Liberal stance on softwood subsidy ignores U.S. ruling's words

A 17th-century British politician once said an ambassador is "an honest gentleman sent abroad to lie for his country."

In the diplomatic war of words over U.S. softwood lumber tariffs, the Gallant Liberals haven't accurately described what the Trump administration's preliminary decision said last week.

"To me, what it demonstrates is that the New Brunswick businesses are not being subsidized," Premier Brian Gallant said last Tuesday.

"For us it's demonstration that here in New Brunswick, the allegations that are coming from the U.S. industry are false."

It's a key point: under U.S. law, if Canadian softwood exports are subsidized, they're being sold in the U.S. at an artificially low price, putting American producers at a disadvantage. The administration can then apply tariffs and duties to raise the price for American buyers.

Gallant's comments were echoed by his trade minister, Roger Melanson.

"It's encouraging that they recognize that we're not subsidizing the industry," Melanson said.

There's just one problem with their logic: that's not what the Trump administration is "demonstrating" or "recognizing" at all.

"What the Department of Commerce found in the preliminary determination is that there are subsidies in Canada," said Washington-based international trade lawyer Yohai Baisburd. That includes New Brunswick.

Claim based on Irving rate

Gallant and Melanson based their no-subsidy claim on J.D. Irving Ltd., New Brunswick's biggest forestry company, being assigned a tariff of only 3.02 per cent the smallest rate applied to any company in Canada.

Compare that to the high rate applied to one British Columbia company, 24 per cent, and you can see why the Liberals would latch on to the Irving rate to advance their argument.

But the 124-page U.S. preliminary determination memorandum clearly says Irving is subsidized just at a lower rate than four other Canadian forestry companies it investigated.

It says Irving received "the benefit from subsidies," and tallies up a range of government programs and policies, from stumpage fees on Crown land to a biomass electricity buy-back program, to arrive at a rate of 3.02 per cent.

Under U.S. law and World Trade Organization rules, any subsidy higher than one per cent "can be the justification" for tariffs, Baisburd said.

So the U.S. finding is not "no subsidy," as Gallant asserted, but "low subsidy."

Liberal MP also mixed concepts

Fredericton Liberal MP Matt DeCourcey, the parliamentary secretary to the foreign affairs minister, has also mixed the two concepts.

He told CBC News last week Irving's three-per-cent tariff "adds credence to the whole argument that industry right across New Brunswick should be entirely exempt from any countervailing or punitive duties."

If J.D. Irving were the only sawmill company in New Brunswick, the province might swallow the three-per-cent tariff and move on.

But other sawmills in the province face a higher tariff rate of 19.88 per cent, just like other Canadian companies that weren't investigated individually as Irving was.

The other New Brunswick mills are eligible for the same programs as Irving, and last week Opposition Progressive Conservative Leader Blaine Higgs rather than claim there are no subsidies said the U.S. should be consistent and apply Irving's lower rate to other mills.

Calls for all mills to get Irving rate

"That [Irving rate] would indicate that we shouldn't be subject to these high duties," he said. "I would say if one industry's made that case, that should apply to the rest of the industries that are here in the province."

As late as Friday, during a photo-op at Devon Lumber in Fredericton, Melanson was still insisting the U.S. ruling supported New Brunswick's position.

"By JDI receiving a three per cent countervailing tax, we clearly read out of this that the industry in New Brunswick is not being subsidized," he said.

• Uncertain future: new tariff will hurt N.B. sawmills' bottom line
• Forestry changes in 2014 made New Brunswick lumber a target in U.S.
• Ottawa called on to push for renewed softwood exclusion in U.S.

But he also allowed that non-Irving mills "see the benefits" of Irving's low tariff "and this is the rate that needs to be applied, at a maximum, to all industry."

Baisburd wouldn't respond directly to how Gallant and Melanson have described the conclusions, or comment on what impact their comments may have. The U.S. government will make a final determination on subsidies later this year, unless the two countries strike a deal first.

"The Department of Commerce would tell you that they make their decisions based on the record that's developed at the Department of Commerce," Baisburd said.

"There are statements that governments make, that interested parties make, and Commerce would tell you that they consider that as part of their analysis, and that ultimately their decision is based on that record."

To read the full U.S. Department of Commerce preliminary decision memorandum click here.