Canadian Provinces Bicker Over US Lumber Tax

by Mike Godfrey, Tax-News.com, New York

01 October 2001

Provincial divisions surfaced in Canada last week as the country tries to negotiate an end to the 19.3% provisional anti-dumping duty imposed by the US on Canadian lumber exports. Canada has complained to the WTO about the 'countervailing' duty but the WTO process could take years to reach a final resolution.

Meanwhile, Canada admits that some of its export lumber pricing is in effect subsidised by the provinces - notably in British Columbia, which is therefore offering to accept a tax pending phasing out of the subsidies, or at least insulating pricing from any element of subsidy.

Other provinces don't agree, notably Ontario, which claims not to subsidise its lumber exports. "A tax flies in the face of competitiveness in the lumber industry and free trade," said Bob Runciman, Ontario's Minister of Economic Development and Trade. "There should be no discussion of an export tax."

The second-largest coastal producer in British Columbia, Doman Industries Ltd., had proposed a 15% tax on exports whenever lumber fell below a floor price. Rick Doman, chief executive of the company, said Canada needs to satisfy the Americans so thousands of laid-off workers in British Columbia can get back to work. But Mr. Runciman said US allegations of unfair subsidies are wrong and must be fought, not tacitly admitted to through a self-imposed penalty. "We don't want to sit down at a table and negotiate," Mr. Runciman told the Financial Post in an interview. "We've made our position very clear. We believe in free trade. Lets get this resolved through one of the relevant (trade arbitration) panels."

Officials from Canada and the US met in Toronto last week and will meet again this week in Washington. The US companies which asked their Government to impose the duty say it will take years for Canadian provinces to reform all their subsidised timber management practices.

The federal government admitted this week after the first round of talks that there is no consensus in Canada about imposing an export tax on the annual $10-billion in lumber exports, which is now threatened by the additional duty.

What is unclear is how far the US firms are actually suffering from the supposedly cheap imports from Canada. So-called 'dumping' accusations are often little more than institutionalised protectionism. The free-trader's point of view is to say that if one country is silly enough to provide cheap supplies to another country, then the recipient should thank them and get on with life. But the trade unions and companies which face this extra competition don't usually see it that way! The WTO is there to sort out such spats, which are becoming more frequent as more and more free-trade areas come into existence.

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