Western Canadian lumber producers are poised to reap the biggest gains from a preliminary decision by the United States to cut softwood lumber duties, disappointing major Quebec-based producer Resolute Forest Products as it continues to press for zero tariffs in the long-running trade dispute.
The U.S. Department of Commerce on Monday ruled that combined anti-dumping and countervailing duties on all Canadian softwood lumber could fall to an average 8.21 per cent from 20.23 per cent. A final determination is expected in August.
The overall reduction is broadly significant, but not all producers will receive cuts of the same size.
“The rates were reduced a lot more on the B.C. side, and in our case, in Eastern Canada, they went down only by a bit,” said Seth Kursman, spokesperson for Resolute. “We believe Canada should stay strong and continue to pursue this, because anything less than free trade is not fair, not equitable and should not stand.”
Under the decision, Vancouver-based Canfor Corp. could see the largest drop in combined duties on its products — falling to 4.76 per cent from 22.13 per cent — while Resolute would see a much less dramatic reduction to 16.04 per cent from 17.9 per cent.
Similarly, duty rates could fall to 8.9 per cent from 23.76 per cent for Quesnel, B.C.- based West Fraser Timber Co. Ltd., but only to 4.32 per cent from 9.38 per cent for Saint John, N.B.-based J.D. Irving Ltd.
Details on the reasoning behind the reductions are not yet available. Though the U.S. has lowered tariffs in much smaller increments in the past, the magnitude of the current proposed reductions isn’t surprising given the severe increases in B.C. log costs, TD Securities analyst Sean Steuart said in a note to investors.
Log costs have spiked 35 per cent in B.C. amid forest fires and an ongoing outbreak of the mountain pine beetle that has affected more than 18 million hectares of forest. As a result, the province has applied high stumpage rates to companies cutting trees on Crown land.
Canadian producers, suffering through extensive layoffs and mill closures, have consistently argued that their products are fairly traded and should be sold tariff-free across the border just like any other commodity.
The (duty) should be zero because our industry is not subsidized
Susan Yurkovich, president, B.C. Lumber Trade Council
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“We’re happy to see the duties might be going in the right direction, but the number should be zero because our industry is not subsidized,” said Susan Yurkovich, president of the B.C. Lumber Trade Council.
Current U.S. duties will remain in place until a final decision is made and Canadian companies will not receive any refund or credit for duties already paid until the dispute is resolved, CIBC analyst Hamir Patel said in a research note.
The duties were imposed in 2017, prompting Canada to issue complaints at the World Trade Organization and under the North American Free Trade Agreement. In September, a NAFTA panel of U.S. and Canadian representatives said there was no evidence that Canada’s industry had harmed American softwood producers and gave the U.S. three months to reconsider.
A separate case before the WTO sits in limbo after the U.S. blocked the appointment of new judges to the appellate body, the top court that might rule on the case.
Even if duty rates are ultimately lowered, Canada will continue to fight the imposition of any tariffs on producers, said Katherine Cuplinskas, press secretary for Deputy Prime Minister Chrystia Freeland.
“Canada strongly believes U.S. duties on Canadian softwood lumber are unfair and unwarranted,” she said in an email. “Canada remains prepared to discuss a resolution of the softwood lumber dispute with the United States.”