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Softwood Lumber War:

The US-Canadian Lumber Dispute

Lu, Wit, Alish, Jeremy, Titinia, Henry, Jun

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General Overview

Lumber I: 1982

Lumber II: 1986-91

Lumber III: 1991-2001

Lumber IV: 2001-

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US Trade Restrictions

1

IV

III

II

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ITC and Department of Commerce:The Institutions and Processes Behind U.S. Trade

Policies

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What is ITC?

International Trade Commission (ITC)

an independent, bi-partisan, quasi-

judicial, federal agency

provides trade expertise to both

the legislative and executive branches.

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ITC

Formed September 8, 1916Preceding agency U.S. Tariff Commission

Jurisdiction International Trade Issues

Headquarters Washington, D.C.

Employees 360 (2010)Agency executive Deanna Tanner Okun,

Chairman

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Key Points on ITC

The ITC is responsible for conducting global safeguard

(escape clause) and market disruption investigations

The President makes the final decision concerning whether to

provide relief and the type and duration of relief

In making its determination, the ITC is not required to find an

unfair trade practice

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Department of Commerce

International Trade Administration (ITA) an agency in the Department of Commerce that

promotes United States exports of nonagricultural

U.S. services and goods.

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Goals of ITA

1. Provide practical information to help Americans select

markets and products.

2. Ensure that Americans have access to international

markets as required by the U.S. trade agreements.

3. Safeguard Americans from unfair competition

from dumped and subsidized imports.

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Antidumping and Countervailing

Duty

Both the ITC and the Department of Commerce are

responsible for conducting antidumping (AD) and

countervailingduty(CVD) (subsidy)

investigations and five-year (sunset) reviews

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The Process

5 stages: each ending with a determination by

either DOC or ITC

(1) initiation of the investigation by DOC

(2)the preliminary phase of ITCs investigation

(3)the preliminary phase of DOCs investigation

(4)the final phase of ITCs investigation

(5)the final phase of DOCs investigation

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The Process

With the exception, negative determination by either

DOC or ITC results in a termination of proceeding at

both agencies

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Understanding Five-Year (Sunset)Reviews

The Department of Commerce and the ITC require to

conduct reviews no later than five years after an

antidumping or countervailing duty order is issued

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Understanding Five-Year (Sunset)Reviews

If the ITC's determination is affirmative, the order will

remain in place. If the ITC's determination is negative,

the order will be revoked.

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Lumber IV:ITC and DOC at Work

Following the expiration of the Softwood Lumber

Agreement on April 2, 2001, the U.S. Coalition for Fair

Lumber Imports filed a countervailing duty petition and

its first anti-dumping petition against Canadiansoftwood lumber.

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Countervailing Duty Case

As part of the investigation, the Department of

Commerce issued a series of questionnaires to the

federal and provincial governments

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The International Trade Commission made a

preliminary determination on May 16, 2001

On August 9, 2001, Commerce made its preliminary

determination

Expiration:April 2001

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The countervailing duty investigation was aligned with

the anti-dumping case. As a result, the final subsidydeterminations in both cases took place on March 21,

2002.

Expiration:April 2001

ITCpreliminary determination:May 2001

DOCpreliminary determination:August 2001

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Anti-Dumping Case

The Department of Commerce issued anti-dumping

questionnaires to six Canadian companiesCanfor,

Slocan, West Fraser, Weyerhaeuser, Abitibi Consolidated

and Tembec.

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Anti-Dumping Case

In its preliminary determination on October 31, 2001,

Commerce applied company-specific rates to the six

investigated companies; all other Canadian companies

were subject to the average rate of 12.58%.

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Final Determination-DOC

On March 22, 2002 the Department of Commerce

announced its "final determination" in the subsidy and

dumping cases involving Canadian exports of softwood

lumber products.

Contrary to the Preliminary Determination, the Final

Determination did not find critical circumstances

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Final Determination-DOC, Redo

On April 25, 2002, Commerce released revised final

determinations in the subsidy and antidumping cases.

The final subsidy rate was determined to be 18.79%.

Individual company dumping rates were set.

All other companies will pay the average dumping rate

of 8.43%. The combined CVD/AD rate is now set

at 27.22%.

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Final Determination-ITC

On May 2, 2002, the International Trade Commission

released its decision that U.S. producers are threatened

with material injury by Canadian lumber shipments to

the U.S.

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Final Determination-DOC

On May 22, 2002, Commerce published its final orders

in the countervailing duty and anti-dumping case. As a

result, the U.S. Customs requires cash deposits for duties

on all softwood lumber imported from Canada since May

22, 2002.

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Event Agency Days Date

Petition filed Both 0 2-Apr-01

Initiation of DOC Preliminary Investigation DOC 21 23-Apr-01

DOC Questionnaire Released DOC 29 1-May-01

ITC Preliminary Determination ITC 44 16-May-01

Questionnaire Response Due DOC 80 28-Jun-01

DOC Preliminary Determination/Bonds Due DOC 129 9-Aug-01

DOC Verification DOC28-Jan-02 to

2-Feb-02

Submission of Briefs DOC 18-Feb-02

Submission of Rebuttal Briefs DOC 25-Feb-02

Hearing DOC 28-Feb-02

DOC Final Determination DOC 354 21-Mar-02

ITC Final Determination ITC 410 16-May-02

Countervailing Duty Order Issued/CashDeposits

DOC 416 22-May-02

Timetable for April 2, 2001, Countervailing Duty Petition to the U.S. Department of Commerce

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Deeper Look at ITC Ruling

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Domestic Like Product

In determining whether an industry in the U.S.

is materially injured or threatened with material

injury, the Commission first defines the

domestic like product(DLP).

DLP : The product produced in the U.S. which is most

similar to the foreign product covered under the scope

of investigation.

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Why?

Determining the Domestic like product will allow the

Commission to determine what domestic product will

likely be affected by the Canadian exported lumber.

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What?

x Western red cedar

x Eastern white pine

x Remanufactured products (wooden bed-frame components)

The commission wanted to investigate whether thesethree were separated DLP.

x Improve the accuracy of the final investigation

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How? Physical characteristics and uses

Interchangeability

Channels of distribution

Manufacturing facilities, production processes, andemployee

Customer and producer perceptions

Price

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Material Injury by Reason ofSubject Imports

The Commission gets to determine whether the

U.S. industry is threatened with material injury.

x 1) Further dumped or subsidized imports are

imminent

x 2) Material injury by reason of imports would occur

unless an order is issued or a suspension agreement

is accepted

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Booming Canadian Lumber Industry Reasons of the subject imports are likely to increase substantially on

several factors:

Increase in Canadian producers excess capacity

Increase in Canadians production capacity

Export orientation of Canadian producers to the U.S. market

The increase in subject imports over the period of investigation

Forecast of strong and improving demand in the U.S. market

Examples

Canadian production capacity increased 10.4% from 1995 to 1999

Canadian production was 5.2% higher than it was in 1995

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Booming Canadian Lumber Industry

The Volume of subject imports from Canada increased

by 2.8% from 1999 to 2001.

In 2001, The Canadian subject exports to the U.S.

accounted for 68% of their total production.

domestic consumption, subject imports from Canada

increased from 33.2 percent in 1999 to 34.3 percent in

2001.260

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Booming Canadian Lumber Industry

Commerce determined 11 programs that inferred

countervailable subsidies to Canadian producers andexporters of softwood lumber.

Canadian provinces subject holders to requirements to

harvest at or near their annual allowable cut (AAC) or they

will be subject to penalties/reductions in future AACs.

x Increase production even when demand is low and thus increase

the incentive to export more softwood lumber to U.S. market.

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Struggling Domestic LumberIndustry

Domestic production of softwood lumber steadily

declined from a peak level of 36,606 mmbf in 1999 to

34,996 mmbf in 2001. (4.4%)

The end-of-period inventories reported by the domestic

industry fluctuated between years, but increased overall

by 6.2 percent from 1999 to 2001

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Struggling Domestic LumberIndustry

Total operating income declined from $1.26 billion in

1999 to $93 million in 2001

Total net income declined from $1.21 billion in 1999 to

$8 million in 2001

domestic industrys capital expenditures fluctuated

between years but decreased from $327 million in 1999

to $253 million in 2001

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Rebounding Economy =Import Increase

The demand of softwood lumber was expected to

increase in 2003 as the U.S. economy rebounds from

recession.

They concluded there will very likely be an substantial

increases in subject imports. ***

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Effects on Domestic Price

During the period of investigation, prices for softwood

lumber declined substantially, particularly in 2000, due

to excess supply in a price sensitive U.S. market with a

relative level demand.

Is this bad?

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Final ITC conclusion

For the foregoing reasons, the ITC determine that an

industry in the United States is threatened with material

injury by reason of imports of softwood lumber from

Canada that are subsidized by the government of Canada

and sold in the United States at less than fair value.

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Why Tariff Subject imports maintained a significant share of the U.S. market,

accounting for at least 1/3 of apparent consumption in each year

during the period of investigation. *Graph

Finding suggest of likely significant increase in the subject import

volumes.

Further significant increase in the supply will put further downward

pressure on the domestic prices, Home lumber industry production

and its net income.

a number of domestic producers reported actual and potential adverse

effects on their development and production efforts, growth, investment,

and ability to raise capital due to subject imports of softwood lumber

from Canada

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Imports as Percent of Demand

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

1994 1996 1998 2000 2002 2004 2006 2008 2010

Why the downtrend?

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Remedies

The final subsidy rate was determined to be 18.79%.

Individual company dumping rates were set as follows:

Abitibi 12.44%; Weyerhaeuser 12.39%; Tembec 10.21%;

Slocan 7.71%; Canfor 5.96%; West Fraser 2.18%.

All other companies will pay the average dumping rate of

8.43%. The combined CVD/AD rate is now set

at 27.22%.

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Red line: price w/out dumping or subsidiesBlue line: price w/dumping or subsidiesGreen line: price w/ antidumping and countervailing duty

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What is WTO?

The World Trade Organization (WTO) is an organizationestablished in 1995 that intends to superviseand liberalize international trade.

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WTO's mission

-negotiating the reduction or elimination of obstacles to trade(import tariffs, other barriers to trade) and agreeing on rulesgoverning the conduct of international trade (e.g.antidumping, subsidies, product standards, etc.)

-monitoring and reviewing the trade policies of our members,as well as ensuring transparency of regional and bilateraltrade agreements

-settling disputes among our members regarding theinterpretation and application of the agreements

-building capacity of developing country governmentofficials in international trade matters

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WTO Official Dispute Settlement

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WTO

Appellate Body (AB)

Usually make reports on disputesEstablished in 1995, a body of seven (7) persons that hears

appeals from reports issued by panels brought by WTOMembers.

Once adopted by the Dispute Settlement Body, AB can modify,

uphold, or reverse legal findings of a panel.

PanelThey make recommendations between disputes

Dispute Settlement Body (DSB)They decide an outcome on trade disputes between

governments, recommended by the Panel and AB.Generally, DSB agrees with the Panel.

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Anti-dumping Agreement

The WTO agreement does not pass judgement. Its focus ondisciplines anti-dumping actions.

WTO agreement allows governments to act against dumping where

there is material injury to the competing domestic industry.

1)calculate the extent of dumping ( export price < exporters homemarket price)2)show that the dumping is causing injury or threatening

Operate with GATT (Article 6) allows countries to take action againstdumping

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Subsidies and countervailing measures

1) it disciplines the use of subsidies

2) it regulates the actions countries can take to counter the effectsof subsidies

Prohibited subsidies-subsidies that require recipients to meet certain export targets,

or to use domestic goods instead of imported goods-distort international trade and might hurt other countries' trade-need to withdraw immediately or else counter measure applies

Actionable subsidiesComplaining country fail to prove that:-hurt a domestic industry in an importing country-hurt rival exporters from another country when the two compete inthird markets-hurt exporters trying to compete in the subsidizing countrysdomestic market

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Terminology

"Zeroing"

A method used by the U.S. for calculating Anti-DumpingDuties against foreign products.

It is determined by ( Foreign Domestic Price ) - ( UnitedStates Import Price )

"Zeroing" is used by the U.S. Department of Commerce (DOC)

in its calculation of dumping margins.

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Terminology

"Zeroing"

Step 1: determines a product's "normal value," which canbe based on the product's price in the exporter's homemarket, the price charged by the exporter in anothercountry, or on the exporter's production costs.

Step 2: compares the normal price of the good to the pricecharged in the U.S. for each sale and calculates thedumping margin--(the average of the differences between

the two prices).

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Terminology

"Zeroing"

Dumping margin : when normal value >the price charged in the U.S

Zero value: when normal value < price charged in the U.S

This practice of"zeroing" artificially inflates dumping margins,increasing both the likelihood that the DOC will find injury andthe value of punitive duties that can be assessed on "dumped"products.

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Terminology

"Countervailing Duty" (The parallel of anti-dumping duty)

It can only be charged after the importing country hasconducted a detailed investigation similar to that required foranti-dumping action.There are detailed rules for deciding whether a product is

being subsided :

1. criteria for determining whether imports of subsidizedproducts are hurting (causing injury to) domestic industry

2. procedures for initiating and conducting investigations, and

rules on the implementation and duration (normally fiveyears) of countervailing measures.

3. The subsidized exporter can also agree to raise its exportprices as an alternative to its exports being chargedcountervailing duty.

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Softwood Lumber Disputes: 247, 264, 277, 311

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Dispute 247 [3/6/2002]

U.S. Provisional Anti-Dumping Measure on Imports of Certain Softwood Lumber fromCanada

Parties:Complainant: CanadaRespondent: U.S

Timeline:

3/6/2002, Canada requested consultations (urgency procedure) regarding an anti-dumpingmeasure applied by the US to imports of softwood lumber from Canada.

Canada expressed concern about three inconsistencies with the Anti-Dumping (AD)agreement of the US anti-dumping measure:

1. The initiation of the investigation was inconsistent with Articles 5.2 and 5.3

2. The preliminary dumping determination was inconsistent with Articles 2.1 and 2.23. The zeroing methodology applied by the US in the preliminary investigation wasinconsistent with Article 2.4.2

The US, although accepting the request for consultations, however did not accept that thiswas a case of urgency for the purpose of Article 4.8 of the DSU.

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Dispute 264 [1/8/2003 ~ 8/31/2004]

Issue Measure: U.S. final countervailing duty determination

Issue Product: Certain softwood lumber products


Timeline of Dispute:1/8/03 Establishment of Panel4/13/04 Circulation of Panel Report8/11/04 Circulation of Appellate Body Report

8/31/04 Adoption

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Dispute 264 [1/8/2003 ~ 8/31/2004]

Key Findings:

Panel found US actions were inconsistent for determiningdumping margins. US incorporated zeroing when comparingweighted average of normal prices and weighted average ofexport price.

AB reversed the Panel's findings because the Panel did not"consider all available evidence on the proper allocation ofcosts"[Art. 2.2.1.1.]

Panel found and held USDOC defined "softwood lumberproducts" using narrative description and tariff classification,

which were, again, inconsistent with [Art. 2.6] Panel found that Canada did not use an objective and

unbiased investigation authority for fair comparison. Panel found U.S. used an objective and unbiased investigation

authority and the Panel concluded there is sufficient evidence

on dumping.

Dispute 264 [1/8/2003 8/31/2004]

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Dispute 264 [1/8/2003 ~ 8/31/2004]

Key Findings (final):

The AB reversed the Panel's findings.The AB found that the use of zeroing distorted the prices of

certain export transactions:

Prices were not considered at their real value Prices inflated the magnitude of dumping, resulting in highermargins of dumping and making a positive determination ofdumping more likely.

Di t 277 I ti ti f th ITC i S ft d L b f

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Dispute 277 - Investigation of the ITC in Softwood Lumber fromCanada


Timeline of Dispute:

12/20/02 Request Consultation04/03/03 Establishment of Pannel03/22/04 Panel Report11/15/05 Article 21.5 Panel Report04/13/06 Article 21.5 Appellate Body Report

10/12/06 Mutually agreed on solution

Article 21.5*- A review of whether governmental measurestaken to comply do in fact achieve compliance with WTO rules

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Issue Measure: U.S. final countervailing duty determinationIssue Product: Certain softwood lumber products

Canada: The United States had failed to bring its measures into

conformity with the United States' obligations under theAnti-Dumping Agreementand the SCM Agreement.

U.S: USITC explicitly discussed the relationship between

movements in all factorsnot only selected onesfor the most

recent period and placed these recent movements in the contextof the entire period of investigation.

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Panel: USITC's determination is not inconsistent with the obligationsof the United States under Articles 3.5 or 3.7 of the Anti-Dumping

Agreement and Articles 15.5 and 15.7 of the SCM Agreement

Final Ruling: On April 13, 2006, the WTO Appellate Bodyreversed the compliance panel, ruling that it had applied animproper standard of review and had not examined the ITCdetermination with an adequate level of scrutiny.

However, It Cannot determine whetherU.S is inconsistent orconsistent because of the absence of pertinent factual findings by thePanel and undisputed facts on the Panel record.

Di t 311 R i f C t ili D t S ft d

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Dispute 311 - Reviews of Countervailing Duty on SoftwoodLumber from Canada


Timeline of Dispute:

4/14/04 Establishment of Panel1012/06 Mutually agreed on solution

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Dispute 311 - Reviews of Countervailing Duty on SoftwoodLumber from Canada

Canada's compliance:

(i) The failure of the US Department of Commerce (DOC) to completeexpedited reviews of the countervailing duty order concerning certain

softwood lumber products from Canada in order to promptly establishan individual countervailing duty rate for each requesting exporter

(ii) The refusal and failure ofUSDOC to conduct company-specificadministrative reviews of the same countervailing duty order in orderto establish a final individual

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Softwood Lumber Agreement

The length of the agreement is seven years, beginning in 2006 April.

U.S

1) Remove its countervailing and anti-dumping duty orderson Canadian softwood lumber2) return more than $4.5 billion in duties it had collectedsince 20023) not to initiate any new investigations against Canadiansoftwood lumber during the period of the agreement.*4)now required to provide Canada with six months notice

before ending the agreement, up from three months in theinitial deal.

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Softwood Lumber Agreement

Canada:

1)Canada agreed to a cap on its softwood exports to the USat 34 per cent of the US market

2) Canada agreed to impose an export charge on Canadiansoftwood lumber exports when the price of lumber is at orbelow US$355 per thousand board feet.

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Numbers, Graphs, and Analysis

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Import Value(billions of dollars, 2010)

0

2

4

6

8

10

12

14

16

18

1994 1996 1998 2000 2002 2004 2006 2008 2010

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Import Quantity(billions of feet)

0

5

10

15

20

25

1994 1996 1998 2000 2002 2004 2006 2008 2010

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PriceQuantity / Value

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1994 1996 1998 2000 2002 2004 2006 2008 2010

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0

10

20

30

40

50

60

70

1995 2000 2005 2010

Imports Quatity

Total Demand

Demand Net of Imports

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Imports as Percent of DemandRevisited

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

1994 1996 1998 2000 2002 2004 2006 2008 2010

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Aggregate Labor Hours

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Lumber War Winners

American Lumber Producers

Coalition for Fair Lumber Imports

Canadian Lumber Producers (in the short run)

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Lumber War Losers

U.S. Lumber Consumers

National Association of Home Builders

American Consumers for Affordable Homes

In the Long Run:

Canadian Softwood Lumber Industry

Canadian governments (national and provincial)

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PAC Contributors, 2006

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We can compete against any lumber

industry in the world, but we cant

compete against their government,too. Steve Swanson-President of

Coalition for Fair Lumber Imports

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Conclusion

lumber (2)

Documents