Canada takes softwood lumber dispute with U.S. to NAFTA appeal panel

Workers sort wood at Murray Brothers Lumber Company woodlot in Madawaska, Ont. on April 25, 2017. (THE CANADIAN PRESS / Sean Kilpatrick)

OTTAWA -- Canada is turning to the North American Free Trade Agreement in its bid to stop U.S. duties on Canadian softwood lumber.

A letter from a Canadian lawyer was hand-delivered Tuesday to the American NAFTA secretariat in Washington, requesting a panel review "in regard to the final determination of the U.S. Department of Commerce in the countervailing duty investigation of softwood lumber from Canada."

In a written statement, Foreign Affairs Minister Chrystia Freeland said Canada will "forcefully defend Canada's softwood lumber industry."

"The U.S. Department of Commerce's decision on punitive countervailing and anti-dumping duties against Canada's softwood lumber producers is unfair, unwarranted, and deeply troubling," she said.

The challenge comes under section 19 of NAFTA, one of the sections in the crosshairs of U.S. President Donald Trump as the trilateral trade pact is renegotiated.

Canadian softwood lumber producers have already laid down about $500 million in countervailing and antidumping duties since the U.S. Department of Commerce ruled last spring Canada was unfairly subsidizing its softwood industry and selling wood into the U.S. at unfairly low rates.

The main issues stem from the fact that most Canadian softwood is on Crown land and producers pay stumpage fees, set by provincial governments, for the right to harvest the wood. The U.S. Lumber Coalition alleges these fees are deliberately set too low and represent an unfair subsidy to Canadian producers.

Canada vigorously denies these claims and has won several NAFTA challenges over similar softwood issues in the past.

Earlier this month, the U.S. government made final decisions about the amount of duty that would be charged on Canadian softwood, with the final total averaging about 21 per cent, down from almost 27 per cent in the initial decisions.

Canada and the U.S. have battled over softwood for decades and the disputes have been before both NAFTA and the World Trade Organization multiple times. Canada has won almost all of those challenges, and even in cases where Canada was found to be subsidizing its industry, NAFTA panels or the WTO have said the subsidy was so minimal it had no effect on U.S. producers.

Natural Resources Minister Jim Carr has repeatedly said Canada has every reason to believe it would prevail in such a challenge again.

However, until Tuesday it wasn't clear whether Canada would take that route again in the midst of difficult NAFTA renegotiations, particularly given the American objective to eliminate Chapter 19 altogether.

Chapter 19 establishes a panel of five arbiters, agreed upon by both countries, who will decide if the duties meet U.S. law. Without that mechanism, Canada would have to use the U.S. court system to make such a challenge.

Canada likes Chapter 19 because it doesn't trust the U.S. courts to be fair and timely in reviewing international trade challenges. The Trump administration believes the U.S. court system should determine if American laws are being properly applied; if the panel decides they aren't, the U.S. would have to refund the money collected.

A Canadian government official said Tuesday that Canada could decide to take its case to the WTO as well, in addition to the NAFTA challenge.

Canada and the United States are attempting to negotiate a new softwood deal that would dictate how much wood Canada can sell to the U.S. The last deal expired two years ago.

Thus far Canadian producers have been shielded from too much harm from the duties because of high market prices and the low Canadian dollar.