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Canada Wins Commercial Arbitration—Or Does It?

Friday, August, 3, 2012

The London Court of International Arbitration recently ruled in favor of Canada in a commercial arbitration case over lumber pricing. The U.S. claims that Canada violated terms of the agreement. The ruling provided what seems like a victory for Canada, but could have long term implications for Canadian-U.S. Trade.

What is the Canada Softwood Lumber Agreement?


Tough most of us have never heard of it until now, the Softwood Lumber Agreement ended one of the biggest trade disputes in modern history. Or at least it was supposed to.


The big problem was that Canada was selling subsidized lumber at low prices, and the U.S. was imposing a duty (tax or fee) on them in order to keep its own timber producers competitive.


As part of the agreement, Canada agreed to sell lumber above a certain price, while the United States gave back around $5 billion worth of duties it had collected from Canadian lumber producers.

Why Does the U.S. Think Canada Violated the SLA?


Recently, Canada provided a large volume of timber at prices in violation of the SLA. U.S. Trade Representatives (such as Nkenge Harmon) claim that Canada is once again providing not just subsidized, but actual publicly-owned timber at below-market prices.


The London Court of International Arbitration did not agree. It found weight in Canada's argument that a beetle infestation was the main reason for the low pricing of the wood.

What Will Happen Now that Commercial Arbitration's Done?


Canada has won this particular dispute—but has it shot itself in the foot?


U.S. Lumber Coalition chairman Steve Swanson said that Canada's compliance with the Softwood Lumber Agreement was a serious problem. He flat-out stated that the United States will have to take a second look at the SLA "at an appropriate time".


This may not bode well for Canada, who depends heavily on trade with the U.S. Both countries renewed the SLA this past January. The agreement is set to end in October, 2015. But Canadian lumber producers may have a problem on their hands if the U.S. thinks they are not sticking to the agreement.