US-Canada trade war likely to resume as softwood lumber deal deadline ends

VANCOUVER (Scrap Monster): The one-year litigation standstill period to the last softwood lumber deal between the US and Canada came to an end midnight October 12, 2016. The negotiations to reach an agreement on extension of the deal are taking place, even after the end of the deadline period. However, with no hope for resolution of the dispute, the trade war between the two countries is very much likely to resume soon.

According to sources, the US companies are presently eligible to file trade petitions against Canadian lumber imports. The filing of petition will lead to initiation of an investigation by the US Department of Commerce (DOC). The DOC will generally take between 65 and 130 days to issue a preliminary determination of CV duties. The preliminary determination on AD duties may take even longer time. This essentially means that Canadian companies could face duties only by end of Q1 2017 or towards the beginning of Q2 2017. However, the duties could be retroactive for up to 90 days.

The Canadian authorities could challenge the US duties either before a NAFTA panel or WTO, both of would lead to months and years of legal battle between the two countries before the US could effectively impose tariffs on Canadian lumber. For tariffs to be imposed, the US has to prove that either Canada subsidizes its lumber or it is dumping products at a cheaper rate, thereby hurting domestic lumber producers. The US has made similar allegations in the past also. However, no investigation or litigation carried out during the past 35 years has been able to find that subsidized Canadian imports tend to harm the US market. The US has failed to prove legally, the countervailing subsidy finding and adverse impact determination.

The figures released by Bloomberg indicate that the softwood lumber exports from Canada to the US have surged higher by nearly 24% since the expiry of the deal in October last year. The most recent data released by Statistics Canada suggests that value of softwoods lumber exports from Canada to the US has jumped higher significantly by nearly 27% during the initial seven-month period in 2016 to $4.2 billion when matched with $3.3 billion during the corresponding period in 2015.

According to estimates by Statistics Canada, the imposition of tariffs may lead to significant job losses. The imposition of combined duty of 27.22% in early 2000s by the US had resulted in almost 15,000 job losses in the B.C alone.

Meantime, reports indicate that the US forestry trade groups are getting ready for the next softwood lumber battle between the two countries- the fifth one since 1980’s. The US Lumber Coalition has already started the process of collecting documents against Canadian lumber industry. On the other hand, Canadian International Trade Minister Chrystia Freeland stated that the country is prepared for any situation and is committed to defend the interests of Candian forestry sector and its employees.

The lumber trade dispute between the two countries is dated back to 1982. The two countries had signed a bilateral agreement in September 2006. The original seven-year agreement had an optional provision to extend for a period of two years upon consensus by both parties. Accordingly, the deal which came to an end in 2013 was extended until 2015. As per the terms of the deal, parties were prohibited from engaging in trade actions for one-year grace period, which has already come to an end on 12th October, 2016.