International Trade Law
December 2002
Fasken Martineau DuMoulin LLP
Beyond the hype: The steel and lumber trade disputes in perspective
By Vincent M. Routhier
On April 2, 2002, the United States government announced the imposition of antidumping and countervailing
duties reaching 27.92 percent on Canadian exports of softwood lumber into the United States.1 These duties were
imposed following investigations by the U.S. Commerce Department and the International Trade Commission that
were initiated by a petition filed on behalf of the U.S. lumber industry. As a result, exports of Canadian lumber to
the United States — by far, its most important market — slumped and have continued to weaken.2
Meanwhile, the Canadian International Trade Tribunal ("CITT") concluded, on August 19, 2002, in the course of a
Safeguards Inquiry that significant increases of imports of certain steel goods were a principal cause of serious
injury to the Canadian steel industry.3 With certain exceptions for NAFTA and developing countries, these
measures target imports of steel from every country, though the impact will be more strongly felt by European,
Pacific Rim and Russian exporters. In its recommendations to the Governor-in-Council following a 5-month
investigation, the CITT proposed that trade-restricting quotas be imposed for a period of 3 years, with certain
import surtaxes reaching 25 percent for above-quota importations.
These recent actions illustrate growing tensions in the international trade community. Despite commitments to
lower tariff barriers and encourage the international flow of goods, Canada and the United States have increasingly
relied on various trade-restricting mechanisms in an effort to protect domestic special interest groups. The
protection of these groups, however, has led to unfortunate consequences for exporters and importers alike.
Duties on Softwood Lumber Exports
The recent decision by the U.S. government to impose duties on Canadian softwood lumber exports is the fourth
round in a twenty-year dispute. In its latest attempt to stymie Canadian lumber producers' access to the United
States, the U.S. industry alleged that Canadian lumber is being dumped in the U.S. market and, along with alleged
subsidies received by Canadian producers, that softwood lumber from Canada is the cause of injury to U.S.
producers. By and large, the U.S. authorities agreed with these allegations.
1
Certain Softwood Lumber Products from Canada", 67 Fed. Reg. 15539 (Apr. 2, 2002) (Final AD Determination) and 67 Fed. Reg. 15545 (Apr. 2, 2002)
(Final CVD Determination).
2
"Sagging lumber exports take a bite out of trade surplus", by Sean Silcoff, National Post, Aug. 21, 2002.
3
"Safeguard Inquiry into the Importation of Certain Steel Goods", Reference No. GC-2001-001, Canadian International Trade Tribunal, August 19, 2002
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2
Dumping occurs when a foreign producer sells a product in an export market at a price that is below that
producer's sales price in the country of origin ("home market"), or at a price that is lower than its cost of
production. The difference between the price (or cost) in the home market and the price in the export market is
called the dumping margin.
Foreign governments subsidize industries when they provide financial assistance to benefit the production,
manufacture or exportation of goods. Subsidies can take many forms, such as direct cash payments, credits against
taxes, and loans at terms that do not reflect market conditions. The subsidies are compared to market
"benchmarks" in order to assess the value of the subsidy and its price effect on exported goods. The amount of
subsidies the foreign producer receives from the government is the basis for the subsidy rate by which the subsidy
is offset, or "countervailed" through higher import duties.
In the course of the softwood lumber investigations, U.S. authorities examined six Canadian companies to
determine their individual dumping margins. All other Canadian producers were levied the average rate calculated
for those companies. With respect to the subsidies inquiry, the basic argument put forward by U.S. plaintiffs was
that, by allowing harvesting access to Crown lands at rates cheaper than would be demanded by private
landholders, the provinces were subsidizing logs to lumber producers. To reach this conclusion, the Commerce
Department compared harvesting fees charged by the provinces with comparable fees charged by private
landholders in the United States.
These determinations were appealed by Canada before the World Trade Organization ("WTO"). On September
27, 2001, the WTO released an Interim Report addressing the United States imposition of preliminary
countervailing duties on Canadian exports of softwood lumber. The WTO Panel ruled against Canada's argument
that timber-harvesting rights were not, per se, subsidies. However, with respect to the methodologies used by the
U.S. authorities to calculate the value of the subsidies, the WTO clearly ruled in Canada's favor.
In particular, the Panel ruled that the United States could not assess the benefit conferred by the subsidies through
cross-border comparisons of harvesting fees.
This Ruling, if sustained on Appeal, will require the United States to reassess its calculation of the countervailing
duties imposed on Canadian softwood lumber exports, most likely to the benefit of Canadian exporters. In the
meantime, over one hundred Canadian softwood lumber exporters have requested that the U.S. government
calculate company-specific countervailing duty rates. These companies provided U.S. authorities with detailed
information regarding their costs of logs or lumber along with company-specific data pertaining to their sales.
Preliminary revised company-specific countervailing duty rates were released by U.S. authorities4 and when those
revisions are completed, several Canadian producers may no longer be subject to the assessment of countervailing
duties on their exports of softwood lumber to the United States. The determination of revised rates for specific
companies would confer on those entities significant advantages when selling their product in the United States.
The softwood lumber dispute is one of the most acrimonious trade confrontations between the U.S.A. and Canada.
The measurable economic effect of the duties on both countries is substantial: significant increases in the cost of
lumber has led to higher costs for new homes in the U.S.A.; while lower exports of lumber has led several
Canadian sawmills to close while dampening Canada's trade surplus. The importance of this dispute is
underscored by the direct engagement of the Prime Minister and the President in seeking its resolution. Though
negotiations may get underway in the Fall, Canadian exporters of lumber (save those excluded through individual
reviews) will continue to face significant duties on their U.S. exports, impeding their U.S. market share, for many
more months to come.
4
“Preliminary Results of Countervailing Duty Expedited Reviews: Certain Softwood Lumber Products from Canada", 69 Fed. Reg. 52945 (Aug. 14, 2002).
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3
Steel Import Safeguards
Steel imports into Canada have also come under recent scrutiny. Following a short investigation, the CITT
determined that several classes of imported steel products were a principal cause of serious injury to domestic
producers of like or directly competitive goods5. This determination was made in accordance with Canada's WTO
commitments and under the provisions of the Customs Tariff6. Under the framework of a Safeguards Inquiry, the
CITT is required to investigate and report to the Governor-in-Council on any importation of goods into Canada
where increased quantities and other conditions may be found to be a principal cause of serious injury or threat
thereof to domestic producers of like or directly competitive goods. In accordance with this mandate, the CITT is
further required to recommend measures destined to remedy any such injury.
Trade in steel has been at the heart of global trade friction for many years. U.S. and European producers have
each sought to protect their domestic markets through various trade-remedy measures. With similar import
measures already in place in the United States, Canada sought recommendations on the advisability of establishing
temporary trade barriers in order to protect Canadian steel mills from import displacement. The CITT examined
the economics of the Canadian steel industry and assessed its health in terms of the impact of global steel imports
into Canada. The CITT's recommendations call for the imposition of tariff rate quotas on imports of Discrete
Plate, Cold-Rolled Sheet and Coil, Angles, Shapes, Sections and Standard Pipe. The quotas would be in place for
three years with specified volumes being allocated to Canada's various trade partners, in particular the United
States. Steel imports exceeding the quotas would be assessed at variable surtaxes ranging from 7% to 25%.
Those recommendations have been provided to the Minister of Finance who has the discretion to act upon them, in
whole or in part, by the imposition of special tariffs and/or quotas affecting specifically targeted steel imports.
Obviously, if these recommendations are adopted by the Governor-in-Council upon the Minister's
recommendation, imports of various steel products into Canada would be severely hampered. A quota system
would impose artificial caps on exports of covered steel products from various countries - limiting the availability
of choice to importers and consumers alike. European and American steel exporters have already indicated their
intention of challenging the measures before NAFTA panels and the WTO. On the other hand, protection for
Canadian steel mills could give the industry valuable time to improve its productivity and competitiveness. Such
protection, of course, would come at the cost of higher import prices leading to inflationary effects on high steel
content consumer durables, such as automobiles and appliances.
Conclusion
These two recent cases by Canada and the United States illustrate the growing tensions and complexities of
international trade. While importers and exporters need access to foreign markets in order to sell their goods,
domestic producers of those same goods seek assurances that imports won't lead to the demise of domestic
production capacity. Extensive participation by interested parties in the U.S. antidumping and countervailing duty
proceedings as well as in the CITT Safeguards Inquiry has had the benefit of making known the positions of
affected companies.
Vincent M. Routhier can be reached at 514 397 4330 or at [email protected]
5
Importation of Certain Steel Goods, Notice of Determinations, CITT July 4, 2002;
6
S.C. 1997, c. 36.