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United States to Request Arbitration Challenging Canada's Implementation of the 2006 Softwood Lumber Agreement

  

WASHINGTON – United States Trade Representative Susan C. Schwab announced today that the United States will initiate arbitration proceedings under the 2006 Softwood Lumber Agreement (SLA), and she is working with the United States Department of Commerce to take additional measures to monitor Canadian compliance with the SLA

“When the governments of Canada and the United States signed the Softwood Lumber Agreement last year, we celebrated the end of over 20 years of litigation,” said U.S. Trade Representative Susan C. Schwab.  “It is truly regrettable that, just ten months after the Agreement entered into force, the United States has no choice but to initiate arbitration proceedings to compel Canada to live up to its SLA obligations relating to export volume caps, proper application of the import surge mechanism, and anti-circumvention.  Our efforts to resolve these matters through consultations have not been successful.  Therefore, we are initiating arbitration proceedings as provided under the SLA.

“In addition, we are working with the Department of Commerce to take steps to monitor implementation of the Agreement and collect information on compliance with its terms.  This information will allow us to consider any future steps necessary to ensure that the SLA is fully implemented.”

Background

Under the SLA, Canada agreed to impose export measures on Canadian exports of softwood lumber products to the United States.  When the prevailing monthly price of lumber, determined per the Agreement, is above US$355 per thousand board feet (MBF), Canadian lumber exports are unrestricted.  When prices are lower than US$355 MBF, each Canadian exporting region has chosen to be subject to either an export tax with a soft volume cap or a lower export tax with a hard volume cap or “volume restraint.”  The measures become more stringent as the market price of lumber declines.  Regions with a soft volume cap such as British Columbia (“BC”) are subject to a “surge” mechanism.  If a region’s exports of softwood lumber products to the United States exceed the soft volume cap, known as the “trigger volume,” by more than 1 percent in a particular month, Canada must retroactively collect an additional export tax, equal to 50 percent of the primary export tax, on all softwood lumber products from that region that entered the United States during the month in question.  The current prevailing monthly price of lumber is $309 per MBF.

The SLA includes an adjustment mechanism to ensure that the export volume caps are calculated appropriately under rapidly changing market conditions.  Under this mechanism, Canada has been required since January to make a downward adjustment to the export volume caps for the Eastern provinces and for BC and Alberta.  Canada only made the downward adjustment for the Eastern provinces for the first time in July and has yet to make any adjustment for BC and Alberta.

Additionally, the United States and Canada committed in the SLA not to take action to circumvent or offset the commitments made in the Agreement.  Quebec and Ontario have put in place several assistance programs that violate the SLA’s anti-circumvention provisions. These include several grant, loan, loan guarantee, and tax credit programs, as well as “forest management” programs and programs that promote wood production.

The SLA entered into force on October 12, 2006.  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 London Court of International Arbitration.  After arbitration is requested, there is an approximately two-month process to select arbitrators, and pursuant to the SLA the arbitral tribunal is to issue its award within six months of its appointment.