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

Canada is taking its ongoing dispute with the United States over softwood lumber to a North American Free Trade Agreement (NAFTA) appeal panel.

The move comes as both countries return to the bargaining table this week, along with Mexico, for contentious talks aimed at revising NAFTA.

A letter from a Canadian lawyer was sent Tuesday to the American NAFTA secretariat in Washington, D.C., 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, Canada’s Foreign Affairs Minister, Chrystia Freeland, said Tuesday that Canada will “forcefully defend Canada’s softwood lumber industry.”

Canada’s challenge comes under section 19 of NAFTA, one of the sections that U.S. President Donald Trump is trying to remove from the agreement as the trilateral trade pact is in the process of being renegotiated.

Canadian softwood lumber producers have previously paid about $500 million in countervailing and antidumping duties since the U.S. Department of Commerce ruled last spring that 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 has won several NAFTA challenges over similar softwood issues in the past. Earlier in November, 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 an initial decision.

Canada and the U.S. have battled over softwood lumber for decades and the disputes have been before both NAFTA and the World Trade Organization (WTO) 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 impact on U.S. producers.

However, it wasn’t clear whether Canada would take that route again in the midst of difficult NAFTA renegotiations, particularly given the U.S. 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.

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 softwood lumber deal between the countries expired two years ago.