U.S. Disregard of Softwood Ruling Puts NAFTA on Shaky Ground

WASHINGTON, DC, August 12, 2005 (ENS) - A top level NAFTA panel ruled Wednesday that Canada did not violate North American Free Trade Agreement rules on trade in softwood lumber. But the United States has brushed aside the ruling, infuriating Canadian federal and provincial officials, who said Washington's response calls the entire NAFTA agreement into question.

Reviewing a string of three lower panel rulings, the NAFTA Extraordinary Challenge Committee (EEC) decided that "the evidence on the record did not support a finding of a threat of material injury" to the United States from Canadian softwood lumber imports.

The two countries have been locked for years in a battle over the U.S. claim that Canada unfairly subsidizes billions of dollars a year in softwood lumber shipments into the U.S. market.

Wednesday's decision concerned the U.S. International Trade Committee (ITC) determination of May 2002 that dumped, subsidized softwood lumber from Canada threatened to injure U.S. producers of softwood lumber.

Softwood logs in Burns Lake, British Columbia await the truck that will take them to the sawmill. (Photo courtesy Burns Lake)

The Government of Canada now expects the United States to refund with interest all the duties paid by Canadian softwood lumber exporters since this dispute began, as is required by U.S. law and NAFTA, said Canadian International Trade Minister Jim Peterson.

The United States has placed countervailing and anti-dumping duties of around 21 percent on Canadian spruce, pine, fir and other wood imports used to build and remodel houses.

The duties collected by the United States to date amount to some $5 billion.

But Neena Moorjani, press secretary for the U.S. Trade Representative, was dismissive regarding Wednesday's ruling. "We are, of course, disappointed with the ECC’s decision," she said, "but it will have no impact on the antidumping and countervailing duty orders given the ITC’s November 2004 injury determination."

"We continue to have concerns about Canadian pricing and forestry practices," Moorjani said. "We believe that a negotiated solution is in the best interests of both the United States and Canada, and that litigation will not resolve the dispute."

"The NAFTA proceedings concerned only the original ITC determination [of May 16, 2002]. ... Today's decision does not affect its validity," Moorjani said.

The U.S. attitude "raises serious and fundamental questions about the United States' commitment to the NAFTA, senior Canadian government officials said Thursday. "This isn't about rules being established it is about partners abiding by them."

Canadian International Trade Minister Jim Peterson (Photo courtesy Office of the Minister)

"Canada is calling on the United States to stop collecting duties at the border and return the money immediately. We respect our NAFTA obligations and partners and expect nothing less from our fellow NAFTA members," the officials said.

"It is time for the United States to do the right thing. Decision after decision has come in Canada's favor. A legal, binding decision must be respected."

Saying both parties would benefit from "a fair and durable resolution to this long-standing dispute" the ministers threatened to "take every measure necessary to ensure Canada's rights are respected."

"Together with the provinces and territories we will use a full-court press to ensure the U.S. honors its commitments and the rule of law," the federal ministers said.

Canadian premiers and territorial leaders signed a resolution at their annual meeting in Banff on Thursday calling on Ottawa to take all necessary measures to recover softwood duties and force Washington to respect the ruling.

Canadian International Trade Minister Jim Peterson visits a forest products mill in Maple Ridge, British Columbia. (Photo courtesy Society of American Foresters)

Canadian federal and provincial officials accused the United States of reneging on NAFTA. Canada threatened to hit the United States with trade sanctions on American goods if Washington does not obey the ruling.

One senior Canadian government official called the U.S. dismissal of the NAFTA ruling a "slap in the face."

"Under NAFTA rules, such an ECC decision should mean the end of the case, the Department of Commerce should revoke the order and Canadian deposits would be returned in full, with interest, as required by U.S. law and NAFTA," the premiers wrote.

Premiers stressed that "the Government of Canada must respond vigorously and at the highest levels against the decision of the Government of the United States not to comply with the panel's decision." The Government of the United States must be immediately challenged for its unprecedented decision not to comply with the panel's decision, they said in their communique.

Lumber graders check softwood products in a British Columbia mill. (Photo courtesy Coast Forest Products Association)

The United States is the number one destination for Canadian exports. Canada is also the United States' largest export market.

Talks in July between U.S. and Canadian government officials aimed at resolving the softwood lumber dispute, broke up without resolution, but negotiators plan to meet again in Ottawa August 22-23.

Canadian environmental groups say the cost of lumber does not reflect the true costs of timber extraction to the environment.

"At the heart of the softwood dispute is that the true cost of timber is not reflected in wood prices. This encourages over-cutting and environmental dumping of timber products," said Cliff Wallis, then director of the Canadian Nature Federation in December 2001 during a meeting with federal officials.

The Canadian Lumberman's Association says its members support sustainable forestry. In Canada, 94 percent of the forests are publicly owned, while in the United States the majority of lumber is harvested from private lands.