According to Rahman and Devadoss (2002) the softwood lumber dispute between Canada and United States, which began in its modern incarnation in 1982, was the most acrimonious trade dispute between the two countries. Rahman and Devadoss (2002) reported that the value of the softwood trade between the United States and Canada was estimated to be $7. 3 billion annually. Each country had a lot at stake in terms of jobs and profits to the lumber companies.
The United States needs Canadian imports—it cannot meet demand on its own. But the U. S. umber industry complained because Canadian lumber could sometimes be cheaper than U. S. lumber, thereby winning business that the US industry wished it could keep. Therefore, the U. S. industry tried repeatedly and with mixed success, to persuade its government to put tariffs on Canadian lumber. For its part, the Canadian industry wished to sell its goods at the best price possible, something that tariffs prevented. Both industries had a lot on the line—a disadvantage to either side was felt in terms of jobs lost. And since the industries are so large, the numbers of jobs were significant.
Rahman and Devadoss (2002) explained that the dispute was rooted in the difference between the way forest land is owned in the U. S. and in Canada. In the U. S. , the trees for lumber are owned by private interests. In Canada, most of the trees are owned by the government. The Canadian provincial governments charged a modest fee per tree harvested (the stumping fee) to the lumber companies. Also, Canada restricted the number of logs that could be exported, so U. S. interests did not have the opportunity to purchase cheaper raw materials. U. S. umber interests therefore claimed that the Canadian lumber industry was subsidized by its government. Subsidized industries were not considered eligible for free trade status as regulated by the NAFTA agreement.
A short recap of some of the disputes between the countries illustrates the type of skirmishes the countries engaged in. In 1982, lumber interests petitioned the U. S. Commerce Department to impose a duty on Canadian softwood. The Department decided that the effective subsidy by the Canadian government was so minimal that no countervailing duty should be imposed.
In 1986, the U. S. lumber industry tried again. This time, before the Commerce Department could decide, the Canadian and United States governments entered an agreement saying that Canada would impose export duties on softwood heading for the U. S. The Canadian government would waive these duties if individual provinces increased their stumpage fees. The provinces did this and by 1991 the Canadian national government stopped charging the export duty.
Immediately, the U. S. Trade Representative began an investigation which culminated in the imposition of a tariff by the U. S. Canada then claimed that the US was in violation of the Canada-U. S. Trade Agreement, which governed the countries’ trading relationship at the time. A decision was made in favor of Canada and the U. S. refunded the tariffs it had collected. This type of back and forth continued until 2006, when the countries signed the Softwood Lumber Agreement, which established rules and a dispute resolution mechanism to govern more amicably the softwood trade between the two countries (Foreign Affairs and International Trade Canada, 2009)