PDF _ IB10081 - Softwood Lumber Imports From Canada: Issues and Events
9-May-2006; Ross W. Gorte, Jeanne J. Grimmett; 17 p.

Update: June 19.2006

Previous Releases:

On April 26, 2006, the United States and Canada announced a 7-year agreement to resolve the long-standing dispute over U.S. imports of Canadian lumber. The agreement would establish Canadian export charges, with the level generally depending on average lumber prices, except for lumber from logs harvested in the Yukon, Northwest Territories, Nunavut, and Atlantic Provinces. Most of the duties collected to date would be returned to the importers of record. The agreement still needs to be finalized, which includes termination of all pending litigation..

Four developments occurred in April 2006 in Canada’s legal challenges to the softwood lumber duties.

* On April 27, the United States requested a NAFTA Extraordinary Challenge Committee to review the binational panel decisions on subsidy margins, but suspended the request, pending acceptance of U.S.-Canada lumber agreement.
* On April 13, the WTO Appellate Body reversed a WTO panel decision upholding the November 2004 ITC “threat” determination, on the ground that the panel had used an overly deferential standard of review, but in effect left the ITC determination intact.
* On April 7, a U.S. federal court ruled that the distribution of duties under the Continued Dumping and Subsidy Offset Act (the “Byrd Amendment”) does not apply to imports from Canada.
* On April 3, a WTO panel upheld the DOC dumping determination with higher rates issued to comply with a 2004 WTO decision.

Abstract: U.S. lumber producers have raised concerns about softwood imports from Canada for many years. Alleged Canadian subsidies (a prerequisite for establishing countervailing duties [CVDs]) were investigated in 1982, 1986, and 1992. No subsidies were found in 1983. Subsidy findings led to a 15% Canadian tax on lumber exports in 1986 and to a 6.51% CVD in 1992. The CVD was challenged and ended in 1994. A 1996 Softwood Lumber Agreement restricted Canadian exports until March 31, 2001.

U.S. Industry Arguments. The U.S. producers argue that they have been injured by Canadian subsidies, especially for provincial stumpage fees (for the right to harvest trees). In Canada, the provinces own 90% of the timberlands, which contrasts with the United States, where 42% of timberlands are publicly owned and where government timber is often sold competitively. These differences in land tenure make comparisons difficult.

In addition, U.S. lumber producers argue that Canadian log export restrictions subsidize producers by preventing others from getting access to Canadian timber. U.S. log exports from federal and state lands are also restricted, but logs are exported from U.S. private lands. Canada argues that U.S. treatment of export restrictions violates the WTO Agreement on Subsidies and Countervailing Measures.

Finally, U.S. producers argue that they have been injured by imports of Canadian lumber. They point to the growth in Canadian exports and market share, from less than 3 billion board feet (BBF) and 7% of the U.S. market in 1952 to more than 18 BBF per year and a market share of more than 33%. Canadians counter that the U.S. industry has been unable to satisfy U.S. demand. Homebuilders and other lumber users assert that Canadian lumber is needed to satisfy U.S. demands.

Current Issues. In March 2002, the Department of Commerce (DOC) determined that Canadian lumber was subsidized and was being dumped. The U.S. International Trade Commission (ITC) found that imports threatened to injure U.S. industry, and final antidumping (AD) and CV duties were set at 27%. Lumber duties have since been lowered as a result of annual DOC reviews.

Canada filed NAFTA and WTO challenges to the final agency actions and has challenged other U.S. actions in federal court; most of the litigation is pending. However, the challenges and litigation might be moot under the tentative agreement announced on April 26, 2006. This 7-year agreement would establish Canadian export charges, with the level depending on weighted average lumber prices, and with lower charges possible if the Canadian exporting region also accepts volume restraints. The various parties to the many proceedings must concur in the agreement before it can become effective.

Canada has also been concerned that the roughly $5 billion in deposited lumber duties may eventually be disbursed to U.S. lumber firms under the Continued Dumping and Subsidy Offset Act (the “Byrd Amendment”). The act was repealed in P.L. 109-171, with a mandate that duties on imports through September 2007 be disbursed; in April 2006, a U.S. court ruled that the Byrd Amendment does not apply to Canadian imports. Under the agreement, at least 80% of the duties would be returned to the importers of record.

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Topics: Forests, Economics & Trade, International

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