Home Trade and Investment Softwood Lumber Partners for Progress

Partners for Progress

Address by Mr. Doug Waddell to
National Lumber and Building Material Dealers Association
Washington, D.C.
March 22, 2004

Thank you for the invitation to exchange views on the softwood lumber trade dispute.

We share a common goal: free trade in softwood lumber between Canada and the United States. We share the hope that we can break out of the endless cycle of litigation and the short-term managed trade band-aids which interfere in your business relationships with your Canadian suppliers.

Free trade in lumber would provide the certainty you seek regarding the price and supply of Canadian softwood lumber which you need to meet the demands of your customers.

What I want to discuss with you today is how we achieve a durable long-term resolution to this protracted trade dispute consistent with free trade principles.

The main message I want to leave with you today is that we are well along on the path to a durable solution; a solution that breaks the cycle of litigation and ends the uncertainty that you face in your business as a result of this dispute. Now is the right time for an extra push by everyone, particularly lumber and building material dealers, who would benefit from unrestricted access to high quality Canadian softwood lumber products.

Let me elaborate on this theme with some background, and in doing so I would like to suggest some specific messages that you may consider delivering, as we work together on Capitol Hill and with the Administration, to achieve free trade in the North American market for softwood lumber.

As you know, Canada is pursuing a two track strategy; fighting the allegations of subsidy, dumping, and injury in the courts and seeking free trade in lumber through a negotiated solution.

Under the first track, Canada has appealed the punitive 27% duties and the threat of injury finding to panels under both the World Trade Organization and the NAFTA.

Decisions to date on the legal track point to eventual reductions in the duties and call into question the basis for the US International Trade Commission threat of injury determination.

But litigation is very expensive. Staggering sums are being paid to lawyers.

On top of that, litigation takes time. Importers of record, in this case, the exporters, have already close to $2 billion in deposits with the U.S. Treasury. This amount increases by about $90 million each month or by $3 million each and every day.

And quite apart from the cost, history tells us that winning in the courts does not guarantee unfettered access to the U.S. lumber market, and it does not get us to our goal of a durable solution to the dispute.

Hence, Canada's interest in exploring and securing a negotiated solution; the second track of our strategy. Governments in Canada - both Federal and Provincial - have engaged the U.S. Government in a policy based discussion aimed at identifying changes in policy and practice required to confirm that timber harvested on public lands in Canada is sold at market prices. Governments in Canada have signalled a willingness to address policies and practices that the Department of Commerce believes impede the ability of lumber producers to respond quickly to lumber market signals.

The Commerce Department Policy Bulletin

About 18 months ago, the Department of Commerce, under the direction of Secretary Evans and Under Secretary Grant Aldonas, proposed that the Commerce Department would publish a policy bulletin outlining the conditions under which the Department of Commerce would judge Canadian forest policy not to be market distorting. This determination would result in Commerce revoking the countervailing duty order confirming that Canadian forest policies do not convey subsidies.

Canada welcomed this initiative.

We believe the policy bulletin can be the key to a durable long-term solution. Canadian provincial governments have committed to change policies. Indeed, significant reform is already underway in several provinces; most particularly in British Columbia which has already implemented sweeping, some would say radical, changes for pricing timber harvested on public lands in that province.

Unfortunately, the policy bulletin is not yet published in its final version. Last August the Department of Commerce published the draft bulletin, with a request for comments within 30 days. And there it languishes. A hostage to the agenda of some in the U.S. industry to lever another managed trade agreement. Their agenda is transparent; to limit the volume of Canadian lumber in this market and increase price.

It is time for the U.S. Department of Commerce to live up to its side of the bargain and publish the final version of the policy bulletin.

This brings me to the first of the specific messages that I would like to suggest that you deliver to Congress:

• Canada is determined to achieve free trade in lumber and is committed to working with U.S. government using the policy bulletin as the vehicle to free trade.
• Provincial governments in Canada have already implemented, or intend to implement, significant changes to forest policies.
• Publication of the Commerce Department policy bulletin in final is an essential next step. It is the vehicle for a determination by the Department of Commerce that, with these changed policies in place, there is absolutely no basis for a subsidy finding; revocation of the countervailing duty order; and free trade in lumber within the North American market.

This morning, I also invite each of you to be in touch with Secretary Evans and Under Secretary Aldonas and ask that they publish the final version of the policy bulletin without further delay. And, if there is no action, I urge you to follow-up again and again until it is published.

Border Measure

Now I would like to turn to the discussions of a border measure that would replace the current duties and settle the litigation.

We have made clear that we see an interim border measure, and I emphasize interim, as a short bridge between the duties and litigation we are dealing with now and free trade.

Canada has made clear that it has two essential pre-conditions for a short-term trade restrictive border measure imposed by Canada. First, publication of the Department of Commerce policy bulletin which provides ground rules for revocation of the countervailing duty which work for all provinces in Canada and second, termination of the anti-dumping order.

As you know, the U.S. Government in early December proposed an out of court settlement involving a border measure. Canada has not accepted this proposal.

• The U.S. proposed rolling back Canada's share of U.S. consumption from the current 34.4% to 31.5% or by about 1.6 billion board feet annually. We believe that this is too much.
• The U.S. proposed that this tough import restriction would remain in place for a minimum of three years and possibly longer, regardless of whether provinces implemented policy change leading to no subsidy findings within a shorter period of time.

Canada is only interested in an agreement that lifts the border measure as soon as policy changes are implemented by a province and the countervailing duty order is revoked for that province. An interim trade restriction means interim. There is no rationale for a quota or export tax after a no subsidy determination.

• The U.S. proposed that 48% of the deposits would be retained by the United States. As you know, under existing law, this money, close to $1 billion, is transferred from the U.S. Treasury to the petitioners. A $1 billion subsidy! This law has been found to be inconsistent with international trade rules. Congressional action on the Administration's request for its repeal is overdue.

Canada is prepared to contemplate something less than a refund of 100% but the split proposed last December falls well short of expectations of many exporters, particularly in light of decisions by the NAFTA Chapter 19 panel on injury.

In short, Canada cannot accept the terms proposed by the U.S. Government last December for an out of court settlement.

There is still, however, a strong prevailing view in Canada that we should continue to seek a negotiated resolution of this dispute provided that it leads quickly to free trade in lumber as a result of implementation of changes in forest policies.

Which brings me to a second set of messages which I recommend that you incorporate in your discussions with both your elected representatives, and with the Administration which also needs to hear from you.

Any border measure replacing the litigation should meet the following criteria:

• it must be short term with immediate free trade in softwood lumber for provinces that undertake the policy changes required for revocation of the countervailing duty order.
• it must provide for expeditious bi-national advice if there is a dispute whether policy changes are sufficient to result in revocation of the countervailing duty order.
• it must be less punitive to U.S. lumber consumers than the significant roll-back proposed by the U.S. Government last December. Canada's share of U.S. consumption has ranged between a low of 32.8% in 1993 and a high of 35.7% in 1996. Canada's share of U.S. consumption while the last agreement was in place averaged 34.2%, a level which the U.S. industry confirmed in writing was not injurious to U.S. industry. Canada's share of U.S. consumption is currently running at about 34.4%. Imagine the impact on the U.S. market, and in particular on your business, if imports from Canada are rolled back by 3 percentage points to 31.5% as proposed by your government last December. Has the Department of Commerce heard from you?
• And, as I mentioned earlier, a necessary pre condition for Canadian agreement to a quota is termination of the anti-dumping order.

Let me close by reiterating that:

• Canada will vigorously pursue all of the legal avenues available under the WTO and NAFTA.

At the same time we have a strong preference for a negotiated resolution that facilitates policy change and provides a durable basis for resolution of a trade dispute that has gone on far too long.

• The first step is publication by Commerce of the policy bulletin with the criteria it would use to revoke the countervailing duty order.
• Canadian provincial governments have committed to change policies and indeed significant reform is already underway in British Columbia.
• Once these are in place, the policy bulletin is the basis for a revocation of the countervailing duty order which should put to rest once and for all allegations that Canadian lumber producers are subsidized.
• A short term border measure can get us to free trade more quickly, but it needs to be a measure that takes into account the interests of U.S. lumber consumers and Canadian lumber producers.

We value your efforts in advocating the benefits of free trade in lumber between Canada and the United States, and I know we will continue to work together towards our common goal.

Thank you again for the invitation and I welcome your questions and advice.