Among findings in Canada’s favour, the World Trade Organization (WTO) has determined that provincial programs to procure biomass power do not constitute an undue market advantage for softwood lumber producers in British Columbia, Quebec and New Brunswick. Reasoning in the WTO decision, released earlier this week, backs Canada’s assertion that the purchase of electricity from on-site generating facilities at various mills is not a benefit or grounds for the United States to apply countervailing duties.
In total, the WTO panel agreed with 16 of the 19 claims Canada submitted in 2018 to address punitive measures the U.S. has imposed on imports of Canadian softwood lumber, which equate to a tariff of approximately 20 per cent. The U.S. Department of Commerce (USDOC) partly justified that action on the contention that B.C. and Quebec provincial utilities had paid above-market rates for biomass power purchases from softwood lumber producers, and that New Brunswick’s policy of reallocating proceeds from the sale of biomass power to reduce some industrial electricity customers’ utility costs amounted to an embedded discount.
U.S. interpretation conflates retail and wholesale electricity prices
In British Columbia and Quebec, the WTO panel examined the provinces’ broader agendas to support renewable energy — noting the BC Energy Plan’s directions to BC Hydro to acquire new sources of energy through electricity purchase agreements and the Quebec Energy Strategy’s priority to encourage small-scale electricity production and new technologies based on biomass — before concluding that the U.S. had not met the standards within the Agreement on Subsidies and Countervailing Measures (SCM Agreement) for deeming if a benefit had been conferred. The WTO panel agreed with Canada’s argument that the U.S. had conflated wholesale and retail electricity rates to arrive at an unrealistic benchmark price for its supposition that BC and Quebec hydro utilities had overpaid for biomass power.
“We find that the USDOC selected a benchmark that did not relate to the prevailing market conditions within the market where BC Hydro purchased electricity,” the decision states. “The benchmark selected by the USDOC should have reflected the prevailing market conditions at the wholesale level, as shaped by the Québec Energy Plan…the USDOC’s determination does not consider the prevailing market conditions of the purchase of energy at the wholesale level, where a differentiation is made based upon the manner in which electricity is generated.”
In New Brunswick, the WTO looked at the premise of the Large Industrial Renewable Energy Purchase Program (LIREPP), which has dual objectives to augment the supply of electricity from renewable sources and to help qualifying industries compete, through equalized utility costs, with those located in other Canadian jurisdictions. While the U.S. characterized procurement of biomass power via LIREPP as “foregone revenue” for the provincial utility, NB Power, Canada maintained it was a “purchase of goods” consistent with the SCM Agreement allowance for assistance to disadvantaged regions within the trading entity’s territory.
The WTO decision agrees with Canada’s interpretation. “Because the USDOC erred in its characterization of the financial contribution at issue, we also find that it failed to properly assess the alleged benefit,” it states.
U.S. National Home Builders Association applauds decision
In addition to claims related to biomass power purchases, the WTO panel concludes the U.S. “acted inconsistently” with the SCM Agreement on 12 other matters. However, it is not a binding decision.
“Canada remains unequivocal: U.S. duties on Canadian softwood lumber are completely unwarranted and unfair. This decision confirms that,” asserts Mary Ng, Minister of Small Business, Export Promotion and International Trade. “Canada does not subsidize its softwood lumber industry.”
Likewise, British Columbia Premier John Horgan notes: “We have always maintained that B.C.’s forest policies are trade compliant. This ruling by the WTO, yet again, confirms that.”
However, he acknowledges it serves only as a moral victory until a new Canada-US Softwood Lumber Agreement is finalized to replace the one that expired nearly five years ago. Accordingly, the U.S. National Home Builders Association (NAHB) is urging Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer to resume negotiations.
“The WTO report could not have come at a more important time,” maintains NAHB chairman Chuck Fowke. “America’s home builders need a sound trade agreement to ensure a consistent supply of reasonably priced lumber. The WTO ruling could provide the impetus for a resumption of trade talks between the United States and Canada.”
Offering an alternative opinion, the U.S. Lumber Coalition accuses the WTO of “judicial overreach”, and Canada of “well documented” unfair trade practices including “gross underpricing of timber”.
“The WTO panel, with this report, like other WTO Appellate Body and panel reports, has added to U.S. obligations and diminished U.S. rights, addressing issues it has no authority to address, taking actions it has no authority to take, and interpreting WTO agreements in ways not envisioned by the WTO members who entered into those agreements,” maintains Zoltan van Heyningen, the organization’s executive director.