Canadian Mills Eager to Re-negotiate Trade Agreement

Canadian lumber producers have their eyes on a big cash prize if the Biden administration gives into pressure from home builders and members of Congress to begin talks with Canada on a new softwood lumber agreement.

They want to be repaid the billions of dollars they’ve handed over to the U.S. customs authorities in recent years as part of anti-dumping and countervailing duties imposed by the Trump administration in 2017.

“It’s our money,” Susan Yurkovich, president of the British Columbia Lumber Trade Council, said in an interview, arguing the tariffs were unjustified.

Canadian Prime Minister Justin Trudeau raised concerns about the U.S. duties when he met with President Joe Biden on the sidelines of the recent G-7 summit, Alice Hansen, a spokesperson for Canadian Trade Minister Mary Ng, said.

“Canada believes the tariffs should be removed. Minister Ng has raised this issue at every opportunity possible,” including with Biden, U.S. Trade Representative Katherine Tai and Commerce Secretary Gina Raimondo, Hansen said.

So far, the Biden administration hasn’t given into pleas to negotiate a new deal. But in a meeting with the National Association of Home Builders on May 28, Raimondo said she took the industry’s concerns “very seriously.”

The NAHB estimated in April that sky-rocketing lumber prices have added as much as $36,000 to the price of a new single-family home. Since then, lumber prices have retreated from nosebleed high levels but still remain more than double last year.

Raimondo committed to working with the home builders “to identify targeted actions the government or industry can take to address supply chain constraints.”

The U.S. Lumber Coalition, which accuses Canada of unfair trading practices that have destroyed American jobs, says it is “open to a new U.S.–Canada softwood lumber trade agreement if and when Canada can demonstrate that it is serious about negotiations.”

So far though, the group is not convinced that Canada really wants to work out an arrangement.

U.S. Trade Representative Katherine Tai used a similar line in May, when she told the Senate Finance Committee that it was Canada, not the U.S., that did not want a new deal.

"In order to have an agreement and in order to have a negotiation, you need to have a partner. And thus far, the Canadians have not expressed interest in engaging," Tai said.

USTR spokesperson Adam Hodge elaborated in an emailed statement, saying the U.S. is open to resolving differences with Canada over softwood lumber, "but it would require addressing Canadian policies that create an uneven playing field for the U.S. industry."

Those include the "stumpage fees" that Canadian provinces charge lumber companies to cut trees on public lands. The U.S. contends those are set at below-market rates and constitute an unfair government subsidy.

"Unfortunately, to date, Canada has not been willing to adequately address these concerns," Hodge said.

Any agreement would require the approval of the U.S. Lumber Coalition because the Commerce Department made a legal determination that Canada is subsidizing its lumber exports and selling them at unfairly low prices. The U.S. International Trade Commission also found the U.S. industry was harmed by Canadian trade practices.

Previous refunds: There is precedent for a big U.S. repayment of duties in a 2006 agreement to settle a past lumber dispute between the two countries.

The George W. Bush administration agreed to give back $4.4 billion of the $5.4 billion in anti-dumping and countervailing duties the U.S. government collected on Canadian softwood lumber imports in the early 2000s. About $500 million of the duties went to U.S. producers.

The Bush administration agreed to make the repayment after the World Trade Organization and North American Free Trade Agreement dispute settlement panels ruled in favor of Canada. By that time, both sides were tired of the litigation and the billions of dollars of contested duties helped ease the way to reaching a settlement.

The pact brought a period of relative peace in lumber trade between the two countries. It got rid of the U.S. duties and allowed British Columbia and the other Canadian provinces to regulate the trade themselves by imposing either a tax on their exports or a combination of a quota and a lower tax.

The export tax rate and quota values also varied, depending on the price of framing lumber used in home construction. When the price exceeded $355 per thousand board feet, all export taxes or quotas were waived. Currently, framing lumber prices are about $1,000 per thousand board feet, far above the threshold for no taxes or quotas under the 2006 pact.

How we got here: The 2006 agreement was extended once before it finally expired in 2015.

After a one-year grace period, the U.S. lumber industry filed a new petition asking the Obama administration for anti-dumping and countervailing duties on the imports to offset what they said were unfairly low prices and government subsidies.

The Trump administration imposed those duties in 2017 after efforts to negotiate a new lumber trade agreement failed. But it had firm legal ground to take the action, since the U.S. International Trade Commission voted 4-0 that U.S. producers were “materially” injured by imports of dumped and subsidized Canadian lumber.

Since then, the BC Lumber Council estimates the U.S. government has collected more than $4 billion (or 5 billion Canadian dollars) worth of duties on Canadian softwood lumber, which is primarily used to build houses and in home renovation projects.

Ratcheting up of costs and fees: The combined duties are currently about 9 percent of the value of each shipment. But as lumber prices tripled over the past year, Canadian companies have had to fork over bigger duty payments to U.S. customs officials.

In addition, the Commerce Department recently announced that it planned to double the combined duty rate later this year to more than 18 percent, based on its second “administrative review,” which looked at market conditions in 2019.

Lumber prices have fallen sharply in recent days, but still remain at historically high levels, so Canadian producers can look forward to making billions of dollars in additional duty payments in the coming years without an agreement.

Adding to the frustration, the high prices make it hard for U.S. producers to argue they are being harmed by Canadian imports, Yurkovich said.

“Canada is certainly interested in a durable solution that allows for greater stability in the lumber market,” Yurkovich said. “The U.S. needs lumber. The lumber industry in the U.S. is not able to produce enough lumber to meet domestic demand. It's always been a North American market for lumber. And so we would very much like to have this issue resolved.”

Last shot: Yurkovich bristles at the suggestion that Canadian lumber is subsidized and sold at unfairly low prices. The Commerce Department made that determination based on the rate the Canadian government charges private companies to harvest trees on public land and other factors.

“It's a pretty neat business tactic to use your trade laws to put a tax on your competitors to keep the product out, which keeps your prices high, and then get a windfall from that,” she said.

At a recent Canadian parliamentary committee hearing, Ng was asked about the possibility of threatening trade retaliation as a means of persuading the U.S. to the negotiating table. Ng dodged the question and her office didn't answer POLITICO’s request for clarification on the minister’s response.

“We remain focused on defending Canada’s softwood lumber industry and its workers through rules-based mechanisms, including litigation” under dispute settlement procedures of the World Trade Organization, the new U.S.-Canada-Mexico Agreement and the old NAFTA pact, Hansen said in an email.