NEWS RELEASES

April 2, 2001 (6:40 p.m. EDT) No. 42

STATEMENT BY PIERRE PETTIGREW, MINISTER FOR INTERNATIONAL TRADE, IN RESPONSE TO U.S. SOFTWOOD LUMBER TRADE ACTION

I understand that the U.S. Coalition for Fair Lumber Imports has announced it is petitioning the U.S. Department of Commerce for countervailing and anti-dumping duties against Canada's softwood lumber industry. The U.S. industry has alleged that our softwood lumber exports are receiving subsidies, and is requesting a countervailing duty. The countervailing duty petition targets provincial stumpage programs, log export restraints and other programs. The U.S. industry also alleges dumping by the Canadian industry into the U.S. market, and is petitioning for duties. These dumping allegations affect producers in every region of Canada. Governments and industry will be vigorously working to defend against these accusations.

This trade action is not about subsidies for our industry. It's about protectionism. It's about the U.S. industry's loss of market share. Our industry is more modern and frankly, more efficient.

The U.S. petition is citing practically everything related to Canadian production in the hope that something will stick. There is no basis for these petitions.

Timber pricing by provincial governments in Canada has been the subject of three U.S. countervailing duty investigations over the last 20 years. Each time, the U.S. Government has been unable to sustain the U.S. industry's allegations of subsidies.

In anticipation of this U.S. action, the Government of Canada has taken a number of steps:

• In the past few months, we initiated a World Trade Organization (WTO) action challenging U.S. trade legislation relating to export restraints (log exports). We expect a preliminary decision later this month.

• We also undertook consultations under WTO provisions concerning the refund of duties by the U.S. in the event it should lose the case once again.

• Last Thursday, I announced that the Government of Canada is implementing an export monitoring system. This system will provide us with accurate information regarding exports to the United States, which will allow us to assess U.S. accusations of a "Wall of Wood" from Canada.

The U.S. Administration will now decide, within 20 days, whether to accept the countervailing duty and anti-dumping petitions.

As you know, I have proposed that the two governments each appoint an eminent person to provide advice and recommendations to governments on actions that could be taken to avoid ongoing disputes about our mutually beneficial trade in lumber. In light of the cost of a prolonged dispute on both economies, I would hope that the U.S. Administration would give its early acceptance to this constructive proposal.

Regrettably, this challenge means that the Government of Canada, along with the provinces and industry, must again prove the U.S. allegations are unfounded - as we have done many times before.

The Government of Canada takes this trade action very seriously. We have a rules-based system, and we will use it. We will vigorously defend against these erroneous U.S. allegations, and we will again be proven right.

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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

COUNTERVAILING/ANTI-DUMPING DUTY PETITION

On April 2, 2001, the U.S. Coalition for Fair Lumber Imports filed a countervailing/anti-dumping duty petition against imports of softwood lumber from Canada. The petitions follow the expiry of the five-year Softwood Lumber Agreement.

Countervailing Duty Investigation

The U.S. industry is alleging that the Canadian governments are conferring countervailable subsidies to softwood lumber producers. The U.S. industry has cited provincial stumpage programs and log export controls, as well as other programs.

The countervailing duties called for in the petition comprise a special duty imposed to protect domestic industry from injury caused by imports that have benefited from subsidies provided by foreign government. The U.S. Department of Commerce must first determine whether a foreign government is providing a subsidy to products imported or sold into the United States. The U.S. International Trade Commission must then determine whether the U.S. industry producing the same merchandise is materially injured by these imports. If these two conditions are met, a countervailing duty equal to the amount of the subsidy is imposed upon the imports of the subsidized merchandise. The duty cannot exceed the amount of subsidy found in the investigation. A preliminary determination of injury is made forty-five days after the petition for countervailable duties is made. A final determination will either confirm or dismiss the preliminary finding.

There are four decisions in a countervailing duty investigation (the following dates are notional):

April 2, 2001 Countervailing Duty petition filed.

April 22, 2001 Initiation of Investigation by the U.S. Department of Commerce and the International Trade Commission.

May 17, 2001 Preliminary Determination of Injury by the International Trade Commission.

June 26, 2001 Preliminary Determination of Subsidy by the U.S. Department of Commerce.

Sept. 9, 2001 Final Determination of Subsidy by the U.S. Department of Commerce.

Oct. 24, 2001 Final Determination of Injury by the International Trade Commission.

The Preliminary Determination of Subsidy results in importers being required to post bonds or to make cash deposits on the goods imported. Final Determinations of Subsidy and Injury result in the imposition of permanent countervailing duties. The final determinations of subsidy and injury may be referred to NAFTA Chapter 19 dispute settlement for review. Under international rules and U.S. law, duties can be imposed retroactively to the date of initiation when there is evidence of massive importations at the time of initiation. This provision is rarely used.

Anti-dumping Duty Investigation

The U.S. industry petition also alleges that Canadian firms are dumping lumber into the U.S. market.

Dumping is the sale of goods in foreign markets at prices below either market prices or the cost of producing the goods. Unlike a countervailing duty investigation, which examines the subsidy practices of governments, anti-dumping investigations concern the pricing practices of individual firms. The Government is therefore not a party to these investigations and its participation is limited.

The Department of Commerce determines dumping margins by comparing the price at which the subject goods are sold in the United States (export price) with the normal value of the goods. Normal value is generally based upon sales of the like product in the producer's or exporter's home market if the volume of such sales is considered sufficient to provide a "viable" comparison to the export price and are in the "ordinary course of trade."

The International Trade Commission determines whether the U.S. domestic industry producing like products is materially injured by the imports in question.

An anti-dumping investigation takes roughly eight months to complete. The following is a notional timetable for the anti-dumping action:

April 2, 2001 Anti-dumping Duty petition filed.

April 22, 2001 Initiation of Investigation by the U.S. Department of Commerce and the International Trade Commission.

May 17, 2001 Preliminary Determination of Injury by the International Trade Commission.

Sept. 9, 2001 Preliminary Determination of Dumping by the U.S. Department of Commerce.

Nov. 23, 2001 Final Determination of Dumping by the U.S. Department of Commerce.

Jan. 8, 2002 Final Determination of Dumping by the International Trade Commission.

Affirmative final determinations of dumping and injury will result in the imposition of permanent anti-dumping duties. These final determinations may be referred to NAFTA Chapter 19 dispute settlement for review. Under international rules and U.S. law, duties can be imposed retroactively, 90 days prior to the preliminary determination of dumping, where there is evidence of massive importations at the time of initiation. This provision is rarely used.