WASHINGTON, Nov. 25 (UPI) -- A trade row between the United States and Canada escalated further this week after Ottawa announced plans to place more than $1 billion in subsidies to assist its softwood lumber industry.
Ottawa's announcement on Thursday came only two days after the United States agreed to comply with a regional trade panel ruling that said Washington had illegally imposed $1.4 billion duties on Canadian softwood lumber imports.
The U.S. Department of Commerce announced Tuesday it will comply with a North American Trade Agreement panel ruling to cut its countervailing duties on Canadian lumber to zero, or "de minimis," despite its strong reservations about the panel's decisions. However, Washington said it would continue to collect duties as long as litigation was ongoing.
The U.S. decision means that Washington will reduce punitive duties, which are currently set at 16 percent, to less than 1 percent. Canada accounts for about one-third of the U.S. market for softwood, which includes pine, spruce and fir, exporting about $6 billion in softwood lumber to the United States each year.
While the Canadian government has consistently argued it does not subsidize its domestic lumber industry, Washington argues it has slapped countervailing and anti-dumping duties on Canadian imports to deal with Ottawa's unfairly subsidized softwood lumber.
The Bush administration expressed disappointment Thursday over Canada's decision to assist its softwood lumber industry, after agreeing to comply with the NAFTA panel's decision.
"At the same time a NAFTA panel has directed the Department of Commerce to find that Canadian subsidies are de minimis, Canada announces over a billion dollars in aid," said Carlos Gutierrez, U.S. Secretary of Commerce, in a statement. "This just goes to show that Canada will continue to funnel vast amounts of assistance to its industry."
The Canadian government has been calling on the United States to stop the use of countervailing duties and subsidies on imports of Canadian softwood lumber because of the damage it has caused its domestic industry.
While the decision by the United States to comply with the NAFTA panel was recognized by Canada as a "positive move," it argued it would not be a "complete victory ... until the duties improperly collected have been returned - until all duties are eliminated."
The Canadian government said that it would use its aid package until the United States agreed to stop the use of countervailing duties and subsidies on its softwood lumber industry.
"If the United States actually does the right thing -- that is, drop the duties and return our money -- the support package can be reviewed," said Jim Peterson, Canadian Trade Minister, in a statement. "Until then, the Government of Canada will stand behind our workers and we will keep reminding the United States of the need to respect the letter and spirit of NAFTA."
Ottawa vigorously defended its action Thursday, arguing the United States has "unjustly persecuted" its lumber industry be continuing to ignore NAFTA panel decisions.
"Panel after panel has found that Canadian softwood lumber is not subsidized," said Jim Peterson, Canadian Trade Minister, in a statement. "The United States claims that it has complied with NAFTA. In fact, the United States will only have complied with NAFTA when it stops collecting the duties and refunds the deposits."
The United States said it would begin a review to examine Canada's billion dollar aid package and take necessary action if needed to protect its own domestic industry.
"Only days after we fully complied with a NAFTA decision, Canada responds by announcing huge new subsidies," said Rob Portman, U.S. Trade Representative, in a statement. "Canada's actions illustrate what the United States has been saying all along: the Canadian industry is the beneficiary of subsidies that create an un-level playing field to the detriment of the U.S. industry."
The Canadian decision to offer aid to its lumber industry was expected to escalate tensions between the two trading partners, U.S. officials said Canada's aid package would make it harder to reach a resolution to the two-decade trade dispute.
"While we continue to believe that a long-term, durable settlement is the only way to resolve this dispute, Canada's actions complicate our attempts to reach a negotiated solution," said Portman.
