To: Snowshoe who wrote (1220 ) 1/8/2005 3:58:16 PM From: Snowshoe Respond to of 1293 New year spawns more legal tangling in Canada-U.S. lumber trade battlestory.news.yahoo.com Sat Jan 8,11:59 AM ET STEVE MERTL VANCOUVER (CP) - Canada is moving a couple more pieces in the chess game that its softwood lumber trade battle with the United States has become. Ottawa is clearing the way for retaliatory tariffs against American goods and is also headed to the Court of International Trade in New York next week. The federal Department of International Trade took the first step this week toward imposing up to $200 million in retaliatory sanctions, claiming the United States hasn't complied with one of the World Trade Organization (news - web sites) rulings in the complex dispute. The move is largely procedural and sanctions, if they happen, are at least a year away. But it's an indication Canada is prepared for concrete retaliation against its biggest trading partner in the long-running softwood case. It's also expected to file papers in the Court of International Trade on Monday challenging the U.S. Commerce Department (news - web sites)'s claim it has complied with WTO decisions on the lumber duties. Commerce modified its countervailing and anti-dumping duty orders late Dec. 20, saying they now complied with WTO requirements while still maintaining Canadian lumber threatened to injure U.S. producers. A Canadian trade expert said it's an attempt to negate an anticipated U.S. loss in a crucial appeal under the North American Free Trade Agreement that could kill the duties entirely. It's aimed, he said, at further tying up the Canadian case in legal knots and demonstrating the futility of litigation to resolve the overall lumber dispute. Industry officials here believe the American strategy is to force Canada back to the negotiating table for a compromise that would cap access of Canadian lumber to the U.S. market. Meanwhile, Ottawa has applied to the WTO for a compliance panel to review whether the U.S. Commerce Department properly abided by the trade body's ruling on countervailing duties levied on Canadian lumber sold into the U.S. market. Commerce issued its final determination on countervailing duties on Dec. 6, shocking Canadian government and forest industry officials by shaving just .17 per cent off the 18.79 per cent import tariff. The anti-dumping duty was cut in half to roughly four per cent. But Canadian stakeholders expected the countervailing duty to be slashed as well after WTO and North American Free Trade Agreement appeal panels rejected U.S. calculations that underpinned the tariffs. Instead, Commerce used a different calculation method to justify maintaining the higher duty. The WTO panel that examined the countervailing duty ruled the United States had breached its WTO obligations when Commerce concluded an alleged subsidy to Canadian timber harvesters and sawmills was passed through to unrelated lumber producers via arms-length sales of logs. In its Dec. 6 decision, Commerce said its investigation of the so-called pass-through found the subsidy was not passed on in certain cases and reduced the duty accordingly. But Ottawa concluded the minor revision didn't address the spirit of the WTO panel's ruling and has applied for a review after consulting with lumber producing provinces and the industry. It also filed a request for WTO authorization to retaliate by levying a tariff surtax on up to $200 million of U.S. imports into Canada. "We have asked within 30 days for permission to retaliate if we want to keep that option open," Andrea Lanthier, Trade Minister Jim Peterson's press secretary, said Friday from Ottawa. "It has to be done at the same time even though the retaliation part would come after the complaints panel." Final WTO permission to retaliate likely won't be granted until the trade body reviews U.S. compliance to its original ruling, something that could take until next summer. The United States is also expected to challenge the retaliation amount, meaning the issue won't be settled until late this year or early 2006. It's yet another legal move in process that has enriched cadres of American lawyers working for both sides since the U.S. lumber industry filed its fourth trade complaint in 20 years against its Canadian competitors in April 2001. The United States imposed duties totalling 27.2 per cent in May 2002, claiming Canadian lumber benefits from provincial subsidies through low Crown stumpage fees and other policies. Canada has challenged the duties before NAFTA and the WTO and largely claimed victory in the appeals. The most crucial from the Canadian standpoint was a NAFTA ruling last year that found Canadian lumber imports, worth about $10 billion a year, pose no threat of injury to U.S. producers. The U.S. government has filed an extraordinary challenge against the threat-of-injury ruling, which undercuts the whole rationale for the duties. Unlike WTO rulings, NAFTA decisions carry the weight of U.S. law. The maximum $200 million in retaliatory tariffs represents only the trade impact from 2005, according to International Trade. It's a fraction of the duties - latest estimate $4.1 billion - collected so far and held in trust by U.S. Customs. If Canada wins the extraordinary challenge, it expects that money to be returned but U.S. trade officials have signalled they want to keep it. But the Canadian side believes Commerce will claim its late-December duty-order revisions fulfil its WTO obligations and therefore any NAFTA decision on the orders' previous incarnation is irrelevant.