U.S. Scores Win in Lumber Tariff Battle

February 2011Newsletters In the Zone

On Jan. 21, 2011, the London Court of International Arbitration (LCIA) ruled subsidies provided by the governments of Ontario and Quebec to lumber manufacturers in their provinces violate the terms of the 2006 U.S.-Canada Softwood Lumber Agreement (SLA). This trade agreement prohibits the Canadian federal and provincial governments from providing new subsidies to the Canadian lumber industry after July 1, 2006.

In late 2006 and 2007, Quebec and Ontario announced and implemented plans to provide hundreds of millions of dollars in grants, subsidized loans and subsidized loan guarantees to lumber producers. The United States initiated dispute settlement proceedings under the SLA with respect to these new subsidies in January 2008.

The text of the LCIA Tribunal decision has not yet been released publicly. However, the Office of the U.S. Trade Representative states that, according to the terms of the Tribunal award, Canada must implement a cure for this breach within 30 days or impose additional export taxes for the duration of the SLA. It is anticipated these additional export taxes will amount to
US$ 59.4 million.

By providing new subsidies, Canada knowingly violated the terms of the lumber trade agreement to provide an unfair advantage to Canadian producers in this very challenging market. The remedy prescribed by the LCIA will help bring about a more level playing field for U.S. manufacturers, millworkers and private forest landowners.

The decision is the second consecutive ruling by an LCIA Tribunal that Canada has violated the 2006 Softwood Lumber Agreement. In 2009, another LCIA Tribunal agreed with the United States that Quebec, Ontario, Manitoba and Saskatchewan had exceeded quota requirements and ordered a 10 percent penalty export tax on lumber shipments from those provinces until C$68.26 million is collected.

The SLA entered into force in October 2006. Under the agreement, Canada collects export taxes on shipments of softwood lumber to the United States when lumber prices fall below certain levels. In return for Canada’s commitment to collect these export taxes, the Coalition agreed to settle outstanding trade actions it had brought against unfair Canadian lumber subsidies and to refrain from pursuing such actions while the SLA is in place.

The agreement also prohibits the Canadian federal and provincial governments from circumventing these export taxes by providing subsidies to Canadian softwood lumber producers in excess of those in existence on July 1, 2006. Otherwise, Canada would be simply collecting the export taxes with one hand and giving them back to the lumber producers with the other hand – effectively circumventing the export tax requirements.

For more information, please contact Carrie B. Nase at 215.299.2030 or [email protected].