Trade agency rules Canadian lumber shipments are hurting U.S. producers

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Canada's shipments of softwood lumber south of the border are injuring the American forestry sector, the U.S. International Trade Commission has voted in a ruling that will deepen anger among Canadian producers.

The ITC's final determination, in a 4-0 decision on Thursday in favour of the United States, comes amid deadlocked talks to overhaul the North American free-trade agreement, adding one more strain to the already tense relationship between Ottawa and the Trump administration.

The U.S. lumber sector "is materially injured by reason of imports of softwood lumber from Canada that the U.S. Department of Commerce has determined are subsidized and sold in the United States at less than fair value," the ITC ruled.

The BC Lumber Trade Council criticized the ITC's "egregious" announcement, describing the panel's unanimous vote as a failure to be objective. "There can be no doubt that this process is biased in favour of the U.S. industry," council president Susan Yurkovich said. "The U.S. coalition's claims of injury ring particularly hollow given the extraordinary financial performance that the U.S. lumber industry is enjoying."

Montreal-based Resolute Forest Products Inc. is one of the four mandatory respondents from Canada in the countervailing and anti-dumping cases. The others are based in British Columbia: West Fraser Timber Co. Ltd., Canfor Corp. and Tolko Industries Ltd.

"The ITC is down to four commissioners, with two more to complete the panel nominated but not yet confirmed," Resolute spokesman Seth Kursman said in a statement. "This vote is designed to apply more political pressure on Canada to settle on adverse terms. We won't do that."

In January, 2017, the ITC issued a preliminary ruling, saying Canadian softwood is harming the U.S. lumber industry – a stand upheld on Thursday.

"The U.S. Lumber Coalition fully supports the enforcement of America's trade laws," coalition co-chairman Jason Brochu said in a release. "The evidence presented to the ITC was clear – the massive subsidies that the Canadian government provides to its lumber industry and the dumping of lumber products into the U.S. market by Canadian companies cause real harm to U.S. producers and workers."

Countervailing duties were imposed because the Commerce Department ruled provincial stumpage fees paid by Canadian lumber firms are too low and amount to subsidies for cutting down trees. The anti-dumping duties arise from the U.S. contention that Canadian producers sell softwood below market value.

On Nov. 14, Canada took its battle over countervailing duties to one of the most contentious elements of NAFTA – Chapter 19, which sets up trade panels to settle disputes.

Canada then filed a letter dated Dec. 5 to include anti-dumping duties as part of the Chapter 19 appeal process. This week, a law firm representing the Canadian government hired a courier to drop off the letter marked "via hand delivery" to Paul Morris, U.S. Secretary of the U.S. section of the NAFTA Secretariat.

Ottawa is hoping a binational panel under NAFTA will strike down tariffs on Canadian softwood.

Canada also challenged U.S. lumber tariffs on Nov. 28 by taking its fight to the World Trade Organization.

"In recent weeks, Canada has begun legal challenges against the U.S. duties on Canadian softwood under NAFTA and before the WTO. We will continue to consult with the provinces, the territories and Canadian industry and workers on a durable solution to this vital issue," Foreign Affairs Minister Chrystia Freeland said in a statement on Thursday, calling the U.S. tariffs "unwarranted and troubling."

In addition to the punitive duties, most Canadian producers had been facing 90-day retroactive penalties for what are known as critical circumstances. The ITC, however, said on Thursday that Canadian softwood shipments will not be subject to retroactive tariffs.

The 2006 softwood lumber agreement between Canada and the United States expired on Oct. 12, 2015.

The U.S. lumber sector began flexing its muscles in November, 2016, petitioning the Commerce Department to impose countervailing and anti-dumping duties on Canadian lumber shipments into the United States. That move turned out to be successful in 2017, with the Commerce Department deciding to penalize most Canadian producers with preliminary tariffs of 26.75 per cent.

On Nov. 2, the final determination by the Commerce Department resulted in a countervailing rate of 14.25 per cent and anti-dumping rate of 6.58 per cent against most Canadian lumber shipments, for a combined tariff averaging 20.83 per cent.

The new anti-dumping rate of 6.58 per cent – for what the Americans describe as Canada selling softwood below market value – kicked in on Nov. 8.

Preliminary countervailing duties averaging 19.88 per cent lasted for four months, ending in late August. The final countervailing rate of 14.25 per cent against most Canadian producers is expected to take effect in late December.

West Fraser faces a combined duty of 23.76 per cent, Canfor 22.13 per cent, Tolko 22.07 per cent, Resolute 17.90 per cent and New Brunswick-based J.D. Irving Ltd. 9.92 per cent.