Lumber Tariffs in the Face of Reconciliation
By Kai van Loon
In April 2017, the U.S. Department of Commerce and President Trump fielded media inquiries concerning the escalation of softwood lumber tariffs:
“People don’t realize Canada has been very rough on the United States”.
“Everyone thinks of Canada being wonderful and so do I, I love Canada – but they’ve outsmarted our politicians for many years and you people understand that”.
Photo by Mildly Useful from Unsplash
Has the Canadian lumber industry outsmarted the United States? While hyperbolic, Trump’s statements should not come as a surprise to the Canadian Forestry Industry. Despite extensive trade relations, the U.S. has levelled tariffs on Canadian lumber exports since 1986. These tariffs, often referred to as [Lumber l through V] are one of the longest trade disputes between the two countries, and have resulted in thousands of job losses in British Columbia, the heart of the Canadian logging industry.
Back in August of 2024, Commerce announced they were increasing tariffs from 8.05% to 14.54%, signalling that this dispute is far from over.
Nearly 95% of all land in British Columbia is Crown land, and logging activities require government coordination. The Ministry of Forests, Lands, and Natural Resource Operations is in charge of forest tenures and sells them to forestry companies who may then begin harvesting operations. These tenures serve as binding contacts: they stipulate what companies can harvest, when they can harvest, and other environmental or administrative obligations. Most importantly, they set out stumpage fees.
Stumpage fees can be thought of as a type of royalty. They provide the cost per unit a private firm must pay to the landowner to extract timber. Historically, these fees were calculated per stump, hence the name stumpage. Today, most unit calculations use more accurate metrics like board foot or cubic metres. However, these stumpage fees are set administratively instead of by the market. This is in stark contrast with the United States, where stumpage fees are set in a competitive auction. Our southern neighbours use both an open auction, where all bids are public, and a sealed bid auction where each participant has only one, sealed bid to submit.
This difference forms the basis for the ongoing dispute, with the U.S. alleging that the Crown Land system constitutes an unfair subsidy to Canadian producers
The U.S. uses both a countervailing duty and an antidumping duty on Canadian lumber imports. A countervailing duty is designed to cancel out an effect – the perceived subsidies given to Canadian forestry companies. An antidumping duty is levelled when the importer perceives the product to be sold greatly below market value.
In 2022, Commerce published an administrative review for Lumber V, the most recent set of duties. This report looked at how stumpage rates were set, how they were benchmarked to determine counervailiability, and whether certain government programs were countervailable. These included emission credit trading schemes, green job grant programs and even electricity load-shedding payments made to mills. This highlights the scrutiny employed in truly estimating the existence of a government subsidy.
Commerce acknowledged that certain calculation errors were made in the report. Most notably, the review had incorrectly calculated the dumping margin for West Fraser, one of Canada’s largest forestry companies. The dumping margin is the difference between the domestic and international price and is used to assess if a product is being sold at a cheaper rate internationally. Nonetheless, Commerce still found significant evidence of subsidies for Canadian companies, effectively giving the green light for the tariffs to continue. This was largely based on the fact that a large majority of stumpage rates are set by the government, and are lower than market-based rates.
When will these tariffs end? A potential answer to this question is found by looking at recent reconciliation efforts and land-back movements. Indigenous nations are now the only group that can log old-growth, which represents the highest profit margin for any kind of forestry product. The BC government is also taking big steps to introduce legislation that will give Nations control over large swaths of land. This is a step in the direction of private land ownership and risks undoing the unique crown land system Canada has had for decades. However, it may also spell good fortune for Canadian lumber, as Victoria may step back from setting stumpage rates on land it no longer controls. As land is returned back to First Nations, and stumpage becomes the discretion of a non-government entity, will Commerce still determine a basis for lumber duties?