Canada and U.S. Strike Timber-Cutting Fee Deal
8/24/99
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Title: Canada, U.S. strike timber-cutting fee deal
Dispute ends days before a panel ruling;
B.C. to freeze lumber exports at average volumes
Source: Toronto Globe & Mail
Status: Copyright 1999, contact source for permission to reprint
Date: August 24, 1999
Byline: BARRIE McKENNA
Washington Bureau
Washington -- Canada and the United States have struck a deal to end a
dispute over lower timber-cutting fees in British Columbia just days
before a binational panel was to rule in the high-profile case, The
Globe and Mail has learned.
Under the agreement, to be unveiled this week, British Columbia will
freeze its softwood lumber exports to the United States at the average
historic volumes reached before the province cut the fees it charges
mills to harvest trees on Crown land.
Any lumber exports above that level will face a punitive "super"
export fee of $146 (U.S.) per 1,000 board feet of lumber. That could
add as much as 50 per cent to the cost of U.S.-bound lumber.
Canada must also compensate U.S. producers for any excess shipments
since the lower stumpage rates took effect in June 1998.
The deal marks the latest attempt to manage a cross-border trade that
was to have become free under the Canada-U.S. and North American free-
trade agreements. Lumber tariffs were phased out at the beginning of
last year.
The United States has argued that the B.C. move was tantamount to an
illegal subsidy that contravened a 1996 agreement limiting Canadian
exports of softwood lumber.
The lower cutting fees, known as stumpage, were aimed at putting an
extra $600-million (Canadian) into the hands of ailing B.C. producers
over three years.
A dispute settlement panel, set up under the terms of the softwood
lumber agreement, was poised to release its decision Friday.
It was the first dispute ever filed under the controversial lumber
agreement.
Canadian and U.S. trade officials quietly worked out the compromise
late last week. A formal announcement is awaiting a formal order-in-
council resolution by the federal cabinet in Ottawa.
Ottawa has always maintained that provinces are free to manage their
forests however they want in spite of the 1996 softwood lumber
agreement. Indeed, previous trade cases dating back to the 1980s have
upheld the Canadian view that stumpage rates are not an illegal
subsidy.
Critics of this latest deal say it's a sellout of those principles.
The special fee imposed on B.C. producers establishes the precedent
that any move to lower stumpage rates will invite further restricted
access to the U.S. market, said an industry executive, speaking on
condition of anonymity.
"Now it seems B.C. stumpage rates will be set in Washington," the
official complained. "That's what we've always tried to avoid. Why not
wait for the panel report? Now we'll never know what they would have
said."
Under the softwood lumber agreement, Canadian producers can't ship
more than 14.7-million board feet of softwood lumber to the United
States a year. Exports above that level are hit with export fees of
$53 or $106 per 1,000 board feet as volumes rise. Ottawa has split up
the quota among Canadian producers in the various provinces.
Under this latest agreement, B.C. mills will face a further
restriction if producers opt to ship to the United States at levels
beyond average shipments set in 1997 and 1998 -- the first two years
of the lumber agreement.
The agreement does not affect duty-free Canadian shipments. But it
will curtail how much lumber B.C. producers can ship while still
paying the existing export fees.
The U.S. lumber industry hailed the pending agreement as an
acknowledgment that Canada can't do anything to increase the volume of
lumber exports.
"The new agreement makes it clear that unilateral stumpage reductions
are inconsistent with the anti-circumvention provision of the (1996
softwood lumber) agreement," said Mack Singleton, chairman the
Washington-based Coalition for Fair Lumber Imports. "That's all we
ever asked for."
But some Canadian industry officials argue the net economic effect
will be minimal because British Columbia is not shipping everything it
is allowed under the $53 or $106 per 1,000 board-feet levels.
Doug Smyth, research director of the Industrial Wood and Allied
Workers of Canada union in Vancouver, said the net economic effect
will be nil. He said at current lumber prices, B.C. mills were not
taking full advantage of all the lumber they can already ship.
Meanwhile, the United States is cracking down on imports of roofing
timber in the wake of complaints that Canadian mills are illegally
disguising shipments to skirt steep border fees.
The U.S. Customs Service has instructed its agents in Vermont to deny
the duty-free entry of all roofing materials unless a shipper can
prove how its customer intends to use the product.
The new measures have led to problems for Canadian exports at some
border stations, according to Canadian industry sources.
A Canadian government official said it was aware of the problem and
was working with the industry to "formulate a response."
Ottawa is already contesting previous moves by the Customs Service to
reclassify Canadian notched studs and rougher header lumber -- two
specialized lumber products. A third case involving predrilled lumber
is under appeal in a U.S. court.
Canada argues these types of products are not covered by the softwood
lumber agreement and should therefore enter the United States duty
free. It has accused the United States of deliberately trying to
expand the agreement.
The United States, meanwhile, has accused Canadian mills of making
minor modifications to wood simply to evade the agreement.
Copyright c 1999 Globe Information Services