Canada begins appealing duties in softwood lumber dispute

nlbmdaTensions continue to escalate in the softwood lumber dispute between the United States and Canada following actions taken by the two countries in November and December. Although the two countries publicly express support for reaching a new agreement, recent actions taken by the U.S. and Canada suggest the sides remain far apart.

On Nov. 2, the U.S. Department of Commerce finalized antidumping duties (AD) and countervailing duties (CVD) on softwood lumber imports from Canada. The duties were approved by the U.S. International Trade Commission (ITC) on Dec. 7.

Most Canadian firms will pay a combined AD/CVD rate of 20.83%, which is less than the preliminary combined rate issued by the Commerce Department. For the five companies (Canfor, J.D. Irving, Resolute, Tolko, and West Fraser) directly involved in the investigation, they will pay a combined rate that is different. Canfor will pay 22.13%, J.D. Irving will pay 9.92%, Resolute will pay 17.9%, Tolko will pay 22.07%, and West Fraser will pay 23.76%.

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The action taken by the Commerce Department is in response to a petition filed by a group of U.S. timber companies alleging harm caused by unfair subsidies for the Canadian softwood lumber industry. As part of the petition, the coalition has sought duties to restore what it considers fair trade conditions.

Canada has responded by challenging the duties determinations on two fronts. First, the country has appealed both the AD and CVD determinations to a binational U.S.-Canada trade panel of as permitted under the North American Free Trade Agreement (NAFTA). Second, Canada has opened a World Trade Organization (WTO) case against the U.S. regarding the duties.

Chapter 19 of NAFTA allows Canada to request a binational trade panel to review the U.S. Department of Commerce’s final determination. Complicating matters is that the U.S. has made it known that it would like to eliminate NAFTA’s alternative dispute resolution as part of a renegotiation of the three-country trade pact. Canada strongly objects to removing NAFTA Chapter 19.

NAFTA Chapter 19 panels merely decide if an antidumping or countervailing duty determination is in accordance with the applicable national law. In this case, U.S. law. Thus, Chapter 19 panels principally serve a judicial function.

Canada’s WTO complaint on the other hand centers on the method used by the Commerce Department to calculate duty rates. A method known as “zeroing” used by the Commerce Department disregarded negative dumping margins in its calculations and increased the duty rates on Canadian softwood lumber imports. The WTO has historically found the practice of zeroing rates to be a violation of the General Agreement on Tariffs and Trade (GATT).

Unlike with the NAFTA Chapter 19 case, the WTO complaint is a government-to-government dispute regarding the application of international trade agreement obligations and is used primarily as a dispute settlement function.

The Canadian government has highlighted its legal success in previous softwood lumber disputes. Although it has said publicly it would prefer a new agreement that is satisfactory to both countries.

During the presidential election last year, President Donald Trump railed against trade deals he saw as one-sided and did not favor the U.S. As anticipated, his Administration has been hawkish on trade enforcement. As of December 5, the Commerce Department has initiated 79 AD/CVD investigation. That is a 65% increase from 48 in the previous year.

Framing lumber and panel prices have increased substantially over the past year as tensions have escalated in the dispute. NLBMDA members report they have seen increases in Canadian softwood lumber prices, although prices have stabilized following the summer wildfire season and hurricanes that hit Florida, Texas, and Puerto Rico.

In 2016, imports of softwood lumber from Canada into the U.S. were valued at an estimated $5.66 billion. NLBMDA supports the U.S. and Canada working together to reach a new agreement on the longstanding softwood lumber dispute, and maintains that duties are a poor substitute for a long-term agreement that brings stability and predictability to the pricing and availability of softwood lumber.

NLBMDA will continue to engage with the Department of Commerce, Canadian government officials, and Congress on the softwood lumber dispute in hopes of reaching a new agreement that does not put American lumber producers at a competitive disadvantage, unnecessarily restrict the availability of products, or increase the cost of housing to the detriment of prospective homebuyers and consumers.

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