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US poised for trade war

National Post | 11 August 2005

U.S. poised for trade war

Washington refuses order to refund $5B Canadian duties

Paul Vieira and Drew Hasselback; with files from JasonKirby in Toronto

OTTAWA and TORONTO - Washington says it has no plans to obey a NAFTA ruling that compels the United States to refund an estimated $5-billion in illegally collected duties to Canadian lumber producers — setting up a potential trade war that experts say could threaten the future of the North American trading bloc.

Moreover, the judgment has prompted the U.S. lumber industry to launch a legal challenge of NAFTA’s authority to resolve trade disputes involving the United States.

In response, Canadian trade officials said Ottawa will pursue all legal options available, and possible retaliatory trade measures such as duties on U.S. imported goods, to force Washington’s hand and get the $5-billion back into Canadian hands.

Last November, Canada, in fact, served notice it was prepared to slap duties that would effectively double the price of such U.S. exports coming into Canada as newsprint and wood products, seafood and some agricultural products.

Yesterday’s decision winds up just one of several legal softwood trade disputes between Canada and the United States. But this time, the stakes are different because it was the final court of appeal under the NAFTA trade dispute process that delivered the judgment.

"This is a big win for Canadians," said Jim Peterson, the International Trade Minister. "But let me be frank with you, we’re not out of the woods yet."

Panelists on the NAFTA-administered quasijudicial body ruled unanimously there is no justification for Washington to impose a 27% levy on Canadian lumber imports. The ruling forces the United States to distribute the roughly $5-billion in duties collected to date to Canadian lumber companies.

But a spokeswoman for the office of the U.S. trade representative, Rob Portman, said Washington has no plans to do such a thing. Neena Moorjani said the U.S. administration was "disappointed with the decision, but it will have no impact on the antidumping and countervailing [duties]" collected to date. She added: "We continue to have concerns about Canadian pricing and forestry practices."

This initial response from Washington has trade experts issuing warning flags.

"What does this mean for NAFTA when the United States thinks none of the legally binding rulings apply?" asked Lawrence Herman, a trade lawyer based in Toronto.

Christine Mingie, a Vancouver lawyer and expert in commercial law, said Washington’s refusal to abide by the judgment has widespread repercussions.

"That would have huge implications, not just on softwood lumber but on any other trade disputes Canada may have," she said.

"In terms of the United States complying with any other international agreement, this raises big question marks as well. If they are not going to comply with this, then it is a huge issue in dealing with the Americans."

Mr. Peterson said he expects the United States to comply with the ruling and to distribute the $5-billion it has unlawfully collected to date.

"The U.S. is a free trader," he told reporters in Toronto. "The U.S. understands the need to respect international obligations and knows that the world is watching, both as it goes out and negotiates bilateral treaties and also participates in its role of leadership in the WTO."

Representatives for Canadian lumber producers said they expect Ottawa to act decisively if the United States ignores the NAFTA ruling.

"If the United States tries to do something else, we hope Canada will respond very strongly to any attempt of not conforming to this decision," said Carl Grenier, executive vice-president of the Free Trade Lumber Council, a 72-member organization.

"I’m extremely disappointed to see a statement saying nothing has changed, that the duty orders will stay in place," added John Allan, head of the British Columbia Lumber Trade Council. "To me that’s the U.S. government hanging on by a very slim thread. We will have to go to court to get legal support for our victory in the trade dispute mechanism."

In a technical briefing for reporters, Canadian trade officials said they had filed legal documents with the World Trade Organization and other trade bodies in anticipation that the United States would ignore yesterday’s ruling. These legal measures are meant to compel the U.S. to refund the $5-billion in duties. Mr. Peterson added Canada has an application before the WTO to impose its own duties on U.S. goods.

Besides the U.S. administration, Canada will need to keep tabs on legal action by the U.S. Coalition for Fair Lumber Imports. In a statement, the coalition said it has instructed lawyers to challenge NAFTA’s dispute resolution process, which it describes as "constitutionally defective." Such a challenge could tie up the issue in U.S. federal courts for several years.

Part of the arguments, experts say, will be that lay people sit on these quasi-judicial trade panels, as opposed to judges appointed by Washington.

Ms. Mingie said the constitutional challenge could attract a groundswell of support among U.S. voters, already skeptical of a recent trade deal with Central America and concerned about Chinese imports flooding the country.

She added Canada has a lot at stake because it pushed hard for an independent trade resolution process during negotiations in the late 1980s and early 1990s. It preferred this option as opposed to having cases dealt with in U.S. courts, which are often biased.