July 17, 2006

Court halts pay of Canada lumber duty to US firms

By Sophie Walker

WASHINGTON (Reuters) - The U.S. Court of International Law
slapped an injunction on the United States government
preventing it from handing over any more duties from Canadian
softwood lumber imports to U.S. industry competitors.

The ruling, issued late Friday, stopped short, however, of
reimbursing money already paid out under what is known as the
Byrd amendment.

Canada and the United States have been at odds for decades
over lumber trade. Although both sides recently finalized a
deal to end the long-standing dispute, the issue of payments
made under the Byrd amendment remained unsolved.

Under the amendment, Washington collected duties on imports
it had decided were unfairly priced, or subsidized, and
distributed the cash to U.S. competitors of the foreign

Canadian lumber groups, which have opposed the deal
negotiated by the two governments, called the ruling a "huge
victory" and urged Prime Minister Stephen Harper to use it as
leverage to seek a better deal with Washington.

"This should strengthen the government's hand in going back
to the table and trying to get some of the things the industry
is asking for," said Carl Grenier, executive vice-president of
the Free Trade Lumber Council.

Canadian Trade Minister David Emerson said on Friday that
no improvements could be made to the deal and that negotiations
were closed.

If the deal should fail and firms resume their litigation
battle, then the ruling will ensure that U.S. rivals get none
of the money from duties, said Grenier.

In 2005, Canada shipped about $7.4 billion in softwood
lumber such as spruce, fir and pine to the United States, where
it is used in home construction. Washington said Ottawa's
below-market logging rates represented an unfair subsidy.
Canada denied the claims and accused the United States of being

The Court of International Law ruled in April that by
paying softwood duties from Canadian companies to U.S. ones,
the United States had violated part of the North American Free
Trade Agreement implementation Act.

The act states that countries involved in NAFTA can only
apply their anti-dumping and countervailing duty laws to
products from the other countries if those laws specified they
applied to those goods.

Congress repealed the Byrd amendment in February, effective
October 1, 2007, meaning that U.S. companies would still be
able to receive payments from duties collected before that

After the court's April ruling, it ordered both sides to
try to agree on an appropriate solution, which they were unable
to do.

On Friday, the court found "injunctive relief appropriate"
for Canadian companies, according to court papers. It found
that, in the absence of relief, those companies would suffer
irreparable harm and have no legal remedy.

"By providing cash to plaintiffs' domestic competitors,
(U.S.) Customs alters the balance of trade preserved by the
NAFTA implementation act and enhances the competitive position
of plaintiffs' domestic competitors, resulting a loss of trade
over time," the court ruled.

"The court also finds that this harm is irreparable. Given
that the United States and the agencies thereof are cloaked in
sovereign immunity, a party may only sue the United States for
monetary damages when Congress has affirmatively waived the
government's immunity."

The court stopped short of ruling that money already paid
should be handed back, calling the issue a "land mine." It
pointed out the high administrative costs of recouping the
payments and noted that the money already distributed
represented a fraction of what was being held for distribution.

A spokesman for the United States Trade Representative,
asked about the ruling, said: "It is still a matter of
litigation and we are unable to comment on it at this time."

(Additional reporting by Louise Egan in Ottawa)