NEWS RELEASES
AGREEMENT ON SOFTWOOD EXPORTS PRESERVESU.S. MARKET ACCESS FOR FIVE YEARS, EGGLETON SAYS
April 2, 1996 No. 56
AGREEMENT ON SOFTWOOD EXPORTS PRESERVES
U.S. MARKET ACCESS FOR FIVE YEARS, EGGLETON SAYS
The Honourable Art Eggleton, Minister for International Trade, announced today
that Canada has finalized an agreement with the United States in which the United
States makes an unprecedented commitment not to launch any trade actions on
softwood lumber exports from Canada for the next five years.
In return, Canada has agreed that softwood lumber exports to the United States
originating from British Columbia, Quebec, Ontario and Alberta that exceed 14.7
billion board feet a year will be subject to a US$50 per thousand board feet
border fee for the first 650 million board feet, and US$100 per thousand board
feet for greater quantities. No fee will be charged on shipments below 14.7
billion board feet, which level is higher than the average annual level of exports
of softwood lumber from those four provinces over the years 1992 to 1994.
Exports from the four affected provinces reached a record level of 16.2 billion
board feet in 1995, and averaged 12.6 billion board feet over the last three
years. Based on 1995's record, the fee would apply to approximately 9 per cent of
exports from the four provinces. Revenues from the fee will be collected by the
Government of Canada, and will be remitted to the four provinces.
The export fee will not apply to exports from Manitoba, Saskatchewan or the
Territories, whose exports will be unaffected by the agreement. Canada, in
conjunction with the Maritime provinces and Newfoundland, has reached an
understanding with the United States that maintains their traditional exemption.
Canada agreed to propose this fee during negotiations with the United States at
the request of British Columbia, Quebec and Alberta, which together represent
nearly 90 per cent of softwood exports to the United States. The vast majority of
the lumber industry also indicated its support. The provinces concluded that a
uniform, harmonized approach would ensure that lumber companies from across the
country had equitable access to the U.S. market. "I am convinced that this
agreement is in the national interest," said Mr. Eggleton.
Over the past 15 years, Canadian softwood lumber has been subject to three
U.S. countervailing duty investigations, involving major costs and uncertainties
for Canadian exporters.
"As a result of the deal, Canadian lumber companies will not have to face U.S.
trade actions that would have resulted in both high U.S. tariffs on all Canadian
softwood exports and expensive legal battles," Mr. Eggleton said. "The tariffs
and legal fees would have far exceeded any fees payable under this deal."
"By ensuring that we continue to have secure access to the U.S. market, this
agreement will protect Canadian jobs," he said.
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Department of Foreign Affairs and International Trade
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Backgrounder
SOFTWOOD LUMBER FEE: HOW IT WORKS
Shipments of softwood lumber originating in British Columbia, Quebec, Alberta and
Ontario amounting to less than 14.7 billion board feet per year will enter the
United States free of any export fee. That amount exceeds the level of Canadian
exports from the four provinces in all years except 1995.
The Canada-United States Softwood Lumber Agreement assigns no specific shares by
province.
Above 14.7 billion board feet, exporters will face a fee of US$50 per thousand
board feet for the first 650 million board feet, and US$100 per thousand board
feet for amounts beyond the 15.35 billion board feet per year level.
The federal government will establish company allocations after consulting the
lumber trade (i.e. producers, wholesalers, other exporters) and the provinces, as
well as other interested parties. Any exporter willing to pay a fee of US$100 per
thousand board feet will be able to ship unlimited quantities.
No licences will be required for shipments from Manitoba, Saskatchewan, the
Atlantic Provinces or the Territories.
The Agreement provides for an increase in exports without fee for each calendar
quarter when the average price exceeds US$405 per thousand board feet in the first
two years and US$410 in the last three years. The current Great Lakes price is
US$385 per thousand board feet.
Revenues collected through the export fee by the Government of Canada will be
distributed to the provinces in accordance with their share of lumber shipments
subject to the fee.
Backgrounder
CANADA-U.S. SOFTWOOD LUMBER AGREEMENT
In 1995, Canada's softwood lumber exports to the United States reached record
levels of 17 billion board feet valued at $8 billion. Exports from British
Columbia, Quebec, Ontario and Alberta were approximately 16.2 billion board feet.
This compares with average exports from these provinces over the last three years
of 12.6 billion board feet.
The Canada-United States Softwood Lumber Agreement will provide Canadian softwood
lumber exporters with a guarantee against U.S. trade actions for the next five
years. It includes an unprecedented U.S. government commitment to dismiss any new
petitions for trade action.
The Agreement does not establish a target for reducing Canadian exports. Based on
1995's record shipments, approximately 9 per cent of exports from the four
provinces would be subject to an export fee.
A fee of US$50 per thousand board feet will be applied to lumber exports from
British Columbia, Alberta, Ontario and Quebec on the first 650 million board feet
in excess of 14.7 billion board feet a year.
A fee of US$100 per thousand board feet will be applied to shipments from these
provinces in excess of 15.35 billion board feet. No fee will be applied to lumber
produced in Atlantic Canada, Manitoba, Saskatchewan or the Territories, which
together had estimated total exports of 0.8 billion board feet in 1995.
Revenues collected as a result of the fee will be remitted to the four provinces.
Although Canada won the last softwood lumber dispute with the United States in
1994 when the issue went to a panel under the Canada-U.S. Free Trade Agreement
(FTA), the U.S. industry was threatening to file a new case. The Canadian lumber
industry was faced with another long and costly legal battle with an uncertain
outcome because of changed circumstances. Canada's share of the U.S. market had
increased from 26 per cent in 1990 to 36 per cent in 1995, and the United States
had changed its trade legislation.
If applied to 1995 exports, the export fee announced April 2, 1996, would have
resulted in a cost to the lumber industry in the four provinces of $117.5 million.
This would have been paid to the federal government and remitted to the provinces.
If, however, a 10-per cent countervailing duty (CVD) had been applied to all
Canadian softwood exports, this would have cost the entire Canadian lumber
industry $800 million, which would have been paid to the U.S. Treasury.
The main elements of the Agreement are as follows:
U.S. Commitments
Canadian exporters have been granted secure access to the U.S. market for softwood
lumber for a period of five years, commencing April 1, 1996.
No U.S. trade action, including anti-dumping, countervail duty actions, Section
201 or Section 301 of the U.S. Trade Act, will be initiated by the U.S. government
against Canadian exports of softwood lumber for the five-year duration of this
softwood lumber agreement.
This commitment would be incorporated both in letters of undertaking from the U.S.
industry not to file petitions for trade action, and in a U.S. government
commitment to dismiss any such petitions against Canadian lumber.
Canadian Commitments
Volumes of lumber of British Columbia, Alberta, Ontario and Quebec origin in
excess of 14.7 billion board feet will be assessed a fee of US$50 per thousand
board feet for the first 650 million board feet, and US$100 per thousand board
feet for amounts greater than that.
Softwood Lumber Case History
Softwood lumber has been an area of Canada-U.S. trade friction for over 15 years.
In 1982, the United States conducted its first countervailing duty (CVD)
investigation of softwood lumber from Canada, and concluded that provincial timber
harvesting costs called stumpage fees did not confer a countervailable subsidy to
Canadian lumber producers. In June 1986, a second CVD investigation was
initiated. In December 1986, Canada and the United States signed the Softwood
Lumber Memorandum of Understanding (MOU), under which Canada imposed a temporary
export tax of 15 per cent on softwood lumber entering the U.S. market from Canada.
In October 1991, Canada terminated the MOU. In response, the United States
initiated a CVD investigation and imposed an interim bonding requirement on
imports of lumber from Canada except from the Maritime provinces and Newfoundland.
This exemption is based on the fact that of the total Maritime lumber production,
60 per cent is sourced from private land. In 1992, the CVD investigation resulted
in a final determination that:
a) provincial stumpage fees and B.C. log export restrictions provided
countervailable subsidies to softwood lumber imports; and
b) these imports materially injured the U.S. domestic lumber industry.
The Canadian government, the provinces and the lumber industry filed challenges
against the final determinations of subsidy and injury before two Canada-U.S. FTA
Chapter 19 binational review panels. In 1994, the United States terminated its
CVD action after an FTA Extraordinary Challenge Committee affirmed the findings of
the FTA Subsidy Panel that the U.S. Department of Commerce should not have found
Canadian programs to be countervailable subsidies.
As a result, the United States refunded $800 million dollars of countervail duties
that it had collected from Canadian exporters.
It is by no means certain that Canada could have succeeded in front of another
binational review panel to win another challenge to any new U.S. countervail
duties on softwood lumber in 1996. These panels are only empowered to rule on
whether the U.S. has properly applied its own domestic law on countervail duties.
Since the last Chapter 19 panel case, there have been changes both in the market
and in U.S. law.
Canada-U.S. Agreement in Principle, February 16, 1996
Given the importance of this trade, both countries agreed to establish a bilateral
consultative process to create better understanding, resolve problems and avoid
further litigation in this sector. Canadian provinces and industry were fully
engaged in the process throughout 1995.
On February 16, 1996, Canada and the United States reached an Agreement in
Principle that established, in return for a commitment from the United States not
to launch any trade actions for five years, a fee for B.C. lumber exports
exceeding nine billion board feet per year. The fee was to be US$50 per thousand
board feet on the first 250 million board feet and US$100 per thousand board feet
for higher quantities. The three other affected provinces undertook to adjust
their forestry-management practices through such measures as increased stumpage
fees and timber licences, and to engage in consultations should their exports
exceed recent levels.
British Columbia, Quebec, Ontario, Alberta and the federal government subsequently
concluded that the Agreement in Principle proved unworkable because it called for
accurate province-by-province export data which, due to statistical collection
difficulties, differing methodologies and lumber trans-shipments, proved difficult
to verify. British Columbia, Quebec, Alberta and the federal government decided
with the industry that a uniform, harmonized solution was preferable to province-by-province arrangements, and that it would ensure that Canadian lumber companies
share equitably in their access to the U.S. market.
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