A few weeks ago, I explained how U.S. duties on imports of softwood lumber from Canada could significantly affect the North American lumber market, even though the published duty rate for most imports was only 9 percent. On Friday, the Commerce Department gave us a perfect example of how this works in practice and why the U.S. trade remedies (antidumping and countervailing duty) system needs to be reformed.

In particular, various outlets reported that Commerce has published preliminary findings in the second AD/CVD administrative review, more than doubling the combined duty rate on Canadian lumber imported into the United States (from 8.99% for 2018 to 18.32% for 2019). This result shows three key concerns that I raised in my previous post:

  • First, the U.S. AD/CVD system is highly uncertain, with duty rates potentially changing significantly from period to period pursuant to annual “administrative reviews.” This uncertainty acts as a significant non‐​tariff barrier on imports of goods subject to AD/CVD orders, beyond whatever the rate is at the time of importation. And, in the case of lumber, it has been exacerbated by the on‐​again, off‐​again nature of the decades‐​long dispute.
  • Second, because the United States applies a “retrospective” system for collecting duties on imports subject to AD/CVD orders, the new duty rate announced last week for lumber (assuming it’s confirmed in final results expected in November) would not apply to imports currently being imported but instead to lumber already imported back in 2019. Where final duty rates for those products end up higher than the estimated rates applied at the time of importation, U.S. importers (who have no control over the process) would be on the hook for the difference. Where the change is significant (as it often is), it can result in millions of dollars in new and unexpected duty liability. Importers will also be forced to increase their cash deposits on imports now coming in (in line with the higher rate), but they won’t know for years — when Commerce finishes its 2021 review — if they owe U.S. Customs more or less in final duties. All of this creates even more financial uncertainty for importers, further discouraging them (especially smaller ones) from importing lumber from Canada.
  • Finally, that Commerce doubled duty rates while lumber prices are sky high (and perhaps threatening the U.S. economic recovery) again shows how insulated the AD/CVD process is from economic reality. In this case, the law has no quick fix for “emergency” economic situations and expressly prohibits U.S. administering agencies (including Commerce) from considering duties’ harms to consumers or the broader “public interest.”

Thus, America’s “lumber duty problem” is really a systemic problem — one that requires a systemic (legislative) solution.

Commentary by Scott Lincicome. Originally published at Cato At Liberty. https://www.cato.org/blog/midst-skyrocketing-lumber-prices-commerce-department-doubles-tariffs

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