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<title>CANADA WINS KEY WTO LUMBER DISPUTE</title>
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<p><font size="+1"><strong>July 26, 2002 <em>(4:00 p.m. EDT)</em> No. 86</strong></font></p>
<p align="CENTER"><font size="+1"><strong>CANADA WINS KEY WTO LUMBER DISPUTE</strong></font></p>
<p>International Trade Minister Pierre Pettigrew today welcomed the World Trade Organization (WTO) finding that U.S.
duties on Canadian softwood lumber violate international trade rules.</p>
<p>"The WTO Panel finding is a fundamental win for Canada," said Minister Pettigrew. "The U.S. Department of Commerce,
which had been petitioned by the U.S. lumber coalition to impose a duty on Canadian lumber, must now realize the extent
to which their protectionist actions are harmful to both Canadians and Americans."</p>
<p>The WTO agreed with Canada that the United States was wrong in finding that Canadian provincial stumpage programs are
subsidies.The final WTO report on Canada's challenge of the U.S. Department of Commerce's preliminary determination
of subsidy is expected in September.</p>
<p>"We have known all along that our industry is not subsidized," Minister Pettigrew added. "This decision reinforces our
strategy to defend our industry by challenging U.S. trade actions in every venue available. The Government of Canada will
continue to defend the interests of our industry, workers and communities."</p>
<p>Canada is also pursuing a WTO challenge of the final U.S. determination of subsidy, and is preparing challenges of the
final determinations of dumping and injury. The Government of Canada, the provinces and industry have also initiated
three NAFTA cases regarding the U.S. final subsidy, dumping and injury determinations. Those decisions are expected in
2003.</p>
<p>For more information on the softwood lumber dispute please visit <a href="https://bac-lac.wayback.archive-it.org/web/20061209062522/http://www.dfait-maeci.gc.ca/~eicb/softwood/lumber-e.htm">http://www.dfait-maeci.gc.ca/~eicb/softwood/lumber-e.htm</a></p>
<p align="CENTER">- 30 -</p>
<p>A backgrounder is attached.</p>
<p>For further information, media representatives may contact:</p>
<p>Sébastien Théberge</p>
<p>Office of the Minister for International Trade</p>
<p>(613) 992-7332</p>
<p>Media Relations Office</p>
<p>Department of Foreign Affairs and International Trade</p>
<p>(613) 995-1874</p>
<p><a href="https://bac-lac.wayback.archive-it.org/web/20061209062522/http://www.dfait-maeci.gc.ca/">http://www.dfait-maeci.gc.ca</a></p>
<p><strong><font size="+1">BACKGROUNDER</strong></font><font size="+1"></font></p>
<p><strong>Chronology</strong></p>
<p>In April 2001, the United States Department of Commerce initiated its fourth countervailing duty investigation of Canadian
softwood lumber in 20 years. </p>
<p>On August 9, 2001, the U.S. made a preliminary countervailing duty determination and imposed a 19.31 percent
provisional duty on Canadian softwood lumber imports. The U.S. Department of Commerce also made a preliminary
critical circumstances determination on August 9 that resulted in the 19.31 percent finding of subsidy being applied
retroactively to May 2001.</p>
<p>On September 17, 2001, Canada held World Trade Organization (WTO) consultations with the United States to raise its
concerns about these two determinations. The consultations failed to resolve the dispute. As a result, Canada requested the
establishment of a panel to hear this challenge at the November 5 meeting of the WTO Dispute Settlement Body. The U.S.
blocked the establishment of a panel at that meeting. Following WTO procedure, Canada repeated its request at the
December 5 meeting of the Dispute Settlement Body and the panel was formally established.</p>
<p>In order to establish that a program is a subsidy the WTO requires a financial contribution that confers a benefit.</p>
<p><strong>1.</strong> <strong>Benefit</strong></p>
<p>Canada argues that the United States 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 on the prevailing market conditions in
Canada). Canada maintains that the use of a cross-border methodology by the United States to measure benefit is
inconsistent with WTO rules. </p>
<p><strong>2. Financial Contribution</strong></p>
<p>Canada maintains that provincial forest management regimes and stumpage are not subsidies as claimed by the U.S.
industry and administration. Canada believes that the Department of Commerce is wrong to treat provincial forest
management regimes generally, and stumpage, in particular, as financial contributions on the basis that provinces are
providing a good. Under provincial forest management regimes, provinces grant a licence or right of access to cut timber,
which is not a "financial contribution" as defined under the WTO Agreement.</p>
<p><strong>3. Pass Through</strong></p>
<p>Canada argues that the United States erroneously presumed that the alleged benefits from harvesting timber under stumpage
programs are passed through in sales of logs or lumber for use as an input in the production of subject merchandise. The
U.S. claims that loggers, lumber producers and remanufacturers are integrated producers and that stumpage is a direct
subsidy to all such producers. Canada maintains this claim is unwarranted.</p>
<p><strong>4. Calculation of Subsidy (First Mill)</strong></p>
<p>Canada argues that the United States erroneously calculated the duties by assuming that "value-added" products were
included in the information provided to the United States. The United States ignored Canada's attempts to clarify this. The
effect was a higher duty rate. </p>
<p><strong>5. Preliminary Critical Circumstances Determination</strong></p>
<p>Canada maintains that the duty imposed by the Department of Commerce due to a finding of critical circumstances (i.e.
increased imports) cannot be enforced on an interim basis. Canada also maintains that the determination was based on an
alleged export subsidy that was found to be <em>de minimis</em>--conferring a subsidy rate of less than 1 percent.</p>
<p><strong>6. Expedited Review/Administrative Review</strong></p>
<p>Canada argued that there is an obligation to provide for individual expedited company reviews where investigations are
conducted on a country-wide basis. The United States has subsequently provided Canadian exporters with expedited review
upon request.</p>
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