Softwood Lumber

The Canada-U.S. Softwood Lumber Agreement

Introduction

The Government of Canada 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 its workers and communities.

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

Subsequently, on September 12, 2006, Canada and the United States signed an agreement that achieves these objectives. Since then, Canada has taken concrete steps to implement this important bilateral agreement.

On September 18, a Notice of Ways and Means Motion was tabled in the House of Commons to implement Canada's commitments under the Softwood Lumber Agreement.

Bill C-24, the legislation to implement the Agreement, was then introduced in Parliament on September 20, 2006.

The following text offers a brief summary of key elements of the Agreement.

Highlights

Highlights of the Agreement include:

• the revocation of the U.S. countervailing and anti-dumping duty orders;

• the return of over US$4.5 billion in duties collected by the United States since 2002 through a deposits refund mechanism that will ensure companies receive refunds within four to eight weeks of entry into force of the Agreement;

• 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 that revenues from the border measures will stay in Canada; and

• a range of initiatives to enhance binational cooperation and the development of the North American lumber industry.

Scope and Duration

The Agreement provides details on which softwood lumber products will be subject to border measures.

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

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$4.5 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 four to eight weeks of the entry into force of the Agreement.

• These accelerated refunds will provide an immediate cash infusion to the industry.

• In order to ensure equity to all companies benefiting from the Agreement, a special charge will be imposed on all duty refunds.

• Companies that participate in the deposit refund mechanism will be deemed to have already met obligations under the charge.

No New Cases

The U.S. government will not initiate any anti-dumping or countervailing duty investigations on Canadian softwood lumber exports and will dismiss any petition, trade action or investigations with respect to Canadian softwood lumber. In addition, a 12-month standstill on U.S. trade remedy actions will take effect upon the expiry of the agreement.

Border 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).

Canadian regions (the B.C. coast, the B.C. interior, Alberta, Saskatchewan, Manitoba, Ontario and Quebec) can operate under either of the following two export charge regimes 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.

Export charge revenues collected by the Government of Canada will be distributed to the provinces.

To preserve Canada’s share of the U.S. market and to address increases in third country share of the U.S. market, the Government of Canada will retroactively refund export charges (up to the equivalent of a 5 percent charge) if:

• third country share of the U.S. market increases by 20 percent;
• Canadian market share decreases; and
• U.S. domestic producers’ market share increases.

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 month exceed 110 percent of its base allocation, then the export charge on shipments from that province during that month will be increased by 50 percent. For example, if there is a 10 percent export charge during that month, then the export charge would be increased to 15 percent.

Export Charge Exemptions

Softwood lumber 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

Border measure will not apply to softwood lumber exports that are:

• produced in the Atlantic provinces from logs harvested in the Atlantic provinces or the state of Maine, 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 the alleged subsidies; these include all the Quebec border mills.

Policy Exits

The governments of Canada and the United States, in consultation with the provinces, will work to develop criteria for determining whether a region’s timber pricing and forest management systems could qualify for exemption from border measures.

Termination Clause

Either party may, at any time after the Agreement has been in effect for 18 months, terminate by providing six months’ notice. However, the Agreement requires a 12-month standstill on trade remedy action should either party terminate the Agreement. This is in addition to the 12-month standstill on U.S. trade remedy action upon expiry of the Agreement.

Dispute Settlement

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

The process will be neutral, transparent and expeditious. 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;

• abide by anti-circumvention provisions, that is, neither party will take action to circumvent commitments set out in the Agreement.

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