Reality check: Does Canada subsidize softwood lumber?

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The Trump administration is set to announce a tax on Canada’s softwood lumber exports Tuesdaymarking another chapter in the long-running trade dispute between the two countries.

U.S. Commerce Secretary Wilbur Ross is expected to announce countervailing duties on Canadian softwood lumber as the first of two anticipated import taxes on softwood from the Great White North.

READ MORE: How will Trump impact B.C.’s chances for new softwood lumber deal?

President Donald Trump launched a barrage of criticism against Canada last week targeting dairy, energy and lumber and calling our actions against U.S. trade interests “a disgrace.”

“What happened to our dairy farmers in Wisconsin and New York State, we’re not going to let it happen,” Trump said last week. “We can’t let Canada or anybody else take advantage and do what they did to our workers and to our farmers. And again I want to also just mention: included in there is lumber, timber and energy.”

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The expected announcement from the U.S. Commerce Department on countervailing duties — a type of import tax meant to counter a subsidized export — is just the latest in the ongoing Canada-U.S. softwood row, which stretches back to the 1980s.

What is the dispute about?

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At the heart of the trade quarrel is that the majority of Canadian lumber comes from Crown lands, managed by provincial governments. In the U.S. timber is harvested from private lands meaning the stumpage price is generally higher.

The U.S. Lumber Coalition, a powerful lobby group, claims this has led to Canada’s pricing of lumber being artificially low. The Canadian government maintains that timber sold at Crown auctions are designed to reflect market rates.

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“What they are saying in the U.S. is the Canadian government is essentially giving this land away cheaper than it should be and that is an illegal subsidy,” BMO economist Alex Koustas told Global News. “However, it’s been established through a number of panels and resolution panels that is not the case.”

Both resolution panels from the World Trade Organization and under the North American Free Trade Agreement had found that Canadian softwood lumber production is not subsidized.

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Koustas believes the forthcoming announcements from the U.S. Commerce Dept. are the result of a rebounding housing market and the increasing market share of Canadian lumber which is now at roughly 30 per cent.

“That increase in market share has started to rile some of the U.S. producers and really has led to this détente we are seeing now,” he said.

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The predictions from several analysts have pegged the countervailing duties to be between 20 to 30 per cent, while anti-dumping duties are expected to be 10 and 15 per cent. A report from RBC Capital Markets anticipates a “shock and awe” move from the U.S. with duties in the range of 30 to 40 per cent.

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The second anti-dumping tax isn’t expected to be announced until late June, with a final combined duty rate anticipated in November. The U.S. International Trade Commission will confirm it in January 2018. The Canadian government won’t be able to appeal until the entire process is complete.

“Canadian producers have started to price with that duty in mind,” Koustas said. “Already now you are seeing lumber prices up by, at one point, 20 per cent.”

By comparison, the past dispute started in 2001 with U.S. penalties around 27 per cent for countervailing duties, and anti-dumping duties ranging from two to 16 per cent depending on the company.

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“It’s a bit like biting the hand that feeds you,” said Noami Christensen, senior policy analyst with the Canada West Foundation. “It could take Canada two years at least to fight this and have these [duties] removed, which we’ve historically won in all these rulings when we’ve appealed.”

War of words

While Donald Trump has recently included lumber in his speeches on trade, B.C. Premier Christy Clark fired back over the weekend, claiming greedy U.S. “lumber barons” are to blame for the dispute.

“The American industry is … driven by greed, pure and simple,” Clark said Saturday, speaking at a log home manufacturing business in Williams Lake, B.C. “They want to raise the price of lumber because they want to make more money. It’s that top one per cent in the United States that wants to line their pockets at the expense of the middle class.”

She claims the dispute would hurt American families looking to buy a home.

A December report from the U.S. National Association of Home Builders found any duties contributing to the rise in lumber prices would add more than $1,300 to the cost of a new single-family house.

The report also found higher lumber prices would result in a net loss of roughly 8,000 jobs if 25 per cent of duties are imposed on Canadian lumber imports, meaning about US$450-million in lost wages and $320-million in government taxes.

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“In the short-term [U.S. producers] will see an increase in demand for their product,” Christensen said. “But in the long-term it’s really bad for the American consumer. Just a small increase of course in housing prices can affect a large amount of people’s ability to buy a home.”

–With files the Canadian Press

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