The threat of U.S. tariffs soon being slapped on Canadian softwood-lumber exports hangs over Canada's forestry sector.
Industry analysts warn that the United States is poised to impose countervailing and anti-dumping duties totalling 30 per cent to 40 per cent in what would be a painful weight for Canadian lumber producers to bear.
The U.S. Department of Commerce is slated to issue its preliminary determination for countervailing duties on April 24, a move targeted as punishment for Canada's allegedly unfair lumber subsidies.
"The U.S. is asking for the moon – very high duties on a wider scope of products like pallets that never used to have a penalty before," said Keta Kosman, publisher of industry newsletter Madison's Lumber Reporter.
"It is likely in the April 24 announcement of the countervailing duties, it will be retroactive to late January," Ms. Kosman said in an interview. "For Canadian producers, it means you will get a bill from U.S. customs asking for a cash percentage for all the wood that you already shipped. You will need to put down cash deposits."
Industry observers say Canadian producers will be left to absorb the costs of the retroactive duties because they won't be able to pass those expenses on to U.S. customers, though a portion of retroactive and future duties could be recovered on appeal.
Cash deposits would be held in trust by the United States, subject to final duty rates and Canadian appeals of U.S. rulings, according to the B.C. Ministry of Forests. Assuming duties are imposed, Canadian companies must pay cash deposits for up to six months on their lumber exports to the United States, but further deposits would be suspended until a final determination in early 2018, the ministry said.
British Columbia accounted for 61 per cent of the value of Canada's softwood exports last year to the United States.
Benchmark lumber prices are already higher than a year ago, and would rise even more with the imposition of duties.
Prices for benchmark two-by-fours made from Western spruce, pine and fir recently hit $362 (U.S.) for 1,000 board feet, up 17 per cent from late March, 2016, according to data compiled by Madison's. Prices fell to $130 for 1,000 board feet in early 2009 but the rebound in U.S. home-building activity since then has boosted demand.
A research note by Capital Economics forecasts "the very strong likelihood of tariffs or quotas on import volumes in coming years."
And home builders in the United States will face higher costs when ordering Canadian lumber. "U.S. import barriers will probably lead to lower imports from Canada and put upward pressure on prices in the U.S. market," Capital Economics said.
RBC Dominion Securities Inc. analyst Paul Quinn believes the effective date for countervailing duties will be May 1, and retroactive 90 days.
In January, the U.S. International Trade Commission issued a preliminary ruling, saying Canadian lumber is harming the American industry. A preliminary announcement on anti-dumping duties is expected in mid-June, underscoring the American belief that Canada is selling its softwood for less than fair value into the United States.
Mr. Quinn said the preliminary anti-dumping duty rate could take effect July 1 and have a 90-day retroactive clause.
The 2006 Canada-U.S. softwood-lumber agreement expired in October, 2015. After a one-year litigation moratorium, the U.S. lumber sector began flexing its muscles.
The U.S. Lumber Coalition claims that Canada subsidizes and dumps its lumber south of the border, injuring the American industry. In litigation launched in November, 2016, a coalition-led petition demanded that the U.S. Department of Commerce and the U.S. International Trade Commission combat what American producers view as unfair trade.
The looming upheaval for Canadian lumber producers comes as delegates gather this week for the largest annual forestry conference in Western Canada.
Nearly 600 people from industry and government are expected to attend the convention of the Council of Forest Industries, which represents producers in the B.C. Interior. The two-day event starts on Thursday in Vancouver.
It has been difficult for Canada and the United States to work out their differences in the back-and-forth softwood dispute dating back to the early 1980s, said COFI president Susan Yurkovich, who is also president of the BC Lumber Trade Council.
"We should be working collectively to grow the market, rather than litigation," Ms. Yurkovich said in an interview. "The Americans claim that we are subsidized, but we have defended our industry successfully in successive litigation."
In February, B.C. Premier Christy Clark appointed former federal cabinet minister David Emerson as B.C.'s special envoy on the file.
Last week, during a conference call, Mr. Emerson raised the possibility of drawn-out talks on softwood lumber, while expressing hope that such discussions will remain separate from the Trump administration's review of the North American free-trade agreement.
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