Trend Watch: Pallet Cut Stock Targeted in US Lumber Coalition Petition

December 1, 2016

Brian Isard

A US cross border dispute over Canadian exports of softwood lumber has been going on since 1992. Negotiations between Canada and the US following the end of the ten year old Softwood Lumber Agreement have proved difficult without any agreement being achieved. On Friday November 25th, 2016 the US Lumber Coalition filed a petition for Antidumping (AD) and Countervailing (CV) relief on importations of multiple types of lumber products originating in Canada.

While the US petition to place countervailing duties on dimensional lumber was anticipated, what surprised everyone familiar with the negotiations was the expanded scope of the US petition, which included an all-encompassing list of finished lumber products that had previously been allowed to be imported into the US duty free.  If you read through the petition you’ll find that every type of exported lumber product is listed; from fence pickets, window, door, bed frames to truss components. Buried deep in the US the petition are two items manufactured in Canada by many of our members, listed according to their HS codes 4407.10.0115 (Notched Stringers) & 4415.20.8000 (Unassembled Pallets), or what is referred to commonly as pallet kits.

As to why these two pallet related exports were included, the best explanation I got was that the US Lumber Coalition wants to slow down the flow of all lumber products from Canada and therefore were very comprehensive in what they included. 

A few issues that became very apparent: 

  • The Canadian government team handling these negotiations don’t know much about our industry, including what type of lumber is used and the level of pallet exports into the US. We need to get them up to speed with information they can use. 
  • These export manufacturers and shippers of pallet cut stock don’t have a voice in these negotiations nor do they have a place at the negotiating table crowded with more powerful interests from the sawmilling industry. 
  • There is some concern that if the US Lumber Coalition is successful in expanding the scope to include finished goods as opposed to dimensional lumber they may well target other forms of finished goods, such as pallets, in the future.

What can be done?

Get informed

  • We had the good fortune to have a knowledgeable insider with Steve Rustja, VP Trading at Weston Forest Products, who led an industry conference call on December 1st that walked us through the history of negotiations and what the future may hold for anyone who ships into the US.
  • Read the 400 page US petition and try to understand its ramifications.
  • Understand US Customs law such as the little understood but critical Title 19 CFR General Rule of Interpretation 2(a) that defines finished and unfinished wood products
  • Understand the process for challenging the US petition and how we as an industry association can have the largest impact. It appears that the US Department of Commerce and the International Trade Administration (ITA) has the authority to review and decide on the US petition. The process starts with the first hearing in front of the ITA scheduled for December 16th after which arguments for and against will be heard on whether injury has occurred. A preliminary decision on CVD is expected on April 24th, 2017. Countervailing duties start when the Preliminary Decision is published in the US Federal register and US Customs is notified within 3-7 days. 

Get organized 

  • We created a CWPCA Trade Advisory Committee, the purpose of which is to draw from the knowledge and expertise of association members to provide guidance in the association’s efforts to defend against the expanded scope of the US petition. The Trade Advisory Committee had its first meeting December 9th, 2016 where we planned out an approach to get government negotiating groups supplied with data and information they can use to argue our case in front of the US Department of Commerce hearings into the US petition
  • The CWPCA will reach out to other affected groups like the Independent Wood Processors Association and the Ontario Wood Products Export Association to learn from their efforts in dealing with these negotiations on the Softwood Lumber Agreement

Get the word out

  • We have contacted Global Affairs Canada and made them aware of the issues at hand. We provided their Trade Policy Group Softwood Lumber Division with the research that we had conducted providing detail on the impact. 
  • The US petition alleges that Canadian lumber is being sold for less than its fair market value in the United States which is injuring the US lumber industry workers because of "unfair" imports. So we need data on Canadian pallet cut stock exports using MBF and dollar value. 

This is the first challenge we face on the countervailing duty which will be levied because we don’t have an agreement. If we do get a negotiated settlement then there will be a further challenge of understanding how quota for lumber exports is assigned and how those arrangements are negotiated. 

A US decision to impose a countervailing duty on both dimensional lumber as well as other finished wood products will have an immediate impact on the wood packaging industry in Canada in terms of on the availability and price of our raw materials. Future negotiations on the Softwood Lumber Agreement are also going to have an impact on our industry if they decide to accept the quota restrictions. We will be keeping a close watch on these negotiations in the month to come and keep our members updated to developments.

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