Canada Claims Softwood Lumber Win

OTTAWA, Ontario, Canada, July 26, 2002 (ENS) - The United States effort to put import duties on Canadian softwood lumber appears to have been dealt a blow today by the World Trade Organization (WTO).

In a preliminary ruling that has not been publicly released, Canadian officials say the WTO panel agreed with Canada that the United States was wrong in finding that Canadian provincial stumpage programs are subsidies. U.S. officials have not commented on the panel's ruling.

International Trade Minister Pierre Pettigrew
(Photo courtesy Office of the Minister)

Stumpage is the value or volume of a tree or group of trees as they stand uncut in the woods on the stump. Under provincial forest management regimes, provinces grant a license or right of access to cut timber, which is not a "financial contribution" as defined under the WTO Agreement.

"We have known all along that our industry is not subsidized," Pettigrew said. "This decision reinforces our strategy to defend our industry by challenging U.S. trade actions in every venue available."

But Jessica Clogg, staff counsel at the West Coast Environmental Law Association in Vancouver, says Canada "lost the key point" that the U.S. can levy duties on Canadian lumber because it is a "good or service that can be subsidized." Canada then won on challenging the U.S. methodology of calculating the amount of the subsidy based on cross-border prices.

(Photo by Neal Talbot courtesy University College of the Cariboo)

"The government can try to put a brave face on this ruling, but the loss on Canada's key argument will mean the federal and provincial governments have little option but going back to the table to discuss real reforms that ensure the public is gets full value for public forest resources," said Clogg.

The BC Lumber Trade Council, which speaks for companies responsible for half of Canadian softwood lumber exports to the United States, says the WTO has sent a strong message to the U.S. Department of Commerce and the U.S. lumber industry that the premise on which the U.S. has based their case has no merit.

"This is another vindication for Canada," said John Allan, president of the BC Lumber Trade Council. "The U.S. case against Canada is on legal and political quicksand."

Frank Dottori, CEO of the timber company Tembec and co-chair of Canada's Free Trade Lumber Council was elated. "This is total victory for Canada. Let's hope that this will bring the U.S. government to a more reasonable approach to this dispute."

This is the first substantial decision by an independent panel in the long running dispute between Canada and the U.S. since it flared anew in April 2001. Half a dozen such decisions are expected over the next eight months.

Ontario forest (Photo courtesy Ontario Forest Industries Association)

"Even though this will not mean immediate relief at the border where our exports are hit with a 27.2 percent duty on average, it is certainly an enormous first step in the right direction which will lead eventually to the removal of these duties and the reimbursement of monies already collected," Dottori said.

There are currently no negotiation to resolve the softwood lumber issue since the breakdown of the talks that occurred on March 21, 2002, when the U.S. side proposed a "settlement" that would have amounted to duties exceeding 32 percent.

But Will Horter, executive director of the British Columbia conservation group Forest Futures says the rejoicing of the Canadian lumber industry is premature. "This decision confirms that claims about the strength of Canada's WTO case against U.S. softwood lumber duties are exaggerated," he said.

"The only way that the softwood duties themselves will go away is through negotiated agreement in which Canadian logging companies accept much needed reforms," Horter said.

Encompassing nearly $12 billion annually, softwood lumber trade is at the center of the longest running trade dispute between the United States and Canada. A growing coalition of British Columbian labor, First Nations and NGOs is challenging the government current system of subsidized logging. To address these issues in the public interest, these groups urge a negotiated settlement.

"Canadian logging subsidies harm sensitive wild places," said Joe Scott, conservation director, Northwest Ecosystem Alliance. "Until Canada eliminates its environmentally harmful logging subsidies, these important wild places and our transboundary and migratory species will remain in danger."

Horter says, "The most effective solutions to problems of timber industry competitiveness are those that lead to ecological sustainability and encourage stable forest economies," said Horter. "The good news is that the right tenure and pricing reforms will be good for both our communities and our access to the American market. It is only by addressing these issues that this trade dispute can ultimately be laid to rest."

Because there are not enough trees available to produce lumber for home building in the United States, Canadian lumber imports are vital for the construction of affordable new homes and to make improvements on existing homes in America. The U.S. relies on Canada and other sources for approximately 37 percent of the lumber it needs.

"This is a significant victory for consumers and affordable housing in the U.S.," said Susan Petniunas, a spokesperson for the American Consumers for Affordable Homes, an alliance of 18 large national associations and companies.

"The U.S. lumber companies once again have lost their argument that Canadian lumber is subsidized. We urge the Bush administration to accept this decision and to end its appeals and challenges in the WTO or in NAFTA [North American Free Trade Agreement]. The duties are totally unfair to consumers, and painful for home buyers."

Canada is also pursuing a WTO challenge of the final U.S. determination of subsidy, and is preparing challenges of the final determinations of dumping and injury.

The government of Canada, the provinces and industry have also initiated three NAFTA cases regarding the U.S. final subsidy, dumping and injury determinations. Those decisions are expected in 2003.