Lighthizer Opposes WTO Ruling Against US in Canadian Lumber Dispute

A worker loads logs at Ledwidge Lumber Co. in Halifax on May 10, 2017. THE CANADIAN PRESS/Darren Calabrese

The United States denounced as flawed Monday’s unfavorable ruling from the World Trade Organization (WTO) on the long-standing dispute with Canada over duties imposed on exports of softwood lumber from north of the border.

The WTO’s appellate body said in its decision (pdf) that the U.S. Commerce Department made a mistake in calculating what it claims to be Canadian government subsidies of softwood lumber because it used a benchmark from one province in Canada and applied it to cover harvesting activity across the entire country.

The Commerce Department “acted inconsistently with Article 14(d) by failing to provide a reasoned and adequate explanation for rejecting the regional benchmarks proposed by the Canadian interested parties for determining adequacy of remuneration for Crown timber,” the WTO stated in its summary findings, and called on the United States to amend its calculations.

Trade Representative Robert Lighthizer criticized the ruling in an Aug. 24 statement, saying that the multilateral trade dispute settling institution applied “an erroneous Appellate Body interpretation and would shield Canada’s massive lumber subsidies from U.S. action imposing countervailing duties to support the U.S. softwood lumber industry and its workers.”

Countervailing duties are tariffs imposed under WTO rules to neutralize the negative impacts of subsidies.

Lighthizer labeled the WTO report as “flawed,“ claiming the ruling confirms long-standing allegations by the United States that the organization’s dispute settlement system is used ”to shield non-market practices and harm U.S. interests” as it prevents the United States from “taking legitimate action in response to Canada’s pervasive subsidies for its softwood lumber industry.”

Canadian authorities hailed the WTO decision, with Mary Ng, Canada’s minister of small business, export promotion, and international trade, saying in a statement that the country “welcomes the unanimous WTO panel ruling that U.S. countervailing duties against Canadian softwood lumber are inconsistent with the WTO obligations of the United States.”

“Canada remains unequivocal: U.S. duties on Canadian softwood lumber are completely unwarranted and unfair. This decision confirms that. Canada does not subsidize its softwood lumber industry, and that is why we have challenged these U.S. duties at the WTO and under the former North American Free Trade Agreement,” she added.

Dating back to 1982, the softwood lumber dispute between Canada and the United States is one of the longest-lasting trade spats between the two neighbors. American claims rest on the assertion that Canada’s lumber industry is unfairly subsidized by federal and provincial governments based on an arrangement where Canadian companies harvest timber based on prices set administratively, called stumpage fees, rather than being determined by the free market.

The Department of Commerce calculated what it believes is an accurate level of subsidy the Canadian government applies to softwood lumber and based on those calculations, the Trump administration imposed a tariff of up to 17.99 percent on Canadian softwood lumber, which Canada called unfair and vowed to fight.

The U.S.-Canada lumber dispute has included a previous round of WTO cases lasting from 2001 to 2006, which concluded with a settlement under which Washington suspended duties as long as lumber prices were sufficiently high. That agreement expired in 2015, prompting the Trump administration’s subsequent move to impose countervailing duties against what it called unfair subsidies for Canadian exporters that allowed them to sell lumber at artificially low prices.

The WTO, which President Donald Trump has branded a “broken” institution, was formed to resolve international trade disputes through multilateral rules and institutions. Lighthizer and others have argued the WTO is biased against the United States and that some of its members, notably China, have exploited membership to unfair advantage by pursuing trade dispute cases against other members while themselves flouting its rules.