Canada-US Softwood Lumber Row Escalates With Filing of NAFTA, WTO Cases

7 December 2017

The past couple of weeks have seen a series of developments in the long-running US-Canada row over softwood lumber trade. Canada has lately launched cases under the North American Free Trade Agreement (NAFTA) and the WTO, respectively, to review new US anti-dumping and countervailing investigations on Canadian softwood lumber imports, whose final results were announced last month.

The cases involving softwood lumber mark a new chapter in an ongoing saga which dates back decades. They are also not the first NAFTA or WTO cases on the subject since the 2000s; however, litigation of any kind had been ended under a bilateral “Softwood Lumber Agreement” (SLA) reached in 2006, which expired in 2015. A related “standstill” on new trade remedies expired one year later.

Under the SLA, the US had agreed not to launch any new anti-dumping or countervailing duty investigations, while Canada was required to guarantee a minimum export price through export charges and/or quotas, among other provisions. (Bridges Weekly, 15 October 2015)

At issue in the row is a long-standing disagreement over whether Canadian lumber producers have benefitted from allegedly unfair government support, specifically from low “stumpage fees,” which are duties paid for each tree harvested from “Crown land.” United States producers of the timber have argued that these fees are tantamount to a subsidy, claiming that these are set at artificially low levels.

A US coalition of lumber producers had filed new complaints on the duties last year, and the US Commerce Department made final determinations of dumping and unfair subsidies in November, with the International Trade Commission due to confirm later this month whether this has also injured domestic industry and thus whether trade remedy duties should eventually be levied. (See Bridges Weekly, 9 November 2017)

According to Canadian government statistics, the domestic lumber industry is the source of jobs for over 200,000 Canadians, while noting that US supply would be insufficient to meet domestic demand without importing from its northern neighbour. These imports were valued at US$5.66 billion last year, according to US data.

WTO cases

Before the 2006 SLA took effect, Canada filed six WTO cases on US anti-dumping and countervailing probes, which had been launched five years prior and ultimately led to duties.

The Appellate Body confirmed that by granting a right to harvest standing timber, Canadian provinces provide standing timber to timber harvesters, and therefore made a “financial contribution.” Under WTO subsidy rules, subsidies are defined as a financial contribution by a government or public body which confers a benefit. However, other aspects of the Appellate Body review either found problems with different aspects of how the US calculated duties, or could not make a definitive finding as to whether the US had wrongly determined the “benefit” conferred by the Canadian government to its producers, in its investigation.

Some of the disputes reached the stage where Canada asked that the WTO’s Dispute Settlement Body (DSB) approve the suspension of concessions, though this ultimately did not take place given that the SLA was reached.

In the new WTO disputes launched just days ago, Canada again questioned among other issues the Commerce Department’s “benefit” analysis, which dismissed stumpage prices within a particular Canadian province as a comparative baseline. Canada is also asking for a review on the US’ calculation methodology in the anti-dumping probe.

NAFTA challenges filed

Chapter 19 of NAFTA sets out a dispute settlement system on trade remedies, providing an alternative to using the domestic courts of NAFTA parties. The system under that chapter would involve a “bi-national” panel, which can either uphold the decision, or send it back to the investigation authority and request for compliance within a reasonable period of time.

For the 2001 investigations and the resulting duties, the NAFTA panels were asked to decide whether the Commerce Department’s decision was in line with US anti-dumping and countervailing duty laws, and ultimately upheld some aspects of the agency’s determination, though left others for subsequent redetermination by the US authority. The case focused heavily on methodology, such as analysing the “benefit” conferred to Canadian producers or what benchmarks to use in calculations.

Those cases ultimately ended once the SLA was reached. However, new cases have now been filed under NAFTA in recent weeks from Canada.

Wider context

Despite efforts by US and Canadian negotiators to clinch a new SLA, those talks have so far failed to reach an updated accord, despite interest from domestic industry on both sides.

In announcing the anti-dumping and countervailing investigation results last month, US Commerce Secretary Wilbur Ross  defended the outcomes and said that “while I am disappointed that a negotiated agreement could not be made between domestic and Canadian softwood producers, the United States is committed to free, fair and reciprocal trade with Canada.”

However, the potential duties have drawn heavy scrutiny not just from Canadian industry, but also from some sectors within the US which have warned of adverse impacts for other parts of the value chain and potential increases in housing costs, given that softwood lumber is used in home construction. Canadian officials, for their part, pledged to use the legal avenues available to defend domestic industry, while advocating for a new lumber deal.

In parallel, the three NAFTA parties are currently negotiating a “modernisation” of the trade deal, kicking off that process in August. The US is lobbying for the removal of Chapter 19 dispute settlement, a proposal that has drawn intense pushback from its NAFTA partners. (See Bridges Weekly, 23 November 2017)

On the WTO side, the system is already facing strain due partly to having two empty seats on its Appellate Body, a number that will rise to three this month. The Appellate Body is meant to have seven members. Even so, new appeals have been filed under the WTO’s highest court, including a submission this past week from Mexico on compliance panel reports involving the US’ dolphin-safe tuna measure. That submission was not publicly available at the time of this writing, but will be covered in further depth in a subsequent issue of Bridges. (See Bridges Weekly, 2 November 2017)

ICTSD reporting.

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