. On August 14, the Commerce
Department issued a notice officially revoking the countervailing duty.32 On October
19, the USTR announced that, in light of the bi-national panel proceedings, it would
“terminate action taken under section 301 of the Trade Act of 1974 on certain entries
of softwood lumber products from Canada” — i.e., that the Customs Service would
stop collecting duties on Canadian lumber.33
The 1996 Agreement
Two events in September 1994, shortly after the Extraordinary Challenge Panel
was dismissed, were significant in inducing Canada to negotiate an agreement with
the United States to restrict lumber exports. First, the U.S. CFLI filed a lawsuit
challenging the constitutionality of the review process in Section 19 of the U.S.-
Canada Free Trade Agreement.
The second event was the implementation of the Uruguay Round Agreements
on the General Agreement on Tariffs and Trade (GATT) and the World Trade
Organization (WTO). In §101(a)(2) of P.L. 103-465 (the implementing legislation
for the GATT Uruguay Round Agreements),34 Congress explicitly approved the
President’s “statement of administrative action” (SAA) that had accompanied the
President’s proposed legislation.35 The SAA stated that lumber imports from Canada
could be subject to countervailing duties under Uruguay Agreements on GATT;
In the past, the Department of Commerce ... has countervailed a variety of
programs where the government has provided a benefit through private parties.
(See, e.g., Certain Softwood Lumber Products from Canada....) ...
In cases where the government acts through a private party, such as in
Certain Softwood Lumber Products from Canada ... (which involved export
restraints that led directly to a discernible lowering of input costs), the
Administration intends that the law continue to be administered on a case-by-case
basis consistent with the preceding paragraph. It is the Administration’s view that
Article 1.1(a)(1)(iv) of the Subsidies Agreement and section 771(5)(B)(iii)
encompass indirect subsidy practices like those which Commerce has
countervailed in the past, and that these types of indirect subsidies will continue
Memorandum Opinions and Order, Secretariat File No. ECC-94-1904-01USA (August 3,
3259 Federal Register 42029 (Aug. 14, 1994).
3359 Federal Register 52846 (Oct. 19, 1994).
34Act of Dec. 8, 1994; 19 U.S.C. 3501, et seq.
35President of the United States, Uruguay Round Trade Agreements, Texts of Agreements,
Implementing Bill, Statement of Administrative Action, and Required Supporting Statements,
H.Doc. 103-316, vol. 1 (Washington, DC: U.S. Govt. Print. Off., 1994).
to be countervailable, provided that Commerce is satisfied that the standard under36
section 771(5)(B)(iii) has been met.
Some have suggested that this situation — treating restrictions on Canadian log
exports as indirect subsidies — directly conflicts with the Agreement on Subsidies and
Countervailing Measures agreed to in the Uruguay Round of GATT.37 Canada has
requested consultations under the World Trade Organization (WTO) Dispute
Settlement Understanding, arguing that the U.S. provisions violate various sections
of WTO Agreements.38
In 1994, Canada apparently believed that the CFLI would prevail in another
countervailing duty investigation.39 Negotiations were begun to reach an agreement
that would prevent another investigation, and the U.S. Coalition agreed to drop its
constitutional challenge to the U.S.-Canada Free Trade Agreement’s bi-national panel
dispute resolution mechanism. The negotiations continued through 1995. In
November 1995, in response to concerns about ineffective negotiations, Sen. Max
Baucus introduced S. 1392 (104th Congress), the Emergency Lumber Act of 1995,
to impose a temporary 25% duty on lumber imports from Canada and to direct the
Administration to initiate another countervailing duty investigation. (A companion
bill, H.R. 2802, was introduced in the House in December.) On February 16, 1996,
the two countries announced an agreement-in-principle. The final agreement was
reached on April 2, 1996, and the agreement was signed by both countries on May 29,
and was retroactive to April 1.
The 1996 U.S.-Canada Softwood Lumber Agreement established a fee on
imports exceeding a specified quota. Up to 14.7 billion board feet (BBF) of Canadian
softwood lumber exported from four provinces (Quebec, Ontario, Alberta, and British
Columbia) to the United States can enter with no fee; this amount was about 91% of
U.S. imports of Canadian lumber from these provinces in 1995. The fee on the next
0.65 BBF was set at US$50 per thousand board feet (MBF), and the fee on additional
Canadian lumber exports was set at US$100 per MBF. These fee rates were indexed
to adjust for inflation, and are currently US$54 per MBF and US$108 per MBF.40 To
enforce the agreement, exporters are required to obtain permits from the Canadian
government for exports to the U.S. market. For flexibility and market balance, the
agreement allowed higher quarterly limits (up to 28.75% of the quota in any one
quarter) and a bonus allocation of 0.092 BBF fee-free if the U.S. price of eastern
spruce-pine-fir (SPF) 2x4s exceeded US$405 per MBF in the first two years and
36Ibid., p. 926.
37Cashore, Flights of the Phoenix, p. 27.
3865 Federal Register 35969 (June 6, 2000).
39Cashore, Flights of the Phoenix, p. 28.
40The rate is now higher for some exports from British Columbia (BC). In May 1998, BC
reduced its timber fees because of diminished Asian demand for lumber, and corresponding
weak lumber prices. U.S. producers asked for arbitration under the 1996 Agreement. On
August 26, 1999, the arbitration panel ruled that the price reduction violated the terms of the
US$410 per MBF thereafter.41 The agreement went into effect April 1, 1996, for a
period of five years, and thus expires on March 31, 2001.
Protection Under U.S. Trade Law
The body of U.S. trade law offers several means for investigating allegations of
unfair foreign trade practices and/or protecting U.S. industries that have been harmed
by imports. Three possible tools are safeguards, anti-dumping duties, and
countervailing duties.42 Action can also be taken under §301.
Safeguards. Safeguard relief, also called escape clause or §201 protection,
is authorized in §§201-204 of the Trade Act of 1974, as amended (19 U.S.C. 2251-
2254). If the ITC has determined that imports have caused or threaten to cause
serious injury to a U.S. industry, the President “shall take all appropriate and feasible
action,” including temporary duties, quotas, or other import restrictions, to give the
domestic industry the opportunity to recover its competitiveness. This protection is
available even if the imports are traded fairly.
Anti-Dumping Duties. Anti-dumping relief is authorized in §§731-739 of the
Tariff Act of 1930, as amended (19 U.S.C. 1673-1973h). Under this provision, the
Secretary of Commerce determines whether imports are being sold in the domestic
market at unfairly low prices — e.g., at prices lower than in the exporter’s home
market (i.e., the product is being “dumped” on the U.S. market) — and the ITC
determines whether the dumping has injured a U.S. industry. Positive findings of
unfair prices and injury can lead to an anti-dumping duty on the dumped imports.
Countervailing Duties. Countervailing relief is authorized in §§701-709 of
the Tariff Act of 1930, as amended (19 U.S.C. 1671-1671h). Under this provision,
the Secretary of Commerce determines whether imports are being subsidized (directly
or indirectly) by a foreign government, and the ITC determines whether the imports
have injured a U.S. industry. Positive determinations of subsidy and injury can lead
to a countervailing duty on the imports.
Section 301 Action. Action by the USTR is authorized in §§301-309 of the
Trade Act of 1974 (19 U.S.C. 2411-2420); mandatory action is directed in §301(a),
while discretionary action is authorized in §301(b). The USTR can investigate and
respond to foreign trade practices which are found to be illegal, unreasonable, or
discriminatory, and burdensome to U.S. interests. A broad range of feasible actions
are allowed, as defined in §301(c).
41The price was above this trigger, thus allowing the bonus allocation, from May 1996
through August 1997 and again from May 1999 through July 1999.
42See CRS Report RL30461, Trade Remedy Law Reform in the 106th Congress. For more
information, see CRS Trade Briefing Book: Antidumping and Countervailing Duties at
[http://www.congress.gov/brbk/html/ebtra67.html]. Alternatively, see U.S. International
Trade Commission, Summary of Statutory Provisions Related to Import Relief, USITC Pub.
Analysis: Subsidies and Injury
U.S. lumber producers complain that subsidies to Canadian lumber producers
give them an unfair advantage in supplying the U.S. market, and that this has injured
U.S. producers. Canadian lumber imports have risen from 7% of the U.S. market in
the early 1950s to more than 30% over the past two decades. The CFLI has argued
that imports have risen due to government programs in Canada. In particular, they
assert that the fees set by the provinces for government-owned timber are less than
prices in a competitive fair market and that log export restrictions in British Columbia
artificially depress Canadian timber prices. These practices are alleged to have injured
U.S. lumber producers. These two issues — subsidies and injury — are the basis for
determining whether a countervailing duty is warranted under U.S. law, and will be
examined in turn. First, however, it is useful to examine what imports are considered
to be “softwood lumber.” Then, after discussing subsidies and injury, other factors
(such as differing environmental policies) will be examined.
What is Softwood Lumber?
While seemingly straightforward, “softwood lumber” subject to the softwood
lumber agreement has been an issue over the past few years. Before discussing the
issue, some basic information on softwoods and on lumber is presented.
Softwood is a classification of tree species, and contrasts with the other major
classification, hardwood. Both, however, are misnomers. Some “hardwoods,” such
as aspen and poplar, are softer (less dense) than many “softwoods,” such as yellow
pines.43 Softwood species are all in the Order Coniferales — the conifers. Conifers
generally have needle-like leaves and cones for reproduction. These plants are often
called evergreens, because most retain their needles in winter. (Trees of the larch
genus (Larix spp.) are deciduous, with bare limbs in the winter.) The hardwood
timber species are in the Phylum Anthophyta — the angiosperms, or flowering plants.
These plants are often called deciduous, because most species in temperate climates
lose their leaves in the winter; however, some temperate-climate species (e.g., holly)
and most tropical and subtropical species are evergreen, retaining their leaves
throughout the year. Despite the imprecision, softwood is the term of art for conifer
species, and will be used to indicate lumber produced from conifer species. This use
is also consistent with the definition of softwood lumber in the harmonized tariff
schedules and in the 1996 lumber agreement. (See below.)
Lumber is the collective term for products sawn from logs. This contrasts with
the panel products — plywood, particleboard, etc. — where the logs are sliced,
peeled, or chipped, and the wood pieces are then glued together to form sheets or
panels,44 and with paper products, where wood chips are dissolved to remove the
43The major softwood species — the pines, firs, and spruces — are generally softer (less
dense) than the major hardwood tree species of temperate climates — the oaks and maples.
44A process similar to plywood production can be used to produce lumber-sized products.
Known as parallel-laminated veneer (PLV) lumber, the product is made of wood layers glued
lignin and the fibers adhere by being pressed together under heat. Boards are lumber
products of less than 2 inches in nominal thickness — typically 1 inch thick and 1 to
12 inches wide (in 2-inch increments).45 Dimension lumber are products of 2 to 5
inches in nominal thickness — most commonly 2 inches thick and 2 to 12 inches wide
(in 2-inch increments) in nominal dimensions. Timbers are lumber products of at least
5 inches thick and wide, and include products (such as cants and flitches) destined for
further processing. The vast majority of softwood lumber — more than 80% — is46
used for residential and non-residential construction, remodeling, and repair.
Which wood products imported from Canada are subject to the quota in the
Softwood Lumber Agreement has been at issue over the past couple of years. The
Agreement defined softwood lumber by two tariff items under the Harmonized Tariff
Schedule of the United States:47
Softwood lumber means articles classified under:
(1)tariff item 4407.10.00 of the Harmonized Tariff Schedule ...; (for purposes
of description only, coniferous wood sawn or chipped lengthwise, sliced or
peeled, whether or not planed, sanded or finger-jointed, of a thickness1
exceeding 6 mm [about /4 inch]);
(2)tariff items 4409.10.10, 4409.10.20 and 4409.10.90 ...; (for purposes of
description only, coniferous wood (including strips and friezes for parquet
flooring, not assembled) continuously shaped (tongued, grooved, rebated,
chamfered, V-jointed, beaded, moulded, rounded or the like) along any of its
edges or faces (other than wood mouldings and wood dowel rods), whether48
or not planed, sanded or finger-jointed); ...
These tariff items include essentially all the traditional softwood lumber items
intended for residential construction, as described above, including softwood siding
together in parallel (in contrast to the perpendicular layers in plywood) and then sawn to
traditional lumber sizes. The process has been used for producing large wooden beams
(timbers) for many years, but is uncommon for traditional lumber products because the
production costs are higher than for traditional products.
45Lumber is identified in nominal sizes, rather than actual dimensions. The nominal sizes were
the original dimensions of green, rough-sawn lumber; the actual dimensions are the minimum
sizes for dry, finished lumber as specified by the American Lumber Standards Committee, a
committee of lumber producers, distributors, and users who have developed voluntary product
standards and methods for grading, testing, and marking lumber products, under the aegis of
the National Institute of Standards and Technology. See 64 Federal Register 51294 (Sept.
46Western Wood Products Association, 1998 Statistical Yearbook of the Western Lumber
Industry (Portland, OR: August 1998), p. 33.
47U.S. International Trade Commission, Harmonized Tariff Schedule of the United States
(1996), USITC Publication 2937 (Washington, DC: 1998).
48“Article IX, Definitions,” Softwood Lumber Agreement Between the Government of the
United States of America and the Government of Canada (Washington, DC: May 29, 1996).
and softwood flooring and excluding logs, poles, wood fencing, and railway sleepers
(cross-ties). This definition also excludes builders’ joinery and carpentry (tariff item
shakes and shingles, and laminated beams, roof trusses, and other fabricated wood
The issue of lumber product classification arose in 1997, after the U.S. Customs
Service had issued New York Ruling Letter B81564 (Feb. 18, 1997) classifying
“drilled studs” (8- and 10-foot long 2x4s and 2x6s with 1-inch holes drilled about 16
inches from each end) as builders’ joinery and thus outside the Agreement’s quota.
In October, the Customs Service requested comments on drilled stud classification,
including whether they serve a particular purpose and whether the holes limit their use
in construction.49 In April 1998, the Customs Service proposed revoking the New
York Ruling Letter, effectively reclassifying drilled studs as softwood lumber (under
tariff item 4407) subject to the current agreement.50 The June 1998 final ruling,
revoking the 1997 Ruling Letter, was challenged in court, but the Customs Service
decision was upheld in December 1998 by the U.S. Court of International Trade.51
In 1999, the Customs Service proposed and then finalized notices to reclassify
notched studs and rougher-headed lumber as softwood lumber under tariff item 4407,
instead of as builders’ joinery under tariff item 4418.
The issue, essentially, is whether these various products are, indeed, specialty
products with particular construction applications or standard construction lumber
with minor modifications to avoid the quota. If the latter is correct, and the products
are now correctly classified as softwood lumber products, a further question is
whether they were included in the base level of lumber imports used to establish the
quota levels, or whether their reclassification has expanded the products covered and
thus effectively reduced the quota levels for the standard products from the originally
Subsidies to Canadian Lumber Producers
Alleged subsidies to Canadian lumber producers have been at the core of the
efforts to restrict imports by the CFLI over the past two decades. Initial efforts
focused on the argument that the Canadian system of allocating timber and setting
stumpage fees results in fees below the fair market value of the timber. More
recently, critics have also argued that restrictions on log exports (at least from BC)
artificially depress domestic Canadian timber prices by limiting the markets for logs.
4962 Federal Register 55667-55668 (October 27, 1997).
5063 Federal Register 17927 (April 10, 1998).
51American Bayridge Corp. v. United States, 35 F. Supp. 2d 922 (Ct. Int’l Trade 1998).
Canadian Stumpage Fees. About 94% of the timberlands in Canada are
“crown lands” owned and administered by the federal and provincial governments.52
Although they constitute more than 21% of all Canadian timberlands, most of the
federally-owned boreal forests are in the Yukon, Nunavut, and Northwest Territories;
in the 10 provinces, the Canadian federal government owns 2% of the timberlands and
the provinces own 90%, with 8% in private ownership. This contrasts with U.S.
timberlands, where 42% are owned by the federal (33%), state (8%), and local (1%)
governments, and 58% are privately owned.53
Each province has its own forestry legislation, regulations, and standards. In
general, the provinces require management plans for forested areas, typically prepared
by certified professional foresters and subject to participation or review by a broad
spectrum of users and interests.54 The provinces also allocate timber harvest. For
relatively large producers, the provinces typically use long-term (generally 5 to 25
years, with renewal options) area tenure agreements, with exclusive rights to the
specified annual harvest levels and with various management obligations (e.g., road
construction and reforestation).55 For smaller producers, the provinces often use
shorter-term (as brief as 6 months) volume tenure agreements, with exclusive rights
to the specified annual harvest levels and with some management obligations (but
typically less than for a long-term area tenure agreement). Many provinces also have
other agreements for selling various types of timber to specific, often quite small or
The various tenure agreements (also referred to as leases) also must be
consistent with the management plans for the areas, which are often prepared by
foresters working for the lessees (especially for the long-term area tenures). The only
significant opportunity for the public to influence Canadian forest management
appears to be through comments on the periodic forest management plans; there
seems to be no opportunity to oversee or challenge the appropriateness of forestry
activities, except when those activities violate the law, regulations, or management
plans. This differs markedly from the system for U.S. federal timber, where both
management plans and individual timber sales are subject to public involvement and
challenges under an administrative appeals process as well as by litigation.
52Natural Resources Canada, Canadian Forest Service, The State of Canada’s Forests:
53U.S. Dept. of Agriculture, Forest Service, “Table 2–Forest Land Area in the United States
by Ownership. Region, and Subregion, and State, 1997,” Final Statistics, at [http://www.
srsfia.usfs.msstate.edu/wo/FINAL_RPA_TABLES.PDF], on Nov. 20, 2000, pp. 3-4.
54Natural Resources Canada, Canadian Forest Service, Sustainable Forest Management: A
Continued Commitment in Canada, Monograph No. 9 (Ottawa, ON, Canada: 2000).
55David Haley and Martin K. Luckert, Forest Tenures in Canada: A Framework for Policy
Analysis, Information Report E-X-43 (Ottawa, ON, Canada: Forestry Canada, 1990).
(Hereafter cited as Haley and Luckert, Forest Tenures in Canada.) Many provinces have
revised their tenure systems in the past decade, but the basic provisions remain essentially the
same. (Personal communication with F.L.C. Reed, forest policy consultant, South Surrey,
BC, Canada, on Dec. 11, 2000.)
Administrative Stumpage Fees. The provinces charge fees for timberland
leases and timber harvests. There is generally a flat annual fee for maintaining the
leases, and a stumpage fee (per unit of volume) for the timber harvested. In most of
the provinces, stumpage fees are determined administratively, and range from a fixed,56
province-wide fee to fees established separately for each tenure agreement. These
fees are adjusted periodically to reflect changes in the market prices of lumber and
other wood products.
Administrative stumpage fees are unlikely to match market-determined prices,
because the fees are determined by agency personnel, not by markets. If the fees are
designed to approximate market prices, lags in periodic fee adjustments suggest that
the fees would be below the market value in tight markets, when lumber prices are
rising, but above the market value in weak markets, when lumber prices are falling.
However, some observers assert that the provinces have intentionally set the fees57
substantially below market prices, to assure the competitiveness of their producers.
Whether provincial administrative stumpage fees approximate market values or are
substantially below market values can only be determined by examining provincial fees
and U.S. prices for comparable timber, but such comparisons are difficult, as
BC Appraised Stumpage Fees. In BC, stumpage fees historically were set
using the “residual value” appraisal process, where average harvesting and
manufacturing costs (and a profit-and-loss margin) were deducted from the estimated
end wood product prices to determine the stumpage fee.58 This process for timber
was first developed by the U.S. Forest Service early in the 20th Century, with the first
timber appraisal manual produced in 1914.59 The U.S. Forest Service still uses
residual value appraisals in some places, for some timber. However, the BC Ministry
of Forests and the U.S. Forest Service have largely shifted to the “transaction
evidence” appraisal system, where stumpage fees are established by comparing the
transaction (timber sale or agreement) with other, similar transactions (timber sales
57John A. Ragosta, Harry L. Clark, Carloandrea Meacci, and Gregory I. Hume, Canadian
Governments Should End Lumber Subsidies and Adopt Competitive Timber Systems:
Comments Submitted to the Office of the United States Trade Representative on Behalf of
the Coalition for Fair Lumber Imports, unpublished report (Washington, DC: Dewey
Ballantine LLP, April 14, 2000), appendix 1. (Hereafter referred to Dewey Ballantine
Comments for the CFLI to the USTR).
58In some areas, such as near Vancouver, BC, manufacturing costs are excluded and log
prices are used instead of wood product prices. According to economic theory, this would be
likely to result in appraised prices closer to a fair market price.
59See: Alfred A. Weiner, The Forest Service Timber Appraisal System: A Historical
Perspective, 1891-1981, FS-381 (Washington, DC: USDA Forest Service, August 1982), pp.
60It is not clear how transaction evidence appraisals can be determined in a system with no
market transactions for comparison.
The difference between the BC provincial system and the U.S. federal system is
that in BC, the appraised price is the stumpage fee, while in the United States, the
appraised price is the minimum stumpage fee for timber sales which are offered for
competitive bidding. Competitively-bid U.S. stumpage fees are often substantially
above the appraised price. Data on the ratio of bid fees to appraised price for U.S.
Forest Service timber sales are not published regularly, but one study found that, in
the 1970s, successful bids were, on average, three times greater than the appraised
prices, even when noncompetitive sales were included, and averaged 10 times greater
in one region (Alaska).61 However, competition for U.S. Forest Service timber is not
always vigorous, with 12% of those 1970s sales having no bidders and 22% having
only one bidder (i.e., sales in which the stumpage fee equaled the appraised price).62
Nonetheless, this old evidence from U.S. Forest Service timber sales suggests that
competitive bidding for timber results in a market price higher than the value
estimated using the appraisal system.
Comparing Canadian and U.S. Stumpage Fees. Market values are
established in competitive markets between willing buyers and willing sellers. In the
United States, this is the situation for wood product manufacturers and private
timberland owners and, arguably, federal timber sales in areas with competitive
bidding.63 Thus, much of the timber from lands in the United States is probably sold
at fair market values. This is not likely the case in Canada, where leases (rather than
competitive bids) are used to allocate timber.
Evidence to demonstrate this possible disparity between U.S. and Canadian
stumpage fees is widespread, but inconclusive. Over the past 20 years, several reports
have shown significantly higher stumpage fees in the United States.64 Also, as noted
above in the history of the dispute, the U.S. ITC and ITA have found significant
differences in stumpage fees in various examinations dating back to 1982. However,65
other analyses have shown little or no difference between U.S. and Canadian fees.
61U.S. Dept. of Agriculture, Forest Service and U.S. Small Business Administration, National
Study Report: Small Business Timber Sale Set-Aside Program (Washington, DC: August
63Some may argue that the U.S. government is not comparable to a traditional private “willing
seller,” since the U.S. government does not make investments or sales based on profitability,
as a private landowner presumably would. However, since the U.S. federal government only
owns 33% of U.S. timberlands, it likely has a less substantial impact on timber markets than
do the Canadian provinces.
64See: Coopers & Lybrand, Certain Forest Products From Canada, Before the United States
Department of Commerce International Trade Administration: Valuation of Stumpage
Subsidy, unpublished report (Washington, DC: Oct. 1982), 18 p; and Dewey Ballantine
Comments for the CFLI to the USTR.
65See: The Council of Forest Industries of B.C., A Brief Examination of Comparative Factors
Affecting the Forest Industries of the U.S. Pacific Northwest and British Columbia,
unpublished report (Vancouver, BC, Canada: Oct. 1981), 15 p.
Brink Lindsay, Mark A. Groombridge, and Prakash Loungani, Nailing the Homeowner:
Several factors can explain such apparent contradictions. First, U.S. timber and
Canadian timber are measured differently. In the United States, trees and lumber are
measured in board feet, as described above. In Canada, trees and lumber are
measured in cubic meters. The conversion — how many board feet of lumber can be
produced from a cubic meter of logs — depends on the diameter of the log, ranging
from about 130 board feet per cubic meter for a 6-inch diameter, 16-foot log to more
than 275 board feet per cubic meter for a 44-inch, 16-foot log.66 Thus, the conversion
rate chosen (i.e., different assumptions about log diameters) can have a significant
effect on the resulting price.
Second, except for the occasional forest plantation, forests are not uniform
monocultures — forests may contain several species of trees, each of which varies in
diameter, height, and quality. Comparisons typically use a single dominant species
(e.g., Douglas-fir), but the stumpage fee for the dominant species can be affected by
the fee for other species. In U.S. federal timber sales, for example, competitive
bidding is generally limited to the dominant species, with the other species being sold
at the appraised price; this leads to an overall balance, but limits the validity of the
fees for comparing the prices of timber in different areas. U.S. and Canadian forests
differ in their species mix (percentage of trees or timber volume in each species) as
well as in the size and quality of the trees of each species. Adjusting for these
differences is difficult, under the best of circumstances.
Other factors also affect stumpage fees. For example, the management
responsibilities imposed on the timber purchasers differ. In Canada, licensees are
generally responsible for reforestation and for some forest protection.67 In U.S.
federal forests, timber purchasers generally make deposits to pay for agency
reforestation efforts, and some of those deposits are typically reported as part of the68
stumpage fees. Road construction and road maintenance responsibilities and
compensation also differ.
Another factor relates to changes in the exchange rate. A study in 1986
indicated that the relative strength of the U.S. dollar (vis-a-vis the Canadian dollar)
in the mid- to late-1970s was an important factor in the growth of Canadian market
share during that period.69 The U.S. dollar continued to strengthen until 1986, then
The Economic Impact of Trade Protection of the Softwood Lumber Industry (Washington,
DC: Cato Institute, 2000), 15 p. (Hereafter referred to as Cato Institute, Nailing the
66David A. Hartman, William A. Atkinson, Ben S. Bryant, and Richard O. Woodfin, Jr.,
Conversion Factors for the Pacific Northwest Forest Industry (Seattle, WA: University of
Washington, Institute of Forest Products, n.d.), p. 11; with conversion of cubic feet to cubic
meters (at 35 cubic feet per cubic meter) by CRS.
67Haley and Luckert, Forest Tenures in Canada.
68CRS Report 97-14 ENR, The Forest Service Budget: Trust Funds and Special Accounts,
pp. 17, 29-30.
69Darius M. Adams, Bruce A. McCarl, and Lalehrokh Homayounfarrokh, “The Role of
weakened significantly for 5 years, before recovering and exceeding its previous peak,
at $1.49 Canadian per U.S. dollar for 1999.70 How these changes have continued to
affect U.S.-Canada lumber trade has not been adequately examined.
Export Restrictions. Export restrictions by BC were identified as a subsidy
by the ITA in the 1992 countervailing duty investigation. The province began
restricting log exports in 1888. Today, under the British Columbia Forest Act of
1978, timber cut from provincial lands must be manufactured in the province, except
for timber “surplus to domestic need with no economically feasible use within the
Province.”71 Even for logs identified as surplus, the province imposes a fee equal to
the export premium (the difference between the export price and the domestic
price).72 The Canadian federal government imposes similar restrictions on log exports
from non-crown lands in Canada.73 “The overall purpose of the Provincial and
Federal [export restriction] policies has been to maintain and enhance Provincial
development, provide jobs, ensure that ... the timber industry remain[s] solvent ...”
and for other purposes.74
Exports of logs from public lands in the United States are also restricted. The
Forest Resources Conservation and Shortage Relief Act of 1990,75 as amended,
prohibits exports of unprocessed timber from all federal and state lands west of the
100th Meridian (which runs through the Great Plains), except for species and grades
identified as surplus to domestic needs.76 This restriction is similar to the BC and
Canadian federal log export restrictions. However, as noted above, the significant
difference is that private timberlands produce the majority of U.S. timber supply, and
log exports from private U.S. timberlands are not restricted.
Exchange Rates in Canadian-United States Lumber Trade,” Forest Science, v. 32, no. 4
(April 1986): 973-988.
70Data from: International Monetary Fund, International Financial Statistics Yearbook, 2000,
vol. LIII (Washington, DC: 2000).
71Christine L. Lane, Log Export and Import Restrictions of the U.S. Pacific Northwest and
British Columbia: Past and Present, Gen. Tech. Rept. PNW-GTR-436 (Portland, OR:
USDA Forest Service, Aug. 1998), p. 41. (Hereafter referred to as Lane, Log Export
Restrictions.) Since the late 1980s, three northern coastal BC timber supply areas (Mid
Coast, North Coast, and Queen Charlotte) have been exempted from the within-province
manufacturing requirement. (Lane, Log Export Restrictions, p. 41.)
72Lane, Log Export Restrictions, p. 44.
73Lane, Log Export Restrictions, pp. 41-42.
74Lane, Log Export Restrictions, p. 38.
75Title IV of the Customs and Trade Act of 1990, P.L. 101-382; 16 U.S.C. 620.
76The Act actually allows exports of 25% of timber harvested from state lands in states with
annual harvests exceeding 400 million board feet (i.e., from the State of Washington), but the
ban was extended to these lands, as allowed in the 1990 law, by a general order from the U.S.
Secretary of Commerce in 1992, which is still in effect. See Lane, Log Export Restrictions,
Export restrictions are widely recognized as creating an “export premium” —
i.e., a higher price for export logs than for comparable logs sold domestically.77 Few
studies identify the magnitude of the export premium, although most discussions fall78
within a range of 25-50%. One recent study graphically presented 1989-1999
domestic and export log prices in the U.S. Pacific Northwest.79 In the mid-1990s, the
premium was $400-$600 per MBF, about 67-100% above domestic prices. The
Asian financial crisis in 1997 reduced the premium to less than $100 briefly, but
export prices then stabilized while domestic prices fell, raising the premium to more
than $300 per MBF, about 75% above domestic prices.80 These data suggest that
U.S. export restrictions on logs from federal and state lands apparently provide a
substantial price premium for export logs from private lands, and therefore may
depress domestic prices to less than a free market-determined price. Despite the lack
of data, this situation seems likely to be true for Canada also, since BC and the U.S.
Pacific Northwest compete in the same Pacific Rim markets — Japan, Korea, and
Restrictions that reduce domestic prices to less than a fair market price would,
in most circumstances, be considered to be subsidies by most economists, and Article
XI of the GATT generally prohibits restrictions on exports.81 Nonetheless, the ITA’s
determination that the export restrictions are subsidies has been challenged. In May
2000, Canada requested consultations with the United States under the WTO Dispute
Settlement Understanding.82 Canada has argued that the provisions of U.S. trade law
defining export restrictions as subsidies are inconsistent with provisions of the WTO
77See, for example: Donald F. Flora and Wendy J. McGinnis, “Embargoes On and Off: Some
Effects of Ending the Export Ban on Federal Logs and Halting Exports of State-Owned
Logs,” Western Journal of Applied Forestry, v. 4, no. 3 (July 1989): 77-79.
Ronald N. Johnson, Randal R. Rucker, and Holly Lippke, “Expanding U.S. Log Export
Restrictions: Impacts on State Revenue and Policy Implications,” Journal of Environmental
Economics and Management, v. 29, no. 2 (Sept. 1995): 197-213.
78U.S. Dept. of Agriculture, Forest Service, FY 1990 Budget Proposal to Remove Restriction
on Log Exports from Federal Lands, unpublished briefing paper (Jan. 19, 1989).
79Bruce Lippke, Rose Braden, and Scott Marshall, Changing Export Trends and the Health
of the Pacific Northwest Forest Sector, CINTRAFOR Working Paper 75 (Seattle, WA: Univ.
of Washington, College of Forest Resources, Dec. 1999), p. 32.
80CINTRAFOR Working Paper 75.
81GATT Article XX contains several exceptions to the general prohibition on export
restrictions. Article XX(g) allows measures “relating to conservation of exhaustible natural
resources if such measures are made effective in conjunction with restrictions on domestic
production or consumption” — the conservation exception. To fulfill this exception, Canada
would probably need to demonstrate that timber is an exhaustible resource and that the export
restrictions are part of a broader program to conserve timber resources. (See CRS Report 93-
Since timber is widely considered to be renewable (and not exhaustible), and since the
Canadian export restrictions historically were for economic development (Lane, Log Export
Restrictions, p. 38), it seems unlikely that the Canadian log export restrictions would qualify
for the conservation exception to the GATT prohibition on export restrictions.
8265 Federal Register 35969-35970 (May 19, 2000).
Agreement on Subsidies and Countervailing Measures. If the consultations do not
lead to a mutually acceptable resolution, Canada can request a GATT panel under the
WTO Dispute Settlement Agreement to examine the U.S. trade law provisions for
Injuries to U.S. Lumber Producers
Proving injury or threat of injury to U.S. lumber producers is also essential to
establishing a countervailing duty under U.S. trade law. In addition, although not
relevant to a countervailing duty investigation, some interests have argued that the
user impacts of restrictions on Canadian exports should be considered in discussions
or analyses of restrictions by the Administration or by Congress. Harm to U.S.
lumber producers and users can be evaluated by tracing the Canadian share of the
U.S. lumber market over time and by examining the price impacts of imports and of
Canadian Share of the U.S. Lumber Market. The share of the U.S.
softwood lumber market provided by Canadian lumber has generally been growing
over the past 50 years, as shown in figure 1. Canada’s market share was less than 7%
in 1952, and rose to more than 35% in 1995. Since 1995, Canada’s share of the U.S.
market has fluctuated between 33% and 35%.
Figure 1. U.S. Lumber Consumption in Percentage
U.S. Dept. of Agriculture, Forest Service, An Analysis of the Timber Situation in the United
States 1952–2030, Forest Resource Report No. 23 (Washington, DC: Dec. 1982), pp. 292, 318.
James L. Howard, U.S. Timber Production, Trade, Consumption, and Price Statistics 1965–
American Forest & Paper Association, Wood Statistical Roundup, v. 12, no. 1 (Feb. 1999) and
v. 13, no. 2 (Feb. 2000).
U.S. lumber producers argue that the increasing Canadian share of the U.S.
lumber market has injured them by constraining their potential to expand domestic
softwood lumber production. Figure 2 clearly demonstrates that most of the growth
in U.S. softwood lumber consumption has been provided by increased imports from
Canada. Canadian imports have risen from less than 3 BBF in the early 1950s to
more than 18 BBF in 1998 and 1999, including a 50% increase since 1990. U.S.
lumber production for the domestic market (i.e., excluding U.S. lumber exports) was
more than 30 BBF in 1950 and again in the late 1970s, but fell below 22 BBF in 1982.
U.S. production for domestic use rose to more than 35 BBF in 1987, but has
fluctuated between 30 BBF and 35 BBF ever since. The U.S. producers assert that
Canadian subsidies have allowed Canadian producers to expand lumber exports to the
U.S. market at the expense of U.S. producers especially since the mid-1970s.
Figure 2. Lumber Consumption in Billion Board Feet (BBF)
U.S. Dept. of Agriculture, Forest Service, An Analysis of the Timber Situation in the United
States 1952–2030, Forest Resource Report No. 23 (Washington, DC: Dec. 1982), pp. 292, 318.
James L. Howard, U.S. Timber Production, Trade, Consumption, and Price Statistics 1965–
American Forest & Paper Association, Wood Statistical Roundup, v. 12, no. 1 (Feb. 1999) and
v. 13, no. 2 (Feb. 2000).
Another way to assess injury to U.S. producers is by examining the relative
market positions of Canadian and U.S. producers. At least until 1980, Canada was83
generally seen as the marginal (high-cost) producer for the U.S. market; this is
83In economics, the supplier (or supply region) which decreases production more than other
suppliers (i.e., whose market share declines) during economic downturns is considered the
demonstrated by the declining Canadian market share as the U.S. economy entered
recessions in 1951, 1957, and especially 1974-1975. However, in the 1980 and 1982
recessions, Canada increased its share of the U.S. lumber market; instead, the market
share for other regions — notably the U.S. Pacific Northwest and intermountain West
— declined, suggesting that these regions had become the marginal (high-cost)
producers. This suggests that Canadian production costs had fallen, relative to
western U.S. production costs (which some allege is because of Canadian subsidies),
and that, at least, western U.S. lumber producers were injured by Canadian imports.
After reaching 33% of the U.S. market in 1985, the Canadian share fell during
the U.S. economic expansion (through 1989), implicitly confirming that Canada was
not the high-cost producer. However, during the next economic recession (1990-
reaching a new peak (at more than 35% of the U.S. market) in 1995. This might
indicate a return to Canada being the marginal (high-cost) supplier, but other factors
— including significant changes in U.S. federal timber supplies; attempts to restrict
Canadian lumber imports; and changes in Far East Asian economic performance —
might have affected the historic relationship between production costs and U.S.
market share. If Canada has again become the high-cost (marginal) supplier to the
U.S. market, then imports are unlikely to injure U.S. producers. If, however, the
recent changes in Canadian market share are not a result of higher production costs,
then Canadian imports might be causing injury to domestic producers.
U.S. Lumber Prices. Lumber prices might also be an indicator of injury.
Persistently low prices might harm U.S. lumber producers, particularly if Canadian
production costs are lowered by subsidies. However, U.S. lumber users (e.g., home
builders and lumber dealers) argue that restrictions on Canadian lumber imports have
led to high and increasingly volatile lumber prices, harm themselves and the U.S.
economy generally. These two issues — price level and price volatility — will be
examined after a brief explanation of the problems associated with examining lumber
Lumber prices are more difficult to track over time than data on consumption
and market share, because each species and grade has a different price, and the mix
of species and grades produced and consumed as well as the relative prices have
changed. It is particularly difficult to demonstrate price changes that result from a
particular action or event. One analysis noted:
In a fluctuating commodity market, attributing price changes to particular
causes is extremely difficult. The first reason is data imperfections.... The second
reason is that market behavior is governed by expectations, which cannot be
measured. Because expectations are so important, simple interpretations of
supply-demand behavior are often wrong.... The third reason is that multiple
factors are always interacting on current market conditions and expectations....
A fourth reason is the high level of volatility that is inherent in the month-to-month
functioning of the industry, customers, and international traders.... A final reason
highest-cost supplier; these suppliers also increase production more than their competitors
(i.e., their market share rises) during economic recoveries.
is the occurrence of unanticipated disruptions [e.g., a major hurricane] to supply84
or demand that affect the market.
One organization, Random Lengths, Inc. (Eugene, OR)85, has produced a
weighted average composite price for framing (softwood dimension) lumber weekly
dating back to 1975. The monthly average of this framing lumber composite price is
shown in figure 3. This monthly average composite price has also been adjusted for
inflation, and is shown in figure 4 in 1999 dollars.
Figure 3. Random Lengths Average Monthly Composite Prices
for Framing Lumber in Current (Nominal) Dollars
Source: Random Lengths Publications, Inc., at [http://www.randomlengths.com/Composite.html]
on Jan. 2, 2001.
Figure 3 shows that framing lumber prices have generally risen over the past 25
years, especially in the 1970s and since 1990. However, when adjusted for inflation,
as shown in figure 4, framing lumber prices have risen only a little over the past 20
years, and have generally remained below average prices of the late 1970s. Framing
lumber prices are currently at their lowest level since the early 1990s, and are well
below prices of the late 1970s in real terms.
84The Irland Group, with Joel Popkin and Company, Final Report — Assessment of
Pricemaking Forces in the US Softwood Lumber Markets. Part One: Industry
Characterization and Economic Performance, 1946–92. Part Two: Shortrun Market
Dynamics, 1976–1993, unpublished report to American Forest & Paper Association, National
Association of Home Builders, and others (Augusta, ME and Washington, DC: April 1993),
p. 158. (Hereafter referred to as Pricemaking Forces in Lumber Markets.)
85This organization produces a weekly report on North American wood product markets,
particularly on prices for various lumber species and grades from various source locations to
Figure 4. Random Lengths Average Monthly Composite Price
for Framing Lumber in Real (1999) Dollars
(adjusted to 1999 dollars with the CPI-U)
Source: Random Lengths Publications, Inc., at [http://www.randomlengths.com/Composite.html]
on Jan. 2, 2001.
Price Level. Economic theory suggests that U.S. restrictions on imports of
Canadian lumber have probably raised U.S. lumber prices above what they would
have been with no restrictions. One estimate, by a group that opposes restrictions,
is that the current lumber agreement has raised prices by $50 to $80 per MBF 86 —
about 15–25% of the 2000 average framing lumber price of $323 per MBF. Others
assert that a fee of $50–$100 per MBF on lumber imports above the 14.7 BBF quota
level — alleged to be on only 0.4% of 1999 U.S. lumber consumption — could not
possibly raise prices on all softwood lumber consumed in the United States by $50 to
$80 per MBF.87 It is not possible to use price elasticities to estimate the effects of
restrictions without having an estimate of the volume change resulting from
restrictions, but estimates of the volume impacts of the restrictions have not been
published, and the imports of Canadian lumber reached a new record high in 1999, at
18.2 BBF. This might suggest to some that the current agreement has had little effect
on U.S. lumber consumption, lumber imports, and lumber prices.
The study that estimated the $50 to $80 per MBF lumber price increase also
estimated that this would raise the cost of a new house by $800 to $1,300, and would88
price 300,000 families out of the housing market. This would imply a 0.5–0.8%
86Cato Institute, Nailing the Homeowner.
87Dewey Ballantine Comments for the CFLI to the USTR.
88Cato Institute, Nailing the Homeowner.
increase in the median 1999 price of a new home of $160,000.89 This change, which
some argue is grossly inflated, seems likely to have a negligible impact on housing
when compared to the impact of changes in mortgage interest rates. For example, a1
rise in mortgage rates from 8% to 8/8% would increase monthly payments on a
$128,000 mortgage (assuming a 20% down payment on the 1999 median price of a
new home) by more than would a $1,300 increase in lumber prices. (Monthly average
rates for the Federal Home Mortgage Corporation fluctuated between 73/4% and190
Imports of Canadian lumber have undoubtedly kept softwood lumber prices
lower than prices would have been with no imports. However, in general and over
the long term, changes in lumber supply have a modest impact on lumber prices.
Demand for lumber is a secondary demand, derived substantially from the demand for
new or remodeled houses and other buildings. Wood products are a relatively minor
component of construction costs; at $323 per MBF (the Random Lengths average
framing lumber composite price for 2000), framing lumber in an average (2,000-
square foot) new home would cost less than $6,000 — 3.5% of the 1999 median price
of a new home.91 In contrast, more than 80% of softwood lumber is used in
construction — residential construction (40%), non-residential construction (15%),92
and repair and remodeling (28%). Hence, softwood lumber is highly price inelastic,
with modest changes in construction demand causing relatively large changes in
lumber prices but modest changes in lumber supply causing relatively small changes
in lumber prices.93 This was documented in one analysis that found “lumber demand
fundamentals” and “market overreactions” to expected supply problems as the
principal factors in all six identified lumber price spikes between 1978 and 1993.94
In summary, it is not clear whether framing lumber price levels indicate injury to
either the U.S. lumber industry or to U.S. lumber users. Price levels have not risen
to levels that appear to significantly constrain homebuilding or other construction, but
neither are they so persistently low as to by themselves indicate significant injury to
U.S. producers; the ITC, however has consistently found material injury to the U.S.
industry each time it has examined the issue.
Price Volatility. Lumber users have also argued that the current softwood
lumber agreement has harmed them by increasing the volatility of lumber prices.
Relative volatility can be assessed by examining the average and standard deviation
89National Association of Home Builders, Housing at the Millennium: Facts, Figures and
Trends, at [http://www.nahb.com/main_features/facts.pdf], on Dec. 27, 2000. (Hereafter
referred to as NAHB, Housing at the Millennium.)
90At [www.federalreserve.gov/releases/H15/data/m/cm.txt], on Jan. 3, 2001.
91NAHB, Housing at the Millennium.
92Western Wood Products Association, 1998 Statistical Yearbook of the Western Lumber
Industry (Portland, OR: Aug. 1998), p. 33.
93See CRS Report 94-122 ENR, Lumber Prices – 1993.
94Pricemaking Forces in Lumber Markets, pp. 214-215.
Table 1. The Annual Average and Standard Deviation for the
Random Length’s Framing Lumber Weekly Composite Price
Year Average StandardDeviation Ratio Year Average StandardDeviation Ratio
Source: CRS calculations using data from Random Lengths, Inc.
of lumber prices. Table 1 shows the annual average and standard deviation for the
weekly Random Lengths framing lumber composite price, and the ratio of standard
deviation to average, to allow comparison of years with different averages.
These data indicate no particular trend. Volatility (measured by the standard
deviation-to-average ratio) was unusually high during 2000, although it had been
higher in 1993 and 1982. Volatility was also unusually low during 1998, having been
lower only in 1978 and 1988. Trade restrictions might affect the volatility of U.S.
lumber prices, but these data suggest that other factors appear to have more effect on
price volatility than trade restrictions. The current softwood lumber agreement, in
effect from 1996–2000, appears not to have increased the volatility of U.S. framing
Other Factors Affecting the Trade Dispute
A host of similarities and differences affecting U.S. and Canadian lumber
production have already been discussed — U.S. and Canadian land ownership
patterns and pricing and allocation systems; different timber measurements and
conversion difficulties; conditions of foreign (especially Asian) lumber markets in
which U.S. and Canadian producers compete; etc. Two other factors are worth brief
discussions: the structure of U.S. trade law, and differing environmental policies.
U.S. Trade Law Structure. This feature has been identified by one observer
as contributing to the persistence of the dispute over imports of softwood lumber
from Canada.95 Dr. Benjamin Cashore has noted that U.S. trade law, in conjunction
with the various GATT agreements, has generally become more liberal (oriented
toward free trade) over the past several decades. At the same time, he argues, laws
enacted by Congress since the 1970s have made it progressively easier for U.S.
industries to receive protection from foreign competition. He sees this tension
between increasingly free trade policies and easier industry protection as assuring
persistent trade disputes and expanding the role of executive and legislative politics
in trade relationships and disputes, as demonstrated by the lumber import dispute.
Environmental Policies. Differing environmental policies have also been
raised as a cause of differing cost structures; some allege that weaker Canadian
environmental protection further subsidizes the Canadian lumber industry. Many
environmental groups in the United States and Canada argue that subsidized Canadian
stumpage prices lead to overcutting, and that 90% of the harvest is in extensive9697
clearcuts of irreplaceable old-growth timber. They also assert that Canada’s laws
do not provide nearly as much protection as U.S. environmental laws, especially the
Endangered Species Act. U.S. lumber producers have asserted that complying with
U.S. environmental laws significantly increases their cost of production.
Some observers view the less restrictive environmental protection in Canada as
a result of the lower population density in Canada (the world’s second largest county,
by area), and thus placing fewer demands on resources and portending fewer
environmental threats. One study found that U.S. federal policies for federal lands in
Washington and Oregon were more protective than the BC provincial policies.98 This
implies greater costs imposed on U.S. lumber producers by environmental laws than
are imposed on their Canadian competitors. However, there has not been a definitive
study comparing U.S. federal, state, and local policies for federal, state, local, and
private lands in the United States with Canadian federal, provincial, and local policies
for federal, provincial, local, and private lands in Canada. Because of differences in
resource demands and threats, less restrictive Canadian environmental protection
might not necessarily lead to greater environmental damage from logging. Whether
Canadian forests are in better condition than, or are more degraded than, U.S. forests
is not clear from existing data.
95Cashore, Flights of the Phoenix. (See footnote 9.)
96For more information on this harvesting method and alternatives, see CRS Report 98-914
ENR, Clearcutting in the National Forests: Background and Overview.
97World Resources Institute, Canada’s Forest at a Crossroads: An Assessment in the Year
98Benjamin Cashore, Governing Forestry: Environmental Group Influence in British
Columbia and the US Pacific Northwest: A Thesis Submitted in Partial Fulfillment for the
Degree of Doctor of Philosophy (Toronto, ON, Canada: Univ. of Toronto, May 1997).
Summary and Conclusions
Concerns about softwood lumber imports from Canada have been raised for
decades. The current dispute has persisted for 20 years. In 1981, Congress asked the
Department of Commerce to undertake a countervailing duty (CVD) investigation,
which resulted in a finding of de minimis (insignificant) subsidies. In 1986, another
investigation resulted in a preliminary finding of subsidies of 15% ad valorem (as a
percent of sale value); the expected CVD was supplanted by a Memorandum of
Understanding (MOU), with Canada agreeing to a 15% export tax on softwood
lumber. Canada withdrew from the MOU in 1991, arguing that the provinces had
responded to the earlier concerns. A new CVD investigation led to a 6.51% ad
valorem duty in 1992, but this duty was successfully challenged (and terminated)
under provisions of the U.S.-Canada Free Trade Agreement. In 1996, following
changes in U.S. trade law, the United States and Canada reached the current 5-year
softwood lumber agreement that imposes a fee on softwood lumber imports from four
Canadian provinces in excess of the specified quota. What actions might follow from
the March 31, 2001 expiration of this agreement are not certain. Bills and resolutions
to impose and to oppose restrictions on lumber imports from Canada have been
introduced in recent Congresses, and the 107th Congress may consider similar
U.S. lumber producers assert they have been injured by Canadian subsidies that
have given Canadian lumber producers an unfair advantage in selling lumber in the
U.S. market. These two conditions — subsidies and injury — are prerequisites for
a countervailing duty under U.S. trade law. The dispute has also encompassed the
question of what softwood lumber products are subject to the current agreement; the
U.S. Customs Service has reclassified certain products which Canadian producers
claim are specialty products outside the agreement, but which U.S. producers claim
are slight modifications to construction lumber to get around the quota.
One alleged subsidy is Canadian provincial stumpage fees (fees for the right to
harvest trees) that may be less than their value in a competitive market. In the 10
Canadian provinces, 90% of the timberland is owned by the provinces. The majority
of provincial timber is allocated to lumber producers under long-term area tenure
agreements, which specify harvest levels, management requirements, and stumpage
fees. The stumpage fees are generally set administratively, and adjusted periodically
to reflect changes in lumber markets. This contrasts with the situation in the United
States, where 58% of timberlands are privately owned, and timber from federal and
state lands is typically offered for sale at competitive auctions. Administered fees are
not likely to match market values, but could be higher or lower, depending on the
purpose and methods by which they are established; critics have claimed that the fees
are set low to assure profitable production, regardless of market conditions. Several
studies have shown significantly lower Canadian stumpage fees, but other studies have
found comparable cross-border fees. These contradictory results may be explained
by the adjustments made to account for differences in timber measurement systems
(one cubic meter of Canadian logs yields 125–275 board feet of U.S. lumber,
depending on the logs’ diameters); in tree species, sizes, and grades; in requirements
imposed on the timber purchaser (e.g., reforestation and road construction); and in
other factors. Analyses of the differences are difficult and generally problematic.
Canadian log export restrictions are also alleged to artificially depress domestic
log prices in Canada. Evidence from the U.S. Pacific Northwest, where logs from
private lands can be exported but logs from public lands cannot, shows a persistent
price differential, with substantially higher prices for exported logs. Most economists
would generally identify restrictions that reduce domestic prices as subsidies, and
Article XI of the General Agreement on Tariffs and Trade (GATT) prohibits most
export restrictions. However, U.S. treatment of Canadian log export restrictions as
a subsidy has been challenged; Canada has requested consultations with the United
States under the WTO Dispute Settlement Understanding, arguing that this treatment
(and this provision of U.S. trade law generally) violates several provisions of the
WTO Agreement on Subsidies and Countervailing Measures.
Injury to the U.S. lumber industry remains a major and complex issue. The
Canadian share of the U.S. softwood lumber market grew substantially over the past
U.S. lumber production for domestic consumption grew slowly (from nearly 30 billion
board feet (BBF) in the early 1950s to 35 BBF in 1999), while imports of Canadian
lumber rose substantially (from less than 3 BBF in the early 1950s to more than 18
BBF in 1999). Under the 1996 agreement, imports have continued to grow, although
market share has been relatively stable. Lumber imports from Canada may have
limited opportunities to expand domestic lumber production, but whether this long-
term pattern is sufficient to constitute injury or whether the limited growth in
domestic production is due to other factors is not clear from the existing data.
U.S. lumber prices are, according to economic theory, probably higher with the
restrictions on Canadian imports than they would be without the restrictions. Price
differentials for a single aspect, however, are exceedingly difficult to determine. One
estimate of the price increase from the 1996 agreement, by a group that opposes trade
restrictions, nearly equaled the fee rates, although the fee applies only to imports in
excess of the quota. This estimated price increase, which U.S. lumber producers
argue is grossly overstated, would have raised the price of 1999 median new home
by less than 1%, and would have raised monthly mortgage payments on such a house
by by less than a rise in mortgage interest rates of 1/8th of 1%.
Opponents of restrictions also argue that the 1996 agreement has increased the
volatility of lumber prices. However, the annual volatility (measured by the ratio of
standard deviation to average) of the Random Lengths framing lumber composite
price over the past 5 years (i.e., under the 1996 agreement) is generally consistent
with the annual volatility shown during the preceding 20 years (1975–1995).
Other factors might also be important in the dispute over lumber imports from
Canada. One analyst has suggested that the persistence of the dispute is due, at least
in part, to the conflict between the increasingly liberal, no-barriers U.S. trade policy
and the increasingly easy process for obtaining industry protection under U.S. trade
law. In addition, environmental laws and policies probably differ, and the impact of
those laws and policies for lumber production costs complicate any cross-border