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US And Canada At Loggerheads Over Lumber

by Leroy Baker, Tax-News.com, New York

13 October 2010


The United States has requested consultations with Canada under the 2006 Softwood Lumber Agreement (SLA) regarding the apparent unfair under-pricing of timber harvested from public lands in British Columbia, the latest in a series of spats over bilateral lumber trade.

According to the US Trade Representative (USTR) Ron Kirk, British Columbia is circumventing the export measures provided for in the SLA by providing a low-cost input for their products and thus undercuts its US competitors.

“The United States and Canada have been engaged in discussions regarding the apparent under-pricing of timber harvested in the interior region of British Columbia for many months, but those discussions have so far been unsuccessful,” said Kirk. “The decision to move to consultations is intended to emphasize the importance of resolving this matter. As contemplated under the Softwood Lumber Agreement, we are asking to continue our engagement on this issue and ensure that the SLA is implemented as intended.”

The SLA was agreed in part to resolve disputes as to whether Canada was unfairly subsidizing the price of timber sold to its softwood lumber producers. Under the SLA, Canada agreed to impose export measures under certain circumstances to affect the price of softwood lumber exports to the United States.

In April 2009, Kirk announced the the US would begin imposing 10% ad valorem customs duties on imports of softwood lumber products from four Canadian provinces (Ontario, Quebec, Manitoba, and Saskatchewan) after Canada was found to be in breach of the agreement. These duties were to remain in place until the US had collected USD54.8m from Canada.

The new dispute centers on British Columbia’s timber pricing system as it existed on July 1, 2006, which was 'grandfathered' into the SLA. This provides that timber of a certain grade is priced at a fixed rate of 25 cents per cubic meter (other grades are priced at a variable rate, which can in no case be lower than 25 cents per cubic meter). In the view of the USTR however, the share of timber harvested from public lands in the Interior region of British Columbia and priced at the fixed rate "has increased dramatically since the SLA entered into force."

"This increase does not appear to be justified under the grandfathered BC provincial timber pricing system, even when known factors affecting timber quality in BC (such as the mountain pine beetle) are taken fully into consideration," the USTR said.

In response, Canada's Minister for International Trade Peter Van Loan said he was "disappointed" that the United States has rejected talks on the matter in favor of formal dispute settlement. "There is no justification for arbitration, and Canada will make this point forcefully in consultations," he said.

“The US complaint deals with a pricing system that is no longer in place," Van Loan remarked, adding:

“The Softwood Lumber Agreement was negotiated with a view to establishing stability, enhancing cooperation and facilitating an open dialogue between Canada and the United States."

“Canada and British Columbia have been transparent on BC’s market-based timber pricing system. This system was already in place when the Softwood Lumber Agreement was established. The increased proportion of low-value logs in BC’s timber harvest is due to the unprecedented mountain pine beetle infestation. Regrettably, the United States decided to rely on unfounded allegations, which are flatly contradicted by trade and other economic data."

Under the SLA, consultations are to be held within 20 days. If the matter is not resolved within 40 days of the request for consultations, either party may refer the matter to arbitration.

TAGS: investment | business | export duty | law | tariffs | forest investment | trade disputes | Canada | United States | trade

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