US Faces Final Defeat In Canadian Lumber Spat

by Glen Shapiro, LawAndTax-News.com, New York

22 August 2006

After the US Court of International Trade (CIT) ruled in July that tariffs applied to imports of Canadian softwood lumber had no legal basis, a WTO dispute panel has also come down on the side of the Canadians.

Canada began its WTO case against the US in 2002, when the US began charging a 27% tariff on Canadian lumber imports 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.

After an appeal by Canada, the disputes panel has now reversed an earlier ruling in favour of the USA.Says the WTO, in its new ruling isued at the end of July, 2006:

'The Appellate Body: (a) reverses the Panel's finding, in paragraphs 5.66 and 6.1 of the Panel Report, that the
USDOC's Section 129 Determination is not inconsistent with Article 2.4.2 of the Anti-Dumping Agreement and finds, instead, that the use of zeroing by the USDOC in the Section 129 Determination is inconsistent with the United States' obligations under Article 2.4.2 of the Anti-Dumping Agreement; (b) reverses the Panel's finding, in paragraphs 5.78 and 6.1 of the Panel Report, that the USDOC's Section 129 Determination is not inconsistent with Article 2.4 of the Anti-
Dumping Agreement and finds, instead, that the use of zeroing in the Section 129 Determination is inconsistent with the "fair comparison" requirement in Article 2.4; and (c) consequently, reverses the Panel's conclusion, in paragraph 6.2 of the Panel Report, that "the United States has implemented the recommendations and rulings of the DSB in US – Softwood Lumber V, to bring its measure into conformity with its obligations under the [Anti-Dumping] Agreement".

'The Appellate Body recommends that the Dispute Settlement Body request the United States to bring its measure into conformity with its obligations under the Anti-Dumping Agreement.'

According to the CIT's July ruling, the US government had been wrong to ignore a 2004 ruling by a trade dispute panel of the North American Free Trade Agreement (NAFTA), which found no grounds for the decision by the US government to protect its domestic softwood lumber market by charging tariffs on Canadian imports. In defiance of the NAFTA ruling, he US had chosen to abide by the decision of the World Trade Organisation dispute panel which gave its qualified consent to the US tariffs.

The CIT ruled that the United States was violating its own law by applying the Byrd Amendment to anti-dumping and countervailing duties on goods from its NAFTA partners, Canada and Mexico.

The US has collected approximately US$4.5 billion in revenues from the tariffs, and under the CIT and WTO rulings it faces having to refund to Canada all duties collected since November 2004 (approx $1.2 billion), and possibly the remaining $3.4 billion as well.

Under an agreement reached between the US and Canada in April, Washington agreed to cancel the tariffs on Canadian lumber after Ottawa accepted a proposal to tax its exports when the price of lumber drops below a certain threshold. However, this deal sees the US refunding only about 80% of the duties it collected during the dispute, allowing US lumber producers to keep the remainder.

The CIT judgment was hailed by the Canadian Lumber Trade Alliance as a "huge victory" for the country's industry. "Today’s decision means none of the US$4.5 billion in illegal deposits collected to date, or any cash deposits collected in the future, can be distributed to US companies under the Byrd Amendment," the Alliance said in a statement.

"As a result of today’s decision, the only opportunity for the US Coalition for Fair Lumber Imports to obtain any portion of these monies is if the holders of the cash deposits agree to turn over a portion as part of an overall settlement agreement," the statement added.

It is expected that the CIT ruling will be appealed to the US Court of Appeals, which would be unlikely to decide on the issue until the middle of next year. In the light of the WTO's stance, it seems unlikely that an appeal would be successful.

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