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LAST WEEK's article "Truck Logger AGM " can be found HERE
The US rebuttal to Canada's defense at the most recent arbitration under the 2006 Softwood Lumber Agreement, initially filed on December 23, has been made public. At 145 pages it is no more light reading than any of the other legal documents filed at the LCIA, the international tribunal charged with settling 2006 SLA disputes. In the rebuttal, the US Trade Representative's Office strengthens its case against the Interior Region of British Columbia for alleged subsidies to stumpage fees in that province's effort to harvest as much of the mountain pine beetle-killed timber as possible before its degrades beyond usefulness for lumber. The US rebuttal also answers Canada's defense against the initial US claim and the expert witnesses report.
Please see the August 26 issue of your Madison's Lumber Reporter for a summary of the US claim, and the September 16 issue for a summary of the expert witness report. Also please see the December 2 issue for a breakdown of Canada's defense.
BC Arbitration UpdateBritish Columbia's lumber industry is awaiting the eventual LCIA ruling in large part due to the vast sums the US is requesting. In its statement of case, the US laid out a claim for penalties to be charged to BC under the 2006 SLA to a total of US$499 million.
As most people know, the 2006 SLA ended much of the softwood lumber litigation between Canada and the US but replaced the potentially refundable export duties collected by the US with a non-refundable export tax that is collected by the Canada Revenue Agency and stays in Canada.
At the Truck Loggers AGM in Victoria, BC, last week, Russ Cameron of the BC Independent Wood Processors Association (formerly the Independent Lumber Remanufacturers Association) spoke for his members and the difficulties remanufacturers face in having to pay export tax on their products despite not being tenure-holders.
Madison's caught up with Cameron this week for further explanation.
"This trade dispute is about the adminstrative pricing of public timber harvested by tenured companies. Our members companies do not have tenure," explained Cameron in a phone interview. "We are buying our wood fibre on the open market in competition with the Americans and everyone else in the world, yet if we have British Columbians process our home grown fibre in British Columbia, we have to pay a 15 per cent Canadian imposed Border tax when we ship our products to the US."
It was Cameron who pointed out to Madison's that the US request for penalty seems to have changed, to US$303.6 million from the $499 million made in the initial US claim.
"Is this a 'back-up' claim?" Cameron asked Madison's. "Or has the US reduced the requested penalty?"
Yes, it turns out that they have.
In Canada's defense the federal government claimed that if BC's Grade 4 logs were indeed misgraded, buyers would bid more for timber stands with a significant proportion of low quality timber. Canada put forth the argument that there is no misgrading in BC and no breach of the 2006 SLA because if there were the bids for stands with a lot of Grade 4 timber would actually have been higher.
It seems the US went back to BC Timber Sales to test this notion and found it was actually true.
"BC may be recapturing some of the revenue loss from excessive Grade 4 through Grades 1 and 2 prices that are higher than they would otherwise be, due to the misgrading," explained Zoltan van Heyningen to Madison's in an email. "If so, the Tribunal would probably want to offset the penalty with any amount that BC recaptured through higher BCTS prices."
So in essence the US is deducting what appears to be artificially high #1 and #2 sawlog prices from the total penalty request rather than risk having the LCIA tribunal make that calculation.
Using fictitious numbers by way of illustration, van Heyningen explained further in a phone interview with Madison's Friday morning, "Let's say a timber stand is 20 per cent Grade 4, which is worth $0.25 on BCTS, and a bidder would pay $5 per cubic metre for the 80 per cent Grade 1 and 2 sawlogs in that stand. So let's say the bid for that stand would be $30,000. But actually the stand contains 40 per cent Grade 4, with no change to the quality, the bidder still pays $30,000 so in effect bid $6 or $7 per cubic metre for the remaining 60 per cent #1 and #2 sawlogs.
"The penalty should be the difference between that $6 or $7 and the $0.25 for the Grade 4 logs. If Canada was not misgrading logs the bid would have stayed at $5 per cubic metre."
The US maintains that such a scenario could only happen if much of the Grade 4 would make the 50-50 rule. In other words, the US is alleging that those #1 and #2 sawlogs sold for $200 million more than they should have, if the Grade 4 timber had not been misgraded. That bidders knew the timber graded at $0.25 was worth more than that, and were looking for margins on the timber sale in its entirety.
Pat Bell, BC's Minister of Jobs, Tourism and Innovation, which is also responsible for trade issues, explained to Madison's in a phone interview, "This latest filing substantiates that the US claim is very weak. The reduction in request for damages is a function of a weak case. No one in their right mind is going to think that a party will reduce its claim if it believes it has a strong case.
"This is typical US behaviour in such matters. They start out huffing and puffing, then they ask for less as more information comes out. When they lose, the US will probably come up with more claims that they hadn't mentioned yet."
"This is the first time that the US is defending their softwood lumber trade claims in an international tribunal. During the softwood lumber dispute the hearings were held in US courts. Even then Canada won several times. I am very confident that Canada will win this arbitration and there will be no penalty charged against BC."
Canada has until February 3, 2012 to file its rebuttal of this latest US document. Hearings at the LCIA in London, UK, take place in March.
