Backgrounder - The Canada-U.S. softwood lumber agreement

1. Introduction

Canada has worked closely with provinces and industry stakeholders throughout the softwood lumber dispute to secure a durable agreement with the United States that:

• promotes a stable bilateral trade environment in which Canadian softwood lumber exporters and industries can prosper;
• sees the return of most of the duties collected on softwood lumber; and
• maximizes the benefits to the Canadian industry and to the workers and communities that depend on it.

On July 1, 2006, Canada and the United States finalized an legal text on softwood lumber that meets these objectives.

The following text offers a brief summary of key elements of the Softwood Lumber Agreement Between the Government of Canada and the Government of the United States of America (the “Agreement”).

For additional details, please consult www.softwoodlumber.gc.ca.

2. Scope and Duration

The Agreement will be for a term of seven years with an option to renew for two additional years.

The legal text specifies those softwood lumber products that will be subject to any export measures.

3. Highlights

Highlights of the legal text include:

• the full and complete revocation of the U.S. countervailing and anti dumping duty orders;
• the return of over $4 billion in duties collected by the United States since 2002 through a deposits mechanism that will ensure companies receive this money as quickly as possible;
• the safeguarding of the provinces’ ability to manage their forest resources;
• a choice for provinces of the border measure that best addresses their individual economic and commercial situations;
• a provision ensuring revenues from the border measures will stay in Canada; and
• the establishment of a range of initiatives to enhance binational cooperation and the development of a North American lumber industry.

4. Principal Terms of the Agreement

Orders, Deposits and Refunds

Upon entry into force of the Agreement, countervailing and anti-dumping duty orders on Canadian softwood lumber will be fully and completely revoked.

The Agreement will return more than US$4 billion to Canadian exporters.

• Canada has developed a mechanism for returning deposits that will accelerate payments to Canadian exporters.
• Canadian exporters will get a significant proportion of their deposits returned within two months of the effective date of the Agreement.
• These accelerated refunds will provide an immediate cash infusion to the industry.
• U.S. interests will receive their share of deposits—US$ 1 billion—at the same rate as Canadian exporters.

No New Cases

The U.S. government will not initiate any anti-dumping or countervailing duty investigations on Canada softwood lumber and will dismiss any petition, trade action or investigations with respect to Canadian softwood lumber.

Export Measures

Canadian softwood lumber exporters will pay an export charge when the price of lumber is at or below US$355 per thousand board feet (MBF), as determined by the Random Lengths Framing Lumber Composite Price. Export charge revenues collected by the Government of Canada will be returned to the provinces.

Canadian regions (the B.C. coast, the B.C. interior, Alberta, Saskatchewan, Manitoba, Ontario and Quebec) will be responsible for determining which of the following two export charge regimes best serves the interests of their exporters for periods of three years:

• Option A: an export charge with the charge varying with price; or
• Option B: an export charge plus volume restraint, where both the rate and volume restraint vary with the price, as follows

Third Country Adjustment Mechanism

The Government of Canada will retroactively refund export charges (up to the equivalent of a five percent charge) collected in any two consecutive quarters in which the following three conditions apply:

• the third country share of U.S. lumber consumption increases by 20 percent over the same quarter in the previous year (in two consecutive quarters);
• Canadian market share is decreasing in the same two quarters; and
• U.S. domestic producers’ market share is increasing in the same two quarters.

This provision will not apply to any region that has triggered the surge mechanism.

Surge Mechanism

Each province will be allocated a share of exports based on its historic share of the U.S. market. If shipments from a province in a period exceed 110 percent of its base allocation, then the export charge on shipments from that province during that period will be increased by 50 percent. For example, if there is a 10 percent export charge during that period, then the export charge would be increased to 15 percent.

Export Charge Exemptions

The Agreement ensures an effective first mill provision for independent lumber remanufacturers. In other words, there will be no export charge on the value-added component of their products.

High-value softwood products that are valued at more than US$500 MBF will be charged as if their value were no more than US$500 MBF.

Exclusions

Under the Agreement, the border measure will not apply to softwood lumber exports:

• produced from logs harvested in the Atlantic provinces, the origin of which is certified under the Maritime Lumber Bureau Certificate of Origin;
• from logs harvested and produced in the Yukon, Northwest Territories or Nunavut;
• from 32 companies previously found by U.S. authorities not to benefit from subsidies; these include all the Quebec border mills.

Policy Exits

The Governments of Canada and the US, in consultation with the provinces, will work to develop criteria for determining when a region's timber pricing and forest management systems could qualify for exemption from export measures.

Dispute Settlement

Disputes relating to the Agreement will be resolved through a final and binding dispute settlement process.

The process will be neutral, transparent, expeditious and well-defined. Panellists will be non-North American commercial arbitrators.

Other Clauses

The parties have also agreed to:

• terminate all litigation before the entry into force of the Agreement;
• institute anti-circumvention provisions, that is, neither party will take action to circumvent commitments set out in the Agreement.