U.S., Canada Battle over Lumber Tariffs

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Tensions are rising between the United States and Canada over tariffs imposed on Canadian lumber. Canadian officials argue the United States is in violation of the North American Free Trade Agreement. Some Canadian cabinet ministers suggest they could retaliate against U.S. imports with sanctions.

RENEE MONTAGNE, host:

The US and Canada are close to a trade war over tariffs imposed on Canadian lumber. Canadian officials say the US is in violation of the North American Free Trade Agreement. Some Canadian Cabinet ministers suggest they could retaliate against US imports with sanctions. Richard Reynolds reports.

RICHARD REYNOLDS reporting:

Softwood lumber is mostly used to build houses. Canadian lumber companies sell about $4 billion worth of it to the United States each year. That meets about one-third of US requirements. The timber industry is Canada's largest and its biggest employer. The US claims Canada unfairly subsidizes its lumber, a charge the Canadians deny. This dispute has simmered for decades and most recently flared in 2001 when the US imposed tariffs that can reach as high as 27 percent on Canadian softwood lumber imports. An arbitration panel convened under the North American Free Trade Agreement has ruled three times that the US duty is not justified. Washington has chosen to ignore the NAFTA rulings, prompting an outcry, like this comment from Pat Carney, an ex-Canadian trade minister.

Ms. PAT CARNEY (Ex-Canadian Trade Minister): What it means is for Canada, we can't trust that the US government is going to honor its obligations under these crucial trade agreements and that we can't assume that the US is going to keep its word.

REYNOLDS: Carney's views are moderate compared to many here. Some current Canadian Cabinet ministers have called for an all-out trade war with the US. The word `bully' is often used, and the issue has raised the hackles of Canadians like Simon Roland(ph) and Lee Honeywell(ph).

Mr. SIMON ROLAND (Canadian Citizen): Does it surprise me? No. Does it disappoint me? Yes.

Ms. LEE HONEYWELL (Canadian Citizen): When you make your bed, you've got to lie in it. There's this agreement that's in place that says we're going to have free trade. We should be getting money back for our tariffs, and they're not abiding by that, and that's just not fair.

REYNOLDS: This kind of public response has kept the issue alive nearly two weeks after the last NAFTA panel ruling, even though few here understand the specifics of the dispute. US lumber producers believe that since nearly all lumber from Canada's west comes from public lands, Canadian companies enjoy what amounts to a subsidy. Joseph D'Cruz of Toronto's Rotman School of Business explains the essence of the dispute this way.

Professor JOSEPH D'CRUZ (Rotman School of Business): So the US is saying, `We should charge much higher stumpage rates, much higher taxes on people who use public forests,' and the Canadians are saying, `It's our forests. We want to do with it what we like.'

REYNOLDS: In its most recent ruling, the NAFTA panel ordered the US to stop charging the duty, and under NAFTA rules, the US must return the $4 billion collected so far in punitive tariffs. The Office of the US Trade Representative has not said much on the matter, but it did issue this statement, saying `The US trade does respect its international agreements and urged both countries to await a ruling from the World Trade Organization.' The Canadians point out that under NAFTA's terms, the decision of NAFTA panels are not dependent on other treaties, such as the WTO, and must be implemented within 60 days. Professor D'Cruz in Toronto says there's a widespread perception among Canadians that the US is simply refusing to live up to its commitments under NAFTA.

Prof. D'CRUZ: The great promise of NAFTA for the Canadians was that there would be dispute resolution mechanism that both parties would agree to and that when that dispute settlement process made a decision, both countries would abide by it.

REYNOLDS: For NPR News, I'm Richard Reynolds in Toronto.

MONTAGNE: This is NPR News.

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