The Softwood Lumber Dispute and its Impact

April 1, 2017

The softwood lumber dispute is having a serious impact on our industry, specifically pending duty on softwood lumber products, including some wood packaging. Over the last three months your Association has focused much of its time and effort working our way through the very real challenges affecting our industry concerning the negotiations around the Softwood Lumber Agreement (SLA) negotiations. This issue has already severely affected a dozen of our members and threatens to affect many more that ship finished goods into the US. It is an extremely complicated issue and a hard one to explain. 

When the US Lumber Coalition made their petition to the US Department of Commerce, the petition cited hundreds of softwood lumber exports, from dimensional lumber used in residential home construction to fencing and bedframe stock, that should be investigated for Countervailing (CVD) and anti-dumping (AD) duties. Among all of the softwood lumber exports they included three Harmonized Tariff Schedule of the United States (HTSUS) codes that stood to have a big effect on our industry:

  • 4415.20.80.00 (Pallets, Box–pallets and other Load Boards of Wood)
  • 4415.20.8000 (Unassembled Pallets) 
  • 4407.10.0115 (Notched Stringers)

Together, we estimate that these lumber exports could be worth in excess of CDN$200 million in wood packaging exports. The argument that the US lumber petitioners have made is that lumber used to make unassembled pallets and assembled pallets can be used to contravene the rules in the SLA and ship dimensional lumber. The CWPCA staff has been working on several areas under the direction of Global Affairs Canada to support arguments that these finished goods should not be included in the Scope of Investigation. 

 We have worked to:

  • Provide data to prove that under the previous SLA there was no surge in volume of unassembled pallets shipped.
  • Identify companies in the US that can be used to demonstrate that US pallet manufacturers have not been harmed in any way by these shipments. In other words, these finished products shipped into the US have not been sold below cost. 
  • Provide definitions that would prevent contravention of the rules. 

The lumber industry that was also targeted for investigation has been doing the same thing, gathering data to support the counter argument that softwood lumber is not subsidized and that there has been no contravention of the rules under the Softwood Lumber Agreement.

Our argument is that all three codes should be removed from the Scope of Investigations. Global Affairs Canada has been very helpful but the problems of the wood packaging industry are just one very small part of a much bigger issue; CDN$5.5 billion in softwood lumber exports to the US are being targeted by the US Lumber Coalition for alleged unfair lumber subsidies. 

The threat of the countervailing and anti-dumping duties has caused widespread devastation in our industry, with many manufacturers of pallet kits stopping or severely curtailing shipments due to the threat that any announced duties will be retroactive. Estimates are that these duties could be as high as a combined 30 to 40% of the product’s price. This sort of price increase cannot be passed onto US clients and as a result Canadian manufacturers have stopped or curtailed shipments. 

The big date in everyone’s mind is April 24th, when it is expected that US Department of Commerce will issue its preliminary determination for countervailing duty while the determination on anti-dumping is expected around July 9th.

We participate in an Industry Working Group that was able to develop a set of definitions that could be used to prevent the use of pallets, both assembled and unassembled, for use as dimensional lumber in contravention of the rules. That submission, which was delivered to Global Affairs Canada on March 24th and submitted to the US Department of Commerce (DOC), had limited success. 

Last week, US Lumber Coalition petitioners notified the US Department of Commerce that they agree that assembled pallets are out of the Scope and they agreed with the definition as proposed. The US Department of Commerce is likely to take the same position as the petitioners have. If assembled pallets are removed from the Scope of Investigations it represents a substantial win and benefits a large segment of our industry. 

However, US Lumber petitioners have also stated that unassembled pallets (pallet kits) should remain in the Scope. This means that the approach of supplying definitions to address complaints of potential contravention is one approach which appears to be working in our favour. So if we can make it work in one situation there remains an opportunity to get the other definitions accepted as well.

Last week we saw the impact on raw material prices of the looming decision on preliminary countervailing duties expected on April 24th. Western lumber mills raised the lumber prices by CDN$100/fbm on the benchmark 2”X4” SPF random length lumber for May deliveries, which that puts it over CDN$500/fbm. Consequently, we can expect this price increase to affect the grades of lumber that our industry purchases. This softwood lumber dispute is having a serious impact both on the cost of raw materials and availability of lumber with some of the highest prices seen in two decades. It’s going to be a difficult time for all in the months to come.

 

11-1884 Merivale Road, Ottawa, ON, K2G 1E6
T. 613.521.6468 or 1.877.224.3555 F. 613.521.1835 or 866.375.1835
info@canadianpallets.com
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