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US, Canada Agree To Disagree Over Lumber Ruling

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

23 July 2012


The latest arbitration ruling under their bilateral Softwood Lumber Agreement (SLA), which held against US allegations that Canada had under-priced lumber entering its market, was a disappointment for the Office of the United States Trade Representative (USTR), but welcomed by Ed Fast, Canada’s Minister of International Trade.

Canada and the US enjoy the largest bilateral trading relationship in the world, with two-way trade in goods and services reaching around USD709bn last year. Softwood lumber bilateral merchandise trade accounted for some USD3bn of that total.

The 2006 SLA, which was extended until October 2015 in January this year, is intended to resolve long-running disputes over Canada’s alleged subsidization of softwood lumber exports. Under the SLA, Canada agreed to impose certain export measures on softwood lumber products when the price of lumber falls below a certain level, and not to circumvent those measures by, for example, providing grants or other benefits to softwood lumber producers.

British Columbia (BC) is Canada’s largest softwood lumber producer and exporter. In 2011, the province exported USD1.7bn worth of softwood lumber products covered by the SLA to the US, giving it a nearly 14% share of the US lumber market.

In October 2010, pursuant to the SLA, the US requested confidential consultations concerning BC timber pricing. It was alleged by the US that, by selling timber harvested from public lands in the interior region of BC for prices below those provided for under the SLA’s timber pricing system, Canada was providing a benefit to Canadian softwood lumber producers in circumvention of the export measures provided for in the SLA.

On January 18, 2011, the United States requested arbitration under the London Court of International Arbitration (LCIA). The central allegation in the dispute was that BC was mis-grading public timber as salvage “Grade 4” (the grade that was supposed to be reserved for timber that was mostly unusable to make lumber products) which meant it was selling the timber to Canadian softwood lumber producers at a very low fixed rate.

Canada argued, however, that the increased volume of Grade 4 logs harvested in the BC interior was a direct result of the devastating impacts of a mountain pine beetle infestation, which killed millions of hectares of timber in BC and reduced the value and grade of the logs.

In its recent final and binding opinion, while the LCIA has acknowledged the dramatic increase in the amount of timber priced as Grade 4, it was unable, in the end, to find a conclusive link between the increase and action by BC.

In any case, the US complaint dealt with a pricing system that is no longer in place as BC has modified its timber pricing system. The USTR has confirmed that it will be monitoring the resulting pricing changes closely.

Nkenge Harmon, Deputy Assistant USTR, said: “We are disappointed with the outcome of this latest arbitration under the SLA. Despite this result, we remain concerned that BC provided publicly-owned timber harvested in its interior to softwood lumber producers for prices far below market value. The fair pricing of timber in BC is in the strong interest of the US and we will continue to monitor this closely.”

On the other hand, Fast’s reply welcomed the ruling, adding that the Canadian government applauded the tribunal’s decision in favour of its lumber industry. “This positive outcome” he concluded, “is the result of our close collaboration with provincial and industry partners and proof that the SLA is good for Canada’s forestry sector. We are committed to the success of the SLA, which has brought certainty and stability to a sector that is vital to the Canadian economy.”

TAGS: court | tax | investment | business | export duty | law | trade treaty | agreements | forest investment | trade disputes | Canada | United States | trade

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