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Tribunal Agrees with U.S. on Softwood Lumber Agreement (10% Add'l Duties for Canada to Continue)

According to the Office of the U.S. Trade Representative, an arbitral tribunal has rejected Canada's claim that it cured its breach of the U.S.-Canada Softwood Lumber Agreement when it offered to pay the U.S. government $36.66 million instead of imposing the compensatory measures worth approximately $54.8 million that the tribunal had directed Canada to impose in February 2009.

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Government-to-Government Payments Cannot Cure SLA Breaches

The tribunal also rejected the notion that any government-to-government payment could cure a breach of the SLA as such a payment would have no impact on exports of softwood lumber products from Canada to the U.S.

Any Canadian Export Charges Would Have to be Imposed on All Relevant Shipments

In addition, Canada had requested that the tribunal clarify whether, if Canada imposed export charges, it could allocate such charges by exporter or by region based on prior shipments. USTR states that the tribunal also rejected this request and found that any export charges must be imposed on all shipments from all "Option B" Regions (i.e., Ontario, Quebec, Manitoba, and Saskatchewan).

U.S. to Continue 10% Additional Duties Until It Collects $54.8 Million

As a result of the tribunal's decision, the U.S. may continue to impose the additional 10% ad valorem duties on imports of softwood lumber products from four Canadian provinces (Ontario, Quebec, Manitoba, and Saskatchewan).

USTR states that these duties are scheduled to remain in place until such time as the U.S. has collected $54.8 million, the amount determined by the tribunal in its February 2009 decision.

(These additional 10% duties have been in place since April 15, 2009. See ITT's Online Archives or 04/08/09 and 04/16/09 news, 09040805 and 09041605, for BP summaries on the imposition of the additional duties and CBP instructions for them.)

Decision is Binding, No Appeal Allowed

The SLA provides for binding arbitration to resolve disputes between the U.S. and Canada regarding interpretation and implementation of the Agreement. Under the SLA, arbitration is conducted under the rules of the LCIA (formerly the London Court of International Arbitration), and there is no appeal from the decision of the tribunal.

Canada to Comply, Determining How to Best Move Forward

Canada's Minister of International Trade Stockwell Day issued a statement expressing disappointment over tribunal's decision but adding that Canada will comply, as it remains committed to the success of the SLA. He stated that Canada is reviewing the decision and consulting with the provinces to determine how best to move forward.

USTR Summary of Canada's SLA Breach

USTR states that in March 2008, the tribunal found that Canada had breached the SLA by failing to calculate quotas properly during the first six months of 2007. On February 26, 2009, the LCIA tribunal issued its decision on a remedy for that breach, and determined that Canada was required to cure the breach by March 28, 2009.

The LCIA tribunal determined that, as an appropriate adjustment to compensate for its breach, Canada should collect an additional 10% ad valorem export charge on softwood lumber shipments from Eastern Canadian provinces until $68.26 million Canadian dollars had been collected. (Based on the exchange rate at the time of the award, the U.S. dollar equivalent was $54.8 million).

Canada did not impose the compensatory measures determined by the tribunal. Instead, on March 27, 2009, Canada offered to tender a payment of US$36.66 million to the U.S. Government. The U.S. considered that such an offer did not cure the breach identified by the tribunal, and thus rejected Canada's offer. On April 2, 2009, Canada requested that the LCIA tribunal determine whether Canada had cured the breach with its payment offer.

(The SLA entered into force on October 12, 2006, and is expected to remain in force for seven years, with the possibility of extension for an additional two years.)

USTR press release (dated 09/28/09) available at http://www.ustr.gov/about-us/press-office/press-releases/2009/september/tribunal-finds-canada-failed-cure-breach-softwoo

Canadian Trade Minister statement (dated 09/28/09) available at http://news.gc.ca/web/article-eng.do?crtr.sj1D=&mthd=tp&crtr.mnthndVl=&nid=485989&crtr.dpt1D=&crtr.tp1D=1&crtr.lc1D=&crtr.yrStrtVl=&crtr.kw=&crtr.dyStrtVl=&crtr.aud1D=&crtr.mnthStrtVl=&crtr.yrndVl=&crtr.dyndVl=