A worker walks past stacks of lumber at the Partap Forest Products mill in Maple Ridge, B.C., on Tuesday April 25, 2017. A wide range of Canadian forestry firms, which operate hundreds of sawmills, must pay tariffs backdated 90 days for wood exports previously sent south of the border from Jan. 28 to April 27.DARRYL DYCK/The Canadian Press
Hundreds of Canadian sawmills, already hit by new U.S. tariffs for fresh shipments of softwood lumber, must shoulder the additional burden of paying duties retroactive to late January.
Preliminary countervailing duties for new Canadian exports of lumber, averaging nearly 20 per cent, took effect on Friday.
In addition, retroactive duties cover the vast majority of Canadian producers, according to the fine print in U.S. Department of Commerce documents.
A wide range of Canadian forestry firms, which operate hundreds of sawmills, must pay tariffs backdated 90 days for wood exports previously sent south of the border from Jan. 28 to April 27. British Columbia's trade envoy describes the retroactive tariff as a "diabolical" part of a U.S. "shakedown" of Canada.
The duties are being imposed as the United States retaliates for what it calls unfair subsidies in Canada.
American producers had urged the department to be on the lookout for "critical circumstances" – bureaucratic lingo to describe 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.
The United States started the probe into softwood in November, 2016, but a group led by the U.S. Lumber Coalition used earlier time frames to capture what it argues were many Canadian producers deliberately flooding the American market in anticipation of countervailing duties.
The four largest lumber producers in Canada escaped the 90-day retroactive penalty for critical circumstances.
TD Securities Inc. analyst Sean Steuart said the U.S. Department of Commerce determined that those four companies avoided any big spike in their exports between October, 2015, and June, 2016, when compared with the immediately preceding nine-month period: Canfor Corp., West Fraser Timber Co. Ltd., Tolko Industries Ltd., all three based in B.C., and Montreal-based Resolute Forest Products Inc.
Those four firms, which are still on the hook for duties ranging from 12.82 per cent to 24.12 per cent on new exports, accounted for an estimated 40 per cent of Canadian production last year, said RBC Dominion Securities Inc. analyst Paul Quinn.
The remaining producers that accounted for roughly 60 per cent of Canadian lumber output last year must pay future and retroactive duties at a weighted average rate of 19.88 per cent. The exception is New Brunswick-based J.D. Irving Ltd., which will pay 3.02 per cent for future and retroactive duties.
Canadian producers say they are baffled by what they describe as an arcane series of U.S. decisions to determine the retroactive duty rate of 19.88 per cent – based in part on the four Canadian firms exempt from retroactive penalties.
The 19.88-per-cent rate applies in future and retroactively to publicly traded producers such as Vancouver-based Western Forest Products Inc. and privately owned firms such as Teal-Jones Group of Surrey, B.C.
David Emerson, British Columbia's envoy in the softwood file, said he is puzzled by the U.S. Department of Commerce's ruling last week that effectively sided with the U.S. Lumber Coalition's view on an alleged rush of Canadian exports to avoid looming duties.
"I would apply the logic of a shakedown in a politicized environment, where what you really want to do is divide your opponents and create as much pain and distress and confusion as you can by the way you levy the charges," he said during a conference call.
Mr. Emerson describes the U.S. ruling of the existence of critical circumstances as the "diabolical underpinning of what's going on. A lot of the Commerce calculations this time around were actually designed to cause smaller independent producers and different regions of Canada to turn against each other."
British Columbia is Canada's largest lumber exporter south of the border.
New Brunswick, Canada's fifth-largest lumber exporter to the United States, is being slapped with American tariffs for the first time in the long-running trade war over softwood dating back to the early 1980s.
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 the Committee Overseeing Action for Lumber International Trade Investigations Or Negotiations (COALITION).
The influential group isn't asking the U.S. Department of Commerce to take action against Nova Scotia, Prince Edward Island and Newfoundland. The department has yet to make a final ruling on those three provinces.
"The U.S. Commerce Department is scheduled to issue a preliminary determination in the anti-dumping duty case on June 23, which could push total duties above 30 per cent," Bryan Yu, senior economist at Central 1 Credit Union, said in a research note.
Duties paid by Canadian firms will be held in trust by the United States.
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Brent Jang