April 3, 2009 / 9:15 PM / in 8 years

U.S. rejects Canada's payment for lumber deal breach

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

WASHINGTON (Reuters) - The United States Trade Representative on Friday said a Canadian offer of $36.66 million (C$46.7 million) fails to make amends for a breach of the softwood lumber trade deal between the two countries.

The U.S. government will review its options for responding to the offer, which could include imposing duties on imports of Canadian lumber, USTR Ron Kirk said in a release.

"Canada's claim that it has complied with the arbitration tribunal's decision regarding Canada's obligations under the (softwood lumber agreement) is unfounded," Kirk said.

In February, the LCIA (formerly the London Court of International Arbitration) ruled that Canada had miscalculated quotas for lumber exports from four provinces for the first half of 2007.

An LCIA tribunal directed Canada to impose a 10 percent duty on lumber exports from the provinces until it had collected a total of C$68.26 million.

On Tuesday, Canada said it would pay C$46.7 million in damages, but said it would pay more if the tribunal rules that was not enough.

The USTR said the agreement provides that if Canada fails to cure its breach on time and as ordered, the United States can impose customs duties to collect the damages ordered by the tribunal.

"The United States is now reviewing the options available and will make a decision shortly on an appropriate course of action," the USTR said in the release.

The collapse of the U.S. housing construction market has led to massive layoffs in both the U.S. and Canadian lumber industries. Canada's trade minister said an export tax would lead to further job losses in the Canadian industry.

But the U.S. industry has said Canada's payment is another subsidy that would do nothing to stop the flow of lumber exports from the provinces.

The industry and one senior senator this week urged the USTR to levy the import duty on the lumber.

Canada and the United States signed a seven-year deal on softwood lumber 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.

U.S. producers say Canada has failed to live up to the agreement, but Canada denies that charge.

Reporting by Roberta Rampton; Editing by David Gregorio

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