TORONTO -- The U.S. made good Tuesday on its threat to force Ottawa and the timber-producing provinces to comply with the 10-month-old softwood lumber agreement (SLA), saying it will seek binding arbitration against Canada in a move that could cost the domestic industry hundreds of millions of dollars in extra costs.
Susan Schwab, the U.S. trade representative, said she is filing a formal complaint through the London Court of International Arbitration because of what she said was Ottawa's refusal to live up with the agreement.
"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," she said.
In addition, Schwab said she is working with the U.S. Commerce Department to see if it is necessary to take "any future steps" against Canada over softwood exports after talks between the two countries went nowhere in recent months.
David Emerson, Canada's minister of international trade, insisted Canada will defend its position at the private court.
"This announcement stems from differing interpretations of the softwood lumber agreement by Canada and the U.S.," he said. "Despite extensive talks with industry, we were not able to resolve this issue during the consultation phase."
Emerson and Schwab are expected to talk about the dispute when they meet next week at a scheduled NAFTA meeting in Vancouver.
Lumber industry sources have said as much as US$500-million in additional duties could be at stake since the London court could take as long as eight months to rule. The private court is made up of international judges and its decision is final.
This will be the first major test of the latest attempt to end 20 years of lumber disputes between the two countries. The deal signed last summer returned about US$4-billion of the US$5-billion in duties collected from Canadian producers since the last truce lapsed in 2002.
Yet since the deal came into force in October, the U.S. housing market has slumped badly. That has pushed North American lumber prices below a key US$355 per thousand board threshold to about $309.
To try to prevent sharp increases in Canadian shipments during periods of low prices, the agreement has a "surge mechanism" that imposes either extra duties or restricts shipments, the U.S. argues.
The U.S. Coalition for Fair Lumber Imports said that Ottawa has under-collected about US$116-million so far under that surge mechanism.
"Canada's failure to honour its commitments under the agreement continues to severely harm the U.S. lumber industry ... ," said Steve Swanson, the coalition's chairman.
OPTIONAL CUT BEGINS
Specifically, the U.S. side insists that British Columbia producers, which ship about half of all of Canada's construction lumber to the United States, owe at least $14 million a month since January in extra duties on top of the 15% duty already paid. In the case of Quebec and Ontario, the country's other top producers, paying the duty would have meant a sharp drop in the volume of lumber shipped to the U.S.
"Canada only made the downward adjustment for the eastern provinces for the first time in July and has yet to make any adjustment for B.C. and Alberta," Schwab said.
But John Allan, head of the B.C. Lumber Trade Council, said the surge provision applies only to the other provinces.
Schwab also said she intends to look into new programs by Ontario and Quebec the U.S. believes are designed to help their struggling industries. They include, she said, "several grant, loan, loan guarantee, and tax credit programs, as well as "forest management" programs and programs that promote wood production.
The London court process was included in the agreement to bypass NAFTA panels, something the U.S. had objected to. Hearings with retired judges not from North America will likely be held as early as next year. A decision from the court cannot be appealed.
Financial Post
