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Tribunal Finds Canada Failed to Cure Breach of the Softwood Lumber Agreement

Washington, D.C. - United States Trade Representative Ronald Kirk today announced that an arbitral tribunal has rejected Canadian claims that an offer to pay the U.S. Government US$36.66 million cured Canada's breach of the Softwood Lumber Agreement (SLA).  The tribunal, which was formed under the auspices of the LCIA (formerly the London Court of International Arbitration), earlier determined that Canada breached the SLA and required Canada to cure its breach or impose additional export charges on shipments of softwood lumber products to the United States.  Canada initiated this arbitration proceeding to have the tribunal determine whether Canada's payment offer cured the breach.

"The tribunal's decision confirms the view of the United States that the Softwood Lumber Agreement is enforceable.  Canada failed to cure its breach, and the tribunal has upheld the ability of the United States to take action in response," said Kirk.  "This decision is an important one for America's businesses and workers, and final resolution of this arbitration is an important enforcement action on behalf of the United States.

"Our success in this arbitration proceeding is due to the tireless effort and countless hours dedicated by a host of U.S. government officials, in particular the attorneys and staff of the U.S. Department of Justice.  I am grateful for the tremendous effort that led to this terrific outcome," added Kirk.

In March 2008, the LCIA tribunal found that Canada breached the SLA by failing to calculate quotas properly during the first six months of 2007.  On February 26, 2009, the LCIA tribunal issued its decision on a remedy for that breach, and determined that Canada was required to cure the breach by March 28, 2009.

The LCIA tribunal determined that, as an appropriate adjustment to compensate for its breach, Canada must collect an additional 10 percent ad valorem export charge on softwood lumber shipments from Eastern Canadian provinces until CDN $68.26 million has been collected.  (Based on the exchange rate at the time of the award, the U.S. dollar equivalent is $54.8 million).

Canada did not impose the compensatory measures determined by the tribunal.  Instead, on March 27, 2009, Canada offered to tender a payment of US$36.66 million to the U.S. Government.  The United States considered that such an offer did not cure the breach identified by the tribunal, and thus rejected Canada's offer.  On April 2, 2009, Canada requested that the LCIA tribunal determine whether Canada had cured the breach with its payment offer.

In the decision released today, the LCIA tribunal rejected Canada's argument that it cured its breach when it offered to pay US$36.66 million to the U.S. Government.  The tribunal also rejected the notion that any government-to-government payment could cure a breach of the SLA, because such a payment would have no impact on exports of softwood lumber products from Canada to the United States.  Canada had also requested that the tribunal clarify whether, if Canada imposed export charges, it could allocate such charges by exporter or by Region based on prior shipments.  The tribunal rejected this request and found that any export charges must be imposed on all shipments from all Option B Regions.

A consequence of the LCIA tribunal's decision is that the United States may continue to impose 10 percent ad valorem customs duties on imports of softwood lumber products from four Canadian provinces (Ontario, Quebec, Manitoba, and Saskatchewan).  These duties are scheduled to remain in place until such time as the United States has collected $54.8 million, the amount determined by the LCIA tribunal in its February 2009 decision.

BACKGROUND

The SLA entered into force on October 12, 2006, and is expected to remain in force for seven years, with the possibility of extension for an additional two years.  The SLA provides for binding arbitration to resolve disputes between the United States and Canada regarding interpretation and implementation of the Agreement.  Under the SLA, arbitration is conducted under the rules of the LCIA, and there is no appeal from the decision of the tribunal.

For additional information about arbitration proceedings under the SLA, please visit here.