Canada Challenges U.S. Softwood Lumber Duties Under USMCA Trade Pact

The Canadian government has challenged US softwood lumber duties under Chapter 10 of the United States-Mexico-Canada Agreement, or USMCA. Canada has called the duties “unwarranted” and “unfair.” In a statement, the Canadian government said the challenge concerns, “[T]he final results of the U.S. Department of Commerce’s third administrative review of its anti-dumping and countervailing duty orders on softwood lumber from Canada”.

Early test of the USMCA

Canadian International Trade Minister Mary Ng stated that the duties in question hurt Canadian businesses and workers because they increase prices on Canadian softwood lumber. Ng also stated that these duties are also effectively a tax on U.S. consumers. At a time when consumers are dealing with inflation and supply chain issues, these duties are particularly unhelpful, Ng argued.

The US cut its anti-dumping and countervailing duty rate in half in August, from 17.61% down to 8.59%. However, Ms. Ng indicated that this wasn’t sufficient and Canada would still fight the measures. The US argues the stumpage fees Canadian provinces charge for timber harvested from Crown land (government-owned land) are functionally equivalent to subsidies, since US producers must instead pay market rates.

Ng has said that Canada is willing to negotiate a solution to the dispute. This disagreement marks one of the first key tests of the USMCA, along with the US and Canada’s challenge to Mexico over energy policies. While USMCA is young — it was enacted on July 1, 2020 — the softwood lumber dispute is not.

Softwood lumber

Canada and the United States have had several disagreements, some of them very strenuous, over softwood lumber. Since the mid-1990s, the US lumber industry has repeatedly lobbied the US government to place restrictions on Canadian softwood lumber imports. The US government typically does this through the application of a countervailing duty and anti-dumping laws.

Countervailing duties allow for the imposition of import duties when the government determines that a domestic industry is hurt by subsidies in the exporting country by dumping. Dumping occurs when imported products are sold at prices that are lower than the cost of production or lower than prices in the domestic market. In this case, the US government argues that the Canadian government is subsidizing softwood lumber so they can afford to undercut US lumber by selling their goods at a lower rate.

Potential outcomes

If the history of Canada-US softwood lumber disputes is any indicator for the future, we will see a resolution to this issue relatively soon. Then everybody will be happy for a little while. But there will probably be another dispute in the future. While these disputes are meaningful for the lumber industry, forestry, and any small- or medium-sized enterprises, or SMEs, that deal heavily with lumber, the overall effect on the economy will likely be modest.

It’s worth remembering that no two nations on earth trade more than Canada and the United States, in terms of the value of goods. There will always be disputes when dealing with such large volumes, but the story of Canada-US trade is undoubtedly a successful one.

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