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Key Softwood Lumber Litigation

In 2001, immediately following the expiry of the Softwood Lumber Agreement, the United States initiated investigations of Canadian softwood lumber imports. Those investigations led to the imposition of countervailing duties of 18.79% and anti-dumping duties of 8.43% on imports of Canadian softwood lumber in May 2002. The December 20, 2004 results of the U.S. Department of Commerce’s first administrative review reduced the combined duty rate that most Canadian exporters are subject to, to 20.15%.

Canada has challenged the imposition of the duties under the NAFTA, at the WTO and, most recently, before the U.S. Court of International Trade. Under U.S. law, countervailing and anti-dumping duties can only be applied when U.S. industry is being injured or is threatened with injury by imports. Therefore, the decisive question is, "Does Canadian lumber being exported to the U.S. pose a threat of injury to the American lumber-producing industry?"

The answer is no. NAFTA panels have repeatedly ruled in Canada’s favour. They have found no evidence of a threat of injury and no basis for the illegal duties imposed by the U.S. on Canadian lumber. This was confirmed at the highest level of appeal available under NAFTA – an Extraordinary Challenge Committee (ECC). On August 10, 2005, an ECC issued a unanimous decision effectively removing the basis for the U.S.-imposed duties. The U.S. government now has a legal obligation under NAFTA and U.S. domestic law to refund the over US$4 billion in duties that have been collected to date, plus interest.

On August 10, however, the U.S. Trade Representative issued a statement dismissing the NAFTA ECC decision and indicating that duties would continue to be collected at the border. On August 16, in response to the U.S. reaction to the ECC, the Government of Canada cancelled softwood talks tentatively scheduled for the following week. Canada will return to the negotiating table only when it is in Canada’s best interest to do so.

On August 29, 2005, a WTO injury compliance panel issued a confidential interim report to Canada and the United States, which the United States has claimed confirms their position towards the ECC decision. This U.S. claim is incorrect. A WTO decision does not excuse U.S. non-compliance with its NAFTA obligations. The two cases concern two different sets of legal obligations - one under international law, the other under U.S. law. WTO panels consider whether the United States is in compliance with U.S. WTO obligations. NAFTA Chapter 19 panels determine whether U.S. actions are in compliance with domestic U.S. law. By not complying with the ECC, the United States is acting contrary to its own law and its NAFTA obligations. The WTO report does not change this. The United States is obligated under U.S. law to terminate the anti-dumping and countervailing duty orders, lift the duties on Canadian softwood lumber and refund the cash deposits, with interest.