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Old August 7th, 2007, 11:20 PM  
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Default U.S. triggers softwood test

Canadian Press, VANCOUVER – The U.S. government has launched arbitration proceedings in what will be the first major test of the Canada-U.S. Softwood Lumber Agreement.

It claims Canada is violating terms of the year-old treaty by pushing too much B.C. and Alberta lumber into the U.S. market and by forest-industry support programs offered by Ontario and Quebec.

“It is truly regrettable that, just 10 months after the agreement entered into force, the United States has no choice but to initiate arbitration proceedings to compel Canada to live up to its SLA obligations . . .” U.S. Trade Representative Susan Schwab said today in a news release.

“Our efforts to resolve these matters through consultations have not been successful.”

The move means the American complaints will go to binding arbitration before the London Court of International Arbitration.

This dispute-settlement mechanism was a key feature of the treaty, something the previous agreement in force between 1996 and 2001 didn’t have.

That deal crumbled in acrimony, with each side accusing the other of trying to bend its rules, and led to punitive U.S. lumber duties and five years of expensive trade litigation.

International Trade Minister David Emerson said in a statement that the U.S. announcement stems from differing interpretations of the agreement that could not be resolved despite extensive talks.

“We will continue to work closely with the provinces and industry to defend Canada’s interests throughout the arbitration process,” he said.
Emerson said despite this move, the agreement has worked well for Canada’s forest industry.

“Different points of view may arise from time to time in administering such a complex agreement,” he said.

“It was for this reason that we included a dispute-settlement mechanism in the agreement to facilitate the resolution of differences.”
The seven-year renewable agreement, which came into force last October, replaced U.S. lumber import duties with a Canadian export tax and for some provinces a combination of quotas and a lower border tax.

Canadian exporters also got back about US$4 billion in duties collected since May 2002, about 80 per cent of the total.

Even before it was signed, the agreement was under fire from the opposition parties and dissidents in the forest sector.

They argued negotiations were too rushed and gave up too much in return for relative peace at the border.

But the government argued the compromise deal was better than years of legal battles which, even though Canada felt it was winning, were no guarantee of a permanent settlement.

Schwab said that in addition to the arbitration proceeding, she has asked the U.S. Commerce Department to step up monitoring of the agreement and collect information on Canadian compliance.

“This information will allow us to consider any future steps necessary to ensure that the (agreement) is fully implemented,” she said.

The U.S. Coalition for Fair Lumber Imports, which was behind the last four trade complaints against Canadian exporters, welcomed the U.S. government’s actions.

Coalition Chairman Steve Swanson said in a news release that ``Canada has unilaterally and without consultation undermined the softwood lumber agreement by refusing to implement key terms.

“The required tax and quota limits on shipments are essential to remedy Canada’s unfair trade practices.”

The coalition said Canada has under-collected export taxes totalling at least US$116 million through the end of May and the provinces have shipped an estimated 522 million board feet more than their allowed quotas.

“Canada’s failure to honour its commitments 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,” Swanson said.

B.C. Forests Minister Rich Coleman, whose province accounts for more than half of Canada’s softwood exports, said he does not see the arbitration as a sign the deal is a failure.

“This means that we’re going to finally get the answer on the interpretations,” he said, adding the process should take about 10 months. “We felt very strongly that we should allow this to happen.”
However federal Liberal trade critic Navdeep Bains said the U.S. move is proof the agreement is flawed.

“The Conservatives have repeatedly said that the softwood lumber deal was better than litigation,” said Bains. “Yet we now hear that the U.S. is taking Canada to court.”

The U.S. complaint targets three areas:

It contends Canada hasn’t properly applied the “surge mechanism” that penalizes provinces that export more than their allowed share of lumber, mainly British Columbia and Alberta.

It claims Canada also didn’t move fast enough to adjust downward the volume cap for B.C. and Alberta lumber exports to account for shrinkage in the U.S. market.

It also objects to several forest-industry assistance programs set up by the Ontario and Quebec governments. The provinces have argued those programs were aimed largely at pulp producers and not intended to prop up lumber exporters.

U.S. lumber producers have complained for decades that Canadian exports are subsidized through low Crown timber-cutting fees and other policies.

In the cyclic lumber market, that gives Canadian mills an unfair advantage when lumber prices drop.

The agreement is intended to remove that advantage by adding border taxes and quotas during periods of low prices.

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