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Stacks of lumber are pictured in Merritt, B.C. on May 2, 2017.

JONATHAN HAYWARD/THE CANADIAN PRESS

Canada is defending provincial timber fees in hopes that a binational panel will compel the Trump administration to revoke punitive duties on Canadian softwood.

British Columbia, Canada's largest softwood exporter into the United States, operates a market-based system of setting fees for producers to harvest trees on Crown land, the Canadian government said in a document aimed at fighting U.S. duties on Canadian lumber sold south of the border.

Canada is appealing the punitive lumber duties introduced last year by going through the Chapter 19 dispute-resolution mechanism of the North American free-trade agreement. A binational panel under NAFTA is expected to be formed within months to review the 2017 decision by the U.S. Department of Commerce to impose countervailing and anti-dumping duties averaging 20.23 per cent against most Canadian lumber producers.

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British Columbia's system means competitive auctions drive what the provincial government collects from lumber firms for rights to chop down trees, Canada said in an 82-page document, part of a series of papers submitted recently by Canada to the U.S. section of the NAFTA Secretariat during the appeal process.

The Trump administration believes that producers in British Columbia are subsidized because they pay less for timber rights on Crown land than what firms pay to private timberland owners in the U.S. Pacific Northwest. Crown timber accounts for 95 per cent of British Columbia's forested lands.

British Columbia held a 55.2-per-cent share of Canadian lumber sales volume in the United States in 2016, followed by Quebec (19 per cent), Ontario (7.9 per cent), Alberta (7.8 per cent) and New Brunswick (7 per cent).

BC Timber Sales (BCTS), a program founded in 2003, has a "mandate to operate on a commercial basis," the document said.

"BCTS auctions cover approximately 20 per cent of the B.C. Crown standing timber supply for the year, with this 20 per cent chosen to be representative of the entire public timber supply," Canada said.

British Columbia's hybrid system in which market pricing dictates stumpage fees for provincial land "ensures that stumpage rates on the remaining 80 per cent of the Crown standing timber supply are accurate and reliable estimates of the competitive market value of the timber harvested by licensees."

The Canadian government is fighting countervailing duties that are in retaliation for what the Commerce Department deems to be subsidies such as low stumpage fees charged by provinces. Canada is also battling anti-dumping duties levied for what are said to be Canadian lumber supplies being sold at less than fair value.

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"The forest management and timber pricing system that exists today in British Columbia is, however, dramatically different from the system that was in place during the Department's prior investigations into alleged stumpage subsidies," said Canada, which is hoping the binational panel under NAFTA will order the Commerce Department to revoke lumber duties.

Lawyers for the Trudeau government add that Quebec made substantial reforms in 2010. "Quebec placed thousands of pages of evidence on the record with respect to its auction system, demonstrating that the prices that emerge from the auctions are valid market-determined prices free of distortion," Canada said. "Quebec's timber auctions are open to all bidders, competitive, well-designed, representative of the public timber supply."

The Commerce Department decided to continue excluding Newfoundland and Labrador, Prince Edward Island and Nova Scotia from lumber duties, but added New Brunswick to the list of provinces whose producers are subject to softwood tariffs.

While the Canadian government's document did not cover New Brunswick, industry observers in Canada say the Atlantic province has an auction-based pricing system that is intended to mimic the free market.

The Commerce Department relied on private stumpage fees in Nova Scotia as benchmarks in making comparisons with Quebec, Ontario and Alberta. But Canada said using Nova Scotia isn't a reliable provincial comparison and argues that provinces aren't providing stumpage subsidies.

"Four separate expert reports, submitted by the Government of Canada and the provinces of Alberta and Ontario, addressed the nature of the market in Nova Scotia and the inapplicability of the stumpage survey to other provinces," Canada said.

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Preliminary countervailing and anti-dumping tariffs averaged as high as 26.75 per cent in mid-2017 for most Canadian lumber shipments.

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