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Washington goes to bat over softwood dispute

U.S. could seek billions in penalties over allegations B.C. broke 2006 softwood lumber agreement


August 9, 2011
by The Canadian Press

VANCOUVER—The U.S. is stepping up to the plate in what could be the most significant legal battle over softwood lumber agreements to date.

Today the U.S. Trade Representative is presenting a brief to the London Court of International Arbitration, alleging that B.C. broke the 2006 softwood lumber agreement by selling its timber at artificially low prices.

The complaint was filed back in January after months of unsuccessful consultations.

B.C.’s governent “dramatically” increased the amount of beetle-infested timber it was selling at the cut-rate price of 25 cents a cubic metre, according to the complaint.

That price hike has given mills an unfair advantage in softwood sales, it adds.

The full U.S. brief today may not be made public right away.

But the penalty request containing a “fabricated number” should be disclosed to draw attention, says John Allan, president of the B.C. Lumber Trade Council, which represents the province’s lumber producers.

“We think we’ve got an excellent defence but it is a challenge and I do expect the U.S. to be looking for a reasonably high number in terms of damages,” he said.

Billions in penalties

A U.S. trade publication has suggested the Americans could seek up to US$4 billion. It said officials from both countries met last month to discuss a two-year extension to the 2006 softwood lumber agreement that is set to expire in October 2013.

The extra time would give the U.S. more time to collect the added duties on B.C. lumber exports.

If Canada loses, the final award could be substantially lower. The Americans won a $60-million penalty earlier in the year despite seeking a $2-billion penalty.

Allan said he’s confident that Canada will prevail this time, in part because the market system to sell beetle-infected wood is grandfathered in the 2006 softwood lumber agreement.

The province also had to act to draw value from the dried up wood and the timber pricing system governing harvesting is market based, he added.

The U.S. challenge could be the most serious ever.

“This one is more fundamental. It’s an attack on forest policy and timber pricing, so that’s why it’s really critical,” Allan says.

Canada will have until November to respond. An oral hearing is scheduled for Feb. 27 in Washington, D.C. A final ruling by the three-member panel of European lawyers is expected by fall.

Canada has said it believes the U.S. case was based on “unfounded allegations.”

British Columbia has also denied the province was cheating, saying American producers should have known there would be an effort to clear dead, beetle-infested timber.

The U.S. acknowledges some timber has been damaged by the pine beetle, but said the amount classified by B.C. as “grade 4,” or cut-rate, can’t be justified.

The independent process is in the beginning stages, said Mike Mueller, a spokesman for International Trade Minister Ed Fast.

“The Softwood Lumber Agreement has a dispute settlement process and we will review the statement of case when filed,” he said in an email.

Previous cases

The United States has won its two previous complaints before the London Court involving wood shipments from Ontario and Quebec. A 10 per cent additional duty on exports was lifted the end of June.

One of those claims had also been filed against Western producers, but was unsuccessful.

However, aside from a two-month period last year —when the export tax slipped to zero and 10 per cent— wood from B.C. and Alberta has been taxed at the 15 per cent maximum every month since October 2006.

Increased lumber shipments to China and other parts of Asia helped to mitigate weak demand from the United States because of low housing starts.

China has overtaken the U.S. as the largest buyer of B.C. lumber.

Despite that, Allan says he doesn’t foresee China replacing U.S. as Canada’s best customer because much of the product shipped to Asia is low quality wood used for concrete forming, not housing construction.