U.S. lumber industry alleges Canadian softwood producers receiving climate subsidies
A group led by the U.S. Lumber Coalition has fired a new salvo in a long-running trade dispute, alleging that programs designed to help combat climate change are unfair subsidies to Canadian softwood producers.
“We hereby submit an allegation of additional subsidies available to Canadian producers of softwood lumber products,” the group said in a 56-page document filed recently with the U.S. Department of Commerce.
New subsidies come from four federal programs in Canada geared toward helping companies meet climate goals, according to the influential U.S. industry group COALITION, which stands for Committee Overseeing Action for Lumber International Trade Investigations Or Negotiations.
COALITION argues that funding related to reducing Canada’s emissions of greenhouse gases should be added to future U.S. determinations for setting countervailing duty rates.
The U.S. lumber lobby is complaining about what it deems to be climate subsidies in two initiatives administered by Natural Resources Canada – the Clean Growth Program and the Green Freight Assessment Program. Also being targeted are federal measures such as funding for high-growth businesses in Western Canada (Western Business Scale-up and Productivity Program) and favourable tax treatment to encourage the use of renewable energy sources (Tax Savings for Industry).
The Canadian government disagrees with the U.S. characterization of climate subsidies, adding that the tax treatment is an accelerated capital cost allowance for any industry and not a separate program.
On the provincial side, COALITION submits that British Columbia is providing new subsidies, including through two programs under CleanBC, while New Brunswick oversees two climate initiatives that help industries such as forestry.
The Commerce Department said it is “initiating an investigation of subsidy programs,” starting by sending out questionnaires to government and industry officials in Canada.
COALITION, which includes Seattle-based Weyerhaeuser Co., said it’s important for the Commerce Department to scrutinize the new subsidy allegations. “The department must take the necessary steps to verify usage of the alleged subsidies and the actual benefit conferred, whether measurable or not, by soliciting this information from the respondents and governments,” the U.S. lumber group said in a separate 16-page document.
U.S. authorities maintain that the stumpage fees Canadian companies pay to provincial governments to cut trees on Crown land are too low, which amounts to subsidies. By contrast, U.S. lumber producers buy their timber mostly from private owners of forests.
The Commerce Department has imposed countervailing duties as penalties in response to what U.S. authorities view to be subsidized Canadian lumber. As well, the Commerce Department has levied anti-dumping duties, arising from the U.S. contention that Canadian producers sell softwood at below market value.
Besides targeting what it sees as climate subsidies, COALITION criticized a tax exemption for Canadian exporters and said a federal wage program that supports hiring Indigenous youth in Canada should be factored into calculations for U.S. duties.
The Canadian respondents counter that COALITION vastly overstated its case, for example, describing subsidies that allegedly flowed to several Canadian producers that never received any such funding.
The Canadian government, five provinces and Canada’s forestry industry told the Commerce Department that no unfair subsidies are being given specifically to Canadian softwood producers to fight climate change.
“The department should ensure that its approach does not undermine the Biden administration’s stated policies on combatting climate change, reducing greenhouse gases and protecting the environment,” said a 52-page document filed by lawyers for the Canadian government and other parties based in Canada. “Programs designed to achieve a better environment and avert a climate crisis cannot be considered specific.”
For example, British Columbia’s measures to encourage the use of zero-emission vehicles are available to a wide range of industries and do not specifically target the lumber sector, the Canadian document said.
“If the department were to countervail any of these programs in this review, the department would be violating the applicable countervailing duty statute and regulations, and would be at odds with the executive order of the President directing trade policy to address the global climate crisis,” lawyers for the Canadian government and other parties from Canada said in their filing.
The 2006 Canada-U.S. softwood agreement expired in October, 2015, with no replacement.
The protracted trade fight is in its fifth round, dating back 40 years. The U.S. International Trade Commission ruled in November, 1982, that Canadian softwood shipments were causing economic injury to producers in the United States, triggering the trade war.
In the latest round, the Commerce Department began imposing duties on Canadian lumber in April, 2017. The countervailing and anti-dumping duty rates have fluctuated since then.
Current combined U.S. tariffs total 8.59 per cent, consisting of 3.83 per cent in countervailing duties and 4.76 per cent in anti-dumping levies, imposed against most Canadian lumber producers sending shipments south of the border.
Four Canadian producers pay different rates from most others. Montreal-based Resolute Forest Products Ltd.’s RFP-T +0.87%increase combined tariff rate of 14.86 per cent is the highest among Canadian producers, followed by Saint John-based J.D. Irving Ltd. at 14 per cent.
West Fraser Timber Co. Ltd. WFG-T -3.10%decrease pays a combined tariff of 8.25 per cent while Canfor Corp.’s duties total 5.87 per cent. West Fraser and Canfor are based in Vancouver.
Last month, the Canadian government filed a challenge to the latest duty rates through a dispute-settlement process under Chapter 10 of the Canada-U.S.-Mexico Agreement.
Cash prices – what sawmills charge wholesalers – were at US$520 last week for 1,000 board feet of two-by-fours made from Western spruce, pine and fir (SPF), according to Madison’s Lumber Reporter, a Vancouver-based industry newsletter. That pricing level is 7 per cent higher compared with September, 2021, but two-thirds lower than record highs posted in May, 2021.
In this fifth round of the trade battle, the Commerce Department said earlier this year that it had initiated a fourth administrative review, scrutinizing data from lumber markets in 2021. Lumber traded mostly between US$445 and US$1,620 for 1,000 board feet of Western SPF during a period of wild swings in prices in 2021.