WTO confirms U.S. softwood duties too high

Ottawa has moved a key step closer to hitting back at the United States in the softwood lumber fight after the World Trade Organization confirmed that the U.S. duties on Canadian imports are too high. Canadian officials said a WTO appeals panel ruling on Monday clears the way for Canada to impose up to $200-million in retaliatory duties. But that represents a tiny fraction of the more than $5-billion in duties that Canadian lumber companies have paid since mid-2002 because the ruling deals with some, but not all, of the government subsidies alleged by the United States. Canadian Trade Minister Jim Peterson hailed the decision as a significant victory in Canada's long legal battle with the United States.

“The United States must come to terms with the fact that we firmly expect that duties will be returned,” Mr. Peterson said. “We will work with Canadians as we consider our options under the WTO.” Ottawa said it will consult Canadians on how and when to retaliate against the United States. On Saturday, New Democratic Party Leader Jack Layton made the softwood dispute a key campaign issue, imploring Ottawa to slap a tariff on the billions of dollars worth of Canadian energy sold to the United States. “What we need to do is stand up for ourselves when we're unfairly treated,” Mr. Layton told reporters in Vancouver. The idea of taxing oil and gas exports was quickly rejected by Paul Martin's Liberal government, which argues that such a move would undermine the Canadian economy.

Under WTO rules, arbitration will begin early in 2006 to determine what amount Canada can seek in compensating duties. The WTO can't compel the United States to return duties or lift its roughly 20% duty on Canadian lumber. The duty includes a 16% countervailing (CVD) or anti-subsidy duty plus a 4% anti-dumping duty. WTO decision on Monday only affects the CVD, and then only the portion of the 16 per cent related to Canada's ban on exports of unprocessed timber. The WTO case is one of several legal challenges in the softwood dispute. Canada argues that it has already won at least two more important rulings under North American free-trade rules — one this summer that Canadian lumber poses no threat of injury to the United States and a second one ordering the U.S. to cut its CVD rate to zero.

The Bush administration has so far ignored the first ruling, prompting prime minister Paul Martin to suspend all efforts to settle the dispute through negotiation. Last month, the United States reluctantly agreed to eventually reset its anti-subsidy duty, but strongly suggested that it would pursue appeals. Canada argues that the two NAFTA wins mean the United States has no choice but to lift the duties and refund the $5-billion. The United States, meanwhile, argues that the U.S. International Trade Commission redrafted its original duty order, making the NAFTA case moot. It has also suggested that the confusing overlap of NAFTA and WTO rulings means the two sides have no alternative but to negotiate a truce.