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Chronology of Events
Overview of Major Legal Decisions in the Softwood
Lumber Dispute
The softwood lumber dispute between Canada
and the United States has been played out in several legal arenas,
including at the WTO. The following provides an overview of major
events in the ongoing dispute:
- In 1986, the US Department of Commerce (DOC) determines the
stumpage fees Canadian governments charge to its forest
companies are significantly lower than the price that would
be paid for logging rights on the open market. The Department
of Commerce determines that stumpage fees constitute a
subsidy.
- To avoid a trade dispute with the United States, in 1986,
Canada signs a five-year “Memorandum of Understanding” permitting
the United States to charge a 15 percent ad valoremtax on
Canadian softwood lumber. (An ad valorem tax is one that
can be adjusted based on the value of the product on which
it is levied.)
- Despite the MOU, Canada never accepts that its policy regarding
stumpage fees amounts to a subsidy. In 1991, the Canadian
government terminates the Memorandum of Understanding.
Following termination of the agreement, the United States
places a 6.51 percent ad valorem tax on all imports of
Canadian softwood lumber.
- In response, Canada appeals the tax under the dispute resolution
mechanism outlined in the Canada-US Free Trade Agreement.
(The forerunner to NAFTA, the Canada-US Free Trade Agreement
took effect on January 1, 1989.)
- The dispute panel rules in Canada’s favor. The United
States appeals the panel decision, but ultimately fails
to have it overturned. The US revokes the ad valorem tax,
ultimately refunding a significant portion of the softwood
lumber duties it collected. At the same time, it revises
its trade laws so that a similar challenge by Canada will
not succeed in the future.
- In 1996, Canada and the United States sign another five-year
agreement. The “US-Canada Softwood Lumber Agreement” guarantees
Canadian softwood lumber exporters access to the US market
for a five-year period. The agreement permits the annual
import of 14.7 billion board feet (the standard measure)
of softwood lumber harvested on Crown Land into the United
States, with escalating duties on imports of softwood lumber
beyond that amount. The Maritime provinces are exempted
from the agreement, which does not apply to lumber harvested
from private lands.
- Upon the expiry of the agreement, in April 2001, the US Department
of Commerce launches another investigation into the Canadian
softwood lumber industry. In 2001, the (US) International
Trade Commission makes a preliminary ruling that subsidies
to Canada’s softwood lumber industry pose a threat
of injury to the United States softwood lumber
market.
- In August 2001, the US Department of Commerce imposes a countervailing
duty (once again,a duty
designed to counter unfairly subsidized products)
of 19.31 percent on Canadian softwood lumber imports.
- In October 2001, the US Department of Commerce determines
that Canadian companies are “dumping” softwood
lumber (selling it in the US market at a price below market
value) and that an additional “antidumping
duty” of 12.57 percent should be applied
to US imports of Canadian softwood lumber. The 12.57 percent
figure reflects an average of the antidumping duties applied
to Canada; the specific percentage of duties applied to
Canadian companies exporting softwood lumber to the United
States varies.
- In April 2002, the DOC reaches a final determination that
the countervailing and antidumping duties should be lowered
to 18.79 percent and 8.43 percent respectively. The total
amount of duties charged on imported Canadian softwood
lumber is 27.22 percent.
- Canada responds to the duties by launching several trade
challenges. At both the WTO, and under NAFTA, Canada requests
separate panels to examine all three determinations made
by the US Department of Commerce: that Canadian softwood
lumber exports are unfairly subsidized; that the subsidies
pose a threat of injury to the US market; and, that Canadian
lumber firms are “dumping” softwood lumber
onto the US market.
The history of the softwood lumber dispute since 2003 has been rather
complex, largely due to contradictory rulings by separate panels.
Additionally, rulings against the US have often been based on
technical issues, or the need for more information, as opposed
to a clear victory in Canada’s favour for the right to
export softwood lumber to the US duty-free. Due to the complexity
of the issues, both parties often hail rulings as victories.
Key developments, since 2003, include:
- Under NAFTA, a July 2003 ruling supports US antidumping duties,
but also rules that the method used to calculate the duties
is flawed. Several subsequent panels also focus on the
specific amount of the antidumping duties. Similarly, in
August 2003, a NAFTA panel rules that the softwood lumber
industry is indeed being subsidized by Canada, but that
the method the US used to determine the level of subsidy
was flawed, resulting in an excessive tariff.
- Despite these findings, in August 2003 a subsequent NAFTA
panel rules that the US has not provided sufficient evidence
to show that domestic softwood lumber producers are threatened
with injury from Canadian softwood lumber imports.
In 2004, following similar rulings by subsequent panels,
the US requests an Extraordinary Challenge Committee. In
August 2005, the Extraordinary Challenge Committee affirms
the original decision. This is significant, as countervailing and antidumping duties
can only be imposed if the dumped or subsidized imports
are deemed to cause, or have the potential to cause, a
threat of injury to the domestic industry.
- Until recently, the WTO panels customarily make similar rulings
(to those of the NAFTA panels) on Canadian challenges to
US softwood lumber duties. However, in August 2005, the
WTO reverses itself on an earlier decision, concluding
that Canadian softwood lumber imports do constitute a threat
of injury to the US market. Accordingly, US duties on softwood
lumber are justified under international trade laws.
The contradictory rulings of the NAFTA and WTO panels have led to
a dispute over whether or not the United States is obligated
to repay billions of dollars in softwood lumber duties it has
collected.
Canada’s position is that the WTO ruling does not negate US
obligations under the NAFTA treaty and that the US must return
at least $3.5 billion (Canadian) in duties it has charged on
imports of Canadian softwood lumber. The US position is that
Canada must return to the bargaining table; Canada broke off
scheduled talks on softwood lumber after the US announced it
would ignore the decision of the NAFTA Extraordinary Challenge
Committee and continue pursuing its case at the WTO.
More recently, the Coalition for Fair Lumber Imports, a US-based
organization representing lumber mill owners, announced it would
challenge the constitutionality of NAFTA’s Chapter 19 dispute
resolution system in the US courts. Meanwhile, the United States
continues to collect duties at 20.15 percent, reduced from 27
percent, on imports of Canadian softwood lumber.
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