Canadian timber producers are bracing for another costly trade war with the United States after Ottawa warned that a U.S. lobby group will fire the first shot Friday – with hefty American duties on softwood lumber from Canada expected to follow in the spring of March or April, 2017.
International Trade Minister Chrystia Freeland's office announced Thursday that it believes the U.S. Lumber Coalition, a decades-old alliance of American softwood producers, is planning to formally request an investigation by the U.S. Department of Commerce Friday based on the complaint that Canada is conducting unfair trade in softwood.
The U.S. lumber lobby's ultimate goal is to better restrict the amount of Canadian softwood – used for construction framing, for instance – entering the United States. Its perennial argument is that provinces subsidize companies through below-market stumpage rates and, as a result, Canadian firms get an unfair leg up. Canada rejects this. The dispute covers about $6-billion in annual exports.
Under the U.S. system, so-called preliminary duties can be levied on Canadian softwood imports into the United States six months after an unfair trading case is commenced with the Department of Commerce, and tariffs stay in place while American bureaucrats investigate the allegations. They can also be retroactively applied for up to 90 days.
It's been more than 13 months since a nine-year truce in the Canada-U.S. softwood conflict ended – with the Trudeau government and the U.S. administration unable to clinch a successor pact despite months of negotiations.
"As expected since the expiration of the softwood-lumber standstill a month ago, we understand that the U.S. lumber coalition intends on Friday to submit petitions to the U.S. Department of Commerce, requesting an investigation," Alex Lawrence, a spokesman for Ms. Freeland, said Thursday.
This development likely means a costly and frustrating new season ahead for Canadian timber companies, which can expect to pay hundreds of millions of dollars to the U.S. government annually in order to keep shipping their product south of the Canadian-U.S. border.
Zoltan van Heyningen, executive director of the U.S. Lumber Coalition, declined comment Thursday on the Canadian government's prediction.
The dispute will require Canada to launch expensive litigation in the United States, under the North American free-trade agreement and even at the World Trade Organization in Geneva that referees global commerce between member countries.
"Canada is prepared for any situation, and our government will vigorously defend the interests of Canadian workers and producers," Mr. Lawrence said.
About 230,000 Canadians work in forestry, and about 70 per cent of softwood-lumber exports go to the United States.
Susan Yurkovich, president of the BC Lumber Trade Council, said her industry anticipated this move and is prepared for what will likely be a long fight.
Based on previous rounds in the softwood-lumber war, she expects a preliminary determination on the complaint by the Department of Commerce next spring, which could force Canadian softwood producers to set aside cash deposits until a ruling has been made and appeals are exhausted.
"Ultimately, we were successful against these claims in the past," she said.
"Certainly we will have to make those cash deposits and hope they will be refunded as they were last time."
She acknowledged the protectionist climate in the United States right now but said there is also pressure in that country to keep Canadian lumber flowing across the border to supply housing construction.
"There has been a lot of rhetoric around trade but the U.S. is unable to meet its domestic supply for lumber. And housing starts are moving up, so they are going to need our lumber."
The Canadian industry warns that a high tariff would result in higher costs for consumers in the United States, an argument it hopes will dampen some of the protectionist fervour of the incoming Trump administration.
British Columbia produces half of Canada's softwood lumber, and B.C. Forests Minister Steve Thomson said he was disappointed by the expected petition for trade action. He urged the U.S. government to review the history of "unfounded" allegations from the U.S. lumber coalition.
"If the U.S. government pursues this case, despite Canada's wins in previous cases on appeal, we are confident that as we have in the past, we will successfully defend B.C.'s market forest policies."
On the whole, Canada has been successful in winning legal challenges of past U.S. duties on Canadian softwood. But it could take years – possibly four or five years – to secure these rulings.
Toronto-based international trade lawyer Mark Warner said he thinks the Americans are not in the mood to settle right now.
"I think the U.S. producers would rather take their chances in litigation and have U.S. anti-dumping and countervailing duties imposed than have export taxes collected in Canada used by their Canadian competitors to buy mills in the U.S.," Mr. Warner said. Under the past dispute, which ended in 2006, the United States slapped an average 27-per-cent tariff on Canadian softwood and collected $5.3-billion (U.S.) over the length of the battle.
The Americans want to limit softwood imports so the Canadian share of U.S. lumber consumption is capped at about 22 per cent. That is lower than Canada's 2015 market share of 30 per cent.