July 21, 2006

US court sides with Canada in lumber trade fight

VANCOUVER, British Columbia (Reuters) - A U.S. court ruled
on Friday in favor of Canada in its fight against U.S. duties
on Canadian softwood lumber in a decision that could complicate
a deal to end the trade dispute.

The U.S. Court of International Trade said U.S. officials
could not bypass a North American Free Trade Agreement panel's
ruling that Washington had improperly imposed duties on the
lumber used in housing construction.

In a 74-page ruling, the court rejected a decision by U.S.
officials in 2004 to ignore the NAFTA ruling in favor of a
separate World Trade Organization ruling that sided with the
United States claim Canada subsidizes its lumber industry.

"This is a victory for NAFTA," said John Allan, president
of the British Columbia Lumber Trade Council, a major Canadian
industry lobbying group..

A spokesperson for the U.S. Trade Representatives Office
was not immediately available for comment late Friday.

Allan said the ruling meant that $1.2 billion in duties
collected since November 2004 had to be refunded. The court
still has to decide what to do with duties paid before that -
estimated at about $3.4 billion plus interest.

The unanimous ruling by a three-judge panel comes as the
Canadian government is trying to convince its reluctant
industry to support an agreement it initialed with Washington
this month to end the trade fight.

"This makes it a lot more interesting," Allan said.

The trade deal would return $4 billion to Canada, but give
$1 billion to the U.S. lumber producers whose trade complaint
in 2001 sparked the trade fight.

The deal that is designed to last for seven years would
also replace the U.S. duties with system in which Canada would
use internal taxes and quotas to limit its share of the
American market as lumber prices drop.

Critics of the agreement in Canada have argued that Ottawa
gave away too much, and included a last-minute clause that will
allow Washington to walk away from the agreement prematurely to
reimpose the duties.

Canadian Trade Minister David Emerson said in an interview
on Friday prior to the court's decision being released that he
believed critics of the trade deal were slowly coming around in
support of the agreement.