Canada Launches USMCA Challenge Against U.S. Softwood Lumber Duties

Trade Update • DECEMBER 21, 2021

The Trudeau government announced on Tuesday that it has launched a challenge under the United States-Mexico-Canada Agreement against what it says are “unjustified” U.S. antidumping and countervailing duties on Canadian softwood lumber.

The latest chapter in the decades-long dispute involves the Commerce Department’s second administrative review of AD/CVD on certain Canadian softwood lumber imports, which determined that the new combined duty rate for most producers will be 17.9% — double the prior figure of 8.99%.

Canada “remains extremely disappointed” by the decision, International Trade Minister Mary Ng said in a statement. Pointing to various trade tribunal rulings on the issue that “have consistently found Canada to be a fair trading partner,” Ng said Ottawa “is confident that rulings will continue to find Canada to be one.”

Ottawa has already launched a trade remedy proceeding against the first administrative review under the provisions of USMCA Article 10.12 last year, which is still ongoing. Ng said the latest challenge “is another step that Canada is taking to defend the forestry sector and Canada’s national interests.”

The move was applauded by the B.C. Lumber Trade Council, which reiterated its “steadfast” position that the “unfair” U.S. softwood lumber duties are harmful not only to Canadian producers and workers but also to U.S. businesses and consumers. “This is particularly concerning as these duties remain a threat to post-pandemic recovery on both sides of the border,” the group added.  

As reported here, the Trudeau government has “been under fire from opposition parties for not preventing the new round of tariffs, particularly given expectations that trade disputes would dissipate with Joe Biden in the White House rather than Donald Trump, with his protectionist policies.

“Conservatives have been calling for the Liberals to adopt a clear and strong stand with the Biden administration to tackle U.S. protectionist policies and deliver tangible results for Canadian workers for months,” International Trade Critic Randy Hoback said in an emailed statement to CBC News. 

A World Trade Organization panel last August found that Commerce had improperly imposed countervailing duties on Canadian softwood lumber, but the U.S. appealed that ruling “into the void” of the non-functioning Appellate Body. 

Additionally, a WTO panel in April 2019 ruled that Commerce had improperly calculated its levies on softwood lumber, while also siding with the U.S. over its use of the controversial “zeroing” methodology in calculating antidumping duties. Canada appealed the case, but no Appellate Body report has been issued.

Conflicting U.S. Interests

The National Association of Homebuilders has urged the U.S. government to drop the softwood lumber tariffs, which they claim “have contributed to unprecedented price volatility in the lumber market… leading to upward pressure on prices and harming housing affordability for American consumers.” The group says the administration “needs to work with Canada to end the tariffs and achieve a long-term, stable solution in lumber trade that provides for a consistent and fairly priced supply of lumber.”

Lawmakers — for the most part, Republicans — have also called on the administration to reach a “balanced agreement” with Canada “to help create certainty and predictability in our supply chains” and “because it would provide predictability for lumber producers and homebuilders,” they assert.

Opposed to such a move, the powerful lobby group representing U.S. lumber producers continues to insist the tariffs are necessary to offset the harm caused to them by Canada’s “gross underpricing of timber” and the dumping of “heavily subsidized” lumber into the U.S. market.

In a statement, the U.S. Lumber Coalition said it “remains open to a new U.S.–Canada softwood lumber trade agreement if and when Canada can demonstrate that it is serious about negotiations.” Until then, the group says it “fully supports the continued strong enforcement of the U.S. trade laws to address Canada’s unfair softwood lumber trade practices.”

Looking Ahead

Since taking office, aside from some brief discussions, there has been little high-level engagement by the Biden administration on the issue. Last May, USTR Tai told the Senate Finance Committee that in order to have negotiations leading to an agreement, “you need to have a partner. And thus far, the Canadians have not expressed interest in engaging,” she said.

In her announcement, Ng concluded on a hopeful note, expressing Ottawa’s willingness to achieve “a negotiated solution to this long-standing trade issue that would allow a return to predictable cross-border trade in softwood lumber for the benefit of workers in both countries.”