Potential Impacts of the New Trade Agreement on CMs

Originally published by the following source: SBC MagazineOctober 2, 2018
by TJ Jerke, Sean Shields and Kirk Grundahl, P.E.

   

Canada will still be able to bring trade actions against the United States over countervailing and anti-dumping duties under a new trade agreement, a move that could help bring the two countries together and negotiate a new Softwood Lumber Agreement.

On Monday, after a 14-month negotiation process, the Trump Administration announced that the United States, Mexico, Canada Agreement (USMCA) will replace the North American Free Trade Agreement (NAFTA).

The new agreement will now go to the U.S. Congress for a mandatory 60-day review period. U.S. President Donald Trump, Canadian Prime Minister Justin Trudeau and Mexican President Enrique Pena Nieto are expected to sign the new agreement towards the end of November.

Impact on Component Manufacturers

Chapter 19 of the outgoing NAFTA gave Canada the ability to summon a multi-national arbitration panel to investigate protectionist trade actions after the U.S. applied duties on Canadian lumber in 2017. At issue for this NAFTA arbitration panel is whether the Canadian Government is subsidizing the country’s lumber market (and if so, to what extent), creating an unfair market between U.S. and Canadian lumber producers.

Under Chapter 31 (see attached in PDF form below) of the new USMCA, Canada will still be able to pursue a similar process of arbitration against the U.S. The preservation of this dispute resolution process should give hope to component manufacturers that the two countries will eventually be forced to sit down, as they did in the two previous lumber trade disputes, and negotiate a new Softwood Lumber Agreement.

This new trade deal does not address the tariffs applied to Canadian and Mexican aluminum and steel, which will remain in place for now.

Down the Road

The United States-Mexico-Canada Agreement (link provides the full text) contains a lot that is new. Upon initial review, key provisions that may affect future softwood lumber negotiations between the U.S. and Canada include:

  1. Article 32.10: Canada does a great amount of trade with China. This article addresses instances where this non-market country’s interaction with the Free Trade Agreement (FTA) may come into play.
  1. Industry Trade Advisory Committees: These advisory committees provides specific review of trade action across broad market segments. ITAC 5 - Forest Products, Building Materials, Construction, and Nonferrous Metals is responsible for reviewing trade actions for forest products, building materials, construction and nonferrous metals. A listing of the current members of ITAC 5 can be found on the last page of the document linked above.
  1. In the linked report, ITAC 5 provided their insight into the agreement, here are a few key points:
    • ITAC 5 comments on trade remedies follow:
      • ITAC 5 comments on Government Procurement follow:​​​​​​​
        • ITAC 5 comments on Technical Barriers to Trade follow:

       

      1. Article 2: Specifically, Article 2.10 addresses Import and Export Restrictions (quotas) and Article 2.11 deals with Remanufactured Goods (i.e. remanufactured lumber into components). They state: 

       

       

      1. Article 3: In Article 3.4 the spirit of export competition is defined with respect to Agricultural Goods as follows (whether this applies to lumber remains to be seen, but the spirit of this language indicates subsidies should not exist):

       

       

      1. Annex 2-B U.S. Tariff Schedule: There are no tariffs (lumber or otherwise) defined by the agreement according to this schedule.

       

       

      The USMCA is obviously a trade framework with many details yet to be worked out. Any new softwood lumber agreement will now occur through this lens. There is much more to analyze and digest. SBCA will provide further commentary as impacts to CMs are learned.