Flights of the phoenix: explaining the durability of the Canada-U.S. softwood lumber dispute.

• Author: Cashore, Benjamin

Benjamin Cashore, an expert on forest resource policy in Canada and the United States, is currently a post-doctoral fellow in the forest economics and policy analysis research unit at the University of British Columbia. He holds advanced degrees in political science from Carleton University (1986, 1988) and the University of Toronto (1997), as well as a certificate in French Studies at l'Universite d'Aix-Marseille III (1989). During the 1996-1997 academic year he conducted research under a Fulbright fellow-ship at Harvard University on the Canada-U.S. softwood lumber dispute.

* A list of acronyms used in this article is provided on page 37.

1. INTRODUCTION

   For the last fifteen years Canada and the United States have been engaged in a dispute concerning billions of dollars of Canadian softwood lumber exports to the U.S. market. (1) As the largest and longest-lasting trade conflict between the two countries, the dispute has consumed vast amounts of time and money spent by industry and government officials on both sides of the border. It has also attracted the attention of an array of scholars in several disciplines. Despite this expenditure of human, financial, and intellectual capital, a long-term resolution has eluded policy makers. Even the latest truce signed in April, 1996, has a maximum life of only five years, after which discord is certain to continue.

   This essay explores the causes of the dispute, accounts for its longevity, and examines options for a long-term solution. To accomplish these tasks, two factors must be given more attention than the literature has afforded them to date: 1) the reciprocal and paradoxical relationship between the evolution of U.S. liberal trade policy and the increase in administered protection through "fair trade" laws and 2) the influence of environmental forest policy and politics in Canada and the U.S. To date, legal scholars have emphasized the complex technical arguments and adjudication of this dispute while downplaying the role of congressional lobbying. Conversely, political scientists have given a traditional, interest-based "Olsonian" account regarding the ability of well-organized and geographically concentrated companies to lobby Congress more effectively than dispersed consumer-based interests, (2) often downplaying the role of institutions as independent variables.

   Few analyses of the softwood lumber dispute have drawn on recent theories of U.S. trade policy that find both domestic and foreign policy centered explanations incomplete. This literature asserts that U.S. trade law after 1934 has "locked in" both protectionist (fair trade) (3) and liberal (free trade) dynamics, leading to an institutional setting that can be seen as an explanatory variable. (4) Goldstein and Nelson both argue that liberal ideas generally dominate and are expressed through the executive branch, while congressionally-focused protectionist interests are sent to administrative agencies for redress, minimizing protectionist pressures. (5) These dynamics encourage Congress to bargain with the executive branch to protect specific industries while giving overall authority to the presidency to negotiate liberal trading agreements. (6) This account of U.S. trade policy helps explain why congressionally-focused protectionist interests have been circumvented to a greater degree than an interest-based account would predict, and why an overall liberal trading regime continues as a foreign policy objective despite the decline of U.S. dominance in world trade since the early 1970s. (7)

   A study of the softwood lumber dispute is aided by such an institutional approach because it helps to explain why 1) throughout the history softwood lumber conflict, the U.S. executive branch has repeatedly accepted negotiated deals in lieu of countervail tariffs, 2) Canada and the U.S. entered into a free trade deal during this dispute, something interest-based accounts predicted would not happen, (8) and why 3) the nature of congressional influence on this dispute was altered in the early 1990s, rendering lobbying activity that was more explicitly tied to the softwood issue.

   Bringing an environmental forestry analysis to the trade dispute complements the institutional analysis and helps account for the decline of fiber supply from U.S. national forests, causing U.S. lumber companies to look north with envy at what they perceived to be less regulated Canadian competitors. It also explains why British Columbia officials at various times were able to use the countervail dispute as a way to justify stumpage rate increases and broad environmental forestry policy change, (9) as well as to account for the unusual coalition-building between U.S. lumber companies and North American environmental groups.

   Based on these insights, the paper puts forward two central arguments. First, the cause of the Canada-U.S. softwood lumber dispute is about much more than the different ways each country charges for the right to harvest publicly-owned timber. The catalyst for the dispute can be traced to an increasing Canadian share of the U.S. market amidst a declining supply of timber from U.S. national forests, caused in part by increased environmental regulations. United States companies sought to minimize the effects of these economic and environmental pressures by turning their attention to foreign competitors. They sought redress through U.S. trade law changes in the 1970s that facilitated the use of countervail investigations. Second, U.S. trade legislation has nurtured this dispute by adapting to trade liberalization rules between Canada and the U.S. that, at first glance, appeared to lessen the influence of U.S. protectionist "fair trade" laws. In fact, the use of administered protection in the softwood dispute in part explains the success of the Canada-U.S. free trade talks, as it is doubtful Congress would have given approval to the FTA talks in the mid-1980s if domestic protection for the American softwood lumber industry had not occurred. The ability of U.S. companies to successfully push for changes in trade law in order to maintain their ability to pursue softwood lumber countervail action largely explains why the dispute has lasted so long. (10) And part of their success in maintaining influence in Congress was by enlisting the support of Canadian actors critical of their own domestic policy, starting with those who initially criticized low stumpage rates but by the early 1990s had expanded their critique to British Columbia's environmental forestry issues, a strategy which entailed the cultivation of informal links between B.C. and U.S. environmental groups.

   Thus, an examination of congressional pressure and U.S. case law is crucial to this story. But a full understanding of the causes and longevity of this dispute must also address the role of increasingly liberal trading policy between Canada and the U.S. as a cause of increased administered protection, and the role of environmental forestry politics in both countries. Hence the U.S.-Canada softwood lumber dispute is an important topic not only for those interested in international trade relations, but also for students of environmental policy, forest resource policy, and for those who analyse the role that political institutions have played in shaping state / societal relations.

   This essay proceeds in three parts. First, it presents the economic, environmental, and trade policy setting as of 1982. Second, it reviews the history of the dispute from 1982 to 1997, looking at how the evolution of trade rules and environmental conflicts affected the conflict as well as how the conflict affected trade rules and environmental disputes. This section examines the influence of the Canada-U.S. Free Trade Agreement (FTA), the North American Free Trade Agreement (NAFTA) and various short-term deals to avoid imposition of U.S. countervail tariffs. Third, it examines the viability of four options for a long-term solution. The essay places special emphasis on the province of British Columbia, which exports the vast majority of Canadian softwood lumber to the U.S. (Figures 2 and 3) and whose forest policies continue to attract the most scrutiny from U.S. forest companies.

2. SOWING THE SEEDS OF DISCONTENT

   In the decade and a half leading up to the dispute, two key factors increased financial stress on the U.S. timber industry: a dramatic increase in the amount of Canadian softwood lumber exported to the United States, and American environmental forestry legislation that restricted wood harvesting on federal forest lands. These pressures were joined by changes in trade law that made it easier for U.S. companies to launch countervail action against foreign competitors, amidst a backdrop of increasingly liberalized and tariff-reducing trading arrangements.

   Canadian softwood lumber exports to the United States changed in two important ways in the 1970s and early 1980s.(11) First, the Canadian share of the U.S. market increased substantially (Figure 1). Secondly, B.C. lost its position as "marginal supplier" to the U.S. market,(12) a status now held by the U.S. forest industry in the Pacific northwest.(13) Part of these changes is explained by increased American demand and a decline in the value of the Canadian dollar relative to the U.S. dollar,(14) rendering Canadian timber less expensive to American purchasers. But U.S. lumber companies in the Pacific northwest argued that the 40-year-old system of calculating stumpage rates in B.C. and other provinces was also the culprit. The U.S. industry maintained that stumpage rates subsidized B.C. lumber companies by providing below-market costs to harvest publicly owned timber. Many critics of B.C. forestry in the early 1980s supported this argument, bolstered by an economic study which found evidence that the B.C. government may not have been capturing the full economic rent.(15)

   The American federal and B.C. governments responded...