Canadian Softwood Deal Headed For Arbitration

The softwood lumber agreement is headed for arbitration, following U.S. allegations that Canada is violating terms of last year's deal by pushing too much British Columbia and Alberta lumber into the U.S. market.

"It is truly regrettable that, just 10 months after the agreement entered into force, the United States has no choice but to initiate arbitration proceedings to compel Canada to live up to its SLA obligations," said U.S. Trade Representative Susan Schwab.

"Our efforts to resolve these matters through consultations have not been successful."

Schwab also asked the U.S. Commerce Department to step uP monitoring of the agreement and collect information on Canadian compliance. The Coalition for Fair Lumber Imports maintains that Canada has under-collected export taxes totaling at least $116 million through the end of May, and the provinces have shipped at least 500 million bd. ft.

more than their allowed quotas.

"Canada has unilaterally and without consultation undermined the softwood lumber agreement by refusing to implement key terms," said CFLI chairman Steve Swanson. "The required tax and quota limits on shipments are essential to remedy Canada's unfair trade practices."

U.S. complaints target four areas: Canada has not properly applied the "surge mechanism" that penalizes provinces that export more than their allowed share of lumber, mainly British Columbia and Alberta.

. Canada did not move fast enough to adjust the volume cap for B.C. and Alberta lumber exports, to account for shrinkage in the U.S. market.

. The forest-industry assistance programs set up by the Ontario and Quebec governments were aimed largely at pulp producers and not intended to prop up lumber exporters.

. Canadian exports are subsidized through low government timber-cutting fees and other policies.

The London Court of International Arbitration will consider the complaints and produce a binding ruling in approximately l0 months. Arbitration provisions were a key feature of the new treaty, because previous agreements failed after both sides accused the other of trying to bend the rules.

International Trade Minister David Emerson said that the pact has worked well for Canada's forest industry. Renewable after seven years, the treaty replaced U.S. tariffs with a Canadian export tax and for some provinces a combination of quotas and a lower border tax. Canadian exporters were also reimbursed about $4 billion in duties collected since May 2002, about 807o of the total.

Emerson said the current dispute is based on differing interpretations that could not be resolved in lengthy talks. "Canada remains committed to this agreement and its continued effective operation and will abide by the outcome of the dispute settlement process," Emerson said. "We expect the same of the United States. It is this spirit of goodwill and cooperation that will allow us to continue to build a stronger, more competitive North America."