Dispute Resolution of Softwood Lumber Disputes

Less than six months after the Softwood Lumber Agreement was signed, the United States has invoked the dispute resolution provisions of the SLA to request formal consultations as a prelude to the filing of an arbitration claim.

According to USTR, the dispute concerns application of the “surge” mechanism that is triggered when lumber prices fall below a certain threshold. As prices fall, Canadian provinces must impose additional export taxes to protect against a surge of Canadian lumber. There also is a dispute over whether certain recently-adopted measures violate the “anti-circumvention” provisions. The Canadian government is downplaying the matter, calling it the type of administrative issue that Canada fully expected would arise under the SLA.

Putting aside the substance of the dispute, what I find particularly interesting is the dispute resolution mechanism in the SLA. It stipulates that following the period of consultations, the complaining state may file an arbitration proceeding before the London Court of International Arbitration (LCIA). Article XIV is one of the most complicated dispute resolution clauses I have ever seen, but the key elements include arbitration governed by LCIA arbitration rules, together with the International Bar Association Rules on the Taking of Evidence in International Commercial Arbitration.

Of course, anyone familiar with international arbitration knows that the LCIA is an arbitral body that first and foremost administers commercial arbitrations between private parties. It occasionally administers “mixed claims” between a private party and a sovereign entity, particularly in the context of investment disputes. But it is quite unusual for two governments to agree to arbitrate differences this sensitive or of this magnitude using an institution such as the LCIA.

The SLA dispute resolution clause suggests that we have reached a stage of international dispute resolution in which governments trust private commercial arbitration institutions such as the LCIA to resolve multi-billion dollar inter-state disputes that have major political and economic repercussions. (By comparison, Article V of the 1996 Softwood Lumber Agreement made no provision for recourse to the LCIA, but required ad hoc arbitration by a panel of arbitrators chosen from WTO and NAFTA rosters). It also says something about the lack of trust in existing international tribunals to effectively and efficiently resolve inter-state conflicts. The fact that the SLA has incorporated an LCIA arbitration clause instead of recourse to an international tribunal is a strong endorsement of the effectiveness of private international arbitration over the more traditional option of resolving inter-state disputes before international tribunals.