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Canadian lumber producers make case for U.S. to refrain from imposing heavy tariffs

A Canfor mill is seen in B.C. 2013. Canadian lumber made up about 34 per cent of U.S. consumption for most of 2016.

JONATHAN HAYWARD/THE CANADIAN PRESS

Canfor Corp. is making an 11th-hour plea for the United States to refrain from imposing hefty lumber tariffs as the B.C. producer and other Canadian forestry firms claim their innocence.

U.S. producers say preliminary countervailing duties must be slapped on new Canadian lumber shipments south of the border, and also argue that "critical circumstances" exist for the tariffs to be backdated 90 days in the trade war.

Vancouver-based Canfor and other Canadian producers face getting whacked by future and retroactive tariffs next week, five months after the U.S. industry launched legal action in a bid to punish Canada over alleged subsidies for softwood lumber.

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On Nov. 25, an influential group led by the U.S. Lumber Coalition petitioned the U.S. Department of Commerce to challenge what it calls Canada's unfair and injurious subsidies.

U.S. imports of Canadian lumber have soared in recent months to constitute critical circumstances, warranting special punishment in the form of retroactive duties, according to the group named COALITION, which stands for Committee Overseeing Action for Lumber International Trade Investigations Or Negotiations.

In a letter this week to the U.S. Department of Commerce, Canfor shot back with its shipment numbers – part of Canada's counterattack designed to discredit COALITION, which is aggressively lobbying Commerce to levy tariffs.

"These monthly shipment data demonstrate that there has been no surge of imports by Canfor since the filing of the petition. To the contrary, imports in the four months since the filing of the petition have declined, compared to the four months prior to the filing of the petition," Canfor said. "Accordingly, the conditions for an affirmative critical circumstances determination are not present in this investigation."

Commerce selected four mandatory respondents in Canada: Three B.C.-based producers (Canfor, West Fraser Timber Co. Ltd. and Tolko Industries Ltd.) and Montreal-based Resolute Forest Products Inc.

New Brunswick-based conglomerate J.D. Irving Ltd., the largest softwood producer in the Atlantic region, is a voluntary respondent.

The five Canadian respondents each face a company-specific countervailing duty rate, while other Canadian softwood exporters will be subject to an average of those five preliminary rates.

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COALITION has taken a hardline stance, expanding its gaze. New Brunswick escaped U.S. tariffs and quotas over the decades in the long-running softwood fight dating back to 1982, but the province is ensnared in the latest dispute.

British Columbia is Canada's largest lumber exporter into the United States, with a 55.2-per-cent share of sales volume last year, followed by Quebec (19 per cent), Ontario (7.9 per cent), Alberta (7.8 per cent) and New Brunswick (7 per cent).

"The reality is that litigation and punitive tariffs disrupt the softwood market. This creates artificial constraints on lumber supply that benefit a few timber barons and sawmill owners in the U.S. at the expense of American workers and consumers," the B.C. government warned in a report this month.

Lumber from Canada accounted for about 34 per cent of total U.S. consumption during most of 2016, up from 29.5 per cent in the third quarter of 2015, according to COALITION.

RBC Dominion Securities Inc. analyst Paul Quinn believes Commerce will assess future and retroactive duties on Canadian lumber exporters.

He estimates the preliminary countervailing duty rate for Canadian producers, to be announced on Tuesday, will range from 20 per cent to 30 per cent, and by late June, the preliminary anti-dumping duty rate could be 10 per cent to 15 per cent.

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An effective date for the preliminary countervailing duties in early May would mean those tariffs get backdated to early February. Under such a scenario, Canadian lumber producers will need to cough up cash deposits covering a 90-day period starting in early February, and will also be on the hook for another four months on their exports to the United States.

Canadian producers also face paying cash deposits (held in trust by the United States) for preliminary anti-dumping duties for allegedly undervaluing lumber exports.

Additional deposits would be suspended until Commerce makes a final determination in early 2018.

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