CertainTeed fails to gain tariff protection for 54-inch drywall board

CertainTeed Gypsum Canada (CTG Canada) has lost its bid to have Western Canadian drywall tariffs extended to include 54-inch wide boards. The company has never manufactured 54-inch boards in Canada, but claimed that the wide boards were being “dumped” into the Canadian market from the U.S., preventing the company from manufacturing them.

As reported earlier this spring in Canadian Contractor, Matt Walker, Chief Executive Officer of CertainTeed Canada, said in a news release that, “US dumping of 54-inch drywall in Western Canada is distorting the Western Canadian drywall market, and preventing new investments and jobs. We believe we have a very strong case that will restore free and fair trade and create new jobs in Western Canada.”

Tariffs previously applied to 48-inch wide drywall sent prices soaring across Canada and disrupted supply chains.

However, in a decision issued in late August, the Canadian International Trade Tribunal (CITT) weighed the numerous presentations made by CertainTeed and the investigation report issued by the Canadian Border Services Agency (CBSA). While not denying that dumping might be occurring, the CITT determined, “the evidence does not disclose a reasonable indication that the dumping of the subject goods has caused injury or retardation or is threatening to cause injury to the domestic industry. Therefore, pursuant to paragraph 35(3)(a) of the Special Import Measures Act, the Canadian International Trade Tribunal hereby terminates the preliminary injury inquiry with respect to the subject goods.”

A welcome break for Canadians tired of U.S. tariff disputes
The CITT decision is likely a disappointment for CertainTeed Gypsum Canada. (Note: The company did not respond to Canadian Contractor’s request for comment.) However, given the impact the 2016 protective tariffs have had on 48-inch drywall prices across Canada, the residential building and renovation industry across the country can breathe a sigh of relief.

In late 2016, CertainTeed Gypsum Canada succeeded in convincing the CITT to impose tariffs as high as 324 per cent imposed on 48-inch drywall and other related products entering Western Canada. The result was prices that soared by approximately 42 percent in Western Canada and 37 per cent on average coast-to-coast, according to data collected by Canadian Contractor from September 2016 to June 2018. The company had publicly shrugged off any suggestions of damage caused by this price increase in a media release on June 11, saying that claims of “hundreds of millions of dollars of cost impact from fixed price drywall contracts, drywall supply unavailability and a massive increase in costs of residential homes… were unfounded.”

CertainTeed’s 54-inch wide drywall tariff request was, according to company documents, aimed specifically at the residential building and renovation market

The residential housing industry dodges this latest bullet fired by CertainTeed
The attempt to impose tariffs on U.S.-made 54-inch wide board was a salvo aimed specifically at the residential housing industry. According a submission from CertainTeed to the Canadian Border Services Agency (CBSA) in April 2018, the company claimed 54-inch wide gypsum, “is subject to different demand factors than standard 48-inch gypsum board that flow from its distinctive physical characteristics. Given that 54-inch board is best-suited to create interior 9-foot ceiling walls, 54-inch has historically been used primarily in residential construction.”

CertainTeed sought protection for a product they didn’t manufacture
By its own admission, the company has never manufactured 54-inch gypsum board in Canada. Instead, CertainTeed argued that their efforts to manufacture the product have been retarded by U.S. dumping. They suggested that if sufficiently punitive tariffs were imposed, the company would make the necessary capital investment and hiring in Canada to establish manufacturing in Western Canada.

The CBSA launched its investigation in June 2018 when, having reviewed these and other claims made by CertainTeed, felt the situation warranted further inquiry.  Numerous documents were gathered from CertainTeed and from those arguing against any imposition of tariffs.

CertainTeed plans to manufacture was conditional on sufficiently high tariffs
The CBSA had been seeking CertainTeed Gypsum Canada to provide, “evidence of a substantial commitment to establish a domestic industry.” In fact, any such commitment would ultimately have to come from CertainTeed’s parent company, Compagnie de Saint-Gobain S.A. of France, an international conglomerate that owns several building product companies around the world. Saint-Gobain would in turn, according to the CBSA and CertainTeed, be seeking an Internal Rate of Return (IRR) that met its corporate objectives. “Once the project can attain the required return on investment, its [CertainTeed’s] parent company, Saint-Gobain, is committed to making the investment,” the CBSA report said. In other words, tariffs on competing imports would need to be sufficiently punitive for Saint-Gobain to go ahead with any firm plans.

According to details contained in its decision to launch the initial investigation, the CBSA accepted that CertainTeed had, “made reasonably detailed plans to establish production and [that] resources have been allocated to advance beyond a mere proposal. The complainant also has land dedicated at one of its facilities in Western Canada.” The CBSA noted, however, that no dedicated manufacturing equipment had been purchased. All documents gathered were subsequently forwarded to the CITT for a decision.

What is the purpose of protective tariffs anyway?
CertainTeed’s request for tariffs on a product they don’t currently manufacture might have been viewed as audacious, coming as it did from a French-owned affiliate operating in Canada. Approving tariffs in order that CertainTeed Gypsum Canada could enjoy a protected competitive environment, earning profits that they themselves determined as reasonable — all in advance of any actual Canadian manufacturing — would certainly be an unusual and possibly distorted use of tariffs. The result, of course, would be that any “injury” subsequently incurred would be suffered by the end users of the 54-inch drywall through increased prices. Perhaps seeing this as an inappropriate use of tariffs, the Canadian International Trade Tribunal (CITT) wisely concluded that there was no injury and retardation being caused to a domestic industry that didn’t yet exist, and therefore issued its decision to terminate the inquiry.

Got feedback? Make your opinion count by using the comment section below,
or by sending an email to:
JBleasby@canadiancontractor.ca

Follow John on Instagram and on Twitter for notifications about his latest posts