Long-outlawed U.S. trade policy wins WTO approval in Canada's lumber dispute

A World Trade Organization ruling approved a long-outlawed U.S. trade policy on Tuesday, when a panel of adjudicators said Washington's use of "zeroing" to calculate anti-dumping tariffs was permissible in the case of Canadian softwood lumber.

The WTO's long-running row over zeroing is a technical dispute that turned into a power struggle between the United States and the arbiters of international trade law.

The United States has suffered a string of defeats at the WTO over zeroing, a calculation method ruled to have unfairly increased the level of U.S. anti-dumping duties. Zeroing occurs when the investigating authority ignores, by treating as zero, cases where export prices are higher than prices at home. Critics have said this artificially inflates dumping margins.

The repeated losses helped to fuel U.S. President Donald Trump's campaign to reform the WTO, where the United States is blocking appointments at the WTO's Appellate Body, effectively the supreme court of world trade.

Trump said last year the United States could withdraw from the WTO if "they don't shape up."

On Parliament Hill Tuesday, Foreign Affairs Minister Chrystia Freeland said that while she was pleased to see that the WTO found the United States did not follow the rules in calculating the anti-dumping margins, she was concerned by the ruling on zeroing.

"This is a practice which in past rulings has often been condemned, and we are now looking at next steps which Canada can take to challenge this, including possibly an appeal," Freeland told reporters.

U.S. welcomes ruling

U.S. Trade Representative Robert Lighthizer welcomed the ruling by the WTO dispute panel, which he said showed the "erroneous," "unpersuasive" and "flawed reasoning" of Appellate Body rulings in the past.

"The United States commends this panel for doing its own interpretive analysis, and for having the courage to stand up to the undue pressure that the Appellate Body has been putting on panels for many years," Lighthizer said in a statement.

He said the WTO rules did not prohibit zeroing, and the United States would never have signed up to WTO rules that did prohibit the practice.

"WTO Appellate Body reports to the contrary are wrong, and reflect over-reaching by that body," he said.

The panel's decision to side with this American argument this time was "really disappointing," Susan Yurkovich, the chief executive of B.C.'s Council of Forest Industries, told CBC News.

"Prior decisions have ruled in Canada's favour," she said. Because this decision represents a departure from past rulings, the industry would support a federal government decision to test it with an appeal.

The U.S., however, has been blocking new appointments to the WTO's appellate body, raising concerns about whether there will be enough judges available to hear an appeal, as the terms of the few appellate body members left are set to run out in the coming months.

NAFTA hearing next month

Yurkovich described the decision overall as "mixed," pointing out the panel did side with Canada in faulting the way the U.S. calculated its anti-dumping duties. 

Canada launched the WTO dispute in November 2017, saying it would forcefully defend its lumber industry against "unfair, unwarranted and deeply troubling" U.S. tariffs.

Canada has also launched a complaint under the provisions of Chapter 19 of the North American Free Trade Agreement (NAFTA.) The first hearing to investigate American claims of injury to its domestic industry is scheduled for May 7. 

The U.S. Commerce Department had accused Canada of unfairly subsidizing and dumping softwood lumber, which is commonly used in the construction of homes. Its duties affected about US$5.66 billion ($7.5 billion) worth of imports.

In the past, successful trade arbitration has not been enough to end U.S. duties on Canadian lumber. But the prospects for a negotiated settlement this time appear bleak for now.

The U.S. industry is not interested in coming to the table, Yurkovich said, and she doesn't see any meaningful or satisfactory solutions on the horizon.