As Trade Remedy Probe Continues, Questions Loom for US-Canada Softwood Lumber Talks

6 April 2017

The next phase for securing a new US-Canada deal on managing softwood lumber trade remains uncertain, as trade remedy investigations on Canadian lumber continue in the United States.

A preliminary ruling by the US International Trade Commission in January deemed Canadian softwood lumber imports have received unfair state aid and been sold at the US below their “fair value” to the point of causing “material injury” to the latter country’s producers, paving the way for the US Commerce Department to continue both anti-dumping and countervailing duty probes on the issue.

The Commerce Department is expected to release a preliminary anti-dumping duty determination in early May, with a preliminary countervailing duty determination also expected in the coming weeks. Canadian industry officials warn that such duties could lead to job losses and mill closures. Industries on both sides of the border have advocated in favour of a deal in order to ensure stability in the lumber market.

Managing lumber trade

The previous Softwood Lumber Agreement (SLA) entered into force in 2006 and eventually expired in late 2015 following a two-year extension. (See Bridges Weekly, 25 January 2012 and 15 October 2015)

The deal regulated trade in softwood lumber between the US and Canada, halting US imposition of anti-dumping and countervailing duties on Canadian timber in return for export measures applied on products that fall below a designated market level. The agreement also contained dispute settlement provisions and mandated the distribution of the anti-dumping and countervailing duty deposits held by the US.

A built-in one-year standstill period in the SLA prohibited the US from bringing countervailing duty or anti-dumping investigations against Canadian producers at any point before October of last year. The US lumber industry then filed a petition in November 2016 arguing that Canadian lumber exporters are engaging in unfair trade practices, which led to the above-mentioned investigations by US authorities.

Industry leaders say that a potential replacement agreement would serve to end litigation and ensure more stable and certain market conditions for the industry on each side of the border, but efforts last year between the countries’ trade negotiators to reach such a deal failed to bear fruit.

Prior to the SLA, there were  several rounds of trade disputes under both the WTO (DS311) and the North American Free Trade Agreement (NAFTA) dispute settlement mechanisms.

“We would much rather find opportunities to work together with our American neighbours to find a lasting solution to this long-lived dispute. A stable, predictable lumber supply is good for workers and the economy on both sides of the border,” read a statement issued by newly appointed British Columbia Special Envoy to the US David Emerson following a series of meetings with stakeholders and officials in Ottawa and Washington in early March.

British Columbia is Canada’s largest producer of softwood lumber, responsible for half of overall production, and the US is the province’s primary market for softwood lumber. The 2016 value of lumber exports from British Columbia to the US amounted to US$4.6 billion.

“I believe these meetings have been a good start, but there is much more work to do to ultimately secure a softwood lumber deal which remains our goal,” he said, adding that the two sides still have “differences to overcome.”

Canada’s share of the US softwood market is today less significant than it was a decade ago when the initial agreement was signed, and does not look poised to grow between an increasingly diversified lumber market and a damaging mountain pine beetle outbreak.

Softwood lumber is manufactured from spruce, fir, and pine trees and is used for housing construction. Canada makes up the largest share of softwood lumber imports into the US.

Standstill, new executive orders

Meanwhile, Trump issued two executive orders on trade last week which could have implications for the US-Canada trading relationship. One of these requires a 90-day review into the causes of the country’s trade deficits with its trading partners, including Canada. (For more on both executive orders, see related story, this edition)

The review comes as Trump prepares to open talks for an upgrade to NAFTA, the decades-old agreement bringing Canada, the US, and Mexico together in a free trade bloc, which some stakeholders have suggested may could include the subject of a revamped lumber agreement. (See Bridges Weekly, 16 February 2017)

Trump also ordered the improved collection of anti-dumping and countervailing duties from importers who American officials deem to be selling their products on the US market at artificially low prices, which could potentially affect the ongoing softwood lumber probes.

ICTSD reporting; “Fate of US-Canada Softwood Lumber Agreement still in Limbo,” CONSTRUCTION DIVE, 3 April 2017; “What the U.S. NAFTA demands mean for Canada,” THE GLOBE AND MAIL, 30 March 2017; “Canada in for rougher NAFTA talks than Trump suggested, trade experts say,” THE TORONTO STAR, 1 April 2017; “B.C.’s softwood lumber envoy says long-term deal needed with U.S.,” CBC NEWS, 8 March 2017; “U.S. International Trade Commission says Canadian softwood lumber caused harm,” CBC NEWS, 6 January 2017; “Justin Trudeau not worried as Donald Trump set to examine U.S. trade partners,” THE CANADIAN PRESS,” 31 March 2017; “Trump to seek tariff ‘snap-back’, tax equality in NAFTA revamp: letter,” REUTERS, 30 March 2017.

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