Ottawa to back softwood industry with $860-million aid package

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The Canadian government will unveil about $860-million in aid for the softwood-lumber industry Thursday in a bid to ease the pain caused by punitive duties imposed on Canada in a new timber trade dispute with the United States.

Ottawa will boost employment insurance support for workers who lose their jobs as a result of the dispute, and it will offer loan guarantees and assistance for forestry industry firms to help with innovation and marketing, a source familiar with the matter said. Not all of the money will be new cash.

Natural Resources Minister Jim Carr, along with Foreign Affairs Minister Chrystia Freeland and International Trade Minister François-Philippe Champagne, will announce the support package.

Read more: U.S. softwood lumber duties to cost 2,200 jobs: Conference Board report

Opinion: Softwood lumber: The never-ending battle

Read more: Tough trade: What Canada can learn from NAFTA's flaws

The Trudeau government will be careful to avoid characterizing the assistance as a bailout or subsidy because it does not want to give the American lumber lobby any fodder to lodge a new complaint with U.S. trade regulators.

This support arrives shortly after punitive U.S. duties began to bite into Canadian softwood producers' bottom lines. Preliminary countervailing duties were applied effective April 28.

The Trudeau Liberals are moving faster and with greater support for Canadian producers than their predecessors initially did 15 years ago during the last Canada-U.S. softwood-lumber dispute. This haste suggests the federal government is paying close attention to the potential political fallout that could result from widespread job losses in the cross-border trade battle.

In the previous trade tussle, it was seven months before cabinet approved an aid package that was initially only $100-million.

Five Canadian forestry firms must pay preliminary countervailing duties ranging from 3.02 per cent to 24.12 per cent on lumber shipments, while the U.S. Department of Commerce slapped other lumber producers from Canada with a weighted-average duty of 19.88 per cent.

Duties paid by Canadian firms will be held in trust by the United States. Tariffs for new shipments will be collected by the United States during a four-month period for countervailing duties and a six-month period for anti-dumping, but additional duties will be suspended pending a final determination by the U.S. Department of Commerce.

The U.S. lumber lobby accuses Canadian provinces of subsidizing their softwood producers.

U.S. producers say that under their system, the cost of timber rights on private land is more expensive than the Canadian "stumpage" fees paid by forestry companies to cut trees down on provincially owned property. In British Columbia, for instance, Crown timber accounts for 95 per cent of the province's forested lands.

The long-running trade war over softwood lumber dates back to the early 1980s. This latest clash marks Round 5 in the cross-border fight.

The U.S. lumber lobby's ultimate goal is to reduce the amount of Canadian softwood – used for construction framing, for instance – entering the United States.

The dispute covers about $7-billion in annual exports.

It has been more than 19 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.

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, which referees global commerce between member countries.

About 230,000 Canadians work in forestry, and about 70 per cent of softwood-lumber exports go to the United States.

On the whole, Canada has been successful in winning legal challenges of past U.S. duties on Canadian softwood. But it could take four or five years to secure these rulings.

The Americans want to limit softwood shipments so the Canadian share of U.S. lumber consumption is capped at about 22 per cent. Canada's market share in 2015 was 30 per cent.

British Columbia is Canada's largest lumber exporter into the United States, followed by Quebec, Ontario, Alberta and New Brunswick.

Susan Yurkovich, president of the BC Lumber Trade Council, said the aid package has been in the works since February, when Mr. Carr launched a federal-provincial task force on softwood lumber.

"It's been working its way through the system," she said on Wednesday. "The federal government is looking for things they can do to support workers in communities for a period of time, while we are faced with duties. I expect you'll see support for workers in communities, and more support for market diversification."

She said Canada's lumber producers are not yet feeling the pain of the new tariffs but by July, when some will have to pay retroactive duties, they will feel the impact. "Right now, markets continue to be pretty strong and lumber prices are mitigating the impact – it's largely being passed through to U.S. consumers," Ms. Yurkovich said.

The Conference Board of Canada warns about the potential for 2,200 forestry job cuts across Canada.

With the addition of anti-dumping duties of roughly 10 per cent expected to be announced on June 23, the board estimates that "Canada's wood products manufacturers will see pretax profits shrink from $1.8-billion in 2016 to $1.4-billion this year and $1.1-billion in 2018, as the United States issues duties averaging 30 per cent on Canada's softwood lumber."

Duties could reach $1.7-billion a year, according to the board.