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Canadian Strategy in the Dispute
What
Happens Now?
Canada broke off formal bilateral negotiations
on softwood lumber following the US response to the decision
of the NAFTA Extraordinary Challenge Committee. (On August 10,
2005, the ECC affirmed an earlier NAFTA panel ruling – that
there is insufficient evidence showing that imports of Canadian
softwood lumber pose a threat of injury to the US market.) While
bilateral negotiations will undoubtedly resume, in the interim
Canada has indicated its future strategy in the softwood lumber
dispute will involve two separate components: pursuing
litigation and seeking new markets for
its lumber.
Pursuing Litigation
Federal officials have stated that Canada will continue to pursue
its legal challenges against US duties on Canadian softwood lumber,
both under NAFTA and at the WTO. In a recent statement, Canadian
officials publicly urged the US to respect the decision of the
NAFTA Extraordinary Challenge Committee, and to refund at least
$3.5 billion (Canadian) collected in softwood lumber duties.
Further to this, Canada has filed a brief opposing a motion by
the US Department of Commerce that seeks further clarification
of the NAFTA decision. Canada views the US Department of Commerce
request for clarification as yet another delaying tactic.
With respect to the interim WTO ruling, that US duties on Canadian
softwood lumber are justified, Canada has announced it will challenge
this ruling in the US Court of International Trade (USCIT)
Seeking New Markets
In addition to pursuing litigation, Canada has been attempting to
diversify its market for softwood lumber exports. Initiatives
such as the recently announced program to bring efficient
housing to China, whereby Canada will invest $750,000 (over
three years) to develop Canada’s energy-efficient housing
system for the Chinese market, offers another potential market
for Canada’s softwood lumber.
Canada can look to other markets for its lumber, however, the reality
is that it would be very difficult to replace the US market,
which accounts for 80 percent of Canada’s softwood lumber
exports (and approximately 85 percent of its total exports).
Even if the US continues to challenge NAFTA rulings, Canada cannot afford
to start a trade war with its largest trading partner. At the same time,
even if the World Trade Organization should ultimately side with Canada,
the WTO has no power to enforce its decisions. Ultimately, it is likely
that Canada will sign another long term agreement with the United States – one
that involves limiting Canada’s share of the US softwood lumber market,
and/or a tax on Canadian softwood lumber imports.
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