NAFTA dismisses US claims of Canadian violation of Trade Agreement rules in softwood lumber dispute

August 10, 2005

The United States has lost another battle in the ongoing U.S.-Canada softwood lumber dispute.

A NAFTA Extraordinary Challenge Committee (ECC) rejected U.S. allegations that an earlier ruling in support of Canada's position violated NAFTA rules.

This is the latest of a string of failed U.S. attempts, to show before NAFTA and WTO tribunals, that the Canadian government has been subsidizing lumber. On several occasions, the U.S. has been told that its calculating methods were not valid. A NAFTA report of August 13, 2003 said the U.S. made a mistake in calculating its duties based on U.S. prices, and by not taking Canadian market conditions into consideration, and ordered Washington to recalculate them. NAFTA decisions are legally binding and must be put into effect within 60 days.

Two weeks later, a WTO panel concluded that the U.S. wrongly applied harsh duties on Canadian softwood exports. They also found that provincial stumpage programs provide a "financial benefit" to Canadian producers. However, the panel made it clear that the benefit was not enough to constitute a subsidy, and did not justify the U.S. duties.

"We are extremely pleased that the ECC dismissed the claims of the United States," said Canada's International Trade Minister Jim Peterson.

"This is a binding decision that clearly eliminates the basis for U.S.-imposed duties on Canadian softwood lumber. We fully expect the United States to abide by this ruling, stop collecting duties and refund the duties collected over the past three years," he said.

Negotiations between Canada and the U.S. are expected to resume next week.

While there have been suggestions that the ruling could bring the softwood dispute to an end after more than four years, the issue may not be resolved. The United States could still file legal challenges outside of NAFTA.

The United States has been collecting duties on Canadian softwood lumber since May 2002, after American lumber producers accused Ottawa of subsidizing lumber exports.