Since most timber in Canada is owned by provincial governments, the U.S. has complained for decades that the Canadian lumber industry is unfairly subsidized by the government. U.S. timber interests claim the price charged to harvest the timber, commonly known as the "stumpage fee," is set administratively rather than by the market.
Under U.S. trade remedy laws, foreign goods benefiting from subsidies can be subject to a countervailing duty to bring the price of the product back up to market rates.
The U.S. began assessing tariffs on Canadian lumber in 2002 at an average of 27 percent. Today, the duty averages about 11 percent due to various trade panel rulings.
The U.S. goal is to keep Canada's share of the domestic softwood lumber market from exceeding the current level of about 34 percent. However, the deal signed this week does not impose a specific cap. Instead, Canada agreed to impose taxes on lumber exported to the United States if the price of lumber falls below a specified level. Currently softwood lumber is averaging about $370 per 1,000 board feet. The aim of the taxes is to protect U.S. producers by boosting the price of Canadian lumber.
The deal eliminates current tariffs and sends 80 percent of the $5 billion in penalties collected by the U.S. since 1982 back to Canadian producers.
Since international trade panels have repeatedly ruled that the U.S. penalties were improper, Canadian opponents of the deal wanted all of the tariffs returned to Canadian lumber companies.
While no U.S. legislation is required for the deal to take affect, the Canadian Parliament must approve the new system of taxes on lumber exports.