CANADA-U.S. LUMBER TRADE DISPUTES
- Since 1982 Canada and the US have been involved in three
lumber trade disputes (widely called Lumber I, II and III). The
Softwood Lumber Agreement avoided a fourth dispute for five years
until April 2001, when the latest dispute (Lumber IV) commenced.
- BC, which historically accounted for over 60% of Canadian
exports to the US, has always been the prime target of these
- Past trade disputes between the U.S. and Canada have taken the
form of countervailing duty cases.
- Under U.S. trade law, a countervailing duty case is an
investigation of an alleged subsidy that provides an importer with
an advantage in the U.S. market. With lumber, the U.S. contends
that provincial stumpage and, more recently, B.C.’s log export
restrictions, provide a subsidy to lumber producers. Other
provincial programs may also be alleged to provide subsidies.
- To impose a countervailing duty or tariff, the U.S. must
establish two things:
- Subsidy - imported goods are subsidized.
- Injury - the subsidized goods are injuring the U.S.
- Two factors determine whether goods are subsidized:
- Specificity - programs are available only to a specific
- Preferentiality - goods are provided at a preferential
- The U.S. Department of Commerce investigates subsidy, while
the quasi-judicial International Trade Commission investigates
injury. Each agency makes a preliminary and then a final
- Following a Department of Commerce preliminary determination
of subsidy, bonds are required on shipments to the U.S. If the
Department of Commerce finds that "critical circumstances" apply,
this duty can be made retroactive for 90 days. After the final
determinations of the Department of Commerce and the International
Trade Commission, a countervailing duty order is issued and cash
deposits are required on shipments.
- Since 1988, Canada has been able to appeal a countervailing
duty to an arbitration panel established under the Free Trade
Agreement (now NAFTA). However, a NAFTA panel can only determine
whether the finding was made in accordance with U.S. law. An
appeal can also be made to a WTO panel, which can determine
whether U.S. law is consistent with the WTO.
- Under U.S. trade law, an anti-dumping case is an investigation
on whether an importer is selling goods in the U.S. at prices
lower than in the home market or is selling goods at prices below
- The U.S. lumber industry coalition filed its first petition
for an anti-dumping investigation during Lumber IV.
- An anti-dumping case also involves the Department of Commerce
and the International Trade Commission. It follows similar steps
to a countervailing duty case, but generally the timetable is
- With lumber, the Department of Commerce may investigate a
sample of companies in extreme detail. If the Department of
Commerce determines a dumping margin exists for companies in that
sample, the agency will impose duties on those companies and a
weighted average duty on all non-investigated companies.
Countervailing Duty Cases
- The federal government has overall responsibility for
international trade, and it co-ordinates the national defence
activities. Provincial governments have the lead in addressing
the allegations of subsidy that relate to provincial programs.
Industry has the lead in rebutting claims of injury.
- In the most recent case, the provincial government engaged
Akin Gump—one of the top law firms in Washington, DC, assembled
an experienced team of officials in Victoria, and established
working relationships with industry and the federal government.
- Industry has the lead on an anti-dumping case as individual
companies are investigated. The federal government is not a
direct participant in an anti-dumping case but has overall
responsibility for international trade and monitors the
investigation to ensure it is in accordance with the WTO.
- In October 1982, the Department of Commerce investigated the
stumpage programs of B.C., Alberta, Ontario and Quebec. In May
1983, the Department of Commerce ended its investigation,
finding that stumpage programs were not countervailable because
stumpage was generally available and not limited to a specific
industry (i.e., the specificity test was not met).
- The Department of Commerce started another investigation in
- Two things changed between the end of Lumber I and the onset
of Lumber II: The Department of Commerce began to more
aggressively apply U.S. trade law, especially in natural
resource countervailing duty cases. More important, the
Coalition for Fair Lumber Imports – the U.S. lumber industry
coalition – became a large, well-funded and politically
well-connected lobby group. The coalition also retained Dewey
Ballantine, an aggressive Washington, D.C., legal firm.
- Contrary to its 1983 determination, the Department of
Commerce found that stumpage programs did meet the specificity
test, and levied a 15 per cent tariff in its October 1986
preliminary determination. The preferentiality benchmark used by
the Department of Commerce was "cost to government." The
Department of Commerce determined that stumpage revenues
received by provincial governments were exceeded by applicable
- A final determination was never reached. The case ended when
Canada and the U.S. agreed, in December 1986, to a memorandum of
understanding (MOU) under which Canada imposed a 15 per cent
export charge on lumber exports to the U.S.
- The MOU had the advantages of:
- Keeping the money in Canada - the export charge was
collected by Canada and remitted to the provinces.
- Providing certainty on the rate - a countervailing duty is
essentially an interim rate; the Department of Commerce
determines the rate annually and retroactively applies the
newly determined rate.
- The MOU let provinces replace the export charge through
increased stumpage or other policy changes. B.C. implemented
replacement measures in October 1987 – increasing stumpage and
transferring the responsibility for silviculture to industry.
- In B.C., the MOU was increasingly seen as an infringement of
provincial sovereignty. The Department of Commerce monitored the
B.C. replacement measures regularly and challenged every small
- Pressure grew within Canada, especially in B.C., to get rid
of the MOU. Canada’s attempts to have the U.S. agree to
termination were rebuffed; eventually, in October 1991, Canada
unilaterally terminated the MOU.
- Almost immediately, the Department of Commerce started an
investigation and imposed temporary bonding requirements. It was
the first time the department had initiated a countervailing
duty case on its own.
- In May 1992, the Department of Commerce issued a final
determination, which set a countervailing duty rate of 6.51 per
cent. The rate was comprised of two elements: A weighted average
rate of 2.91 per cent for stumpage programs in B.C., Alberta,
Ontario and Quebec. The finding of subsidy in B.C. was based on
the difference between stumpage rates under the small business
program and rates for major licensees (a change in methodology
from Lumber II). A rate of 3.6 per cent for B.C.’s log export
restrictions (based on that by restricting log exports, the
domestic log supply is increased and the domestic log price
- Canada appealed the Department of Commerce’s subsidy finding
and the International Trade Commission’s injury finding to
binational panels under the Free Trade Agreement. After a number
of redeterminations by the two agencies and further appeals by
Canada, the Department of Commerce finally reversed its finding
– consistent with the panel decision.
- The U.S. then challenged the panel’s decision to an
extraordinary challenge committee, also established under the
Free Trade Agreement. The committee affirmed the panel’s
decision, and the Department of Commerce revoked the
countervailing duty order in August 1994.
- In December 1994, Canada and the U.S. agreed to implement a
consultative process on lumber trade as an alternative to another
- Canada agreed to the consultative process, in part because the
U.S. agreed to refund a significant part of the duties collected
in Lumber III (about $500 million), and the U.S. Lumber Coalition
agreed to drop a constitutional challenge against the Free Trade
Agreement arbitration panel process.
- Both the U.S. and Canadian governments were keen to keep
lumber out of another legal case. The countervailing duty cases
had become increasingly acrimonious and were souring Canada-U.S.
- Also, in its implementation of the WTO Uruguay Round
agreement, the U.S. had amended its trade law to ensure that
Canada could not succeed on the same basis as in Lumber III.
- The consultations led to the negotiation of the five-year
Softwood Lumber Agreement in April 1996.
- The agreement limited U.S. lumber exports from B.C., Alberta,
Ontario and Quebec to 14.7 billion board feet (fee-free base)
annually, with escalating fees payable on shipments over that
volume. The U.S. agreed not to initiate a trade case for the
duration of the agreement.
- However, the Softwood Lumber Agreement did not bring the
expected five years of trade peace. The U.S. challenged B.C.’s
1998 stumpage reduction under the dispute settlement provisions of
the agreement. U.S. Customs, on at least three occasions,
reclassified products from tariff codes outside the softwood
lumber agreement into codes covered by the agreement. Canada and
the U.S. agreed to negotiated settlements in the stumpage and
rougher headed lumber cases. On March 29, 2001, the arbitral panel
ruled that the United States breached the softwood lumber
agreement when it chose to reclassify drilled studs and notched
- The Softwood Lumber Agreement, and the quota system within it,
also seriously hampered B.C. industry – especially coastal
companies that were unable to access the U.S. market following the
collapse of the Japanese market in 1997-1998.
- Following the expiration of the Softwood Lumber Agreement, on
April 2, 2001, the U.S. Coalition for Fair Lumber Imports filed a
countervailing duty petition and its first anti-dumping petition
against Canadian softwood lumber.
- British Columbia has followed a three-track approach in
dealing with the softwood lumber trade issue. The government has
defended its programs during the litigation of the countervailing
duty case, and supports challenges, both under the NAFTA and at
the WTO. The government actively participated in discussions with
the American government about possible policy changes that could
lead to a resolution of the issue. It also supports market
diversification and increased advocacy within the U.S. on the
softwood lumber issue.
Countervailing Duty (CVD) Case
- As part of the investigation, the US Department of Commerce
(Commerce) issued a series of questionnaires to the federal and
provincial governments. Canada’s first response was filed on
June 28; British Columbia’s portion totalled 20 volumes.
Canada filed responses to supplemental questionnaires on
August 3, and December 17, 2001.
- The International Trade Commission made a preliminary
determination on May 16, 2001 that the alleged subsidies pose a
threat of injury to the US industry.
- On August 9, 2001, Commerce made its preliminary
determination that Canadian softwood lumber exports to the
United States were subsidized at a rate of 19.31 percent. It
compared BC stumpage rates with those of Washington State and
did similar calculations for other provinces. In addition,
Commerce found that "critical circumstances" were present in the
case, deciding that there was a "massive surge" in Canadian
softwood lumber exports to the US in the three months following
the expiry of the Softwood Lumber Agreement. As a result, lumber
producers were required to post bonds to cover duties on all
lumber shipments made to the US beginning May 2001.
- Softwood lumber producers that do not benefit from the
programs under investigation may be eligible for exclusion from
the investigation. Only one lumber producer from the Yukon was
excluded from the countervailing duty investigation at the time
of the preliminary determination, because it sourced its timber
from private land.
- The countervailing duty investigation was aligned with the
anti-dumping case. As a result, the final subsidy determinations
in both cases took place on March 21, 2002.
- Under the WTO, a provisional countervailing duty order can
apply for a maximum of four months. Between December 15, 2001
and the final determination in May 2002 (the "gap period"),
countervailing duties were not required for lumber shipments to
- As noted above, anti-dumping cases are investigations of
companies. The US Department of Commerce issued anti-dumping
questionnaires to six Canadian companies—Canfor, Slocan, West
Fraser, Weyerhaeuser, Abitibi Consolidated and Tembec.
- In its preliminary determination on October 31, 2001,
Commerce applied company-specific rates to the six investigated
companies; all other Canadian companies were subject to the
average rate of 12.58%.
- Companies were required to post bonds to cover duties for an
initial six-month period, after which there was a brief
duty-free period until the final order was published in May
- On March 22, 2002 the United States Department of Commerce
announced its "final determination" in the subsidy and dumping
cases involving Canadian exports of softwood lumber products.
Contrary to the Preliminary Determination, the Final
Determination did not find critical circumstances, hence the CVD
would take effect in August 2001 rather than being retroactive
to May 2001. Forest Renewal BC grants and assistance under the
Job Protection Commission (JPC) to lumber producers were found
to be countervailable.
- On April 25, 2002, Commerce released revised final
determinations in the subsidy and antidumping cases. The final
subsidy rate was determined to be 18.79%. Individual company
dumping rates were set as follows: Abitibi 12.44%; Weyerhaeuser
12.39%; Tembec 10.21%; Slocan 7.71%; Canfor 5.96%; West Fraser
2.18%. All other companies will pay the average dumping rate of
8.43%. The combined CVD/AD rate is now set at
- On May 2, the U.S. International Trade Commission (ITC)
released its decision that US producers are only threatened with
material injury by Canadian lumber shipments to the U.S.
Consequently, U.S. Customs are required to refund the bonds and
cash deposits posted by Canadian softwood lumber companies prior
to May 16, 2002.
- On May 22, 2002, Commerce published its final orders in the
countervailing duty and anti-dumping case. As a result, the U.S.
Customs requires cash deposits for duties on all softwood lumber
imported from Canada since May 22, 2002.
Timetable for April 2, 2001, Countervailing
Duty Petition to the U.S. Department of
|Initiation of DOC Preliminary Investigation
|Questionnaire Response Due
|DOC Preliminary Determination/Bonds Due
|Submission of Briefs
|Submission of Rebuttal Briefs
|Countervailing Duty Order Issued/Cash
- The United States and Canada have held discussions since
July 2001 to assess whether there is an alternative to
litigation to resolve the softwood lumber trade dispute. British
Columbia and other Canadian provinces actively participated in
these discussions. Alternatives to litigation may include
changes in forest policy, which fall largely within the
jurisdiction of the various provincial governments.
- During these discussions, British Columbia proposed a series
of forest policy changes intended to form one component of an
overall settlement of the dispute. This proposal includes a
comprehensive set of forest policy changes, all designed to
create truly competitive markets for standing timber, logs and
tenure; and expand the role of market forces in the forest
sector. As a result, any "trade distortions"–real or
perceived—that may be attributed to current British Columbia
forest policies would be eliminated. British Columbia’s public
forest resources would continue under government ownership.
However, government would focus on basic forest stewardship.
Market forces would drive commercial decisions.
- Following two months of bilateral negotiations, the two
sides exchanged proposals in early December 2001. Governments
then consulted with their stakeholders, and talks did not resume
until mid February 2002. After several weeks of intense
negotiations, talks broke off on March 21, 2002. Agreement was
not reached on the rate of the proposed transitional export tax,
and issues related to provincial forest policy changes
(including the percentage of the harvest to be auctioned in
B.C.). In addition, the U.S. did not accept Canada’s proposal
for binding dispute resolution by an independent third party.
Note: More information on B.C.’s Softwood Lumber Proposal
is available at:
WTO and NAFTA Challenges
- The federal government, the provinces and industry have
launched a number of challenges related to the lumber cases.
- Challenges at the World Trade Organization (WTO) consider
whether the U.S. has breached its obligations under the WTO.
- North American Free Trade Agreement challenges consider
whether the U.S. has applied its own trade laws correctly.
Note: more information on Canada’s NAFTA and WTO challenges
of the softwood lumber duties can be found on the Department of
Foreign Affairs and International Trade website at:
Market Diversification and Advocacy in Response to the
Softwood Lumber Duties
- Both the federal and the BC governments have announced the
establishment of wood product marketing initiatives in response
to the US softwood lumber duties.
- On March 28, 2002, the Minister of Forests announced the BC
government would spend $20 million on forest sector
diversification and international marketing.
- On May 16, the federal government announced the creation of
the $29.7 million Canadian Wood Export Program. This program is
intended to expand Canada's wood exports in countries like
China, Taiwan, Korea and India.
- On May 20, 2002 the Government of Canada announced it will
contribute $20 million "to help Canada’s softwood lumber
industry raise awareness in the US of the impact of punitive US
softwood lumber duties on US interests, and to step up Canada’s
advocacy efforts in the US". Funding of $17 million (over two
years) will be provided to the Forest Products Association of
Canada to "undertake a softwood industry-led campaign to raise
awareness of the negative impact that softwood lumber duties
will have on the US, and to encourage productive negotiations
and resolution of the dispute". In addition, $3 million (over
two years) will be given to the Canadian Embassy and Consulates
in the US to enhance their efforts in this regard.