US Commerce Dept Announces Final Determinations in Canadian Lumber Probe

9 November 2017

The US Commerce Department announced last week the final determinations in the anti-dumping and countervailing investigations on imported softwood lumber from Canada, in a move that trade observers say could ratchet up tensions between the North American neighbours.

The duties, which were confirmed by the US federal agency on 2 November, include final anti-dumping duties on various Canadian producers ranging between 3.2 percent and 8.89 percent, while countervailing duties range from 3.34 to 18.19 percent.

The final determination resulted in slightly lower rates compared to preliminary dumping margins and subsidy estimates issued earlier this year. (See Bridges Weekly, 11 May 2017)

Anti-dumping duties are used to respond to cases of alleged dumping, where goods are being sold abroad at prices below their normal value. Countervailing duties are imposed to neutralise the negative effect of unfair subsidies, as long as the latter is found to injure domestic producers in the importing country.

“While I am disappointed that a negotiated agreement could not be made between domestic and Canadian softwood producers, the United States is committed to free, fair, and reciprocal trade with Canada,” said Wilbur Ross, the US Secretary of Commerce.

“This decision is based on a full and unbiased review of the facts in an open and transparent process that defends American workers and businesses from unfair trade practices,” he added.

In a joint statement, Canadian Foreign Minister Chrystia Freeland and Natural Resources Minister Jim Carr called the US decision “unfair, unwarranted, and deeply troubling.”

“We will forcefully defend Canada’s softwood lumber industry, including through litigation, and we expect to prevail as we have in the past. We are reviewing our options, including legal action through the North American Free Trade Agreement and the World Trade Organization, and we will not delay in taking action,” says the joint statement.

The duties are still awaiting confirmation from the US International Trade Commission (ITC), which is due to issue its findings on 18 December. The US agency will need to make a determination of whether these imports caused substantial injury to US domestic producers. If it deems that substantial injury did not occur, then the duties will not go forward.

The decision comes at a time when negotiators from the three North American Free Trade Agreement (NAFTA) countries – the US, Canada, and Mexico – are working to modernise the deal. Ministers have lately acknowledged that the talks have now entered a very challenging phase. (See Bridges Weekly, 19 October 2017)

While officials say that the softwood lumber issue is not part of the formal NAFTA talks, they have noted that the situation does have implications for the trade dynamic between the North American neighbours.

Canada’s Prime Minister Justin Trudeau, answering questions from domestic media outlets, noted that “every different aspect of our deep and broad relationship with the United States comes into the conversation that we have regularly,” while reaffirming that addressing the softwood lumber row is not part of the formal NAFTA modernisation process.

SLA spectre lingers

The introduction of duties follows failed efforts to renew a bilateral accord known as the Softwood Lumber Agreement (SLA), which had ended a previous decades-long lumber dispute between the neighbours. Prior to the SLA, bilateral trade in the timber had faced litigation in NAFTA and WTO courts. The SLA expired in 2015, and a standstill period on launching new trade remedy investigations expired late last year. Despite negotiations between Washington and Ottawa on a replacement to the SLA, no deal has been reached at this stage. (See Bridges Weekly, 23 June 2016)

After the standstill expired, a coalition of US timber producers filed a petition with the Commerce Department for launching investigations into claims of dumping and unfair subsidies. While meetings between US and Canadian trade officials on a new softwood lumber deal have continued, officials say no formal negotiations are currently on the docket.

At issue in the long-running trade row are the “stumpage fees” paid by Canadian lumber mills for timber, which comes largely from government-owned land, otherwise referred to as “Crown land.” Given that these fees are lower than those paid on US timber, grown mostly on private land, many US timber producers have argued that the arrangement is tantamount to an unfair subsidy, and should thus be subject to corrective duties.

The US Commerce Department estimates the value of imports of softwood lumber from Canada at US$5.66 billion in 2016. Softwood lumber represents around seven percent of Canadian exports and contributes C$22.3 billion to Canada’s GDP, according to estimates issued by Ottawa.

Industry players, domestic lawmakers react

The Chairman of the US National Association of Home Builders, Granger MacDonald, has been among those warning that duties on imported Canadian lumber could have adverse effects on US housing costs, given that the vast majority of lumber imports come from the US’ neighbour to the north.

“This tariff only adds to the burden by harming housing affordability and artificially boosting the price of lumber,” MacDonald said, according to CBC News.

Similarly, the joint statement from the Canadian ministers said that the duties are “a tax on American middle class families,” given the potential implications for housing affordability. “It is clear the tariffs are worsening the lumber supply problem in the United States and forcing US home builders to look overseas to meet their demand for lumber,” it adds.

Representatives of the US “lumber coalition” advocating for the duties said that the Commerce decision will help “level the playing field” for US producers, which can now scale up their productive efforts to fill demand.

The decision also was praised by some US lawmakers who have been calling for punitive measures, including from those states that are competitive players in the country’s timber market – such as by being home to sawmills or other processors. 

“With today’s action by the Commerce Department, American lumber mills and mill workers are one step closer to getting hard-won relief against subsidised and dumped Canadian softwood lumber,” said Senator Ron Wyden, the ranking member of that chamber’s Finance Committee. Wyden is a Democrat from the US state of Oregon.

“The duties announced today by the Commerce Department will provide much-needed relief for the US softwood lumber industry,” echoes a joint statement by some US congressional representatives from states in the Pacific Northwest.

However, the Commerce Department decision has drawn criticism from the Canadian province of British Columbia, which accounts for a significant portion of the country’s softwood lumber exports to the US.

“We will continue to fight for the 60,000 British Columbians who depend on forestry,” said the Premier of British Columbia (BC), John Horgan. “The forest sector is an integral part of BC’s sustainable economy, and we will make sure workers, families, and communities have the support they need to mitigate the impact of these duties.”

In June, the Canadian government announced a C$867 million (US$640m) industry relief action plan to “support affected workers and communities” and to “chart a stronger future for the workers,” following the announcement earlier this year of preliminary US countervailing duties on imported Canadian softwood lumber. (See Bridges Weekly, 11 May 2017)

ICTSD reporting; “‘Unfair, unwarranted and deeply troubling’: U.S. sets final import duties on Canadian softwood lumber,” CBC NEWS, 2 November 2017; “UPDATE 5-U.S. imposes final duties on Canadian softwood lumber,” REUTERS, 2 November 2017; “US sets final tariffs on softwood lumber from Canada,” BBC NEWS, 2 November 2017. 

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