NAFTA Favours Canada In Lumber Dispute With US

by Mike Godfrey, Tax-News.com, Washington

27 March 2006

The Canadian government has won a legal victory against the United States in a long running trade dispute surrounding exports of subsidised timber from Canada to the US.

According to the US, Canadian provinces give sawmills an unfair subsidy by not charging market rates to harvest timber on government land. The US responded by charging tariffs on Canadian lumber exports worth some US$4.6 billion in May 2002, initially at a rate of 27.2%.

However, in a unanimous ruling by a binational NAFTA panel, a fifth recalculation to the tariff charged on Canadian timber imports by the US Commerce Department to as low as 0.8% was accepted; effectively, this decision means that the tariff will be rescinded, as any duty below 1% automatically falls to zero under a principle known as 'de minimus'.

US Senator Max Baucus (D-Mont.), Ranking Member of the Senate Finance Committee, expressed disappointment over NAFTA's latest "flawed" decision.

Baucus argued that the NAFTA decision contradicts the World Trade Organisation (WTO), which, he noted, has confirmed the existence of Canadian subsidies, confirmed that Canadian lumber is dumped into the US market, and confirmed that these subsidies and dumping practices threaten injury to the US lumber industry, in various decisions.

“It is deeply troubling that the panel has seen fit to undermine the legitimate and WTO-consistent response by the United States to imports of subsidized Canadian lumber. I urge the Administration to appeal this erroneous ruling," stated Baucus.

The WTO ruled last August that retaliatory tariffs imposed by the United States government on Canadian lumber imports are not in violation of global trade rules, and that the US was within its rights to impose the duties in order to protect domestic producers from imports which are subsidized by the Canadian authorities.

The United States retains the right to appeal the NAFTA panel's decision, although Baucus warned that continued litigation is "in nobody's interest" and urged US President George W. Bush and Canadian Prime Minister Stephen Harper to settle the dispute at their summit in Cancun next month.

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