NEWS RELEASES

April 10, 2001 (4:00 p.m. EDT) No. 45

CANADA WINS NAFTA CHAPTER 11 DISPUTE

The Government of Canada today welcomed a North American Free Trade Agreement (NAFTA) tribunal decision decisively confirming that Canada's implementation of the Canada-U.S. Softwood Lumber Agreement was consistent with its NAFTA obligations.

The unanimous decision released today by the NAFTA tribunal ruled that, contrary to the claims made by Pope & Talbot, Inc. of Portland, Oregon, Canada met its obligations under National Treatment article (1102) of NAFTA's Chapter 11, and with the exception of one administrative procedure, the Minimum Standard of Treatment article (1105).

"The decision ends allegations that Canada breached its NAFTA obligations in implementing the Softwood Lumber Agreement," said International Trade Minister Pierre Pettigrew. "The tribunal decided that overall, Canada's actions were consistent with the NAFTA."

Today's decision follows a June 2000 ruling by the same tribunal that found in Canada's favour on two other sections of Chapter 11: Performance Requirements (1106) and Expropriation (1110).

The Canada-U.S. Softwood Lumber Agreement came into effect on April 1, 1996, and expired on March 31, 2001. On March 25, 1999, Pope & Talbot served the Government of Canada with a notice of arbitration. This began formal proceedings under NAFTA's Chapter 11.

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Background documents are 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

THE SOFTWOOD LUMBER AGREEMENT

The Canada-United States Softwood Lumber Agreement (SLA), which expired on March 31, provided Canadian softwood lumber exporters with a guarantee against U.S. trade actions. The five-year agreement permitted the fee-free export to the United States of 14.7 billion board feet per year of lumber first manufactured in British Columbia, Alberta, Ontario and Quebec. Canada was required to collect fees when that limit was exceeded, using a tiered fee system. As stipulated in the SLA, Canada allocated export level allocations ("quota") to eligible companies on an annual basis. Lumber from the other Canadian provinces and territories was exempt from the SLA.

The methodology for allocating quota was developed after wide-ranging consultations with the industry and provinces and represented an effort to accommodate their varying needs and priorities. In the first year of the SLA, the total quota available to Canada was divided among the four covered provinces according to corporate provincial shares. Allocations to individual companies were based on their historical exports to the United States. In addition, new companies and those undertaking major expansions received quota from a small "new entrants" pool. Allocations after the first year were based on each company's quota utilization. As such, there were no provincial shares of quota after year one.

In 2000, these exports represented 34 percent of the U.S. market in softwood lumber and were valued at $10 billion.

Backgrounder

POPE & TALBOT, INC. V. THE GOVERNMENT OF CANADA

DECISION OF THE NAFTA TRIBUNAL -- SECOND PHASE

On March 25, 1999, Pope & Talbot, Inc. ("the Investor") served its Notice of Arbitration and Statement of Claim on Canada. The Investor alleged that Canada's implementation of the Softwood Lumber Agreement ("the SLA") breached five NAFTA Chapter 11 obligations: Article 1102 (National Treatment), Article 1103 (Most Favoured Nation), Article 1105 (Minimum Standard of Treatment), Article 1106 (Performance Requirements) and Article 1110 (Expropriation). Pope & Talbot claims US$381 894 500.

The Investor is a U.S. company that controls a Canadian company, Pope & Talbot Ltd. ("the Investment"). The Investment operates three sawmills in British Columbia and exports most of its production to the United States. It was, accordingly, subject to the SLA.

The Tribunal was established on August 19, 1999. Lord Dervaird of Scotland is the presiding Arbitrator. As the other Tribunal members, Canada appointed the Honourable Benjamin Greenberg, QC, of Montreal, and the Investor appointed Murray Belman of Washington, D.C.

On January 19, 2000, the Tribunal ordered the case to be heard in several phases. In the first phase, the Tribunal would deal with potential liability under Articles 1102, 1106 and 1110; in a second phase, if the Investor was unsuccessful in the first phase, the Tribunal would deal with potential liability under Article 1105; and only if liability were established would the arbitration proceed to a third phase in which the Tribunal would assess damages.

The Investor withdrew its claim that Canada acted in a manner inconsistent with its obligations under NAFTA Article 1103 (Most Favoured Nation).

The first phase included written submissions by the parties and a hearing in Montreal from May 1 to 4, 2000, during which oral testimony and arguments were presented.

The Tribunal issued its interim award on June 26, 2000. It dismissed the claims that Canada expropriated the Investment and that Canada imposed performance requirements on the Investment.

The Tribunal deferred to the second phase of the arbitration further consideration of the allegation that Canada did not accord national treatment to the Investment.

The second phase included written submissions by the parties and a hearing in Montreal from November 13 to17, 2000, during which oral testimony and arguments were presented.