Canada Braces for Additional Duties on Its U.S.-Bound Softwood-Lumber Exports

By Paul Vieira Features Dow Jones Newswires

Canada is bracing for Washington to slap additional duties on its U.S.-bound lumber exports, an expected move that could complicate efforts to quickly renegotiate the North American Free Trade Agreement, say lawyers and officials.

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The Commerce Department is expected to release a decision as early as Monday. The department has been looking at whether Canada is selling softwood lumber, used mostly in the construction of houses, into the U.S. at below-market prices.

The anti-dumping duty, a type of tariff on imports designed to protect U.S. producers from unfair competition, would come just two months after the Commerce Department found Canadian lumber producers benefited unfairly from government subsidies. After that finding, the Trump administration slapped an initial 20% tariff on imported Canadian wood.

A new ruling against Canada could push the average tariff on Canadian softwood lumber above 30%, according to trade lawyers at law firm Dickinson Wright. A Canadian government spokesman said he wouldn't speculate on what the Commerce Department will decide.

In 2016, the U.S. imported over $5 billion worth of Canadian softwood lumber.

U.S. and Canadian officials continue to talk about a negotiated settlement, although Canadian Foreign Minister Chrystia Freeland said recently the two sides remain far apart. Trade watchers worry that letting the current row drag on any longer threatens to cast a pall over trilateral talks between the U.S., Canada and Mexico for a revamped Nafta, which formally begin in mid-August.

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"It would certainly be an advantage to both countries to settle the softwood issue outside of the Nafta negotiations. Having them injected into the Nafta negotiations would be a mistake because it would add an enormously complex issue to those talks," said Lawrence Herman, a Toronto-based trade lawyer and former Canadian diplomat.

The bulk of wood used to produce Canadian softwood lumber comes from forests on publicly owned land. Canada's provincial governments, which have responsibility over forest management, charge private companies a fee in exchange for the right to harvest.

This regime has fueled decades of complaints from the U.S. government and lumber industry. The U.S. argues the fees charged by the province tend to be significantly lower than they would be in an open-market environment, and hence gives Canadian producers an unfair advantage over their U.S. peers. More than two-thirds of U.S. lumber comes from privately held land and is sold on a market basis.

The U.S. has also complained about rules that limit the export of raw logs in the west-coast province of British Columbia, where most Canadian softwood lumber is located. The regulations artificially suppress the price of Canadian lumber, U.S. producers say.

Commerce Department Secretary Wilbur Ross has said the decadeslong disagreements over softwood lumber illustrate the shortcomings of Nafta, which President Donald Trump called a "disaster" and now seeks its renegotiation. U.S. Trade Representative Robert Lighthizer told Congress last week the administration intends "to move very quickly" on Nafta talks.

Mr. Ross is said to be engaged on the softwood-lumber issue, and in frequent touch with senior Canadian officials such as Ms. Freeland and Canada's chief envoy in Washington, David MacNaughton.

He told The Wall Street Journal this month the administration is "trying to solve some of the little disputes with Canada," much like the U.S. did with Mexico over sugar. With that country, a tentative pact caps the amount of refined sugar that Mexico can send to the U.S.

"Disputes are resolvable if people are of reasonable will and are willing to make reasonable compromises," Mr. Ross said.

Canada will only agree to a deal that works for its domestic lumber industry, which ships roughly two-thirds of its exports to the U.S., Ms. Freeland has said.

The U.S. Lumber Coalition, an industry group, said it wants the amount of "subsidized" Canadian lumber entering the U.S. limited.

"The Americans are willing to cut a deal. They would sign a deal tomorrow but they want a quota. It's Canada that's unwilling," said Brenda Swick, a Toronto-based trade lawyer at Dickinson Wright.

The softwood row dates back decades, she added, "and it is its own beast, and I can't see how it would be resolved in any Nafta renegotiation."

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

June 25, 2017 11:32 ET (15:32 GMT)