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US Takes Canada To Arbitration Over Lumber

by Glen Shapiro, LawAndTax-News.com, New York

20 January 2011


The United States Trade Representative (USTR), Ron Kirk, has announced that the United States is requesting arbitration with Canada under the 2006 Softwood Lumber Agreement (SLA) regarding the under-pricing of timber harvested in British Columbia.

The SLA is intended to resolve disputes over Canada’s subsidizing of softwood lumber exports. Under the SLA, Canada agreed to impose certain measures to affect the price of softwood lumber exports to the US. The SLA provides that Canada may not circumvent those export measures, including by the provision of grants or other benefits.

By selling timber harvested from public lands in the interior region of British Columbia for prices below those provided for under the timber pricing system grandfathered under the SLA, the USTR’s opinion is that Canada provides a benefit to Canadian softwood lumber producers in circumvention of the export measures provided for in the Agreement.

The central issue in the dispute is said to involve the alleged mis-assignment by Canada of public timber to a low salvage grade, which British Columbia then sells to Canadian softwood lumber producers at the very low fixed rate. The US says the increase of such timber is not justified, even when factors affecting timber quality, such as damage from the mountain pine beetle, are fully taken into consideration.

The USTR said that growing US concerns over this issue have gone unaddressed by Canada. The US had requested formal consultations with Canada under the SLA in September 2010, and those consultations were held in the following month but did not resolve the matter. As a result, the US is exercising its rights under the SLA to submit the matter to binding arbitration.

The United States has brought two previous disputes under the SLA to ensure proper implementation of the Agreement. In the first dispute, a tribunal found that Canada failed to calculate quotas properly during the first six months of 2007 and found that Canada should impose additional export duties on softwood lumber as compensation. The second dispute is ongoing and concerns several Canadian provincial programmes that provide subsidies in circumvention of the SLA.

Kirk confirmed that, in his office’s opinion, “Canada is providing an additional benefit to Canadian exporters of softwood lumber by selling timber harvested from public lands for prices below those provided for under the timber pricing system grandfathered under the SLA. By doing so, Canada is in breach of its commitments under the agreement.”

“This type of benefit harms US workers and firms in the lumber industry,” he added, “and is inconsistent with Canada’s obligations under the SLA. When we believe our trading partners are not living up to their obligations, we will not hesitate to enforce our rights under our trade agreements.”

The British Columbia Lumber Trade Council has responded with the comment that "the US filing fundamentally takes issue with the damage done to British Columbia’s interior timber supply by the mountain pine beetle. The impact on our timber supply has been staggering, as well as the impact on communities, workers and families, companies and the overall provincial economy."

TAGS: tax | investment | law | enforcement | agreements | forest investment | trade disputes | Canada | United States | trade

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