US And Canada To Settle Lumber Dispute

by Mike Godfrey, Tax-News.com, Washington

28 April 2006

Officials representing the governments of Canada and the United States are reportedly brokering a deal to end a long standing trade dispute between the two countries concerning the export of cheap lumber into the US by its northern neighbour.

The negotiations, which are currently shrouded in secrecy, could result in the removal of tariffs charged by the US on imports of Canadian lumber, which Washington argues are being "dumped" into the US market, if Canada agrees to limit and possibly tax its exports.

According to the US, Canadian provinces give sawmills an unfair subsidy by not charging market rates to harvest timber on government land. The US has 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, since then the issue has been clouded by a series of contradictory rulings by a North American Free Trade Agreement (NAFTA) panel and the World Trade Organisation. A unanimous ruling by a binational NAFTA panel in March effectively meant that the US must reduce its tariff to zero. The US has until Thursday to appeal this decision. The US in turn has claimed that NAFTA rulings, which have largely favored Canada, fly in the face of WTO opinions. According to Senator Max Baucus, a Montana Democrat, these have confirmed that Canadian lumber is dumped into the US market and that these practices threaten injury to the US lumber industry.

Washington has collected more than $4 billion in duties over the past four years, but, according to a report in the New York Times, which cited sources involved in negotiations, the US is willing to refund 78% of these tariffs as part of a deal to resolve the long-standing dispute.

In return, Canada is said to have agreed to apply limits on lumber exported to the United States and impose a tax on Canadian exporters when lumber prices fall below a set threshold.

However, this latter part of the proposal is likely to spark protest from the Canada's lumber industry and its provincial governments, which have the power to tax resources under the country's constitution.

Indeed, Ontario’s natural resources minister, David Ramsay, has already condemned the idea, telling reporters in Toronto that: “This is not acceptable and we won’t be part of this." Ramsay claims that the export tax will reduce sales in Ontario by up to 15%.

It has been reported that trade officials from Ottawa and Washington have already reached a provisional deal to end the dispute, although a final settlement is likely to take weeks or months to reach.

Recommended