U.S. hits Canadian softwood imports with final duties

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The U.S. Department of Commerce has imposed final tariffs averaging 20.83 per cent against most Canadian shipments of softwood lumber into the United States, intensifying trade tensions between the two countries.

The weighted average tariffs levied by the Trump administration consist of 14.25 per cent for countervailing duties and 6.58 per cent for anti-dumping levies.

"While I am disappointed that a negotiated agreement could not be made between domestic and Canadian softwood producers, the United States is committed to free, fair and reciprocal trade with Canada," Commerce Secretary Wilbur Ross said in a statement on Thursday. "This decision is based on a full and unbiased review of the facts in an open and transparent process that defends American workers and businesses from unfair trade practices."

The move 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 final determination by the Commerce Department reduces the combined lumber tariff, compared with 26.75 per cent in the preliminary findings.

But Thursday's decision to uphold the imposition of tariffs comes as a setback for Canadian producers that had been hoping for a breakthrough softwood deal. The Canadian government and forestry industry say that the flow of lumber from Canada into the United States should be embraced and not feared by Americans.

"The U.S. Department of Commerce's decision on punitive countervailing and anti-dumping duties against Canada's softwood-lumber producers is unfair, unwarranted and deeply troubling," said a joint release issued by Foreign Affairs Minister Chrystia Freeland and Natural Resources Minister Jim Carr.

"We urge the U.S. administration to rescind these duties, which harm workers and communities in Canada. These duties are a tax on American middle-class families, too, whose homes, renovations and repairs will only be more expensive. Further, it is clear the tariffs are worsening the lumber-supply problem in the United States and forcing U.S. home builders to look overseas to meet their demand for lumber."

The 2006 softwood-lumber agreement between Canada and the United States expired in October, 2015. A group led by the U.S. Lumber Coalition began flexing its muscles in November, 2016, after the expiration of a one-year litigation moratorium, petitioning the Commerce Department to impose preliminary 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 Canadian producers, first with countervailing duties starting on April 28 for what the United States sees as subsidized Canadian lumber and then anti-dumping duties beginning on June 30.

The long-running softwood fight factors into one of the most controversial elements of the bilateral agreement – NAFTA's Chapter 19, which sets up trade panels to settle disputes, including for softwood.

Last week, West Fraser Timber Co. Ltd. chief executive officer Ted Seraphim said the lack of progress in renegotiating NAFTA paints a gloomy outlook for reaching a separate softwood deal any time soon. He also said the U.S. lumber lobby is unwilling to compromise in the Canada-U.S. softwood dispute, a stand that points to a long impasse in the trade battle.

One source with knowledge of the softwood discussions said the impediment to a deal was the U.S. lumber industry, which appeared to prefer hitting Canada with tariffs rather than agreeing to a negotiated settlement.

Early in his tenure as Commerce Secretary, Mr. Ross proposed a deal based on stumpage fees, in which Canada would agree to a market mechanism for calculating what companies would pay to fell timber, the source said. But Mr. Ross swiftly dropped the idea after speaking with U.S. industry.

Instead, negotiations focused on a market-share arrangement, in which Canada would agree to cap its softwood sales to the United States at a specific quota. The two sides were close to an agreement over the summer. Under that arrangement, the source said, the Canadian quota would have been a little more than 30 per cent of U.S. market share to start, falling to slightly less than 30 per cent over five years, then holding steady for another five.

The talks, however, deadlocked over whether Canada would be able to exceed its cap in the event U.S. companies could not produce enough to meet the rest of the demand. Canada argued that such a "hot-market provision" would be better for the United States than importing the extra wood from Russia and Germany. But the U.S. would not budge.

Zoltan van Heyningen, executive director of the U.S. Lumber Coalition, denied that the American industry was the barrier to a deal. The real problem, he said, was that Canadian sector could not agree on a common position, with some companies favouring a market-share deal and others preferring an export tax.

"Such a claim by Canada would be ridiculous after all the efforts we and our government have put into realizing an agreement, and the inability of the Canadian industry to have a unified position on any agreement to this day," he wrote in an e-mail.

Canada is expected to appeal Thursday's ruling under Chapter 19, or to the U.S. Court of International Trade, or through the World Trade Organization.

West Fraser now faces a combined duty of 23.76 per cent, Canfor Corp. 22.13 per cent, Tolko Industries Ltd. 22.07 per cent, Montreal-based Resolute Forest Products Inc. 17.90 per cent and New Brunswick-based J.D. Irving Ltd. 9.92 per cent. West Fraser, Canfor and Tolko are based in British Columbia. Rates fell for the three B.C. producers and rose for Resolute and Irving.

Other Canadian producers will pay 20.83 per cent.

The new anti-dumping rate is slated to kick in within days, while the new countervailing duty would take effect after the U.S. International Trade Commission makes its final ruling by Dec. 21 into the issue of U.S. lumber producers being injured.