OTTAWA — Canada could be facing another prosecution for cheating under the Softwood Lumber Agreement.
The U.S. government could file such a case to the international arbitration court in London as early as Friday after a 40-day consultation process to iron out the dispute ended in futility earlier this week.
The U.S. Trade Representative’s office has complained to the Canadian government that British Columbia used the mountain pine beetle infestation as an excuse to dramatically increase the export of cut-rate lumber into the American market.
The industry lobby group that has been pressing the issue says penalties for Canadian producers could amount to about $500 million if the London court that would hear the case agrees.
The Washington-based Coalition for Fair Lumber Imports says since 2007, when the softwood market in the United States collapsed after the U.S. housing crisis, British Columbia has increased the amount of pine-beetle infested lumber it ships from about 10 per cent to 50 per cent.
Canadian lumber, plywood and oriented strand board have traditionally taken up about a third of the market for building materials in the U.S. and such products are widely used in home building and other construction.
For decades, the U.S. building industry and its allies in Congress have been fighting what they say are heavily subsidized Canadian lumber shipments. The threats of lumber wars have persuaded both governments to sign several deals over the years to manage softwood trade — the latest a five-year agreement in 2006.
The U.S. lobby group said the log shipment increase is significant because hard-pressed Canadian producers can harvest the low-grade timber at a mere 25 cents a cubic meter, as opposed to $14 and above for high-grade lumber, thereby lowering their costs dramatically.
That makes it easier for Canadian companies to undercut American competitors in the U.S. market, the coalition argues.
In an interview, Canadian Trade Minister Peter Van Loan said he does not dispute the figures, but adds the increase in low-quality timber harvested was justified because B.C. has been trying to clear out its beetle-infested forests to protect healthy growth tree stands.
“We’re pretty optimistic the claims made by the Americans will not be successful,” he said.
But David Yocis of the lumber coalition says the Canadian argument misses the point. He says under the 2006 softwood agreement, the low-grade logs should have been ground up into pulp, not shipped as lumber to undercut American producers.
“The issue is is it merchandable logs that were turned into merchandable lumber, and if it was, they can clear 100 per cent of the beetle kill wood but they have to charge market price for it. If you convert it into lumber, it’s not pulp.”
Van Loan said B.C. has recently changed its grading system, but the U.S. lobby group says it is not satisfied as yet that the change has made a substantive difference how lumber in the province is cut and sold.
In the most recent ruling by the London court, Canadian producers in Ontario, Quebec, Manitoba and Saskatchewan were penalized by $68 million for shipping more lumber into the U.S. than allowed under the 2006 agreement.