First Cut: Get the lead out
December 4, 2015 - With the expiry of the 2006 Softwood Lumber Agreement (SLA) this past October, and a newly elected Liberal majority government, there are some interesting times ahead for Canada’s forestry sector. I’m curious to see what kind of action our new government takes towards the softwood lumber file. Hopefully they take action sooner rather than later. After all, the clock is ticking.
By Andrew Snook
With the 12-month grace period now in effect, where the U.S. has committed not to initiate any trade remedy action, representatives from the U.S. and Canadian governments have begun their strategic finger-pointing campaigns in regards to the expiry of the SLA and the softwood trade’s uncertain future.
A representative for Foreign Affairs and International Trade Canada recently stated that it consulted extensively with provinces, territories and industry on future softwood lumber trade with the U.S., and made it clear that Canada supports the same key terms of the previous SLA.
The U.S. Lumber Coalition has stated that the Canadian government has so far been unwilling to enter into negotiations on a new trade agreement and if Canada stays away from the negotiating table, “the U.S. industry will eventually have no choice but to use our rights under U.S. trade laws to offset the unfair advantages provided to Canadian industry.”
Funny, Canadian representatives have stated that it is the U.S. that has been unwilling to come to the table for negotiations on softwood lumber. Sounds like a bad case of “he said, she said.”
“Unfair advantages” or not, the threat of litigation is real, and has the potential to seriously hinder the growth that the forestry sector has been experiencing on both sides of the border since the U.S. housing market began its recovery.
Confidence in the U.S. housing market is the highest it has been in the past decade. This past October, the National Association of Home Builders/Wells Fargo builder sentiment index had risen to 64 (readings above 50 indicate builders view sales conditions to be good). This is the highest the index has been since it reached 68 in October 2005.
Why are builders so confident? I’d bet U.S. housing starts definitely have something to do with it. This past September, U.S. housing starts increased by 6.5 per cent to a seasonally adjusted rate of 1.21 million units. This time the increase was fuelled by rising demand for rental apartments, showing that the housing market continues to improve despite slowing economic growth south of our border. This marked the sixth consecutive month of housing starts above one million units, which potentially points to sustainable housing recovery.
The housing recovery in the U.S. couldn’t come at a better time either, since Canadian housing starts decreased in October. This drop has some experts suggesting it is the start of a long-anticipated slowdown in homebuilding.
The Canadian Mortgage and Housing Corporation recently released a report stating that the seasonally adjusted annualized rate of housing starts fell to 198,065 in October from 231,304 in September, failing to meet the previously forecasted 200,000 starts for the month of October.
It will be interesting to see what builder confidence looks like as the SLA grace period comes closer to its expiration in October 2016.
So is it business as usual for producers until both governments hit the expiration date? Think again. If the U.S. decides to file trade challenges it can charge duties retroactive to October 12, 2015 for softwood shipments that have been entering its borders. That, obviously, has the potential to be very costly to Canadian softwood lumber producers.
With billions of dollars and hundreds of thousands of jobs threatened on both sides of the border, the American and Canadian governments need to come to an agreement sooner rather than later. We can only hope that a resolution is reached before the expiry of the 12-month grace period. Knock on wood.