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Statement by the Office of the U.S. Trade Representative in Response to Decision in Third Softwood Lumber Arbitration

07/18/2012

07/18/2012

Washington, D.C. – Today, the Office of the United States Trade Representative issued the following statement regarding a decision in the third softwood lumber arbitration dispute brought by the United States against Canada:

“We are disappointed with the outcome of this latest arbitration under the Softwood Lumber Agreement between the Government of the United States and the Government of Canada (SLA). Despite this result, we remain concerned that British Columbia provided publicly-owned timber harvested in its interior to softwood lumber producers for prices far below market value,” said Nkenge Harmon, Deputy Assistant United States Trade Representative. “And it is important to note that the tribunal did not sanction the pricing practices in British Columbia. Rather, as a result of a flawed approach to evaluating the evidence before it, the tribunal concluded that it was unable to find a conclusive link to action by the Government of Canada. The fair pricing of timber in British Columbia is in the strong interest of the United States and we will continue to monitor this closely.

“The United States has prevailed in two cases under the SLA. We continue to enforce them. The Obama Administration is committed to continue vigorously enforcing the SLA and other U.S. trade agreements. Although we remain disappointed in the result of this proceeding, we will continue to ensure that Canada abides by its obligations under the SLA.”

The U.S. Department of Justice represented the United States in each arbitration.

Background
The 2006 SLA is intended to resolve long-running disputes over Canada’s subsidization of softwood lumber exports. Under the SLA, Canada agreed to impose certain export measures on softwood lumber products when the price of lumber falls below a certain level. The SLA provides that Canada may not circumvent those export measures, including by providing grants or other benefits to softwood lumber producers. The United States argued that 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 permitted under the SLA, Canada provided a benefit to Canadian softwood lumber producers in circumvention of the export measures provided for in the Agreement.

On January 18, 2011, the United States requested arbitration under the LCIA (formerly the London Court of International Arbitration). The central allegation in the dispute was that British Columbia was mis-grading public timber as salvage “grade 4,” (the grade that was supposed to be reserved for timber that was mostly unusable to make lumber products) which meant it was selling the timber to Canadian softwood lumber producers at the very low fixed rate of 25 cents per cubic meter. By contrast, the price in the British Columbia interior for lumber-quality timber has ranged between C$2 and C$18per cubic meter since 2006 when the SLA went into effect. These figures show under-pricing of between 800 and more than 8,000 percent. The percentage of timber harvested from public lands in the interior region of British Columbia and priced as “grade 4” (or otherwise priced at 25 cents per cubic meter) increased dramatically after the SLA entered into force.

While the tribunal acknowledged the dramatic increase in the amount of timber priced as grade 4, and reviewed a number of actions by British Columbia that the United States had explained helped account for that increase, in the end the tribunal was unable to find a conclusive link between the increase and action by British Columbia. In the meantime, British Columbia has modified its timber pricing system and the United States will be monitoring the resulting pricing closely.

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. In the second dispute, a tribunal found that Canada breached the SLA with respect to five provincial programs that provided assistance to softwood lumber producers. To comply with the award, on March 1, 2011, Canada began imposing additional export charges 0.1 percent and 2.6 percent on softwood lumber exported from Ontario and Quebec, respectively, intended to collect US$59.4M.

In January 2012, the United States and Canada extended the SLA until October 2015.