Following a recent breakdown of bilateral negotiations, a group of U.S. companies calling itself COALITION (Committee Overseeing Action for Lumber International Trade or Negotiations) filed antidumping (AD) and countervailing duty (CVD) petitions with the U.S. Department of Commerce (Commerce) and the International Trade Commission (ITC). The petitions, filed on November 25, 2016, allege that the U.S. lumber industry has been injured by unfairly traded imports of softwood lumber from Canada.

The petition almost certainly will result in the initiation of intensive investigations by Commerce and the ITC. Commerce will examine whether, and to what extent, dumping and subsidization are occurring; if Commerce finds in the affirmative, it will set AD and CVD margins. The ITC will investigate whether imports from Canada are causing material injury to the domestic producers of softwood lumber. If Commerce and the ITC make affirmative findings, which they often do, additional duties will be imposed on imports of softwood lumber from Canada that fall within the scope of the case. 

COALITION’s Arguments. The petitions allege a variety of unlawful subsidies and request the imposition of dumping duties of up to 52.89% on imports of Canadian lumber that fall within the scope of the case. The actual amount of such duties will be based on the degree of dumping or subsidization finally determined by Commerce at the conclusion of its investigations.

In addition, the petitions ask for the imposition of duties on import entries made prior to preliminary AD/CVD determinations. U.S. AD/CVD law permits preliminary duties to be assessed on imports as far back as the date of publication of initiation of the Commerce investigations (expected to occur in late December), although typically such “retroactive” duties are not imposed until months after initiation of the investigations.

Dispute Background. The dispute regarding Canadian lumber subsidies has spanned decades and spawned numerous trade cases and associated settlement agreements. The most recent agreement—the 2006 Softwood Lumber Agreement (SLA)—expired in October 2015. Under the terms of the SLA, until October 12, 2016, the U.S. and Canada were in a “cooling off” period, during which no softwood lumber trade disputes could be filed. After negotiations to reach a new agreement failed, the U.S. industry filed new AD and CVD petitions on November 25, 2016.

The New Case. The U.S. industry claims that: (1) Canadian governments subsidize Canadian lumber; (2) the imported lumber is sold at dumped prices in the U.S. market; and (3) sales of the subsidized and dumped Canadian lumber cause material injury to the U.S. lumber industry. The key aspect of the case is the provision of subsidies. According to COALITION, “Canadian provincial governments, which own the vast bulk of Canada’s timberlands, provide standing trees to Canadian producers for an administered fee that is far below the market value of the timber, as well as a number of other subsidies.”

The petitions target a slew of subsidies and request the imposition of dumping duties of up to 52.89% on imports of Canadian lumber that fall within the scope of the case. 

Impact on Lumber and Related Industries. It is likely the new proceeding will have substantial and immediate effects on the lumber market and related markets, such as paper and pulp, wooden furniture and other wood products, and, in certain markets, even construction. The goal of the new cases is to increase the price of imported Canadian lumber and U.S. market prices generally. Antidumping and countervailing duty proceedings generally destabilize markets for the targeted product and downstream products. 

Renewed Interest in Negotiations. The filing of the petitions has sparked a renewed interest in settlement negotiations. Canada’s Minister of International Trade, Chrystia Freeland, is scheduled to meet on December 3–4, 2016, with U.S. Trade Representative Michael Froman to attempt to resolve the issue and avoid the new set of cases. These talks are likely to fail because the U.S. industry has an incentive to reject any Canadian offer during the lame-duck Obama administration. Given the protectionist statements made by President-elect Trump, as previously discussed here, the U.S. industry is unlikely to agree to a settlement in the near term. Rather, the U.S. lumber industry almost certainly will wait to see whether it can obtain more in settlement after President-elect Trump takes office.

Previously, following the United States’ imposition of antidumping and countervailing duties on imports from Canada, Canadian entities have challenged the duties in U.S. courts and under NAFTA and WTO provisions. These follow-on legal actions have tended to bring the parties back to the negotiating table, where they reach a settlement years after the AD/CVD cases were initiated. Absent a settlement, the investigations, follow-on reviews and likely U.S. federal court, NAFTA and WTO challenges will take many years to resolve.

© 2016 Perkins Coie LLP