March 4, 2008 / 3:40 PM / 10 years ago

Canada-U.S. lumber spat gets split court ruling

OTTAWA/WASHINGTON (Reuters) - A London arbitration court has issued a split ruling on Canadian softwood lumber shipments to the United States in the latest installment of the two countries’ long-running trade feud.

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

The ruling, released on Tuesday, addresses the first of two complaints the Bush administration has lodged, alleging that Canada had breached a 2006 trade deal by shipping too much lumber and exacerbating woes for struggling U.S. lumber firms.

The United States accused Canada of misinterpreting the agreement to give its exporters an unfair advantage.

The ruling marked a victory for the Western Canadian provinces of British Columbia and Alberta when the panel found against the U.S. claim that the provinces owed millions of dollars in export taxes aimed at limiting export surges.

Under the deal, Canadian lumber exporters can either pay export charges of up to 15 percent based on their selling price to the United States or cap the charge at 5 percent along with an export quota that restrains volume.

British Columbia has traditionally produced about half of all the softwood that Canada exports to the United States.

However, the court found that Quebec and Ontario in Canada’s east, which are also big producers and use the quota option to limit their exports, had sent too much lumber south.

“Under the panel decision, producers in the east of Canada will be penalized for over-shipping their allowable quota,” said Zoltan van Heyningen, executive director of the Coalition for Fair Lumber Imports, the U.S. industry group that has been driving the complaints from Washington.

Canada claimed at least partial victory and said the ruling was a healthy step for the bilateral 2006 agreement, which was designed to avoid repeating years of long, costly lawsuits.

“While Canada believes that it has fully complied with the agreement, we respect the tribunal’s ruling ... Today’s decision provides clarity with respect to the implementation of the SLA (Softwood Lumber Agreement) in the future,” said Canadian Trade Minister David Emerson.

The United States had argued that the starting point for calculating export charges and volumes should be the first quarter of 2007, while Canada argued it should be July 2007. The court sided with the United States on that issue.

FUTURE SUPPORT CAST IN DOUBT

Gretchen Hamel, a spokeswoman for U.S. Trade Representative Susan Schwab, said the Bush administration disagreed with part of the ruling and warned that the finding related to western provinces “is not consistent with the balance we negotiated.”

“The viability of the SLA is dependent on maintaining that balance,” she said.

After the ruling, Chicago Mercantile Exchange lumber futures fell as much as the $10.00 per thousand board feet daily limit.

U.S. Senator Max Baucus, who chairs the powerful Senate Finance Committee, urged the Bush administration to take additional steps to avoid a flood of “unregulated and unfairly priced” Canadian lumber imports.

“It’s clear from today’s decision that arbitration alone will not force Canada to live up to all of its obligations,” the Montana Democrat said in a statement.

The two countries have one month to propose possible remedies for the overshipping issue, which might entail docking future exports, Van Heyningen said.

The Bush administration has filed a separate complaint at the court, alleging that certain Canadian provinces were improperly propping up their lumber industries.

The disputes illustrate the continuing controversy surrounding Canadian imports into the U.S. lumber market, which is reeling from plummeting housing demand.

“U.S. mills must deal with the diminished housing market plus the Canadian unfair practices,” said Steve Swanson, the U.S. group’s chairman.

John Allan, head of the Vancouver-based Council of Forest Industries, said the dispute-settlement mechanism had yielded a quicker decision than under the North American Free Trade Agreement (NAFTA).

Additional reporting by Randall Palmer in Ottawa and Jerry Bieszk in Chicago; Editing by Marguerita Choy

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