Washington, D.C. – United States Trade Representative Ron Kirk announced today that a London Court of International Arbitration (LCIA) tribunal has issued its decision in the second arbitration brought by the United States under the 2006 Softwood Lumber Agreement (SLA) between the United States and Canada. The tribunal found that Canada breached its obligations under the anti-circumvention provisions of the Agreement and determined compensatory export measures to remedy the breach.

“The tribunal agreed that a number of provincial assistance programs put into place by Quebec and Ontario circumvent the Softwood Lumber Agreement and breach the deal struck by the United States and Canada in 2006,” said Ambassador Kirk. “This result is important for U.S. workers, firms and our softwood lumber industry. We look forward to Canada working quickly to implement the decision of the tribunal.”

Ambassador Kirk continued, “I would like to thank the many U.S. government officials who worked tirelessly on this arbitration, in particular the attorneys and staff of the U.S. Department of Justice. Without their professionalism and dedication, this positive result would not have been possible.”

In the decision released today, the tribunal agreed with the United States that certain provincial assistance programs put into place by Quebec and Ontario to aid the Canadian softwood lumber industry breach Canada’s obligations under the anti-circumvention provisions of the SLA. The tribunal determined that, if Canada fails to cure the breach within 30 days, Canada must impose, as an appropriate adjustment to compensate for the breach, additional charges on exports of softwood lumber to the United States originating in Quebec and Ontario. These additional export charges will remain in place for the duration of the SLA and it is anticipated that they will result in the collection of US $59.4 million.

If Canada does not take action in accordance with the tribunal’s decision within 30 days, the United States is authorized by the SLA to impose additional import duties on softwood lumber from Canada.

Background

The SLA entered into force on October 12, 2006, and is expected to remain in force for seven years from that date, with the possibility of extension for an additional two years. The SLA provides for binding arbitration to resolve disputes between the United States and Canada regarding interpretation and implementation of the Agreement. Under the SLA, arbitration is conducted under the rules of the LCIA, and there is no appeal from the decision of the tribunal.

Under the SLA, Canada agreed to impose export measures, including volume restraints and export charges, on Canadian exports of softwood lumber products to the United States. Additionally, Canada committed to not take action to circumvent or offset the commitments made in the Agreement. Despite these commitments, the provinces of Quebec and Ontario put into place a number of assistance programs to aid the Canadian softwood lumber industry. These include grant, loan, loan guarantee, and tax credit programs, as well as “forest management” programs and programs that promote wood production. In 2008, the United States requested arbitration on these programs, explaining that they are inconsistent with the SLA’s anti-circumvention provisions. Today, the tribunal agreed that certain of the challenged programs breach the anti-circumvention provisions, including (1) Québec’s Forest Industry Support Program (PSIF); (2) Québec’s Capital Tax Credit; (3) Québec’s Road Tax Credit (only in connection with the increase in tax credit from 40% to 90%); (4) Ontario’s Forest Sector Prosperity Fund; and (5) Ontario’s Forest Sector Loan Guarantee Program.

The United States has initiated two other arbitrations under the SLA to ensure proper implementation of the Agreement. In 2007, the United States requested arbitration over Canada’s failure to calculate export quotas properly during the first six months of that year. The Tribunal upheld the U.S. claims and determined that Canada, in order to compensate for the breach, should impose an additional 10 percent export charge, based upon the value of the merchandise, on exports of softwood lumber to the United States until CN $68.26 million has been collected.

Earlier this week, the United States commenced a third arbitration under the SLA. The new arbitration concerns U.S. allegations that timber harvested from public lands in the Interior region of British Columbia is being sold for prices below those provided for under the timber pricing system grandfathered under the SLA. The United States contends that this provides a benefit to Canadian softwood lumber producers, which circumvents the export measures provided for in the Agreement.

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