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United States Requests Consultations with Canada under Softwood Lumber Agreement

10/08/2010

Washington, D.C. – United States Trade Representative Ron Kirk announced today that the United States has requested consultations with Canada under the 2006 Softwood Lumber Agreement (SLA) regarding the apparent unfair under-pricing of timber harvested from public lands in the Interior region of British Columbia. Requesting consultations under the SLA initiates the dispute settlement process and provides an opportunity for the United States and Canada to exchange views and attempt to resolve their differences. If the matter is not resolved during consultations, either the United States or Canada may request arbitration.

“The United States and Canada have been engaged in discussions regarding the apparent under-pricing of timber harvested in the Interior region of British Columbia for many months, but those discussions have so far been unsuccessful,” said U.S. Trade Representative Ron Kirk. “The decision to move to consultations is intended to emphasize the importance of resolving this matter. As contemplated under the Softwood Lumber Agreement, we are asking to continue our engagement on this issue and ensure that the SLA is implemented as intended.”

The United States is seeking consultations over apparent under-pricing of timber in British Columbia’s Interior. It appears that British Columbia is providing to softwood lumber producers a low-cost input for their products and circumventing the export measures provided for in the SLA.

“I know that both the United States and Canada are committed to the successful implementation of the Softwood Lumber Agreement,” Ambassador Kirk said. “These consultations offer an excellent opportunity to resolve this long-standing implementation concern, and I hope that Canada will take it. This Administration is committed to enforcing our trade agreements and taking action when our trading partners don’t live up to their obligations.”

BACKGROUND

The price of timber is a key factor in the pricing of softwood lumber. The SLA was agreed in part to resolve disputes as to whether Canada was unfairly subsidizing the price of timber sold to its softwood lumber producers. Under the SLA, Canada agreed to impose export measures under certain circumstances to affect the price of softwood lumber exports to the United States. The SLA also provides that neither party is to circumvent those export measures, including through providing grants or other benefits.

The SLA “grandfathers” British Columbia’s timber pricing system as it existed on July 1, 2006. Under the grandfathered system, timber harvested from public lands in the Interior region of British Columbia meeting the definition of “Grade 4” is priced at a fixed rate of 25 cents per cubic meter, while timber meeting the definitions of “Grade 1” or “Grade 2” is priced at a variable rate, which can in no case be lower than 25 cents per cubic meter, and often has been significantly higher. The share of timber harvested from public lands in the Interior region of British Columbia and provided as “Grade 4” (or otherwise priced at 25 cents per cubic meter) has increased dramatically since the SLA entered into force. This increase does not appear to be justified under the grandfathered BC provincial timber pricing system, even when known factors affecting timber quality in BC (such as the mountain pine beetle) are taken fully into consideration.

The United States has sought information from Canadian federal and British Columbia provincial authorities. However, so far Canada has not sufficiently addressed the U.S. concerns.

The SLA entered into force on October 12, 2006. Consultations are the first step in the SLA dispute settlement process and are designed to facilitate the exchange of views and resolution of differences short of arbitration. Under the SLA, consultations are to be held within 20 days. If the matter is not resolved within 40 days of the request for consultations, either party may refer the matter to arbitration. The United States has brought two disputes under the SLA to ensure proper implementation of the Agreement. In the first dispute, a tribunal found that Canada failed to calculate quotas properly during the first six months of 2007and found that Canada should impose an additional CN$68.26M in export duties on softwood lumber as compensation. The second dispute is ongoing and concerns several Canadian provincial programs that appear to provide subsidies in circumvention of the SLA.