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United States Requests Arbitration with Canada Under Softwood Lumber Agreement
Washington, D.C. – United States Trade Representative Ron Kirk announced today that the United States is requesting arbitration with Canada under the 2006 Softwood Lumber Agreement (SLA) regarding the under-pricing of timber harvested from public lands in the Interior region of British Columbia.
“Canada is providing an additional benefit to Canadian exporters of softwood lumber by selling timber harvested from public lands for prices below those provided for under the timber pricing system grandfathered under the SLA. By doing so, Canada is in breach of its commitments under the Agreement. This type of benefit harms U.S. workers and firms in the lumber industry, and is inconsistent with Canada’s obligations under the 2006 Softwood Lumber Agreement,” said Ambassador Kirk. “When we believe our trading partners are not living up to their obligations, we will not hesitate to enforce our rights under our trade agreements.”
Growing U.S. concerns over this issue have gone unaddressed by Canada, and the United States requested formal consultations with Canada under the SLA in September 2010. Consultations were held in October 2010, but did not resolve the matter. As a result, the United States is exercising its rights under the SLA to submit the matter to binding arbitration. The SLA provides for binding arbitration to resolve differences between the United States and Canada regarding interpretation of the Agreement. Under the SLA, arbitration is conducted under the rules of the London Court of International Arbitration. Upon USTR’s request, the U.S. Department of Justice will be filing the request and handling the arbitration.
The 2006 SLA is intended to resolve disputes over Canada’s subsidization of softwood lumber exports. Under the SLA, Canada agreed to impose certain measures to affect the price of softwood lumber exports to the United States. The SLA provides that Canada may not circumvent those export measures, including through providing grants or other benefits. By selling timber harvested from public lands in the Interior region of British Columbia for prices below those provided for under the timber pricing system grandfathered under the SLA, Canada provides a benefit to Canadian softwood lumber producers in circumvention of the export measures provided for in the Agreement.
The central issue in the dispute involves the mis-assignment of public timber to the salvage “grade 4,” which British Columbia then sells to Canadian softwood lumber producers at the very low fixed rate of 25 cents per cubic meter. 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 is not justified under the British Columbia provincial timber pricing system recognized under the SLA, even when known factors affecting timber quality (such as damage from the mountain pine beetle) are fully taken into consideration.
The United States has brought two previous 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 2007 and 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 provide subsidies in circumvention of the SLA.