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Trump imposes duties on Canadian softwood lumber, ties issue to upcoming NAFTA talks

In a move that will impact the more than 200,000 forestry workers in Canada, the Trump administration has imposed countervailing duties of about $1 billion on Canadian softwood lumber exports to the United States.

The Globe and Mail reports, “The U.S. Department of Commerce is imposing punitive duties ranging from 3.02 per cent to 24.12 per cent on five Canadian softwood exporters to the United States. Other Canadian lumber producers will pay the weighted average of those five duty rates, which works out to 19.88 per cent.”

That article adds, “Although the softwood and dairy battles are specific issues that can be handled separately from the NAFTA talks, [US President Donald] Trump has linked them in his rhetoric and there is a danger that it all ends up on the table when the renegotiations start this summer.”

Notably, Trump’s draft letter to Congress suggesting his administration’s priorities in those talks listed eliminating Chapter 19. The CBC explains, “Dispute settlement provisions included in NAFTA’s Chapter 19 allow Canada to appeal U.S. lumber duties to both a NAFTA review panel and the World Trade Organization. Appeal panels frequently rule against U.S. interests (and may do so again, should this dispute reach that stage.)”

Yesterday, Trump stated, “We love Canada, wonderful people, wonderful country, but they have been very good about taking advantage of us through NAFTA.” And US Commerce Secretary Wilbur Ross commented, “This is not our idea of a properly functioning free trade agreement.”

The Globe and Mail has previously reported, “U.S. forestry companies want to limit Canadian timber shipments to the United States and allege provinces subsidize companies through below-market rates for harvesting from Crown land. Adding softwood to NAFTA would presumably mean setting a quota or limit for Canadian timber shipments.”

The United States currently buys 50 percent of Canadian softwood exports and there are about 60,000 forestry jobs in British Columbia alone. Quebec, Ontario, Alberta and New Brunswick are also large exporters of softwood lumber to the United States. CNN reports, “Canadian exports of softwood lumber to the United States were valued at $5.6 billion last year, according to the Commerce Department.”

Most timber in Canada is owned by provincial governments and the prices charged to harvest the timber (stumpage fees) are set administratively. In the United States, softwood lumber lots are privately owned and stumpage fees are largely determined by the market. The crux of the longstanding dispute between the two countries is that the US deems the Canadian arrangement an unfair subsidy.

The most recent Softwood Lumber Agreement between Canada and the US expired in October 2016. The Globe and Mail has previously explained, “The 2006 agreement, which ended the last round of trade litigation, managed the flow of Canadian lumber to the United States by imposing export charges whenever prices fell below a predetermined floor.”

Following yesterday’s announcement about countervailing duties, a second ruling by the US Commerce Department on anti-dumping duties is expected in the coming months. CNN adds, “The U.S. Lumber Coalition, which represents the industry, said the countervailing duties will likely take effect starting sometime next week. The Commerce Department wasn’t available to clarify.”

A Unifor media release issued yesterday states, “Canada must have a strategy in place to protect the sector and good Canadian jobs, including a contingency plan for illegal U.S. tariffs. The impact of a sharp price increase if tariffs are introduced would be immediate. In the early 2000s when the U.S. imposed a combined duty of 27 per cent, 15,000 Canadians were laid off within months.”