US And Canada Sign Softwood Lumber Deal

by Mike Godfrey, Tax-News.com, Washington

04 July 2006

The United States and Canada have put the seal on a resolution of a long-standing trade dispute concerning the import of cheap softwood lumber into the US, as government representatives signed a deal first struck some weeks ago.

The agreement was signed on Saturday by America's Trade Representative Susan Schwab, and Canada's International Trade Minister David Emerson in Geneva while both were attending a World Trade Organisation conference.

The agreement, first reached in April, would see the United States cancelling its tariffs on Canadian lumber imports. Washington imposed the tariffs in 2002, initially at a rate of 27.2% in retaliation for supposedly unfair subsidies given to Canadian sawmills by provincial governments which, according to the US, did not charge market rates to harvest timber on government land.

In return, Canadian exporters will be expected to pay export taxes when the price of lumber drops below a certain level, which will be adjusted as prices fall. The tax would kick in at a rate of 5% when the price of softwood lumber reaches about $10 below the current sales price. As the price falls, this tax would increase to 10% and possibly as high as 15%, depending on how how far the price fell. Softwood lumber is currently averaging $370 per 1,000 board feet.

Under this system, Canadian provinces can also choose to pay lower export taxes by limiting exports below recent levels.

However, many north of the border have voiced criticism that the agreement will lead to the US returning to Canada only 80% of the approximately $5 billion that it collected in tariffs during the dispute.

Furthermore, opposition to some details of the deal has come from the provinces, in particular British Columbia which has criticised a two-year termination clause inserted into the text of the agreement. British Columbia had requested that the agreement be at least three years, with six months notice required for termination. The BC government has also refused to end its litigation over the tariffs, as called for under the agreement, and has told trade minister Emerson that it will not support the deal.

In response, Emerson has insisted that the deal will be a "long lasting" seven year agreement, with an option to extend it for a further nine years.

"This whole discussion about a termination clause came up only late in the discussions about the detail of the agreement, and that's really in relation to what I consider to be the extremely remote likelihood of one party or the other wanting to terminate the agreement for one reason or another," the minister was quoted as stating by Canadian daily, the Globe And Mail.

The agreement is set to undergo a legal review in August. While no new legislation is required for the deal to come into force in the US, the agreement will need the approval of the Canadian Parliament.

Emerson has stated that he hopes to have the agreement fully in place by October 1.

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