U.S. imposing 20-per-cent tariff on Canadian softwood

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The United States will impose duties of nearly 20 per cent against Canadian softwood lumber exports as trade tensions mount between the two countries.

Five Canadian exporters each face a company-specific countervailing duty rate ranging from 3.02 per cent to 24.12 per cent as the United States retaliates for what it calls softwood subsidies in Canada. Other Canadian lumber exporters will be subject to a weighted average of 19.88 per cent, the powerful U.S. Lumber Coalition said late Monday.

"It has been a bad week for U.S.-Canada trade relations. Last Monday, it became apparent that Canada intends to effectively cut off the last dairy products being exported from the United States," U.S. Secretary of Commerce Wilbur Ross said in a statement. "Today, in a different matter, the Department of Commerce determined a need to impose countervailing duties of roughly $1-billion on Canadian softwood lumber exports to us. This is not our idea of a properly functioning free-trade agreement."

Natural Resources Minister Jim Carr and Foreign Minister Chrystia Freeland fired back: "The government of Canada disagrees strongly with the U.S. Department of Commerce's decision to impose an unfair and punitive duty. The accusations are baseless and unfounded."

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Although the Commerce Department's decision in the decades-long dispute was expected, this is the single biggest action U.S. President Donald Trump has taken on the file so far. He further has vowed to renegotiate the North American free-trade agreement, and threatened to pull out of it altogether if he cannot get significant changes.

The countervailing duties reignite one of Canada's longest-running trade disputes with its largest market.

A preliminary U.S. determination on anti-dumping duties is expected to be announced by late June.

Canadian companies must pay cash for up to six months on their lumber exports to the United States, but further deposits will be suspended until a final determination in early 2018.

The changes come only days after Mr. Trump took direct aim at Canada, accusing his country's largest trading partner of "taking advantage" of the United States. On top of the softwood dispute, he named Canada's dairy pricing rules and a vague concern about "energy" as two points of friction.

J.D. Irving Ltd. of New Brunswick is the lone voluntary respondent to the U.S. investigation on softwood. The four mandatory respondents are Resolute Forest Products Inc. of Montreal and three B.C.-based producers – West Fraser Timber Co. Ltd., Canfor Corp. and Tolko Industries Ltd.

"The Department of Commerce found the following rates of subsidization: Canfor, 20.26 per cent; J.D. Irving, 3.02 per cent; Resolute, 12.82 per cent; Tolko, 19.50 per cent; West Fraser, 24.12 per cent; All other producers/exporters, 19.88 per cent," according to a statement from Zoltan van Heyningen, the coalition's executive director.

Two Canadian forestry officials said Monday night that West Fraser, Canfor, Tolko and Resolute are not in line for retroactive duties, but they each will need to pay hefty cash deposits for new exports. Irving and other Canadian softwood exporters face paying duties retroactive 90 days, based on Irving's rate of 3.02 per cent.

U.S. producers say that under their system, the cost of timber rights on private land is more expensive than the Canadian "stumpage" fees paid by forestry companies to cut trees down on Crown-owned property in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Quebec. The 2006 Canada-U.S. softwood-lumber agreement, which covered those six provinces, expired in October, 2015.

After a one-year moratorium on legal proceedings, the group led by the U.S. Lumber Coalition launched its petition this past November. The cross-border lumber fight is now in its the fifth round of trade litigation since 1982.

The New Brunswick government denies allegations that it provides lumber subsidies. And Irving said in a letter earlier this month to Mr. Ross that in New Brunswick in 2015, "Crown stumpage rates in the province exceeded private stumpage prices," and the market isn't distorted.

Crown (publicly owned) timber had a 47.7-per-cent share of the total supply within New Brunswick in 2015, Irving noted.

By contrast, Crown timber accounts for 95 per cent of British Columbia's forested lands.

B.C. is Canada's largest lumber exporter into the United States, followed by Quebec, Ontario, Alberta and New Brunswick.

The Atlantic provinces have escaped U.S. tariffs and quotas over the decades, but this time, New Brunswick caught the attention of the U.S. industry group called COALITION, which stands for Committee Overseeing Action for Lumber International Trade Investigations Or Negotiations.

The Canadian government has been hoping to keep the softwood dispute separate from NAFTA talks. One Canadian source said the government sees NAFTA as setting the framework for working out such disputes, not prescribing decisions on them.

Softwood, however, directly factors into one of the most contentious elements of NAFTA – Chapter 19, which sets up trade panels to settle disputes.

The panels were a key sticking point when Ottawa and Washington first agreed a free-trade deal in 1987, with Canada insisting they be included. They have, however, vexed the U.S. by regularly ruling in Canada's favour.