US Timber Duties Help Canadian Exports To Grow

by Mike Godfrey, Tax-News.com, New York

17 October 2002

Months of argument between Canada and the US over the duties imposed on timber imports from Canada have led to a series of cases before international bodies, but trading figures released last week show that, bizarrely, the duties have actually led to an increase in the volume of timber shipments. What seems to have happened is that Canadian producers have become more efficient in order to absorb part or all of the duties, and have increased shipments in order to preserve their margins.

The US imposed a 19.3% anti-dumping duty on Canadian lumber last year and increased the level of the tariff to 27% after negotiations between the US and Canadian governments broke down in April and the International Trade Commission supported the US position. The dispute, which began decades ago, is centred around US claims that its neighbour unfairly subsidizes Canadian softwood, and then exports the lumber at cheap prices to the US. However, the Canadian forestry sector, which supplies around a third of the US market, has traditionally counter-claimed that Washington is being protectionist.

Two main international sets of negotiations aimed at resolving the dispute are far from resolution, although the World Trade Organization recently delivered a ruling which seemed to favour the Canadian side, saying that the US Commerce Department erred last year when it calculated temporary countervailing duties by comparing prices US mills pay for wood with prices paid by Canadian companies.

"We conclude that the U.S. Department of Commerce's imposition of provisional measures based on the preliminary countervailing duty determination was inconsistent with the US obligations [under the WTO]," the WTO panel ruled. This was only a symbolic victory for Canada, since it referred to the temporary duties imposed until the ITC authorisation of permanent duties last spring. But it suggests that the WTO may slap down the definitive duties when it considers them.

A parallel action by Canada under Chapter 19 of NAFTA is due to reach a conclusion early next year. A NAFTA panel reversed similar duties imposed by the US in 1992, forcing repayment of sums collected, and it's likely that a similar result will be reached this time around, although the US Commerce Department used different arguments this time in assessing the duties it imposed.

In the light of the increase in timber exports, though, perhaps Canada should actually welcome the duties as an incentive for its producers? Prices of timber products for the booming construction industry have fallen in the US as a result of increased imports, leaving the high-cost US timber producers who asked for the countervailing duties in the first place to wring their hands and get ready for Chapter 11. Sometime the market does work in what seems a topsy-turvy way, and never more so than when governments interfere.

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