Pressure Grows For US Tariffs On Canadian Lumber

by Leroy Baker, Tax-News.com, New York

03 April 2009

Pressure is mounting on the US government to raise tariffs on Canadian lumber. This follows Ottawa's decision not to abide by the letter of a ruling by the London Court of International Arbitration ordering Canada to impose additional export taxes on lumber from certain provinces which breached quota obligations under the Softwood Lumber Agreement in 2007.

The US Coalition for Fair Lumber Imports, an alliance of large and small lumber producers from across the United States, is of the view that Washington should impose retaliatory tariffs on imports of Canadian lumber because Canada has not imposed taxes on exports of lumber from the provinces of Ontario and Quebec, in defiance of the LCIA ruling.

The LCIA released their non-appealable decision in late February in order to offset and remedy export measure breaches by Ontario, Quebec, and other provinces in the first nine months after the Softwood Lumber Agreement between the US and Canada was implemented in October 2006. Canada missed the March 28 implementation deadline, and as a result, the Coalition believes that the US is within its rights to impose a 10% import duty on lumber from Eastern Canada.

“We are deeply disappointed that the Canadian government will not abide by the LCIA directive to impose an additional 10% export tax on shipments from Ontario and Quebec," said Steve Swanson, chairman of the Coalition for Fair Lumber Imports. “Canada’s continuing bad faith approach to this trade agreement is bewildering and disappointing.”

The US and Canada have been a loggerheads over cross-border timber trade for many years, in a dispute which has its origins in Washington's decision to impose an anti-dumping tax on Canadian timber imports, with the US arguing that the Canadian logging industry was unfairly subsidized in certain areas of the country.

In 2006, the two sides attempted to resolve the spat with the signing and introduction of the Softwood Lumber Agreement. However, by 2007, the US was already accusing the Canadians of reneging on this deal, and then United States Trade Representative, Susan Schwab, requested formal consultations with Canada in April that year to discuss whether it was really abiding by the agreement.

In March 2008, the LCIA found that Canada had indeed violated the lumber agreement by failing to properly adjust quota volumes in the first half of 2007, but only in Canada's Eastern provinces - not also in the Western areas as the US had argued. The LCIA drew a similar conclusion a year later and ordered Canada to impose the 10% export tax until CAD68m (USD54.3m) had been collected - an amount equal to the revenue that the US claimed its industry lost due to the breach.

However, according to US Senator Olympia J. Snowe, a Maine Republican, Canada has not only failed in its obligation to implement the ruling, but its also attempting to "pay off" the US government by offering to make a direct payment.

"More than just failing to comply with the arbitration panel’s order, Canada’s attempt to pay off the US government to make this problem go away constitutes another, yet especially insidious, gambit to subsidize its lumber industry," she argued. "That is why I have called on the Office of the US Trade Representative to immediately impose commensurate tariffs on lumber from the offending producers in these provinces, as it is the United States’ right to do under the dispute settlement provisions of the Softwood Lumber Agreement."

Snowe, a senior member of the Senate Committee on Finance, which has jurisdiction over international trade issues, thundered: "It is absolutely outrageous that Canada so flagrantly seeks to deflect its share of the economic hardship that the worldwide lumber industry is experiencing onto American lumber producers at a time when so many have shut their doors or are in danger of doing so."

As is often the case in international trade disputes, Canada insists that it has complied with the LCIA's decision regarding its obligations under the lumber agreement.

“Maintaining the Softwood Lumber Agreement is a priority for the Canadian government and industry,” said Canada's Minister of International Trade Stockwell Day. “We recognize our commitments under this Agreement and we have honoured them.”

The Canadian trade ministry said that the government has authorized and made available a payment of $46.7m to the United States and is seeking confirmation from the tribunal that the payment cures the breach in a manner consistent with the lumber agreement. This payment, the ministry added, will be recovered from the affected provinces through deductions from the distribution of regular export charges, which are currently at 5%.

“At this difficult time for the industry, Canada chose this payment alternative instead of imposing an additional export charge, which would result in further mill closures and job losses in communities,” said Day.

Canada has, however, pledged to abide by the wording of the ruling if the tribunal deems its chosen payment method is not an adequate cure.

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