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Wood Products Trade With Canada Keeps Building
By Shari Kosco
It’s no newsflash that the U.S. wood products industry regards our neighbor to the north as a major customer. After all, Canada is the second largest wood products export market for the United States as well as the top source of U.S. imports.
Canada is, of course, a major player in
the North American Free Trade Agreement (NAFTA). However, NAFTA,
which was implemented in 1994, has actually had little overall
effect on solid wood products trade between the United States and
Canada.
As it turns out, factors such as economic growth, exchange rates, commodity price relationships, and other U.S.-Canada trade agreements have had considerably more impact on forest products trade between the two countries than the better-known NAFTA.
In the years between 1993 and 1998, the value of U.S. wood exports to Canada rose 38 percent to $1.5 billion, and Canada’s share of all U.S. wood product exports climbed from 15 to 26 percent. Despite a Canadian dollar that’s been very weak compared to the U.S. dollar, as well as the huge output of Canada’s own highly productive forests, U.S. exports grew-- along with a Canadian economy that strengthened--especially through 1997.
Sustaining even further profitability was a surge in demand for one particular category: U.S. wood products that are further processed in Canada for re-export, either back to the United States or to other countries.
From 1993 to 1998, higher exports were seen for hardwood lumber (for furniture manufacture and re-export to the United States and for re-export of the lumber itself, often to the European Union), softwood and hardwood logs (mainly border trade), and builders’ carpentry and other value-added wood products.
Meanwhile, U.S. wood-product imports from Canada rose even more rapidly than exports, up 55 percent over the 1993-98 period to $9.7 billion. Vigorous U.S. economic growth, a 15-percent increase in the value of the U.S. dollar over the Canadian dollar, rapid growth in U.S. housing construction, and reduced U.S. softwood production in the West fed the strong U.S. import demand, especially for softwood lumber for new housing construction. Despite these factors, Canada’s share of U.S. wood imports remained at about 73 percent during the 1993-98 period.
The U.S.-Canada Free Trade Agreement and the U.S.-Canada Softwood Lumber Agreement have had more significant effects on wood trade between the two countries than NAFTA. This is because wood tariffs between the two countries were already relatively low; tariff reductions had already been phased in under the U.S.-Canada Free Trade Agreement, which began in 1989, 5 years before NAFTA began.
Additionally, the U.S.-Canada Softwood Lumber Agreement, reached in 1996 after years of negotiation, played a role in limiting U.S. imports from Canada.
Under this agreement, Canada agreed to limit the tax-free volume of softwood lumber exported to the United States from certain provinces. In exchange, the United States pledged to refrain from bringing certain trade actions against Canada related to softwood lumber during the five-year agreement.
Some disputes continue to simmer, however. For example, the U.S. industry continues to claim that Canadian mills are subsidized because Canadian provinces, which own most of the timber, charge low stumpage fees that do not reflect the true market value of the timber.
The United States and Canada are in arbitration to settle a dispute over British Columbia’s decision in 1998 to lower stumpage rates to help its ailing forest products industry. A number of other changes in how contracts are administered are currently under review by the United States. They are intended to lessen the financial burden on British Columbia’s wood products industry.
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The author is an agricultural economist, formerly with the
Foreign Agricultural Service’s Forest and Fishery Products
Division. Tel.: (202) 720-9792; Fax: (202) 720-3799, E-mail: koscos@fas.usda.gov
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