August 10, 2005

NAFTA panel upholds softwood trade ruling vs U.S.

By Luke McCann

OTTAWA (Reuters) - A NAFTA trade panel sided with Canada in
its softwood lumber battle with the United States on Wednesday,
but as in past rulings in the long-running fight the countries
immediately disagreed over what the decision meant.

The ruling was made by the Extraordinary Challenge
Committee of the North American Free Trade Agreement. It
rejected a U.S. appeal of an earlier ruling that Washington had
failed to justify imposing duties on Canadian softwood.

Canada said the decision effectively ended the fight and
Washington should return the $4 billion in duties collected
from Canadian lumber firms. The United States said the impact
was much more limited.

"This is a binding decision that clearly eliminates the
basis for U.S.-imposed duties on Canadian softwood lumber,"
Canadian Trade Minister Jim Peterson said in a statement.

The United States said the NAFTA decision concerned a claim
it made in 2002, but had no bearing on a newer claim it made in
November 2004, and urged both sides to reach a long-term deal.

"We continue to believe that it is in the interests of both
the United States and Canada to reach a permanent negotiated
solution to their long-standing differences over softwood
lumber, as many on both sides of the border believe," said
Neena Moorjani, press secretary for the U.S. Trade

The United States signaled in July that it would not refund
duties imposed on Canadian lumber companies in the latest


Canada ships about $6 billion in softwood lumber to the
United States each year, and the cross-border battle has been a
trade irritant for decades. The latest chapter began in 2001
after the expiration of a treaty setting quotas on Canadian

Washington and the U.S. lumber industry claim Canada's
provinces unfairly subsidize their lumber industry by charging
below market rates to log in the massive public forests. It is
demanding policy changes to prevent potential subsidies.

Canada denies the claims and says U.S. producers are too
inefficient to compete in a free market. It also accuses
Washington of being protectionist.

The United States has slapped countervailing and
anti-dumping duties of around 21 percent on spruce, pine, fir
and other softwood imports from Canada, which are used to build
and remodel houses.

Wednesday's' ruling upheld a NAFTA finding that Washington
had failed to prove its industry was injured by Canadian
softwood shipments, a justification the U.S. legally needed to
impose the duties.

Canada has won several rulings in the fight under NAFTA and
before the World Trade Organization, but the United States has
responded by filing appeals or saying the decisions were not
enough to strike down the duties.

John Allan, president of the British Columbia Softwood
Lumber Trade Council, hailed the ruling but acknowledged it was
unlikely to bring a quick end to the fight.

"The duties should be rescinded and our money returned.
But, that said, we know that the Americans have indicated they
do not want to return our money and they won't," Allan said.

"As you know, we are in the middle of negotiations, and we
should surely put some serious efforts into finding a long-term
solution because we all know that the Americans can just turn
around and sue us again."

The next negotiating session between the countries with
industry representatives is set for Aug. 22 in Ottawa.

(Additional reporting by Allan Dowd in Vancouver and Sophie
Walker in Washington)