Minister of Small Business, Export Promotion and International Trade appearance before the Standing Committee on Natural Resources (RNNR) on the study on Economic Recovery in the Forestry Sector

2021-02-26

Table of contents

Briefing notes

1. Current softwood lumber litigation
2. Ongoing U.S. trade remedy proceedings on softwood lumber
3. Negotiations for a future softwood lumber agreement and advocacy efforts
4. Forest sector support in light of COVID-19
5. Support to trade diversification in the forest sector

Backgound notes

6. History of the softwood lumber dispute and chronology of the developments under the Trump administration
7. A list of top stakeholders implicated by the ongoing dispute

Briefing notes

Softwood lumber litigation

• Disappointed that the United States continues to impose unwarranted and unfair duties on Canadian softwood lumber.
• In the past, dispute settlement panels have always found U.S. claims to be without basis. Believe this to once again be the case.
• Vigorously defending the interests of Canadian industry, including through litigation under Chapter 19 of NAFTA, Chapter 10 of CUSMA and before the WTO.
  

Background

Shortly after the expiry in late 2016 of the one-year standstill period provided by the 2006 Softwood Lumber Agreement, the U.S. Department of Commerce (Commerce) launched, at the request of U.S. industry, anti-dumping (AD) and countervailing (CVD) duty investigations regarding certain Canadian softwood lumber products. In parallel, the U.S. International Trade Commission (ITC) investigated U.S. industry's claim that it was injured by imports of Canadian softwood lumber. 

As a result of these investigations, most Canadian companies were subject to a combined 20.23% duty rate on their softwood lumber exports to the United States from January 2018 until late 2020, when the combined duty rate was reduced to 8.99% for the vast majority of companies. Moreover, in its initial investigations, Commerce determined that softwood lumber imports from Nova Scotia, Prince Edward Island and Newfoundland and Labrador, are not subject to U.S. duties as long as they are certified by the Atlantic Lumber Board (ALB) as having been first produced in these provinces from logs originating in these provinces.

Canada is actively challenging U.S. duties on softwood lumber. Canada launched three challenges under NAFTA Chapter 19 in late 2017 and early 2018 (on Commerce's initial CVD and AD determinations and the ITC's injury determination). Canada's injury challenge ended in May 2020 when the NAFTA Panel adjudicating the case unexpectedly affirmed the ITC's decision on remand that imports of Canadian softwood lumber injure U.S. industry. Canada and the United States continue to be engaged in protracted discussions regarding panel composition for the CVD and AD cases.

Canada is also challenging Commerce's determinations before the WTO. The Panel's Report on Canada's AD challenge was released on April 9, 2019. The Panel agreed with Canada that the United States improperly calculated dumping margins. However, the report also contains findings unfavorable to Canada. On June 4, 2019, Canada appealed the Panel's findings on those issues. The Panel's report on Canada's CVD challenge was released on August 24, 2020. The WTO Panel's findings were overwhelmingly in Canada's favour; the panel unanimously determined that U.S. CVD duties on Canadian softwood lumber are inconsistent with the United States' WTO obligations. However, the United States appealed the Panel's report on September 28, 2020. Timelines for both appeal proceedings are unclear due to the WTO Appellate Body's current lack of quorum.

Finally, Canada is pursuing challenges of the final results of Commerce's first administrative reviews under Chapter 10 of CUSMA. Canada filed a request for panel review regarding the CVD results on December 10, 2020 (CUSMA Chapter 10 replaced NAFTA Chapter 19 as of July 2020). Canada is also participating in the CUSMA Chapter 10 case launched by Resolute FP regarding the AD first administrative review results.

Ongoing U.S. trade remedy proceedings on softwood lumber

• The final results of the first administrative reviews established lower duty rates for most companies than those set by the initial investigations (8.99% compared to 20.23% "all-others" combined rate).
• However, any U.S. duties imposed on Canadian softwood lumber are unwarranted and unfair.
• Will continue to vigorously defend Canadian industry, including through litigation under Chapter 19 of NAFTA, Chapter 10 of CUSMA and before the WTO.

Supporting facts and figures

The rates in the table below are currently in effect for companies subject to the first administrative reviews.

First Administrative Review (Final Results) 2018 Rates

Companies not subject to the first administrative reviews will continue to be subject to the 20.23% "all-others" combined duty rate set by the initial investigation. The large majority of softwood lumber companies are believed to have been subject to the first administrative reviews.

Background

The U.S. Department of Commerce (Commerce) conducts annual reviews of its anti-dumping (AD) and countervailing (CVD) orders. This process, known as an Administrative Review, is similar to the process used for the initial investigations, but applies only to companies that are subject to the review. A company is subject to the review if there has been a specific request for a review of that company filed with Commerce. The Administrative Review process establishes duty assessment rates for shipments entered during the period of review, as well as the new duty deposit rates going forward until the next annual Administrative Review is completed.

On November 23, 2020, Commerce issued the final results for its first AD and CVD Administrative Reviews (see results above). The final duty rates are, for most companies, significantly lower than those from the initial investigation (8.99% compared to 20.23% "all-others" rate). The only exception is Resolute, whose final rate increased to 20.25% from 17.90%. These new duty rates will be in effect until Commerce issues its final results in the second administrative reviews, which are expected in late 2021. 

On December 10, 2020, Canada challenged the final results of Commerce's first CVD Administrative Review under Chapter 10 of CUSMA. Canada is also challenging the AD results under CUSMA Chapter 10.

Commerce's second Administrative Reviews are already underway. Preliminary results are expected May 2021 and final results may be issued by late November 2021. These timelines could change depending on extensions.

The third Administrative Reviews have also been launched. Preliminary results are expected around January 2022 and final results may be issued around August 2022. These timelines could change depending on extensions.

• Continue to believe that an agreement bringing stability and predictability to the sector is in both countries' best interests.
• Remain ready and willing to negotiate a mutually acceptable agreement.
• Softwood lumber is being raised at all levels with the new U.S. administration.

Negotiations for a future softwood lumber agreement and advocacy efforts

Supplementary messages

• Unfortunately, the United States has, to date, been unwilling to engage in meaningful discussions toward mutually acceptable terms.
• Meanwhile, Canada continues to actively pursue its legal challenges of the unfair and unwarranted U.S. duties on Canadian softwood lumber.

Supporting facts and figures

• In 2020, about 85% of Canada's total softwood lumber exports (by volume) went to the United States.
• British Columbia is the top exporting province for softwood lumber products to the United States.

Background

Following the expiration of the 2006 Softwood Lumber Agreement (2006 SLA) in October 2015, Canada and the United States began discussions toward a successor agreement in January 2016. Aside from a pause caused by the change in U.S. administrations in early 2017, negotiations continued until the United States released final duty determinations for Canadian softwood lumber in November 2017.

Despite a high level of engagement with the U.S. government throughout 2016 and 2017 and considerable efforts in negotiations and stakeholder consultations, Canada and the United States could not reach an agreement. Since that time, negotiations have been stalled and neither the U.S. government nor industry have expressed a willingness to resume discussions on mutually acceptable terms.

Canada's position remains that a new softwood lumber agreement is in the best interests of both countries, and Canada is prepared to re-engage in negotiations when the United States is ready to discuss realistic proposals that would be acceptable to Canadian industry. In the meantime, Canada is continuing to vigorously pursue legal challenges against U.S. duties at the WTO and through NAFTA/CUSMA dispute settlement panels.

Softwood lumber continues to be a priority for the Government of Canada, and it is being raised at all levels with the Biden administration. In addition, Canada will continue to work with long-time allies in the United States, such as homebuilder associations, to stress that U.S. duties are not only causing undue harm to Canadian producers, but also to U.S. homebuilders and consumers.

Forestry sector support in light of COVID-19

• The Government of Canada is committed to providing ongoing support to the forestry sector to diversify markets and develop innovative wood products.
• The Government announced a series of support programs generally available to Canadian industry, including investment and tailored financing in response to the COVID-19 pandemic.
• A key consideration for Canada regarding support programs is compliance with Canada's international trade obligations.

Supplementary messages

• The Forestry industry continues to be a critical part of Canada`s economy and the Government continues to provide support during the COVID-19 pandemic.
• Canada took swift action to minimize the impact of the softwood lumber dispute on workers and communities by announcing the Softwood Lumber Action Plan shortly after the imposition of U.S. duties in 2017.
• In response to COVID-19, the federal government announced a series of generally available support programs, such as the Business Credit Availability Program, the Canada Emergency Wage Subsidy and the Large Employer Emergency Financing Facility, to help businesses and employees through these unprecedented times.

Supporting facts and figures

• Natural Resources Canada's Expanding Market Opportunities (EMO) program aims to increase and diversify market opportunities for Canada's forest products industry with up to a $64 million investment over three years.
• Investments and tailored financing program funding: Business Credit Availability Program provides backstopping loans worth up to $40,000 for SMEs and $40 Billion of new funds available through the Business Development Bank of Canada (BDC) and Export Development Canada (EDC).
• The Large Employer Emergency Financing Facility (LEEFF) assists large companies with revenues in excess of $300 million a year to maintain solvency and employment.
• The Canada Emergency Wage Subsidy provides a 75 percent wage subsidy assistance to all eligible firms.
• The government will invest $15.8 million to create green jobs and training opportunities for Canadian youth in the fields of science, technology, engineering and math (STEM) in the forestry and clean technology sectors.

Background - Forest Industry Support

In response to the imposition of preliminary U.S. countervailing duties on softwood lumber in April 2017, Canada reacted swiftly to mitigate the impact on workers and communities. On June 1, 2017, the government announced the Softwood Lumber Action Plan (Action Plan) to provide $867 million over three years for measures to support forest industry workers and communities affected by the softwood lumber dispute. Budget 2019 allocated a further $251.3 million over three years to some of the programs funded by the Action Plan that aimed at supporting companies to diversify their markets, expand market opportunities or make capital investments (Natural Resources Canada is the lead on this issue). Canada's approach to support remains that any assistance to industry must comply with its international trade obligations.

Canada-wide, sawmill activity curtailed due to COVID-19 has since recovered and mills are now operating at full capacity. However, the industry continues to face significant challenges that existed prior to the pandemic. For instance, in BC, the province faces fiber supply issues due to environmental factors, including pine beetle damaged timber and forest fires, in addition to ongoing pressures from unfair and unwarranted U.S. duties.

Support to trade diversification in the forest sector

• The Government of Canada is committed to diversifying markets for our traditional and innovative wood products.
• Given the impacts of the pandemic on SMEs, trade diversification is more than ever a priority.
• Global Affairs Canada supports the modernization of the Canadian forest sector towards a clean, low carbon economic recovery.
• Trade Commissioners in key export markets spare no efforts to facilitate and enhance market access for Canadian forest products.

Supplementary messages

• The Canadian forest sector plays a vital part in the supply chains that produce many of the critical goods to keep safe during COVID-19: masks and gowns for the health care sector; packaging for food and pharmaceuticals and; hygiene products like toilet paper and tissue.
• Trade diversification is critical to the future of Canada's forest and wood products industries; sustaining and growing Canadian jobs, and supporting the communities that depend on the industry.
• Global Affairs Canada directly supports forest product innovators, especially SMEs in securing technology partners, foreign investors and new market opportunities for their next-generation forest products, including bioproducts.
• Global Affairs Canada works closely with provinces and territories in promoting and advocating for Canada's sustainable forest management leadership in key export markets worldwide.
• The Government's Trade Diversification Strategy features an investment of $290 million over five years to help Canadian businesses export and grow, strengthen the Trade Commissioner Service and enhance the support it provides to Canadian exporters, including those in the forest sector.
• Our bilateral and multilateral economic and trade agreements, concluded or under negotiation, aim at increasing the international competitiveness of our natural resource industries, including the forest and wood products sector.

Supporting facts and figures

• Global Affairs Canada's support to enhance trade in the forest sector is part of Canada's goal to increase overseas exports by 50% by the year 2025.
• Through the Trade Diversification Strategy, our Government is committed to investing $1.1 billion over six years to:
• Invest in infrastructure to support trade;
• Provide Canadian businesses with resources to execute export plans; and
• Enhance trade services and programs such as CanExport for our exporters.
• Joint efforts made over the past ten years with innovative SMEs are now showing promising results, with burgeoning market uptake for our innovative wood-based bio-products in multiple unconventional applications found in various industries such as automotive, chemical, food, cosmetic, medical, etc.
• The Trade Commissioner Services (TCS) has a global network of 44 officers dedicated to FDI attraction supported by heads of mission, senior trade commissioners, as well as trade and investment specialists across Canada''.
• Since 2015, the TCS has facilitated 8 forestry related investment projects to Canada to several provinces including QC, ON, AB, NB and BC. The TCS has witnessed increased interest from foreign companies in Canadian bioproduct manufacturing. The TCS continues to support foreign direct investment prospects in this environmentally friendly sector to create well paying jobs for Canadians.
• Through the TCS, Global Affairs Canada is committed to enhancing the environmental reputation of Canada as a leader in sustainable forest management.
• With a total of 14 free trade agreements with 51 countries, 36 foreign investment promotion and protection agreements (FIPAs) and more to come, Canada is the most connected G7 country. With preferred access to international markets for Canadian forest companies, there has never been a better time to diversify.

Background

For innovative forest product companies, especially SMEs, which are actively diversifying production towards bio-based products (i.e. biofuels, biochemical) and other new wood materials, top priorities include attracting investment, developing commercial applications through partnerships and uncovering new market opportunities. These three areas of action are well aligned with the integrative trade approach of Global Affairs Canada.

Global Affairs Canada is a longstanding supporter of all Canadian forest-sector trade associations pursuing market development efforts for the benefit of the entire industry. In 2019-20, a total of 624 Canadian organizations (including 579 SMEs) were recorded at Global Affairs Canada as clients under "forestry'', including 37 "new active clients". These numbers are similar to those recorded the previous fiscal year.

Backgound notes

History of the softwood lumber dispute and chronology of the developments under the Trump administration

Summary:

When the Trump administration took office in early 2017, the United States had already launched trade remedy investigations regarding softwood lumber from Canada. Canada and the United States continued discussions towards a new softwood lumber agreement, but those negotiations have stalled since the U.S. Department of Commerce (Commerce) issued final countervailing (CVD) and anti-dumping (AD) duty determinations on Canadian softwood lumber in November 2017.

Below is a list of key developments related to U.S. trade remedy proceedings and Canada's challenges of the unfair duties imposed by the United States.

Background

History of the softwood lumber dispute

Trade in softwood lumber products has been the subject of a long-standing dispute between Canada and the United States. The U.S. softwood lumber industry alleges that differences in forest management practices in the two countries result in subsidization of Canada's softwood lumber industry. In Canada, the majority of forests are publicly owned while in the United States, most forest land is privately owned. The U.S. industry alleges that any difference between the prices provinces charge for stumpage (the price on standing timber and the right to harvest it) and the prevailing U.S. market price for timber constitutes a subsidy to Canadian lumber producers. This difference in ownership has been used by the U.S. industry as a pretext to seek the application of unwarranted and unfair duties to shield themselves from competition from high quality and affordable Canadian imports. Over the last 35 years, the United States has frequently imposed unilateral restrictions on Canadian lumber imports through the application of its countervailing and anti-dumping duty laws. Each time, Canada has ultimately been vindicated by successfully challenging these restrictions as inconsistent with both U.S. law and international trade obligations.

Since the early 1980s, Canada has been subject to four cycles of U.S. trade remedy investigations. After years of litigation, the last three cycles concluded with a period of relative calm under a managed trade agreement between the two countries, in which Canada agreed to certain restrictions on its access to the U.S. market.

Stakeholders implicated by the ongoing softwood lumber dispute

Summary:

The softwood lumber dispute is a long-standing trade irritant between Canada and the United States. In the current round of the dispute, the U.S. Department of Commerce (Commerce) conducted countervailing and anti-dumping investigations that led to the imposition of U.S. duties on certain Canadian softwood lumber products starting in 2017.

Following the conclusion of the investigations, Commerce conducts annual reviews of its duty orders, so-called administrative reviews. Below is a list, by type of proceeding, of companies that were respondents in the countervailing and/or anti-dumping proceedings.

Initial investigations:

• Canfor Corporation
• Resolute Forest Products Canada Inc.
• Tolko Marketing Sales Ltd.
• West Fraser Mills Ltd.
• J.D. Irving Ltd.

First Administrative Reviews:

• Canfor Corporation
• Resolute Forest Products Canada Inc.
• West Fraser Mills Ltd.
• J.D. Irving Ltd.

Second Administrative Reviews:

• Canfor Corporation
• Resolute Forest Products Canada Inc.
• West Fraser Mills Ltd.
• J.D. Irving Ltd.

While the above-mentioned companies were individually investigated in the countervailing and/or anti-dumping proceedings to date, hundreds of companies from across the country are affected by the imposition of unfair and unwarranted U.S. duties.

The Government of Canada is in regular contact with a plurality of stakeholders implicated by the dispute, in addition to the companies specifically investigated by the U.S. The federal government works collaboratively with provincial and territorial governments, individual companies, regional and product sub-category associations, organized labour, and First Nation interests and reaches out to these groups periodically to provide updates and seek views on the way forward as the file unfolds.