canada — us softwood lumber agreement … · • october 12: 2006 softwood lumber agreement...

CANADA — US SOFTWOOD LUMBER AGREEMENTPRESENTATION TO THE CBABC NATURAL RESOURCES— FORESTRY LAW

JUNE 15, 2010 VancouverBRENDA C. M. SWICKMCCARTHY TÉTRAULT, [email protected]

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2006 AGREEMENT BETWEEN CANADA AND THE US

• October 12: 2006 Softwood Lumber Agreement between Canada and the US came into force.

• Scope and Duration (Art. XVIII)Seven years with an option to renew for two additional years.

• Termination of all Litigation (Art. III)United States and Canada end all litigation over softwood lumber, including the revocation of the United States countervailing and anti-dumping duty orders.

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2006 AGREEMENT BETWEEN CANADA AND THE US (cont’d)

• Refund of Duties (Art. IV)Refund of over US$4 billion in duties collected by the United States since 2002. Over US$2 billion returned to British Columbia. US$1 billion of the duties remain in the United States.o US$500 million will be distributed to the United States Coalition lumber companies,o US$450 million will be used to fund meritorious initiatives in the United States, ando US$50 million will fund a North American Lumber Council

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• Export Measures (Art. VI)Canadian softwood lumber exporters pay an export charge when the price of lumber is at or below US$355 per thousand board feet (MBF), as determined by the Random Lengths Framing Lumber Composite Price.

• Export charge revenues collected by the Government of Canada will be returned to the provinces

• Canadian regions (the B.C. coast, the B.C. interior, Alberta,) choose Option A, an export charge with a surge penalty; Quebec, Ontario, Manitoba, Saskatchewan chose Option B, an export quota with a lower export charge.

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5% + regional share of 30% of U.S. consumption

15%US$315 or under

3% + regional share of 32% of U.S. consumption

10%US$316-335

2.5% + regional share of 34% of U.S. consumption

5%US$336-355

00Over US$355

Option B – Export Charge plus Volume Restraint

Option A –Export Charge

Price per thousand board feet

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DFAIT REPORT

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LUMBER PRICE

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• Surge Mechanism (Art. VIII)Each province is allocated a share of exports based on its historic share of the U.S. market – Trigger Volume.

• A surge occurs in a month when the volume of softwood lumber products exported from an Option A Region exceeds the Region's trigger volume by more than 1%.

• The surge charge is an increase in the export charge that is equal to 50% of the applicable rate of the charge for the month in which a surge has occurred.

• (15% -22.5%; 10% - 15%; 5%- 7.5% )• Charge applies retroactively to all exports from the region

o during the month in which the surge was declared.• Alberta been consistently in surge – perhaps not enough

volume.

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• Exemption for Independent Remanufacturers (Art. XX)Independent Remanufacturers are charged the export charge on the “first mill” value of their lumber. There is no export charge on the value-added component of their products.

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• Private Lands (Art. 10:4)Parties may agree to exclusion of Softwood Lumber Products produced from logs originating on private lands in Canada.

• Exclusions (Art. X)Export Measures do not apply to softwood lumber exports:

• produced from logs harvested in the Atlantic provinces, the origin of which is certified under the Maritime Lumber Bureau Certificate of Origin;

• from logs harvested and produced in the Yukon, Northwest Territories or Nunavut;

• from 32 companies previously found by U.S. authorities not to benefit from subsidies; these include all the Quebec border mills.

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• Regional Exemptions from Export Measures (Policy Exits) (Art. XII)Parties to will work to develop criteria for determining when a region's timber pricing and forest management systems could qualify for exemption from Export Measures because it uses“market-determined timber pricing and forest management systems”.

• Dispute Settlement (Art. XIV)Disputes under the Agreement are resolved through the LCIA final and binding dispute settlement process.

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• Anti-Circumvention (Art. XVII)Neither Party shall take action “to circumvent or offset”the commitments under the Agreement, including any action having “the effect of reducing or offsetting the Export Measures” or under mining the commitments set forth in the Article.

“Grants or Other Benefits” that a Party provides “shall be considered to reduce or offset the Export Measures if they are provided on a de jure or de facto basis to producer or exporters of Canadian Softwood Lumber Products.”

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• Exemption for British Columbia’s MPS market-based pricing system, and tenure compensation; payments to First Nations to settle claims, and environmental or other measures so long as they do not undermine market pricing of timber.

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DOMESTIC IMPLEMENTATION REGIME

• The Federal government is responsible for the administration and operation of the system.

• Triumpherant• Foreign Affairs and International Trade, Export

Control Bureau (ECB) - administers and allocates the quota for Option B provinces and issues export permits under Export and Import Permits Act.

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DOMESTIC IMPLEMENTATION REGIME (cont’d)

• EIPA establishes the Import, Export & Area Control Lists (ICL, ECL & ACL). Allows for the control of the export and import of goods and technology. Every exported good on the Export Control List requires an export permit.

“Softwood Lumber Products” were added to the Export Control List under Item 5104.

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• 5104. Softwood Lumber Products• 1. Softwood lumber products set out in Annex 1A

to the softwood lumber agreement, excluding item 5(e).

• 2. The references to the Harmonized Tariff Schedule of the United States (HTSUS) tariff classifications in Annex 1A to the softwood lumber agreement are to be read as references to the corresponding tariff classifications according to the Canadian Table of Concordance in Annex 1B to that agreement.

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• Canada Revenue Agency – calculates and collects the export charge under the Softwood Lumber Export Charge Act, 2006.

• Section 10(1): every person who exports a softwood lumber product to the US shall pay …a charge … in respect of the export.

• The amount of the charge is the rate applied to the ”export price”.

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• "Export price" means the free on board (FOB) value consisting of all costs payable by a purchaser, including those incurred in the placement aboard a conveyance for shipment, but not including the actual shipping costs and the amount of a charge payable under section 10 of the Act.

• For more information on calculating the export price, refer to Notice SWLN3, Notice to Exporters – Calculation of Export Price.

• Objection to assessments may be made to Minister with right of appeal to Tax Court of Canada (sections 50-64).

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• Canada Border Services Agency – determines the tariff classification of the “Softwood Lumber Product under the Customs Tariff.

• Scope – tariff classification rulings available under the Customs Act or an advisory opinion from the Export Control Bureau at DFAIT.

• eg. Cross-laminated lumber

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THE ARBITRATIONS

• Within a year of the SLA, the US initiated arbitration proceedings in the LCIA.

• Two months before the arbitration panel issued its decision, the US filed its 2nd arbitration request. This request challenge alleged subsidy programs that allegedly benefited the industry.

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THE ARBITRATIONS (cont’d)

• Adjustment Factor Arbitration (LCIA Case 91312 Canada (Claimant) v. United States of America (Respondent))

• April 13, 2007: US filed Request for Arbitration (Art, XIV) alleging Canada had failed to make necessary downward adjustments to Expected US Consumption (EUSC) under Annex 7D, para. 14 (for the first half of 2007) with the result that regional trigger volumes for Option A Regions and quota volumes for Option B provinces were higher than those permitted under the Agreement.

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• March 5, 2008 Award on Liability, LCIA found: No obligation to make adjustment to EUSC when determining trigger volumes under Option A.

• Compensation for the breach: Canada required to collect an additional 10 percent ad valorem export charge upon softwood lumber shipments from Option B regions until CAD68.2 million has been collected.

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• Canada delayed curing the breach and offered to pay the US CAD46.7

• US rejected the Canadian offer and imposed a 10% duty as ordered by the LCIA for the collection of the amount.

• Amendments to Softwood Lumber export Charge Act, 2006 to impose the 10% charge, (Bill C-9 An Act to implement certain provisions of the budget tabled in Parliament on March 4, 2010 and other measures) is now before the Senate Committee.

• US is considering revoking 10% charge (Federal Register,May 28, 2010).

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• Arbitration on Quebec and Ontario Programs (LCIA Case 91312 Canada (Claimant) v. United States of America (Respondent))

• January 18, 2008: U.S. filed an arbitration request with the LCIA alleging that: Québec and Ontario have implemented certain benefit programs that circumvent the SLA (Article XVII):

• Québec’s Capital Tax Credit, which it alleges “targets” the forest industry by providing financial incentives in the form of a tax credit of 15 percent for the purchase price for new manufacturing and processing equipment;

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• Québec’s “Forest Management Measures,” which provide C$700 million in financial benefits to forest industry companies in the form of a tax credit of 90 percent for investments in access roads and bridges and other funding for reforestation, fire fighting, and pest control;

• Québec’s C$425 Million Forest Sector Financing “Envelope,” which provides financing to forest industry companies at non-market terms in the form of loan guarantees and interest-free loans;

• Ontario’s Forest Sector Prosperity Fund, which provides grants to forest industry companies to support and leverage new capital investment projects;

• Ontario’s Forest Sector Loan Guarantee Program, which provides financing to forest industry companies at non-market terms to support and leverage new capital investment projects; and

• Ontario’s Forest Road Building Program, which pays forest industry companies to facilitate their extraction of additional lumber.

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Parties have different interpretation of the circumvention provisions in Article XVII.

The US argues that together Art. XVII:1 and XVII:2 mean that ANY grant or benefit that is provided to producers or exporters of Softwood Lumber Products is offside the anti-circumvention clause UNLESS it falls within one of the 5 enumerated exceptions in (1)-(e) of Art. XVII:2....so regardless of effect of the US market prices if the government provides a benefit or grant to Softwood Lumber producers or exporters (de facto or de jure!), it is circumvention.

Canada argues that you have to read paras 1 and 2 of Article XVII together, so that if there is no effect of reducing or offsetting the Export measures, the grant or benefit is not offside.

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THE FUTURE - PROPOSED PROVINCIAL FORESTRY REFORMS

• QUEBEC• Coulombe Commission (2004) – reduction in allowable

annual cut by 20% (30 million cu m to 20 million cu m)• Forests: Building A Future for Quebec:

http://www.mrnf.gouv.qc.ca/english/publications/forest/consultation/green-paper.pdf

• 9 Proposals:1. Enhance resource development by implementing forest zoning.2. Refocus MRNF on its primary responsibilities.

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THE FUTURE - PROPOSED PROVINCIAL FORESTRY REFORMS (cont’d)

3. Give regional authorities new responsibilities for managing the public forest.

4. Entrust forest operations to certified forestry companies.5. Promote a management approach based on sustainable results and

accountability.6. Promote a stable supply of timber by introduction a “right of first

refusal”.7. Establish a competitive market for timber from the public forests.

MRNF estimates that “at least 25%” of the volumes available in the public forests should be sold on the open market by auction”.

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8. Create a silviculture investment fund for intensive silviculture.9. Establish an industrial development strategy based on high value-

added products • Diversification of production to include more highly processed

products to reduce the volumes of wood subject to the SLA 2006.

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• ONTARIO• April 30, 2010; Ontario released its proposal for changing the way

Crown forest resources are to be licensed and allocated, who will manage the forest under the authority of the government, and howwood is priced and sold.

• Ontario: A Proposed Framework to Modernize Ontario’s Forest Tenure and Pricing System (2008-2013) http://www.mndm.gov.on.ca/forestry/crownwood/default_e.asp

• Proposes to introduce between 5 and 15 local forests management corporations (LFMCs) to oversee the competitive sale of crown timber, with up to 25 percent of the wood supply in each LFMC sold through an auction process.

VancouverSuite 1300, 777 Dunsmuir StreetVancouver BC V7Y 1K2Tel: 604-643-7100 Fax: 604-643-7900

CalgarySuite 3300, 421 7th Avenue SWCalgary AB T2P 4K9Tel: 403-260-3500 Fax: 403-260-3501

TorontoSuite 5300, TD Bank TowerToronto Dominion Centre66 Wellington Street WestToronto ON M5K 1E6Tel: 416-362-1812 Fax: 416-868-0673

OttawaSuite 200, 440 Laurier Avenue WestOttawa ON K1R 7X6Tel: 613-238-2000 Fax: 613-563-9386

MontréalSuite 25001000 De La Gauchetière Street WestMontréal QC H3B 0A2Tel: 514-397-4100 Fax: 514-875-6246

QuébecLe Complexe St-Amable1150, rue de Claire-Fontaine, 7e étageQuébec QC G1R 5G4Tel: 418-521-3000 Fax: 418-521-3099

London, UK5 Old Bailey, 2nd FloorLondon EC4M 7BAUNITED KINGDOMTel: +44 (0)20 7489 5700 Fax: +44 (0)20 7489 5777

canada — us softwood lumber agreement … · • october 12: 2006 softwood lumber agreement...

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