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Softwood Lumber Dispute

Softwood Lumber Dispute. Brad Tobin and Megan Wiley. Introduction. Historical Background WTO Issue DS264 Final Dumping Determination Positions of Main Parties Compliance Panel and Implementation Decisions of WTO Appellate Body Softwood Lumber Agreement and Continuing Dispute

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Softwood Lumber Dispute

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  1. Softwood Lumber Dispute Brad Tobin and Megan Wiley

  2. Introduction • Historical Background • WTO Issue DS264 Final Dumping Determination • Positions of Main Parties • Compliance Panel and Implementation • Decisions of WTO Appellate Body • Softwood Lumber Agreement and Continuing Dispute • Potential Solutions

  3. Historical Background • Disputes over softwood lumber between the U.S. and Canada span nearly 200 years • Despite a reciprocity treaty between the two nations, signed in 1853, lumber issues remained contentious • The issues brought to the WTO that continue through today began in the 1980s and surround accusations of national treatment

  4. Historical Background • During the 1980’s the International Trade Commission ruled that Canadian regulations, which provided subsidies to native manufacturers, producers, and exporters were harmful to the U.S. lumber industry. • U.S. Department of Commerce (USDOC) later concluded Canada’s actions did not confer the right to a countervailable subsidy.

  5. Historical Background • In reaction to the USDOC findings, the USDOC then sought to develop new guidelines on what constitutes a countervailable action and filed a congruous petition to the ITC. • This dispute was then settled by a Memorandum of Understanding which held from 1986-1991. • This MOU provided for a 15% Canadian export tax on shipments of softwood lumber to the U.S. • Canada withdrew from the MOU in 1991.

  6. Historical Background • In response to Canada’s withdrawal from the MOU, the U.S. imposed a cash deposit requirement on Canadian lumber imports • USDOC initiated a new countervailing duty investigation and determined a 6.5% subsidy • ITC made a final determination that subsidized imports were harming U.S. industry • Canada again challenged the USDOC investigation in a GATT dispute settlement panel • GATT panel concluded the U.S. subsidy was inconsistent though the USDOC investigation was legitimate

  7. Historical Background • The decisions of the GATT panel and with negotiations related to the U.S.-Canada Free Trade Agreement, the first U.S.- Canada Softwood Lumber Agreement emerged in 1996 • Agreement established a tariff-rate quota on softwood lumber imports from Canada to U.S. • In return, U.S. agreed to not initiate a CVD or other trade-restricting action for the term of the agreement • Canada declined to renew in 2001

  8. WTO Issue DS264 Final Dumping Determination • U.S. implements Countervailing and Antidumping duties in April 2001 • ITC affirms threat of injury determination in 2002 • Canada challenges before WTO • WTO Appellate Body rules on CVD and Threat of injury; both sides claim victory

  9. WTO Issue DS264 Final Dumping Determination • WTO rules Canada did provide subsidy; U.S. permitted to levy CVD and A-D duties • WTO rules U.S. did not violate obligations under the Anti-dumping Agreement; but claimed it could not complete analysis and made no recommendations to DSB

  10. WTO Issue DS264 Final Dumping Determination • WTO rules in 2004 that the U.S. acted inconsistently within the A-D agreement only through the practice of “zeroing” in determining dumping margins. • In response to the WTO Appellate Body ruling, USDOC issues Section 129 with a statutory deadline of May 2005 • USDOC calculates new rates for the Canadian exporters “Zeroing” - Defining a dumping margin as zero rather than letting the overpricing offset the underpricing when the cost of a good varies over a certain amount of time

  11. Position of the Parties • Canada claims the USDOC methodology is inconsistent with the A-D Agreement • Canada asserts USDOC manipulated calculations • U.S. denies Canada’s claims • U.S. denies manipulation of values and legitimacy of methodology used

  12. Third Parties Involved • 5 International actors involved • China, European Communities, New Zealand, India and Japan • All but New Zealand charged the U.S. practice of zeroing was inconsistent with the A-D Agreement • New Zealand considered the U.S. to have acted consistently under the A-D Agreement

  13. Compliance Panel and Implementation • The compliance panel found the USDOC recalculations were permissible • Panel also found the determination of the USDOC Section 129 was consistent with the A-D Agreement • Panel concluded the U.S. had implemented the recommendations and rulings of the DSB in U.S. Softwood (Lumber V) to bring its measure into conformity with its obligations under the A-D Agreement and made no recommendations under the DSU

  14. Decisions of the Appellate • However on August 15, 2006 the Appellate Body reversed the Panel’s findings; concluding the use of zeroing is not consistent with the “fair comparison” requirements of the A-D Agreement • Appellate Body reversed the Compliance Panel’s conclusion that the U.S. has implemented the DSB’s recommendations and rulings to bring its measure into conformity with the A-D Agreement • Appellate Body ruling adopted September 2006

  15. Softwood Lumber Agreement 2006 • The Second “SLA 2006” came into effect Oct 12, 2006 • U.S. required to terminate the collection of CVDs and A-Ds on Canadian lumber • Canada imposed taxes and quantitative restrictions on lumber exports to the U.S. • Canadian Provinces are encouraged to move to non-subsidizing timber pricing systems • SLA 2006 is to last 7-9 years

  16. Continuing Disputes • March 30, 2007 the U.S. requested consultations with Canada to discuss compliance • Specifically the U.S. claims Canada should have collected additional export taxes on lumber exports from British Columbia and that financial assistance programs in Ontario and Quebec violate the SLA 2006 • This dispute is headed to review by the London Court of International Arbitration

  17. Potential Solutions • Stricter penalties may be required to help WTO resolve the case faster and finally • Resolution of this conflict will serve to maintain the credibility of the World Trade Organization

  18. Bibliography 1. World Trade Organization http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds257_e.htm 2. Office of the U.S. Trade Representative http://www.ustr.gov/Document_Library/Press_Releases/2005/Novembr/WTOPanel_Report_Affirms_US_Determination_Regarding_Canadian_Lumber.html 3. Coalition for Fair Lumber Imports, http://www.fairlumbercoalition.org/ 4. Canadian Government (Embassy in USA) http://www.international.gc.ca/trade/eicb/softwood/menu-en.asp 5. The Globe and Mail (Canada) August 15, 2007 "Top Trade Officials Stand by Softwood Agreement" 6. Greg Mankiw's Blog, http://gregmankiw.blogspot.com/2006/09/zeroing.html

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