World Trade Organization Sides With Canada in Lumber Dispute With U.S.

Date: Tuesday, August 25, 2020
Source: The Wall Street Journal

WTO rules the U.S. incorrectly claimed in 2017 that Canada was improperly subsidizing production

OTTAWA—The World Trade Organization on Monday sided with Canada in the latest flare-up in a decades-old fight with the U.S. over lumber imports, ruling the Trump administration incorrectly claimed in 2017 that its northern neighbor was improperly subsidizing production.

Those calculations led the Trump administration to impose a 20% tariff on Canadian softwood lumber, typically used to build homes, at a cost of roughly $5 billion a year. At the time, the U.S. and Canada tried to negotiate a settlement but failed. Canada called the tariff “unfair and unwarranted,” and vowed to fight it.

The setback for the U.S. emerges at a time of heightened trade tension between Washington and Ottawa, just weeks after the U.S.-Mexico-Canada free-trade agreement came into force. That deal was designed to address shortcomings identified by the Trump administration, and to offer stability to two of America’s biggest trading partners. This month, however, the U.S. reimposed a 10% tariff on some aluminum produced in Canada. Canada said it would retaliate with its own tariffs on U.S. goods that contain aluminum, such as washing machines and canned beverages. Those levies against U.S. goods are set to kick in next month.

In a 224-page decision, a WTO appellate body said the Department of Commerce erred in its calculations to justify fresh tariffs on Canadian softwood lumber. The U.S. said its calculations showed Canadian provinces were allowing loggers to cut trees down at improperly subsidized costs, and sell them into the U.S. market at lower prices. The WTO said the calculations weren’t in accordance with global-trade standards, because the U.S. used benchmark lumber prices in one province to cover activity across Canada, as opposed to using regional benchmarks. There are 10 provinces in Canada, which is the second-largest country in the world in terms of area.

The U.S. “[failed] to provide a reasoned and adequate explanation for rejecting the regional benchmarks proposed by” Canada, said the WTO, which is meant to resolve international-trade disputes through multilateral rules and institutions. It called on the U.S. to redo its calculations in line with global trade obligations.

Historically, Canada has been the largest supplier of softwood lumber in the U.S., accounting for over 90% of imports since the mid-1960s, according to a 2018 Congressional report.

U.S. Trade Representative Robert Lighthizer criticized the decision, arguing the WTO’s “erroneous interpretation” of the rules “would shield Canada’s massive lumber subsidies from U.S. action.” Mr. Lighthizer said the USTR was evaluating its response to the report. He added the decision reinforces the Trump administration’s skepticism for the WTO.

The U.S. has blocked the appointment of judges to the WTO’s Appellate Body. As a result, the court has too few judges to rule on big trade disputes between countries.

Canadian Trade Minister Mary Ng said the WTO ruling confirms Canada doesn’t subsidize its lumber industry, as the Trump administration alleged. “Canada expects the United States to comply with its WTO obligations. U.S. duties on Canadian softwood lumber must not persist,” she said.

A group representing Canadian lumber producers hailed the ruling. “The report strikes down every subsidy claim,” said Jamie Lim, president of the Ontario Forest Industries Association, adding that lumber tariffs impose additional costs on businesses and consumers on both sides of the U.S.-Canada border.

 

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