Former President Jimmy Carter weighed in on the U.S.-Canada lumber dispute yesterday. He noted that "[t]imber sales are a major source of income for my own family," and he thus agreed with the U.S. industry that Canada is behaving unfairly, as the provinces charge below market prices to private companies who harvest timber on provincial land. As he put it: "Canada enjoys an inherent advantage in that the vast majority of its standing timber is owned by provincial governments, which are free to dump their timber at practically no cost in order to stimulate their forest industry."
On the other hand, if you talk to the Canadians about this, they firmly believe the current fees charged by the provinces for timber harvesting ("stumpage") closely approximate market prices, and thus there is no subsidy and no unfairness. Any unfairness, in their view, comes from the biased U.S. process that imposes tariff duties on Canadian lumber.
So how do we determine which side is right about the Canadian practices? The current process works as follows. First, the Department of Commerce investigates whether there are subsidies. Commerce always finds that there are. (And the ITC finds that there is injury).
Then, after Canada files complaints, WTO and NAFTA Chapter 19 panels evaluate whether the Commerce (and ITC) analysis was consistent with the relevant international rules. The WTO/NAFTA bodies always find that Commerce did not act consistently with the rules.
But the WTO/NAFTA findings are merely criticisms of the Commerce determination. They are not the same thing as looking directly at the question of whether the stumpage charges constitute subsidies. And for practical purposes, these WTO/NAFTA findings are clearly insufficient to resolve the dispute. We are in an endless cycle of tariffs, litigation, and temporary settlements. We are starting a new round now, and there is no reason to think the result will be any different. In 30 years, we will be having the same discussion. Is there anything else that can be done here?
What if, instead of a domestic decision on these issues, and subsequent international review of that decision, we could ask an international body to look directly at the question of whether there are subsidies? One way to do this would be for the U.S. to bring a WTO SCM Agreement "adverse effects" complaint against Canada. The WTO panel could then look directly at the evidence of subsidies and their effects, rather than just reviewing what Commerce did.
But maybe the U.S. industry does not want to bring such a complaint, because they are happy with the current approach. Could the Canadians be proactive here, and seek out a neutral assessment of these issues? Maybe they could find some subsidies experts and ask them to offer an evaluation of the stumpage programs, in terms of how well they reflect market pricing? And if the current stumpage charges do not reflect market pricing, they could make suggestions for pricing that would.
There's one wild card here, which is that the Canadians also get accused of "dumping" lumber in the U.S. market. While dumping often gets lumped in with subsidies in discussions of Canadian lumber exports, they are separate issues. Even if the Canadians could prove they were not providing subsidies, the Commerce could still find that there is dumping. (While there is a general argument sometimes made by groups in the U.S. that the (alleged) subsidies allow for lower prices, which leads to a finding of dumping, in reality the dumping calculation is not tied to the existence of subsidies.) But regardless of the dumping issues, with both sides throwing around accusations of unfairness, an objective assessment of the stumpage charges could be a start to getting a permanent resolution.
