Canada to pay U.S. for breaching lumber deal

Tue Mar 31, 2009 9:49pm EDT
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VANCOUVER, British Columbia (Reuters) - Canada will reluctantly pay the United States nearly C$50 million for breaching a trade agreement covering softwood lumber exports, an official said on Tuesday.

Canada will pay the money rather than imposing a surcharge on lumber exports from four provinces that an international tribunal ruled had exceeded their shipment quotas under the trade deal, Trade Minister Stockwell Day said.

A month ago, the LCIA tribunal (formerly the London Court of International Arbitration) said Canada had miscalculated lumber quotas from Quebec, Ontario, Saskatchewan and Manitoba for six months in 2007, allowing producers to ship too much.

The tribunal gave Canada the option of paying the United States the amount in damages that U.S. lumber producers suffered because of the overshipments or imposing a 10 percent surcharge on lumber exports from the provinces.

"At this difficult time for the industry, Canada chose this payment alternative instead of imposing an additional export charge, which would result in further mill closures and job losses in communities," Day said in written statement.

Canada said it still believes the ruling was wrong. It calculated the damages at C$46.7 million, but will pay more if the tribunal rules that was not enough, officials said.

The countries signed the seven-year trade deal in 2006 to settle a long-running fight over allegations Canada improperly subsidizes its lumber producers, which supply about 30 percent of the construction lumber used in the United States.

Lumber producers in both countries have been struggling since it was signed because of the collapse of the U.S. housing construction market, and U.S. producers allege the subsidies continue -- a charge Canada denies.

Canada believes the trade agreement was good for its lumber industry because it provided political stability during tough financial times, Day said.

(Reporting Allan Dowd, editing by Anthony Boadle)

<p>A pile of cut logs sit on Spanish Banks in Vancouver, British Columbia April 26, 2006. REUTERS/Andy Clark</p>