Hopes of avoiding a new round of U.S. duties on imported softwood lumber are fading for companies like EACOM Timber Corporation which owns sawmills in Timmins and Gogama.
“The American market is critical for us … the majority of our shipments are destined to the U.S.,” said Christine Leduc, EACOM’s director of public affairs.
“If you’re (a lumber producer) in Ontario, you’re not going to ship west; you’re not going to ship east. You’re shipping domestically or you’re shipping south. In fact, 95% of Ontario’s forest products are destined to the U.S.
“For us at EACOM, we’re Ontario’s largest softwood producer with our five sawmills and so access to the U.S. market is critical for us to maintain and grow our operations.”
The nine-year softwood lumber agreement between Canada and the U.S. expired in October 2015. However, duty-free shipping of Canadian lumber to the U.S. continues under a one-year “standstill” clause in the agreement.
“It gives us essentially one year of free trade where the Americans cannot impose any duties or taxes on the exporting Canadian industry,” said Leduc. “It was envisioned that this period could give both parties an opportunity, if necessary, to re-negotiate the agreement.
“So because of this, earlier in March, when Prime Minister (Justin) Trudeau went to Washington, President (Barack) Obama and Prime Minister Trudeau committed to engaging on the issue and reporting back within 100 days, bringing us to roughly mid June.”
Trudeau and Obama recently issued a joint statement confirming they were unable to reach an agreement but would continue trying.
EACOM issued a statement late last week, expressing its disappointment.
Without a deal in place, Leduc said there is growing uncertainty within the Canadian forest industry, especially with the challenge of trying to negotiate a binding agreement in the midst of a U.S. presidential election where the presumptive presidential nominees have already espoused protectionist positions.
Republican Donald Trump has, in particular, spoken of taking a hard line with Canada and Mexico, stating he would seek to renegotiate a more favourable free trade deal. Trump has said if Canada and Mexico refuse significant trade concessions, the U.S. will withdraw from it all together.
“Technically, we have until Oct. 12, 2016 to renegotiate a new deal before the end of this standstill period,” said Leduc. “So after October 2016, we expect that the U.S. will initiate new anti-dumping and countervailing duties investigations against softwood lumber producers from Canada.”
The U.S. Lumber Coalition, which believes the Canadian forest industry has an unfair cost advantage because its wood is harvested from Crown lands, is expected to make a big push for duties on Canadian softwood imports if a deal is not reached by mid October. The coalition portrays Canadian wood products as government subsidized.
Following the joint announcement by Trudeau and Obama about their inability to reach a new deal, the U.S. Lumber Coalition, issued a statement of its own, expressing support for “continued negotiations between the two nations aimed at designing an effective framework for offsetting trade distortions and job losses in the U.S. market caused by unfairly priced Canadian imports.”
Despite the economic uncertainties, Leduc said EACOM does not have any immediate plans to adjust its operations in Ontario or Quebec, particularly after the company spent millions of dollars enhancing its sawmills.
Leduc pointed out that after the 2012 fire at the Timmins sawmill, “we spent $27 million to rebuild the mill and with that rebuild, we were able to add 20% more capacity. And then just last year in 2015, we invested an additional $2.8 million on the new lumber grading system so we are committed to continuous improvements on all of our sites and we’re committed to working with the governments.
“What we can do right now is to continue to focus on improvements, continue to work with the provincial governments and the federal government to advocate for a new deal.”