Why Canada has bigger issues than softwood to look ahead to
MONTREAL -- Canada's softwood lumber industry faces average duties of about 27 per cent after the U.S. Department of Commerce slapped it with an additional 6.87 per cent in preliminary average anti-dumping tariffs, while leaving the door open to finally settling the long-standing dispute.
The new anti-dumping duty will overlap for about two months with average preliminary countervailing duties of 19.88 per cent announced in April that are set to expire Aug. 27.
Final combined duties will be applied around the end of the year when all determinations have been made.
Resolute Forest Products (RFP.TO) was assessed Monday with the lowest duties of 4.59 per cent while Canfor (CFP.TO) gets the highest at 7.72 per cent.
Two other mandatory respondents, West Fraser Timber (WFT.TO) and Tolko, were tagged with 6.76 and 7.53 per cent duties, respectively.
The rates are below the average 10 per cent forecast by industry analysts.
“[U.S. Commerce Secretary] Wilbur Ross is a pretty rational individual; he’s old school business. From the first foray to now, I think the rhetoric has declined a little bit, it softened just a little bit,” said Equium Capital Management Chief Investment Officer Cameron Hurst in an interview with BNN.
“I think it’s moving in the right direction. And I think between that and not as high a percentage as people were expecting you could actually see a more positive market reaction than one might expect.”
West Fraser will have the highest combined duties at 30.88 per cent, followed by Canfor at 27.98 per cent and Tolko at 27.03 per cent. All other producers will face combined average duties of 26.75, with the exception of Resolute at 17.41 per cent and J.D. Irving at 9.89 per cent.
The duties will continue to be collected until a final decision by the U.S. is issued later this summer.
Commerce Secretary Wilbur Ross announced separately that an internal investigation has determined that it was appropriate to exclude Atlantic provinces of Nova Scotia, P.E.I. and Newfoundland and Labrador from softwood lumber duties as requested by the U.S. industry and Canadian officials.
Jerome Pelletier, chairman of the New Brunswick Lumber Producers, said the anti-dumping duty will put "significant pressure" on producers in the province.
"New Brunswick should be granted the historic 35-year Maritime exemption from any duties on softwood lumber shipments to the U.S.," Pelletier said in a statement Monday. "We're market-driven and have the highest Crown stumpage rates in Canada."
He added that forest products in New Brunswick contribute more to the provincial economy than forest products in British Columbia.
"No other industry impacts as many communities in New Brunswick as forestry and forest products," he said.
In a joint statement, Natural Resources Minister Jim Carr and Foreign Affairs Minister Chrystia Freeland said they are "deeply disappointed" with the U.S. decision to impose what they call "unfair and punitive anti-dumping duties."
The two cabinet ministers said the penalties are based on a "flawed rationale that is damaging to workers, communities and consumers in Canada and the United States" and that Canada will "vigorously defend" the forest industry through litigation.
They added that while consultations on exclusions for Nova Scotia, P.E.I. and Newfoundland and Labrador represent "significant progress" in the dispute, Canada will continue to press the U.S. to remove duties for all provinces. Carr and Freeland also said they would welcome a U.S. Department of Commerce commitment to consider an exclusion for New Brunswick.
“If we can get a deal that ensures that you’re not going to shrink Ontario’s lumber sector – do it, Jamie Lim, CEO of the Ontario Forest Industries Association, told BNN in an interview Tuesday. “But if we’re going to do another bad deal like we did in lumber four, then if you are honestly trying to strengthen your middle class in Canada, you can’t accept a bad deal on softwood lumber. Because it’ll do the opposite.”
Canada's share of the U.S. softwood lumber market was 27 per cent in May, down from 31 per cent a year earlier, according to monthly Canadian government reports. That represented a $165-million loss in exports for the month, including $105 million in B.C. and $18 million in Quebec.
Final duty rates have been lower than preliminary tariffs in the past. But Paul Quinn of RBC Capital Markets said that could change because the U.S. Lumber Coalition is pushing for a tough response to the Canadian government's $867-million financial support for the industry, mainly through loans and loan guarantees.
The U.S. Lumber Coalition applauded the announcement Monday, saying Canada has distorted the softwood lumber market with billions of dollars in support national producers.
"The 350,000 hard working men and women in the U.S. lumber industry deserve a level playing field," spokesman Zoltan van Heyningen said in a statement Monday. "We encourage the Department to continue strongly enforcing U.S. trade laws to respond to these unfair practices that have harmed U.S. companies and their workers."
But, the president of the British Columbia Lumber Trade Council said the duties are being felt by American consumers in the form of significantly higher prices.
"That's what constraining the market does," Susan Yurkovich told a teleconference call.
"The duties are a direct result of the actions taken by the protectionist U.S. lumber lobby whose sole purpose it to create artificial constraints on Canadian lumber to drive up prices for their benefit at the expense of American consumers."
What’s the best option for Canada in the ongoing softwood dispute with the United States?
B.C. is the largest Canadian exporter of softwood lumber to the United States at well over 50 per cent.
This is the fifth time the U.S. has accused Canada of unfairly subsidizing its softwood industry. The government says Canada has always prevailed against the accusations before the World Trade Organization or under the North American Free Trade Agreement.
A negotiated settlement on softwood with the U.S. expired in 2015, triggering the latest round of tariffs. The previous settlement took more than four years to negotiate.
“While I remain optimistic that we will be able to reach a negotiated solution on softwood lumber, until we do we will continue to vigorously apply the [anti-dumping] and [countervailing] laws to stand up for American companies and their workers,” Ross said in a statement Monday.
Canada can't file an appeal of the tariffs until early next year after the final determinations from the U.S. government are issued.
The Conference Board of Canada has said U.S. softwood lumber duties paid at current export levels will cost Canadian producers $1.7 billion a year and cut about 2,200 jobs until a softwood settlement is reached.
After the countervailing duties were announced, Resolute said it would cut shifts at seven sawmills and delay the start of forest operations that will affect 1,282 workers.
-- With files from BNN