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Mixed Decision in Lumber Duty Case

U.S. must change the way it calculates taxes on Canadian timber, WTO says. Ruling may spur efforts to settle dispute.

May 28, 2003|From Bloomberg News

The World Trade Organization ruled Tuesday that the United States must change the way it calculates tariffs on $7 billion worth of Canadian lumber, a decision that may boost efforts to settle a dispute that has strained the world's largest trade partnership.

Both sides claimed victory in the latest development in a 2-decade-old dispute over what the U.S. says are illegal subsidies by Canada's provinces. Retailers such as Wickes Inc. and lumber companies such as Weyerhaeuser Co. said the mixed decision may spur negotiators from both countries to settle their differences.

"This decision puts pressure on the Americans to sit down at the negotiating table and find a solution," said Georges Courteau, chairman of the Quebec Forest Industry Council, which represents 90% of that province's lumber producers.

Canada a year ago challenged an 18.8% tariff the U.S. Commerce Department levied on lumber exports. The U.S. says Canadian sawmills such as Canfor Corp. and Domtar Inc. were being charged unfairly low rates to cut on government-owned land. Canada also is fighting a separate duty of 8.43% that was imposed to punish alleged "dumping," or selling goods abroad below cost.

The Geneva-based trade arbiter's decision was confidential, and the final ruling won't be published until July.

According to U.S. industry and trade officials familiar with the decision, a WTO panel found that Canadian provinces such as Quebec and British Columbia were subsidizing the industry, and they said that gave them an overall victory even if they lost the battle over how the tariffs were determined.

The WTO panel objected to the way the Commerce Department calculated the amount of that subsidy, by comparing the prices for logging rights in Canada and the U.S. The subsidy size determines the level of retaliatory tariffs imposed.

Canadian officials and industry representatives said the decision would mean at least a steep reduction in the duties.

"We won the practical victory," said John Allan, president of the British Columbia Lumber Trade Council, which represents Canfor, West Fraser Timber Co. and other companies based in Canada's biggest timber-producing province.

A U.S. lawyer disputed that assertion.

"We've already shown that we can recalculate the subsidies and come up with duties" that are even higher, said John Ragosta, an attorney for the 300 U.S. companies, including International Paper Co., that sought protection from Canadian imports.

The latest row, which started with a U.S. investigation of Canadian lumber practices in April 2001, has led to slumping prices, lower profits and job losses on both sides of the border.

Lumber profits in the U.S. and Canada plummeted after the tariffs took effect as companies from Russia, Germany and Estonia tried to snare part of what had been Canada's 30% share of the $36-billion U.S. lumber market.

A victory at the WTO strengthens Canada's position in negotiations aimed at resolving the disagreement. The two sides have failed to reach an interim agreement on how tariffs will be reduced as provinces end their subsidies.

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