Canada Offers US$642 Million in Lumber Aid Amid U.S. Trade Row

2017-06-01 16:00:14

By Josh Wingrove, Greg Quinn and Jen Skerritt, Bloomberg News

Canada is coming to the aid of its lumber sector after the U.S. imposed duties as part of an escalating trade dispute.

The government announced the C$867 million ($642 million) plan Thursday after a meeting of Prime Minister Justin Trudeau’s cabinet. The funding includes C$605 million in loans and loan guarantees at unspecified “commercial terms,” and C$163 million in transition funding for lumber companies. The loans, which will be offered through the Business Development Bank of Canada and Export Development Canada, could be expanded at a later date.

“Canada is standing up to the U.S.,” Natural Resources Minister Jim Carr told reporters in Ottawa.

The government would prefer a quick settlement to the lumber dispute, Foreign Affairs Minister Chrystia Freeland said, calling U.S. accusations of unfair subsidies baseless. She declined to say whether she thought the issue could be rolled into President Donald Trump’s renegotiation of the North American Free Trade agreement.

“We will not stand idly by as hard-working Canadians suffer,” Freeland said, arguing the American softwood industry can’t meet domestic demand. “Canadian lumber is essential to the U.S. economy,” she said.

Thursday’s aid package comes on the heels of U.S. duties imposed in April on producers including West Fraser Timber Co., Canfor Corp., Interfor Corp. and Resolute Forest Products Inc. The duties are as high as 24.1 percent but were lower than some had feared. A second round is expected, possibly soon.

‘Another Hurdle’

The U.S. Lumber Coalition swiftly condemned the announcement, saying it “adds to existing government subsidies” in Canada and puts American jobs at risk. “Canada continues to push back and refuses to play by the same set of rules,” coalition spokesperson Zoltan van Heyningen said in a statement.

Trudeau’s funding — which also includes expanded unemployment assistance — will help smaller producers survive the U.S. duties and help companies in eastern Canada who are unable to shift more product to offshore export markets, according to Kevin Mason, managing director of Vancouver-based ERA Forest Products Research. However, there is a risk the U.S. will view the package as another subsidy, he said, putting “another hurdle in the way of getting a deal.”

Canadian industry welcomed the move. The aid is “prudent response that can provide both immediate support for workers and communities if required, along with enabling additional investments in longer-term opportunities for the sector,” Susan Yurkovich, president of the B.C. Lumber Trade Council, said in a release.

Lumber disputes between Canada and the U.S. predate Trump — the previous deal expired in 2015, and a tariff-freeze expired a year later. Trudeau and former President Barack Obama were unable to reach an agreement on a new pact and this round of talks is known as “Lumber 5,” or the fifth dispute.

Alternate Markets

Canada responded to the latest U.S. duties by saying it would focus on selling more lumber to Asia — a message it underscored Thursday. “We need to diversify our industry,” Trade Minister Francois-Philippe Champgne said. “Now is the time to do it.”

The dispute means producers stand to lose C$700 million in foregone annual exports and a decline of 2,200 jobs, the Conference Board of Canada estimates. Duties will likely cost C$1.7 billion a year and a quick resolution is unlikely, according to a report Wednesday from the Ottawa-based research group.

Canada argues the U.S. accusation of hidden subsidies for softwood has no merit, and points to past legal victories that helped resolve earlier skirmishes. “Independent trade panels have repeatedly found these claims to be baseless,” Carr said in April. “We have prevailed in the past, and we will do so again.”

Thursday’s aid funding, however, risks weakening Canada’s legal argument. After all, the core accusation by the U.S. is that Canada subsidizes its producers. Carr brushed off questions about this, stressing that loans are on commercial terms. “We believe that we have been prudent, as we have been in the past,” he said.

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