"The viability of the SLA is dependent on maintaining that balance. The tribunal’s decision regarding the calculation of the trigger volumes for the Western Canadian provinces is not consistent with the balance we negotiated under the SLA. While we remain committed to the long-term goal of market-based trade in lumber, we will be consulting with our stakeholders on options going forward.”

Under the SLA, Canada agreed to impose export measures on Canadian exports of softwood lumber products to the United States. When the prevailing monthly price of lumber, determined per the Agreement, is above USD355 per thousand board feet (MBF), Canadian lumber exports are unrestricted.

When prices are at or below USD355 per MBF, each Canadian exporting region has chosen to be subject to either an export tax with a soft volume cap or a lower export tax with a hard volume cap or “volume restraint.” The measures become more stringent as the market price of lumber declines.

Today, the prevailing monthly price of lumber is USD243 per MBF and the Western Canadian provinces are subject to the maximum export charge of 15%, while the Eastern provinces face the most stringent volume restraints provided under the Agreement in addition to an export charge of 5% (the maximum possible for those provinces).

The SLA includes an adjustment mechanism to ensure that the export volume caps are calculated appropriately under rapidly changing market conditions. The United States argued that Canada breached the SLA by waiting until July 2007 – instead of January 2007 – to make downward adjustments for the Eastern provinces and by failing to make any adjustments for British Columbia (BC) and Alberta.

In the view of the United States, Canada’s failure to make the downward adjustments resulted in greater levels of shipments from Canada than were allowed under the Agreement, which exacerbated already difficult market conditions.

The tribunal found that Canada is required to make a downward adjustment only to the export volume caps for the Eastern provinces, but not for BC and Alberta. The tribunal did agree with the United States that Canada needed to make these adjustments beginning in January 2007, not July 2007.

At present, Canada continues to make the downward adjustment when calculating volume restraints for the Eastern provinces. Had the tribunal found that the adjustment also applied to the Western provinces, this would have resulted in additional surge penalties only for certain months, primarily from January 2007 – June 2007. The Western provinces would not be subject to surge penalties at the present time due to current market conditions.

The SLA entered into force on October 12th, 2006, and is expected to remain in force for seven years, with the possibility of extension for an additional two years.

The SLA provides for binding arbitration to resolve disputes between the United States and Canada regarding interpretation and implementation of the Agreement. Under the SLA, arbitration is conducted under the rules of the LCIA, and there is no appeal from the decision of the tribunal.