Order Code IB10081
CRS Issue Brief for Congress
Received through the CRS Web
Lumber Imports From Canada:
Issues and Events
Updated October 26, 2001
Ross W. Gorte
Resources, Science, and Industry Division
Jeanne Grimmett
American Law Division
Congressional Research Service ˜ The Library of Congress

CONTENTS
SUMMARY
U.S. Industry Arguments
Current Issues
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Historical Background
Analysis: Subsidies and Injury
Subsidies: Canadian Stumpage Fees
Subsidies: Export Restrictions
Injury to the U.S. Lumber Industry
Current Issues and Events
Expiration of the 1996 Agreement
Canadian WTO Challenges Regarding U.S. Countervailing Duty Law
Letters to President Bush
LEGISLATION
CHRONOLOGY
FOR ADDITIONAL READING


IB10081
10-26-01
Lumber Imports From Canada: Issues and Events
SUMMARY
U.S. lumber producers have raised con-
the U.S. timber market. Canada has chal-
cerns about softwood lumber imports from
lenged U.S. treatment of export restrictions as
Canada many years; the current dispute has
a subsidy in the WTO, arguing that this is
persisted for at least two decades. Alleged
inconsistent with the WTO Agreement on
Canadian subsidies (subsidies are a prerequi-
Subsidies and Countervailing Measures.
site for establishing countervailing duties —
CVDs) were investigated in 1982, 1986, and
Finally, U.S. producers argue that they
1992. No subsidies were found in 1983;
have been injured by imports of Canadian
however, in 1986, preliminary subsidy findings
softwood lumber. They point to the steady
led to a Memorandum of Understanding (with
growth in Canadian exports and market share,
a 15% Canadian tax on lumber exported to the
from less than 3 billion board feet (BBF) and
United States), and to a 6.51% CVD in 1992.
7% of U.S. lumber consumption in 1952 to
The 1992 CVD was challenged under the
more than 18 BBF annually since 1998 and a
U.S.-Canada Free Trade Agreement, and was
market share of more than 33% since 1995.
terminated in 1994. A U.S.-Canada Softwood
Canadians counter that the U.S. industry has
Lumber Agreement (SLA) was reached in
been unable to satisfy the growth in demand.
1996 to restrict lumber exports to the United
U.S. homebuilders and other lumber users
States for 5 years, beginning on April 1, 1996.
counter that Canadian lumber is needed to
The SLA expired on March 31, 2001. (See
satisfy U.S. demands.
CRS Report RL30826 for more information
and analysis.)
Current Issues. Neither an extension
of the SLA nor a new agreement is currently
U.S. Industry Arguments. The U.S.
being negotiated. In response to petitions, the
producers argue that they have been injured by
Department of Commerce initiated counter-
unfair Canadian competition. They argue that
vailing and antidumping investigations on April
the provinces set “stumpage fees” (for the
30. On May 16, the International Trade Com-
right to harvest trees) administratively at less
mission issued its preliminary finding that the
than their market value. This system, where
U.S. industry had probably been injured by
the provinces own 90% of Canadian timber-
lumber imports from Canada. On August 10,
lands, contrasts with the United States, where
the Department issued preliminary findings
42% of timberlands are publicly owned and
that Canadian subsidies (and thus the prelimi-
where government timber is often sold com-
nary duty) amounted to 19.31% of sale value,
petitively. These differences in land tenure
and that critical circumstances existed, allow-
make comparisons difficult.
ing the duties to apply retroactively.
In addition, U.S. lumber producers argue
On August 23, the WTO adopted the
that provincial and Canadian federal log export
final panel report, concluding that U.S. treat-
restrictions confer a subsidy to Canadian
ment of export restrictions as a subsidy vio-
producers by preventing other producers from
lated the WTO Subsidies and Countervailing
getting direct access to Canadian timber. The
Measures Agreement, but not recommending
United States also restricts log exports from
remedial action, since a CVD based on this
federal and state lands, but logs can be ex-
treatment is not mandatory.
ported from the private lands that dominate
Congressional Research Service ˜ The Library of Congress

IB10081
10-26-01
MOST RECENT DEVELOPMENTS
The 1996 U.S.-Canada Softwood Lumber Agreement expired on March 31, 2001. On
April 2, the U.S. Coalition for Fair Lumber Imports filed countervailing and antidumping
petitions with the relevant U.S. federal agencies, charging that subsidized and below-cost
Canadian lumber was being dumped on U.S. markets, harming the U.S. lumber industry.
On May 16, the U.S. International Trade Commission issued its preliminary finding a
reasonable indication that the U.S. lumber industry was threatened with material injury by
softwood lumber imports from Canada. On August 17, the Commerce Department issued
preliminary findings that Canadian subsidies amounted to 19.31%
ad valorem (as a percent
of lumber values); thus, the Department established a preliminary duty of 19.31%. On
August 23, the WTO adopted a final panel report that agreed with Canada’s challenge of
U.S. treatment of export restraints as a subsidy that violated the WTO Agreement on
Subsidies and Countervailing Measures, but did not recommend remedial action because a
CVD based on this treatment is not mandatory under U.S. trade law.

BACKGROUND AND ANALYSIS
Concerns among U.S. lumber producers about softwood lumber imports from Canada
have been raised for decades; the current dispute has persisted for at least 20 years. U.S.
producers argue that they have been harmed by unfair competition, which they assert results
from subsidies to Canadian producers, primarily in the form of low provincial stumpage fees
(the fees for the right to harvest trees from Province-owned timberlands) and Canadian
restrictions on log exports. Canadians defend their system, and U.S. homebuilders and other
lumber users advocate unrestricted lumber imports. This issue brief provides a concise
historical account of the dispute, summarizes the subsidy and injury evidence, and discusses
the current issues and events. (For more historical background and analysis, see CRS Report
RL30826.)
Historical Background
The current dispute began in 1981, when letters from Members of Congress and a
petition from the U.S. lumber industry asked the U.S. Department of Commerce (DOC) and
the U.S. International Trade Commission (ITC) to investigate lumber imports from Canada
for a possible countervailing duty (CVD).1 The ITC found preliminary evidence of injury to
the U.S. industry, but in 1983, the DOC’s International Trade Administration (ITA)
determined that subsidies were de minimis (less than 0.5%), ending the CVD investigation.
In 1986, the U.S. lumber industry filed a petition for another CVD investigation with the
DOC and the ITC. A 1985 court ruling on an ITA determination of countervailable benefits
1 U.S. trade law (19 U.S.C. 1671-1671h) authorizes countervailing duties on imported goods, if the
DOC determines that the imports are being subsidized (directly or indirectly) by a foreign country and
if the ITC determines that the imports have materially injured a U.S. industry. The duty is set at the
calculated level of the subsidies.
CRS-1

IB10081
10-26-01
on certain imports from Mexico was seen as a favorable precedent for reversing the ITA
finding on Canadian lumber subsidies. The ITC again found preliminary evidence of injury
to the U.S. industry, and the ITA reversed its 1983 determination, with a preliminary finding
that Canadian producers received a subsidy of 15% ad valorem (i.e., 15% of lumber market
prices). On December 30, 1986, the day before the final ITA subsidy determination, the
United States and Canada signed a Memorandum of Understanding (MOU), with Canada
imposing a 15% tax on lumber exported to the United States, to be replaced by higher
stumpage fees within 5 years. This agreement led the U.S. industry to withdraw its petition.
In September 1991, the Canadian government announced that it would withdraw from
the MOU, because most of the provinces had increased their stumpage fees. The U.S. Trade
Representative (USTR) responded by beginning a §301 investigation,2 pending completion
of a new CVD investigation by the ITA and the ITC. In March 1992, the ITA issued a
preliminary finding of 14.48% ad valorem subsidies, with a final determination in May
establishing a 6.51% ad valorem subsidies, leading to a 6.51% ad valorem duty. This was
confirmed in July with a final ITC finding that the U.S. industry had been injured by Canadian
lumber imports.
The Canadian federal government appealed both the ITA and the ITC final findings to
binational review panels under the U.S.-Canada Free Trade Agreement (FTA), which was
signed on January 2, 1988. In May 1993, the binational subsidy panel remanded the ITA
finding for further analysis, and in September, the ITA revised its finding to 11.54% ad
valorem
subsidies. In December, the binational subsidy panel again remanded the ITA finding
and ordered the ITA to find no subsidies. In January, the ITA complied with the order.
Using a provision of the FTA, the USTR requested an Extraordinary Challenge Committee
(ECC) to review the binational panel decisions, but the ECC was dismissed in August 1994
for failing to meet FTA standards. In August, the DOC revoked the CVD, and in October,
the USTR announced that it would terminate the §301 action.
Two events in September 1994 induced Canada to negotiate restrictions on its lumber
exports to the United States. First, the U.S. lumber industry filed a lawsuit challenging the
constitutionality of the FTA review process. Second, the Uruguay Round Agreements Act
(URAA; P.L. 103-465) explicitly approved the President’s “statement of administrative
action” (SAA) that had accompanied his proposed legislation; the SAA stated that, because
of Canadian practices, lumber imports from Canada could be subject to a CVD. In February
1996, the two nations announced an agreement-in-principle — a fee on Canadian lumber
exports to the United States in excess of a specified quota for 5 years — with the final U.S.-
Canada Softwood Lumber Agreement (SLA) signed in May and retroactive to April 1, 1996.
The SLA was effective through March 31, 2001.
Analysis: Subsidies and Injury
Annual Canadian lumber imports have risen from less than 3 billion board feet (BBF),
about 7% of the U.S. market, in the early 1950s to more than 18 BBF, more than a third of
2 Under §301 of the Trade Act of 1974 (19 U.S.C. 2411-2420), the USTR can investigate and can
respond, with a broad range of feasible actions, to foreign trade practices which are found to be illegal,
unreasonable, or discriminatory, and are burdensome to U.S. interests.
CRS-2

IB10081
10-26-01
the U.S. market, in the late 1990s. U.S. lumber producers argue that subsidies to Canadian
producers give them an unfair advantage in supplying the U.S. market and that this has injured
U.S. producers. These two issues — subsidies and injury — are the basis in U.S. trade law
for determining if a CVD is warranted.
Subsidies: Canadian Stumpage Fees. The U.S. lumber industry has argued that
the stumpage fees charged by the Canadian provinces are less than the market price of the
timber would be and are therefore a subsidy to Canadian producers. About 90% of the
timberlands in the 10 provinces are owned by the provinces. The provinces require
management plans for forested areas and allocate the timber harvests through a variety of
agreements or leases, often for 5 or more years with renewal options. Stumpage fees for the
timber are determined administratively, often with adjustments to reflect changes in market
prices for lumber. This contrasts with the U.S. situation, where 42% of the forests are
publicly owned and where public timber is typically sold in competitive auctions; thus, much
of the timber in the United States is sold by public and private landowners at market prices.3
The use of administered fees in Canada opens the possibility that the Canadian system results
in transfers to the private sector at less than their fair market value, as the U.S. lumber
industry has charged. However, comparisons of U.S. and Canadian stumpage fees are often
disputed, because of: differences in measurement systems and the imprecision of converting
Canadian cubic meters of logs to U.S. board feet of lumber; differences in the diameter,
height, quality, and species mix of U.S. and Canadian forests; differences in management
responsibilities imposed on timber buyers (e.g., road construction, reforestation); differences
in environmental conditions and policies; and other factors.
Subsidies: Export Restrictions. Export restrictions by British Columbia (BC)
were identified as a subsidy to BC lumber producers by the ITA in its 1992 CVD
investigation. BC generally prohibits the export of logs from Crown (provincial) lands, to
assure domestic production, provide jobs, and encourage economic development. Export
restrictions on public timber in the United States indicate substantially higher prices for export
logs than for comparable logs sold domestically. Most economists would consider
restrictions that reduce domestic prices below the world market price to be subsidies, and the
General Agreement on Tariffs and Trade (GATT) generally prohibits export restrictions. In
addition, current U.S. trade law allows the DOC to consider an export restraint on a product
to be a subsidy if the private parties who would be exporting the product provide the
restrained good to domestic purchasers for less than adequate remuneration. Nonetheless,
Canada has challenged the ITA treatment of export restrictions as a subsidy, arguing that this
treatment is inconsistent with the World Trade Organization (WTO) Agreement on Subsidies
and Countervailing Measures. This challenge is discussed more below.
Injury to the U.S. Lumber Industry. Proving injury or threat of injury to U.S.
lumber producers is also essential to establishing a CVD. The share of the U.S. softwood
lumber market provided by Canadian lumber has grown substantially over the past 50 years.
In 1952, lumber imports from Canada were less than 3 BBF, and Canada’s market share was
3 Some argue that U.S. federal agencies are not comparable to traditional, market-oriented private
“willing sellers,” because they do not make investments or sales based on profitability, as a private
landowner presumably would. However, the U.S. federal government owns only 33% of U.S.
timberlands, and thus probably has less impact on timber markets than do the Canadian provinces.
CRS-3

IB10081
10-26-01
less than 7%. In 1998 and 1999, Canadian lumber imports were more than 18 BBF, and
Canada’s market share has fluctuated between 33% and 35% since 1995. These facts are
cited by U.S. producers as evidence that Canadian imports have come at the expense of
normal domestic growth in industrial lumber production. U.S. homebuilders and other lumber
users counter that Canadian lumber is essential to meeting domestic demand, and argue for
unrestricted imports. Despite consistent ITC findings of injury, indisputable proof of injury
to U.S. producers is difficult to establish.
Current Issues and Events
Three aspects of this situation are currently the focus of attention in this long-running
dispute over the exports of softwood lumber from Canada to the United States.
Expiration of the 1996 Agreement. The SLA expired on March 31, 2001, thus
ending the rights and obligations of Canada and the United States regarding lumber products
covered by the Agreement. Since neither an extension of the SLA nor a new agreement is
currently being negotiated, private and governmental parties are employing and exploring
other options regarding the future of U.S.-Canadian lumber trade. On March 28, Commerce
Secretary Evans reportedly stated to a group of Senators that he would monitor lumber
import levels upon expiration of the SLA, as a step toward a possible “critical circumstances”
determination allowing early relief (Inside US Trade, April 6, 2001). Canada has dismissed
the idea of imposing an export tax on lumber products for the time being; Canadian
International Trade Minister Pettigrew reportedly stated in the Canadian House of Commons
that the government would not support such a measure unless the four Canadian provinces
that export softwood lumber favored it (International Trade Reporter, March 22, 2001, p.
476). USTR Zoellick has stated that he may consider the negotiation of an export tax were
any unfair trade proceedings to be resolved in favor of U.S. producers (International Trade
Reporter
, March 8, 2001, p. 386). Some industry and consumer groups, as well as some in
Congress, have called for the agreement not to be extended or replaced and for instead
allowing any trade cases to proceed to conclusion or to be pursued through the World Trade
Organization (WTO).
On April 2, the U.S. Coalition for Fair Lumber Imports filed antidumping and CVD
petitions. On April 24, the DOC announced that it was initiating the antidumping and CVD
investigations, because the petitioners had standing and had shown adequate industry support.
The investigations were officially initiated with notices in the Federal Register on April 30,
at pages 21328–21332 for the antidumping petition and at pages 21332–21335 for the CVD
petition. On May 16, the ITC issued its preliminary determination that there was “a
reasonable indication that a U.S. industry is threatened with material injury by reason of
imports of softwood lumber from Canada that are allegedly subsidized and sold in the United
States at less than fair value” (Investigations Nos. 701-TA-414 and 731-TA-928
(Preliminary)). The DOC published its preliminary determination on Canadian subsidies in
the Federal Register on August 17, at pages 43186–43216. It found subsidies of 19.31% ad
valorem
(as a percent of sale value), and established a preliminary duty at that level. DOC
also found that critical circumstances exist, allowing retroactive application of the duty.
Canadian WTO Challenges Regarding U.S. Countervailing Duty Law. The
DOC recognized the countervailability of export restrictions in its 1992 determination of
subsidies involving Canadian softwood lumber and in a 1990 determination of subsidies
CRS-4

IB10081
10-26-01
involving leather from Argentina. In the SAA accompanying the Uruguay Round Agreements
Act (H.Doc 103-316, vol.1, pp. 925-926), and in the DOC’s Federal Register explanation
of its implementing rule (63 Federal Register 65349–65351, Nov. 25,1998), the Executive
Branch confirmed that if it were again to investigate situations and facts similar to those in
the two cases just described, U.S. trade law would continue to permit it to reach the same
conclusion. Canada has challenged this policy in the WTO, alleging that the U.S.
interpretation, as set forth in these documents, is inconsistent with U.S. obligations under the
WTO Agreement on Subsidies and Countervailing Measures (SCM). On August 23, the
WTO adopted the final panel report in the case agreeing with Canada, that export restraints
do not constitute a financial contribution from the government, and thus do not confer a
countervailable subsidy under the SCM Agreement; however, the report recommended no
remedial action, since U.S. law does not require the DOC to treat an export restraint as a
subsidy and since there is no current U.S. measure based on such a finding.
In apparent anticipation of possible U.S. antidumping and CVD cases against Canadian
softwood lumber imports, Canada filed another WTO complaint against the United States on
January 17, 2001, challenging § 129(c)(1) of the URAA, which sets forth procedures for
administrative compliance with adverse WTO panel reports involving U.S. antidumping or
CVD measures. Arguing that § 129(c)(1) prohibits the United States from refunding
estimated duties in trade remedy proceedings that are found to be inconsistent with WTO
obligations, Canada alleges that the provision violates portions of the WTO Dispute
Settlement Understanding and various WTO antidumping and countervailing duty obligations.
Consultation was unsuccessful, and on August 23, a WTO panel was established to examine
the complaint.
LEGISLATION
H.Con.Res. 45 (Kolbe)/S.Con.Res. 4 (Nickles)
Express the sense of Congress of the desirability of open trade in softwood lumber
between the United States and Canada. H.Con.Res. 45 introduced February 28, 2001;
referred to the House Ways and Means Committee. S.Con.Res. 4 introduced January 29,
2001; referred to the Senate Finance Committee.
H.Con.Res. 54 (Chambliss)/S.Con.Res. 8 (Snowe)
Express the sense of Congress that the Administration should resolve problems of
unfairly traded Canadian lumber, and should make it the top trade priority. H.Con.Res. 54
introduced March 7, 2001; referred to the House Ways and Means Committee. S.Con.Res.
8 introduced February 7, 2001; referred to the Senate Finance Committee.
CHRONOLOGY
08/01 --
On August 23, a WTO panel final report held that U.S. treatment of export
restraints as subsidies violated WTO agreements. Also on August 23, a WTO
CRS-5

IB10081
10-26-01
panel was established to examine Canada’s complaint that U.S. treatment of
duties found to violate WTO agreements also violated WTO agreements.
08/01 --
On August 17, the DOC issued its preliminary finding of 19.31% ad valorem
Canadian subsidies and of the existence of critical circumstances.
05/01 --
On May 16, the ITC issued its preliminary finding of injury to the U.S. lumber
industry by Canadian lumber imports.
04/01 --
On April 2, the U.S. Coalition For Fair Lumber Imports filed antidumping and
CVD petitions to restrict Canadian softwood imports. On April 24, the DOC
announced the initiation of the antidumping and CVD investigations.
03/01 --
At midnight on March 31, the 1996 Softwood Lumber Agreement expired.
01/01 --
On January 17, Canada requests consultations with United States under WTO
Dispute Settlement Understanding, arguing that U.S. procedures for
administrative compliance with adverse WTO panel reports violate the
Understanding.
09/00 --
WTO panel established to assess Canadian objection to U.S. treatment of
export restrictions.
05/00 --
Canada requests consultations with United States under WTO Dispute
Settlement Understanding, arguing U.S. treatment of export restrictions is
inconsistent with WTO Agreement on Subsidies and Countervailing
Measures.
06/99 --
U.S. Customs Service reclassifies rougher-headed lumber and notched studs
as softwood lumber subject to the SLA.
12/98 --
U.S. Court of International Trade upholds Customs Service ruling that drilled
studs are softwood lumber subject to the SLA.
06/98 --
U.S. Customs Service issues final decision reclassifying drilled studs as
softwood lumber subject to the SLA.
02/97 --
U.S. Customs Service issues New York Ruling Letter B81564 classifying
drilled studs as builders’ joinery exempt from the SLA.
05/96 --
USTR and Canada sign Softwood Lumber Agreement (SLA), retroactive to
April 1, 1996.
12/94 --
Negotiations begin between the USTR and Canada to restrict lumber imports.
10/94 --
USTR terminates §301 action against Canadian lumber imports.
08/94 --
ECC dismissed, and 2/94 binational subsidy panel order affirmed.
CRS-6

IB10081
10-26-01
01/94 --
Binational subsidy panel orders ITA to find no subsidies; ITA complies.
10/93 --
ITC reanalysis confirms original finding of injury to U.S. industry.
09/93 --
ITA reanalysis confirms and revises final finding to 11.54% ad valorem
subsidies by Canada.
07/93 --
Binational injury panel remands ITC analysis of injury for further analysis.
05/93 --
Binational subsidy panel remands ITA analysis of subsidies for further
analysis.
08/92 --
Canada challenges ITA and ITC findings under the U.S.-Canada Free Trade
Agreement (FTA), leading to binational panels to review the ITA finding of
subsidies and ITC finding of injury.
07/92 --
ITC issues final finding of injury, confirming the CVD.
05/92 --
ITA issues final finding of subsidies, establishing the CVD at 6.51% ad
valorem
.
10/91 --
USTR initiates §301 action; ITA self-initiates a CVD investigation.
09/91 --
Canada announces it will withdraw from the MOU.
12/86 --
Canada and USTR announce a Memorandum of Understanding (MOU) with
a 15% Canadian export tax instead of a CVD.
10/86 --
ITA issues preliminary finding of subsidies, setting a CVD at 15% ad
valorem
.
05/86 --
U.S. Coalition for Fair Lumber Imports files a CVD petition.
03/83 --
ITA issues preliminary finding of de minimis subsidies, ending CVD
investigation.
10/82 --
U.S. lumber industry files petition requesting a CVD.
12/81 --
Letters from Members of Congress to USTR requesting a CVD investigation
of lumber imports from Canada.
FOR ADDITIONAL READING
Benjamin Cashore, Flights of the Phoenix: Explaining the Durability of the Canada-US
Softwood Lumber Dispute (Orono, ME: Canada-American Center, Dec. 1997).
CRS-7

IB10081
10-26-01
Brink Lindsay, Mark A. Groombridge, and Prakash Lougani, Nailing the Homeowner: The
Economic Impact of Trade Protection of the Softwood Lumber Industry (Washington,
DC: Cato Institute, 2000).
John A. Ragosta, Harry L. Clark, Carloandrea Meacci, and Gregory I. Hume, Canadian
Governments Should End Lumber Subsidies and Adopt Competitive Timber Systems:
Comments Submitted to the Office of the United States Trade Representative on Behalf
of the Coalition for Fair Lumber Imports
(Washington, DC: Dewey Ballantine LLP,
April 14, 2000).
FLC Les Reed, Two Centuries of Softwood Lumber War Between Canada and the United
States: A Chronicle of Trade Barriers Viewed in the Context of Saw Timber Depletion
(Montreal, Canada: Free Trade Lumber Council, May 2001).
Random Lengths, What’s New This Week? U.S.-Canada Trade Dispute Timeline (at
[http://www.randomlengths.com/newtimeline.html] on May 2, 2000).
World Resources Institute, Canada’s Forest at a Crossroads: An Assessment in the Year
2000, a Global Forest Watch Canada Report (Washington, DC: 2000).
CRS Reports
CRS, “Softwood Lumber Imports From Canada,” Trade Briefing Book (at
[http://www.congress.gov/brbk/html/ebtra119.html]).
CRS Report RL30826, Softwood Lumber Imports From Canada: History and Analysis, by
Ross W. Gorte, Feb. 2, 2001.
CRS-8