*EPF507 11/01/2002
Text: U.S. Accepts WTO Final Split Ruling on Canada Lumber Case
(Plans to defend its position on subsidy in another WTO case) (1060)

The United States has decided not to appeal a World Trade Organization (WTO) panel final decision in a Canadian challenge to U.S. countervailing duties imposed temporarily on softwood lumber imports from Canada, a U.S. trade official says.

During a November 1 press teleconference the official said that the Bush administration is "very satisfied" with the part of the dispute-settlement panel findings officially adopted November 1 by the WTO that Canadian provincial government sale of public lands timber to Canadian lumber producers amounted to an illegal subsidy.

He added that another part of the findings, that U.S. laws governing reviews of countervailing duty orders are fully consistent with WTO rules, also is a big win for the United States.

At issue in the WTO panel ruling was Canada's challenge to an August 2001 preliminary determination by the U.S. Commerce Department that Canadian provincial governments provided countervailable subsidies to Canadian lumber producers and to the preliminary imposition of duties to offset these subsidies.

The trade official said, however, that the United States takes "strong exception" to the panel's ruling against the U.S. methodology of calculating the subsidy rate by using prices in neighboring U.S. states as a benchmark.

In a news release issued November 1 by the Office of the U.S. Trade Representative (USTR) another official, U.S. Trade Representative Robert Zoellick, said that the United States plans to defend "vigorously" that methodology in another WTO case, rather than appeal the recent ruling. A WTO panel ruling in the second case, which concerns the U.S. International Trade Commission (U.S.ITC) May 2002 final decision to impose 18.9-percent countervailing duties on imports of softwood lumber from Canada, would affect tariffs that are currently in place, the release said.

In that proceeding, USTR said, the United States will argue that the WTO panel finding on the subsidy calculation methodology was incorrect because, as a consequence of the "overwhelming dominance of government timber prices," it is impossible to find market-determined lumber prices in Canada that could be used in the calculation.

Following is the text of the news release:

(begin text)

OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE
November 1, 2002

WTO Adopts Report Upholding U.S. Position on Canadian Lumber Subsidies

WASHINGTON - The World Trade Organization (WTO) today officially adopted findings from a recent panel report granting the United States victory on a key issue in the ongoing softwood lumber dispute between the United States and Canada. The report confirms that the Canadian provinces' sale of timber from public lands can constitute a subsidy under the WTO Subsidies Agreement.

The WTO panel also agreed with the United States that U.S. laws governing reviews of countervailing duty orders are fully consistent with the WTO Subsidies Agreement. However, the panel found against the United States on the U.S. methodology for calculating the amount of the subsidy. The United States is pursuing that issue in another WTO case.

"We're pleased that the WTO affirmed the longstanding U.S. position that Canada's timber sales from government land constitute a subsidy," said U.S. Trade Representative Robert B. Zoellick. "While we strongly believe that the WTO erred on the calculation methodology, we are vigorously defending that methodology in another WTO case."

In response to the WTO findings, U.S. Commerce Secretary Don Evans said, "We are committed to defending our lumber industry from unfair trading practices and we strongly object to the panel's flawed ruling on the way we determined the amount of subsidies. We are confident that our calculations are consistent with WTO rules."

The WTO panel report is a victory for the United States on two fundamental issues:

-- Canadian provinces' sale of timber from public lands can constitute a subsidy under the WTO Subsidies Agreement; and

-- U.S. laws governing reviews of countervailing duty orders are fully consistent with the WTO Subsidies Agreement.

These findings will be key parts of U.S. arguments in a separate WTO proceeding dealing with Canadian lumber.

The U.S. trade action challenged by the Canadians in the WTO report adopted today involved the preliminary imposition of countervailing duties, a special duty that the WTO allows importing countries to impose to remedy the injury caused by imported goods that have been subsidized by foreign governments. The report relates only to preliminary countervailing duties, which have already been refunded to Canadian lumber producers because of a U.S. law unrelated to this WTO case. Those preliminary duties amounted to almost $1 billion [$1,000 million].

The WTO report does not affect the final countervailing duties that are currently in place, which are subject to a separate WTO proceeding. The United States will strongly argue in that proceeding that the incorrect findings in today's report should be disregarded.

The United States believes the WTO panel erred in rejecting the use of comparable U.S. prices as a benchmark for measuring whether government timber prices in Canada are below market value, and amount to a subsidy benefit. The United States concluded that there were no market determined prices in Canada because of the overwhelming dominance of government timber prices. The WTO panel concluded that investigating authorities may never, under any circumstances, use prices outside the country under investigation as a benchmark, even if that country has monopoly power and effectively controls all prices in its domestic market.

As the United States noted at the WTO today, the panel's rejection of U.S. price benchmarks means that whenever a government subsidizes its domestic industry so that it dominates the entire market, the complaining country cannot fully offset the subsidy.

The WTO report released today has no impact on any of the other cases. The United States will continue to vigorously defend its trade laws, including in challenges that Canada has raised in separate WTO and NAFTA cases related to other aspects of the U.S. softwood lumber determinations.

Background:

The WTO panel report that was adopted today addresses only the August 9, 2001, U.S. preliminary countervailing duty determination. Canada requested WTO consultations regarding the preliminary countervailing duty determination on August 21, 2001. The WTO panel was established on December 5, 2001, and the final report was released to the public on September 27, 2002. In addition to this WTO proceeding, Canada has also contested the U.S. decision on final countervailing duties that was announced in May 2002. That proceeding is now underway.

The panel report is posted on the WTO website (www.wto.org). The briefs that USTR submitted to the panel are available on the USTR website at www.ustr.gov/enforcement/briefs.

(end text)

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

Return to Public File Main Page

Return to Public Table of Contents