00-5084. Request for Public Comment Regarding Softwood Lumber Practices in Canada and Softwood Lumber Trade Between the United States and Canada

AGENCY:

Office of the United States Trade Representative (USTR).

ACTION:

Request for comments.

SUMMARY:

The interagency Trade Policy Staff Committee (TPSC) seeks public comment concerning softwood lumber trade betweem the United States and Canada, in light of the pending expiration of the U.S.-Canada Softwood Lumber Agreement in April 2001. The TPSC invites public comment with respect to Canadian softwood lumber practices. Furthermore, the TPSC invites comment with respect to economic and environmental aspects of: (a) Those softwood lumber practices, (b) related U.S.-Canada softwood lumber trade issues, and (c) a possible negotiation concerning Canadian provincial lumber practices and softwood lumber trade between the United States and Canada.

FOR FURTHER INFORMATION CONTACT:

For Procedural questions concerning public comments, contact Gloria blue, Executive Secretary, Trade Policy Staff Committee, Office of the United States Trade Representative at [phone]. All other questions concerning the U.S.-Canada lumber trade issues should be addressed to Mary Ryckman in the agency's Office of North American Affairs at [phone].

SUPPLEMENTARY INFORMATION:

U.S.-Canada Softwood Lumber Agreement

On May 29, 1996, the United States and Canada signed the U.S.-Canada Softwood Lumber Agreement. The five-year Agreement went into effect April 1, 1996. Under the Agreement, fee free exports of softwood lumber from the four major lumber producing provinces in Canada (Alberta, British Columbia, Ontario and Quebec) were limited to 14.7 billion board feet fee-free a year. These four provinces account for 95% of lumber shipments from Canada. The Agreement does not impose any restrictions on lumber coming from other provinces because timber there is sold competitively.

The details of the Agreement are as follows:

• Softwood lumber means articles classified under tariff items 4407.10.00, 4409.10.10, 4409.10.20, and 4409.10.90 of the Harmonized Tariff Schedule of the United States.
• The Agreement establishes an export fee system. Shipments from the four provinces in excess of 14.7 billion board feet in any year are subject to a surcharge of US$50 per thousand board feet up to an additional 650 million board feet. Once that level is reached, the surcharge is increased to US$100 per thousand board feet. While US$100 per thousand board feet acts as a substantial deterrent to additional shipments in all but the strongest markets, there is no point at which shipments from Canada are prohibited outright.
• The Agreement contains a trigger price mechanism, whereby an additional 92 million board feet is allowed into the United States free of charge for every quarter in which the price of lumber equals of exceeds the trigger price (a quarterly average price of $405 per thousand board feet of eastern spruce-pine-fir, standard or better, kiln-dried, Great Lakes delivered lumber as reported in Random Lengths).
• The U.S. Customs Service monitors shipment levels and fee payments to ensure that the Agreement is being properly implemented.

Modification of the Softwood Lumber Agreement

On August 26 1999, the United States and Canada resolved a U.S. dispute settlement case under the Agreement over a 1998 timber stumpage reduction in British Columbia. The United States considered the reduction to be a violation of the 1996 U.S.-Canada Softwood Lumber Agreement. British Columbia's June 1, 1998 stumpage change applied to all timber grown on provincially-owned lands, which accounts for the overwhelming majority of timber harvested in the province. The province reduced its timber harvesting fees by an average of C$8.10 per cubic meter, or 24%, for timber harvested in coastal areas and by C$3.50 per cubic meter, or 14%, on average for inland timber. Estimates are that the new, lower fees resulted in an overall price reduction of some C$234 million during the first year they were in effect and will lower harvesting fees by approximately C$640 million over three years.

The settlement covers exports from British Columbia for the remainder of the Agreement. The settlement calls for Canada to impose a new, higher fee on B.C. lumber exports when exports from the province exceed recent average annual shipments to the United States. The settlement also requires Canada to begin imposing what was, until now, the highest export surcharge called for under the Agreement at lower lumber export levels than previously was the case. During year four of the Agreement (1999/2000), exports from British Columbia subject to the lower fee will be limited to 272 million board feet, while upper-fee exports will be limited to 110 million board feet. All British Columbia exports beyond those amounts will be subject to a new fee of US$146.25/thousand board feet. In year five, the export volumes triggering fees will be the same or lower, and the new fee will be adjusted for inflation.

History of Softwood Lumber Trade Between the United States and Canada

On December 30, 1986, the United States and Canada entered into a Memorandum of Understanding (MOU) to settle a pending countervailing duty (CVD) investigation of Canadian softwood lumber. Among other things, the MOU provided for Canada to assess a 15% export fee on certain lumber exports to the United States. The fee could be reduced or eliminated for exports from a province that too, so-called replacement measures to increase stumpage or other charges on lumber.

In September 1991, as permitted under the MOU, Canada provided notice that it was unilaterally terminating the MOU in 30 days. In response, in October 1991, Commerce self-initiated a section 301 investigation, immediately determining Canada's action to be unreasonable and to burden or restrict U.S. commerce, and took section 301 action.

The section 301 action applied to imports that entered during the 5-month period (October 1991-March 1992) prior to Commerce's preliminary CVD determination. (Imports entering after that time could be assessed duties under the CVD laws.) Under the section 301 action, USTR required importers of softwood lumber from certain provinces to post a bond in an amount up to 15 percent. The amount was lower or zero where a province had replacement measures in place. USTR indicated that these entries during the interim period prior to Commerce's preliminary CVD determination would ultimately be assessed fees in the amount of Commerce's final CVD determination.

Canada challenged in the GATT both the section 301 action and the self-initiation of the CVD investigation. The GATT panel issued a mixed decision, finding that the initiation of the CVD investigation did not violate GATT but that the section 301 action did.

When the final CVD determination was issued in May 1992 (and while the GATT panel proceedings were pending), both the U.S. domestic industry and Canadian parties sought review by a binational panel under Chapter 19 of the U.S.-Canada FTA. The binational panel found Commerce's subsidy determination to be inconsistent with U.S. law and directed Commerce to issue a negative CVD determination. An Extraordinary Challenge Committee (ECC) requested by the United States upheld the panel's decision. Consequently, Commerce revoked the CVD order in August 1994, and USTR terminated the section 301 action in October 1994.

In September 1994, the domestic industry filed a lawsuit in U.S. court alleging that the binational panel process was unconstitutional. In December 1994, the industry withdrew this complaint following the establishment of a consultative process between the United States and Canada regarding softwood lumber trade. This process ultimately led to the signing of the Softwood Lumber Agreement in May 1996.

Request for Comments

Given that the U.S.-Canada Softwood Lumber Agreement expires in April 2001, the TPSC invites public comment with respect to Canadian softwood lumber practices. Furthermore, the TPSC invites comment with respect to economic and environmental aspects of: (a) Those softwood lumber practices, (b) related U.S.-Canada softwood lumber trade issues, and (c) a possible negotiation concerning Canadian provincial lumber practices and softwood lumber trade between the United States and Canada.

Those persons wishing to submit written comments, should submit ten (10) typed copies, no later than noon, Friday, April 14, 2000, to Gloria Blue, Executive Secretary, Trade Policy Staff Committee, Office of the U.S. Trade Representative, Room 122, 600 Seventeenth Street, NW, Washington, DC 20508. Comments should state clearly the position taken and should describe with particularly the evidence supporting that position. Any business confidential material must be clearly marked as such on the cover page (or letter) and succeeding pages. Such submissions must be accompanied by a non-confidential summary thereof.

Non-confidential submissions will be available for public inspection at the USTR Reading Room, Room 101, Office of the U.S. Trade Representative, 600 Seventeenth Street, NW, Washington, DC. An appointment to review the file may be made by calling Brenda Webb at [phone]. The Reading Room is open to the public from 10 a.m. to 12 noon and from 1 p.m. to 4 p.m., Monday through Friday.

Carmen Suro-Bredie,

Chairman, Trade Policy Staff Committee.