Softwood Lumber Ruling in Canada's Favor No Break for Forests

WASHINGTON, DC, November 23, 2005 (ENS) - After more than four years of claiming that Canadian softwood lumber production was subsidized by the Canadian government, the Bush administration acknowledged Tuesday that it was not. The government of Canada said it was encouraged by the move, and will now attempt to recover more than C$5 billion worth of import duties collected by the United States.

International Trade Minister Jim Peterson said, “The government of Canada welcomes this important step by the U.S. Clearly, the Bush administration has heard the vigorous appeals from Canada that they must respect the terms of NAFTA.”


Jim Peterson is Canada's International Trade Minister. (Photo courtesy Office of the Minister)
At the core of the dispute is the U.S. claim that Canada subsidizes its logging industry and the Canadian counter-claim that it does not. Defenders of Wildlife, a U.S. nonprofit organization, says "environmentalists on both sides of the border have documented the existence of Canadian forestry subsidies and their environmentally harmful nature."

But a panel established under the North American Free Trade Agreement (NAFTA) to resolve the long-standing dispute ruled for the fifth time in October that the United States had no basis on which to find that the U.S. lumber industry was threatened by imports of Canadian softwood lumber.

The decision of the NAFTA Extraordinary Challenge Committee, made up of U.S. and Canadian judges, legally requires the United States to revoke the countervailing and anti-dumping duty orders, to refund, with interest, deposits collected, and to stop all ongoing administrative reviews, but the United States is not yet ready to go that far.

"We have serious concerns about the panel's decision. However, consistent with our NAFTA obligations, we have complied with the panel's instructions," said Commerce Secretary Carlos Gutierrez. "We will continue to enforce our trade laws to ensure that U.S. industry receives relief from unfair imports and we are reviewing all options to do so. We believe that only a durable, negotiated resolution will resolve this dispute permanently."


Commerce Secretary Carlos Gutierrez says Canadians must still pay the current rate of duties to import softwood lumber into the United States. (Photo courtesy Office of the Secretary)
Although the Commerce Department does not agree with the panel's reasoning, the department has obeyed the panel's instructions and calculated a countrywide subsidy rate of 0.80 percent.

But still, the Commerce Department said it will continue to require that Canadian companies that want to sell softwood lumber into the United States pay the same rate of duty, an average of 20.96 percent, as they have been paying until now.

The department says it is involved in administrative reviews of previous NAFTA panel decisions on softwood lumber and will not change its duties until these reviews are complete and a public comment period of up to 45 days is over. U.S. officials also said they retain the right to appeal the ruling.

Softwood trees include pine, spruce, cedar, fir, larch, Douglas fir, hemlock, cypress, redwood and yew. Softwood is easy to saw and is used in structural building components, moldings, doors, windows, and furniture. Softwood is also harvested for use in the production of paper, and to create chipboard.

The duties were imposed after U.S. timberland owners and forest companies, including International Paper, Potlatch, Plum Creek, Sierra Pacific, and Temple Inland, members of the Coalition for Fair Lumber Imports, charged that Canadian lumber is unfairly subsidized, and being dumped at lower prices in the United States.

Steve Swanson, chairman of the Coalition for Fair Lumber Imports, said the Commerce Department's decision to comply with the NAFTA rulings "does not change the fundamental fact" that Canada's lumber industry receives billions of dollars in annual subsidies derived from Canadian taxpayer owned forest resources. "This fact has been, and continues to be, confirmed by Commerce Department as well as World Trade Organization panel findings."

"The NAFTA panel in this case has improperly directed a decision that runs counter to the facts and U.S. law," Swanson said. "The U.S. Commerce Department has consistently confirmed that, if calculated correctly, an anti-subsidy duty of nearly 20 percent is necessary to offset Canadian subsidies."


Mixed white and red pine forest in the Petawawa Research Forest, Chalk River, Ontario. (Photo courtesy NRC)
Defenders of Wildlife, for once, agrees with the U.S. lumber industry. "Softwood lumber trade with the United States has long driven environmentally unsustainable logging in Canada’s primary and old growth forests," the wildlife conservation group says. "Rapid forest degradation, fueled by timber subsidies, is leading to serious wildlife declines, water quality problems, and a potentially permanent loss of long-term economic opportunities in Canada’s once seemingly endless wilderness."

"Tragically," says Defenders of Wildlife, "Americans are unwittingly contributing to this destruction as the largest consumers of the virgin trees felled in Canada. Elimination of forestry subsidies in Canada would go a long way to improving the health of the forests and forest species.

"The BC Lumber Trade Council welcomes the U.S. Department of Commerce decision to respect the instructions given by the NAFTA Panel to recalculate the countervailing duty rate," said John Allan, president of the BC Lumber Trade Council.

The BC Lumber Trade Council is the voice for companies in British Columbia representing the vast majority of BC lumber production. Its member companies account for about half of Canadian lumber production and half of Canadian lumber exports to the United States.

"This decision lends further support to Canada's position that the U.S. should return the C$5 billion (US$4.2 billion) in duties that have been illegally collected to date," said Allan.

The U.S. must import a third of its lumber from Canada or other countries, to meet domestic housing demands and those of remodelers.

American Consumers for Affordable Homes (ACAH), an alliance of organizations representing more than 95 percent of the U.S. consumption of lumber, is urging the Bush administration to comply with the NAFTA panel's decisions.

“Compliance,” said ACAH spokesperson Susan Petniunas, “means keeping our national integrity in place by ending duties, returning them, and abiding by the law. Non-compliance undermines NAFTA and our national integrity.”

In Ottawa, Trade Minister Peterson said the Commerce Department's decision, “is but one step toward resolution. At this time duties will continue to be collected. None of the duties paid so far to the U.S. have been refunded."

"Complete victory will not have been secured until the duties improperly collected have been returned - until all duties are eliminated,” the minister said.

Canada will continue to explore every reasonable option for resolving this dispute, said Peterson, including litigation with the possibility of retaliation, high-level political intervention and advocacy, and will aggressively seek export opportunities for softwood lumber in other markets.


U.S. softwood lumber on its way to market (Photo courtesy Softwood Export Council)
In 2002, the Northwest Ecosystem Alliance of Bellingham, Washington, the Natural Resources Defense Council of New York City, and Defenders of Wildlife based in Washington, DC, published a citizens' environmental solution to the softwood lumber dispute.

Called the Citizens’ Forest Trade Alternative, the solution is based on the premise that Canada gives three types of subsidies to its forest companies and that these should be eliminated.

The first type of subsidy includes financial handouts to timber companies through direct cash and regulatory waivers.

The second general type of subsidy granted to the Canadian timber industry is the environmental free ride granted by both the federal government and the provincial governments, the three U.S. conservation groups said. Provincial forestry regulations favor harvest goals rather than conservation goals, they said, and provincial forestry codes, such as British Columbia’s Forest Practices Code, are fundamentally timber-driven, sacrificing ecological standards to meet timber harvesting targets that are higher than what the provincial governments claim is sustainable.

The third category of subsidies relates to the issue of who controls Canada’s public forests. Most long-term licenses for timber harvesting were given out decades ago and are tightly controlled by a small group of major timber companies. Logging concessions are made without consultation with First Nations, said the U.S. groups, and there is no meaningful accommodation of Canadian public input to logging plans on Canadian public lands.

The Citizens’ Forest Trade Alternative recommends a bilateral forest agreement to govern ecologically and economically sustainable trade in timber products between the United States and Canada "by phasing out environmentally and economically harmful subsidies and enhancing environmental protections."