On November 2, the U.S. Department of Commerce announced that it will continue to charge duties on softwood lumber exported to the United States by Canadian companies, saying that Canadian firms get unfair financial assistance from their government and sell their wood at below-market prices, hurting U.S. producers.
The decision, which infuriated Canadian politicians and lumber companies, is the latest ruling in a series of trade complaints brought by U.S.-based companies against Canadian competitors. If the decision is confirmed by the U.S. International Trade Commission in December, Canadian firms will have to keep forking out millions of dollars in export duties to the U.S. government to make up for selling softwood lumber to U.S. buyers at lower prices, benefitting from Canadian government subsidies .
While U.S. and Canadian corporations filing trade complaints against each other is nothing new — softwood lumber exports in particular have been an issue for decades — experts in international trade say the number of these types of complaints has recently spiked.
They say that the uptick in U.S. businesses taking legal action against Canadian competitors is likely being fueled by U.S. President Donald Trump’s so-called “America First” economic agenda, which has been front-and-center during North American Free Trade Agreement (NAFTA) negotiations between the U.S., Canada, and Mexico.
A report published by the National Bank in January 2017 warned that if Trump succeeds in achieving his administration’s protectionist goals, including implementing proposed changes to NAFTA and imposing a new border tax on imports, Canada’s economy would suffer.
Decisions like the latest softwood lumber ruling also hurt Canadian businesses by making their goods more expensive to export to the U.S.
“We’ve seen a revival [of trade complaints] in the last few months, perhaps encouraged by Trump,” said Armand de Mestral, professor emeritus of law at McGill University, in a phone call with VICE Money.
“[But] softwood lumber has [been an issue] forever and it’s come to a head because the old agreement on softwood expired and a new agreement hasn’t been [reached] yet.”
The agreement de Mestral is referring to is the Softwood Lumber Agreement (SLA), a compromise reached between the U.S. and Canada in 2006. Under the SLA, the U.S. agreed to stop charging duties on Canadian lumber coming in to the country as long as lumber prices remained above a certain level. The U.S. also ended up refunding $4 billion of duties it had collected to Canada as part of the deal.
The SLA expired in 2015, at which time Canadian lumber firms cut their prices and ramped up exports to the U.S., upsetting American lumber companies. This prompted the U.S. Lumber coalition, which describes itself as “an alliance of large and small softwood lumber producers” in the United States, to file a complaint against Canadian softwood lumber producers with the U.S. Department of Commerce.
In the U.S., sitting presidents or members of their administration can’t just slap new duties on imported products whenever they feel like it. Private companies must file any trade complaint against a foreign competitor with the International Trade Administration (ITA), an arm of the U.S. Department of Commerce. The ITA then decides if a U.S. industry has been harmed by the actions of the foreign competitor and mandates new duties on imports if it deems it appropriate.
Kurt Huebner, a professor of comparative politics at the University of British Columbia, also believes that the recent surge in trade complaints filed by U.S. companies against Canadian competitors has been encouraged by the Trump administration’s protectionist position on key aspects of NAFTA — specifically, the desire to weaken or scrap Investor-State Dispute Settlement provisions, which allow investors to sue foreign governments in trade disputes.
Huebner told VICE Money that the exact number of trade complaints filed against Canadian companies in recent months is hard to obtain because it is “sensitive information” that, if made public, could have an impact on NAFTA negotiations. He said that he had recently been approached by a lawyer who told him such trade complaints were on the rise and had asked Huebner for an explanation.
“I think the spike in the filing of these complaints relates to the NAFTA negotiations,” Huebner said in a phone call.
“[U.S.] companies are saying, ‘let’s take action now’, because the outcome of [NAFTA] negotiations is uncertain.”
VICE Money reached out to the U.S. International Trade Administration for statistics about trade complaints against Canadian companies but did not immediately receive a response.
The softwood lumber industry isn’t the only area where U.S. companies are taking aggressive action against Canadian competition.
In September, the U.S. Department of Commerce imposed a 220 percent tariff on imported airplanes produced by Canadian aerospace giant Bombardier, followed quickly by another nearly 80 percent tariff on the planes — essentially applying a 300 percent tax to every plane Bombardier sells in the U.S. The decision alarmed political leaders in Quebec (where Bombardier is based), Canada and in the UK, where Bombardier employs thousands of workers.
The decision was the result of a trade complaint brought by Boeing, an American company and one of Bombardier’s main competitors. The complaint alleged that a 2016 deal for Delta Air Lines to buy 75 jets from Bombardier was only possible because Bombardier could offer the jets at extremely low prices, thanks to subsidies the company received from the Canadian government.
In August, the U.S. Department of Commerce launched an investigation into Canadian producers of uncoated groundwood paper to determine if they are selling their products in the U.S. at below-market value and if the companies received “unfair” government subsidies. The investigation was prompted by a complaint filed by North Pacific Paper Company based in Washington state.
As more U.S. companies file complaints against Canadian competitors, the Trump administration is simultaneously taking action against Canadian protectionist policies, with enthusiastic support from domestic U.S. industry groups.
The administration’s tough stance during current NAFTA renegotiations includes a demand that Canada end supply management of dairy products, a position that has been directly encouraged by U.S. dairy producers who have urged Trump to initiate a “decisive confrontation” with Canada over milk pricing.
In October, the Trump administration filed a fresh complaint with the World Trade Organization alleging that British Columbia unfairly prevents the sale of imported wine in grocery stores in the province, hurting U.S. winemakers. A first version of the complaint had been brought to the WTO in the last days of the Obama administration after California wine producers alleged that the B.C. policy on imported wine violated NAFTA rules.
By taking action against trade partners based on the perceived unfair treatment of U.S. businesses, Trump can bolster the perception that he is indeed putting America first.
“There’s no doubt that a government that [wants] to show that it’s defending American interests can lay a lot of [trade] complaints, and then, you know, beat it’s chest and say ‘Here, we’re defending American interests,’” said de Mestral.