Uncertain future: New tariff will hurt N.B. sawmills' bottom line
Final determination on the softwood duties will be made in September
New Brunswick sawmills are facing an uncertain future after the U.S. administration of President Donald Trump announced tariffs of almost 20 per cent on softwood lumber from the province.
While that number is only preliminary, the U.S. will start charging it to U.S. buyers of Canadian softwood within weeks.
The province's largest forestry company, J.D. Irving Ltd., managed to secure a lower tariff rate of just three per cent.
But other sawmills are facing the higher rate, which could make the difference between profit and loss.
"That's going to impact the bottom line of my member sawmills," said Mike Legere, executive director of the industry group Forest NB.
"What it does is it increases their costs. They don't want to pass that cost onto their buyers, so they'll have to absorb that, and that affects their margins. … That's just untenable for our sawmills."
Premier Brian Gallant reacted forcefully to the U.S. announcement, calling it "alarming."
He told reporters bluntly that "Trump's presidency and his protectionist views and approach is the greatest hazard to the New Brunswick economy."
But he said governments are limited in what they can do to help the hardest-hit sawmills, because any financial aid might confirm the U.S. view that the industry is subsidized and provoke more trade retaliation.
"It certainly is a very difficult situation," he said. "Our thoughts are with the businesses, and more specifically the communities and the workers in New Brunswick who depend on the forestry sector."
There was still a faint hope late Tuesday that New Brunswick would be exempt from the measures, in keeping with a Maritime exemption from U.S. duties that began in 1983.
But Nova Scotia Minister of Trade Michel Samson said the U.S. had apparently decided "to defer consideration of the exemption" for the region as a whole.
The logic behind the exemption was that the forestry sector in the region was not subsidized as it was in other parts of Canada.
J.D. Irving made case for lower tariff
The U.S. industry group that petitioned the Trump administration for duties said in a filing that while it doesn't have an issue with the other Atlantic provinces, "softwood lumber producers in New Brunswick benefit from countervailable subsidies."
Despite that argument, the U.S. administration is applying a much lower tariff of three per cent to J.D. Irving Ltd., which has sawmills in Baker Brook, Kedgwick, St-Leonard, Doaktown, Chipman, and Sussex.
Irving's vice-president of sawmills, Jerome Pelletier, said in a written statement that the company voluntarily responded to the U.S. investigation by filing more than 9,000 pages of documents to make its case.
But Irving is also arguing that if a lower tariff is warranted on its operations, that shows the New Brunswick sawmill sector as a whole doesn't deserve to be punished.
"New Brunswick's forestry system has always been based on free and fair trade," Pelletier said in his statement. "Crown stumpage rates are reflective of this system. This has not changed and should be recognized by the U.S. Department of Commerce."
Legere agreed with that. "We're fair traders, we play by the rules, and historically we've done so for over 35 years."
The U.S. will make a final determination on the softwood duties on Sept. 7.
Gallant speculated that the Trump administration had hit Canada with the high tariffs now as a "bargaining chip" that can be used in expected negotiations to update the North American Free Trade Agreement, which Trump has criticized.
Treasury Board President Roger Melanson, who is responsible for trade, said the Gallant government will push Ottawa to insist on a Maritime exemption that includes New Brunswick during those talks.
But he said while that's the Trudeau government's negotiating position now, there's no guarantee of what will be in any new trade deal.