Softwood Lumber

Pursuant to the MOU, Canada agreed to collect a 15% export charge on exports of lumber from Canada. The MOU also provided that provincial governments could reduce or eliminate the 15% export charge by implementing so-called “replacement measures”, defined as increased stumpage or other provincial charges on softwood lumber production.
Both British Columbia and Quebec made forest management policy changes that the United States accepted as replacement measures for the export charge. The export charge was eliminated for British Columbia and reduced in stages for Quebec from 15% to 3.1%. While keeping these replacement measures in place, Canada exercised its contractual right to terminate the MOU on September 3, 1991.

Canada appealed both final affirmative determinations on subsidy and injury to binational panels established under Chapter 19 of the Canada-United States Free Trade Agreement (FTA).

The panel reviewing the subsidy determination twice remanded the decision back to the DOC because there was not sufficient evidence or legal basis to sustain the DOC finding of subsidy. On December 17, 1993, the panel issued its third, and final, remand determination, finding by a majority of three to two that the DOC had failed to provide a rational basis for finding that stumpage was specific, and remanded the issue back to the DOC with instructions to provide a determination that stumpage was not provided to a specific enterprise or industry, and thereby did not constitute a countervailable subsidy.

The panel reviewing the injury determination remanded that decision back to the ITC three times. On July 6, 1994, the panel released its final decision, rejecting as not in accordance with the law the ITC assertion that the existence of significant Canadian imports could be presumed to be a cause of material injury to the U.S. industry. The panel was dismissed when DOC revoked the countervailing duty order.

The DOC initiated the countervailing and anti-dumping investigations.

In the countervailing duty investigation, the DOC decided to investigate whether provincial and federal forest management regimes (including stumpage and log export controls) conferred a countervailable subsidy. As well, three federal programs were identified (Western Economic Diversification Canada, the Federal Economic Development Initiative for Northern Ontario, and the Canadian Forest Service's Industry, Trade and Economics Program), along with thirteen provincial programs. No Atlantic Canada programs were under investigation.

In the anti-dumping investigation, the DOC conducted a countrywide investigation to determine whether Canadian firms were dumping lumber into the U.S. market. Unlike a countervailing duty investigation, which examines the subsidy practices of governments, an anti-dumping investigation concerns the pricing practices of individual firms.

The DOC issued its preliminary subsidy determination in its countervailing duty investigation of softwood lumber from Canada. The DOC found that Canadian softwood lumber exports to the United States were subsidized at the rate of 19.31%. The DOC also made an affirmative critical circumstances determination, concluding that there had been a surge of softwood lumber exports from Canada since April 1, 2001. As a result of these two decisions, the DOC was in a position to apply retroactive measures, in the form of bonds or cash deposits in the amount of 19.31%, to shipments made on or after May 17, 2001. As a result, the DOC instructed US Customs to suspend liquidation of shipments made 90 days prior to August 17, 2001 (the date the DOC’s preliminary subsidy determination was published in the Federal Register).

The DOC instructed the U.S. Customs Service to subject Canadian softwood lumber imports to 19.31% bond or cash deposit requirements on the "entered value" (the full value of the lumber as it enters the United States) rather than a "first-mill" basis (the value of the lumber as it leaves the primary sawmill), based on the DOC’s preliminary finding of subsidy. In previous investigations, the subsidy rates were based on the "first-mill" value of production; accordingly, the bonding requirement was imposed on the "first-mill" price of lumber. This decision was prejudicial to Canadian remanufacturers who in the past posted bonds on a first-mill basis, as duties on softwood lumber now had to be paid on the full value of the remanufactured products. The Government of Canada argued before the WTO (and later under the NAFTA) that since the United States calculated the 19.31% subsidy rate on a first mill basis, it should have imposed bonds or cash deposits on the same basis.

The DOC announced its Final Affirmative Countervailing Duty Determination and its Negative Critical Circumstances Determination. The DOC calculated a single country-wide subsidy rate of 19.34% to be applied to imports of softwood lumber products from Canada. Countervailing duties were applied on a final-mill basis (i.e. the value of the final product as shipped into the United States, rather than the value when first transformed from timber into lumber). The DOC excluded 20 companies in its final CVD determination. The four Atlantic provinces were also excluded from the countervailing duty action.

The DOC also announced its Final Dumping Determination ruling that certain softwood lumber products from Canada were being sold, or were likely to be sold, in the United States at less than fair value. The DOC calculated an "all-other" dumping margin of 9.67%, and individual company margins for the six mandatory respondents (Abitibi 14.60%; Canfor 5.96%; Slocan 7.55%; Tembec 12.04%; West Fraser 2.26%; Weyerhaeuser 15.83%). The DOC rejected all requests for exclusions based on particular species and products falling outside the scope of the investigation. Furthermore, the DOC confirmed that remanufactured products falling under the scope of the investigations in the petitions would remain in the scope of the countervailing and antidumping orders.

The DOC published its Final Determination of Subsidy in the Federal Register. The DOC also published its Final Determination of Dumping in the Federal Register.

The Government of Canada, the Governments of the Provinces of Alberta, British Columbia, Manitoba, Ontario, Saskatchewan and Québec, the Governments of the Northwest Territories and the Yukon Territory, the British Columbia Lumber Trade Council, the Ontario Forest Industries Association, the Ontario Lumber Manufacturers Association, and the Québec Lumber Manufacturers Association requested a NAFTA Chapter 19 Panel Review of the Final Affirmative Countervailing Duty Determination and Final Negative Critical Circumstances Determination. NAFTA panels consider the consistency of the final determinations with US law. See NAFTA Challenges page for key dates in this case.

Abitibi, Tembec and West Fraser requested a NAFTA Chapter 19 Panel Review of the Final Affirmative Dumping Determination. See NAFTA Challenges page for key dates in this case.

The DOC made a “ministerial error” correction, reducing the subsidy rate from 19.34% to 18.79%.

The DOC made a further ministerial error correction, reducing the "all-other" dumping margin to 8.43%. The individual company rates for the six mandatory respondents were adjusted to the following margins: Abitibi 12.44%; Canfor 5.96%; Slocan 7.71%; Tembec 10.21%; West Fraser 2.18%; and Weyerhaeuser 12.39%.

The DOC published the countervailing duty order and the anti-dumping duty order in the U.S. Federal Register. Companies were now required to resume providing cash deposits for countervailing duties and for anti-dumping duties to the U.S. Customs Service.

However, because the ITC ruled that Canadian imports had not, to date, materially injured the U.S. industry and that there is only a threat of injury in the future, no provisional duty measure could be imposed retroactively. As a result, all bonds posted prior to May 16, 2002 were released and all cash deposits made prior to May 16, 2002 were refunded by the U.S. Customs Service.

The Canadian Lumber Trade Alliance (and subsequently Tembec, the Ontario Forest Industry Association and the Ontario Lumber Manufacturers Association) requested a NAFTA Chapter 19 Panel Review of the Final Affirmative Threat of Injury Determination.

NAFTA Challenge of Final Threat of Injury Determination panel established.

Canada files Amended Orders case to challenge continued imposition of duties should Canada be successful in the NAFTA Injury Extraordinary Challenge Committee. (For more information, see CIT Challenges.)

A NAFTA Extraordinary Challenge Committee (ECC) agreed with Canada and unanimously affirmed the original NAFTA Panel’s finding that the U.S. International Trade Commission had no basis on which to find that the U.S. industry was threatened by injury.

Canada’s position is that as a result of the ECC ruling there is no longer any legal basis for maintaining the AD and CVD orders and that these should be terminated and all deposits refunded, with interest.

U.S. Trade Representative issues press release stating that the ECC decision will have no impact on the antidumping and countervailing duty orders given the U.S. International Trade Commission’s November 2004 injury determination.

The Minister of International Trade confirmed that Canada will pursue the matter before the U.S. Court of International Trade with a view to compelling the United States to respect its NAFTA obligations, revoke the duty orders and refund, with interest, all duty deposits paid to date. A CIT ruling is expected in mid 2006.