Order Code IB10081
CRS Issue Brief for Congress
Received through the CRS Web
Lumber Imports from Canada:
Issues and Events
Updated October 4, 2004
Ross W. Gorte
Resources, Science, and Industry Division
Jeanne Grimmett
American Law Division
Congressional Research Service ˜ The Library of Congress

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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
The 2001-2002 Countervailing and Antidumping Investigations
Binational Panel Review of Antidumping and Countervailing Duty Determinations
Other Developments
Canadian WTO Challenges to U.S. Countervailing Duty and Antidumping Laws
and Proceedings
LEGISLATION
CHRONOLOGY
FOR ADDITIONAL READING

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Lumber Imports From Canada: Issues and Events
SUMMARY
U.S. lumber producers have raised con-
market in 1952 to more than 18 BBF per year
cerns about softwood imports from Canada
and a market share of more than 33%. Cana-
many years. Alleged Canadian subsidies (a
dians counter that the U.S. industry has been
prerequisite for establishing countervailing
unable to satisfy U.S. demand. Homebuilders
duties — CVDs) were investigated in 1982,
and other lumber users assert that Canadian
1986, and 1992. No subsidies were found in
lumber is needed to satisfy U.S. demands.
1983. Subsidy findings led to a 1986 Memo-
randum of Understanding (a 15% Canadian
Current Issues. In March 2002, the
tax on lumber exported to the United States),
Department of Commerce (DOC) determined
and to a 6.51% CVD in 1992. The CVD was
that Canadian producers were subsidized and
challenged under the U.S.-Canada Free Trade
were dumping lumber. The ITC determined
Agreement, and was terminated in 1994. A
that imports threatened to injure U.S. industry,
1996 Softwood Lumber Agreement restricted
and final duties were set at 29%. Canada
exports to the United States until March 31,
requested three NAFTA binational panel
2001. (See CRS Report RL30826.)
reviews; each faulted the determinations. On
remand, DOC submitted lower dumping and
U.S. Industry Arguments. The U.S.
subsidy rates, while the ITC reaffirmed its
producers argue that they have been injured by
threat decision; each redetermination was
Canadian subsidies, especially for provincial
remanded. DOC issued slightly lower dump-
stumpage fees (for the right to harvest trees).
ing margins in April 2004; a panel decision is
In Canada, the provinces own 90% of the
yet to be issued. DOC further lowered the
timberlands; this contrasts with the United
subsidy rate July 30, 2004; a panel ruling is
States, where 42% of timberlands are publicly
expected October 28. At the panel’s direction,
owned and where government timber is often
the ITC issued a “no threat of injury” determi-
sold competitively. These differences in land
nation September 10, 2004. Negotiations to
tenure make comparisons difficult.
settle the dispute are also proceeding.
In addition, U.S. lumber producers argue
Canada has filed six WTO cases on the
that Canadian log export restrictions subsidize
lumber dispute. A mixed panel decision on
producers by preventing others from getting
DOC’s subsidy finding was followed by a
access to Canadian timber. U.S. log exports
more favorable appellate report; the United
from federal and state lands are also restricted,
States has until December 17, 2004, to com-
but logs are exported from U.S. private lands.
ply. While an April 2004 panel ruling largely
Canada argues that U.S. treatment of export
upheld DOC action in the dumping case, the
restrictions violates the WTO Agreement on
Appellate Body upheld the panel’s finding
Subsidies and Countervailing Measures.
that the U.S. practice of “zeroing” violates
WTO rules; the United States intends to
Finally, U.S. producers argue that they
comply. The ITC threat of injury finding was
have been injured by imports of Canadian
faulted in a panel decision adopted in April
lumber. They point to the growth in Canadian
2004. The USTR has asked the ITC to issue
exports and market share, from less than 3
a new determination “not inconsistent with”
billion board feet (BBF) and 7% of the U.S.
the WTO ruling.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
On September 10, 2004, at the direction of a NAFTA binational panel, but under protest
and with the chairman dissenting, the ITC issued a finding of “no threat of injury.”
Assuming the panel accepts the ITC’s new determination, the United States may choose to
pursue an extraordinary challenge in the case. On July 30, 2004, the Department of
Commerce (DOC) recalculated subsidies to be lower than its original determination and its
initial redetermination, both of which were remanded by a NAFTA binational panel. The
panel’s decision on the second redetermination is due October 28, 2004.
In several cases, Canada is challenging the U.S. investigations before the WTO. The
final panel report on dumping, issued in April 2004, largely upheld DOC actions, but on
August 11, 2004, the Appellate Body upheld the panel finding against the U.S. practice of
“zeroing” as violating WTO rules, and the United States intends to comply. The ITC injury
determinations were faulted in a final panel ruling adopted April 26, 2004; the USTR asked
for a new determination “not inconsistent with” the WTO ruling. The final panel report on
subsidies was adopted February 17, 2004, and the United States has until December 2004 to
comply.
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.
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.
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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 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 five years. The U.S. industry then 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 Section 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 five 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.
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.
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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
the U.S. market, since 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. In addition, critical circumstances —
which allow for retroactive duties — are deemed to exist, if imports rise significantly after
ending import restrictions. Finally, dumping — selling imports at less than the cost of their
production — can lead to additional duties.
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 challenged the ITA treatment of export restrictions as a subsidy, arguing that this
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.
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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
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
Two 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. One is the
2001-2002 countervailing and antidumping investigations. The other is the several WTO
challenges by the Canadians questioning the countervailing and antidumping investigative
processes.
The 2001-2002 Countervailing and Antidumping Investigations. 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 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. 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)). On August 17, the DOC
published its preliminary determination of Canadian subsidies of 19.31% ad valorem, and
established a preliminary duty at that level. DOC also found that critical circumstances
existed, allowing retroactive application of the duty. On November 6, the DOC published
its preliminary determination that Canadian firms were dumping lumber, with margins
ranging from 5.94% to 19.24% (12.58% for most firms). The DOC also announced it would
align, and postpone until March 25, 2002, final determinations in the CVD and antidumping
cases.
Negotiations were undertaken to forestall final determinations of injury, subsidy, and
dumping. The negotiations collapsed on March 21, 2002, and on March 22, the DOC issued
final determinations, with Canadian subsidies determined to be 19.34% ad valorem, and
dumping margins ranged from 2.26% to 15.83% (9.67% for most firms). On May 2, by a 4-0
vote of the commissioners, the ITC issued a final finding of injury. Duties averaging 29%
went into effect on May 22, when the DOC published the final duty notice in the Federal
Register.
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Binational Panel Review of Antidumping and Countervailing Duty
Determinations. Canada and Canadian lumber producers have sought binational panel
reviews of DOC and ITC final determinations in both the antidumping and countervailing
duty cases, an option available under Chapter 19 of the North American Free Trade
Agreement (NAFTA) in lieu of judicial review. The panels have been established to
examine whether the DOC and ITC determinations are in accordance with U.S. antidumping
and countervailing duty law. Summaries with NAFTA case numbers are provided below.
DOC Final Dumping Determination (USA-CDA-2002-1904-02). The binational
panel report on the DOC’s final determination in the antidumping case was issued July 17,
2003. It unanimously affirmed the determination in part and remanded it in part; DOC was
directed to publish revised dumping margins in light of the panel’s remand instructions,
which focus in part on DOC’s product comparisons. On October 15, 2003, DOC submitted
its new determination to the panel, which resulted in a slightly lower antidumping duty rate.
The panel’s decision on the remand, issued March 5, 2004, found the DOC determinations
to be inconsistent with U.S. law and ordered new determinations for three Canadian
exporters. In its redetermination, issued April 21, 2004, DOC lowered the dumping margin
slightly for two exporters and found a de minimis (negligible) margin for the third. It also
recalculated a higher “All Others” rate. The panel has not yet specified a due date for its
decision on the DOC action.
DOC Final Subsidy Determination (USA-CDA-2002-1904-03). In its report
on the DOC’s final determination in the CVD case, issued August 13, 2003, the binational
panel upheld the DOC treatment of provincial stumpage programs as subsidies and the DOC
finding that the programs are “specific” to an industry (a necessary element of a domestic
subsidy finding). At the same time, it found as contrary to U.S. law DOC’s use of cross-
border market comparisons to calculate the subsidy, the blanket refusal of DOC to exclude
from the scope of the CVD order reprocessed Maritime-origin softwood lumber, and other
aspects of DOC determination related to the exclusion of products.
On January 12, 2004, the Department submitted its new determination, lowering the
duty rate from 18.79% to 13.23%. According to a DOC press release, the recalculated rate
was based on a revised methodology using a benchmark “constructed on the basis of
Canadian log prices and import value of logs, adjusting for harvesting costs.” DOC also
excluded certain Maritime-origin lumber and old lumber, including used railroad ties, from
the scope of the CVD order. In a decision issued June 7, 2004, the binational panel granted
DOC’s request for a remand “to reconsider certain limited implementation issues” and
additionally remanded to DOC with instructions to recalculate various provincial benchmark
prices, to reconsider the adjustment for profit with respect to the benchmarks for all Canadian
provinces, and to make two other recalculations.
On July 30, 2004, DOC issued its second remand redetermination, lowering the CVD
rate to 7.82% ad valorem and determining that five companies and a mill of a sixth company
were eligible for exclusion from the order. The binational panel’s decision on the second
redetermination is due October 28, 2004.
ITC Final Injury Determination (USA-CDA-2002-1904-07). The binational panel
examining the ITC’s final injury determination issued its report September 5, 2003,
remanding in part and affirming in part. The panel directed the ITC to reconsider its threat
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of injury determination, its like product determination relating to bed frame components and
flangestock, and its decision to cross-cumulate dumped and subsidized imports in its threat
of injury determination. The panel upheld the ITC on a number of points, including its like
product determination regarding Western Red Cedar and Eastern White Pine and its finding
that it did not have statutory authority to treat the Maritime Provinces as a “country” entitled
to a separate injury determination. The panel also affirmed that the ITC was not required as
a matter of law to determine that the threat of material injury was caused through the effects
of subsidies or dumping, and that the ITC adequately considered the nature of the subsidy
and its likely trade effects so as to have met its statutory burden regarding the evaluation of
relevant economic factors in assessing threat.
The ITC issued its redetermination December 15, 2003, in which it reaffirmed its earlier
affirmative injury rulings. In an April 19, 2004 decision released April 29, the panel, with
one concurrence, remanded this determination, having found that the ITC’s finding of threat
of injury to the domestic industry was not in accordance with law and not supported by
substantial evidence. In particular, the panel faulted ITC findings involving Canadian
producer capacity, volume and price of imports, and domestic overproduction, with a
deadline of May 10, 2004. ITC asked for an extension to July 22, 2004, in part because of
a cited delay in receiving the decision and further to “reevaluate all of the record evidence
and collect further information as necessary in order to make a remand determination
consistent with the Panel’s findings.” The panel, finding no basis that would preclude it
from restricting the ITC’s second redetermination “to the existing administrative record
where no reason has been given to justify reopening the record,” gave the ITC until May 27,
2004, to file its remand redetermination “based solely on the existing administrative record
and the conclusions of the Panel’s review.”
In its second remand redetermination, filed June 10, 2004, the ITC found once again
that the U.S. industry was threatened with material injury and, in addition, requested the
panel to reconsider its April 19, 2004, decision on the ground that the panel “manifestly and
repeatedly overstepped its authority as established by the North American Free Trade
Agreement ... by failing to apply the correct standard of review and by substituting its own
judgment for that of the Commission.” On August 31, 2004, the panel, instead of remanding
for a third time, directed the ITC to issue a “no threat of injury” determination in the case in
10 days. With the commission chairman dissenting, the ITC did so, under protest, on
September 10, 2004. Assuming that the panel accepts the ITC’s new determination, the
United States may choose to pursue an extraordinary challenge in the case, as allowed under
NAFTA Article 1904.13.
Other Developments. On January 6, 2003, the DOC offered a discussion draft
entitled Proposed Analytical Framework, Softwood Lumber from Canada. The draft
identifies market-based timber sales as the conceptual starting point, discusses how
provincial timber practices could be modified to conform with this concept, and identifies
bases for revoking the countervailing duty and antidumping margins. Negotiations are
continuing.
On June 2, 2004, the Bureau of Customs and Border Protection announced its intent to
distribute collected antidumping and countervailing duties to affected domestic producers
for FY2004 under the Continued Dumping and Subsidy Offset Act of 2000 (CDSOA), also
know as the Byrd Amendment (69 Fed. Reg. 31162). The statute, codified at 19 U.S.C.
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§1765c, mandates the annual disbursement of these funds to petitioners and interested parties
in the underlying trade remedy proceedings for a variety of qualifying expenditures.
According to the Customs Service, some $1.4 billion in softwood lumber duty deposits was
contained in so-called “clearing accounts” as of October 1, 2003. Each clearing account
contains estimated duties received pursuant to a specific AD or CVD order; once duties are
finally assessed, they are received by Customs into a special account for the order and are
available for disbursement to U.S. firms.
Canadians have expressed concerns that in cases where Canadian firms are subsequently
excluded from an AD or CVD order, and were the U.S. antidumping and countervailing duty
orders to be eventually revoked, duty deposits would not be returned and would be thus
available for distribution to U.S. lumber firms under the statute. As reported in December
2003 press accounts, a proposal to settle the softwood lumber dispute negotiated by U.S. and
Canadian officials included an approximate 50/50 split of the CDSOA softwood duties; the
proposed settlement was opposed by many Canadian producers and provinces and was not
acted upon.
The CDSOA has been successfully challenged in a WTO dispute proceeding brought
by Canada and ten other WTO Members. Absent action by the United States to repeal or
modify the law by the compliance deadline of December 27, 2003, eight of the complainants,
including Canada, requested authorization from the WTO to impose retaliatory measures.
The United States objected to the request, sending it to arbitration. On August 31, 2004, the
arbitral panel ruled that each of the eight countries seeking to retaliate may do so in an
amount equal to 72% of the annual CDSOA disbursements relating to duties paid on imports
from that country.
Canadian WTO Challenges to U.S. Countervailing Duty and Antidumping
Laws and Proceedings. Canada has initiated eight cases in the WTO in connection with
softwood lumber issues. These cases, identified below with their WTO case number, involve
challenges both to U.S. trade statutes and to the softwood lumber antidumping and CVD
proceedings themselves.
Export Restraints as Subsidies (DS194). 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 involving leather from
Argentina. In the SAA accompanying the Uruguay Round Agreements Act (URAA; H.Doc.
103-316, vol.1, pp. 925-926), and in the DOC’s Federal Register explanation of its
implementing rule (63 Fed. Reg. 65349 — 65351, November 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 challenged this policy in the WTO, alleging that the U.S. interpretation,
as set forth in those documents, is inconsistent with U.S. obligations under the WTO
Agreement on Subsidies and Countervailing Measures (SCM). The WTO panel agreed 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
panel recommended no remedial action, since U.S. law does not require the DOC to treat an
export restraint as a subsidy and since there was no current U.S. measure based on such a
finding. The panel report was adopted August 23, 2001.
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Section 129(c)(1) (DS221). 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. Canada alleged 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 and thus violates portions of the WTO
Dispute Settlement Understanding and various WTO antidumping and countervailing duty
obligations. The panel’s report, circulated to WTO Members July 15, 2002, concluded that
the United States was not in violation of its WTO obligations since the law did not mandate
a WTO-inconsistent result. The panel report was adopted August 30, 2002.
Preliminary Softwood CVD Determinations (DS236). On August 21, 2001,
Canada requested consultations with the United States, claiming that DOC’s preliminary
subsidy and critical circumstances determinations in the softwood lumber CVD proceeding
violated the SCM Agreement and the GATT 1994 (WT/DS236). Regarding the subsidy
determination, Canada cited, among other things, DOC’s treatment of stumpage as a
financial contribution, inflation of the subsidy by calculating a country-wide rate based upon
only a portion of Canadian exports to the United States, and measuring the adequacy of
remuneration for timber that provincial governments sold to lumber producers by comparing
stumpage prices in U.S. and Canadian markets, rather than by referring to prevailing market
conditions in Canada alone. (See 66 Fed. Reg. 45724-45725, Aug. 29, 2001).
The final panel report, circulated to WTO Members September 27, 2002, upheld the
U.S. determination that provincial stumpage programs constitute a financial contribution to
the industry, but faulted the methodology used by DOC in determining whether a benefit was
conferred on Canadian lumber producers, citing the above-mentioned use of cross-border
price comparisons as well as the Department’s failure to examine whether a subsidy had
passed through an unrelated upstream supplier to a downstream user of lumber inputs. While
the panel also found that DOC’s preliminary critical circumstances determination (allowing
provisional duties) was improper, DOC had revoked the finding in its final CVD
determination. Finally, the panel upheld U.S. laws and regulations regarding expedited and
administrative reviews in CVD cases, finding that they did not require the Executive Branch
to act inconsistently with WTO obligations. Neither party pursued an appeal and the panel
report was adopted November 1, 2002.
USTR stated in a press release issued at the time that even though the United States had
not appealed the report, it did not agree with the adverse panel conclusion regarding DOC
methodology and would argue in the WTO proceeding challenging DOC’s final subsidy
determination (DS257, below) that the later panel should disregard these earlier findings.
The United States reported to the WTO November 29, 2002, that it did not need to take any
action to comply with the panel report on the ground that the preliminary duties were no
longer in effect and the provisional cash deposits at issue had been refunded to Canada
before the panel report was circulated.
Provisional Softwood Antidumping Measure (DS247). On March 6, 2002,
Canada requested consultations with the United States regarding the provisional antidumping
measure imposed on Canadian lumber after DOC’s affirmative preliminary dumping
determination October 31, 2001. Canada is arguing that neither the initiation of the
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antidumping investigation nor the preliminary determination is in accord with the WTO
Antidumping Agreement. The case remains in consultations.
Final DOC Softwood Subsidy Determination (DS257). On May 3, 2002,
Canada requested consultations with the United States on DOC’s final subsidy determination
in the softwood lumber CVD proceeding. The United States blocked Canada’s first panel
request, made at a July 29, 2002, meeting of the WTO Dispute Settlement Body (DSB).
Canada later withdrew the request, refiled it, and made a new panel request at the DSB’s
August 30, 2002 meeting. A panel was established October 1, 2002, the United States
having blocked Canada’s August 30 request. Panelists were named by the WTO Director-
General November 8, 2002.
A final report in the case was reportedly issued to the parties July 2, 2003, and publicly
circulated August 29, 2003. The panel made findings similar to those in DS236 above,
upholding the DOC finding that provincial stumpage programs were financial contributions
by the government for purposes of the WTO subsidy definition, and that the subsidies were
specific to an industry. However, the panel faulted DOC use of cross-border comparisons
and determination that the subsidy passed through to downstream users. The United States
appealed the report in early October 2003, later withdrew the appeal, and then refiled it later
in the month.
In a January 19, 2004 decision, the WTO Appellate Body upheld the panel’s stumpage
determination, but reversed the panel on its finding that cross-border comparisons could not
be used and on its consequential finding that the U.S. determination of the existence and
amount of the benefit violated WTO rules. Because of insufficient information, however,
the Appellate Body could not complete the analysis as to whether the benchmark that the
United States use was proper and consequently whether the U.S. benefit finding and
ultimately its imposition of countervailing duties based on that determination comported with
WTO rules. Regarding downstream users, the Appellate Body upheld the panel’s finding
that DOC had violated WTO obligations when it failed to conduct a pass-through analysis
regarding arm’s-length sales of logs by tenured harvesters/sawmills to unrelated sawmills,
but reversed the panel on its finding that DOC acted inconsistently with WTO obligations
when it failed to conduct a pass-through analysis regarding arm’s-length sales of lumber by
such sellers to unrelated remanufacturers.
The appellate and modified panel reports were adopted by the WTO on February 17,
2004. The United States and Canada have agreed on a compliance deadline of December 17,
2004; to complete U.S. domestic procedures by this date, the United States expects to issue
an amended final CVD determination by November 30, 2004.
Final DOC Softwood Dumping Determination (DS264). On September 13,
2002, Canada requested consultations with the United States regarding the final affirmative
determination of sales at less than fair value with regard to Canadian softwood lumber
announced by the DOC March 21, 2002. Canada claims various violations of the GATT and
the WTO Antidumping Agreement, arguing that the DOC improperly initiated the case
because of the lack of sufficient evidence in the petition and the same failure to gauge
industry support alleged in DS257 (discussed above); that it improperly applied a number of
methodologies, resulting in artificial or inflated dumping margins; that it did not establish
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a correct product scope for its investigation; and that it failed to adhere to various WTO
requirements involving procedural matters in the investigation.
The panel circulated its final report April 13, 2004, generally rejecting Canada’s claims,
though (with one dissent) faulting the United States on its use of “zeroing.” The practice,
used in calculating weighted average dumping margins, involves assigning a “zero” value
to transactions in which the export price or constructed export price exceeds normal value
(i.e., where there is no dumping), and as a result not using the higher prices in these
transactions to offset the lower prices in other sales. The United States appealed the panel
report on this issue May 13, 2004.
On August 11, 2004, the Appellate Body upheld the panel’s conclusions on “zeroing,”
and, regarding an issue appealed by Canada, reversed the panel’s finding that the United
States had not infringed various Antidumping Agreement provisions in calculating financial
expenses for softwood lumber for one company under investigation (Abitibi). Since the
reversal focused only on the panel’s interpretation of the legal standard that the panel used
to evaluate the DOC’s approach, the Appellate Body did not make any findings as to whether
the United States in fact acted consistently or inconsistently with the provisions involved.
The rulings were adopted August 31, 2004, and the United States is currently seeking to
consult with Canada regarding a reasonable period of time for implementation.
The practice of “zeroing” had earlier been ruled to violate the Antidumping Agreement
in a case brought by India against the European Union and is currently the subject of a WTO
challenge by the EU against the United States. The practice was held to be allowed, but not
required, under U.S. antidumping law in the January 16, 2004, decision of the U.S. Court of
Appeals for the Federal Circuit in The Timken Co. v. United States, 354 F.3d 1334 (2004);
the ruling upheld an earlier decision of the U.S. Court of International Trade.
ITC Injury Investigation in Softwood Antidumping and Countervailing Duty
Cases (DS277). On December 20, 2002, Canada requested consultations with the United
States regarding the International Trade Commission’s injury investigation in the softwood
antidumping and countervailing duty cases, including its May 2, 2002, final affirmative
injury determinations that resulted in the imposition of duties in each. Canada has claimed
violations of the GATT, the Antidumping Agreement, and the Agreement on Subsidies and
Countervailing Measures, alleging, among other things, that the ITC based its threat of injury
determination “on allegation, conjecture and remote possibility” and that it failed to consider
properly a number of relevant factors in its determinations of injury or threat.
A final panel report faulting the ITC’s threat determination and its causal analysis was
issued to the parties February 10, 2004, and publicly circulated March 22. While the panel
recommended that the United States bring its measures into conformity with the WTO
Antidumping and SCM Agreements, it declined to recommend any ways for it to do so. The
United States took issue with the panel’s negative findings, but chose not to appeal and the
report was adopted April 26, 2004. On May 19, the United States told the WTO Dispute
Settlement Body that it intends to comply and both parties jointly reported to the WTO in
July that they were consulting on an implementation period. No time frame has yet been
reported to have been established.
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On June 14, 2004, the USTR invoked a procedure contained in §129 of the Uruguay
Round Agreements Act, 19 U.S.C. §3538, used for administrative compliance with WTO
decisions in trade remedy cases, with respect to the panel report in this case. As provided
in the statute, the USTR requested the ITC to issue an advisory report on whether U.S.
antidumping and countervailing duty law “permits the Commission to take steps in
connection with [the softwood lumber] Investigation ... that would render its action in that
proceeding not inconsistent with the dispute settlement panel’s findings.” The ITC reported
to the USTR on July 14, 2004, that it does have authority to do so, and the USTR on July 27,
2004, requested that the ITC issue such a determination. The ITC instituted a proceeding for
this purpose shortly thereafter and has scheduled a hearing on the issue for October 13 (69
Fed. Reg. 47461 and 52525). The new ITC determination is due no later than November 24,
2004.
In August, the Canadian Ambassador requested the USTR to suspend implementation
under § 129 pending the outcome of the NAFTA panel proceeding on the ITC injury
determination, including any extraordinary challenge. The USTR has since responded that
the §129 proceeding will continue as scheduled.
DOC Reviews of Countervailing Duty on Softwood Lumber (DS311). On
April 14, 2004, Canada requested consultations with the United States regarding the ongoing
CVD case, arguing that the United States had violated the SCM Agreement and the GATT
by failing to provide expedited and administrative reviews to establish individual CVD rates
for specific exporters who had requested them. Canada may request a panel if the dispute
is not resolved within 60 days of Canada’s consultation request. To date, a panel request has
not been made.
LEGISLATION
H.Con.Res. 197 (Kolbe); S.Con.Res. 22 (Nickles)
Expresses the sense of Congress that a competitive, unrestricted lumber market is fairest
for American consumers, and urges resolution of the dispute over imports of Canadian
lumber. S.Con.Res. 22 introduced March 13, 2003; referred to Senate Finance Committee.
H.Con.Res. 197 introduced May 22, 2003; referred to House Ways and Means Committee.
CHRONOLOGY
09/04 —
On September 10, under protest and with the chairman dissenting, the
ITC issues the required finding of “no threat of injury.”
08/04 —
On August 31, a NAFTA binational panel again remands the ITC
finding, and directs the ITC to issue a finding of “no threat of injury.”
08/04 —
On August 11, the WTO Appellate Body upheld the panel finding that
the U.S. practice of “zeroing” violates WTO rules; the United States
agrees to comply.
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07/04 —
On July 30, the DOC again slightly lowered the subsidy rate to 7.82%
ad valorem, following another NAFTA binational panel remand.
06/04 —
On June 14, the USTR asked the ITC for action “not inconsistent with”
the WTO report on injury.
06/04 —
On June 10, the ITC reaffirmed its injury determination following a
NAFTA binational panel remand.
06/04 —
On June 7, the DOC subsidy redetermination was again remanded by a
NAFTA binational panel.
04/04
—
On April 26, the WTO panel report challenging
ITC
injury
determination was adopted.
04/04 —
On April 21, the DOC issued new dumping margins for three Canadian
firms, in compliance with the March 5, 2004 binational panel remand.
04/04 —
On April 19, a NAFTA binational panel remanded the ITC affirmation
of injury determination.
04/04 —
On April 15, Canada filed a new WTO case challenging U.S. delays on
exporter requests for expedited reviews.
04/04 —
On April 13, the WTO panel report on the DOC dumping determination
adopted, rejecting some Canadian claims while faulting the U.S.
practice of “zeroing” in calculating margins.
03/04 —
On March 5, a NAFTA binational panel ordered a new dumping margin
determination for three Canadian firms.
02/04 —
On February 17, the WTO Dispute Settlement Body adopted the rulings
on subsidies; the U.S. and Canada agreed to implement the rulings by
December 17, 2004.
02/04 —
On February 10, the WTO issued a final ruling faulting ITC injury
findings, described by the USTR as “a mixed result.”
01/04 —
On January 12, DOC submitted a revised subsidy determination,
lowering the rate from 18.79% to 13.23%, to the NAFTA binational
panel.
12/03 —
On December 16, ITC reaffirmed its injury determination to the NAFTA
binational panel.
10/03 —
On October 21, the United States appealed the WTO panel ruling on the
U.S. final subsidy determination.
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10/03 —
On October 15, DOC submitted a revised dumping determination to the
NAFTA binational panel.
09/03 —
On September 5, a NAFTA binational panel directed ITC to reconsider
its injury determination.
08/03 —
On August 13, a NAFTA binational panel directed the DOC to
recalculate subsidies.
08/03 —
On August 29, a panel decision on the final U.S. subsidy determination,
with mixed results, was issued by the WTO.
07/03 —
On July 17, a NAFTA binational panel directed the DOC to revise
dumping margins.
11/02 —

On November 1, a final panel decision on the preliminary U.S. subsidy
determination, with mixed results, was adopted by the WTO.
07/02 —
On July 15, a WTO panel upheld U.S. law for complying with WTO
decisions.
05/02 —
On May 22, the DOC published its final countervailing duty order, with
duties averaging 29%.
05/02 —
On May 3, Canada requested WTO consultations on whether U.S. final
subsidy determination is consistent with the SCM Agreement.
05/02 —
On May 2, the ITC voted 4-0 that the U.S. lumber industry was injured
by Canadian imports.
03/02 —
On March 22, the DOC announced final subsidy findings of 19.34% ad
valorem, and final antidumping margins of 9.67% ad valorem for
imports from most Canadian firms.
03/02 —
On March 6, Canada requested consultations on whether U.S.
antidumping investigation and preliminary determination are consistent
with WTO Antidumping Agreement.
12/01 —
On December 5, a WTO dispute panel was established to hear Canada’s
complaint that the DOC’s preliminary determinations in the softwood
lumber CVD proceeding violate the SCM Agreement and the GATT
1994.
11/01 —
On November 6, the DOC announced its preliminary finding of
Canadian lumber dumping, with margins of 12.58% for imports from
most firms, and the alignment of the antidumping and CVD cases, with
the final finding postponed until March 25, 2002.
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08/01 —
On August 23, the WTO adopted a panel report holding that U.S.
treatment of export restraints as subsidies violated WTO agreements.
Also on August 23, a WTO panel was established to examine Canada’s
complaint that a U.S. law prohibiting the refund of estimated duties in
proceedings found to be inconsistent with WTO obligations also
violated WTO agreements.
08/01 —
On August 21, Canada requested consultations with the United States
in the WTO regarding the DOC’s preliminary determinations in the
CVD case.
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.
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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.
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.
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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, December 1997).
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, In Depth: U.S.-Canada Trade Dispute Timeline (at
[http://www.randomlengths.com/base.asp?s1=In_Depth&s2=U.S.-Canada_Trade_Di
spute]).
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 Electronic Briefing Book, Trade, page on “Softwood Lumber Imports From Canada,”
[http://www.congress.gov/brbk/html/ebtra119.html].
CRS Report RL30826, Softwood Lumber Imports From Canada: History and Analysis, by
Ross W. Gorte, February 2, 2001.
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