U.S. and Canada Sign Softwood Accord

The United States and Canada signed an agreement over the weekend to settle a drawn-out and heated trade battle over softwood lumber, a major home-building component.

The deal, details of which were first released April 27, was signed by U.S. Trade Representative Susan Schwab and her Canadian counterpart, David Emerson, at a ceremony in Geneva, where both were attending World Trade Organization talks.

“This agreement resolves concerns on both sides of the border and allows us to focus on the larger positive trade relationship binding our two countries,” U.S. Commerce Secretary Carlos M. Gutierrez said.

The office of the U.S. trade representative said the deal, signed Saturday, should go into force after September.

The U.S. timber industry said in April that it could support the accord but that home buyers in the U.S. should not expect a price break.

Canadian Prime Minister Stephen Harper, who took office in February as the Conservative Party returned to power for the first time in more than 12 years, had sought to resolve the bitter dispute that has strained U.S.-Canadian relations for at least two decades. Harper and President Bush discussed the matter in April before outlining the key terms of the agreement.

U.S. tariffs on Canadian lumber started at an average of 27% in 2002 but now average 11% because of various reviews and trade panel rulings.

The U.S. goal is to keep Canada’s share of the U.S. softwood lumber market from exceeding the current level of about 34%. However, the deal does not impose a specific cap.

Instead, Canada agreed to impose taxes on its lumber exports to the U.S. if the price of lumber fell below a specified level. Softwood lumber currently averages $370 per 1,000 board feet.

The trigger point for Canadian taxes to be imposed would be about $10 below the current sales price. The tax would start at 5% and then go to 10% and as high as 15%, depending on how low lumber prices fell.

The aim would be to protect U.S. producers by boosting the price of Canadian lumber.

Speaking in Parliament, Harper said the deal would lift tariffs and quotas and would mean that $4 billion of the $5 billion in penalties collected by the U.S. on softwood imports from Canada since 2002 would go back to Canadian producers.

Canadian opponents of the deal want all of the tariffs returned to Canadian lumber companies because international trade panels repeatedly have ruled that the U.S. penalties were improper.

Under U.S. law, American companies were awarded penalty fees when they won trade cases against foreign competitors accused of selling products in the U.S. at unfairly low prices.

From the U.S. perspective, returning some of the money from taxes on Canadian softwood amounted to a concession in the bargaining.

The accord will undergo a legal review in August. No U.S. legislation is required for the deal to come into force, but the Canadian Parliament will have to approve the export charge system.