WTO appeal body reverses lumber ruling

GENEVA (Reuters) - The World Trade Organisation's Appellate Body, reversing an earlier panel report, ruled on Tuesday that the U.S. method for calculating anti-dumping duties on softwood lumber imports violated global free trade rules.

A WTO dispute panel on April 3 rejected a challenge brought by Canada against a U.S. method known as "zeroing" for calculating anti-dumping duties on billions of dollars worth of softwood lumber imports.

But in a 60-page ruling issued on Tuesday, the three judges on the WTO's Appellate Body -- its highest arbitration court -- found that the use of zeroing was inconsistent with the WTO's Anti-Dumping Agreement.

"The Appellate Body recommends that the (WTO) Dispute Settlement Body (DSB) request the United States to bring its measure into conformity with its obligations under the Anti-Dumping Agreement," it said.

The ruling was celebrated by the Canadian lumber industry as an August 21 deadline looms for Canadian companies to back a negotiated settlement to the softwood dispute or continue with court battles they now appear more likely to win. The United States expressed disappointment.

Either side has 30 days to ask the Dispute Settlement Body to adopt the ruling, which then becomes final unless there is a consensus against it. The DSB, composed of the WTO's 149 member states, is expected to meet in September.

At issue was the U.S. method of calculating margins of dumping in its softwood lumber analysis, which compared Canadian producers' export sales with their sales in Canada.

The Appellate Body found that the margins of dumping set up under the transaction-to-transaction methodology contravened the 1995 WTO Anti-Dumping Pact as they distorted the prices of certain export transactions and artificially inflated the magnitude of dumping.

This resulted in higher margins of dumping and made a positive determination of dumping more likely.

U.S. DISAPPOINTMENT

The case is one of a series brought by Canada, which ships softwood lumber -- spruce, fir and pine -- to the United States for use in construction markets. In 2005, Canada exported $7.4 billion in softwood to the United States, according to the Canadian trade department.

The two neighbors initialed an agreement on July 1 to end the decades-long trade dispute.

"We believe more litigation is not the right approach to our differences with Canada on the softwood lumber trade. It's in the best interests of both the U.S. and Canada to reach a permanent solution," Sean Spicer, spokesman for U.S. Trade Representative Susan Schwab, said of Tuesday's ruling.

"Once you come to an agreement, then you take the litigation out of the question," he added.

The Coalition for Fair Lumber Imports, a U.S. alliance of producers around the country, said the ruling was "just another example of WTO overreaching."

But Carl Grenier, head of Canada's Free Trade Lumber Council, said the legal triumph would make it easier for Canadian companies to reject the negotiated settlement. "This is a great piece of news. It was one of the missing pieces of the puzzle," he said.

The restriction on "zeroing" ensures Canadians will win pending battles in U.S. courts investigating the dumping charges, said Elliot Feldman, attorney for part of the industry in the dispute.

"It's going to require U.S. courts to adjust and change their decisions. We will file today or tomorrow a subsequent authority with the NAFTA panel that is still out on the investigation to ask them to complete their decision," he said.

He will then do the same with the International Court of Trade, where another case is pending.

U.S. coalition chairman Steve Swanson said, "'zeroing' was a common practice when the current WTO rules were put into place, and there is nothing in those rules that forbids it."

The coalition further asserted that data trends in exchange rates, lumber prices and Canadian producer costs were pointing strongly toward sharply higher dumping margins "whether or not 'zeroing' is used."

(Additional reporting by Sophie Walker in Washington, D.C. and Louise Egan in Ottawa)