Never say never. If you don't think this is one issue that almost ALL Canadians are in agreement upon, left and right, think again. We on the right are pissed off that the U.S. is not keeping their word, and that we are being taxed unfairly. The left hates America regardless. And the centre is upset because this is making them look bad.
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Chuck Gastle
Only a softwood-lumber settlement will buy trade peace
By CHUCK GASTLE
Monday, August 15, 2005 Updated at 1:59 AM EDT
Special to Globe and Mail Update
Even though Canada has won "Softwood Lumber part IV," we should still negotiate a settlement. If the United States persists in refusing to return the almost $5-billion in interim duties already collected, the North American free-trade agreement dispute settlement mechanism has been defeated. The fact that Softwood Lumber V lurks just around the corner, indicates the serial jeopardy that exists in anti-dumping and countervailing duty law.
Case after case after case can be commenced. As a result, the North American softwood-lumber market represents a case of "managed" and not "free" trade, and Canada will only be permitted a certain percentage of the market before duties are imposed.
Canada has won the dispute because a NAFTA extraordinary challenge committee - a limited appellate body - has confirmed that Canadian exports represent no injury or threat of injury to American softwood producers. This ends the dispute. Or it is supposed to.
Now Canada is being forced to commence action in the U.S. Court of International Trade to force the return of the interim duties. A further appeal to the U.S. Federal Court of Appeal will likely be necessary, and possibly to the U.S. Supreme Court.
This litigation could last at least another two years. The NAFTA binational panel mechanism was designed specifically and intentionally to replace the Court of International Trade that was perceived as being too deferential to the U.S. Department of Commerce. What a remarkable admission of failure: Canada must now turn to U.S. courts to try to enforce NAFTA.
The United States relies on Section 129 of the Uruguay Round Agreements Act that allows the International Trade Commission to modify decisions it has made if the World Trade Organization determines that a decision is WTO consistent. The International Trade Commission (that finds injury) modified its decision in November, 2004, under this authority. The United States argues that the entire NAFTA hearing is now moot as the game has been changed - NAFTA has chased the old decision when the new one rules.
If international trade law means anything, Canada should eventually be successful in having the duties repaid. If it is unsuccessful, NAFTA's dispute-settlement mechanism is a joke. But don't expect Canada to invoke its right to terminate NAFTA on six months' notice. Our economies are far too integrated to even contemplate such a step.
Besides, even if the duties are returned, a settlement still should be negotiated. Softwood Lumber III took three years to resolve. Softwood Lumber IV has taken four years thus far. The trend would suggest that Softwood Lumber V will be at least as long and it could be commenced soon after the current iteration expires. The Department of Commerce will soon be able to impose interim duties once again.
So what will a settlement look like? Canada will impose an export tax on almost all softwood-lumber exports from Canada. A 15-per-cent duty was imposed during the first softwood-lumber agreement of 1986. In 1995, a five-year agreement was reached imposing a $50 charge beyond 14.7 billion board feet, and a charge of $100 per thousand beyond 15.35 billion board feet (shipments in 1995 being 16.2 billion).
It is likely that any settlement agreement will result in an export tax, with the United States calling for a 19-per-cent tariff in 2002. At least the duties will be collected by the Canadian government and not by Washington. The duty will be eliminated if the provinces make changes to their forest-management policies. The provinces will likely have to move away from their current forest-management programs to ones that are market-based, similar to those in the United States.
There has always been an esoteric argument as to whether NAFTA truly represents a compromise of sovereignty. It is my view that the agreement does so in circumstances where domestic policy changes are necessary even after clear-cut victories.
The sad reality is, American house buyers have been held hostage to a well-organized industry and antiquated trade-remedy weapons that protect producers and not consumers. One might think that producers should be protected when confronting the trade threat from China. But remember, 40 years ago, competition law (trade rules within a country) and anti-dumping/countervailing duty law (trade rules between countries) shared the same producer-welfare orientation. Competition law has evolved to protect consumers - but antidumping/countervailing has not. There is no chance that these mechanisms will ever change.
The victory in Softwood Lumber IV must be seen for what it is: Canada's negotiating position has been enhanced and it is time to negotiate a settlement that will minimize interference in the market.
Chuck Gastle is a partner at Bennett Gastle P.C., a litigation and international-trade boutique law firm.