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Canada will seek relief from softwood tariffs at a public hearing on Tuesday by challenging a U.S. ruling that American producers are being injured by Canadian lumber shipments.

Lawyers for the Canadian government will present their oral arguments at the one-day hearing in Washington, more than two years after the United States imposed new duties on Canadian softwood producers.

The lawyers will be summarizing their arguments, condensing hundreds of pages of documents filed over the past 18 months under an appeal process of the North American free-trade agreement’s Chapter 19 dispute-resolution mechanism. The issue of Canadian lumber is not a direct part of NAFTA, but under Chapter 19, Canada and the United States agreed to set up trade panels to settle disputes.

Tuesday’s hearing by the NAFTA panel will take place as Canada’s forestry industry struggles during a downturn that has seen lumber prices nosedive and Canadian producers report disappointing financial results.

In December, 2017, the U.S. International Trade Commission (ITC) ruled in its final determination that Canada’s shipments of softwood lumber south of the border are injuring the U.S. forestry sector. Canada is counting on the binational panel to overturn the Washington-based ITC’s determination.

The ITC’s view that American companies have been injured serves to back up the U.S. Department of Commerce’s decision two years ago to impose duties on Canadian softwood producers.

The Commerce Department started slapping preliminary duties on Canadian lumber in April, 2017. The final combined tariffs took effect in early 2018. Those duties work out to a weighted average of 20.23 per cent, consisting of 14.19 per cent in countervailing duties and 6.04 per cent in anti-dumping levies against most Canadian lumber shipments.

The Canadian government argues that when lumber prices were strong in 2014, U.S. producers thrived, even with softwood from Canada flowing across the border.

In a 145-page filing to the NAFTA panel, the Canadian government said American companies in western states are being hurt by a lack of timber and not competition from Canada.

“The commission fails to grapple with the reality that the least prosperous members of the industry operated in the Western United States, where limited timber supply constrained financial performance” and lumber sales from Canada were small, according to documents submitted by lawyers representing Canada.

Canada filed its appeal in late 2017 and the lumber fight is now in its the fifth round of trade litigation since 1982.

Tuesday’s hearing will focus on the ITC’s ruling of injury to American lumber producers and also examine issues related to wood species (“domestic-like products” in trade lingo), according to the agenda sent to participants by Paul Morris, secretary of the U.S. section of the NAFTA Secretariat.

The NAFTA panel will listen to presentations from Canada, the ITC and a group representing U.S. producers. Participants sent their slide presentations to Mr. Morris last week in preparation for Tuesday’s hearing.

Producers have been stung by softwood prices that have plunged over the past 11 months amid weaker-than-expected U.S. housing starts.

Benchmark two-by-fours made from western spruce, pine and fir sold last week for US$332 for 1,000 board feet, down 47 per cent compared with a record high of US$622 last June, according to Madison’s Lumber Reporter. Low lumber prices and increased costs for logs have prompted some Canadian producers to temporarily shut down or reduce production at their sawmills.

Vancouver-based Canfor Corp. said last week it posted an $89.5-million loss in the first quarter, compared with a $112.2-million profit in the same period in 2018. Canfor temporarily curtailed its B.C. lumber output last week.

Canada’s filings are supported by British Columbia, which is Canada’s largest lumber exporter, and six other provinces that have significant forested land. Also backing the Canadian government’s challenge are trade councils from five provinces.

In a 200-page filing, the ITC defended its final determination, saying shipments of Canadian softwood have depressed lumber prices in the United States. Canada’s share of U.S. lumber consumption rose to 31.8 per cent in 2016, compared with 28.4 per cent in 2014, the ITC said, adding that “substantially increasing volumes of subject imports continued to place pricing pressure” on the American lumber industry.

Under Chapter 19, each country appoints two panelists while the fifth member is chosen “by lot” – choosing by chance in the equivalent of a coin toss.

Last November, five panelists were selected to review the long-running softwood dispute. The three Canadian trade experts are Jack Millar, Andrew Newcombe and James Ogilvy. The two American members of the panel are Stephen Claeys and Stephen Powell.

The NAFTA panel’s composition appears to favour Canada, though the cross-border lumber war is far from over, industry observers say. The U.S. lumber sector believes the Chapter 19 appeal process has flaws that invite panelists to vote along national lines.

The U.S. industry group called COALITION, which stands for Committee Overseeing Action for Lumber International Trade Investigations Or Negotiations, said Canada enjoys unfair advantages.

“Even when selling more than its Canadian counterparts, U.S. producers are gaining half of the profits,” COALITION said in a 159-page filing to the NAFTA Secretariat.

The U.S. lumber lobby argues that provincial stumpage fees paid by Canadian lumber companies to chop down trees are too low and amount to subsidies. American producers also claim Canada sells softwood below market value in what it calls pervasive dumping.

Most of the trees in Canada are on publicly owned land, in contrast with the United States, where most timber is on private property and companies pay market rates to harvest it, U.S. producers say.

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