Canada's forest industry felt the slap of the countervailing duties they were bracing for late Monday, with confirmation out of Washington that a U.S. Commerce Department investigation has once again concluded that softwood lumber imports are unfairly subsidized.

Canadian lumber imports are expected to face new duties ranging from three to 24 per cent, starting next week.

Countervailing duties are used to level the playing field when a country believes that another country's product is unfairly subsidized.

The U.S. lumber industry has argued for decades that because most Canadian timber is harvested on Crown lands, the way provincial governments manage and set prices for these harvests results in cheaper lumber. 

"Today's ruling confirms that Canadian lumber mills are subsidized by their government and benefit from timber pricing policies and other subsidies which harm U.S. manufacturers and workers" said Cameron Krauss, the legal chair of the U.S. Lumber Coalition and a senior vice-president of Oregon's Seneca Sawmill, in a release. 

"Left unchecked, Canadian non-market based trade practices would yield ever increasing market share for Canadian product, displacing U.S. producers, workers, and landowners, and even allowing Canadian mills to take over U.S. assets," the U.S. Lumber Coalition said in its release late Monday.

"Border measures against subsidized and dumped Canadian lumber imports are essential — otherwise differences between the U.S. mostly private and Canadian mostly public timber sales systems give Canadian producers an unfair cost advantage that injures U.S. producers and their workers," it said.

Quesnel lumber mill

Canadian softwood lumber exports to the United States will be hit with countervailing duties of up to 24 per cent starting next week. (Christer Waara/CBC)

But Canadian governments have changed the way they operate to address such concerns. Timber auctions are now used to better reflect current market rates. 

"The government of Canada disagrees strongly with the U.S. Department of Commerce's decision to impose an unfair and punitive duty," reads a joint statement issued by Natural Resources Minister Jim Carr and Foreign Affairs Minister Chrystia Freeland. "The accusations are baseless and unfounded."

Anti-dumping duties still to come

This week's decision is the first of two investigations that began following a petition launched last fall by the Committee Overseeing Action for Lumber International Trade or Negotiations (COALITION), which includes the Washington-based U.S. Lumber Coalition lobby group, a carpenters union and about a dozen American timber producers and sawmills.

It claims to represent the concerns of about 70 per cent of the U.S. industry. 

The investigation looked at the top four Canadian companies that export to the U.S.: West Fraser; Tolko, Canfor and Resolute Forest Products.

Duties will be applied to these major importers as follows, based on the department's determination of relative injury to the U.S. industry:

  • Canfor: 20.26 per cent.
  • Resolute: 12.82 per cent.
  • Tolko: 19.50 per cent.
  • West Fraser: 24.12 per cent.

All other Canadian imports will be subject to duties of 19.88 per cent, with one exception.

J.D. Irving, an Atlantic Canadian company that harvests timber from largely private forests in the Maritimes, asked for a separate review of its operations. 

Based on that investigation, duties on Irving products will be only 3.02 per cent. 

Last week, the New Brunswick government said it was still fighting to exempt other Maritime producers from the U.S. actions.

The duties are expected to be collected at the border starting early next week.

BC Softwood 20170407

Many provinces have now appointed envoys to work towards a new softwood lumber deal with the U.S. In B.C., Christy Clark (right) appointed David Emerson (left), the Conservative cabinet minister who brokered the 2006 deal. (Darryl Dyck/Canadian Press)

In addition, the Commerce Department found that "critical circumstances exist," justifying the charging of retroactive duties for Canadian imports shipped over the last 90 days by all companies except for the four largest importers who were part of the investigation.

These large companies do not face the retroactive duties – only the smaller companies will.

Canadian companies will be billed for these payments shortly, with payments due upon receipt.

Susan Yurkovich, the president of the B.C. lumber trade council, said in a statement that this finding of critical circumstances represents an "unprecedented departure" from the previous U.S. approach and is "entirely arbitrary."

'We will not give up'

The highest duties have been levied on companies from Western Canada.

"Canadian lumber imports don't pose a threat to the U.S. lumber industry. There is enough North American demand to grow the U.S. industry while also allowing Canada to supply its U.S. customers, as we have been doing for decades," Yurkovich said, suggesting these protectionist duties will create price volatility in the U.S. market.

In a statement late Monday, B.C. Liberal Leader Christy Clark, who is currently campaigning for re-election as premier, said her message to forest workers is: "We are here for you. We will fight for you. And we will not give up."

Tuesday's duties are preliminary. 

On June 23, a second investigation will reveal the Commerce Department's findings on a parallel anti-dumping investigation, another remedy the U.S. lobby asked for to balance unfair Canadian imports.

The full impact of the American government's actions won't be felt for months.

After these preliminary duties, a combined duty rate will be set sometime next fall: the Commerce Department suggested it may come as early as Sept. 7, but Canadian industry officials suggest that could be delayed until November.

The final injury determination will be made by the U.S. International Trade Commission, likely in January 2018.

Canada is expected to appeal to both a NAFTA dispute resolution panel as well as the World Trade Organization (WTO.)

"In ruling after ruling since 1983, international tribunals have disproved the unfounded subsidy and injury allegations from the U.S. industry," read the joint statement from Carr and Freeland on Monday. "We have prevailed in the past and we will do so again."

U.S. imposes softwood lumber duties up to 24%4:29

Trump scooped Commerce Department

The official findings were expected to be released Tuesday. But according to U.S. media reports, President Donald Trump announced the decision one day early at a reception for conservative journalists in Washington.

Press releases from both Commerce Department and the American lobby group that petitioned for the investigation, as well as comments from Commerce Secretary Wilbur Ross himself, confirmed the details Monday evening.

Canadian government officials including Carr and Clark, as well as spokespeople for Canada's lumber industry, are all expected to provide more reaction to these developments on Tuesday.

After the expiration of the previous Canada-U.S. softwood lumber agreement in late 2015, Canada exported over $5 billion of softwood lumber to the United States in 2016.

It was a rare period of duty-free trade for Canadian lumber, benefiting from strong demand from U.S. housing construction and a favourable exchange rate. U.S. producers lack sufficient supply to meet current demand.

It's unclear what impact these new duties will have on the volume of trade from here on.