Lumber agreement hits bump

It might have been too much to expect that the United States and Canada would finally settle their differences over lumber imports. The historic softwood lumber agreement, signed by both sides on Sept. 12, 2006, has already begun to unravel, a mere 10 months after going into effect on Oct. 12. The United States has accused Canada of violating the terms of the agreement in several ways, and talks between top trade officials from both countries have hit an impasse.

So on Aug. 13, the United States initiated proceedings with the London Court of International Arbitration (LCIA), the designated body to settle any disputes that may arise from the lumber treaty. The issues being debated are technical in nature, but they go to the very heart of the decades-long dispute: the United States wants Canada to pay more tariffs, reduce its exports and stop providing subsidies to its lumber industry.

The Coalition for Fair Lumber Imports, an industry trade group comprised of U.S. lumber producers, applauded the action taken by the U.S. Department of Justice. In a prepared statement, coalition chairman Steve Swanson said, “Canada’s failure to honor its commitment under the agreement continues to severely harm the U.S. lumber industry, which is suffering curtailments and layoffs caused by production cutbacks that are occurring at twice the rate in the United States compared to our subsidized Canadian counterparts.”

Decreased demand for building materials in the United States is one factor that comes into play under the complex terms of the softwood lumber agreement. U.S. trade officials claim that Canada failed to limit its exports, as previously agreed, to account for the expected decrease in U.S. lumber consumption. As a result of this and other miscalculations, certain provinces have shipped an estimated 522 million board feet over their quotas, according to the case submitted to the arbitration tribunal.

The United States also claims that Canada failed to collect nearly $75 million in duties during the first six months of 2007, fees that were triggered when export quotas were exceeded.

Renée David, a spokeswoman for the Foreign Affairs and International Trade Department of Canada, said that Canada believes it is in “full compliance” with the softwood lumber agreement, both in terms of quotas and tariffs. “At issue is a technical matter…relating to how regional quota volumes and surge trigger volumes are calculated,” she said.

Canada also denies that it has resumed subsidizing its lumber industry. But according to the Coalition for Fair Lumber Imports, both Quebec and Ontario are propping up their sawmills with grants and loans, sometimes under the guise of “business modernization.”

David pointed out that the United States has not requested arbitration on this issue, and that last April the two countries held “formal consultations” on a number of Ontario and Quebec programs, as well as the Natural Resources Canada Forest Industry Long-Term Competitiveness Initiative.

At least the North American neighbors are still being civil to each other. At a meeting on Aug. 14, a week after the United States announced its intention to enter arbitration proceedings, the top trade officials for both countries expressed their continued support for the softwood lumber deal and said they would abide by the LCIA’s decision, which is expected within 180 days of the appointment of a tribunal.

U.S. trade representative Susan Schwab told a news conference that the latest wrinkle is “truly regrettable” and would not derail the agreement, given its provisions for dispute resolution. Canadian Minister of International Trade David Emerson, standing a few feet away, concurred. “There was bound to be a series of areas where we might not agree,” he said. “It’s an extremely complex agreement.”

The softwood lumber agreement still has six years to go, with an option to renew for two additional years.