DCN ARCHIVES

September 7, 2004

Canada steps up pressure on U.S. to comply with NAFTA lumber ruling

VANCOUVER

Canada will step up political pressure on the U.S. government to drop punitive duties on Canadian softwood lumber imports in the wake of a pivotal trade ruling.

Sources have told The Canadian Press that Prime Minister Paul Martin and International Trade Minister Jim Peterson will reiterate and amplify their messages to the White House that the United States should live up to its obligations under the North American Free Trade Agreement.

But with the U.S. presidential and congressional elections three months away, no one expects the Americans to cave in to a NAFTA panel ruling that found no evidence Canadian lumber imports posed a threat of injury to U.S. producers.

In a harshly worded ruling last Tuesday, the NAFTA panel gave the U.S. International Trade Commission until Sept. 9 to comply with that view.

The commission, a quasi- judicial body with three members each from the Republican and Democratic parties, had twice before reaffirmed Canadian wood could harm the U.S. industry despite the NAFTA panel tossing its conclusions back for a review.

This time, the NAFTA panel said, in effect, we mean it.

The commission had not replied by press time but a lawyer for the powerful U.S. Coalition for Fair Lumber Imports said the two groups had planned for the adverse NAFTA ruling and expect to challenge it.

Ottawa sources say the government will reinforce messages Martin and Peterson delivered to U.S. audiences this summer urging the United States to respect the integrity of the NAFTA dispute-resolution process.

Martin was particularly blunt in a closed-door speech to a business conference in Sun Valley, Idaho, last month about “the lack of commitment, the lack of leadership” in abiding by the results of NAFTA dispute settlements.

“There has to be a way in which, when there is a dispute between two countries, that you can come to a final solution,” Martin said.

“And we thought that we had that.

“But . . . you are an extremely litigious society and you seem to be able to find ways around what were supposed to be binding settlements. And I can tell you it is beginning to grind and it’s going to hurt the North American economy if we don’t deal with it.”

Sources say that message will be reiterated at a high level in the next few weeks, although it’s fully expected the United States will exhaust every legal avenue in fighting the decision.

Peterson has also complained to U.S. Commerce Secretary Donald Evans that Commerce has balked at refunding anti-dumping duties paid by B.C.-based West Fraser Timber Ltd. after a review determined there was no evidence of dumping.

The move, Peterson wrote to Evans in late June, “contradicts the basic provisions of U.S. trade law and seriously undermines NAFTA.”

Evans replied a month later the U.S. administration “shares your interest in and commitment to” maintaining the credibility of NAFTA’s dispute-settlement process, but sidestepped the West Fraser issue because of Canada’s overall challenge of the duties.

The NAFTA threat-of-injury ruling is pivotal because it underpins the justification for countervailing and anti-dumping duties averaging 27.2 per cent, imposed since May 2002.

Under NAFTA, a panel ruling carries the same legal weight as a decision of an international trade court, meaning the U.S. commission is bound to comply.

The U.S. lumber industry, for the fourth time in 20 years, filed a trade complaint alleging Canadian lumber imports were subsidized.

It has never won outright but has at various times succeeded in adding export taxes, import duties and export quotas to Canadian lumber trade, which takes up about a third of the U.S. market.

The U.S. lumber coalition has suggested the NAFTA decision could go to an extraordinary challenge—where a panel of judges from Mexico, the United States and Canada would review the ruling.

Potential grounds include the panel overstepping its authority under NAFTA by ordering the commission to change its conclusion, problems with due process and allegations of a conflict of interest by an American member of the panel.

Coalition lawyer John Ragosta said last week an extraordinary challenge by the U.S. government is likely, and there’s also an opportunity to take the issue to a U.S. federal Appeal Court, challenging the constitutionality of the process.

But Canadian trade expert Peter Clark said he believes the U.S. case would be weak. Its past attempts to overturn NAFTA decisions by extraordinary challenge have failed, as have efforts to question their constitutionality in U.S. courts.

Clark, head of a trade strategy company and sometime NAFTA panelist, said, for instance, a previous NAFTA panel on raspberry imports order- ed the commission to change its finding, and it complied.

It’s not surprising the ruling has struck sparks, said Clark.

“It sometimes grates on them a little bit that the NAFTA has replaced the domestic court system,” he said.

“They have a treaty and the treaty has been implemented in U.S. law.”

B.C. Forests Minister Mike de Jong said last week it’s time for President George Bush to show U.S. commitment to its international treaty obligations.

Capitulation might be hard with the November presidential election looming and many aggrieved lumber producers clustered in southern U.S. states.

But one observer said the administration appears to have been sending a political message to the lumber lobby via the Commerce Department by slashing the proposed final duty rates nearly in half through recalculations. And if Bush loses to Sen. John Kerry in November, don’t expect a hardening protectionist stance, the observer added.

The Canadian Press

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