MINISTER EGGLETON ANNOUNCESSOFTWOOD LUMBER PLAN
September 10, 1996 No. 157
MINISTER EGGLETON ANNOUNCES
SOFTWOOD LUMBER PLAN
The Honourable Art Eggleton, Minister for International Trade, announced today a
plan to allocate on a company basis the export of softwood lumber to the United
States.
Under the the Canada-U.S. Softwood Lumber Agreement announced April 2, 1996, the
United States made an unprecedented commitment not to launch any trade actions on
softwood lumber exports from Canada for the next five years. Canada was thus able
to ensure continued secure access to the U.S. market, protecting Canadian jobs.
Today's plan implements a provision of the agreement by providing allocations to
lumber companies in British Columbia, Alberta, Ontario and Quebec which will
permit these companies to export specific quantities of softwood lumber to the
United States without payment of any export fees.
"This plan is balanced and fair to the provinces and to the softwood lumber
industry," Mr. Eggleton said. "We consulted extensively, and have achieved
considerable consensus in both Western and Eastern Canada among companies and
provinces which would be affected by this plan."
Mr. Eggleton said the plan:
allows companies already established in the lumber market to continue their
traditional patterns of trade;
provides for the possibility of allocations for new entrants;
permits some change in a company's share to provide for growth; and
takes a balanced approach to meet the interests of the industry throughout the
country.
The new allocation system, implementing a provision of the Canada-U.S. agreement,
provides that lumber companies based in British Columbia will receive 59 per cent
of the initial allocations with 23 per cent for Quebec firms, 10.3 per cent for
Ontario companies and 7.7 per cent for Alberta firms.
This allocation, based on recent export shipments, goes to primary producers and
to remanufacturers which further process wood by such processes as sawing, planing
and treating, materially changing the form of the lumber. While wholesalers will
not receive direct allocations, the primary industry has provided written
assurances to the federal government that it will continue to use wholesalers in
the provinces as distributors to the United States -- in other words, to maintain
"business as usual."
"I will monitor the system closely over the next few months to ensure that these
assurances are being kept and that the system is working to the benefit of all
segments of the softwood lumber industry," Minister Eggleton stated.
The allocation will also be reviewed annually for the next four years, with
adjustments to be based on changes in firms participating and on the previous
year's exports. The plan will permit changes to the allocation system to respond
to developments in the lumber industry and trade.
Under the Canada-U.S. Softwood Lumber Agreement announced in April 1996, no export
fees will apply to shipment of 14.7 billion board feet a year originating from
British Columbia, Alberta, Ontario and Quebec. That number exceeds the level of
lumber exports to the United States from the four provinces in all previous years
except 1995. For exports above that level, the Canadian government will collect
fees of US$50 per thousand board feet for the first 650 million board feet, and
US$100 per thousand board feet for greater quantities. Any money collected from
these fees will be returned by the Government of Canada to the four provinces
affected by the agreement. The agreement does not cap exports to the United
States, which have in recent years amounted to about $8 billion annually.
The new system is one element of the Canada-U.S. Softwood Lumber Agreement, which
was entered into by the federal government to avoid costly countervailing duty
actions which have been threatened by the United States.
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For further information, media representatives may contact:
Nicole Bourget
Director of Communications
Office of the Minister for International Trade
(613) 996-6271
Media Relations Office
Department of Foreign Affairs and International Trade
(613) 995-1874
This document is also available on the Department's Internet site:
http://www.dfait-maeci.gc.ca
BACKGROUNDER
Canada-U.S. Softwood Lumber Agreement
The Canada-United States Softwood Lumber Agreement, announced on April 2, 1996,
provides Canadian exporters with a guarantee against U.S. trade actions for five
years. It includes an unprecedented U.S. government commitment to dismiss any new
petitions for trade action.
In return, Canada agreed that softwood lumber exports to the United States
originating from British Columbia, Quebec, Ontario and Alberta that exceed 14.7
billion board feet a year will be subject to a US$50 per thousand board feet
border fee for the first 650 million board feet, and a US$100 per thousand board
feet fee for greater quantities.
Revenues collected through the export fee by the Government of Canada will be
distributed to the provinces in accordance with their respective shares of lumber
shipments subject to the fee.
No fee will apply to shipments below 14.7 billion board feet, a level which is
even higher than the 1992-94 average annual exports of softwood lumber from those
four provinces to the United States. If the fee were applied to the record
shipment level of 16.2 billion board feet in 1995, 91 per cent of exports from
those four provinces would enter without payment of the fee.
The federal government has established company allocations after consulting the
lumber trade -- producers, wholesalers, other exporters -- and the provinces, as
well as other interested parties.
No fees are required for lumber originating from Manitoba, Saskatchewan, the
Atlantic Provinces or the Territories. These are exempted from the agreement.
The Agreement provides for an increase in exports without fee for each calendar
quarter when the average price exceeds US$405 per thousand board feet in the first
two years and US$410 in the last three years. Canada has qualified for at least a
further 92 million board feet of exports without fees from April to June 1996, and
may qualify for an additional 92 million board feet in the current quarter if the
average price remains above this "trigger" price.
Softwood lumber export allocations
Allocation to exporters of how much they can ship without a fee avoids distorting
effects of a rush to the border, and allows the Canadian lumber industry to plan
its marketing and shipping in a normal, orderly way. This principle was
recognized in the Canada-United States Softwood Lumber Agreement announced on
April 2, 1996. It was, of course, up to the Government of Canada to decide how
the allocation would be made.
The allocations plan is a national program under the Export and Import Permits
Act. The plan provides for a national advisory committee involving industry and
the British Columbia, Alberta, Ontario and Quebec governments. In addition,
provinces may establish their own advisory bodies to assist them in providing
advice on administration of the allocations to the federal government.
The allocation is to primary producers and remanufacturers. Remanufacturers
further process softwood lumber by such processes as sawing, planing and treating,
materially changing the form of the lumber.
The new allocation system, implementing the Canada-U.S. agreement, allocates
shipments on a company basis. The initial allocation amounts to 59.0 per cent for
British Columbia firms, 7.7 per cent for Alberta companies, 10.3 per cent for
Ontario firms and 23.0 per cent for Quebec companies.
Wholesalers
While wholesalers will not receive direct allocations, the primary industry in
each of the four provinces in question has provided written letters of commitment
that it will continue to use wholesalers as distributors to U.S. customers on a
"business as usual" basis.
In addition, the federal government will allow primary producers to transfer any
portions of their respective allocations to wholesalers in an expeditious manner,
so as to allow wholesalers to export softwood lumber to the United States.
Furthermore, the federal government has established an advisory committee
consisting of two prominent Canadian wholesalers and two primary producers. The
committee will be chaired by Ron MacDonald, MP for Dartmouth, Nova Scotia, and
Parliamentary Secretary to Mr. Eggleton, and will report to Mr. Eggleton on a
regular basis concerning any changes in the value of exports handled by Canadian
lumber wholesalers. The federal government has expressly reserved the right to
"claw back" allocations given to primary producers and to redistribute some
portion to wholesalers if the "business as usual" commitment to Canadian
wholesalers is not maintained.
The decision to make the allocations directly to primary producers and
remanufacturers was based on such factors as:
the advice given to the federal government by most of the four provincial
governments affected and their respective major lumber associations;
the fact that primary producers and remanufacturers have made an extensive long-term investment in plant and equipment;
the fact that primary producers are closely linked to managing the forest
resource, a factor of strong interest to several provinces;
the fact that primary producers and remanufacturers contribute heavily in jobs
and value-added to provincial economies; and
the fact that associations representing primary producers have provided firm
undertakings to continue using wholesalers for lumber exports to the United
States.
The system provides for flexibility to accommodate normal market adjustments such
as growth and new entrants.
New entrants
The plan, announced today by Mr. Eggleton, reserves the following allocation for
"new mills" over the next 18 months:
294 million board feet (equivalent to 2 per cent of the 14.7-billion allocation)
without payment of any export fees;
184 million board feet bonus available under the Canada-U.S. agreement, without
payment of any export fees; and
150 million board feet, which carries an export fee of US$50 per thousand board
feet.
The above provision is designed to provide access to export allocations for new
mills which began production in 1995 or 1996, or had verifiable investment
commitments to build by April 1, 1996, or those mills with major capital
investments in new capacity since January 1995. However, in order to to establish
precise selection criteria and allocations by the end of November 1996, advice
will be sought from industry and provinces. The objective of these provisions is
to secure the jobs which will result from these new mills.
Other matters
A process to allocate up to an additional 500 million board feet at a US$50 per
thousand board feet fee has been agreed to by the industry and has been
incorporated in the plan. There are also provisions to protect the percentage
share of the market held by small producers.
The allocations will also be reviewed in January and annually for the next four
years, with adjustments based on changes in firms participating and on the
previous year's exports. This will permit changes to the allocation system to
respond to developments in the lumber industry and trade.
Allocations will be adjusted when they are under-utilized and unused allocations
would be returned to a national pool for redistribution. Allocations could be
transferred from one company to another with Ministerial approval.
Softwood lumber case history
Softwood lumber has been an area of Canada-U.S. trade friction for over 15 years.
In 1982, the United States conducted its first countervailing duty investigation
of softwood lumber from Canada, and concluded that provincial timber harvesting
costs called stumpage fees did not confer a countervailable subsidy to Canadian
lumber producers. In June 1986, a second countervailing duty investigation was
initiated.
In December 1986, Canada and the United States signed the Softwood Lumber
Memorandum of Understanding (MOU), under which Canada imposed a temporary export
tax of 15 per cent on softwood lumber entering the U.S. market from Canada.
In October 1991, Canada terminated the MOU. In response, the United States
initiated a countervailing duty investigation and imposed an interim bonding
requirement on imports of lumber from Canada except from the Maritime Provinces
and Newfoundland.
In 1992, the investigation resulted in the imposition of countervail duties
against Canadian lumber.
The Canadian government, the provinces and the lumber industry filed challenges
against the final determinations of subsidy and injury before two Canada-U.S. Free
Trade Agreement (FTA) Chapter 19 binational review panels. In 1994, the United
States terminated its countervailing duty action after an FTA Extraordinary
Challenge Committee affirmed the findings of the FTA Subsidy Panel that the U.S.
Department of Commerce should not have found Canadian programs to be
countervailable subsidies.
As a result, the United States refunded $800 million of countervail duties that it
had collected from Canadian exporters.
Since the last Chapter 19 panel case, there have been changes both in the market
and in U.S. law which rendered another Canadian victory before a binational review
panel far less certain. These panels are only empowered to rule on whether the
United States has properly applied its own domestic law on countervail duties.
Given the importance of this trade, both countries agreed to establish a bilateral
consultative process to create better understanding, resolve problems and avoid
further litigation in this sector. Canadian provinces and industry were fully
engaged in the process throughout 1995.