US Proposes 15% Tax To Kickstart Lumber Dispute Settlement

by Mike Godfrey, Tax-News.com, Washington

20 June 2003

In a bid to get Canada back to the bargaining table in the long running lumber dispute between the two countries, the United States is proposing a 15% export tax on Canadian softwood. This would escalate once Canadian lumber attains the equivalent of 29% of the United States market, worth some $10 billion a year, reports indicated this week.

The dispute has arisen from the fact that Canada allows loggers and lumber merchants to operate from government owned lands, which the United States sees as an unfair export subsidy. In retaliation the US has imposed import tariffs on Canadian softwood.

United States Commerce undersecretary Gary Aldonas said recently that his "hands are tied" by a recent WTO (World Trade Organisation) ruling on the dispute, which suggested that the US is within its rights to charge some form of tariff. However, the ruling has only served to confuse the matter further, with both sides claiming that the non-binding judgement favoured their argument.

A recent demand from the Canadian side that the United States return $1 billion worth of duties collected over the past year has been rejected by a top US official, according to the Globe and Mail.

Meanwhile, the Canadians, who have not yet commented on the latest US idea, have proposed a volume-based system whereby the tariff rate varies depending on the volume of lumber exported across the border. This would start at C$25 per 1,000 board feet on shipments between 17 and 18 million board feet, increasing to C$50 on shipments up to 19 million board feet, and C$100 on movements above this volume. The US appears sympathetic to this idea, although it has proposed a regressive system of higher tariffs at lower shipment volumes.

This volume-based system would replace a combined 27% levy imposed on Canadian lumber last year.

Mr Aldonas also this week announced the release of a road map of reforms that would allow the Canadian provinces to escape any temporary export tax which he describes as meeting "the provinces half way". The 24 page document states that: "The overriding objective is to create economic conditions under which lumber producers and timber markets throughout North America would face the same competitive pressures," referring to the US claims that the Canadian provinces unfairly subsidize producers. To avoid punitive export taxes the US commerce department would require a province to show that its "timber sales system has been revised and is operating so as to ensure that the province receives adequate remuneration within the meaning of the US countervailing duty law."

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