OTTAWA— From Wednesday’s Globe and Mail
Published Tuesday, Jan. 18, 2011 6:24PM EST
Last updated Tuesday, Jan. 18, 2011 6:37PM EST


The beetle infestation that has ravaged the dense forests of the B.C. Interior could wind up costing Canada a good deal more – up to a half-billion dollars in penalties to the United States.

The Obama administration opened an aggressive new legal front in the enduring trade fight over lucrative softwood lumber exports, accusing Canada of violating a 2006 deal by allowing British Columbia to sell vast quantities of cut-rate, Crown-owned timber to lumber companies.

“When we believe our trading partners are not living up to their obligations, we will not hesitate to enforce our rights,” U.S. Trade Representative Ron Kirk said.

U.S. officials filed formal proceedings on Tuesday to take the case to a three-member arbitration in London. The London Court of International Arbitration could issue a binding ruling as early as July.

Federal and provincial officials insist the U.S. allegations are groundless, and expressed frustration and dismay about Mr. Kirk’s decision to go to court.

Trade Minister Peter Van Loan, who is in Washington on Wednesday and Thursday, acknowledged that British Columbia has been selling cheap timber, but insisted the province did so to get rid of an “unprecedented” volume of beetle-infested logs before they became worthless.

He accused the United States of relying “on unfounded allegations that are flatly contradicted by trade and other economic data.”

Mr. Van Loan vowed to vigorously defend the targeted B.C. producers, which include Canfor Corp. and West Fraser Timber Co. Ltd. “I am disappointed that the United States has rejected co-operative dialogue on this matter in favour of formal dispute settlement,” said Mr. Van Loan, who is not slated to meet with Mr. Kirk.

B.C. Forests Minister Pat Bell insisted all the extra lumber was cut to get rid of dead and dying trees. “U.S. lumber producers would be better off if they continued to work with Canadian producers to grow the market for wood across North America, instead of putting their resources into costly, groundless litigation,” he said.

Many Canadians likely think the cross-border lumber ended in 2006, when Ottawa and the provinces agreed to curb exports to the United States until at least 2013. But it never really went away, continuing a pattern of legal conflict that dates back to before Confederation.

Washington has now filed three arbitration claims since 2006, already winning one. A decision is imminent in a second case involving allegations of illegal subsidies to Quebec and Ontario lumber mills.

The heart of the U.S. case is that B.C. lumber producers have blatantly exploited the beetle infestation and a flawed timber pricing system to get their hands on vast quantities of good, cheap logs during the worst industry slump since the Great Depression. Lumber that typically would be sold to mills for as much as $18 per cubic metre was instead dumped for only 25 cents per cubic metre. The result lowered lumber prices across North America and inflicted pain for U.S. mills, according to the U.S. claim.

In its claim, the United States said the volume of cut-rate lumber made up nearly half the trees cut in the B.C. Interior by the summer of 2008, and has remained elevated since. That violates Canada’s commitment to maintain the pricing system that existed when the 2006 deal was signed.

Washington also accuses some B.C. mill producers of heating logs in kilns to artificially produce cracks, which would then justify paying a lower price to the province for the timber.

So far, neither the B.C. government nor Ottawa have “explained away” why so many supposedly damaged and diseased trees were sold for so little and then turned into apparently high-quality lumber, said Zoltan van Heyningen, executive director of the Washington-based Coalition for Fair Lumber Imports, which represents U.S. lumber interests. The U.S. case is based on “a careful analysis” of publicly available data, he said.

The United States does not quantify the value of the alleged Canadian breech in its 15-page claim. But coalition officials said over-cutting and under-pricing amounts to a giveaway worth as much as $500-million.

A spokesman for the B.C. lumber industry said that the province is the victim in the beetle infestation and that no rules have been broken. “The impact on our timber supply has been staggering, as well as the impact on communities, workers and families, companies and the overall provincial economy,” said John Allan, president of the British Columbia Lumber Trade Council.