Softwood Lumber

Published on January 2017 | Categories: Documents | Downloads: 30 | Comments: 0 | Views: 223
of 7
Download PDF   Embed   Report

Comments

Content

1

The Softwood lumber dispute The bilateral trade relationship between Canada and the United States (US) is the world’s largest trade relationship between two sovereign states. 1 In 2003, bilateral trade reached 441.5 billion USD. Canadian exports of softwood lumber2 accounted for 1.7 percent of this trade.3 By 2005, softwood lumber exports reached 21.5 billion board feet 4 worth 8.5 billion USD and representing approximately 1/3 of the America’s softwood lumber market.5 To put this in perspective, it is estimated that the US embargo on Cuba costs the entire Cuban economy $685 million USD annually.6 The softwood lumber dispute is an exception to this typically harmonious bilateral trade relationship. The softwood lumber dispute is important for many Canadians as the forestry sector employs approximately 280,000 Canadians and maintains over 300 communities.7 In British Columbia, approximately 15 percent of jobs are directly or indirectly related to the forestry sector. 8 Between 2001 and 2002 the softwood lumber dispute cost British Columbia over 10,000 jobs impacting hundreds of rural communities which rely on logging and sawmills for employment.9 America has also been affected by this dispute. The US construction industry has grown accustomed to the cheap availability of Canadian softwood.10 Softwood lumber tariffs have increased construction The softwood lumber costs precluding 300,000 Americans from mortgage eligibility. 11

dispute has proven to be one of the most significant and enduring trade disputes in modern history and has had a lasting impact on Canada.

1

Gilbert Gane, “The Canada-US Softwood lumber dispute: A test case for the development of international trade rules” online: (2003) 58 Int’l J 335 at 335 <http://www.jstor.org/stable/40203863>. 2 Softwood is a term used to categorize wood harvested from certain types of trees. Softwood accounts for the vast majority of the world’s production of timber and carries a reputation of being easy to work with and durable. Its utility includes home construction, furniture, millwork, pulp and paper. 3 Chi Carmody, “Softwood Lumber Dispute (2001-2006)” online: (2006) 100: 3 The American Journal of International Law 664 at 666 <http://www.jstor.org/stable/4091375>. 4 A board-foot is a unit of measurement for lumber. It is the volume of a one-foot length of board one foot wide and one inch thick. 5 Foreign Affairs and International Trade Canada, Softwood Lumber, online: Foreign Affairs and International Trade Canada <http://www.international.gc.ca/international/index.aspx?lang=eng&view=d>; Casaba Hajdu, “The US-Canada softwood lumber dispute” Fraser Forum (March 2010), online: Fraser Forum <http://www.fraseramerica.org> at 29. 6 Margot Pepper, “The Cost of the Embargo” Dollars & Sense (2009), online: Dollars & Sense <http://www.dollarsandsense.org>. 7 Foreign Affairs and international Trade Canada, Supra note 5. 8 Maple leaf web, “Impact of the Softwood Lumber Dispute: From lost Jobs to Strained bilateral relations” online: Mapleleafweb <http://www.mapleleafweb.com/front>. 9 Ibid. 10 Supra note 5. 11 Supra note 8.

13144467

2

By analysing the foundation of the softwood lumber dispute and tracing its development through Lumber I-IV a clear understanding of disputes legal and political significance is produced. Background to the dispute: The way timber is harvested in each country is at the crux of the softwood lumber dispute. The US claims that Canada’s forest management technique unfairly subsidizes the Canadian lumber industry. 12 The majority of America’s forests are privately owned and rights to harvest timber are auctioned off at market rates. The majority of Canada’s forests are owed by the Provinces. The Provinces licenses companies to harvest timber and manage the area charging companies a stumpage fee.13 America claims that because stumpage fees are administratively set, do not reflect market conditions and factor in non-market criteria that the stumpage fee program amounts to a subsidy and thus subject to countervailing duties.14 America’s legal argument centres on whether stumpage fees are general or specific and whether they provide benefits to Canadian lumber producers. US international trade laws stipulate that if an imported good is specifically subsidized, and damages the US market the US can apply a countervailing duty. 15 Canada asserts that stumpage fees apply to many industries such as furniture production, pulp and paper. Furthermore, the US has found it difficult to prove a significant benefit to Canadian lumber produces or damage to domestic markets from stumpage fees. 16 As such, stumpage fees fall outside the scope of US provisions on unfair trade practices. The softwood lumber dispute has been divided into four eras. To understand the impact of the softwood lumber dispute it is essential to briefly describe each situation before focusing on Lumber IV as it is the most recent issue and has establishes the current situation. Lumber I: In 1982 Canadian exports of softwood lumber were first subject to a countervailing duty investigation. The US Department of Commerce (DoC) investigated the stumpage fee

12 13

Supra note 3 at 666. Supra note 1 at 337; Stumpage fee is a price charged by land owner’s to lumber producers for the right to harvest timber. Stumpage fee can be charged per-tree or by board-feet. 14 Casaba Hajdu, Supra note 5 at 30. 15 Ibid. 16 Supra note 1 at 337.

13144467

3

programs in British Columbia, Alberta, Ontario and Quebec. 17 The DoC concluded that stumpage programs were not eligible for countervailing duties because stumpage fees were available to all industries.18 This appeared to be a conclusive victory for Canada as the DoC found no subsidy existed. The US lumber industry extensively lobbied US congress to expand the definition of a countervailing subsidy to include ‘upstream production’ which would encompass stumpage fees.19 This change in interpretation leads us to Lumber II. Lumber II: During the Ronald Regan administration the DoC aggressively applied US trade law. In addition to this policy change, by 1986 the American coalition for Fair Lumber Imports was a well funded, large, organized and politically connected lobby. In 1986 the American Coalition for Fair Lumber Imports alleged that Canadian timber policies amounted to a countervailing subsidy and requested a 27 percent duty be imposed on Canadian imports.20 The evidence of a subsidy presented to the DoC had not changed since Lumber I, what had changed was the interpretation of a subsidy. After an initial investigation the DoC imposed a provisional duty of 15 percent.21 America was politically able and economically capably of imposing such a duty. The provisional duty forced Canada into signing a Memorandum of Understanding.22 Canada feared a further increase would cripple the forestry industry.23 The Memorandum of Understanding established that the 15% tax would remain but would be enforced and collected by Canadian governments. 24 Canada did not concede that the stumpage program was a subsidy, and agreed to this as a voluntary tax. Another important consideration was Canada’s desire to complete the FTA negotiations as the softwood lumber dispute was considered a road block to its implementation. 25 The FTA established a trade dispute resolution mechanism that can create binding decisions through bi-national panels.

17 18

Supra note 1 at 341. US, Office of the Federal Register, Federal Register 48 (no. 105) (Washington, DC, US Government Printing Office, 31 May 1983) cited in Supra note 1 at 341. 19 Supra note 1 at 342. 20 Ibid. 21 Casaba Hajdu, Supra note 5 at 30. 22 Canada-United States Softwood lumber Memorandum of Understanding, Canada and United States, 30 December 1986, SCM/76. 23 Supra note 8. 24 Supra note 1 at 343. 25 Ibid at 355.

13144467

4

Lumber III: Canadian governments were under domestic pressure to end the Memorandum of Understanding as lumber exporters could not cope with the imposed tax. In 1991 Canada unilaterally opted out of the Memorandum of Understanding and the DoC imposed a countervailing duty of 6.51 percent.26 Furthermore, the US International Trade Commission determined that subsidized imports of Canadian lumber materially injured and constituted a threat to US producers.27 Lumber III was governed by FTA dispute resolution mechanism. 28 Based on the imposed duty, Canada appealed to the FTA review mechanism and the DoC was instructed to re-examine its countervailing duty. The FTA review mechanism lacks of coercive power. Similar to Judicial review of administrative decisions, the FTA panel can only remit the decision back to the DoC for further evaluation. Due to the lack of coercive power, DoC reaffirmed its original finding and increased the rate to 11.54 percent.29 After further FTA pressure, the US government resorted to the extraordinary challenge procedure and was rejected. The DoC ignoring the recommendations presented to them hurt the legitimacy of international review. Furthermore, the bi-national members voted on national lines also damaging the legitimacy of international review. Lumber III ended in May 1996 when a new agreement was established. While Canada had been cleared of subsidy charges by the FTA review mechanisms, they still faced duties. The crippling cost of DoC duties was a central reason for Canada agreeing to the softwood lumber agreement. Again, America used is economic and political power to ignore trade agreements and strained Canada into a negotiation. The softwood lumber agreement would limit Canadian exports to America at 14.7 billion board feet and the US government terminated all actions brought by the American Lumber industry. This softwood lumber agreement brought five years of stability to this dispute. 30 The FTA review mechanism failed to bind US trade policy. However, in comparative terms, Canada’s persistence and the FTA findings produced results. Comparing the 1986
26

US, Office of the Federal Register, Federal Register 57 (no. 103) (Washington, DC, US Government Printing Office, 28 May 1992) cited in Ibid at 346. 27 US, Us International Trade Commission, Softwood Lumber from Canada (no. 2468) (Washington, DC, US International Trade Commission, December 1991) cited in Ibid at 346. 28 Ibid at 345. 29 Ibid 348; Casaba Hajdu, Supra note 5 at 30. 30 Supra note 3 at 666.

13144467

5

Memorandum of Understanding with the 1996 softwood lumber agreement Canada’s bargaining position had been strengthened as a result of the events of Lumber III. The 1986 agreement imposed a 15 percent tax on all wood exported while the 1996 agreement allowed a significant quantity of lumber to be exported duty free. 31 In fiscal terms, this should be seen as a Canadian victory. Lumber IV: When the 1996 softwood lumber agreement expired in 2001, the American coalition for Fair Lumber Imports filed for an imposition of a new countervailing duty and also made a dumping32 claim. The DoC imposed a subsidy rate of 18.79 percent and anti-dumping rate of 8.43%.33 The US International Trade Commission made a further claim that lumber imports created a threat of injury to the US industry.34 Canada once again challenged these findings to NAFTA and the WTO dispute review mechanisms. Lumber IV saw five years of

expensive litigation and DoC duties that crippled the Canadian lumber industry. The litigation that ensued during Lumber IV saw the NAFTA and WTO panels dismiss most American claims. A 2002 NAFTA decision was considered a partial victory for Canada they ruled that Canadian lumber was subsidized through the stumpage program since it was vertically integrated with the lumber produced. However, the duty imposed was too high and ordered the DoC to review the imposed rate. The NAFTA decision dismissed the American claim that threat of injury and criticised US calculations as being based US process and not considering Canadian conditions.35 The WTO panel concluded that duties could be imposed but the amount needed to be re-assessed as they could not be justified.36 Both countries had grown weary and uncertain of the future outcome, length and expense of further litigation. America feared being embarrassed by their Supreme Court and Canada was uncertain from this rounds WTO finding, and prolonged litigation. 37 This uncertainty and Canada’s need to find a solution to the imposed duties prompted the 2006 softwood lumber agreement.
31 32

Supra note 1 at 356. Dumping occurs when a product is exported at a price that is below the price charged in its originating market, or in quantities that cannot be explained through normal market competition. 33 Supra note 1 at 358. 34 Casaba Hajdu, Supra note 5 at 30. 35 Supra note 1 at 358. 36 Ibid. 37 Casaba Hajdu, Supra note 5 at 30.

13144467

6

The 2006 Softwood Lumber Agreement: The duties imposed and the length and uncertainty of litigation had devastated the Canadian lumber industry. By 2006, most of the industry supported the agreement simply for the refund of duties held. 38 Of the 5 billion USD held in escrow, 4 billion was refunded to Canadian companies. 39 The 2006 agreement aimed to reduce Canada’s share of the US market and regulate the flow of lumber into the US. The agreement placed a ban on new US trade sanctions, installed a trigger mechanism if Canada sold lumber below market prices, capped Canadian exports and allowed for neutral trade arbitrators from the London Court of International Arbitration to review disputes. 40 Since its execution the US has challenged violations of the agreement several times to the London Court of International Arbitration with limited success. Future: The current lumber agreement has recently been extended to the end of October 2015.41 This does not mean that softwood lumber dispute is going away. The dispute has proven to be long-lasting, complicated and important to the Canadian economy. Throughout the dispute the US has used its hegemonic power against Canada as they expect Canada to alter forest management techniques to US standards. The dispute settlement mechanisms in the FTA and NAFTA are incapable of solving this issue as they lack the coercive power to truly bind the US and overcome their hegemonic power. America’s protectionist policies on timber do not make sense. Timber is in short supply, and natural disasters have ravaged the American timber industry. Furthermore, protectionist policies generally hurt the American economy as timber-using industries employ twenty-five workers for every one employed in timber production further supporting the argument for unfettered trade. 42 Current trade figures show that softwood lumber exports to China have surpassed that to America. In British Columbia, shipments to China in May 2011 were valued at $122 million compared to the US at $119 million and exports to China have more than doubled in
38

CTV News, “Emerson and U.S. counterpart ink softwood deal” CTV NEWS (12 September 2006), online: CTV News <http://www.ctv.ca>. 39 Casaba Hajdu, Supra note 5 at 30. 40 “Indepth: Softwood lumber dispute” CBC Online (August 2006) online: CBC News Online <http://www.cbc.ca>. 41 Jason Fekete, “U.S., Canada extend multibillion-dollar softwood lumber agreement” Canada.com News (23 January, 2012), online: Canada.com < http://www.canada.com>. 42 Brink Lindsey, Mark Groombridge, Prakash Loungani, Nailing the Homeowner: The Economic Impact of Trade Protection of the Softwood Lumber Industry, online: CATO institute <http://www.cato.org>.

13144467

7

the last year.43 The availability of a secondary and possibly more lucrative market then that provided by America will provide Canada with bargaining power in the next dispute. This may be able to offset American hegemonic power as demonstrated from Lumber I-IV.

43

Marc Black, “Softwood lumber exports to China surpass U.S. for first time”, Newsroom: BC Government Online News Source (17 July 2011) online: Newsroom <http://www.newsroom.gove.bc.ca>.

13144467

Sponsor Documents

Or use your account on DocShare.tips

Hide

Forgot your password?

Or register your new account on DocShare.tips

Hide

Lost your password? Please enter your email address. You will receive a link to create a new password.

Back to log-in

Close