US Trade Court Favours Canada In Lumber Tariff Dispute

by Mike Godfrey, Tax-News.com, Washington

25 July 2006

The Canadian lumber industry has won an important legal battle in the United States after the US Court of International Trade (CIT) ruled that tariffs applied to imports of Canadian softwood lumber had no legal basis.

According to the CIT, the US government was 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 lumber imports.

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 initially began charging a 27% tariff on Canadian lumber imports in 2002 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.

The US, however, preferred to abide by the decision of the World Trade Organisation dispute panel which, last year, gave its qualified consent to US tariffs.

The US has collected approximately US$4.5 billion in revenues from the tariffs, and under the CIT ruling 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 recent judgment has been 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.

Nonetheless, it is expected that the 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.

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