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Ottawa tells trade commission its lumber helps, not hurts U.S. market

The U.S. Commerce Department began applying countervailing duties on Canadian softwood imports starting on April 28 and then anti-dumping duties as of June 30.

Paul Chiasson/THE CANADIAN PRESS

The flow of Canadian lumber into the United States should be embraced and not feared by Americans, Canada has told the U.S. International Trade Commission.

The ITC issued a preliminary ruling in January, saying Canadian softwood is harming the U.S. lumber sector.

The Canadian government is leading efforts to persuade the ITC to reverse January's pro-U.S. decision in the cross-border trade dispute. "The facts on this record can only lead to a negative determination with respect to both current injury and threat of injury," lawyers representing Canada said in documents filed on Sept. 26 to the ITC.

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For one year after the 2006 Canada-U.S. softwood-lumber agreement expired in October, 2015, a period of free trade existed – a rarity in the long-running battle, according to Canada's 233-page submission. The United States agreed to refrain from launching trade actions during the one-year litigation moratorium period, which began in the fall of 2015 and lasted until October, 2016.

Increased shipments from Canada coincided with rising lumber prices in the United States as U.S. producers became stronger and not weaker during the 12 months of free trade, the Canadian government's filing said.

"During this period of free trade, increasing import volumes coincided with increasing prices and strong domestic industry performance" in the U.S. lumber market, the filing said. "That phenomenon is consistent with the fact that the Canadian and U.S. products are largely complementary rather than directly competitive."

By Dec. 21, the ITC is scheduled to render its final determination into the issue of U.S. lumber producers being injured, assuming a November ruling on tariffs by the U.S. Department of Commerce upholds earlier rulings against Canada. If the United States were to reach a truce with Canada, then the ITC ruling would not be necessary, industry observers say.

Canada argues that it plays an important role by helping meet demand south of the border since U.S. producers don't have the capacity to fill all the U.S. orders.

The 2006 softwood-lumber agreement limited Canadian lumber to a maximum of 34 per cent of the U.S. market, and Canada notes that it stayed under the cap, holding an estimated 30 per cent in 2015.

U.S. lumber and Canadian shipments south of the border are "complementary products, as they are used primarily in different end uses, and are subject to strong regional preferences. This means the demand for particular species contribute in varying degrees to the increase in total demand throughout the U.S. market," the Canadian filing to the ITC argues.

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The filing said prices for southern yellow pine, the predominant species in the U.S. South, initially declined even though the United States imposed preliminary duties in 2017 against Canadian producers. Canada specializes in producing wood from spruce, pine and fir trees.

The Canadian government retained lawyers based in Washington to make the submission on behalf of Canada, the B.C. Lumber Trade Council, New Brunswick-based J.D. Irving Ltd., Montreal-based Eacom Timber Corp. and Montreal-based Tembec Inc. Recently, Rayonier Advanced Materials Inc. of Florida acquired Tembec.

Throwing their support behind the submission are five provincial governments (British Columbia, Alberta, Ontario, Quebec and New Brunswick), the Alberta Softwood Lumber Trade Council and two Vancouver-based producers, Canfor Corp. and West Fraser Timber Co. Ltd.

The 2006 softwood-lumber agreement expired on Oct. 12, 2015. The U.S. lumber sector began flexing its muscles in November, 2016, petitioning the Commerce Department to impose countervailing and anti-dumping duties on Canadian lumber shipments into the United States. That move turned out to be successful in 2017, with the Commerce Department deciding to penalize Canadian producers, first with countervailing duties starting on April 28 and then anti-dumping duties beginning on June 30.

The recent Canadian filing highlights that preliminary countervailing duties averaging nearly 20 per cent lasted for four months, ending in late August. Preliminary anti-dumping duties averaging almost 7 per cent will expire in late December.

The preliminary countervailing duties were imposed because the Commerce Department ruled provincial stumpage fees paid by Canadian lumber firms are too low and amount to subsidies. The preliminary anti-dumping duties arise from the U.S. contention that Canadian producers sell softwood below market value.

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The Commerce Department originally planned to make its final determination on punitive duties on Sept. 6, but in late August, Commerce Secretary Wilbur Ross postponed that deadline for the final determination until Nov. 13. In the weeks after the postponement, U.S. wood prices strengthened as the weekly lumber composite price hit $429 (U.S.) for 1,000 board feet on Sept. 22, the Canadian submission to the ITC said.

The Canadian government and its supporters are playing down criticisms from a group led by the U.S. Lumber Coalition, also known in legal papers as the Petitioner.

"Even when increased imports from Canada coincide with higher lumber composite prices and strong U.S. industry performance, Petitioner ignores the latter and insists that the former is injurious," according to the Canadian filing. "Every major indicator – high lumber composite prices, increasing domestic demand for softwood lumber, and constrained Canadian capacity – points to sustained financial success for the U.S. industry in the near term."

Video: Softwood lumber tariffs ‘consistent’ with U.S. approach: Trudeau (The Canadian Press)
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About the Author

Brent Jang is a business reporter in The Globe and Mail’s Vancouver bureau. He joined the Globe in 1995. His former positions include transportation reporter in Toronto, energy correspondent in Calgary and Western columnist for Report on Business. He holds a Bachelor of Commerce degree from the University of Alberta, where he served as Editor-in-Chief of The Gateway student newspaper. Mr. More

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