Order Code IB10081
CRS Issue Brief for Congress
Received through the CRS Web
Softwood Lumber Imports from Canada:
Issues and Events
Updated June 6, 2005
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
The 2001-2002 Countervailing and Antidumping Investigations
NAFTA Panel Review of Antidumping and Countervailing Duty Determinations
DOC Final Results of CVD Administrative Review and Rescission of Certain
Company-Specific Reviews (USA-CDA-2005-1904-01)
USITC Implementation of New Determination under Section 129(a)(4) of the
Uruguay Round Agreements Act (USA-CDA-2005-1904-03)
Department of Commerce Antidumping Duty Determination under Section 129
of the Uruguay Round Agreements Act (USA-CDA-2005-1904-04)
Other Developments
Canadian WTO Challenges to U.S. Countervailing Duty and Antidumping Laws
and Proceedings
FOR ADDITIONAL READING

---

IB10081
06-06-05
Softwood Lumber Imports From Canada: Issues and Events
SUMMARY
U.S. lumber producers have raised con-
and other lumber users assert that Canadian
cerns about softwood imports from Canada
lumber is needed to satisfy U.S. demands.
many years. Alleged Canadian subsidies (a
prerequisite for establishing countervailing
Current Issues. In March 2002, the
duties — CVDs) were investigated in 1982,
Department of Commerce (DOC) determined
1986, and 1992. No subsidies were found in
that Canadian lumber was subsidized and was
1983. Subsidy findings led to a 15% Cana-
being dumped. The ITC determined that
dian tax on lumber exports in 1986, and to a
imports threatened to injure U.S. industry, and
6.51% CVD in 1992. The CVD was chal-
final duties were set at 27%. Canada request-
lenged and ended in 1994. A 1996 Softwood
ed three NAFTA binational panel reviews;
Lumber Agreement restricted Canadian ex-
each faulted the determinations. After two
ports until March 31, 2001.
remands to DOC in the dumping case and
three in the CVD case, DOC lowered dumping
U.S. Industry Arguments. The U.S.
margins for most individually investigated
producers argue that they have been injured by
producers (one to a de minimis level), slightly
Canadian subsidies, especially for provincial
increased the “all others” rate, and reduced the
stumpage fees (for the right to harvest trees).
subsidy rate to 1.88%. The CVD determina-
In Canada, the provinces own 90% of the
tion was remanded to DOC May 23, 2005; the
timberlands; this contrasts with the United
panel has not yet ruled on the dumping deter-
States, where 42% of timberlands are publicly
mination. In the injury case, the ITC issued a
owned and where government timber is often
“no threat” determination, as the panel di-
sold competitively. These differences in land
rected, in September 2004; the United States
tenure make comparisons difficult.
appealed, with panelists named January 31,
2005. DOC has also conducted administrative
In addition, U.S. lumber producers argue
reviews of the original orders, which set the
that Canadian log export restrictions subsidize
official duty rates for imports in the 2002-
producers by preventing others from getting
2003 and 2003-2004 periods. Lower subsidy
access to Canadian timber. U.S. log exports
and dumping margins have resulted. Canada
from federal and state lands are also restricted,
sought NAFTA binational review of the CVD
but logs are exported from U.S. private lands.
review for 2002-2003, which only minimally
Canada argues that U.S. treatment of export
reduced the subsidy margin.
restrictions violates the WTO Agreement on
Subsidies and Countervailing Measures.
Canada also filed WTO cases challeng-
ing the final ITC and DOC determinations,
Finally, U.S. producers argue that they
each resulting in adverse rulings at least in
have been injured by imports of Canadian
part. In response, DOC minimally lowered
lumber. They point to the growth in Canadian
the original subsidy rate and, using a mode of
exports and market share, from less than 3
price comparison different from that ruled
billion board feet (BBF) and 7% of the U.S.
upon, raised dumping margins; the ITC issued
market in 1952 to more than 18 BBF per year
a new determination that continued to find
and a market share of more than 33%. Cana-
threat. Canada is currently challenging each
dians counter that the U.S. industry has been
of the new determinations in the WTO
unable to satisfy U.S. demand. Homebuilders
Congressional Research Service ˜ The Library of Congress

---

IB10081
06-06-05
MOST RECENT DEVELOPMENTS
An administrative review of the original duties, issued on December 14, 2004, lowered
the subsidy rate and reduced most dumping margins. 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.” The United States has appealed, with a ruling due
March 9, 2005. On July 30, 2004, the Department of Commerce (DOC) lowered the subsidy
rate; the NAFTA binational panel directed another recalculation.
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 has agreed to comply by May 2, 2005.
The ITC injury determinations were faulted in a final panel ruling in April 2004, but a new
determination continues to find threat of injury.
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 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 (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 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 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
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
06-06-05
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.
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
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
06-06-05
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
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.
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
06-06-05
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 the 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 NAFTA
and 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, 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, which, as later amended, found Canadian subsidies to be 18.79% ad
valorem, and dumping margins to range from 2.18% to 12.44% for individually investigated
companies and 8.43% for all other firms. On May 2, by a 4-0 vote of the commissioners, the
ITC issued a final finding of injury. Duties averaging 27% went into effect May 22, 2002,
when DOC published the final duty notice in the Federal Register.
On December 13, 2004, the DOC announced the final results of the first administrative
review of the AD and CVD orders, covering entries from May 22, 2002, through March 31,
2003 for the CVD review, and from May 22, 2002, through April 30, 2003, for the AD
review. This action established a new official rate for imports entered during the covered
period. DOC announced a country-wide ad valorem subsidy rate of 17.18% (1.6% less than
the original rate), corrected and lowered in mid-February 2005 to 16.37%. The
administrative review, as corrected in January 2005, resulted in an average dumping rate of
4.40% for individually investigated companies and a “review-specific average”of 3.78% for
CRS-4

---

IB10081
06-06-05
all other producers participating in the administrative review. Dumping and subsidy rates
were further lowered in the preliminary results of the department’s administrative review for
the 2003-2004 period announced June 1, 2005. The review-specific average for dumped
imports was preliminarily reduced to 2.44%; the subsidy rate was lowered to 8.18%. In
January 2005, Canada requested NAFTA review of the first CVD administrative review.
Canadian industry has also reportedly sought judicial review of the first AD administrative
review.

NAFTA 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.
As a result of these challenges, Canada has obtained lower AD rates for individually
investigated companies, a significantly reduced subsidy rate, and a “no threat of injury”
determination from the U.S. International Trade Commission. Canada seeks eventual
removal of the orders and return of more than $3 billion in duty deposits, thus avoiding
potential distribution of duties to U.S. producers under the Byrd Amendment. (See “Other
Developments,” below.) At the same time, the U.S. position has been that even were the
orders to be rescinded, duties would not be refunded absent a negotiated settlement. The
United States has further indicated that the relevant duty rates are now those announced in
the administrative review described above.
In January 2005, Canada requested binational panel review of the first CVD
administrative review, as well as of DOC and ITC determinations issued in response to
adverse WTO rulings. (See WTO case summaries, below.) While the request for NAFTA
review of the new DOC subsidy determination was withdrawn, a request has since been
made for NAFTA review of the DOC’s new dumping determination. The panel process
involving the ITC action has been stayed pending the outcome of the U.S. appeal of the
NAFTA panel ruling on the original ITC injury determination. As discussed noted below,
Canada is also challenging each of these three determinations in WTO compliance
proceedings. Summaries of the NAFTA cases 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 lower antidumping duty rates for all but
one individually investigated producer (Slocan), as well as a slightly reduced “all others”
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 (Tembec, Slocan, and West Fraser). In its April 21, 2004
redetermination, DOC lowered the dumping margin slightly for Tembec and Slocan, though
still retaining for Slocan a rate that was higher than that in the original AD order. Slocan
is now merged with another Canadian lumber producer, Canfor, and is no longer a separate
CRS-5

---

IB10081
06-06-05
corporate entity. DOC also found a de minimis (negligible) margin for West Fraser and
recalculated the “all others” rate to 8.85%, which slightly exceeds the rate in the original AD
order. 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 (August 13, 2003) determination in the CVD case, 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 June 7, 2004 decision, 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 determination, 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. After a third remand, DOC issued a new
determination January 24, 2005, with a subsidy rate of 1.88% ad valorem. The panel
remanded the DOC decision for the fourth time on May 23, 2005; a new DOC determination
is due July 7, 2005.
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
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, 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.
CRS-6

---

IB10081
06-06-05
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. The panel affirmed the new determination October 12, 2004.
On November 24, 2004, the United States requested that an Extraordinary Challenge
Committee (ECC) review the panel’s decisions (EC-2004-1904091USA). Under the ECC
procedure (in NAFTA Article 1904(13) and Annex 1904.13), an involved party may allege
that one or more of three specified situations “has materially affected the panel’s decision
and threatens the integrity of the binational panel review process.” The three predicates are
as follows: (1) a member of the panel was guilty of gross misconduct, bias, or a serious
conflict of interest; (2) the panel seriously departed from a fundamental rule of procedure;
or (3) the panel manifestly exceeded its powers, authority or jurisdiction (e.g., by failing to
apply the appropriate standard of review). If the ECC finds that one of the grounds has been
established, it must vacate the original panel decision (thus requiring that a new panel be
established) or remand it to the original panel for action not inconsistent with the ECC
decision. If the grounds are not established, the ECC must deny the challenge, thus affirming
the original binational panel decision. Since ECC panelists were not appointed until January
31, 2005, the original decision date of March 9, 2005, has been extended; the new date has
not yet been determined.
DOC Final Results of CVD Administrative Review and Rescission of
Certain Company-Specific Reviews (USA-CDA-2005-1904-01). This request, filed
by Canada and Canadian producers in January 2005, challenges the DOC determination in
the administrative review of the May 2002 countervailing duty order for softwood lumber
imports entered in the period beginning May 22, 2002, and ending March 31, 2003. DOC
determined that countervailable subsidies were being provided and, as noted earlier,
announced a new official country-wide ad valorem subsidy rate (as corrected in February
2005) of 16.37%, about 2.5% lower than the original rate. A decision date is to be
determined.
CRS-7

---

IB10081
06-06-05
USITC Implementation of New Determination under Section 129(a)(4) of
the Uruguay Round Agreements Act (USA-CDA-2005-1904-03). This request, filed
January 21, 2005, by Canadian producer Tembec, Inc., involves the ITC determination issued
in response to the WTO decision discussed below (DS277) in which the ITC continued to
find material injury to U.S. industry from dumped and subsidized Canadian softwood lumber
imports. The panel proceeding was stayed as of March 22, 2005, pending the outcome of the
Extraordinary Challenge Committee proceeding described above.
Department of Commerce Antidumping Duty Determination under Section
129 of the Uruguay Round Agreements Act (USA-CDA-2005-1904-04). This
request, filed May 31, 2005, by a Canadian producer, challenges the DOC determination
issued in response to the WTO decision discussed below (DS264). In its new determination,
DOC increased dumping margins as a result of using a price comparison methodology that
was not at issue in the WTO case and which the DOC maintained was not subject to the
adverse WTO ruling. A panel decision is due April 11, 2006.
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 continue.
Canadians have expressed concerns that in cases where Canadian firms are subsequently
excluded from an AD or CVD order, and were the 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 Continued Dumping and Subsidy Offset Act of 2000 (CDSOA), also known
as the Byrd Amendment. The statute, codified at 19 U.S.C. §1765c, mandates the annual
disbursement of antidumping and countervailing duties to petitioners and interested parties
in the underlying trade remedy proceedings for a variety of qualifying expenditures. 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.
As reported by Customs, approximately $5.3 million in softwood lumber duties were
distributed under the CDSOA in FY2004. At the same time, Customs has reported that
some $2.875 billion in softwood lumber duty deposits was contained in so-called “clearing
accounts” as of October 1, 2004, an amount that increases as additional Canadian softwood
lumber enters the United States. 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.
The CDSOA was 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
CRS-8

---

IB10081
06-06-05
amount equal to 72% of the annual CDSOA disbursements relating to duties paid on imports
from that country. The WTO authorized the retaliation requests November 26, 2004.
Having identified a current annual retaliation level of $14 million, Canada began to impose
a 15% surcharge on imports of U.S. live swine, cigarettes, oysters, and certain specialty fish
as of May 1, 2005. In addition, Canada and Canadian industry groups filed suit in the U.S.
Court of International Trade on April 29, 2005, arguing that the CDSOA violates a provision
of the NAFTA Implementation by not expressly stating that it applies to Canada.
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. As noted earlier, Canada has requested NAFTA binational panel
review of the determinations issued by DOC and ITC in response to adverse WTO rulings
in DS264 and DS277, respectively.
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. 65349-51, 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.
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
CRS-9

---

IB10081
06-06-05
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
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
CRS-10

---

IB10081
06-06-05
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 panel report and, 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 obligations. 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, and the parties later agreed on a 10-month compliance period ending December 17,
2004. On November 9, 2004, the USTR invoked the procedure set out in §129 of the
Uruguay Round Agreements Act, 19 U.S.C. §3538, for agency compliance with adverse
WTO decisions involving antidumping and countervailing duty proceedings. As provided
in the statute, the USTR requested DOC to issue a revised determination not inconsistent
with the Appellate Body decision. The new determination, effective December 10, 2004,
lowered the subsidy rate from 18.79% to 18.62 % ad valorem on all shipments entered, or
withdrawn from warehouse, for consumption on or after this date.
At Canada’s request, a WTO compliance panel was established in early 2005 to review
the new CVD determination. Canada also requested authorization to impose sanctions
against the United States covering trade in the amount of approximately $160 million (U.S.).
The United States objected to the retaliation request, sending it to arbitration. Under an
agreement between the United States and Canada, the arbitration is currently suspended until
the rulings in the compliance procedure are adopted. If the rulings are adverse to the United
States, either party may request that the arbitration be resumed. The compliance panel
reportedly submitted its final ruling to the panelists on June 3, 2005, the panel finding that
Commerce had not carried out the necessary pass-through analysis to determine whether the
benefit of the subsidy was conferred on downstream purchasers. Once the panel report is
publicly circulated, either party will have 60 days to appeal; an appeal takes up to 90 days.
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
a correct product scope for its investigation; and that it failed to adhere to various WTO
requirements involving procedural matters in the investigation.
CRS-11

---

IB10081
06-06-05
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 on this
issue, and in August 2004, the Appellate Body upheld the panel’s conclusions regarding the
practice. In addition, on an issue appealed by Canada, the appellate decision 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 parties agreed on a compliance deadline of May 2, 2005.
On January 31, 2005, the Department of Commerce issued a preliminary § 129
determination in which it continued to find dumping and moreover increased dumping
margins. DOC applied a mode of comparing foreign and U.S. prices that was not used in the
original dumping determination, maintaining that the WTO ruling applied only to the use of
“zeroing” in the methodology addressed in the case and did not apply to other methodologies
of price comparison that Commerce has discretion to use in dumping investigations.
Commerce used this methodology in its final determination, which again resulted in higher
margins, ranging from 3.93% to 16.35% for individually investigated producers and
including an “all others” rate of 11.54%, approximately three percentage points higher than
the original rate. Notice of the determination was published in the May 2, 2005 Federal
Register (70 Fed. Reg. 22636). At Canada’s request, the new determination was referred to
a WTO compliance panel on June 1, 2005. Canada is also seeking to suspend approximately
$350 million (U.S.) in concessions owed the United States, but on the U.S. objection, the
request has been sent to arbitration. In an agreement between the two countries, the
arbitration has been suspended pending completion of the compliance proceedings.
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 separate
WTO challenges against the United States by the EU and Japan. Federal courts have held
the practice to be allowed, but not required, under U.S. law. (See, e.g., The Timken Co. v.
United States, 354 F.3d 1334 (Fed. Cir. 2004).)
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.
CRS-12

---

IB10081
06-06-05
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 intended to comply and the parties agreed on a deadline of January
26, 2005.
The ITC issued a § 129 determination on November 25, 2004, which, with one dissent,
found as before that U.S. industry is threatened with material injury by reason of dumped and
subsidized Canadian imports. While the United States, at a January 25, 2005, meeting of the
WTO Dispute Settlement Body, stated that it had complied in the case, Canada in February
2005 requested the establishment of a compliance panel as well as authorization to impose
approximately $3.5 billion (U.S.) in sanctions, an amount it stated represents the total
amount of CVD and antidumping duty cash deposits collected and not refunded as a result
of the United States’ failure to revoke the May 22, 2002, CVD and antidumping orders,
which Canada views as proper implementation of the WTO rulings in the case. As is it did
in the other softwood disputes, the United States objected to the retaliation request and thus
sent it to arbitration. Again, the arbitration has been suspended until the rulings in the
compliance procedure are adopted, with either party able to request that arbitration be
resumed if the rulings are ultimately adverse to the United States. The panel is expected to
rule in September 2005, at which time its report may be appealed.
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. While the consultation period has expired,
to date no panel request has been made.
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).
CRS-13

---

IB10081
06-06-05
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).
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 Report
CRS Report RL30826, Softwood Lumber Imports From Canada: History and Analysis, by
Ross W. Gorte, February 2, 2001.
CRS-14

---