One dispute between the United States and Canada over the Softwood Lumber Agreement (SLA) was recently settled, but tensions remain between the neighboring countries as they await international arbitration of another.
The U.S. recently requested arbitration under the SLA to address timber pricing practices from the interior region of British Columbia. Just days later, a London Court of International Arbitration (LCIA) tribunal reached a decision on an earlier SLA arbitration request, determining that some provincial assistance programs breach Canada’s obligations under the anti-circumvention provisions of the SLA.
The recent decision concerned a request for arbitration made by the U.S. in January 2008. It dealt with a number of assistance programs put into place by the provinces of Quebec and Ontario to aid the Canadian softwood lumber industry that the United States considered a breach of the SLA. The programs included grant, loan, loan guarantee, and tax credit programs, as well as “forest management” programs and programs that promote wood production. The tribunal’s decision was not a complete win for either country, but both had reasons to be pleased. It ruled against some of the claims for damages made by the United States and also found elements of some programs to be inconsistent with Canada’s obligations under the Softwood Lumber Agreement.
The tribunal gave Canada 30 days to cure these breaches through means of its own choosing. The tribunal determined that if Canada fails to cure the breach within 30 days, it must impose, as an appropriate adjustment to compensate for the breach, additional export charges of 0.1% for Ontario and 2.6% for Quebec on exports of softwood lumber to the United States. The additional export charges would remain in place for the duration of the SLA, which is set to expire in 2013. It is anticipated that they will result in the collection of $59.4 million, according to the U.S. Trade Representative’s office.
“This result is important for U.S. workers, firms and our softwood lumber industry,” said U.S. Trade Representative Ron Kirk. “We look forward to Canada working quickly to implement the decision of the tribunal.”
Canadian also expressed satisfaction with the tribunal’s decision to reject some of the claims filed by the U.S. According to Canada’s Minister of International Trade Peter Van Loan, the tribunal rejected 97% of the United States’ $1.86-billion claim as having no basis.
The issue currently awaiting arbitration centers on timber pricing practices of timber from the Interior region of British Columbia.
U.S. Trade Representative Ron Kirk claimed that the prices being charged to harvest pine-beetle timber on public lands in Canada were too low, amounting to a subsidy to Canadian companies.
“Canada is providing an additional benefit to Canadian exporters of softwood lumber by selling timber harvested from public lands for prices below those provided for under the timber pricing system grandfathered under the SLA,” said Ambassador Kirk. “By doing so, Canada is in breach of its commitments under the Agreement. This type of benefit harms U.S. workers and firms in the lumber industry, and is inconsistent with Canada’s obligations under the 2006 Softwood Lumber Agreement.”
According to the U.S. case, public timber from British Columbia has been mis-assigned the salvage “grade 4,” and sold to Canadian softwood lumber
producers at the fixed rate of CAD$0.25 per cubic meter. Canadian officials
have said that they have been transparent on British Columbia’s market-based timber pricing system, which was already in place when the SLA was established, and that the increased amount
of low-grade logs was a result of the pine beetle infestation, not misclassified timber.
“British Columbia has always honoured and continues to honour its commitments under the softwood lumber agreement,” said B.C. Forests, Mines and Lands Minister Pat Bell. “Clearly the scale of the mountain pine beetle infestation is something we’ve never experienced before, and is the reason for an increased harvest of low-grade timber in British Columbia.”
The United States maintains that the increase of timber coming from B.C.’s Interior region and provided as “grade 4,” or otherwise priced at CAD$0.25 per cubic meter, is not justified under B.C.’s provincial timber pricing system recognized under the SLA, even when known factors affecting timber quality, such as damage from the mountain pine beetle, are fully taken into consideration.
It has been predicted that the arbitration process could take up to two years, during which time trade between the two countries will continue as it presently is. The United States has not requested any specified monetary amount from the arbitration. Rather, it has requested that the tribunal determine compensatory adjustments to the export measures in an amount that remedies the breach.
