The U.S. Department of Commerce is lowering tariffs against most Canadian softwood producers by half, but the long-running trade dispute lingers as Canada plans to appeal the decision to maintain punitive duty rates.
After an administrative review, the Commerce Department said Thursday it will decrease the duty rate for most Canadian lumber producers to 8.59 per cent, compared with the current 17.91 per cent.
The Commerce Department had made its intentions known in January to reduce tariffs, proposing a preliminary duty rate of 11.64 per cent, and has now reduced that amount further with the final rate of 8.59 per cent.
Canfor Corp., J.D. Irving Ltd. and West Fraser Timber Co. Ltd. will pay tariffs at slightly lower levels than other Canadian lumber producers. The new rates are slated to take effect on Aug. 10 or soon after.
International Trade Minister Mary Ng said U.S. duties on Canadian lumber are unwarranted and unfair.
“These duties have caused unjustified harm to the Canadian industry and its workers. They also amount to a tax on U.S. consumers, exacerbating housing unaffordability at a time of increased supply challenges and inflationary pressures,” she said in a statement.
Ms. Ng said Canada plans to oppose the latest tariff rates, including by filing a challenge through a dispute-settlement process under Chapter 10 of the Canada-U.S.-Mexico Agreement. That pact allows Canada and the U.S. to set up trade panels to settle the lumber dispute. As well, Canada complained in 2017 to the World Trade Organization in the trade fight that dates back to 1982.
The American lumber lobby has repeatedly argued that Canadian producers dump softwood into the United States at below market value. “Trade law enforcement boosts American manufacturing and results in more U.S. lumber being produced by U.S. workers to build U.S. homes,” U.S. Lumber Coalition chairman Andrew Miller said in a statement Thursday.
Most forests in Canada are on Crown land, with forestry companies paying “stumpage fees” to provincial governments for the right to log. The U.S. Lumber Coalition argues that the U.S. has a better system for soliciting competitive bids for private timber rights, based on market forces.
Canada counters that there have been no subsidies given to Canadian producers and no dumping into the U.S. market has occurred.
Under the new tariff schedule, Vancouver-based Canfor will see its duty rate drop to 5.87 per cent, down from its current 19.54 per cent.
Vancouver-based West Fraser Timber will pay a rate of 8.25 per cent, compared with 11.14 per cent, while Montreal-based Resolute Forest Products Ltd.’s new tariff will be 14.86 per cent, down from its current 29.66 per cent.
Saint John-based J.D. Irving’s rate will be 7.17 per cent, compared with 15.05 per cent today.
The 2006 Canada-U.S. softwood agreement expired in October, 2015, with no replacement. In the latest round of the trade dispute, Canadian producers have been paying U.S. lumber duties at rates that have fluctuated since April, 2017.
“While the reduction in duty rates from this third administrative review is welcome, the fact that we are required to continue to pay duties on our lumber products sold to the U.S. market remains frustrating and disappointing,” BC Lumber Trade Council president Susan Yurkovich said in a news release. “As U.S. producers remain unable to meet domestic demand, these duties continue to hinder post-pandemic recovery and exacerbate inflationary pressures on both sides of the border.”
The chief executive officers of Canfor and West Fraser said last week they’re skeptical about any imminent breakthrough to resolve the softwood spat. “It’s very hard to get this topic on the radar screen on either administration with all the global events going on,” Canfor chief executive Don Kayne said during a conference call with industry analysts.
Canfor has US$660-million in duty deposits in the U.S. while West Fraser has US$749-million.
West Fraser CEO Ray Ferris said he is optimistic about Canadian lumber producers eventually recovering the vast majority of tariffs, but there is an impasse in the cross-border tussle. “It doesn’t really appear to be anything meaningfully happening to move that forward,” he told analysts.
CIBC Capital Markets Inc. estimates Canadian producers have paid deposits for U.S. duties totalling nearly US$5.8-billion since 2017.
The Commerce Department’s latest move is based on scrutinizing data from 2020, when lumber traded mostly between US$320 and US$960 for 1,000 board feet during a period of wild swings in prices.
Two-by-fours made from Western spruce, pine and fir sold recently for nearly US$685 for 1,000 board feet, compared with US$1,617.50 in May, 2021, when record highs were set, according to Vancouver-based industry newsletter Madison’s Lumber Reporter.
Provincial cabinet ministers in British Columbia and Ontario criticized the Commerce Department’s decision to maintain tariffs.
“These tariffs are making housing and lumber more expensive,” according to a news release from the B.C. government.
The Ontario government asserted that the U.S. is unfairly targeting Canada’s forestry sector. “Together with provincial governments, the federal government and industry leaders across the country, Ontario stands united in support for the Canadian forest industry and free trade,” the Ontario government said in a statement.
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