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A binational panel has sent the Canada-U.S. softwood case back to the U.S. International Trade Commission for further review, citing flaws in the ITC’s 2017 ruling that Canadian lumber shipments are injuring the U.S. forestry sector.

But the panel ruled this week that it rejects Canada’s argument that specialty wood products such as Western red cedar should be excluded from U.S. duties imposed in 2017 on Canadian lumber sold south of the border.

The panel formed in late 2018 under the North American free-trade agreement’s dispute-resolution mechanism, known as Chapter 19.

Canada and the U.S. lumber lobby both claimed victory on Thursday, though the ITC will have 90 days to examine concerns raised by the panel.

Chrystia Freeland, Canada’s Foreign Affairs Minister, said the U.S. duties are unfair and unwarranted. “Canada welcomes the unanimous NAFTA Chapter 19 binational panel decision that there were insufficient grounds for the U.S. International Trade Commission to determine that Canadian softwood lumber products had materially injured the U.S. softwood industry,” Ms. Freeland said in a statement.

Canada has been battling the influential U.S. industry group named COALITION, which stands for Committee Overseeing Action for Lumber International Trade Investigations Or Negotiations.

“We are confident that the ITC’s initial unanimous ruling – rendered following an exhaustive examination of the facts – will be upheld,” Zoltan van Heyningen, executive director of the U.S. Lumber Coalition, said in a release from Washington.

The NAFTA panel’s ruling comes as Canada’s forestry sector struggles during a downturn in which lumber prices have tumbled since peaking in mid-2018.

Five trade experts sat on the NAFTA panel to scrutinize the long-running softwood dispute. Three Canadians (Jack Millar, Andrew Newcombe and James Ogilvy) and two Americans (Stephen Claeys and Stephen Powell). Mr. Powell served as the panel’s chairman.

In December, 2017, the ITC ruled in its final determination that Canada’s shipments of softwood lumber are injuring the U.S. forestry industry.

In their wide-ranging, 115-page interim decision this week, the NAFTA panelists sided in some instances with U.S. viewpoints but found numerous faults in other areas studied by the commission. “We find that the commission’s determination of adverse impact is lawful and supported by substantial evidence,” the panel ruled.

The panel, however, ordered the ITC to conduct further reviews of issues ranging from the business cycle to sales volume to pricing.

“If, in any of these remands, the commission reaches a different finding or conclusion on the particular issue, then the panel directs the commission to determine and explain what effect such reconsideration has on its impact analysis,” according to the panel’s interim decision dated Sept. 4.

Don Demens, chief executive officer of Vancouver-based Western Forest Products Inc., said he’s pleased the NAFTA panel decided to send the softwood case back to the ITC, but expressed disappointment over Western red cedar still being subject to U.S. duties.

Western Forest Products maintains that Western red cedar is a premium product that is sold primarily as high-end wood for exterior decoration and not as structural lumber used for home construction.

“Softwood lumber duties continue to disproportionately impact high-value, specialty wood products including Western red cedar, that have been unfairly brought into the dispute over structural lumber," Mr. Demens said in a statement.

Susan Yurkovich, president of the BC Lumber Trade Council, issued a release to say she is disappointed over the issue of Western red cedar but welcomed the panel’s criticisms of the 2017 ruling by the commission, also known as the USITC.

“In its decision, the NAFTA panel rightly questioned how the USITC could reach an affirmative determination of injury when the U.S. industry was enjoying the most profitable period in its history without evaluating the industry’s performance in light of the business cycle, particularly in the wake of the recession of 2008-09,” Ms. Yurkovich said.

The 2006 Canada-U.S. softwood agreement expired in October, 2015.

The U.S. Department of Commerce 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, imposed against most Canadian lumber exporters.

While U.S. lumber producers buy their timber mostly from private owners of forests, the Commerce Department ruled earlier in 2017 that the stumpage fees Canadian firms pay to provincial governments to cut trees on Crown land are too low and amount to subsidies.

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