U.S. Wins SLA Tribunal, Canada Must Fix Breach or U.S. Could Impose Add'l Duties

U.S. Disputed Quebec/Ontario Assistance to Softwood Lumber Exporters

Under the SLA, Canada agreed to impose export measures, including volume restraints and export charges, on Canadian exports of softwood lumber products to the U.S. Additionally, Canada committed to not take action to circumvent or offset the commitments made in the Agreement. The U.S. claimed that despite these commitments, the provinces of Quebec and Ontario put into place a number of assistance programs to aid the Canadian softwood lumber industry. These include grant, loan, loan guarantee, and tax credit programs, as well as “forest management” programs and programs that promote wood production.

In 2008, the U.S. requested arbitration on these programs, as it believed them to be inconsistent with the SLA’s anti-circumvention provisions.

Tribunal Agrees, Says Programs Breach SLA’s Anti-Circumvention Provisions

The tribunal agreed with the U.S. that certain of the challenged programs breach the anti-circumvention provisions, including: (1) Québec’s Forest Industry Support Program (PSIF); (2) Québec’s Capital Tax Credit; (3) Québec’s Road Tax Credit (only in connection with the increase in tax credit from 40% to 90%); (4) Ontario’s Forest Sector Prosperity Fund; and (5) Ontario’s Forest Sector Loan Guarantee Program.

Canada Has 30 Days to Cure Breach or Add’l Charges Will Be Imposed

The tribunal has determined that, if Canada fails to cure the breach within 30 days, it must impose, as an appropriate adjustment to compensate for the breach, additional charges on exports of softwood lumber to the U.S. originating in Quebec and Ontario. These additional export charges will remain in place for the duration of the SLA and are anticipated to result in the collection of $59.4 million U.S. dollars.

If Canada Does Not Act, U.S. Can Impose Add’l Duties on Softwood Lumber

If Canada does not take action in accordance with the tribunal’s decision within 30 days, the U.S. is authorized by the SLA to impose additional import duties on softwood lumber from Canada.

Arbitration Proceeding is Second of Three Initiated by U.S.

The U.S. has initiated two other arbitrations under the SLA to ensure proper implementation of the Agreement. In 2007, it requested arbitration over Canada’s failure to calculate export quotas properly during the first six months of that year. The Tribunal upheld the U.S. claims and determined that Canada, in order to compensate for the breach, should impose an additional 10% export charge, based upon the value of the merchandise, on exports of softwood lumber to the U.S. until CN $68.26 million has been collected. (See ITT’s Online Archives or 09/30/09 and 03/02/09 news, 09093015 and 09030230, for BP summaries of the first arbitration.)

In addition, the U.S. recently commenced a third arbitration under the SLA. The new arbitration concerns U.S. allegations that timber harvested from public lands in the Interior region of British Columbia is being sold for prices below those provided for under the timber pricing system grandfathered under the SLA. The U.S. contends that this provides a benefit to Canadian softwood lumber producers, which circumvents the export measures provided for in the Agreement. (See ITT’s Online Archives or 01/19/11 news, 11011913, for BP summary of the U.S. asking for the third arbitration.)

(See ITT's Online Archives or 01/23/08 news, 08012305, for BP summary of USTR announcing this second arbitration on the provincial subsidy programs in January 2008.)