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U.S. lumber industry pushes for tougher duties on Canadian softwood

The long-running Canadian-U.S. softwood dispute factors into one of the most controversial elements of NAFTA – Chapter 19, which sets up trade panels to settle disputes.

Sean Kilpatrick/THE CANADIAN PRESS

The U.S. lumber industry is urging the Trump administration to extend punitive duties on Canadian softwood shipments indefinitely.

Preliminary countervailing duties on Canadian shipments of lumber into the United States averaging nearly 20 per cent took effect on April 28 and will end on Sunday after four months. The U.S. Department of Commerce also imposed preliminary anti-dumping duties averaging almost 7 per cent, which took effect June 30 and will last six months.

In a submission to the Commerce Department, a group led by the U.S. Lumber Coalition calls for tougher and longer-lasting action against Canadian producers.

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If the Commerce Department backs the U.S. lumber lobby, it means punitive duties would be in force for the foreseeable future – until there is a softwood agreement, which could take months or even years, industry analysts say. "The Department should make an affirmative finding regarding Petitioner's [the lumber lobby] particular market situation allegation and adjust Respondent's [Canadian lumber producers] costs accordingly in the final determination," the U.S. group called COALITION, which stands for Committee Overseeing Action for Lumber International Trade Investigations Or Negotiations, said in its submission filed last week.

The Commerce Department is expected to make its final determination on the issue of duties on Sept. 6.

In January, the U.S. International Trade Commission issued a preliminary ruling that Canadian lumber is harming the industry in the United States. The trade commission will render its final determination on the issue of harm by Oct. 21.

Combined, the weighted average tariffs levied by the Trump administration total 26.75 per cent – 19.88 per cent for countervailing duties and 6.87 per cent for anti-dumping levies.

The preliminary countervailing duties were imposed because the United States says 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 at below market value.

In a joint rebuttal of the U.S. submission filed last week to the Commerce Department, the Canadian government and Canada's lumber producers assert that COALITION's arguments have no merit: "In short, Petitioner has offered no defensible basis for the Department to conclude that there have been 'massive imports' over a 'relatively short period' in the anti-dumping duty investigation."

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The U.S. lumber industry is targeting four mandatory respondents from Canada, claiming they benefit from Canadian subsidies and gain from dumping softwood into the United States: Resolute Forest Products Inc. of Montreal and three B.C.-based producers – West Fraser Timber Co. Ltd., Canfor Corp. and Tolko Industries Ltd.

In addition to the punitive duties, most Canadian producers are subject to two sets of 90-day retroactive penalties for what are known as critical circumstances, a scenario in which Canadian lumber exports rise at least 15 per cent in the months after an investigation is launched but before duties take effect. Resolute, Tolko, Canfor and West Fraser are the only firms to escape those retroactive tariffs.

The U.S. lumber industry argues in its submission that further punitive action against Canadian producers is warranted because a particular market situation stems from distortions in the softwood industry because of Canadian subsidies for biomass or renewable-energy programs that consume lumber byproducts.

The long-running softwood dispute factors into one of the most controversial elements of the North American free-trade agreement – Chapter 19, which sets up trade panels to settle disputes. In talks to renegotiate NAFTA, the United States is taking aim at the panels, and some in the lumber industry fear that controversy will overshadow the softwood dispute.

"A number of industry contacts that we have spoken to acknowledged that NAFTA will be the focus and a new softwood lumber agreement will now take a distant back seat," RBC Dominion Securities Inc. analyst Paul Quinn said in a recent research note.

BMO Nesbitt Burns Inc. analyst Mark Wilde said the cross-border rift is deep.

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"We believe prospects for a near-term settlement of the U.S.-Canadian lumber dispute have faded," he said in a note last week.

The duties paid by Canadian producers are being held in trust by the United States, pending appeals.

If the Commerce Department's final determination rejects the Canadian position, Canada could appeal under Chapter 19, or to the U.S. Court of International Trade, or through the World Trade Organization, industry observers say.

On the company level, combined tariffs range from 9.89 per cent for New Brunswick-based J.D. Irving Ltd. to 30.88 per cent for West Fraser.

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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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