Consumers for World Trade
February 14, 2006
The Hon. Bill Thomas
2208 Rayburn HOB
Washington, DC 20510
Dear Chairman Thomas:
I am writing on behalf of Consumers for World Trade (CWT), to express our views concerning the
Congressional 2006 trade agenda. By way of background, CWT is a national, non-profit, nonpartisan organization, established in 1978 to promote the consumer interest in international trade
and to enhance the public's awareness of the benefits of an open, multilateral trading system.
CWT is the only consumer group in America whose sole mission is to educate, advocate and
mobilize consumers to support trade opening legislation.
In summary CWT urges Congress to pursue two key goals as it moves forward with its trade policy
in 2006. First, we urge Congress to assist lower-income Americans by removing high tariffs,
dumping and countervailing duties, and import quotas on the necessities of life such as food,
clothing and shelter. Second, we urge Congress to take immediate steps to open up the trade
policy and trade remedy process so that consumers are no longer excluded. The current exclusion
of consumers is unfair and should be ended as quickly as possible.
Our detailed comments on these priorities follows.
Reduce Tariffs on Clothing, Footwear and Food
Tariffs are simply taxes that, although technically paid at the customs border by importers, are
ultimately passed through to consumers in the form of higher prices. In this way, tariffs are like the
worst kind of sales tax--hidden from view, but definitely felt in the pocketbooks of the nation's
lowest income families.
Although the overall average tariff on goods entering the U.S. market has been reduced through
numerous trade rounds to less than 4%, this national average masks the high tariff rates on
particular goods consumed by the nation's poorest families. Consumers for World Trade
recommends that Congress impress upon U.S. trade negotiators to give priority consideration in
the Doha negotiations of the World Trade Organization (WTO) and in bilateral free trade agreement
negotiations to tariff reductions on goods that have above-average tariffs in the United States.
In particular, CWT urges the elimination or substantial reductions in tariffs on products with aboveaverage tariffs in the food, clothing and footwear sectors. These products are all basic
commodities that every American consumes or uses in his or her daily life. Yet many of these
basic staples are subject to high tariff barriers that artificially increase their costs to consumers.
Food Tariffs: The United States is a major world producer of most agricultural commodities and
processed food products, as well as a major consumer of these goods. As a result of the Uruguay
Round, import quotas no longer exist on agricultural products. However, tariff-rate quotas now
provide substantial border protection for many of these same goods, through restrictive lower-tier
quota levels and high upper-tier (over-quota) tariff rates. While the average agricultural tariff in the
United States is about 12%, this average reflects the fact that many agricultural products enter the
U.S. duty-free, while certain other products have extraordinarily high tariffs.
For example, according to USDA’s Economic Research Service, the
following six groupings of food commodities have U.S. tariffs at or
above the U.S. average: fresh meat (12%), oilseeds (17%), nuts
(17%), cocoa beans and products (18%), dairy products (43%), and
sweeteners (46%). Even these figures, however, are averages and
therefore somewhat misleading, as an examination of the individual
tariff lines reveals much higher tariff rates, often exceeding 100%
(called megatariffs).
Megatariffs are most prominent in the U.S. tariff schedules for dairy, sweeteners, and nuts – all
About 24 tariff lines in the agricultural
chapters of the U.S. tariff schedules identify over-quota tariff rates in
excess of 100%. The U.S. over-quota tariff rate on sweeteners
exceeds 200%, and on peanut butter is 132%. Seven different dairy
products have over-quota tariffs exceeding 100%. Some of these food
food commodities subject to tariff-rate quotas.
products are direct consumer goods and some are ingredients used to make other food products.
Either way, such extraordinary tariff rates impose substantial costs on American consumers.
These megatariffs and other above-average tariff rates must be a high priority for immediate,
substantial reduction both in multilateral and bilateral negotiations.
CWT notes that many of these agricultural and food products with high tariff rates in the U.S. are
similarly protected in other major agricultural producing nations. The Doha negotiations therefore
provide an ideal opportunity to dismantle these tariff walls on a global basis, benefiting consumers
everywhere.
Clothing and footwear: There is also a significant opportunity for meaningful tariff relief to be
achieved in the clothing and footwear sectors. While the United States has removed quotas from
wearing apparel under the terms of the terms of the Agreement
on Clothing and
Textiles, more needs to be done. The effective tariff rate for wearing
apparel now stands at 11%, taking into account recent U.S. trade
preference programs. The average tariff for clothing excluding
preferences is still quite high at 15% and at 40% for footwear
products.
Because the United States has significantly liberalized trade in virtually every other industrial
sector, much of the United States’ tariff protection is now concentrated in these two industries.
Fully half of all duties collected by the U.S. Government are collected
in these products (Chapters 50 to 65), even though the products
represent only about 8 percent of total U.S. imports.
Reducing duties on these consumer products would have a significant impact on the prices
consumers pay at retail since these markets are highly price sensitive. Over the past decade, while
overall U.S. retail prices have slowly increased, U.S. apparel and footwear prices have actually
declined. As apparel and footwear companies and retailers strive to take additional costs out of the
supply chain in order to allow further price reductions for consumers, the importance of reducing
these high tariffs cannot be overstated. Through simple market pressure, consumers will demand
that these savings be passed on, and thereby would clearly benefit from a removal of these duties
Ironically, it is unclear whether these high tariff rates have been effective in protecting the domestic
industry. Import penetration
Import
A measure of the importance of imports in the domestic economy,
penetration
either by sector or overall, usually defined as the value of imports
divided by the value of apparent consumption.
(http://www-personal.umich.edu/~alandear/glossary/)
in apparel and footwear – where most of these duties are assessed - now stands at 90 and 98
percent, respectively, begging the question just who in America benefits from these high tariffs.
We hope that Congress urges the administration to aggressively pursue reductions in wearing
apparel and footwear tariffs, not only in the Doha round of trade negotiations but in bilateral free
trade agreements, as well. Efforts to limit tariff reductions in these sectors through complex rules of
origin do not protect apparel and footwear jobs--they simply make these necessities of life more
expensive than they ought to be.
High tariffs on footwear, clothing and food hits certain Americans harder than others. Minority
households and single parent households spend a greater proportion of their income on the
necessities of life. As a consequence, these families pay a higher percentage of the hidden price
tag for the U.S. high tariff policy. It is time to recognize that there is little domestic industry to
protect, and to eliminate tariffs in this sector, thereby helping hard working American families.
The U.S. should eliminate tariffs on softwood lumber imports from Canada
CWT urges you to recommend that the Administration eliminate the dumping and countervailing
duties imposed on imports of Canadian softwood lumber products. Today, the 27% duties imposed
on these building products have inflated the price of new homes by roughly $1,000. In the era of
high home prices, this price increase adversely impacts the poorest Americans struggling to make
a down payment on a new home. Furthermore, duties imposed on Canadian building products
disadvantage those Americans rebuilding their homes devastated by last summer’s hurricanes.
For those impacted Americans along the Gulf Coast, every penny counts towards their recovery
efforts. The United States could help many Americans by reducing the cost of lumber in the United
States.
This is especially true, given the fact that a recent NAFTA Extraordinary Challenge Committee
(ECC) ruled against the U.S. with respect to these duties on Canadian softwood lumber products.
We believe it is improper and unwise for the United States to ignore this international commitment
by leaving in place the antidumping and countervailing duties on Canadian softwood lumber
ultimately paid by consumers.
We also strongly urge Congress to impress upon USTR to cease its efforts to negotiate a
Canadian-imposed export tariff on these products. Such a tariff would still increase the price of
lumber in the United States, but it would also transfer U.S. Consumer dollars directly to provincial
governments in Canada. Consumers for World Trade vehemently opposes such a scheme to
make U.S. consumers "pay off" Canadian producers.
Renew the Generalized System of Preferences
CWT urges Congress to quickly pass a long-term renewal of the Generalized System of
Preferences (GSP) that is set to expire by the end of 2006. This program offers tariff-free entry on
certain products from a host of least developed economies and it benefits consumers in the form of
lower prices.
Trade Remedies Injure and Exclude Consumers
U.S. trade remedy law, and the underlying provisions of the General Agreement on Tariffs and
Trade, significantly impact American consumers. And yet consumers--both retail and industrial
consumers--have no standing in these cases and are often unable to defend themselves when
trade cases are brought. This is quintessentially unfair when one considers that an increasing
number of trade cases are being brought against consumer products, such as shrimp, furniture,
and lumber.
Indeed, U.S. dumping law provides more standing for foreigners than for American consumers.
This lack of official standing means that consumers cannot effectively defend themselves against
the imposition of taxes, and that is inherently unfair. The lack of standing means that consumers
are not guaranteed time at hearings, are excluded from seeing the trade data upon which the
cases are brought, and therefore cannot mount anything like an effective rebuttal to the claims of
domestic producers. It is important to understand that retail and industrial consumers are also
Americans, and their views should be balanced against those of domestic producers. Indeed some
industrial consumers are also domestic producers so the national interest ought to include the
consideration of their views. Nevertheless, the International Trade Commission and the U.S.
Department of Commerce, under existing trade law, have no obligation to even consider the impact
of a trade remedy on competing U.S. interests such as retail and wholesale consumers. In this
way, the United States has made a decision that the interests of retail and wholesale consumers is
not important. And that's not only wrong, it is often unwise.
U.S. consumers matter to the economy. They vote and they have views on trade cases. U.S.
industrial and wholesale consumers are often badly hurt by trade remedy cases that drive up the
costs of their inputs. As such, trade cases often reduce jobs in one sector in the name of saving
jobs in another. Maybe that is wise policy in some cases, but without a requirement to hear the
views of consumers, neither the Commerce Department or the US International Trade Commission
really knows.
For this reason, we urge Congress to pass legislation that would allow consumers--both end users
and consuming industries--to have standing in trade remedy cases. In addition, we hope that
Congress will urge USTR to pursue this change as part of Doha round of trade negotiations.
The U.S. Trade Policy Making and Advisory Process Excludes Consumers
At present, the United States has no consumer representatives on any of its trade advisory
committees. This is not for want of consumer groups appealing for a seat at the trade policy table.
Indeed, within the last year, Consumers for World trade was denied advisor status as part of the
Industry Trade Advisory Committee on Consumer Goods (ITAC 4) because the organization was
not deemed to be “a U.S. entity that trades internationally and is engaged in the manufacture of a
product or the provision of a service.”
It is disturbing that the interests and concerns of 296 million American consumers should be
dismissed so cavalierly. For this reason, we urge Congress to support making seats available to
consumer groups on the Consumer Goods ITAC. If, in the judgment of the Administration that only
an act of Congress would allow such participation, then we urge Congress to pass such legislation.
It makes sense for the Congress and the Administration to have the broadest possible participation
in the trade policy advisory process. There is no good reason to exclude American consumers
from that process.
On behalf of CWT, I thank you once again for the privilege of providing you written comments
regarding our priorities for the Congressional 2006 trade agenda. If you have any questions about
CWT or its views, please feel free to contact me at (202) 293-2944 ext. 201.
Sincerely,
Robin Lanier
Executive Director
http://waysandmeans.house.gov/hearings.asp?formmode=view&id=4734
Another Year at the Federal Trough: Farm Subsidies for the Rich, Famous,
and Elected Jumped Again in 2002
by Brian M. Riedl
Backgrounder #1763
May 24, 2004 | |
Taxpayers funding Washington's $20,000-per-household budget have long
known they are not getting their money's worth. Farm subsidies are among the
most wasteful uses of taxpayer dollars. The budget-busting $180 billion farm bill
enacted before the 2002 elections not only encourages the crop overproduction
that depresses crop prices and farm incomes, but also undermines trade and
encourages other nations to refuse American exports.
Perhaps worst of all, farm subsidies are not distributed to the small, struggling
family farmers whom lawmakers typically mention when defending these policies.
Rather, most farm subsidies are distributed to large farms, agribusinesses,
politicians, and celebrity "hobby farmers." This paper analyzes how Washington
distributed farm subsidies in 2002 and illustrates that farm subsidies continue to
represent America's largest corporate welfare program.
Farmers Are Not Poor
Farming may be the most federally subsidized profession in America. The
persistence of farm subsidy programs results from the popular misconception
that they stabilize the incomes of poor family farmers who are at the mercy of
unpredictable weather and crop prices. Yet a recent U.S. Department of
Agriculture report concluded that, "On average, farm households have higher
incomes, greater wealth, and lower consumption expenditures than all U.S.
households."1 This statement can be broken down into three parts:

Higher incomes. In 1999, the average farm household earned $64,437-17 percent more than the $54,842 average for non-farmers. Incomes were
even higher among the 136,000 households with annual farm sales over
$250,000--and who also receive the largest subsidies. Their 1999 average
income of $135,397 was two-and-a-half times the national average.2 (See
Chart 1.) Farmer incomes are not only high, but also quite stable from
year to year, despite agricultural market fluctuations.

Greater wealth. The average farm household had a net worth of
$563,563 in 1999--well above the $88,000 national average.3

Lower consumption expenditures. Farm households have fewer costs
than other households because (1) the cost of living is lower in rural
America; (2) farm households need to purchase less food from outside
sources; and (3) mortgage and utility bills are often classified as business
expenses. Consequently, the average farm household spent only $25,073
on goods and services in 1999, which is $11,000 less than the average
non-farm family.4
Because farmers are relatively wealthy, alleviating farm poverty would not be
very expensive. Just $4 billion per year would guarantee every full-time farmer in
America a minimum income of 185 percent of the federal poverty level ($34,873
for a family of four in 2004).5 However, farm subsidies are more corporate
welfare than poverty relief, so Washington instead spends $12 billion to $30
billion annually subsidizing large farms and agribusinesses that are much
wealthier than the taxpayers footing the bill.
How Farm Subsidies Target Large Farms
Eligibility for farm subsidies is determined by crop, not by income or poverty
standards. Growers of corn, wheat, cotton, soybeans, and rice receive more than
90 percent of all farm subsidies: Growers of nearly all of the 400 other domestic
crops are completely shut out of farm subsidy programs. Further skewing these
awards, the amounts of subsidies increase as a farmer plants more crops.
Thus, large farms and agribusinesses--which not only have the most land, but
also are the nation's most profitable farms because of their economies of scale-receive the largest subsidies. Meanwhile, family farmers with few acres receive
little or nothing in subsidies. Farm subsidies have evolved from a safety net for
poor farmers to America's largest corporate welfare program.
With agricultural programs designed to target large and profitable farms rather
than family farmers, it should come as no surprise that farm subsidies in 2002
were distributed overwhelmingly to large growers and agribusinesses--including
a number of Fortune 500 companies. Chart 2 shows that the top 10 percent of
recipients received 65 percent of all farm subsidies in 2002.6 At the other end,
the bottom 80 percent of recipients (including most family farmers) received just
19 percent of all farm subsidies.
Chart 3 also shows that the number of farms receiving over $1 million in farm
subsidies in one year increased by 13 percent to a record 78 farms in 2002.
Riceland Foods, an Arkansas co-op, topped the list by amassing a staggering
$110 million in farm subsidies for its members--more than subsidies to every
farmer in Nevada, West Virginia, Vermont, Maine, Delaware, New Jersey,
Massachusetts, Connecticut, New Hampshire, Alaska, Hawaii, and Rhode Island
combined. (See Chart 4.) Table 1 shows the 13 members of the "$2 million club."
Why Farm Subsidies Will Continue to Target Large Farms
Although farm subsidies have targeted large farms for decades, the evolution of
farm subsidies into a corporate welfare program has accelerated in recent years
for two reasons:

Congress has siphoned record amounts of money into farm subsidies
since 1998.

Farm subsidies have helped large corporate farms buy out small farms
and further consolidate the industry.
Despite an attempt to phase out farm programs in 1996, Congress reacted to
slight crop price decreases in 1998 by initiating the first of four annual
"emergency" payments to farmers. Subsidies increased from $6 billion in 1996 to
nearly $30 billion in 2000, even though farmers have incomes and net worths
substantially higher than the national average. Predictably, as subsidies
increased, the amounts of subsidies for large farms and agribusinesses also
increased. A growing farm economy has subsequently caused a decrease in
farm subsidy spending--yet spending remains much higher than in the 1990s.
Although increased subsidies help to explain why large farms are receiving more
money, they do not explain why they are receiving a larger portion of the overall
farm subsidy pie. Since 1991, subsidies for large farms have nearly tripled, while
subsidies for small farms have not increased.7 Large farms are grabbing all of
the new subsidy dollars because the federal government is helping them to buy
out small farms. Specifically, large farms are using their massive federal
subsidies to purchase small farms and consolidate the agriculture industry. As
they buy up smaller farms, not only are these large farms able to become more
profitable by capitalizing further on economies of scale, but they also become
eligible for even more federal subsidies--which they can then use to buy even
more small farms.
The result is a "plantation effect" that has already affected America's rice farms,
three-quarters of which have been bought out and converted into tenant farms.8
Other farms growing wheat, corn, cotton, and soybeans are tending in the same
direction. Consolidation is the main reason that the number of farms has
decreased from 7 million to 2 million (just 400,000 of which are full-time farms)
since 1935, while the average farm size has increased from 150 acres to more
than 500 acres over the same period.9
This farm industry consolidation is not necessarily harmful. Many larger farms
and agribusinesses are more efficient, use better technology, and can produce
crops at a lower cost than traditional farms. Additionally, not all family farmers
who sell their property to corporate farms do so reluctantly.
The concern is not consolidation per se, but whether the federal government
should continue to subsidize these purchases through farm subsidies and
whether multimillion-dollar agricultural corporations should continue to receive
welfare payments. When President Franklin D. Roosevelt first crafted farm
subsidies to aid family farmers struggling through the Great Depression, he
clearly did not envision a situation in which these subsidies would be shifted to
large Fortune 500 companies operating with 21st century technology in a
booming economy.
Millions for Millionaires, the Elected,
and Connected
A glance at those who received farm subsidies in 2002 shows that many of them
do not need federal dollars. Table 2 shows the 12 Fortune 500 companies that
received farm subsidies in 2002. John Hancock Mutual Life Insurance's $2.3
million farm subsidy payment was by far the largest among these companies.
The farm subsidies granted to these Fortune 500 companies since 1995 are--on
average--70 times larger than those granted to the median farmer.
Table 3 lists the nine Members of Congress who received farm subsidies in
2002. Since 1995, these lawmakers have received subsidies averaging 46 times
those received by the median farmer. Five of the nine lawmakers also sit on the
House or Senate agriculture committees overseeing these programs.
Table 4 details other notable farm subsidy recipients, including:

David Rockefeller, the former chairman of Chase Manhattan and
grandson of oil tycoon John D. Rockefeller, who received 99 times more
subsidies than the median farmer;

Scottie Pippen, professional basketball star, who received 39 times more
subsidies than the median farmer;

Ted Turner, the 25th wealthiest man in America, who received 38 times
more subsidies than the median farmer; and

Kenneth Lay, the ousted Enron CEO and multi-millionaire, who received 3
times more subsidies than the median farmer.
Reform Options
Several options exist to shift farm subsidies away from large agribusinesses. The
best option would be for Congress to recognize that farm subsidies are
unnecessary, outdated, and counterproductive by:

Completing the phase-out of farm subsidies that was scheduled to begin
following the 1996 "Freedom to Farm" law (and was abandoned in the
2002 farm bill);

Replacing farm subsidies with a subsidized crop insurance program that is
designed to protect family farmers from the short-term risks of farming
(such as bad weather); and

Pressuring other nations to follow America's lead and repeal their own
trade-distorting farm policies, thereby opening up new markets for
American farm exports.
Instead of taxing Americans to support a centrally planned agriculture policy,
these reforms would leave farmers free to compete and prosper in the global free
market.
Alternatively, lawmakers who are hesitant to repeal farm subsidies could save
billions by limiting the subsidies that each farm may receive. Farm policy was
never intended to provide millions for millionaires, and policymakers can refocus
farm policy by enacting the reforms listed in Table 5.
Conclusion
Lawmakers who are serious about fiscal restraint should consider farm subsidies
one of the most justifiable places to find savings. These corporate welfare
programs enrich agribusinesses and other non-farmers at the expense of family
farmers, the farm economy, and taxpayers. With federal spending spiraling out of
control and the budget deficit approaching $500 billion, taxpayers can no longer
afford to pay farm subsidies to the rich and famous.
Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the
Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation.
1. U.S. Department of Agriculture, "Income, Wealth, and Economic Well-Being of
Farm Households," Agricultural Economic Report No. 812, July 2002, p. 42.
2. Ibid., pp. 16 and 52.
3. Ibid., p. 17.
4. Ibid., p. 12.
5. U.S. Department of Agriculture, "A Safety Net for Farm Households,"
Agriculture Outlook, January-February 2000, pp. 19-24. The authors estimated a
cost of $7.8 billion when including everyone who reports any farm income,
including "hobby farmers" who have other full-time jobs. Restricting their data to
full-time farmers--defined as lower sales, higher sales, and large family farms, as
well as a fraction of limited-resource farms that are also full-time--the total cost
adds up to approximately $4 billion. The eligibility threshold for several federal
income-assistance programs, like Women, Infants, and Children (WIC), is 185
percent of the federal poverty level.
6. Unless otherwise noted, all farm subsidy recipient statistics in this paper are
provided by the Environmental Working Group at www.ewg.org.
7. U.S. General Accounting Office, Farm Programs: Information on Recipients of
Federal Payments, GAO-01-606, June 2001, p. 14.
8. Elizabeth Becker, "Land Rich in Subsidies, and Poor in Much Else," The New
York Times, January 22, 2002.
9. Robert A. Hoppe, "Structural and Financial Characteristics of U.S. Farms:
2001 Family Farm Report," U.S. Department of Agriculture, Economic Research
Service, Agriculture Information Bulletin No. 768, May 2001, p. 6.
© 1995 - 2006 The Heritage Foundation
All Rights Reserved.
http://www.heritage.org/Research/Budget/bg1763.cfm
INDEPTH: SOFTWOOD LUMBER DISPUTE
Softwood lumber dispute
CBC News Online | July 4, 2006
SOFTWOOD LUMBER GLOSSARY
Softwood lumber: Easy-to-saw wood such as pine and spruce used
in building.
Board foot: A unit of volume for wood equal to 144 cubic inches, or
one square foot of one-inch-thick board.
Countervailing duties: Applied on imports found to be unfairly
subsidized.
Dumping: Selling goods in another country at less than what they
cost to produce.
Stumpage: A fee charged by Canadian governments to logging
companies for the right to harvest lumber from public land.
Canada's protracted dispute with the United States over softwood
lumber ended in April 2006 with an agreement that would see the U.S.
return about 80 per cent of the more than $5 billion in duties it has
collected on lumber imports. The deal was signed in July 2006, but
lumber industry groups in three provinces and the B.C. government
have said they will not support the final draft agreement.
The deal removes tariffs on lumber, but includes export taxes that kick
in when the price of lumber drops. Producers would have to pay an
export tax of five per cent if there's a small drop in price. If the
reduction is greater, they would have to pay as much as 15 per cent.
The agreement remains in effect for seven years, with the possibility of
renewal.
Disputes on softwood lumber have simmered for more than 20 years,
but the most recent one boiled over in May 2002 when the United
States imposed duties of 27 per cent on Canadian softwood lumber,
arguing that Canada unfairly subsidized producers of spruce, pine and
fir lumber.
An agreement-in-principle to end the dispute was reached in
December 2003. But it died two days later and the issue went before
North American Free Trade Agreement panels and the World Trade
Organization several times. Rulings have usually gone Canada's way.
At issue
The dispute centred on stumpage fees – set amounts charged to
companies that harvest timber on public land. Many in the U.S. see
Canadian stumpage fees as being too low, making them de facto
subsidies. A U.S. coalition of lumber producers wants the provincial
governments to follow the American system and auction off timber
rights at market prices.
The U.S. responded by levying tariffs on incoming Canadian lumber in
May 2002.
Overview of the dispute
The bickering between Canada and the United States over softwood
lumber is like a case of sibling rivalry. It dates back several decades.
Even within Canada there were divisions. The B.C. Lumber Trade
Council argued a trade war with the Americans over softwood lumber
would be costly and should be avoided by accommodating U.S.
demands. The Free Trade Lumber Council, which includes lumber
producers in Quebec and Ontario, wanted to fight it out. What most
Canadian foresters and governments do agree on is their goal: free
trade in softwood lumber.
In August 2001, the Bush administration backed a U.S. forest industry
bid to hit Canadian lumber with billions of dollars in duties. Two
months later, the duty was increased when the government imposed
an anti-dumping duty on top of the original duty. Dumping is a term
used to describe the sale of goods to another country at less than what
they cost to produce.
The duties were applied separately following the expiration of the
softwood lumber agreement between Canada and the U.S., which
governed exports from April 1, 1996 to March 31, 2001. Under that
agreement, the U.S. guaranteed market access to Canadian exporters
for five years and permitted the import of 14.7 billion board feet per
year of lumber without fees. The agreement applied to $10 billion
worth of lumber produced in British Columbia, Alberta, Ontario and
Quebec.
The agreement didn't apply across Canada. Since lumber harvested in
the Maritimes comes mostly from private land, Maritime provinces
weren't subject to the U.S rules. With no extra duties to deal with,
Maritime producers saw business rise.
When the agreement was signed, Maritime provinces accounted for
about five per cent of Canada's lumber production. In the five years
following, production in Nova Scotia and New Brunswick soared 62 per
cent to more than 1.2 billion board feet. That compares with 1.5 billion
board feet produced in Ontario. In New Brunswick, 90 per cent of
softwood lumber exports go to the United States.
The trade war took a toll on Canadian jobs. Thousands in the industry
lost their jobs, including about 15,000 forestry workers who were laid
off in British Columbia.
In 2001, then-U.S. trade ambassador Robert Zoellick vowed the trade
war would continue until Canada imposed its own taxes on lumber
exports. Canada has refused to do so.
On July 29, 2003, it seemed as if there might be a breakthrough in the
dispute when officials on both sides announced a draft deal. As part of
the draft, Canada had agreed to cap lumber exports to account for 30
per cent of the U.S. market, down from 34 per cent. If the quota was
exceeded, Canada would have to pay a penalty. The plan was nixed
two days later when U.S. producers said Canada needed to make more
compromises.
A NAFTA decision on Aug. 13, 2003 was considered a partial victory for
the Canadian side. A panel ruled that, while the Canadian lumber
industry is subsidized, the 18 per cent tariff imposed on softwood
lumber by the United States is too high. While the ruling didn’t throw
out the duty imposed more than a year earlier, it ordered the U.S.
Commerce Department to review its position.
The NAFTA report said the U.S. made a mistake in calculating its
duties based on U.S. prices, and by not taking Canadian market
conditions into consideration. It ordered Washington to recalculate
them. NAFTA decisions are legally binding and must be put into effect
within 60 days.
Two weeks later, a WTO panel concluded that the U.S. wrongly applied
harsh duties on Canadian softwood exports. The panel also found that
provincial stumpage programs provide a "financial benefit" to Canadian
producers. But, the panel made it clear that the benefit is not enough
to be a subsidy, and does not justify current U.S. duties.
On Aug. 10, 2005, an "extraordinary challenge panel" under NAFTA
dismissed American claims that the earlier NAFTA decision in favour of
Canada violated trade rules.
"We are extremely pleased that the ECC dismissed the claims of the
United States," said International Trade Minister Jim Peterson.
"This is a binding decision that clearly eliminates the basis for U.S.imposed duties on Canadian softwood lumber. We fully expect the
United States to abide by this ruling, stop collecting duties and refund
the duties collected over the past three years," he said.
Washington’s initial response was that the ruling doesn’t settle
anything – and that it will take more negotiations before this dispute is
wrapped up.
But by November 2005, the U.S. Commerce Department said it would
comply with the NAFTA ruling, even though it disagreed with it.
The following month, the U.S. Commerce Department said it had
recalculated its countervailing and anti-dumping duties on softwood.
The result? The new duties would be set at a total of 10.8 per cent,
almost halving the old rate. The decision was expected to save
Canadian lumber companies $600 million a year.
Still unclear was how or if the U.S. would refund some of the billions in
duties it has already collected. And once again, the U.S. lumber
industry signalled it might appeal.
The Canadian government, in the meantime, announced $1.2 billion in
aid for the Canadian lumber industry just before the election was
called. U.S. interests called it another kind of subsidy and Washington
said it was "disappointed."
In February 2006, the U.S. lumber lobby said the World Trade
Organization had ruled that the U.S. had complied with its
international obligations while applying anti-dumping duties against
Canadian lumber imports. Canadian officials countered that the U.S.
was continuing to artificially inflate anti-dumping rates by using
different calculation methods to avoid complying with an earlier WTO
decision.
In March 2006, a NAFTA panel again ruled in Canada's favour, finding
that Canadian softwood lumber exports are not subsidized. At this
point, the total duties collected by the U.S. had reached $5.2 billion.
In April 2006, a World Trade Organization appeal body rejected
Canada's request to overturn an earlier decision by the U.S.
International Trade Commission. A group of lumber producers in the
United States known as the Coalition for Fair Lumber Imports claimed
this ruling as another victory in their long-running softwood lumber
dispute with Canada.
Framework agreement reached
Then, on April 26, 2006, came word that Canada and the United States
had reached a framework agreement that could form the basis for an
end to the dispute.
The framework agreement called for the U.S. to return about 80 per
cent of the $5 billion in duties that U.S. Customs has collected in the
previous four years. Canadian-sourced lumber would also be kept to
no more than its current 34 per cent share of the U.S. softwood
market.
Canada will also collect an export tax on softwood lumber exported to
the United States if the price drops below $355 a thousand board feet.
The following day, Prime Minister Stephen Harper told the House of
Commons that Canada and the United States had agreed on a sevenyear deal to end the dispute.
Softwood deal signed
On July 1, 2006, trade ministers from Canada and the U.S. signed the
final legal text of the softwood lumber deal. David Emerson, Canada's
international trade minister and U.S. trade representative Susan
Schwab signed the agreement in Geneva, where ministers were
attending international trade talks.
The deal is based on the April 26 framework agreement. Emerson says
he will introduce legislation in September 2006 to confirm the
agreement and hopes to have it in place by October 1, 2006.
Parts of the deal include:

Import duties of $4 billion the U.S. charged Canadian companies
since 2002 will be returned. But the U.S. keeps $1 billion.

A seven-year term, with a possible two-year extension.

A ban on the U.S. launching new trade actions.

Restrictions on Canadian exports will kick in if prices fall too far.

Neutral trade arbitrators will provide final and binding
settlements of disputes.
Lumber groups in three provinces, B.C. government concerned
The deal is signed, but not everyone is happy with it. Lumber industry
representatives in B.C., Alberta and Quebec, and the B.C. government
have expressed concern about the final draft of the softwood deal.
The B.C. government and lumber industry representatives wrote
jointly to Ottawa on June 30, 2006 &8212; before the deal was
completed &8212; saying "the current draft agreement has not met
some of our key requirements. We will, therefore, not be able to offer
our support," Canadian Press reported. B.C. is Canada's biggest
softwood producer.
The Alberta Forest Products Association says the clause allowing either
country to end the deal after three years undermines its value.
The Quebec Forest Industry Council says it's not ready to support the
deal, citing worry about the escape clause.
http://www.cbc.ca/news/background/softwood_lumber/