United States-Canada softwood lumber dispute
Encyclopedia
British Columbia
British Columbia is the westernmost of Canada's provinces and is known for its natural beauty, as reflected in its Latin motto, Splendor sine occasu . Its name was chosen by Queen Victoria in 1858...
, the major Canadian
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
exporter of softwood
Softwood
The term softwood is used to describe wood from trees that are known as gymnosperms.Conifers are an example. It may also be used to describe trees, which tend to be evergreen, notable exceptions being bald cypress and the larches....
lumber to the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
.
The heart of the dispute is the claim that the Canadian lumber
Lumber
Lumber or timber is wood in any of its stages from felling through readiness for use as structural material for construction, or wood pulp for paper production....
industry is unfairly subsidized
Subsidy
A subsidy is an assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry or an increase in the prices of its products or simply to encourage it to hire more labor A subsidy (also...
by the federal and provincial governments. Specifically, most timber in Canada is owned by provincial governments. The price charged to harvest the timber (the "stumpage fee") is set administratively rather than through a competitive auction, as is often the practice in the United States. The United States claims that the provision of government timber at below market prices constitutes an unfair subsidy. Under U.S. trade remedy laws, foreign goods benefiting from subsidies can be subject to a countervailing duty tariff
Countervailing duties
Countervailing duties , also known as anti-subsidy duties, are trade import duties imposed under WTO Rules to neutralize the negative effects of subsidies. They are imposed after an investigation finds that a foreign country subsidizes its exports, injuring domestic producers in the importing country...
to offset the subsidy and bring the price of the product back up to market rates.
The Canadian government and lumber industry dispute the assertion that Canadian timber is subsidized on a variety of bases, including that the timber is provided to so many industries that it cannot be considered sufficiently specific to be a subsidy under U.S. law. Under U.S. trade remedy law, a subsidy to be countervailable must be specific to a particular industry. This requirement precludes imposition of countervailing duties on government programs, such as roads, that are meant to benefit a broad array of interests.
Since 1982, there have been four major iterations of the dispute.
Softwood Lumber Agreement
In April 2006, The United States and Canada announced that they had reached a tentative settlement to end the current dispute. Under the preliminary terms, the United States would lift duties provided lumber prices continue to stay above a certain range. Below the specified range, a mixed export tax/quota regime would be implemented on imports of Canadian lumber. As a part of the deal, more than $5 billion in duty deposits collected would be returned.The 2006 Softwood Lumber Agreement (SLA) establishes a dispute settlement mechanism based around the London Court of International ArbitrationLondon Court of International Arbitration
The London Court of International Arbitration is an institution based in London, United Kingdom providing the service of international arbitration....
(LCIA), a nongovernmental institution. Either country may initiate dispute settlement of matters arising under the SLA or implementation thereof. Hearings are to be open to the public, as are pleadings and other documents. The agreement states that hearings are to be held in either the United States or Canada–the venue is selected by the arbitration tribunal. The SLA also provides that decisions of an arbitration panel are binding on the two parties.
Lumber I
- The first iteration of the softwood lumber dispute, commonly referred to as Lumber I, began in 1982 when the U.S. lumber industry petitioned the United States Department of CommerceUnited States Department of CommerceThe United States Department of Commerce is the Cabinet department of the United States government concerned with promoting economic growth. It was originally created as the United States Department of Commerce and Labor on February 14, 1903...
(DoC) to impose a countervailing duty. Ultimately, the DoC found that Canada's stumpage system was not specific to any single industry and thus not countervailable. The U.S. lumber industry chose not to appeal this decision.
Lumber II
- Lumber II began in 1986 when the U.S. Lumber industry again petitioned the Department of Commerce. This time, the DoC did find Canadian forest programs to be countervailable and set a preliminary duty of 15%. Before the subsidy was imposed, the United States and Canada agreed to a Memorandum of UnderstandingMemorandum of understandingA memorandum of understanding is a document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used in cases where parties either do not imply a legal commitment or in...
that created a phased tariff.
Lumber III
- Lumber III started in 1991 when Canada informed the United States it was withdrawing from the Memorandum of Understanding. In response, the Department of Commerce self-initiated a countervailing duty investigation, and again the DoC imposed countervailing duties.
- This time, the Department of Commerce's determination was reviewed before a binational panel organized under the Canada–US Free Trade Agreement (the predecessor to North American Free Trade AgreementNorth American Free Trade AgreementThe North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada – United States Free Trade Agreement...
(NAFTA)). Normally, the DoC determination would be reviewed by the U.S. Court of International Trade. However, pursuant to the Canada–US Free Trade Agreement, Canada chose to have the determination reviewed before a binational panel, which ultimately consisted of three Canadians and two Americans. The panel found that the DoC's determination could not be supported by substantial evidence. The panel's decision was controversial for a variety of reasons. First, the panel voted on national lines. Second, the majority decision was based on the notion that U.S. law required the Department of Commerce to establish not only the existence of a subsidy, but also to find that the subsidy in fact benefitted the Canadian lumber industry. Many critics contended U.S. law could not be read to impose such a requirement (Congress subsequently amended the law to explicitly state there was no "effects test" under U.S. law). Also controversial was the claim made by the United States that two of the Canadian panelists had conflicts of interests. The U.S. challenged the panel's decisions and the panelists' alleged conflicts of interests before an extraordinary challenge committee. This committee again split on national lines with the U.S. member of the committee, Judge Malcomn Wilkey (retired) of the D.C. Circuit, writing a vociferous dissent. His dissent stated the panelists were conflicted and that its decision violated more rules of appellate review of agency decision-making than any opinion he had ever read. One of the Canadian judges on the Committee found that the panelists were remiss in their disclosure obligations, but that the alleged conflicts were not severe enough to warrant their recusal.
- In 1996, the United States and Canada reached a five-year trade agreement, The Softwood Lumber Agreement, officially ending Lumber III. Under its terms, Canadian lumber exports to the United States were limited to 14.7 billion board feet (34.7 million cubic metres) per year. However, when the agreement expired on April 2, 2001, the two countries were unable to reach consensus on a replacement agreement.
Lumber IV
- Three days after the Softwood Lumber Agreement's expiration on March 31, 2001, the U.S. lumber industry petitioned the Department of Commerce to impose countervailing duties. In addition, the U.S. industry for the first time brought an anti-dumpingDumpingDumping may refer to a subject......in computing:*Recording the contents of memory after application or operating system failure, or by operator request, in a core dump for use in subsequent problem analysis.*Recording a file or medium as a backup....
claim arguing Canadian lumber companies were also engaged in unfair price discrimination. On April 25, 2002, the United States Department of CommerceUnited States Department of CommerceThe United States Department of Commerce is the Cabinet department of the United States government concerned with promoting economic growth. It was originally created as the United States Department of Commerce and Labor on February 14, 1903...
announced it had determined subsidySubsidyA subsidy is an assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry or an increase in the prices of its products or simply to encourage it to hire more labor A subsidy (also...
and anti-dumping rates, with a final subsidy rate of 18.79% and an average dumping rate of 8.43%, to give a combined CVD/AD rate of 27.22%. Specific companies were charged higher or lower dumping rates, including Abitibi-ConsolidatedAbitibi-ConsolidatedAbitibi Consolidated Inc. was a Canadian pulp and paper company based in Montreal, Quebec. Abitibi-Consolidated was formed from the merger of Abitibi-Price Inc. and Stone Consolidated Corp...
(12.44%), WeyerhaeuserWeyerhaeuserWeyerhaeuser is one of the largest pulp and paper companies in the world. It is the world's largest private sector owner of softwood timberland; and the second largest owner of United States timberland, behind Plum Creek Timber...
(12.39%), TembecTembecTembec Inc. is a paper company in Canada. Tembec has approximately 6000 employees located in Canada, United States, and France. Tembec's operating divisions include Forest Products, Pulp, Paper & Paperboard, and Chemicals....
(10.21%), SlocanSlocanSlocan is the name of a river, lake and valley-region in the West Kootenay region of the Canadian province of British Columbia. The name Slocan is derived from the Sinixt First Nations people's word meaning "to strike or pierce on head" and was derived from their practice of harpooning salmon...
(7.71%), CanforCanforCanfor Corporation is a Canadian integrated forest products company based in Vancouver, British Columbia. The company traces its roots to the late 1930s, when brothers-in-law John G. Prentice and L.L.G. "Poldi" Bentley and their families left their native Austria just before the outbreak of World...
(5.96%) and West Fraser (2.18%).
- On May 27, 2003, the World Trade Organization (WTO) issued a non-binding ruling in Canada's favour with regard to U.S. anti-dumping duties. The decision was appealable to a NAFTA panel.
- On August 13, 2003, a North American Free Trade AgreementNorth American Free Trade AgreementThe North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada – United States Free Trade Agreement...
(NAFTA) Chapter 19 panel ruled that the tariff is too high, although noting at the same time that the Canadian lumber industry is subsidized.
- On January 19, 2004, the WTO Appellate BodyAppellate BodyThe Appellate Body of the WTO is a standing body of seven persons that hears appeals from reports issued by panels in disputes brought by WTO Members...
(AB) issued a final ruling with respect to the countervailing duty determination. The AB decided largely in Canada's favor (WTO Dispute 257).
- On August 11, 2004, the Appellate Body issued a final ruling with respect to U.S. anti-dumping duties (WTO Dispute 264).http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds264_e.htm
- On April 15, 2005, the Canadian Minister of TradeMinister of International Trade (Canada)The Minister of International Trade is the Minister of the Crown in the Canadian Cabinet is the head of the federal government's international trade department and the provisions of treaties such as the North American Free Trade Agreement .The post was first established in 1983 as the Minister...
announced that the federal government would provide Canadian softwood lumber associations $20 million in compensation for their legal expenses stemming from the dispute with the United States.
- Another NAFTA Chapter 19 panel reviewed the determination made by the International Trade Commission that the U.S. lumber industry was under a threat of injury because of Canadian imports. Since the U.S. acceded to the World Trade OrganizationWorld Trade OrganizationThe World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
, it is necessary for the U.S. government to establish that a domestic industry is suffering injury or faces a threat of injury before countervailing duties can be imposed. U.S. law had required an injury determination for antidumping duties even before its accession to the WTO. The NAFTA Chapter 19 panel found the International Trade Commission's determination invalid. In addition, the panel took the controversial decision of refusing to allow the International Trade Commission to reopen the administrative record and in fact ordered the International Trade Commission to issue a negative determination after it reached another affirmative determination based on the existing record. Unlike the Lumber III panel, however, this panel's decision was unanimous. However, the U.S. government challenged its decision before an extraordinary challenge committee.
- In the meantime, because of an adverse WTO decision, the international trade commission reopened the administrative record pursuant to a special provision in U.S. law, the so-called Section 129 provision, and issued a new affirmative threat of injury determination in December 2004. This new determination allowed the countervailing and antidumping duty tariffs to remain in place.
- On August 10, 2005, the NAFTA extraordinary challenge committee unanimously held against the United States finding that NAFTA panel's decision were not sufficiently invalid to require vacatur or remand under the standards of NAFTA.
- On August 15, 2005, the U.S. said it would not abide by the NAFTA decision because the Section 129 determination superseded the decision being reviewed by the NAFTA panel. This announcement prompted former Finance Minister Ralph GoodaleRalph GoodaleRalph Edward Goodale, PC, MP was Canada's Minister of Finance from 2003 to 2006 and continues to be a Liberal Member of Parliament...
to say that Peterson is considering Canada's options, which could include litigation or trade sanctions.
- On August 30, 2005, the World Trade Organization which had previously ruled against the United States International Trade CommissionUnited States International Trade CommissionThe United States International Trade Commission is an independent, bi-partisan, quasi-judicial, federal agency of the United States that provides trade expertise to both the legislative and executive branches. Further, the agency determines the impact of imports on U.S...
finding of "threat of injury", upheld the U.S. International Trade Commission's new Section 129 "threat of injury" ruling. A NAFTA panel has not reviewed this decision. The legality of the use of the revised December 2004 International Trade Commission decision to continue to impose duties on Softwood Lumber Imports from Canada is before the U.S. Court of International Trade.
- On August 26, 2005, Canadian federal cabinet ministers remained defiant and unwavered in response to remarks by U.S. Ambassador David WilkinsDavid WilkinsDavid Horton Wilkins is an American attorney and a former U. S. Ambassador to Canada during the administration of President George W. Bush. Prior to the appointment, he practiced law for 30 years while serving in the South Carolina House of Representatives for 25 of those years. He was speaker of...
comments to stop the "emotional tirades" in the softwood lumber dispute. Canadian International Trade Minister Jim Peterson said Washington should not confuse emotion with commitment and determination by Canadians to ensure the NAFTA is respected. Prime Minister Paul Martin used strong rhetoric that the dispute was undermining NAFTA and hinted that Canada can explore trade alternatives such as ChinaChinaChinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
. "Friends live up to their agreements", Martin said in calling on the United States to respect a ruling under the North American Free Trade Agreement on Canadian exports of softwood lumber.
- In September 2005, a U.S. lumber industry associated filed suit in the D.C. Court of Appeals challenging the constitutionality of the NAFTA Chapter 19 dispute settlement system.
- On October 18, 2005, Bill ClintonBill ClintonWilliam Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001. Inaugurated at age 46, he was the third-youngest president. He took office at the end of the Cold War, and was the first president of the baby boomer generation...
stated his general agreement with Paul Martin's position, stating that if he were the prime minister, he would do little differently. However, he did state that the Canadian government ought to return to negotiations.
- On October 24, 2005, United States Secretary of StateUnited States Secretary of StateThe United States Secretary of State is the head of the United States Department of State, concerned with foreign affairs. The Secretary is a member of the Cabinet and the highest-ranking cabinet secretary both in line of succession and order of precedence...
Condoleezza RiceCondoleezza RiceCondoleezza Rice is an American political scientist and diplomat. She served as the 66th United States Secretary of State, and was the second person to hold that office in the administration of President George W. Bush...
visited OttawaOttawaOttawa is the capital of Canada, the second largest city in the Province of Ontario, and the fourth largest city in the country. The city is located on the south bank of the Ottawa River in the eastern portion of Southern Ontario...
on her first visit to Canada. Canadian Prime Minister Paul Martin talked with her about duties, but no response has been registered.
- On November 24, 2005, the U.S.Commerce Department announced it would comply with a separate NAFTA panel's order to cut a 16 percent duty on Canadian softwood lumber imports for now.
- In December 2005, the U.S. Commerce Department announced recalculated countervailing and anti-dumping duties on softwood. The new duties would be set at a total of 10.8 per cent.
- In March 2006, a NAFTA panel ruled in Canada's favour, finding that the subsidy to the Canadian lumber industry was de minimisDe minimisDe minimis is a Latin expression meaning about minimal things, normally in the locutions de minimis non curat praetor or de minimis non curat lex .In risk assessment it refers to a level of risk that is too small to be concerned with...
, i.e., a subsidy of less than one percent. Under U.S. trade remedy law, countervailing duty tariffs are not imposed for de minimis subsidies.
- A tentative deal was reached in July, in which Canada got $4 billion of the $5.3 billion it lost because of the penalties with no additional tariffs to be imposed. Initially, there was a large opposition by several lumber companies from several provinces. However, during the following weeks the support, due to the possibility of no better scenarios, had increased and the Harper government was confident that there would be enough support for the deal so it would not be jeopardized. The government did not specify how many companies endorsed the deal nor did they implement a minimum for the deal to be salvaged.
- In August, Canadian Prime Minister Stephen HarperStephen HarperStephen Joseph Harper is the 22nd and current Prime Minister of Canada and leader of the Conservative Party. Harper became prime minister when his party formed a minority government after the 2006 federal election...
brought the new deal to ParliamentParliament of CanadaThe Parliament of Canada is the federal legislative branch of Canada, seated at Parliament Hill in the national capital, Ottawa. Formally, the body consists of the Canadian monarch—represented by her governor general—the Senate, and the House of Commons, each element having its own officers and...
for discussion and a possible confidence vote in which if the House of CommonsCanadian House of CommonsThe House of Commons of Canada is a component of the Parliament of Canada, along with the Sovereign and the Senate. The House of Commons is a democratically elected body, consisting of 308 members known as Members of Parliament...
would vote in majority against, it would have automatically forced a general election and annulled the deal. The Conservatives were in favour of the deal, while the New Democratic PartyNew Democratic PartyThe New Democratic Party , commonly referred to as the NDP, is a federal social-democratic political party in Canada. The interim leader of the NDP is Nycole Turmel who was appointed to the position due to the illness of Jack Layton, who died on August 22, 2011. The provincial wings of the NDP in...
and the Liberal PartyLiberal Party of CanadaThe Liberal Party of Canada , colloquially known as the Grits, is the oldest federally registered party in Canada. In the conventional political spectrum, the party sits between the centre and the centre-left. Historically the Liberal Party has positioned itself to the left of the Conservative...
were against, leaving the Bloc QuébécoisBloc QuébécoisThe Bloc Québécois is a federal political party in Canada devoted to the protection of Quebec's interests in the House of Commons of Canada, and the promotion of Quebec sovereignty. The Bloc was originally a party made of Quebec nationalists who defected from the federal Progressive Conservative...
as the deciding party to support and for the survival of the deal.
- On September 7, 2006, Bloc Québécois Leader Gilles DuceppeGilles DuceppeGilles Duceppe is a Canadian politician, and proponent of the Québec sovereignty movement. He was a Member of Parliament in the Canadian House of Commons for over 20 years and was the leader of the sovereigntist Bloc Québécois for almost 15 years. He is the son of a well-known Quebec actor, Jean...
endorsed the softwood lumber deal between the Canadian and American governments, effectively neutralizing any chance of an election coming out of a non-confidence vote. The next day, the Liberals confirmed they would vote against, although some MPs voted for the deal.
- On September 12, 2006, Canadian International Trade Minister David EmersonDavid EmersonDavid Lee Emerson, PC, OBC is a Canadian politician, businessman and civil servant.Emerson is a former Member of Parliament for the riding of Vancouver Kingsway. He was first elected as a Liberal and served as Minister of Industry under Prime Minister Paul Martin...
along with U.S counterpart Susan SchwabSusan SchwabSusan C. Schwab is an American politician, who served as United States Trade Representative from June, 2006 to January, 2009....
officially signed the deal in Ottawa. Despite being described by supporters of the deal as the best deal possible, Elliott Feldman an international and economic law specialist from the firm Baker & Hostetler in Washington, D.C.Washington, D.C.Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
and a former director of the Canadian–American Business Council criticized the deal as "one-sided" and a "bad deal for Canada".
- On September 19, 2006, the deal passed its first reading in the Canadian House of Commons with a 172–116 majority.
- On September 27, 2006, the Canadian PressCanadian PressCanadian Press Enterprises Inc. is the entity which "will take over the operations of the Canadian Press" according to a November 26, 2010 article in the Toronto Star...
reported that Canada did not meet an October 1 deadline imposed by itself to implement the agreement. Withdrawal of some of the 30 issues regarding the deal was the main reason for the delay on complying to the deal.
- On March 30, 2007, the United States requested formal consultations with Canada to resolve concerns regarding Canada’s implementation of the export measures.
- On April 19, 2007, formal consultations took place between the two governments
- On August 7, 2007, the United States, pursuant to settlement mechanism established in the 2006 Softwood Lumber Agreement, initiates arbitration in the London Court of International ArbitrationLondon Court of International ArbitrationThe London Court of International Arbitration is an institution based in London, United Kingdom providing the service of international arbitration....
(a private body). The official request for arbitration took place on August 13, 2007. Canada responded to this request for arbitration on September 12, 2007.
- On January 18, 2008, the U.S. government filed a second arbitration request regarding Canada's measures implementing the SLA, specifically the provincial implementation programs of Ontario and Québec. Canada responded on February 18, 2008.
- On March 4, 2008, the London Court of International ArbitrationLondon Court of International ArbitrationThe London Court of International Arbitration is an institution based in London, United Kingdom providing the service of international arbitration....
ruled (in the first arbitration initiated in August 2007) that Canada was in violation of the 2006 Softwood Lumber Agreement in its eastern provinces, but not in its western provinces. The panel had been made up of a Belgian arbitrator nominated by Canada, a British arbitrator named by the U.S., and a panel president from Germany.
- On February 26, 2009, the London Court of International ArbitrationLondon Court of International ArbitrationThe London Court of International Arbitration is an institution based in London, United Kingdom providing the service of international arbitration....
announced its ruling (in the second arbitration initiated in January 2008) that Canada was in breach of the softwood lumber agreement as a result of its failure to calculate quotas properly during January–June 2007. The arbitration body ordered that sawmills in the provinces of Ontario, Quebec, Manitoba and Saskatchewan must pay an additional 10 per cent export charge (up to $68.26 million). The tribunal imposed a 30-day deadline to rectify the breach.
Official
- Foreign Affairs and International Trade Canada - Softwood Lumber
- United States Trade Representative (USTR) - Softwood Lumber
Text
- Text of Softwood Lumber Agreement (SLA), 2006 (USTR)
- SLA Texts and US-Canada Dispute related documents (Foreign Affairs and International Trade Canada)