Special Report - Softwood Lumber Ruling
U.S. Department of Commerce Announces Preliminary Countervailing Duty
U.S. to Impose 20% Tariffs on Canadian Softwood Lumber
The United States Department of Commerce (DOC) officially announced a preliminary countervailing duty rate of 19.88% that will be levied against Canadian softwood lumber exports to the U.S. In the decision, DOC singled out the five Canadian lumber companies that were investigated, and assessed them individual rates ranging from 24.12% down to 3.2%. The DOC then took the weighted average of those five assessments, which equaled the 19.88%, and will tax all other Canadian producers retroactive to February 1. In a surprising development, four of the five lumber companies investigated, will not be required to pay retroactive duties. The fifth company that was investigated, and the lumber producer with the lowest countervailing duty rate, will be required to pay retroactive duties.
Lost in all of this trade rhetoric has been a major change in how the U.S. will collect these new tariffs. In the past, Canadian mills had only to post a bond, which is essentially a guaranty by the importer’s bank that the funds are covered and available. They may only have had to pay a portion or percentage of the tariff up front. This DOC determination directs U.S. Customs and Border Protection to require cash deposits for the duties on all new lumber imports as well as softwood products imported over the past 90 days. That means Canadian mills will have to write significant checks for the retroactive portion of the duty and will likely change the payment terms for Canadian lumber sold to American companies in the future. Obviously, smaller producers will see more cash-flow challenges than the behemoths with this new arrangement, but the dollar amounts will be staggering. U.S. Commerce Secretary, Wilbur Ross, said in a phone interview with the Reuters News Agency on Monday that the duties would affect $5 billion worth of softwood lumber imports from Canada.
Of course, this is only a preliminary determination for the countervailing duty case and we still have 60 days until the preliminary determination is announced on the Anti-Dumping case. So, we are a far way off from any finality on the latest version of this trade war. Canada is certain to contest both rulings when they are finalize, a time-consuming process, but litigation that they have won in every previous countervailing and dumping case brought against them.
In the meantime, it is hard to say what immediate impact the latest announcements will have on the lumber market. Buyers will be hesitant to react too aggressively until they have a feel for the direction this thing will head. But with our prime building season at the doorstep, lumber consumption and replenishment will be extremely brisk over the next few months. If we only know at what price!