U.S. Commerce Department rules tariffs on Canadian softwood lumber could be greatly reduced

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Canadian softwood producers are getting a surprise break from the United States.

A preliminary decision by the U.S. Department of Commerce is expected to result in sharply lower duties by August for most Canadian producers of softwood lumber.

The Commerce Department ruled late on Monday that tariffs imposed on most Canadian lumber sold south of the border could be reduced, after conducting an administrative review of anti-dumping and countervailing duties applicable for 2017 and 2018.

In its preliminary assessment of most Canadian producers, the Commerce Department pegged the combined anti-dumping and countervailing rate at 8.21 per cent, down from 20.23 per cent levied more than two years ago.

“We expect Canadian lumber equities to respond positively to this news as these rate revisions were better than most Canadian industry participants were expecting (and likely not even on the radar of most investors),” CIBC World Markets Inc. analyst Hamir Patel said in a research note.

Details for the reasons behind the looming decrease in duties are to be released within days, but Mr. Patel cautioned that the cross-border fight over lumber lingers. “Canadian companies will not receive any refund or credit for the overpayment until the trade dispute is resolved,” he said.

Still, the prospect of lower tariffs will be welcomed by the slumping forestry sector. An array of B.C. producers have shut down sawmills or scaled back production amid low lumber prices, reduced log supplies and high stumpage rates levied by the province against companies that chop down trees on Crown land.

“We anticipate a robust spring selling season this year and expect lumber prices (and equities) to respond positively to near-term housing data,” Mr. Patel said.

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 2006 Canada-U.S. softwood agreement expired in October, 2015.

The Commerce Department’s decision on Monday could translate into combined duties declining in August to 9.08 per cent from 23.56 per cent at West Fraser Timber Co. Ltd.; dropping to 4.63 per cent from 20.52 per cent at Canfor Corp.; falling to 15.84 per cent from 17.90 per cent at Resolute Forest Products Inc.; and decreasing to 4.32 per cent from 9.38 per cent at J.D. Irving Ltd.

The Commerce Department started slapping preliminary duties on Canadian lumber in April, 2017. The final combined tariffs took effect in January, 2018. Those duties worked out to a weighted average of 20.23 per cent, consisting of 14.19 per cent in countervailing duties and 6.04 per cent in anti-dumping levies, imposed against most Canadian lumber exporters.

On Monday, the B.C. government emphasized that a final determination on the reduced duties will need to be made, and any lower tariffs imposed on Canadian producers could take effect in early August.

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

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