Canada Turns Up The Heat On US Lumber Tax

by Robert Lee, Tax-News.com, London

24 August 2001

The US government's decision to impose a tax on imports of Canadian softwood lumber has been at the centre of debate for the two governments recently but political discussions over the controversial tax are set to escalate with the Canadian government announcing its intention to go the offensive and overthrow the tax. On Monday this week the Canadian Prime Minister, Jean Chretien, phoned US President Bush to bemoan the 19.3% duty and the next day the government lodged an appeal against the tax with the World Trade Organisation (WTO).

The tax was imposed after some US lumber companies complained that Canadian provinces were subsidising lumber firms by charging low 'stumpage' to cut timber on public lands. Energy Minister Ralph Goodale told reporters in Edmonton, Alberta: 'In the case of softwood lumber, they're just dead wrong ... they're wrong in fact and they're wrong in law and we will fight this one aggressively.'

The Canadians say they are angry with the US government in its inconsistent approach to free trade in that it is willing to buy Canada's oil and gas resources but not so much its lumber product. 'The Americans need to understand that they cannot be inconsistent in their approach, that it's offensive to their trading partners,' said Goodale.

He continued: 'The Americans have a very selective approach and they always like to cherry-pick situations to their advantage. However, if we were to directly link these things we would perhaps even strengthen their hand by allowing them to play one group of Canadians against another, one sector against another, one commodity against another.'

Each year Canada exports C$10 billion of softwood lumber including pine, fir, spruce and cedar to the US. This new tax has already forced Canadian lumber companies to lay off thousands of their workers.

Canada's International Trade Minister, Pierre Pettigrew, has pledged to do his best to convince US consumers to also fight the tax because it will result in a negative impact for them in that it will make houses much more expensive to build, which will in turn be costly for potential house buyers. He said his government will use the media to put the message across: 'We as a government intend to intensify those campaigns of public relations, being more present on american television shows so that Americans realise the harm that these punitive measures are really having on consuming, on housing stock and on the general economy of the US.'

He added: 'They [Washington] are putting another brake on an economy which is not doing all that well right now ... we will certainly be saying these things loud and clear in the US in the next few weeks and months.'

However, the voice of reason has spoken in the form of Canada's Foreign Minister John Manley, who said that despite Canada's vexation, little could actually be done except wait for the WTO to announce its decision on the appeal against the tax. He told reporters: 'I think everyone recognizes that, overall, you can't really link different commodities and different files when dealing with a neighbor who is so much bigger and more powerful. I'm confident that because we have a rules-based system and because we're confident in our case that we'll get a favorable outcome in the end but it will take time.'

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