August 15, 2006

WTO appeal body reverses lumber ruling

GENEVA (Reuters) - The World Trade Organisation's Appellate
Body, reversing an earlier panel report, ruled on Tuesday that
the U.S. method for calculating anti-dumping duties on softwood
lumber imports violated global free trade rules.

A WTO dispute panel on April 3 rejected a challenge brought
by Canada against a U.S. method known as "zeroing" for
calculating anti-dumping duties on billions of dollars worth of
softwood lumber imports.

But in a 60-page ruling issued on Tuesday, the three judges
on the WTO's Appellate Body -- its highest arbitration court --
found that the use of zeroing was inconsistent with the WTO's
Anti-Dumping Agreement.

"The Appellate Body recommends that the (WTO) Dispute
Settlement Body (DSB) request the United States to bring its
measure into conformity with its obligations under the
Anti-Dumping Agreement," it said.

The ruling was celebrated by the Canadian lumber industry
as an August 21 deadline looms for Canadian companies to back a
negotiated settlement to the softwood dispute or continue with
court battles they now appear more likely to win. The United
States expressed disappointment.

Either side has 30 days to ask the Dispute Settlement Body
to adopt the ruling, which then becomes final unless there is a
consensus against it. The DSB, composed of the WTO's 149 member
states, is expected to meet in September.

At issue was the U.S. method of calculating margins of
dumping in its softwood lumber analysis, which compared
Canadian producers' export sales with their sales in Canada.

The Appellate Body found that the margins of dumping set up
under the transaction-to-transaction methodology contravened
the 1995 WTO Anti-Dumping Pact as they distorted the prices of
certain export transactions and artificially inflated the
magnitude of dumping.

This resulted in higher margins of dumping and made a
positive determination of dumping more likely.


The case is one of a series brought by Canada, which ships
softwood lumber -- spruce, fir and pine -- to the United States
for use in construction markets. In 2005, Canada exported $7.4
billion in softwood to the United States, according to the
Canadian trade department.

The two neighbors initialed an agreement on July 1 to end
the decades-long trade dispute.

"We believe more litigation is not the right approach to
our differences with Canada on the softwood lumber trade. It's
in the best interests of both the U.S. and Canada to reach a
permanent solution," Sean Spicer, spokesman for U.S. Trade
Representative Susan Schwab, said of Tuesday's ruling.

"Once you come to an agreement, then you take the
litigation out of the question," he added.

The Coalition for Fair Lumber Imports, a U.S. alliance of
producers around the country, said the ruling was "just another
example of WTO overreaching."

But Carl Grenier, head of Canada's Free Trade Lumber
Council, said the legal triumph would make it easier for
Canadian companies to reject the negotiated settlement. "This
is a great piece of news. It was one of the missing pieces of
the puzzle," he said.

The restriction on "zeroing" ensures Canadians will win
pending battles in U.S. courts investigating the dumping
charges, said Elliot Feldman, attorney for part of the industry
in the dispute.

"It's going to require U.S. courts to adjust and change
their decisions. We will file today or tomorrow a subsequent
authority with the NAFTA panel that is still out on the
investigation to ask them to complete their decision," he said.

He will then do the same with the International Court of
Trade, where another case is pending.

U.S. coalition chairman Steve Swanson said, "'zeroing' was
a common practice when the current WTO rules were put into
place, and there is nothing in those rules that forbids it."

The coalition further asserted that data trends in exchange
rates, lumber prices and Canadian producer costs were pointing
strongly toward sharply higher dumping margins "whether or not
'zeroing' is used."

(Additional reporting by Sophie Walker in Washington, D.C.
and Louise Egan in Ottawa)