Logs are unloaded at Murray Brothers Lumber Company woodlot in Madawaska, Ont. in 2017.Sean Kilpatrick/The Canadian Press
William Pellerin is a partner at McMillan LLP specializing in international trade, and a former trade litigator for the Government of Canada.
The recent U.S. decision to increase softwood lumber duties to nearly 15 per cent is a blow to Canada.
The implications are severe. These duties threaten the livelihoods of thousands of Canadians, destabilize rural communities dependent on the forestry sector and create tensions in Canada-U.S. trade relations.
The transfer of wealth from Canadian forestry companies and workers to the U.S. government is staggering. Since 2017, Canadian lumber producers have paid more than $9-billion in duties.
Many Canadians would be surprised to learn that Nova Scotia bears a heavy portion of blame.
The U.S. lumber industry has long claimed that Canadian provinces are unfairly subsidizing their lumber producers by undercharging for the right to harvest timber on provincial lands. By charging less, the provinces allegedly provide Canadian lumber producers with an unfair advantage in the U.S. market. The U.S. therefore imposes duties on Canadian lumber to offset that alleged undercharging.
There is one very important, often overlooked detail in this trade dispute. The United States requires a crucial piece of information to determine whether Canadian provinces do in fact undercharge for the right to harvest timber: A “benchmark” comparison, used to test and measure whether provincial prices for standing timber are fair. This benchmark is the linchpin of the softwood lumber dispute, and informs the amount of subsidy duties applied against Canadian lumber at the U.S. border.
The province of Nova Scotia has been supplying this information to the United States, effectively building the U.S. case for imposing duties on Canada.
In fact, Nova Scotia invests considerable effort, including by commissioning major accounting firm Deloitte, to produce the benchmark information that it then shares with the United States. The Government of Canada has argued in legal submissions that there was no other purpose for Nova Scotia to prepare this benchmark information than its use in the subsidy investigations.
But why would Nova Scotia do such a thing? Few Canadians know that softwood lumber produced in Nova Scotia is exempt from the U.S. duties. This is no accident of history. When U.S. lumber producers petitioned the U.S. government for the duties, they presented data on Nova Scotia’s timber pricing to support their allegations that other Canadian provinces were subsidizing producers. While Nova Scotia has benefited from securing its exclusion from the U.S. duties, other Canadian provinces bear that heavy burden.
It sets a dangerous precedent where a Canadian province collaborates with a foreign government at the expense of other provinces. The result is a fragmented national front in the face of U.S. trade aggression – a scenario that only serves to weaken Canada’s litigation efforts and its bargaining power.
Canadians would benefit if Nova Scotia reconsidered its role in the investigations against Canadian softwood lumber.
For a start, Nova Scotia could stop supplying the critical benchmark information to the U.S. that has led to high duties on Canadian lumber. This would force the U.S. to look elsewhere for the information, and could lead to lower duty rates.
If the Nova Scotia benchmark information serves no other purpose than to supply the U.S. with data ultimately used against Canada, Nova Scotia could cease to commission it altogether.
Finally, Nova Scotia could avoid making legal submissions that support the use of its benchmark information. This includes ensuring it does not support, directly or indirectly, the U.S. government or the U.S. forestry industry in appeals and future litigation.
Alternatively, the Government of Canada and other provinces could, and should, look for a way to claim from Nova Scotia the billions of dollars in duties collected by the United States.
The softwood lumber dispute is not merely a technical trade disagreement. It is a fight that touches the very fabric of Canadian communities and has led to job losses and business closures. In communities throughout rural Canada, where forestry is often a cornerstone of the local economy, the impact of Nova Scotia’s actions has been devastating.