The WTO and NAFTA issued favorable rulings for the Government of Canada in this decades-long case involving timber pricing and ownership.
Retained by Hughes Hubbard & Reed
World Trade Organization Ruling (September 2020)
The WTO issued a ruling in favor of our client, the Government of Canada, in a case arising out of the decades-long U.S.–Canada softwood lumber dispute. Counsel for the Canadian government retained Cornerstone Research to support John Asker of the University of California, Los Angeles, in his review of the benchmarks used to assess the impact, if any, of government ownership of timberlands on stumpage—the price of timber and the right to harvest it— in Canadian provinces.
Softwood lumber is used primarily for structural purposes in the building industry. The United States has maintained that Canadian softwood lumber is artificially cheap because government ownership of timberlands in Canada effectively subsidizes timber harvesting.
This recent WTO ruling concerns the propriety of a 2017 U.S. Department of Commerce (USDOC) finding that Canada subsidized its softwood lumber industry. As a result of this ruling, the United States had imposed a 20 percent tariff on imports of Canadian softwood lumber. The WTO ruling identified a number of improprieties in the methodology used by USDOC.
Specifically, one of the WTO findings was that the United States used inappropriate benchmarks in determining that stumpage prices across Canada were artificially low. Most notably, the United States compared stumpage pricing in the maritime province Nova Scotia (where wood is harvested from private, not public lands) to stumpage in several other inland provinces.
Professor Asker submitted a report on behalf of the Canadian government describing the various demand- and supply-side factors that would make Nova Scotia stumpage and U.S. stumpage prices inappropriate benchmarks for other Canadian provinces. The WTO agreed with Professor Asker’s assessment, stating “the evidence suggests that the local nature of stumpage renders inter-regional comparisons of timber prices too complex to be meaningful . . . because timber prices are a function of many dynamics.”
The WTO’s ruling cites Professor Asker’s report throughout its discussion of these differing dynamics, including transportation costs, the presence of a market for by-products, and harvesting factors.
USITC Investigation and NAFTA Ruling (September 2020)
A NAFTA panel issued a favorable ruling for our clients, the Government of Canada and British Columbia Trade Council, and remanded a decision by the USITC regarding tariffs imposed on lumber imports from Canada. Counsel for the Canadian government retained Kivanc Kirgiz and Emre Uyar of Cornerstone Research.
One of the main issues focused on “substitutability.” Because of the small overlap between the species of lumber in Canada and in the United States, their different characteristics, usage areas, and other economic factors, there is limited substitution between domestically produced lumber and lumber imported from Canada. Dr. Kirgiz and Dr. Uyar authored a declaration that presented qualitative and quantitative economic evidence on low substitutability, and Dr. Kirgiz testified in the USITC hearing.
In its decision, the NAFTA panel referenced the Kirgiz–Uyar declaration. The panel remanded the USITC’s determinations on various topics, including substitutability, directing the USITC to “reconsider its calculation of substitution elasticity” and to “demonstrate how, and to what extent, the limitations to substitutability . . . factored into the Commission’s analysis.”