Consumers for World TradeFebruary 14, 2006

The Hon. Bill Thomas2208 Rayburn HOBWashington, DC 20510

Dear Chairman Thomas:

I am writing on behalf of Consumers for World Trade (CWT), to express our views concerning the Congressional 2006 trade agenda.  By way of background, CWT is a national, non-profit, non-partisan organization, established in 1978 to promote the consumer interest in international trade and to enhance the public's awareness of the benefits of an open, multilateral trading system.  CWT is the only consumer group in America whose sole mission is to educate, advocate and mobilize consumers to support trade opening legislation.

In summary CWT urges Congress to pursue two key goals as it moves forward with its trade policy in 2006.  First, we urge Congress to assist lower-income Americans by removing high tariffs, dumping and countervailing duties, and import quotas on the necessities of life such as food, clothing and shelter.  Second, we urge Congress to take immediate steps to open up the trade policy and trade remedy process so that consumers are no longer excluded.  The current exclusion of consumers is unfair and should be ended as quickly as possible.

Our detailed comments on these priorities follows.

Reduce Tariffs on Clothing, Footwear and Food 

Tariffs are simply taxes that, although technically paid at the customs border by importers, are ultimately passed through to consumers in the form of higher prices.  In this way, tariffs are like the worst kind of sales tax--hidden from view, but definitely felt in the pocketbooks of the nation's lowest income families. 

Although the overall average tariff on goods entering the U.S. market has been reduced through numerous trade rounds to less than 4%, this national average masks the high tariff rates on particular goods consumed by the nation's poorest families.  Consumers for World Trade recommends that Congress impress upon U.S. trade negotiators to give priority consideration in the Doha negotiations of the World Trade Organization (WTO) and in bilateral free trade agreement negotiations to tariff reductions on goods that have above-average tariffs in the United States.

In particular, CWT urges the elimination or substantial reductions in tariffs on products with above-average tariffs in the food, clothing and footwear sectors.  These products are all basic commodities that every American consumes or uses in his or her daily life.  Yet many of these basic staples are subject to high tariff barriers that artificially increase their costs to consumers.

Food Tariffs:  The United States is a major world producer of most agricultural commodities and processed food products, as well as a major consumer of these goods.  As a result of the Uruguay Round, import quotas no longer exist on agricultural products.  However, tariff-rate quotas now provide substantial border protection for many of these same goods, through restrictive lower-tier quota levels and high upper-tier (over-quota) tariff rates.  While the average agricultural tariff in the United States is about 12%, this average reflects the fact that many agricultural products enter the U.S. duty-free, while certain other products have extraordinarily high tariffs.

For example, according to USDA’s Economic Research Service, the following six groupings of food commodities have U.S. tariffs at or above the U.S. average:  fresh meat (12%), oilseeds (17%), nuts

 

(17%), cocoa beans and products (18%), dairy products (43%), and sweeteners (46%).  Even these figures, however, are averages and therefore somewhat misleading, as an examination of the individual tariff lines reveals much higher tariff rates, often exceeding 100% (called megatariffs).  Megatariffs are most prominent in the U.S. tariff schedules for dairy, sweeteners, and nuts – all food commodities subject to tariff-rate quotas.  About 24 tariff lines in the agricultural chapters of the U.S. tariff schedules identify over-quota tariff rates in excess of 100%.  The U.S. over-quota tariff rate on sweeteners exceeds 200%, and on peanut butter is 132%.  Seven different dairy products have over-quota tariffs exceeding 100%.  Some of these food products are direct consumer goods and some are ingredients used to make other food products.  Either way, such extraordinary tariff rates impose substantial costs on American consumers.  These megatariffs and other above-average tariff rates must be a high priority for immediate, substantial reduction both in multilateral and bilateral negotiations.

CWT notes that many of these agricultural and food products with high tariff rates in the U.S. are similarly protected in other major agricultural producing nations.  The Doha negotiations therefore provide an ideal opportunity to dismantle these tariff walls on a global basis, benefiting consumers everywhere.

Clothing and footwear:  There is also a significant opportunity for meaningful tariff relief to be achieved in the clothing and footwear sectors.  While the United States has removed quotas from wearing apparel under the terms of the terms of the Agreement on Clothing and Textiles, more needs to be done.  The effective tariff rate for wearing apparel now stands at 11%, taking into account recent U.S. trade preference programs.  The average tariff for clothing excluding preferences is still quite high at 15% and at 40% for footwear products.  Because the United States has significantly liberalized trade in virtually every other industrial sector, much of the United States’ tariff protection is now concentrated in these two industries.  Fully half of all duties collected by the U.S. Government are collected in these products (Chapters 50 to 65), even though the products represent only about 8 percent of total U.S. imports. Reducing duties on these consumer products would have a significant impact on the prices consumers pay at retail since these markets are highly price sensitive.  Over the past decade, while overall U.S. retail prices have slowly increased, U.S. apparel and footwear prices have actually declined. As apparel and footwear companies and retailers strive to take additional costs out of the supply chain in order to allow further price reductions for consumers, the importance of reducing these high tariffs cannot be overstated.  Through simple market pressure, consumers will demand that these savings be passed on, and thereby would clearly benefit from a removal of these duties

Ironically, it is unclear whether these high tariff rates have been effective in protecting the domestic industry.  Import penetration

Import A measure of the importance of imports in the domestic economy, either

penetration by sector or overall, usually defined as the value of imports divided by the value of apparent consumption.

(http://www-personal.umich.edu/~alandear/glossary/)

in apparel and footwear – where most of these duties are assessed - now stands at 90 and 98 percent, respectively, begging the question just who in America benefits from these high tariffs. 

We hope that Congress urges the administration to aggressively pursue reductions in wearing apparel and footwear tariffs, not only in the Doha round of trade negotiations but in bilateral free trade agreements, as well.  Efforts to limit tariff reductions in these sectors through complex rules of origin do not protect apparel and footwear jobs--they simply make these necessities of life more expensive than they ought to be.

High tariffs on footwear, clothing and food hits certain Americans harder than others.  Minority households and single parent households spend a greater proportion of their income on the necessities of life.  As a consequence, these families pay a higher percentage of the hidden price tag for the U.S. high tariff policy.  It is time to recognize that there is little domestic industry to protect, and to eliminate tariffs in this sector, thereby helping hard working American families.

The U.S. should eliminate tariffs on softwood lumber imports from Canada

CWT urges you to recommend that the Administration eliminate the dumping and countervailing duties imposed on imports of Canadian softwood lumber products.  Today, the 27% duties imposed on these building products have inflated the price of new homes by roughly $1,000.  In the era of high home prices, this price increase adversely impacts the poorest Americans struggling to make a down payment on a new home.  Furthermore, duties imposed on Canadian building products disadvantage those Americans rebuilding their homes devastated by last summer’s hurricanes.  For those impacted Americans along the Gulf Coast, every penny counts towards their recovery efforts.  The United States could help many Americans by reducing the cost of lumber in the United States.

This is especially true, given the fact that a recent NAFTA Extraordinary Challenge Committee (ECC) ruled against the U.S. with respect to these duties on Canadian softwood lumber products.  We believe it is improper and unwise for the United States to ignore this international commitment by leaving in place the antidumping and countervailing duties on Canadian softwood lumber ultimately paid by consumers. 

We also strongly urge Congress to impress upon USTR to cease its efforts to negotiate a Canadian-imposed export tariff on these products.  Such a tariff would still increase the price of lumber in the United States, but it would also transfer U.S. Consumer dollars directly to provincial governments in Canada.  Consumers for World Trade vehemently opposes such a scheme to make U.S. consumers "pay off" Canadian producers.

Renew the Generalized System of Preferences

CWT urges Congress to quickly pass a long-term renewal of the Generalized System of Preferences (GSP) that is set to expire by the end of 2006.  This program offers tariff-free entry on certain products from a host of least developed economies and it benefits consumers in the form of lower prices. 

Trade Remedies Injure and Exclude Consumers

U.S. trade remedy law, and the underlying provisions of the General Agreement on Tariffs and Trade, significantly impact American consumers.  And yet consumers--both retail and industrial consumers--have no standing in these cases and are often unable to defend themselves when trade cases are brought.  This is quintessentially unfair when one considers that an increasing

number of trade cases are being brought against consumer products, such as shrimp, furniture, and lumber. 

Indeed, U.S. dumping law provides more standing for foreigners than for American consumers.  This lack of official standing means that consumers cannot effectively defend themselves against the imposition of taxes, and that is inherently unfair.  The lack of standing means that consumers are not guaranteed time at hearings, are excluded from seeing the trade data upon which the cases are brought, and therefore cannot mount anything like an effective rebuttal to the claims of domestic producers.  It is important to understand that retail and industrial consumers are also Americans, and their views should be balanced against those of domestic producers.  Indeed some industrial consumers are also domestic producers so the national interest ought to include the consideration of their views.  Nevertheless, the International Trade Commission and the U.S. Department of Commerce, under existing trade law, have no obligation to even consider the impact of a trade remedy on competing U.S. interests such as retail and wholesale consumers.  In this way, the United States has made a decision that the interests of retail and wholesale consumers is not important.  And that's not only wrong, it is often unwise.

U.S. consumers matter to the economy.  They vote and they have views on trade cases.  U.S. industrial and wholesale consumers are often badly hurt by trade remedy cases that drive up the costs of their inputs.  As such, trade cases often reduce jobs in one sector in the name of saving jobs in another.  Maybe that is wise policy in some cases, but without a requirement to hear the views of consumers, neither the Commerce Department or the US International Trade Commission really knows.

For this reason, we urge Congress to pass legislation that would allow consumers--both end users and consuming industries--to have standing in trade remedy cases.  In addition, we hope that Congress will urge USTR to pursue this change as part of Doha round of trade negotiations.

The U.S. Trade Policy Making and Advisory Process Excludes Consumers

At present, the United States has no consumer representatives on any of its trade advisory committees.  This is not for want of consumer groups appealing for a seat at the trade policy table.  Indeed, within the last year, Consumers for World trade was denied advisor status as part of the Industry Trade Advisory Committee on Consumer Goods (ITAC 4) because the organization was not deemed to be “a U.S. entity that trades internationally and is engaged in the manufacture of a product or the provision of a service.” 

It is disturbing that the interests and concerns of 296 million American consumers should be dismissed so cavalierly.  For this reason, we urge Congress to support making seats available to consumer groups on the Consumer Goods ITAC.  If, in the judgment of the Administration that only an act of Congress would allow such participation, then we urge Congress to pass such legislation.  It makes sense for the Congress and the Administration to have the broadest possible participation in the trade policy advisory process.  There is no good reason to exclude American consumers from that process.

On behalf of CWT, I thank you once again for the privilege of providing you written comments regarding our priorities for the Congressional 2006 trade agenda.  If you have any questions about CWT or its views, please feel free to contact me at (202) 293-2944 ext. 201. 

Sincerely,

Robin LanierExecutive Director

http://waysandmeans.house.gov/hearings.asp?formmode=view&id=4734

  Another Year at the Federal Trough: Farm Subsidies for the Rich, Famous, and Elected Jumped Again in 2002by Brian M. RiedlBackgrounder #1763 May 24, 2004 | |

Taxpayers funding Washington's $20,000-per-household budget have long known they are not getting their money's worth. Farm subsidies are among the most wasteful uses of taxpayer dollars. The budget-busting $180 billion farm bill enacted before the 2002 elections not only encourages the crop overproduction that depresses crop prices and farm incomes, but also undermines trade and encourages other nations to refuse American exports.

Perhaps worst of all, farm subsidies are not distributed to the small, struggling family farmers whom lawmakers typically mention when defending these policies. Rather, most farm subsidies are distributed to large farms, agribusinesses, politicians, and celebrity "hobby farmers." This paper analyzes how Washington distributed farm subsidies in 2002 and illustrates that farm subsidies continue to represent America's largest corporate welfare program.

Farmers Are Not Poor

Farming may be the most federally subsidized profession in America. The persistence of farm subsidy programs results from the popular misconception that they stabilize the incomes of poor family farmers who are at the mercy of unpredictable weather and crop prices. Yet a recent U.S. Department of Agriculture report concluded that, "On average, farm households have higher incomes, greater wealth, and lower consumption expenditures than all U.S. households."1 This statement can be broken down into three parts:

Higher incomes. In 1999, the average farm household earned $64,437--17 percent more than the $54,842 average for non-farmers. Incomes were even higher among the 136,000 households with annual farm sales over $250,000--and who also receive the largest subsidies. Their 1999 average income of $135,397 was two-and-a-half times the national average.2 (See Chart 1.) Farmer incomes are not only high, but also quite stable from year to year, despite agricultural market fluctuations.

Greater wealth. The average farm household had a net worth of $563,563 in 1999--well above the $88,000 national average.3

Lower consumption expenditures. Farm households have fewer costs

than other households because (1) the cost of living is lower in rural America; (2) farm households need to purchase less food from outside sources; and (3) mortgage and utility bills are often classified as business expenses. Consequently, the average farm household spent only $25,073 on goods and services in 1999, which is $11,000 less than the average non-farm family.4

Because farmers are relatively wealthy, alleviating farm poverty would not be very expensive. Just $4 billion per year would guarantee every full-time farmer in America a minimum income of 185 percent of the federal poverty level ($34,873 for a family of four in 2004).5 However, farm subsidies are more corporate welfare than poverty relief, so Washington instead spends $12 billion to $30 billion annually subsidizing large farms and agribusinesses that are much wealthier than the taxpayers footing the bill.

How Farm Subsidies Target Large Farms

Eligibility for farm subsidies is determined by crop, not by income or poverty standards. Growers of corn, wheat, cotton, soybeans, and rice receive more than 90 percent of all farm subsidies: Growers of nearly all of the 400 other domestic crops are completely shut out of farm subsidy programs. Further skewing these awards, the amounts of subsidies increase as a farmer plants more crops.

Thus, large farms and agribusinesses--which not only have the most land, but also are the nation's most profitable farms because of their economies of scale--receive the largest subsidies. Meanwhile, family farmers with few acres receive little or nothing in subsidies. Farm subsidies have evolved from a safety net for poor farmers to America's largest corporate welfare program.

With agricultural programs designed to target large and profitable farms rather than family farmers, it should come as no surprise that farm subsidies in 2002 were distributed overwhelmingly to large growers and agribusinesses--including a number of Fortune 500 companies. Chart 2 shows that the top 10 percent of recipients received 65 percent of all farm subsidies in 2002.6 At the other end, the bottom 80 percent of recipients (including most family farmers) received just 19 percent of all farm subsidies.

Chart 3 also shows that the number of farms receiving over $1 million in farm subsidies in one year increased by 13 percent to a record 78 farms in 2002. Riceland Foods, an Arkansas co-op, topped the list by amassing a staggering $110 million in farm subsidies for its members--more than subsidies to every farmer in Nevada, West Virginia, Vermont, Maine, Delaware, New Jersey, Massachusetts, Connecticut, New Hampshire, Alaska, Hawaii, and Rhode Island combined. (See Chart 4.) Table 1 shows the 13 members of the "$2 million club."

Why Farm Subsidies Will Continue to Target Large Farms

Although farm subsidies have targeted large farms for decades, the evolution of farm subsidies into a corporate welfare program has accelerated in recent years for two reasons:

Congress has siphoned record amounts of money into farm subsidies since 1998.

Farm subsidies have helped large corporate farms buy out small farms and further consolidate the industry.

Despite an attempt to phase out farm programs in 1996, Congress reacted to slight crop price decreases in 1998 by initiating the first of four annual "emergency" payments to farmers. Subsidies increased from $6 billion in 1996 to nearly $30 billion in 2000, even though farmers have incomes and net worths substantially higher than the national average. Predictably, as subsidies increased, the amounts of subsidies for large farms and agribusinesses also increased. A growing farm economy has subsequently caused a decrease in farm subsidy spending--yet spending remains much higher than in the 1990s.

Although increased subsidies help to explain why large farms are receiving more money, they do not explain why they are receiving a larger portion of the overall farm subsidy pie. Since 1991, subsidies for large farms have nearly tripled, while subsidies for small farms have not increased.7 Large farms are grabbing all of the new subsidy dollars because the federal government is helping them to buy out small farms. Specifically, large farms are using their massive federal subsidies to purchase small farms and consolidate the agriculture industry. As they buy up smaller farms, not only are these large farms able to become more profitable by capitalizing further on economies of scale, but they also become eligible for even more federal subsidies--which they can then use to buy even more small farms.

The result is a "plantation effect" that has already affected America's rice farms, three-quarters of which have been bought out and converted into tenant farms.8 Other farms growing wheat, corn, cotton, and soybeans are tending in the same direction. Consolidation is the main reason that the number of farms has decreased from 7 million to 2 million (just 400,000 of which are full-time farms) since 1935, while the average farm size has increased from 150 acres to more than 500 acres over the same period.9

This farm industry consolidation is not necessarily harmful. Many larger farms and agribusinesses are more efficient, use better technology, and can produce crops at a lower cost than traditional farms. Additionally, not all family farmers who sell their property to corporate farms do so reluctantly.

The concern is not consolidation per se, but whether the federal government should continue to subsidize these purchases through farm subsidies and whether multimillion-dollar agricultural corporations should continue to receive welfare payments. When President Franklin D. Roosevelt first crafted farm subsidies to aid family farmers struggling through the Great Depression, he clearly did not envision a situation in which these subsidies would be shifted to large Fortune 500 companies operating with 21st century technology in a booming economy.

Millions for Millionaires, the Elected,and Connected

A glance at those who received farm subsidies in 2002 shows that many of them do not need federal dollars. Table 2 shows the 12 Fortune 500 companies that received farm subsidies in 2002. John Hancock Mutual Life Insurance's $2.3 million farm subsidy payment was by far the largest among these companies. The farm subsidies granted to these Fortune 500 companies since 1995 are--on average--70 times larger than those granted to the median farmer.

Table 3 lists the nine Members of Congress who received farm subsidies in 2002. Since 1995, these lawmakers have received subsidies averaging 46 times those received by the median farmer. Five of the nine lawmakers also sit on the House or Senate agriculture committees overseeing these programs.

Table 4 details other notable farm subsidy recipients, including:

David Rockefeller, the former chairman of Chase Manhattan and grandson of oil tycoon John D. Rockefeller, who received 99 times more subsidies than the median farmer;

Scottie Pippen, professional basketball star, who received 39 times more subsidies than the median farmer;

Ted Turner, the 25th wealthiest man in America, who received 38 times more subsidies than the median farmer; and

Kenneth Lay, the ousted Enron CEO and multi-millionaire, who received 3 times more subsidies than the median farmer.

Reform Options

Several options exist to shift farm subsidies away from large agribusinesses. The best option would be for Congress to recognize that farm subsidies are unnecessary, outdated, and counterproductive by:

Completing the phase-out of farm subsidies that was scheduled to begin following the 1996 "Freedom to Farm" law (and was abandoned in the 2002 farm bill);

Replacing farm subsidies with a subsidized crop insurance program that is designed to protect family farmers from the short-term risks of farming (such as bad weather); and

Pressuring other nations to follow America's lead and repeal their own trade-distorting farm policies, thereby opening up new markets for American farm exports.

Instead of taxing Americans to support a centrally planned agriculture policy, these reforms would leave farmers free to compete and prosper in the global free market.

Alternatively, lawmakers who are hesitant to repeal farm subsidies could save billions by limiting the subsidies that each farm may receive. Farm policy was never intended to provide millions for millionaires, and policymakers can refocus farm policy by enacting the reforms listed in Table 5.

Conclusion

Lawmakers who are serious about fiscal restraint should consider farm subsidies one of the most justifiable places to find savings. These corporate welfare programs enrich agribusinesses and other non-farmers at the expense of family farmers, the farm economy, and taxpayers. With federal spending spiraling out of control and the budget deficit approaching $500 billion, taxpayers can no longer afford to pay farm subsidies to the rich and famous.

Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation.

 1. U.S. Department of Agriculture, "Income, Wealth, and Economic Well-Being of Farm Households," Agricultural Economic Report No. 812, July 2002, p. 42.

2. Ibid., pp. 16 and 52.

3. Ibid., p. 17.

4. Ibid., p. 12.

5. U.S. Department of Agriculture, "A Safety Net for Farm Households," Agriculture Outlook, January-February 2000, pp. 19-24. The authors estimated a cost of $7.8 billion when including everyone who reports any farm income, including "hobby farmers" who have other full-time jobs. Restricting their data to full-time farmers--defined as lower sales, higher sales, and large family farms, as well as a fraction of limited-resource farms that are also full-time--the total cost adds up to approximately $4 billion. The eligibility threshold for several federal income-assistance programs, like Women, Infants, and Children (WIC), is 185 percent of the federal poverty level.

6. Unless otherwise noted, all farm subsidy recipient statistics in this paper are provided by the Environmental Working Group at www.ewg.org.

7. U.S. General Accounting Office, Farm Programs: Information on Recipients of Federal Payments, GAO-01-606, June 2001, p. 14.

8. Elizabeth Becker, "Land Rich in Subsidies, and Poor in Much Else," The New York Times, January 22, 2002.

9. Robert A. Hoppe, "Structural and Financial Characteristics of U.S. Farms: 2001 Family Farm Report," U.S. Department of Agriculture, Economic Research Service, Agriculture Information Bulletin No. 768, May 2001, p. 6.

 

© 1995 - 2006 The Heritage FoundationAll Rights Reserved.http://www.heritage.org/Research/Budget/bg1763.cfm

INDEPTH: SOFTWOOD LUMBER DISPUTESoftwood lumber disputeCBC News Online | July 4, 2006

SOFTWOOD LUMBER GLOSSARYSoftwood lumber: Easy-to-saw wood such as pine and spruce used in building. Board foot: A unit of volume for wood equal to 144 cubic inches, or one square foot of one-inch-thick board. Countervailing duties: Applied on imports found to be unfairly subsidized. Dumping: Selling goods in another country at less than what they cost to produce. Stumpage: A fee charged by Canadian governments to logging companies for the right to harvest lumber from public land. Canada's protracted dispute with the United States over softwood lumber ended in April 2006 with an agreement that would see the U.S.

return about 80 per cent of the more than $5 billion in duties it has collected on lumber imports. The deal was signed in July 2006, but lumber industry groups in three provinces and the B.C. government have said they will not support the final draft agreement. The deal removes tariffs on lumber, but includes export taxes that kick in when the price of lumber drops. Producers would have to pay an export tax of five per cent if there's a small drop in price. If the reduction is greater, they would have to pay as much as 15 per cent. The agreement remains in effect for seven years, with the possibility of renewal. Disputes on softwood lumber have simmered for more than 20 years, but the most recent one boiled over in May 2002 when the United States imposed duties of 27 per cent on Canadian softwood lumber, arguing that Canada unfairly subsidized producers of spruce, pine and fir lumber. An agreement-in-principle to end the dispute was reached in December 2003. But it died two days later and the issue went before North American Free Trade Agreement panels and the World Trade Organization several times. Rulings have usually gone Canada's way. At issue The dispute centred on stumpage fees – set amounts charged to companies that harvest timber on public land. Many in the U.S. see Canadian stumpage fees as being too low, making them de facto subsidies. A U.S. coalition of lumber producers wants the provincial governments to follow the American system and auction off timber rights at market prices. The U.S. responded by levying tariffs on incoming Canadian lumber in May 2002. Overview of the dispute The bickering between Canada and the United States over softwood lumber is like a case of sibling rivalry. It dates back several decades. Even within Canada there were divisions. The B.C. Lumber Trade Council argued a trade war with the Americans over softwood lumber would be costly and should be avoided by accommodating U.S. demands. The Free Trade Lumber Council, which includes lumber producers in Quebec and Ontario, wanted to fight it out. What most Canadian foresters and governments do agree on is their goal: free trade in softwood lumber.

In August 2001, the Bush administration backed a U.S. forest industry bid to hit Canadian lumber with billions of dollars in duties. Two months later, the duty was increased when the government imposed an anti-dumping duty on top of the original duty. Dumping is a term used to describe the sale of goods to another country at less than what they cost to produce. The duties were applied separately following the expiration of the softwood lumber agreement between Canada and the U.S., which governed exports from April 1, 1996 to March 31, 2001. Under that agreement, the U.S. guaranteed market access to Canadian exporters for five years and permitted the import of 14.7 billion board feet per year of lumber without fees. The agreement applied to $10 billion worth of lumber produced in British Columbia, Alberta, Ontario and Quebec.The agreement didn't apply across Canada. Since lumber harvested in the Maritimes comes mostly from private land, Maritime provinces weren't subject to the U.S rules. With no extra duties to deal with, Maritime producers saw business rise. When the agreement was signed, Maritime provinces accounted for about five per cent of Canada's lumber production. In the five years following, production in Nova Scotia and New Brunswick soared 62 per cent to more than 1.2 billion board feet. That compares with 1.5 billion board feet produced in Ontario. In New Brunswick, 90 per cent of softwood lumber exports go to the United States. The trade war took a toll on Canadian jobs. Thousands in the industry lost their jobs, including about 15,000 forestry workers who were laid off in British Columbia. In 2001, then-U.S. trade ambassador Robert Zoellick vowed the trade war would continue until Canada imposed its own taxes on lumber exports. Canada has refused to do so. On July 29, 2003, it seemed as if there might be a breakthrough in the dispute when officials on both sides announced a draft deal. As part of the draft, Canada had agreed to cap lumber exports to account for 30 per cent of the U.S. market, down from 34 per cent. If the quota was exceeded, Canada would have to pay a penalty. The plan was nixed two days later when U.S. producers said Canada needed to make more compromises. A NAFTA decision on Aug. 13, 2003 was considered a partial victory for the Canadian side. A panel ruled that, while the Canadian lumber industry is subsidized, the 18 per cent tariff imposed on softwood lumber by the United States is too high. While the ruling didn’t throw

out the duty imposed more than a year earlier, it ordered the U.S. Commerce Department to review its position.The NAFTA report said the U.S. made a mistake in calculating its duties based on U.S. prices, and by not taking Canadian market conditions into consideration. It ordered Washington to recalculate them. NAFTA decisions are legally binding and must be put into effect within 60 days. Two weeks later, a WTO panel concluded that the U.S. wrongly applied harsh duties on Canadian softwood exports. The panel also found that provincial stumpage programs provide a "financial benefit" to Canadian producers. But, the panel made it clear that the benefit is not enough to be a subsidy, and does not justify current U.S. duties. On Aug. 10, 2005, an "extraordinary challenge panel" under NAFTA dismissed American claims that the earlier NAFTA decision in favour of Canada violated trade rules. "We are extremely pleased that the ECC dismissed the claims of the United States," said International Trade Minister Jim Peterson. "This is a binding decision that clearly eliminates the basis for U.S.-imposed duties on Canadian softwood lumber. We fully expect the United States to abide by this ruling, stop collecting duties and refund the duties collected over the past three years," he said. Washington’s initial response was that the ruling doesn’t settle anything – and that it will take more negotiations before this dispute is wrapped up. But by November 2005, the U.S. Commerce Department said it would comply with the NAFTA ruling, even though it disagreed with it. The following month, the U.S. Commerce Department said it had recalculated its countervailing and anti-dumping duties on softwood. The result? The new duties would be set at a total of 10.8 per cent, almost halving the old rate. The decision was expected to save Canadian lumber companies $600 million a year. Still unclear was how or if the U.S. would refund some of the billions in duties it has already collected. And once again, the U.S. lumber industry signalled it might appeal. The Canadian government, in the meantime, announced $1.2 billion in aid for the Canadian lumber industry just before the election was called. U.S. interests called it another kind of subsidy and Washington said it was "disappointed."

In February 2006, the U.S. lumber lobby said the World Trade Organization had ruled that the U.S. had complied with its international obligations while applying anti-dumping duties against Canadian lumber imports. Canadian officials countered that the U.S. was continuing to artificially inflate anti-dumping rates by using different calculation methods to avoid complying with an earlier WTO decision. In March 2006, a NAFTA panel again ruled in Canada's favour, finding that Canadian softwood lumber exports are not subsidized. At this point, the total duties collected by the U.S. had reached $5.2 billion. In April 2006, a World Trade Organization appeal body rejected Canada's request to overturn an earlier decision by the U.S. International Trade Commission. A group of lumber producers in the United States known as the Coalition for Fair Lumber Imports claimed this ruling as another victory in their long-running softwood lumber dispute with Canada. Framework agreement reached Then, on April 26, 2006, came word that Canada and the United States had reached a framework agreement that could form the basis for an end to the dispute. The framework agreement called for the U.S. to return about 80 per cent of the $5 billion in duties that U.S. Customs has collected in the previous four years. Canadian-sourced lumber would also be kept to no more than its current 34 per cent share of the U.S. softwood market. Canada will also collect an export tax on softwood lumber exported to the United States if the price drops below $355 a thousand board feet. The following day, Prime Minister Stephen Harper told the House of Commons that Canada and the United States had agreed on a seven-year deal to end the dispute. Softwood deal signed On July 1, 2006, trade ministers from Canada and the U.S. signed the final legal text of the softwood lumber deal. David Emerson, Canada's international trade minister and U.S. trade representative Susan Schwab signed the agreement in Geneva, where ministers were attending international trade talks. The deal is based on the April 26 framework agreement. Emerson says he will introduce legislation in September 2006 to confirm the agreement and hopes to have it in place by October 1, 2006. Parts of the deal include:

Import duties of $4 billion the U.S. charged Canadian companies since 2002 will be returned. But the U.S. keeps $1 billion.

A seven-year term, with a possible two-year extension. A ban on the U.S. launching new trade actions. Restrictions on Canadian exports will kick in if prices fall too far. Neutral trade arbitrators will provide final and binding

settlements of disputes. Lumber groups in three provinces, B.C. government concerned The deal is signed, but not everyone is happy with it. Lumber industry representatives in B.C., Alberta and Quebec, and the B.C. government have expressed concern about the final draft of the softwood deal. The B.C. government and lumber industry representatives wrote jointly to Ottawa on June 30, 2006 &8212; before the deal was completed &8212; saying "the current draft agreement has not met some of our key requirements. We will, therefore, not be able to offer our support," Canadian Press reported. B.C. is Canada's biggest softwood producer. The Alberta Forest Products Association says the clause allowing either country to end the deal after three years undermines its value. The Quebec Forest Industry Council says it's not ready to support the deal, citing worry about the escape clause. http://www.cbc.ca/news/background/softwood_lumber/