Canada challenges doubling of US duty rate on imported Canadian softwood lumber

It’s here-we-go-again time in Canada-US trade relations on softwood lumber. And the Canadian government this month has filed legal challenges to the decision by the Department of Commerce decision on August 13 to increase the duty it charges on softwood lumber imports from Canada to 14.54% from 8.05%. The duty is to be applied retroactively to exports made in 2022 as well as to new exports of softwood lumber to the US. Especially sharp protests have come from British Columbia, the leading softwood lumber production region of Canada.

The decision has coincided with depressed market conditions illustrated by record lows in lumber demand and prices which have fueled mill curtailments and permanent closures across Canada as well as the United States. Adding to the negative landscape has been the impact of the most destructive wildfires in Canadian forest history in 2023.

While welcoming the decision, the US Lumber Coalition affirmed that with lumber demand and prices at record lows and mills across the country struggling to keep afloat, “The United States does not need the unfairly traded Canadian lumber imports to supply current levels of home construction.”

Canada is the top global exporter of softwood lumber - valued at C$13.7 billion in 2022, with the US market alone accounting for about two-thirds of this total.

For decades, the outstanding issue has revolved around the US industry view that Canadian imports compete unfairly on the US market because domestic lumber production from publicly-owned forests is government-subsidized. It is alleged that Canada’s provincial governments do not sufficiently adjust the costs of timber based on the competitive marketplace.

On September 9, Mary Ng, Minister of International Trade and Export Promotion, said Canada has launched two legal challenges under the Canada-United States-Mexico Agreement (CUSMA). One contests the US anti-dumping duties and the other contesting the US countervailing duties. She also recalled that Canada has “consistently contested” (with positive results) such past measures at the United States Court of International Trade.

Housing Affordability Issue on Both Sides of the Border

In Vancouver, Kurt Niquidet, President of the BC Lumber Trade Council (BCLTC), argued: “These duties continue to be unjustified and unfair. Commerce has departed from long-standing methodologies, resulting in the higher rates announced. These rates will hurt U.S. consumers by increasing the cost of lumber and building materials at a time when concerns about affordability continue to impact consumers on both sides of the border.”

“This couldn’t come at a worse time for BC lumber producers. The increase in US tariffs on BC lumber products will exacerbate the extremely challenging conditions faced by BC producers and will impact manufacturing operations, jobs and communities around the province.”

“BCLTC will continue to defend the interests of B.C. producers. Unfortunately, the delays in the appeal process have made it increasingly difficult for this to happen in a timely fashion, and these delays must be addressed and resolved.

“Canadian lumber producers have already paid over CAD 9 billion in duties, which are held in deposit until this dispute is resolved,” Niquidit indicated.

The BC forest industry is a major contributor to the provincial economy and supports approximately 100,000 direct and indirect jobs in the province. However, Statistics Canada numbers issued last year showed that BC has lost more than 40,000 forest sector jobs since the early 1990s.

In this conflict, BC and other producers across Canada have found an ally in the United States in the National Association of Home Builders (NAMB). The NAMB responded on August 19 to the August 13 Department of Commerce decision by expressing its disappointment and recalling its longstanding “fight against lumber tariffs because of their detrimental effect on housing affordability. In effect, the lumber tariff acts as a tax on American builders, home buyers and consumers.”

“With housing affordability already near a historic low, NAHB continues to call on the Biden Administration to suspend tariffs on Canadian lumber imports into the United States and to move immediately to enter into negotiations with Canada on a new softwood lumber agreement that will eliminate tariffs altogether.”

Meanwhile, although some analysts see the fundamentals underlying softwood lumber’s main end-use markets in Canada remaining strong, the trends of shipments in the past few years have reflected an industry under severe stress. Canadian softwood lumber shipments plunged by nearly 2.2 billion board feet in 2022. The trend continued in 2023 with these shipments dropping from 20.9 billion board feet in 2022 to 19.8 billion board feet.

Canfor Reduces Southern US Operations

Due to the persistent weak lumber markets, Canfor Corporation, a major forest products producer with 50 facilities in Canada, the United States and Europe, recently announced a reduction of its southern US operations.

“The changes we are making will better align production capacity in our US operations with current market conditions,” commented Lee Goodloe, president of Canfor Southern Pine.

Vancouver-based Canfor is indefinitely curtailing one shift at its Darlington facility in South Carolina, and reduce operating hours at its Estill, South Carolina and Moultrie, Georgia locations. The company will also implement curtailments across other southern US operations to better align with market demand. These changes will reduce lumber production by approximately 215 million board feet on an annualized basis.