TO 'B' OR NOT TO 'B': AN ANALYSIS OF ALBERTA UNDER THE SOFTWOOD LUMBER AGREEMENT

On October 16th 2006 the Canada-United States Softwood Lumber Agreement (SLA) came into effect. The SLA followed years of trade disputes and litigation initiated by U.S. lumber producers. The SLA ended litigation and dispute procedures by implementing an agreed Canadian export restriction and export tax regime. However, even with a formal agreement in place, points of contention remain on either side. The intent of this study is to evaluate Alberta’s performance under the SLA since its inception in 2006 and the implications for the future. To that end, there are several important characteristics of the SLA that are important to define. The SLA uses a system of export taxes and volume targets to attempt to restrict the total volume of softwood lumber exports from Canada to the U.S. First, under the SLA the total volume Canada can export is determined by the Expected U.S. Consumption (EUSC), that is, what the U.S. expects its domestic demand to be in a given month. A portion of the EUSC is allocated monthly to each region1. A region’s allocation is based on the terms of the Softwood Lumber Agreement.2 Second, monthly pricing is determined by using a composite (a weighted average) of weekly prices in the past four weeks as recorded by Random Lengths,3 a publication that, among other things, tracks daily pricing of various softwood lumber products. This price is then used to determine the export volume restrictions for the upcoming month. Third, there are export taxes or charges set on a variable basis. The level of the export charges varies according to established export volume restrictions (as decided by each region) and price levels. There are several tiers of pricing and in each tier there are charges that are applied. The relationship of the export charges and price are related inversely. Simply put, when prices rise, export charges decrease and vice-versa. When the agreement was signed, the provincial governments had to choose between two different options, either Option ‘A’ or Option ‘B.’ The Options are described below. Section 1 describes in detail the two different options available to the provinces and why the option selected is crucial to evaluating the experience of softwood lumber exports from Alberta. Section 2 evaluates how Alberta softwood lumber producers have fared relative to those in the rest of Canada. Section 3 is an in-depth analysis of what has happened in Alberta as an Option A region and what would have happened if Alberta was an Option B region. The report concludes with a summary of the major points from this study and then makes policy recommendation as to whether Alberta should switch from an Option A to an Option B region