Softwood Lumber Dispute

[ocelot]

Layton urges retaliatory taxes over softwood lumber dispute
Last Updated Sat, 03 Dec 2005 20:30:38 EST
CBC News
NDP Leader Jack Layton says Canada should consider taxing energy exports to the United States if Washington doesn't lift its tariffs on softwood lumber imports.

Layton said trade sanctions might be necessary if the U.S. doesn't dump the import duties that have siphoned $5 billion so far from Canadian producers of softwood lumber.

Layton focused on the softwood lumber issue Saturday during campaign stops in British Columbia, the province hit hardest by the dispute.

"We favour a polite, clear, neighbourly warning that Canada is prepared to impose export duties on oil and gas exports to the United States," he said.

Layton said Ottawa needed to take a tougher stand in the dispute, which is the main trade irritant between the two countries and has been winding its way through a series of dispute proceedings.

The U.S. administration has been refusing to heed several NAFTA rulings supporting Canadian claims that the tariffs were illegal – including a recent one by an international panel whose rulings were to be binding in disputes under the North American Free Trade Agreement.

The U.S. Commerce Department eventually said on Nov. 22 that it would comply with the NAFTA panel's ruling on softwood lumber, even though it strongly disagreed with it.

Softwood lumber dispute

CBC News Online | Updated August 10, 2005


Canada's protracted dispute with the United States over softwood lumber is estimated to have cost lumber producers billions of dollars and thousands of jobs.

The dispute has been simmering for years, but boiled over in May 2002 when the United States imposed duties of 27 per cent on Canadian softwood lumber, arguing that Canada unfairly subsidized producers of spruce, pine and fir lumber.

SOFTWOOD LUMBER GLOSSARY
Softwood lumber: Easy-to-saw wood such as pine and spruce used in building.
Board foot: A unit of volume for wood equal to 144 cubic inches, or one square foot of one-inch-thick board.
Countervailing duties: Applied on imports found to be unfairly subsidized.
Dumping: Selling goods in another country at less than what they cost to produce.
Stumpage: A fee charged by Canadian governments to logging companies for the right to harvest lumber from public land. An agreement-in-principle to end the dispute was reached in December 2003. But it died two days later and the issue has been before North American Free Trade Agreement panels and the World Trade Organization several times. Rulings have usually gone Canada’s way.

At issue

The dispute is centred on stumpage fees - set amounts charged to companies that harvest timber on public land. Many in the U.S. see Canadian stumpage fees as being too low, making them de facto subsidies. A U.S. coalition of lumber producers wants the provincial governments to follow the American system and auction off timber rights at market prices.

The U.S. responded by levying tariffs on incoming Canadian lumber in May 2002.

Overview of the dispute

The bickering between Canada and the United States over softwood lumber is like a case of sibling rivalry. It dates back hundreds of years. Even within Canada there are divisions. The B.C. Lumber Trade Council has argued a trade war with the Americans over softwood lumber would be costly and should be avoided by accommodating U.S. demands. The Free Trade Lumber Council, which includes lumber producers in Quebec and Ontario, wants to fight it out. What most Canadian foresters and governments do agree on is their goal: free trade in softwood lumber.

In August 2001, the Bush administration backed a U.S. forest industry bid to hit Canadian lumber with billions of dollars in duties. Two months later, the duty was increased further when the government imposed an anti-dumping duty on top of the original duty. Dumping is a term used to describe the sale of goods to another country at less than what they cost to produce.

The duties were applied separately following the expiration of the softwood lumber agreement between Canada and the U.S., which governed exports from April 1, 1996 to March 31, 2001. Under that agreement, the U.S. guaranteed market access to Canadian exporters for five years and permitted the import of 14.7 billion board feet per year of lumber without fees. The agreement applied to $10 billion worth of lumber produced in British Columbia, Alberta, Ontario and Quebec.

The agreement didn't apply across Canada. Since lumber harvested in the Maritimes comes mostly from private land, Maritime provinces weren't subject to the U.S rules. With no extra duties to deal with, Maritime producers saw business rise.

When the agreement was signed, Maritime provinces accounted for about five per cent of Canada's lumber production. In the five years following, production in Nova Scotia and New Brunswick soared 62 per cent to more than 1.2 billion board feet. That compares with 1.5 billion board feet produced in Ontario. In New Brunswick, 90 per cent of softwood lumber exports go to the United States.

The trade war has taken a toll on Canadian jobs. Thousands in the industry lost their jobs, including about 15,000 forestry workers who were laid off in British Columbia.

In 2001, then-U.S. trade ambassador Robert Zoellick vowed the trade war would continue until Canada imposed its own taxes on lumber exports. Canada has refused to do so.

On July 29, 2003, it seemed as if there might be a breakthrough in the dispute when officials on both sides announced a draft deal. As part of the draft, Canada had agreed to cap lumber exports to account for 30 per cent of the U.S. market, down from 34 per cent. If the quota was exceeded, Canada would have to pay a penalty. The plan was nixed two days later when U.S. producers said Canada needed to make more compromises.

A NAFTA decision on August 13, 2003 was considered a partial victory for the Canadian side. A panel ruled that, while the Canadian lumber industry is subsidized, the 18 per cent tariff imposed on softwood lumber by the United States is too high. While the ruling didn’t throw out the duty imposed more than a year earlier, it ordered the U.S. Commerce Department to review its position.

The NAFTA report said the U.S. made a mistake in calculating its duties based on U.S. prices, and by not taking Canadian market conditions into consideration. It ordered Washington to recalculate them. NAFTA decisions are legally binding and must be put into effect within 60 days.

Two weeks later, a WTO panel concluded that the U.S. wrongly applied harsh duties on Canadian softwood exports. The panel also found that provincial stumpage programs provide a "financial benefit" to Canadian producers. But, the panel made it clear that the benefit is not enough to be a subsidy, and does not justify current U.S. duties.

On Aug. 10, 2005, an “extraordinary challenge panel” under NAFTA dismissed American claims that the earlier NAFTA decision in favour of Canada violated trade rules.

"We are extremely pleased that the ECC dismissed the claims of the United States," said International Trade Minister Jim Peterson.

"This is a binding decision that clearly eliminates the basis for U.S.-imposed duties on Canadian softwood lumber. We fully expect the United States to abide by this ruling, stop collecting duties and refund the duties collected over the past three years," he said.

Washington’s initial response was that the ruling doesn’t settle anything – and that it will take more negotiations before this dispute is wrapped up.

[shavonfan]

Wow, this is very interesting, and I never knew a thing about it!

The bickering between Canada and the United States over softwood lumber is like a case of sibling rivalry. It dates back hundreds of years.

Just curious, Leona, where do you stand on this issue? Let me take a wild guess and say that you agree with Canada on this one! lol

[ocelot]

I do stand on Canada's side on this one. Not only is it against the commitments that they made it is also affecting Canada's economy. I find that when there are things like these when the US is put in a "bad" light in find that the media often ignores the issues. It was the same when there was a friendly fire accident where a US helicopter dropped a bomb on some Canadian soldiers in Afghanistan. The US media paid next to no attention to it and there were families without their sons, husbands, and fathers but for the longest time there are no apologies, or recognition of their deaths in the media or directly to the families.

[shavonfan]

This is all new to me so I haven't formed an opinion yet regarding the dispute. However, and I want to be very careful about how I word this because of how much it means to you, I completely agree with you that we are wrong for turning a blind eye to things that are not so favorable to us. This seems to be a sensitive issue to you, and I do not want to make light of it for that reason. What I am trying to find out is why is this thing so difficult to solve. There are interests on both sides of this thing that are not being negotiated, it seems to me. Why is Canada so unwilling to make a few concessions that would resolve this? Same with the USA. It is the responsiblity of all to show concern for the weight of the problem. Those who are jobless as a result of all this deserve better from both sides, I am willing to bet. It smells of politics from first impression. But I will continue to dig into this, as it is very interesting to me. I promise to be very careful about my views, should they be disagreeable to you. And that is not saying that I disagree.

[shavonfan]

www.fb.org/issues/backgrd/lumber.doc
I'm having a difficult time posting this commentary that I found, so I am hoping that you can click here to read it. I am curious to know what your response is to the article.

[ocelot]

U.S. – CANADA SOFTWOOD LUMBER DISPUTE
Background:

The U.S. - Canada Softwood Lumber Agreement expired in 2001. Under the agreement, the volume of tariff-free exports of softwood lumber from Canada were capped, with escalating tariffs assessed on amounts imported in excess of the established cap. The agreement was designed to address Canadian subsidization of its softwood lumber industry to the disadvantage of U.S. producers.

After a lengthy investigation prompted by a petition filed by the Coalition for Fair Lumber Imports, an organization of U.S. lumber producers, the U.S. government found that Canada is providing subsidies to its softwood lumber industry. It also found that Canadian softwood lumber was being sold in the United States at less than fair value (dumping). The U.S. imposed countervailing import duties of 19.3 percent, and antidumping import duties of up to 7.83 percent.

In response to the U.S. actions, Canada filed complaints with the World Trade Organization (WTO) and under the North American Free Trade Agreement (NAFTA), citing the United State’s methodology as flawed and requesting that NAFTA and the WTO find in favor of Canada. In mixed decisions, the NAFTA and WTO panels agreed with the United States that Canada was providing a subsidy to its lumber producers, but agreed with Canada that the United States erred in the way it established the amount of duty it assessed on Canadian lumber imports.

The United States and Canada have met numerous times to negotiate an acceptable solution. The parties have identified the specific issues of contention which, from the U.S.’s perspective, are Canada's stumpage pricing system, its tenure policies guaranteeing the sale of Canadian lumber to Canadian mills, and its laws mandating that mills cut a minimum amount of timber. Several proposals to achieve a negotiated settlement and a new trading framework have been offered. None has been accepted by both parties, so the dispute continues. The U.S. has collected hundreds of millions of dollars in duties from the Canadians, all of which is held in escrow by the U.S. pending resolution of the dispute.
___________
AFBF Policy:

Farm Bureau supports a negotiated settlement of the U.S.-Canada Softwood Lumber dispute. Attempts should be made to address the inequity between U.S. and foreign agricultural products due to the cost of paying technical fees and/or royalties.

Countervailing duties should be imposed on imports which are subsidized and the U.S. government should not waive such duties until it finds the production or export of the commodity exported to the U.S. has ceased to be subsidized. We support legislation that would allow countervailing duties to be imposed quickly when such subsidies are proven. Until trade distorting subsidies are reduced or eliminated, we support import tariffs on subsidized agricultural product imports into the U.S. in order that U.S. agricultural products may remain competitive in the marketplace.
_____
Action:

The U.S. should pursue trade remedies available to it in the WTO while at the same time negotiating with Canadian officials to arrive at a mutually agreeable settlement. The U.S. should defend its dumping and subsidy findings and proceedings against further challenge by Canada in the WTO.
(July 2005)

[ocelot]

GOVERNMENT OF CANADA ANNOUNCES ADDITIONAL SUPPORT TO SOFTWOOD LUMBER WORKERS AND COMMUNITIES
VANCOUVER — The Honourable Herb Dhaliwal, Minister of Natural Resources Canada, on behalf of the Government of Canada, today announced measures to help Canadians whose livelihoods depend on softwood lumber. These measures provide funding for research and support for the workers and communities affected by the 27.9-percent duty imposed on Canadian softwood lumber exports to the United States. The funding will help communities develop their economies, support workers through training and job-sharing programs, and invest in research to promote the long-term competitiveness of the forest sector.

“These measures are an important step forward. Our efforts represent a work in progress in support of this sector. The Government of Canada will continue to seek a resolution of this issue with the U.S. At the same time, we will continue to monitor the impact of these duties on Canadian industry and communities across Canada,” said Minister Dhaliwal. “In the months ahead, we may need to provide further support to workers, communities and small-and-medium- sized businesses should the issue of softwood lumber with the United States remain unresolved for an extended period.”

Minister Dhaliwal, with Human Resources Development Canada Minister Jane Stewart, International Trade Minister Pierre Pettigrew and Industry Minister Allan Rock, developed this package after consultations with the softwood lumber industry and the provinces. The funding, totalling $246.5 million, is divided as follows:

*$71 million for measures to assist displaced workers. This builds on the substantial supports currently provided to Canadians under the Employment Insurance Program and other programs;
*$110 million for a national Softwood Industry and Community Adjustment Fund to support community economic development. The Government of Canada will work with provinces and communities to ensure the effectiveness of the fund;
*$40 million for targeted measures to address the mountain pine beetle epidemic in British Columbia;
*$23.5 million for the creation of a centre of excellence for pulp and paper in Trois-Rivières, Quebec; and
*$2 million to support a boreal forest research consortium in the
Saguenay–Lac-Saint-Jean region of Quebec.
The Government will continue to work closely with industry associations and small- and medium-sized enterprises on the design of other possible measures.

Today’s measures are in addition to those announced earlier this year — $95 million in funding for softwood lumber research and development, market expansion initiatives and advocacy efforts. This brings to $341.5 million the total Government of Canada support to help address the effects of the softwood lumber trade dispute and to advance Canada’s position.

“These measures will help employees acquire the skills they need to remain employed,” said Minister Stewart. “Our programs will help those affected by the problems in the softwood lumber industry and will be available to employees in other firms facing similar problems in high unemployment areas.”

“We will continue to defend our softwood lumber industry by challenging U.S. actions that contradict international trade rules,” said Minister Pettigrew. “These measures will help people and communities in adjusting to the current difficult situation. In the meantime, we are pursuing trade challenges to the unfair duties imposed by the U.S. on Canadian softwood lumber. Together with the provinces and industry, the Government of Canada continues to persevere to find a durable solution to this dispute.”

“Today’s package once again demonstrates the Government of Canada’s commitment to helping workers and communities to manage the current situation and to finding new sources of prosperity through research and community economic development,” said Minister Rock, who will oversee the implementation of the community adjustment initiative working with partners and provinces.

Canada continues to fight the U.S. actions in the World Trade Organization (WTO) and under the North American Free Trade Agreement. Together with the provinces, the Government of Canada remains open to discussing a long-term, durable solution with the United States. The Government is confident that the U.S. government shares Canada’s desire to reach an equitable solution.

Canada has confidence in the strength of its legal cases — recent WTO rulings have supported Canada’s position that the industry is not subsidized and should not be subject to U.S. duties or penalties. Pursuing these cases takes time, however, and the Government of Canada hopes the assistance package will help workers and communities that are suffering.

This new funding builds upon the Government of Canada’s commitment to ensuring the health and well-being of Canadians and the sustainability of communities, both of which are essential elements of the quality of life of Canadians.

[ocelot]

November 22, 2005 (9:45 p.m. EST)
No. 230

U.S. FINALLY DETERMINES CANADIAN SOFTWOOD NOT SUBSIDIZED: ONE STEP TOWARD RESOLUTION

International Trade Minister Jim Peterson today said he was encouraged by the news that the U.S. Department of Commerce (DOC) has finally issued a determination on countervailing duties that supports Canada’s long-standing position that Canadian softwood lumber is not subsidized.

“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,” said the Minister. “This is a positive move and one that Canadians should rightly see as a vindication of our strong position.”

The Minister added, “This first step is encouraging, but a complete victory will not have been secured until the duties improperly collected have been returned—until all duties are eliminated.”

Today’s remand determination of 0.80 percent by the DOC was in response to the NAFTA panel’s fifth request that the DOC correct its subsidy determination—previously reduced by the DOC from 18.79 percent to 1.21 percent. Canadian exporters continue to pay an unjustified 20.15 percent duty on softwood lumber shipped to the U.S. Since 2002, some $5 billion in duties has been collected illegally.

Even before today’s decision, the imposition by the United States of countervailing duties on Canadian softwood lumber was ruled inconsistent with U.S. law. On August 10, 2005, a NAFTA Extraordinary Challenge Committee (ECC) upheld a NAFTA panel decision that there was no basis in U.S. law for finding threat of injury to the U.S. industry. The ECC decision legally required the U.S. to revoke the countervailing and anti-dumping duty orders, to refund, with interest, deposits collected, and to stop all ongoing administrative reviews.

Canada will continue to explore every reasonable option for resolving this dispute, 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.

“However, this 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,” Minister Peterson concluded. “We will continue to advocate for the interests of our lumber industry and for the full respect for the terms of NAFTA by the administration.”

The Government of Canada will consult closely with the industry itself and the affected provinces on the next steps.

For more information regarding Canada’s legal challenges against the United States at the WTO and under NAFTA, please visit www.dfait-maeci.gc.ca/eicb/softwood/legal_action-en.asp.

For more information regarding softwood lumber issues in general, please visit www.softwoodlumber.gc.ca.
www.dfait-maeci.gc.ca

Background

CHRONOLOGY OF KEY EVENTS: CANADA’S NAFTA CHALLENGE OF THE U.S. DEPARTMENT OF COMMERCE’S FINAL COUNTERVAILING DUTY DETERMINATION

April 2, 2001: The United States Department of Commerce (DOC) initiated its countervailing duty investigation of Canadian softwood lumber.

March 22, 2002: The DOC made a final affirmative countervailing duty determination and imposed an 18.79 percent duty on Canadian softwood lumber imports.

April 2, 2002: A binational panel was established under NAFTA Chapter 19 to review whether the DOC’s final affirmative countervailing determination is contrary to U.S. law.

August 13, 2003: The NAFTA panel issued its first report and instructed the DOC to correct its original countervailing duty determination.

January 12, 2004: The DOC released its countervailing duty remand determination and found a new subsidy rate of 13.23 percent. The DOC’s remand determination was subsequently challenged by Canada.

June 7, 2004: The NAFTA panel issued its second report and again instructed the DOC to issue a determination consistent with U.S. law.

July 30, 2004: The DOC issued its second remand determination and found a new subsidy rate of 7.82 percent. The DOC’s remand determination was subsequently challenged by Canada.

December 1, 2004: The NAFTA panel issued its third report and again instructed the DOC to issue a determination consistent with U.S. law.

January 24, 2005: The DOC issued its third remand determination and found a new subsidy rate of 1.88 percent. The DOC’s remand determination was subsequently challenged by Canada.

May 23, 2005: The NAFTA panel issued its fourth report and again instructed the DOC to issue a determination consistent with U.S. law.

July 7, 2005: The DOC issued its fourth remand determination and found a new subsidy rate of 1.21 percent. The DOC’s remand determination was subsequently challenged by Canada.

August 10, 2005: The NAFTA Extraordinary Challenge Committee in the threat of injury case issued its decision unanimously rejecting U.S. claims and affirming the NAFTA panel’s ruling 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.

October 5, 2005: The NAFTA panel issued its fifth report and again instructed the DOC to issue a determination consistent with U.S. law.

October 28, 2005: The DOC filed a motion with the NAFTA panel requesting clarification of the panel’s October 5 instructions. The DOC also sought permission to file its remand determination 10 days after having received clarification from the panel.

November 16, 2005: The NAFTA panel denied the U.S. request for clarification, reiterated its October 5 instructions and ordered the DOC to issue a new determination by November 23, 2005.

November 22, 2005: The DOC issued its fifth remand determination and found a new subsidy rate of 0.80 percent.

[ocelot]

www.fb.org/issues/backgrd/lumber.doc
I'm having a difficult time posting this commentary that I found, so I am hoping that you can click here to read it. I am curious to know what your response is to the article.

I found it very one sided. I find that as far as this issue goes that each side firmly believes that what they are doing is fair that it makes it a very difficult issue to talk about. Some of the Canadian articles are one sided too.

[shavonfan]

Canada continues to fight the U.S. actions in the World Trade Organization (WTO) and under the North American Free Trade Agreement. Together with the provinces, the Government of Canada remains open to discussing a long-term, durable solution with the United States. The Government is confident that the U.S. government shares Canada’s desire to reach an equitable solution.

Geez, I would hope so! Seems like this has been going on for so long that everybody is just holding their own and not even knowing why anymore. But, if in fact the US is wrong for the tarrifs, and is the cause of the unemployment in Canada, then what would be the situation if the tarrifs were removed and how would that effect US employment?

[ocelot]

Here's a statement put out by the Canadian Chamber of Commerce and the US Chamber of Commerce (you'll need Adobe Reader (pdf file)to read it):
www.chamber.ca/cmslib/general/Softwood092005.pdf

Farm Bureau Calls for Resolution of Softwood Lumber Dispute
WASHINGTON, D.C., Nov. 17, 2005 – It’s time for the United States and Canada to immediately go back to the negotiating table to hammer out a “durable, mutually agreeable solution to trade in softwood lumber,” according to American Farm Bureau Federation President Bob Stallman.

A World Trade Organization dispute panel ruling, which was made public earlier this week, upheld the U.S. International Trade Commission’s “threat of injury determination” on imports of softwood lumber from Canada. The case is technically complicated and both sides can claim victory depending on which dispute forum – the WTO or the North American Free Trade Agreement – they choose to cite.

“This dispute has gone far beyond that which is reasonable and necessary for two of the world’s most integrated trading partners to resolve,” Stallman said. “The American Farm Bureau is concerned that the residual affects of the dispute have grown so large that they threaten not only trade in softwood lumber, but trade and policy issues for other agricultural products as well.”

In spite of an adverse NAFTA ruling on this issue, Stallman said NAFTA has been overwhelmingly good for U.S. and Canadian agriculture. He said the value of agricultural trade between the United States and Canada makes their trading arrangement “the single most important trading partnership for U.S. farmers.”

[ocelot]

shavonfan said:

Canada continues to fight the U.S. actions in the World Trade Organization (WTO) and under the North American Free Trade Agreement. Together with the provinces, the Government of Canada remains open to discussing a long-term, durable solution with the United States. The Government is confident that the U.S. government shares Canada’s desire to reach an equitable solution.

Geez, I would hope so! Seems like this has been going on for so long that everybody is just holding their own and not even knowing why anymore. But, if in fact the US is wrong for the tarrifs, and is the cause of the unemployment in Canada, then what would be the situation if the tarrifs were removed and how would that effect US employment?

The problem is that the US is trying to get into other trade agreements and people are pointing at this and saying if you aren't complying with the NAFTA and WTO agreements as far as that one case with Canada why wouldn't you do the same thing to us. That's why I posted the articles above. To show if it goes too far it could affect more than the Lumber industry.

[shavonfan]

We must swallow hard on softwoodThere's no way around it. Canada must negotiate an end to the softwood disputeNov 17, 2005 The Globe and Mail
By Tim Armstrong
It's no surprise that Western Hemisphere leaders were unable recently to convince Hugo Chavez and other Latin American doubters of the merits of regional free trade. If Canada and the United States, two of the world's closest allies, can't agree on the enforcement of their North American free-trade agreement, what hope is there of persuading opponents to embrace free-trade deals?

The U.S.-Canada softwood-lumber debacle has become a farcical example of how NAFTA members can ignore or permanently delay the enforcement of the agreement's provisions. The litigation surrounding the softwood-lumber dispute rivals Dickens's celebrated comedic Jarndyce v. Jarndyce case in Bleak House for its protracted and so-far unproductive legal manoeuvring.

Whether we Canadians like it or not, sooner or later we're going to have to negotiate a settlement with the Americans on softwood. It turns out that not all the chips are on our side.

From the start, at issue have been Canadian "stumpage" programs, under which Canadian provinces provide low-cost timber to Canadian lumber companies, and which the Americans characterize as subsidization arrangements contrary to the World Trade Organization and NAFTA subsidy prohibitions.

There was a five-year truce from 1996 to 2001, when, under the Softwood Lumber Agreement, a tariff rate quota system for Canadian imports was established, with punitively high tariffs for imports beyond the stipulated quotas. Immediately upon its expiry, the U.S. International Trade Commission (ITC) imposed high countervailing and anti-dumping duties on most Canadian softwood lumber imports -- duties which have now accumulated to more than $4-billion.

Canada challenged the duties under the dispute-settlement systems of both NAFTA and the WTO, contending that there was neither subsidization nor material injury involved in the Canadian imports. It has now been established that the stumpage programs do constitute a form of subsidization, so the current dispute focuses on whether, and to what extent, "material injury" has been caused to the U.S. lumber industry.

NAFTA panels have issued at least 11 orders to the U.S. authorities, dealing in the main with the proper methodology for calculating the benefit conferred by the subsidies. The countervailing duty rates have now been reduced by the NAFTA orders to slightly more than 1 per cent. However, the U.S. Department of Commerce's stated objective is to justify the continued imposition of duties and to resist repayment of the $4-billion-plus in duties already imposed.

In what appeared to be a final determination, a NAFTA panel concluded in June, 2004, that the ITC had failed to establish that Canada's imports posed a material threat to the U.S. industry, removing the justification for all anti-dumping and countervailing duties. However, the U.S. appealed the matter to a NAFTA Extraordinary Challenge Committee (ECC). In early August, the ECC rejected the U.S. appeal and confirmed that there was no material injury threat to the U.S. industry.

So why are duties still imposed, and the duties paid since 2002 (in excess of $4-billion) not returned to Canada? Principally because of a ruling in late August (officially released this week) by the WTO, that U.S. lumber producers are threatened with injuries from Canadian imports and that the revised U.S. duties now comply with international rules. Within hours, a NAFTA panel issued yet another directive, giving the U.S. one week to "drastically reduce its duties." (Even so, Canada must ask itself: Why were the NAFTA and WTO routes pursued concurrently, given the prospect for conflicting rulings?)

The Canadian position is that only the NAFTA rulings are binding. The WTO, while properly concerned that its member nations are complying with its own requirements, has, according to Canada, no authority to impose remedial orders. And in any event, says Canada, NAFTA prevails in the event of any conflicts in rulings. Canada also asserts that the NAFTA and WTO rulings are "mutually exclusive," NAFTA dealing with domestic laws and the WTO with international laws. Confusing? You bet.

So this is where the impasse now stands, but is the litany of litigation completed? Dream on. The Coalition for Fair Lumber Imports, a U.S. lumber lobby group, has launched a challenge to Chapter 19 of NAFTA -- the whole resolution process -- on the basis that it is unconstitutional in purporting to oust review by U.S. courts.

And what about Canada? Not to be outdone on the litigation front, it is now suing the U.S. in the U.S.'s own Court of International Trade to have the "illegally" collected duties returned. Canada has also confirmed it will appeal the WTO ruling. So it's a bonanza for the trade lawyers, and a nightmare for everyone else, including the taxpayer.

On the political front, the strongly protectionist and influential U.S. Senate finance committee, in confirmation hearings last month involving a senior Commerce Department official, extracted his commitment to "turn over every single stone we can to calculate a margin above the 1-per-cent threshold to keep the countervailing order in place and ensure that American workers are not undermined by unfair trade practices." It can safely be assumed that he was echoing the views of the Bush administration.

Against this backdrop, how are the Hugo Chavezs of this world to be persuaded that international free-trade agreements work? Ours is only one example of enforcement difficulties, where the U.S. is at least advancing arguable propositions, even if we don't agree with them. In the WTO, there are members like China who don't even bother to defend their violations. Awed by the size of China's market and its vast accumulation of foreign currencies and its large holdings of foreign debt (particularly U.S. treasury notes), most nations are deterred from even challenging China's transgressions.

As Canadians assess political choices in the weeks ahead, the Gomery inquiry findings will likely dominate media commentary. But far more significant is Canada's leadership capacity to deal with, and resolve, complex trading issues like softwood lumber. Mr. Martin's belligerent "no negotiation" stance may have some superficial attraction on TV, but in the real world, it looks more like pre-election bombast. Negotiations will be tough, but surely must be pursued.

**Tim Armstrong, a former trade official, was Ontario's agent-general for the Asia-Pacific region from 1986 to 1990, and Ontario's deputy minister of economic development from 1991 to 1992.

** I just found this and thought it was interesting.

[ocelot]

I think it's a great article because it points out the opinions of both sides. (I noticed that it came from "The Globe and Mail" which is a newspaper I highly respect too.)

[ocelot]

I think there needs to be negotations on this issue. The one problem I have with what the US has done is that they signed an agreement and then backtracked and didn't follow the agreement. I feel the softwood Lumber issue needs to be solved to both countries satisfaction, so we can move on and no longer have this hanging over our heads. I believe this issue has affected other issues by them being pushed off to the side while the agruements on this continued. If need be Canada can set minimums to the pricing of softwood lumber, if it's the price that the US government is worried about (I'm sure Canada would agree to this as long as the pricing was fair).