NEWS RELEASES

August 21, 2001 (10:45 a.m. EDT) No. 120

PETTIGREW LAUNCHES WTO CHALLENGE OF

U.S. SOFTWOOD LUMBER ACTIONS

International Trade Minister Pierre Pettigrew announced today that Canada has requested accelerated World Trade Organization (WTO) consultations with the United States within the next 10 days. These consultations will deal with the U.S. Department of Commerce's preliminary countervailing duty and critical circumstances determinations of August 9, 2001, as well as with the expedited review provisions of U.S. countervailing duty law and regulations.

"Canada feels strongly that the recent U.S. preliminary countervailing duty and critical circumstances determinations are unfair and fail to meet WTO standards," said Minister Pettigrew. "As such, we have requested urgent and immediate WTO consultations with the U.S. on these key issues. This is one of a number of measures at our disposal to continue defending the interests of Canada's softwood lumber exporters."

The preliminary determination contains a number of errors, including its inaccurate characterization of stumpage and its failure to use in-country benchmarks in calculating subsidy rates. The critical circumstances finding is likewise flawed for numerous reasons, including the fact that it is based on a finding of subsidy insufficient to merit WTO action. .

"Furthermore, we have also requested consultations concerning the expedited review provisions of U.S. law," added Mr. Pettigrew. "We believe these provisions are not consistent with the United States' WTO obligations."

Under the WTO Subsidies Agreement, exporters subject to countervailing duty action are entitled to individual expedited reviews following an investigation in order to calculate company-specific rates. However, the U.S. law makes no provision for such reviews when it conducts country-wide investigations, as with the current softwood lumber case.

The request for consultations is the first step in proceedings under the WTO Dispute Settlement Understanding.

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A backgrounder is attached.

For further information, media representatives may contact:

Sébastien Théberge

Office of the Minister for International Trade

(613) 992-7332

Media Relations Office

Department of Foreign Affairs and International Trade

(613) 995-1874

Backgrounder

On August 21, 2001, Canada formally requested accelerated consultations with the United States within the next 10 days respecting the U.S. Department of Commerce's preliminary countervailing duty and critical circumstances determinations of August 9, 2001, together with the U.S. denial of expedited reviews and company-specific administrative reviews in certain countervailing duty cases.

Preliminary Determination of Subsidy

On August 9, 2001, the U.S. Department of Commerce issued its preliminary determination of subsidy in its countervailing duty investigation of softwood lumber from Canada. The Department of Commerce determined a subsidy rate of 19.31 percent for Canadian softwood lumber imports entering the United States.

A countervailing duty is a special duty imposed to protect a domestic industry from injury caused by imports that have benefited from subsidies provided by a foreign government.

A countervailing duty can only be applied if it has been established in an investigation that imported goods have been subsidized and that such subsidized imports are causing material injury, or threatening to cause material injury, to the domestic industry. A final determination will either confirm, amend or dismiss the preliminary finding.

In its preliminary determination of subsidy, the United States treated stumpage as a "financial contribution," on the basis that it is a provision of a "good"; rather, it is a licence or right of access to cut timber which is not covered by the "financial contribution" definition found within the Subsidies and Countervailing Measures (SCM) Agreement. The United States also used cross-border rather than in-country benchmarks to determine whether stumpage confers a "benefit" (i.e., it based its benefit finding on U.S. prices, rather than the prevailing market conditions in Canada). All of these actions are inconsistent with the SCM Agreement.

Canada intends to ask the WTO panel to recommend that the United States bring its preliminary duty determination into conformity with the United States' WTO obligations. In Canada's view, this would involve the termination of the investigation and the refund of all cash deposits collected.

Critical Circumstances

On August 9, the Department of Commerce also made an affirmative critical circumstances determination, concluding that there has been a surge of softwood lumber exports from Canada since April 1, 2001. As a result, the 19.31 percent finding of subsidy will now be applied retroactively to shipments made on or after approximately May 19, 2001.

"Critical circumstances" is a provision in both U.S. anti-dumping and countervailing duty law that allows for the limited retroactive imposition of duties if imports have increased by more than 15 percent in the period examined by the United States.

The affirmative critical circumstances determination was based upon an alleged export subsidy that was found to be de minimis (i.e., possessing a subsidy rate of less than 1 percent) in the countervailing duty determination. This application of a de minimis alleged subsidy to justify the retroactive application of a preliminary duty rate of 19.31 percent is inconsistent with the SCM Agreement.

Canada intends to ask the WTO panel to recommend that the United States revoke this critical circumstances determination and refund all cash deposits collected under the retroactive application of the duty rate.

Expedited Reviews

The WTO SCM Agreement contemplates that all exporters will be individually investigated in a countervailing duty case to establish company-specific duty rates. Where this is not possible, the SCM Agreement makes provision for expedited reviews so that these companies may receive an individual rate.

In a countervailing duty investigation, U.S. law enables the Commerce Department to determine duty rates individually. Where the number of exporters involved makes this impracticable, the Commerce Department may either (a) determine individual rates for a sample of exporters and use these rates as the basis for calculating an "all-others" rate for remaining exporters, or (b) determine a country-wide rate for all exporters.

The U.S. regulations, however, do not provide for individual expedited company reviews where countervailable subsidy rates are determined on a country-wide basis, as is the case in the current softwood lumber investigation.

In addition, were the United States to conduct expedited reviews for individual companies, the expedited review could be nullified by subsequent administrative reviews. As a result, Canada's request for consultations will also seek to ensure that subsequent administrative reviews do not extinguish the benefits accrued under a company-specific expedited review.

Expedited reviews are to be carried out after the publication of a countervailing duty order; their purpose is to establish estimated duty deposit rates for individual companies. Administrative reviews are conducted annually to determine what, if any, final duties should be levied, and to establish new estimated duty deposit rates.