WTO: U.S. Wrongly Applied CVD to Softwood Lumber from Canada

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Sep. 1, 2020

On August 24, 2020, the World Trade Organization (WTO) dispute settlement panel circulated a report determining that the United States (U.S.) had inappropriately applied countervailing duties on softwood lumber from Canada.

Background

In November 2017, Canada filed a complaint with the WTO alleging that the U.S. had enacted measures against Canadian softwood lumber that were inconsistent with various provisions of their obligations under the Agreement on Subsidies and Countervailing Measures (ASCM) and the General Agreement on Trade and Tariffs and Trade (GATT 1994). Specifically, Canada claimed that the U.S. had been imposing unfair countervailing duty tariffs on imports of softwood lumber. In response, the U.S. had contested that Canada’s provincial system of regulating stumpage fees—per-stump price of standing timber on government land paid to the Crown in exchange for timber harvesting rights—should be subject to countervailing duties. It is the U.S. position that this system unfairly subsidizes a private industry in Canada while the U.S. industry is owned by and operated in the U.S. and bases its pricing on competitive market conditions.

The dispute actually began in the early 1980s, and this current WTO dispute against the U.S. marks the ninth WTO dispute brought by Canada to challenge U.S. trade restrictions relating to softwood lumber. The latest WTO installment was escalated after the countries failed to reach a new agreement regarding softwood lumber. Previously, both countries had agreed to the Softwood Lumber Agreement (2006), which provided stability and predictability for the industry on both sides of the border. This agreement expired on October 12, 2015, prompting the U.S. to impose tariffs of up to 24.12% in 2017. The countries have failed to agree to a new agreement.

WTO Panel Report

The dispute focused on the U.S. Department of Commerce’s (Commerce) rejection of Canadian benchmark pricing for softwood lumber. Canada argued that Commerce inappropriately used out-of-market pricing from Nova Scotia, rather than regional benchmark pricing to determine adequate renumeration for crown stumpage from Alberta, Ontario, Quebec, and New Brunswick. A similar benchmark argument was made by Canada regarding the Commerce’s use of benchmark pricing of timber from Washington for crown stumpage in British Columbia. 

The WTO agreed with Canada that Commerce had acted inconsistently with Article 1.1(b) and 14(d) of the ASCM that required Commerce to consider regional markets that present different structure, forest type, and operations of the industry in each region, all of which alter pricing. As such, the WTO has requested Commerce to reassess the duties imposed on Canadian softwood lumber to conform with its obligations under the ASCM.

Response from the U.S.

The U.S. is considering options in response to the WTO’s panel report including the potential of an appeal. If the U.S. does decide to appeal the WTO’s decision, the WTO rules allow for an appeal within 60 days from the date of issuance of the report. However, since the WTO appellate body is lacking members and in deadlock, a final ruling of an appeal, or even action by the WTO or Canada requiring the U.S. to modify its tariffs, will not be determined any time soon.

U.S. Trade Representative Ambassador Robert Lighthizer issued a statement stating that the WTO panel report is flawed and “confirms what the United States has been saying for years: the WTO dispute-settlement system is being used to shield non-market practices and harm U.S. interests.” This decision from the WTO could ignite new negotiations between Canada and the U.S. for a new Softwood Lumber Agreement to restore cooperation and understanding of the industry across neighboring borders.

If you have any questions or would like more information about U.S. trade with Canada, or WTO disputes, contact an attorneyat Barnes, Richardson & Colburn LLP.