U.S. Wins Trade Ruling on Lumber

Trade tensions between the U.S. and Canada heated up Tuesday after a World Trade Organization panel supported Washington’s decision to impose hefty penalties on Canadian softwood lumber firms accused of dumping their products on the U.S. market.

The preliminary ruling is the latest twist in a trade war involving Canadian exports of lumber made from Douglas fir, pine and other softwood. The dispute has sent anti-American sentiments soaring north of the border.

“This is extremely aggravating to Canadians,” said Gary Hufbauer, a trade expert with the Institute for International Economics in Washington. “In their view, the U.S. just doesn’t play by the rules.”

The WTO ruling was delivered to both countries Monday but won’t be finalized for months. During the decades-long dispute, the two countries have tried unsuccessfully to resolve their conflict through trade organizations and the courts.

The stakes extend far beyond the $10-billion-a-year Canadian softwood export market. Since the passage of the North American Free Trade Agreement in 1994, the Canadian and U.S. economies have become more interwoven. Canada, which ships more than 80% of its exports to its southern neighbor, has a $100-billion trade surplus with the U.S., equal to 10% of its economy.

The U.S. depends on its neighbor to the north for much of its imported energy, lumber and auto parts.

U.S. lumber mills claim that the Canadian government, which owns most of its forests, provides subsidies to its lumber producers, including artificially low harvesting fees. They have accused the Canadians of dumping lumber on the U.S. market at up to 75% below cost.

But U.S. lumber importers, home builders and consumer groups side with Canada, arguing that the duties are unwarranted and increase the cost of a new home by at least $1,000.

A U.S. trade official, speaking Tuesday on the condition that he not be named, warned against putting too much weight in the WTO decision, although he said it “certainly shifts things in the U.S. direction.” He said he hoped the ruling would persuade Canadian diplomats to return to negotiations after they canceled talks scheduled for this month.

“We’ve got to go back to the table and find a way to resolve this,” he said.

But Canadian Trade Minister Jim Peterson refused to back down Tuesday, saying his government planned to appeal the WTO decision and would not restart discussions unless they appeared to be leading to a “long-term, durable solution.” He said Prime Minister Paul Martin would call President Bush soon to discuss the issue.

The latest WTO decision was frustrating for Canada because just three weeks ago, a NAFTA panel decided in its favor, denying the U.S. claim that Canada’s softwood producers are subsidized. Based on that ruling, Canada insists that Washington must return about $5 billion in deposits for tariffs levied against Canadian lumber producers..

Canada also has filed a suit with the U.S. Court of International Trade in New York, seeking a refund of the money. Ottawa said it had not abandon plans to impose retaliatory tariffs.

“We want the United States to live up to and respect the NAFTA,” Peterson said. “If NAFTA is going to have meaning, then we all have to live within its rules.”

The U.S. refusal to abide by the latest NAFTA ruling has added to Uncle Sam’s declining popularity in Canada, said Fred McMahon, director of the Center for Trade and Globalization Studies at the Fraser Institute, a Vancouver, Canada, think tank.

“The U.S. refusing to play by the rules it has already agreed to just adds fuel to a very ugly fire,” he said.