Resolute CEO confident he can persuade U.S. on softwood lumber

The head of Eastern Canada’s largest lumber producer said he is confident he can demonstrate to American authorities this month that the region deserves free and unencumbered access to the U.S. market.

The fact that the forestry sectors of Ontario and Quebec are similar to the market-based systems in the U.S. should convince the U.S. Commerce Department that the region doesn’t engage in the unfair trade of softwood lumber, Resolute Forest Products CEO Richard Garneau said.

“So based on this, I think that we deserve the right to have access in Central Canada - in Quebec and Ontario - to the U.S. market,” he said in an interview after Resolute (TSX:RFP) released its fourth-quarter and 2016 results.

The Montreal-based company was recently selected by the U.S. Commerce Department - along with B.C. companies West Fraser Timber Co. Ltd. (TSX:WFT), Canfor Corp. (TSX:CFP) and Tolko Industries - to provide details on how they operate as part of its investigation into alleged unfair trade.

Canada’s four largest lumber producers are required to respond to a questionnaire by the end of the month that asks about their softwood lumber operations including sawmills, along with unrelated questions on pulp, paper and other activities. A U.S. auditor will then visit the four companies for follow-up.

The U.S. Commerce Department is expected to take the information into account when it decides on the imposition of preliminary duties on Canadian lumber imports in late April or early May.

Duties on the four producers will be based on their responses. Other Canadian producers will be subject to rates that are the average of those polled, said Garneau.

It marks a departure from past disputes when the rate of countervailing duties was determined after polling provinces to create a countrywide rate, said Susan Yurkovich, president of the BC Lumber Trade Council, which represents Western producers.

“It’s just a different way of doing an evaluation,” she said from Vancouver, adding that the four companies could face varying duties.

Yurkovich said she still expects Canada faces a lengthy battle, as it did about a decade ago, since having a marketbased system before the last trade dispute didn’t prevent B.C. producers from facing preliminary duties.

Following a decade of peace, the softwood lumber dispute erupted late last year after efforts to come to a new agreement failed. Canadian forestry companies have said hundreds if not thousands of sawmill jobs are at risk if the U.S. imposes duties on Canadian softwood.

Concerns about layoffs in the forestry sector, an important economic driver in Quebec, prompted Premier Philippe Couillard to commit to providing loan guarantees to help producers pay duties if the federal government doesn’t.

Garneau said loan guarantees would help Resolute borrow the money needed to pay duties and preserve jobs at Quebec’s many small lumber producers.

He also reiterated his opposition to quotas, an issue that has emerged as a divide within the Canadian forestry industry. Tembec CEO James Lopez recently said he was prepared to accept quotas to settle the trade dispute.

“If you are market-based, why settle for less than free, unencumbered access to the U.S. market?” Garneau said.