Resolute Forest Products Inc. is confident that U.S. import duties on softwood lumber and supercalender paper won’t impact its future earnings because the Canadian company expects to be reimbursed for the levies paid.
Resolute, the world’s biggest newsprint maker, has paid $43 million as a result of the trade spats with the U.S., with $4 million to cover lumber disputes and $39 million for supercalender paper, Chief Executive Officer Richard Garneau said in a phone interview Thursday. The U.S. has imposed countervailing duties of up to 24.1 percent on shipments of Canadian timber and preliminary anti-dumping duties of 7.7 percent.
Garneau has opted to treat the duty payments as deposits, meaning that the costs won’t affect its earnings before interest, taxes, depreciation and amortization.
The Montreal-based company is confident that the International Trade Commission will rule at worst that Canadian subsidies represent only a ‘threat of injury’ to U.S. producers. In that case, Resolute would get its deposits back, he said.
“With a ‘threat of injury,’ the preliminary determination and the duty that we paid from the preliminary determination are going to be reimbursed,” he said.
Garneau’s optimism comes after the U.S. lumber industry rejected the latest Canadian government proposal for a deal ahead of North American Free Trade Agreement talks set to begin Aug. 16. The lumber dispute between Canada and the U.S. has existed for decades and threatens Canadian employment prospects in forestry.
Even if the duties don’t curb Resolute’s future earnings, the appreciation of the Canadian dollar might, he said. The loonie has gained almost 7 percent this year versus the U.S. currency.
“Now that the Canadian dollar is strengthening we’re losing this currency advantage,” Garneau said. “The products are sold in U.S. dollars, so all U.S. mills will be more competitive.”
Garneau is adamant that the Canadian government must ensure that Quebec and Ontario have “unfettered access” to the U.S. market. Timber companies operating in Western provinces have geography on their side since they can ship to China, a luxury that producers in Quebec and Ontario don’t have, Garneau said.
Resolute’s national market is the U.S., which is “at best, able to satisfy 68 percent of their lumber requirement, so there’s room for Canada to continue to supply this market at the same levels” Garneau said.
The lumber dispute was revived after a group of U.S. lumber producers filed a petition last November urging Canadian lumber duties, alleging that Canadian timber is heavily subsidized and imports are harming U.S. mills and workers. Resolute spokesman Seth Kursman argued that there is no subsidy in central Canada, citing a bi-national Nafta panel ruling more than a decade ago for Ontario. For Quebec, he said a 2013 change in the province’s forest regime stipulated that 25 percent of timber from public forests be sold through public auction, he said.
Lumber duties won’t just affect Canadian employees in the forestry industry—it’ll cost millions of jobs in the U.S. homebuilding industry too, Resolute says.
For every $1,000 increase in the price of a home, around 153,000 households are priced out of the market for a median-price new home, according to Washington-based National Association of Home Builders. Lumber plays a significant role in the pricing of a home, and housing represents a large chunk of the U.S. economy, Kursman said.
“I’m sure the trade file is having an impact on the housing starts in U.S. and the affordability,” Garneau said. “Lumber makes houses less affordable with trade restriction.”