THE LAST WORD

Canada has won the interim softwood lumber tariff fight, but a long term trade reset is needed

By Tony Kryzanowski

The U.S. plans to significantly lower both the anti-dumping duty (AD) rate and countervailing duty rate (CVD) for most Canadian softwood lumber producers this coming August, based on a recent announcement by the U.S. Department of Commerce.

These combined duties will drop from about 20 per cent now to about 8.21 per cent, although that amount will vary for larger softwood lumber producers. For example, Resolute Forest Products will realize only a marginal rate reduction from about 18 per cent to just over 16 per cent.

Other companies like Canfor will witness a significant reduction from just over 22 per cent to 4.76 per cent, West Fraser Timber will see a reduction from nearly 24 per cent to about 9 per cent, and J.D. Irving’s rate will drop from 9.38 per cent to 4.32 per cent.

In the meantime, negotiations for a new Canada-U.S. Softwood Lumber Agreement and the return of deposit funds collected from Canadian producers to date will continue.

This tariff rate reduction by the Department of Commerce either signals that civility is returning to the conversation surrounding tariffs or that it is an election year in the U.S., with Republicans worried how the impact of these tariffs on American home prices might hurt them at the ballot box.

Either way, this is a victory for Canada, and an important one.

A reduction was expected when the NAFTA Chapter 19 binational panel concluded last year that there were insufficient grounds for the U.S. International Trade Commission to claim that Canadian softwood lumber products have materially injured the U.S. softwood lumber industry. They ordered the Department of Commerce to reconsider their tariffs, and they have.

Short term, of course, it reduces the amount of money that Canadian softwood lumber producers must place on deposit as negotiations on a new agreement continue.

Longer term, it sets the table for a greatly needed reset in how the Americans view future supply of Canadian softwood lumber to the American market.

Punitive tariffs of any kind just can’t be justified anymore. That’s because Canada just won’t be supplying as much softwood lumber into the American market because of the impact of the mountain pine beetle on the B.C. Interior wood basket, at least till replacement trees grow to merchantable size and there is reinvestment into the B.C. Interior industry. My prediction is that it could be anywhere from 30 to 50 years.

It will unfold in the same way it has unfolded in the southeastern corner of B.C., which in the past has been affected by both beetles and forest fires, before the beetle became an issue in the Interior. The forest has since grown back and this region has some of the most modern sawmills in the province.

Softwood lumber production is a national industry and I understand that, but when you look at the actual numbers, it becomes clear what a major impact that B.C. Interior softwood lumber production has on trade with the U.S.

Global Affairs Canada tracks softwood lumber sales to the U.S. by region and province on a monthly basis. They even track total U.S. consumption and the monthly price paid.

Let’s take a sample of softwood lumber exported from Canada to the U.S. in January 2020. There was a total of 1,036,014,697 board feet of softwood lumber exported to the U.S. from Canada. Of that, about a third or 353,674,103 board feet came from the B.C. Interior. The next largest exporter was the entire province of Quebec at 195,873,851 board feet, followed by Alberta at 162,418,817 board feet and Ontario at 124,560,565 board feet.

Also by comparison, the B.C. Coast only exported 30,647,069 board feet, or less than 10 percent of what was shipped from the B.C. Interior. Looking at statistics from previous months, there were some when exports from the Interior exceeded 500,000,000 board feet.

Why this is important is because the B.C. government is predicting a 30 per cent wood supply reduction in the B.C. Interior between 2010 and 2030. Vancouver-based Forest Economic Advisors Canada (FEA) predicts that there will only be about 55 sawmills left in the B.C. Interior by 2028 compared to a high of 95 in 2007. This is nearly a 50 per cent reduction.

So the amount of softwood lumber that the B.C. Interior, and by extension Canada, will supply to the U.S. over the next decade or more will very likely drop significantly. In my view, there is a strong case to be made that as long as this trend continues, and if our two countries truly believe in free trade, then there should be no American tariffs on Canadian softwood lumber at all.

Because in the final analysis, who really pays for the tariffs? American home buyers and that’s bad for American politicians wanting to be re-elected.