A World Trade Organization panel has found the United States broke international trade rules with some of its tariffs on Canadian softwood lumber. But the ruling may never take effect because the U.S. is blocking the WTO’s dispute resolution system.
The panel decision Monday is the latest flashpoint in President Donald Trump’s protectionist battle against the international system of free trade. Hanging in the balance is a $22-billion industry that, according to federal government estimates, employs 200,000 people in Canada. The wood is mostly used to build new homes.
“U.S. duties on Canadian softwood lumber are completely unwarranted and unfair. This decision confirms that,” International Trade Minister Mary Ng said in a statement. The American tariff rate is currently set at 20.23 per cent.
The U.S. accuses Canadian federal and provincial governments of subsidizing softwood by charging lower-than-market rates for companies to cut down trees on Crown land. In the U.S., by contrast, most timber is on private property. Washington slapped two types of tariffs, anti-dumping and countervailing duties, on Canadian lumber in 2017. Ottawa sued at the WTO.
In Monday’s decision, which deals with the countervailing duties, a three-person panel found the U.S. was wrong to accuse Canada of using subsidies. Rather, it found, Canadian governments used economic metrics to ensure the prices they charge lumber companies for trees are comparable to market rates. The U.S. was “improperly rejecting” those measurements and had acted “inconsistently” with international trade rules, the panel wrote.
The U.S. has 60 days to appeal the ruling. If it does, the ruling will not take effect unless it is upheld by the WTO’s appellate body.
The appellate body, however, cannot currently decide any cases because the Trump administration is obstructing it. In recent years, the U.S. has blocked attempts to appoint new members to the body as incumbent members’ terms expired. The body is now down to only a single member; it requires a quorum of three to decide a case. Washington has refused to allow the appellate body to function because it feels the WTO too often rules against the U.S.
As a result, the case could remain in legal limbo indefinitely and the tariffs on Canada will stay in place.
In a statement, U.S. Trade Representative Robert Lighthizer said the panel decision added further ammunition to his fight against the international trade body. He said the WTO should “defer to the reasoned judgment” of the Trump administration on whether or not to slap tariffs on other countries.
“The WTO dispute settlement system is being used to shield non-market practices and harm U.S. interests,” Mr. Lighthizer said, adding the U.S. is “evaluating options” for its next move.
In a statement, the U.S. Lumber Coalition accused the WTO of “seeking to undermine the U.S. trade laws.”
Keeping tariffs in place makes the U.S. lumber industry more competitive than its Canadian counterpart. But the U.S. does not produce enough lumber to meet domestic needs, meaning American home builders and other consumers must either pay the tariffs or import softwood from further-off countries. Russia, for instance, has seen a surge in softwood exports.
A different WTO panel last year ruled in the U.S.‘s favour on the anti-dumping duties. Canada has appealed that decision. Canadian companies have also challenged the softwood tariffs through the North American free-trade agreement’s tribunal system. In May, a NAFTA tribunal ruled against one Canadian claim, but the main Canadian cases have not yet been decided. Canada has won previous rounds of the softwood lumber dispute in NAFTA arbitration.
Lawrence Herman, a Toronto-based trade lawyer, said the WTO’s ruling was an “important and powerful” vindication for Canada, even if the U.S.‘s obstructionism meant it was unclear when or if it would go into force.
“This is yet another decision that the U.S. is offside in almost every way in their determination of the subsidy amounts,” he said. “This report cannot be appealed through the process, and it’s perverse because it’s the U.S. that has frustrated that process.”
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