Introduction The US and Canada have been trading on softwood lumber for years now but disputes on the exports have marred the two countries for over 20 years now. The US has been aggravated by stumpage fees which they claim are subsidies to local companies. This essay will discuss the history of this trade and why America buys lumber from Canada. I will also examine the dispute of this trade and the effect of this in their respective economies. History of the Trade Wood has been a great Canadian trade for much of the 19 th century. Canada is one of the largest producers and exporters of softwood lumber and accounts for 16 percent of forest exports by Canada. In 1986, the US decided that Canada was subsidizing local lumber production through low stumpage fees and on discussion with the Canadian government a Memorandum of understanding was established that called a 15 ad percent valorem tariff on Canadian softwood. The Memorandum of understanding was later terminated by Canada in 1991and claimed that the stumpage fees were not a subsidy. This lead to the US placing a tax of 6.1 for softwood imported from Canada. Canada appealed under the FTA which sided with it, US appeal was not successful. In 1996, the two governments signed a softwood lumber agreement, which required Canada to collect export tax after 14.7 million feet have been reached and which lasted until 2001. The US (department of Commence) DOC again imposed sanctions in 200 when the agreement expired and started the fourth investigation whether Canada was involved in the lumber practices. This lead to another tax of 19.31 imposed on Canadian softwood. A further “anti-dumping duty” of 12.57 percent was imposed. Canada appealed to these duties to WTO which later ruled to Canada’s favor in 2003. The rules were unbinding and therefore the American government has no obligation to change the policies and although the US has the opportunity to appeal but in the meanwhile the case is being handled by NAFTA which is likely to issue a binding rule (Moffat M. 2010). The latest news on the dispute this year according to Canada.com, the US is accusing Canada of breaching the 2006 softwood deal and therefore the US has decided to take Canada to court (Moffat, 2010). Why America buys Softwood from Canada Three factors can be associated with the preference that exists among the Americans for the Canadian softwood: cost, vicinity and reliability. In a world where cost reduction is a major factor in carrying out business it becomes preferable for Americans to prefer softwood from Canada. Canadian softwood is cheap than the American softwood thus it becomes preferred as a means of reducing construction expenses. The cheap softwood from Canada is usually as a result of the system of ownership. It is claimed that the Canada softwood is much subsidised than the American softwood making softwood from Canada cheaper than that in America (Makarenko, 2008). Another factor considered is that Canada has a large reserve of softwood which will ensure that there is a continuous supply to sustain business. Apart from having large reserve of softwood, it is worth noting that Canada is in close vicinity to the US. This will ensure