GAO 

United States Government Accountability Office

Report to Congressional Committees

SOFTWOOD LUMBER 

ACT OF 2008 

Customs and Border 

Protection 

Established Required 

Procedures, but 

Agencies Report Little 

Benefit from New 

Requirements 

December 2009 

GAO-10-220 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

December 2009

SOFTWOOD LUMBER ACT OF 2008

Customs and Border Protection Established Required 

Procedures, but Agencies Report Little Benefit from 

Highlights of GAO-10-220, a report to New Requirements

congressional committees 

In 2006, the United States and 

Canada signed the Softwood 

Lumber Agreement. The 

agreement, among other things, 

imposed export charges and quotas 

on Canadian lumber exports to the 

United States. To assist in 

monitoring compliance with the 

agreement, in 2008 Congress 

passed the Softwood Lumber Act, 

which imposed several data 

collection and analysis 

requirements on the Department of 

Homeland Security’s U.S. Customs 

and Border Protection (CBP) and 

required two reports from GAO. 

This report discusses (1) CBP’s 

processes for meeting the act’s 

requirements and (2) how these 

requirements contribute to U.S. 

efforts to monitor compliance with 

the 2006 Softwood Lumber 

Agreement. GAO issued a report in 

June 2009 on U.S. agency efforts to 

monitor compliance with the 2006 

agreement. This report includes an 

update on these efforts. 

GAO analyzed information from 

relevant U.S. agencies, interviewed 

knowledgeable officials, and 

discussed these issues with U.S. 

and Canadian industry 

representatives. 

What GAO Recommends

GAO recommends that the 

Secretary of DHS direct the 

Commissioner of CBP to report to 

Congress on how CBP plans to 

fulfill the requirements of the act 

upon the expiration of international 

agreements related to softwood 

lumber. CBP concurred with the 

recommendation. 

Key Elements of the 2006 Softwood Lumber Agreement and the Softwood Lumber Act of 2008 

2006 2008 2013

Softwood Lumber Agreement U.S. Softwood Lumber Act

Overview: 

Bilateral agreement between the 

United States and Canada establishing 

a framework for managing the 

U.S.-Canadian softwood lumber trade

Key provisions:

• export charge and quota on 

Canadian exports

• information exchange requirements

• anticircumvention measures 

• dispute settlement mechanisms

Overview: 

U.S. legislation creating additional 

requirements for CBP regarding 

softwood lumber trade

Key provisions:

• importer declaration

• reconciliation of export price data

• periodic verification of information 

on U.S. entry forms

• semiannual reports on 

implementation of act requirements

• Softwood 

Lumber 

Agreement

expires, 

unless

extended

• Softwood 

Lumber Act

continues

Source: GAO.

CBP has developed processes to reconcile and verify data provided by the 

exporter and importer as required by the act, but officials acknowledge 

continuing issues with data quality. CBP reconciles aggregated export prices 

from the U.S. entry forms with aggregated export prices from Canadian export 

permits. To meet the act’s verification requirement that the importer has 

correctly reported the export price, the tax to be paid by exporters to the 

Canadian government (the export charge), and other information, CBP has 

created a process within its existing data system to collect these data. 

However, CBP has acknowledged continuing problems with data quality. For 

example, CBP port officials manually enter data into this system, which could 

lead to miscoding. CBP reported that the initial implementation of the act 

required extensive effort for the agency, but officials stated that ongoing 

activities need fewer resources. 

According to CBP, Department of Commerce, and Office of U.S. Trade 

Representative officials, the information produced through the reconciliation 

and verification requirements under the act adds little assurance of 

compliance with the 2006 Softwood Lumber Agreement. Some of the act’s 

requirements are to ensure the proper operation of international agreements 

on softwood lumber and enforcement of these obligations. The agreement 

with Canada contains mechanisms for monitoring compliance, and, according 

to U.S. government officials, the added requirements of the 2008 U.S. 

legislation do not provide the U.S. government with additional assurance of 

compliance with the bilateral trade agreement. Specifically, CBP officials told 

GAO the requirements under the act do not provide the United States with 

assurance that the Canadian exporter paid the export charge, because the 

United States does not have access to company-level tax data from Canada. 

While the agreement is scheduled to expire in 2013, the act does not have an 

expiration date. CBP officials said they have not yet determined how they will 

fulfill their requirements under the act when the agreement expires, but they 

would no longer have the estimated export charge data that are used in 

implementing the act. 

View GAO-10-220 or key components.

For more information, contact Loren Yager at 

(202) 512-4347 or yagerl@gao.gov. 
Page i GAO-10-220 

Contents 

Letter 1

Background 3 

CBP Has Developed Processes to Meet the Requirements of the Act 

but Acknowledges Data Weaknesses 6 

Agency Officials Believe That the Act’s Requirements Add Little to 

Their Efforts to Monitor Compliance with the Bilateral Trade 

Agreement; Requirements Are Likely to Continue after the 

Agreement Expires 13 

Conclusions 15 

Recommendation for Executive Action 15 

Agency Comments 15 

Appendix I Scope and Methodology 17 

Appendix II Key Provisions of the 2006 Softwood Lumber 

Agreement 19 

Appendix III CBP Continues to Address Challenges to 

Reconciling Value Data under the 2006 Softwood 

Lumber Agreement 23 

Appendix IV U.S. Agencies Continue Monitoring the 2006 

Softwood Lumber Agreement and Have Identified 

Concerns 26 

Appendix V Comments from the Department of Homeland 

Security 31 

Appendix VI Comments from the Department of Commerce 33 

 Softwood Lumber Act of 2008 
Appendix VII GAO Contact and Staff Acknowledgments 34 

Tables 

Table 1: CBP Implementation of Key Requirements in the Softwood 

Lumber Act of 2008 6 

Table 2: Export Control Options under the 2006 Softwood Lumber 

Agreement 20 

Figures 

Figure 1: CBP’s Process for Reconciling Export Price Data under 

the Act 8 

Figure 2: Lumber Price and Export Charge Rates, October 2005 

through September 2009 22 

Abbreviations 

CBP U.S. Customs and Border Protection 

DFAIT Canada’s Department of Foreign Affairs and International 

 Trade 

ESCM Entry Summary Compliance Measurement 

SLA 2006 2006 Softwood Lumber Agreement 

TIB Temporary Importation under Bond 

USTR Office of the United States Trade Representative 

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page ii GAO-10-220 Softwood Lumber Act of 2008
Page 1 GAO-10-220 

 

United States Government Accountability Office

Washington, DC 20548 

 

December 18, 2009 

The Honorable Max Baucus 

Chairman 

The Honorable Charles E. Grassley 

Ranking Member 

Committee on Finance 

United States Senate 

The Honorable Charles B. Rangel 

Chairman 

The Honorable Dave Camp 

Ranking Member 

Committee on Ways and Means 

House of Representatives 

The United States and Canada have been involved in a decades-long 

dispute regarding trade in softwood lumber. Canada is the primary 

exporter of softwood lumber to the United States. In 2008, Canada 

exported approximately $3.2 billion worth of softwood lumber products to 

the United States, about 17 times the amount supplied by the next biggest 

exporter to the United States. After several years of litigation related to 

U.S. allegations of unfair Canadian subsidies, the United States and 

Canada signed the 2006 Softwood Lumber Agreement.1

 The agreement 

ended ongoing litigation and requires, among other things, the Canadian 

federal and provincial governments to establish export charges and 

quotas2

 for Canadian lumber exports. It also requires the two countries to 

exchange information to support monitoring compliance with the 

agreement.3

In 2008, the United States passed the Softwood Lumber Act that requires, 

among other things, that the U.S. government reconcile and verify 

1

Softwood Lumber Agreement between the Government of Canada and the Government of 

the United States of America, September 12, 2006 (hereafter referred to as “SLA 2006” in 

the footnotes of this report). 

2

The agreement uses the term “volume restraint.” However, for the purposes of this report, 

we use the term “quota” as an equivalent for the term “volume restraint.” 

3

SLA 2006, arts. VI and VII. 

 Softwood Lumber Act of 2008 
 

softwood lumber trade data.4 The act also requires GAO to report on 

(1) whether countries that export softwood lumber or softwood lumber 

products to the United States are complying with international agreements 

entered into by those countries and the United States5

 and (2) the 

effectiveness of the U.S. government in carrying out the reconciliations 

and verifications mandated by the Softwood Lumber Act.6

 In response to 

the first mandate, GAO reported in June 2009 that the U.S. and Canadian 

governments have established mechanisms to monitor compliance with 

the 2006 Softwood Lumber Agreement, but face operational challenges.7

This report primarily addresses the second mandate on U.S. efforts to 

reconcile and verify softwood lumber data as required by the act. In 

addition, in accordance with our agreement with the Senate Committee on 

Finance and the House Committee on Ways and Means, in appendixes III 

and IV we include updated information on U.S. efforts to monitor 

compliance, on which we first reported in June 2009.8

 This report 

(1) describes U.S. Customs and Border Protection’s (CBP) processes for 

meeting the act’s requirements and (2) describes how these requirements 

contribute to U.S. efforts to monitor compliance with the 2006 Softwood 

Lumber Agreement. 

To address these objectives, we obtained and reviewed planning and 

programmatic documents describing CBP reconciliation and verification 

procedures to implement the requirements of the act. We also interviewed 

officials from CBP, the Department of Commerce (Commerce), and the 

Office of the United States Trade Representative (USTR), to obtain their 

perspectives on how the act’s requirements contribute to monitoring 

compliance with the bilateral trade agreement and to obtain updated 

information on compliance concerns with the agreement. We traveled to 

 

4

Softwood Lumber Act of 2008, Pub. L. No. 110-246, § 3301, 122 Stat. 1651, 1844-1853 

(codified at 19 U.S.C. §§ 1683-1683g). The act named the Department of the Treasury to 

implement these requirements, which Treasury delegated to the Department of Homeland 

Security’s U.S. Customs and Border Protection. 

5

To address this mandate, we reviewed U.S. efforts to monitor compliance with the 2006 

Softwood Lumber Agreement. We did not conduct a legal compliance review. 

6

19 U.S.C. § 1683g. 

7

GAO, U.S. and Canadian Governments Have Established Mechanisms to Monitor 

Compliance with the 2006 Softwood Lumber Agreement but Face Operational 

Challenges, GAO-09-764R (Washington, D.C.: June 18, 2009). 

8

GAO-09-764R. 

Page 2 GAO-10-220 Softwood Lumber Act of 2008
 

the ports in Buffalo, New York, and Blaine, Washington, to meet with CBP 

port officials as well as customs brokers representatives. In addition, we 

interviewed officials from Canada’s Department of Foreign Affairs and 

International Trade (DFAIT). We also interviewed industry representatives 

in both the United States and Canada to obtain their perspectives on the 

act’s requirements and the implementation of the bilateral trade 

agreement. We determined that the information used is sufficiently reliable 

for the purposes of this report. (See app. I for more information about our 

scope and methodology.) 

We conducted this engagement from December 2008 to December 2009 in 

accordance with generally accepted government auditing standards. Those 

standards require that we plan and perform the audit to obtain sufficient, 

appropriate evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe that the evidence 

obtained provides a reasonable basis for our findings and conclusions 

based on our audit objectives. 

In this report, we recommend that the Secretary of the Department of 

Homeland Security direct the Commissioner of CBP to report to Congress 

on how CBP plans to fulfill the requirements of the act upon the expiration 

of international agreements related to softwood lumber. We provided a 

draft of this report to CBP, Commerce, and USTR. CBP concurred with the 

report recommendation, stating that it will consult with Congress on how 

to proceed when the Softwood Lumber Agreement expires. Commerce 

also responded that it concurred with the report. We received technical 

comments from CBP and USTR, and incorporated these comments as 

appropriate. We also provided relevant sections to Canadian officials for 

technical comment, which we incorporated as appropriate. 

Since the 1980s, the United States and Canada have been engaged in a 

trade dispute regarding softwood lumber.9

 One of the main causes of the 

dispute is differences in costs for timber harvested on public land in 

Canada as compared with timber from private land in the United States. In 

Canada, federal and provincial governments own approximately 

90 percent of the timberlands and set harvest fees and allocations. In 

Background 

 

9

Softwood lumber is obtained primarily from evergreen, coniferous trees, mainly from the 

spruce, pine, and fir families. The main use of softwood lumber products is for new home 

and building construction and remodeling. 

Page 3 GAO-10-220 Softwood Lumber Act of 2008
 

contrast, in the United States, only about 40 percent of the timberland is 

publicly owned, and the timber from that land is sold through competitive 

auctions. The U.S. lumber industry is concerned that the use of 

government-set fees in Canada raises the possibility that private industry 

in Canada has access to timber at less than market prices. 

The decades-long softwood lumber dispute has alternated between 

periods with a softwood lumber trade agreement and periods of litigation 

without an agreement. In 2006, the United States and Canada ended a 

period of antidumping and countervailing duty proceedings by signing the 

Softwood Lumber Agreement, a 7-year agreement with an option for a 

2-year renewal. The agreement established a framework for managing 

Canadian exports of softwood lumber to the United States. Key provisions 

of the agreement include variable export measures,10 information 

exchange requirements, anticircumvention measures, dispute settlement 

mechanisms, and a settlement agreement to end numerous claims that 

were pending when the agreement was signed. (App. II contains more 

information on the provisions of the 2006 Softwood Lumber Agreement.) 

In 2008, Congress passed the Softwood Lumber Act imposing additional 

requirements on CBP for monitoring the softwood lumber trade. 

According to the legislation, the required reconciliations are to ensure the 

proper operation and implementation of international agreements related 

to softwood lumber.11 Furthermore, the importer declaration program 

established by the act is intended to assist in the enforcement of any 

international obligations arising from international agreements related to 

softwood lumber. The act does not contain language specifying an end 

date for these efforts. Under the act, CBP is to implement the following 

requirements related to softwood lumber imports from all countries: 

 

10The bilateral trade agreement allows Canadian regions to choose between two export 

control systems, with export measures that vary according to the prevailing monthly price 

of lumber. All of the regions were allocated a percentage of U.S. softwood lumber 

consumption based on the regions’ historic exports to the United States. That share of a 

region’s U.S. consumption is used by the Canadian government to calculate quotas. Option 

A consists of an export charge, but no quota. Additionally, a region is subject to a surge 

penalty if the total volume of exports for that region exceeds its trigger volume, which is 

calculated, in part, by its share of U.S. consumption in a month. Option B consists of an 

export charge and a quota. The export charge is paid by the exporter to the Canadian 

federal government. 

11Canada is the only country with which the United States has an agreement specifically 

related to softwood lumber. 

Page 4 GAO-10-220 Softwood Lumber Act of 2008
 

• Importer declaration program: CBP is to establish an importer 

declaration program requiring that importers from any country declare, 

among other things, that they have made an appropriate inquiry and that to 

the best of the person’s knowledge and belief 

• the export price is determined as defined in accordance with the act; 

• the export price is consistent with the export price on the export 

permit, if any, granted by the country of export; and 

• the exporter has paid, or committed to pay, all export charges. 

• Reconciliation: To ensure the proper implementation and operation of 

international agreements related to softwood lumber, CBP is to reconcile 

the export price (or revised export price) declared by the importer with 

the export price (or revised export price) on the export permit, if any. 

• Verification: To verify the importer declaration, the act requires CBP to 

periodically verify that (1) the export price declared by the importer is the 

same as the export price provided on the export permit, if any, issued by 

the country of export and (2) the estimated export charge is consistent 

with the applicable export charge rate as provided by Commerce. 

• Semiannual reports: CBP is to report to Congress every 6 months 

• describing the reconciliations and verifications programs and 

identifying the manner in which the U.S. importers subject to 

reconciliations and verifications were chosen; 

• identifying any penalties imposed under the act and any patterns of 

noncompliance with the act; and 

• identifying any problems or obstacles encountered in the 

implementation and enforcement of the act. 

Page 5 GAO-10-220 Softwood Lumber Act of 2008
 

As shown in table 1, CBP has taken a variety of steps to implement key 

provisions of the Softwood Lumber Act of 2008. CBP Has Developed 

Processes to Meet the 

Requirements of the 

Act but 

Acknowledges Data 

Weaknesses 

Table 1: CBP Implementation of Key Requirements in the Softwood Lumber Act of 2008 

Softwood Lumber Act of 2008 requirements CBP implementation 

Establish an importer declaration program, including that the 

importer has made an appropriate inquiry, and that to the best of 

the person’s knowledge and belief 

• the export price is determined as defined in accordance with 

the act; 

• the export price is consistent with the export price on the ex

permit, if any, granted by the country of export; and 

port • The estimated export charge, if any. 

• the exporter has paid, or committed to pay, all export charges. 

Created a rule for importers of certain softwood lumber products 

exported from any country to the United States, including the 

provision of the following data requirements on the U.S. entry 

form: 

• The export price for each line of softwood lumber. 

• An importer declaration. 

Reconcile the export price declared by the importer with the Collects export price data from the U.S. entry form (importer) and 

gate Canadian regional 

export price on the export permit. Canadian export permit (exporter). 

• Reconciliation is done monthly. 

• Reconciliation is done at the aggre

level. 

Verify the export price, estimated export charge, and importer oftwood lumber subcomponent in its existing Entry 

required 

documentation from importers to 

declaration. 

Created a s

Summary Compliance Measurement program. 

• Entries selected by random statistical sampling. 

• CBP port officials review entry forms to check that 

information is included. 

• CBP port officials request 

verify that the information on the entry form is correct and 

enter findings into a database. 

Report semiannually on implementation of the act. 

sses and 

alties imposed under the act and patterns of 

 implementation. 

009. 

• Describe the reconciliation and verification proce

results. 

• Identify pen

noncompliance under the act. 

• Identify problems or obstacles to

Issued reports in May and October 2

Source: GAO analysis of the Softwood Lumber Act of 2008 and CBP data. 

Page 6 GAO-10-220 Softwood Lumber Act of 2008
 

CBP added three new fields to the U.S. entry form to collect data on the 

export price, estimated export charge, and importer declaration needed 

for the reconciliation and verification processes. CBP started enforcing 

the new requirements imposed by the act in September 2008. The act and 

CBP require these three data elements for softwood lumber imports from 

all countries.12 However, according to CBP officials, only imports from 

Canada include export charge information because of the 2006 Softwood 

Lumber Agreement. Furthermore, CBP reported in October 2009 that 

importers of softwood lumber products from non-Canadian countries have 

a difficult time in determining the correct amount to list as the export 

price because the export price definition in the act contains references 

specific to Canadian softwood lumber, such as “remanufacturer.” 

CBP Revised Its Entry 

Form and Databases to 

Collect Additional Data 

Required by the Act 

CBP Reconciles 

Aggregated Export Price 

Data from Canada with 

Aggregated Export Price 

Data from U.S. Entry 

Forms 

To implement the act’s reconciliation requirement,13 CBP compares 

publicly available aggregate regional export price data from Canada with 

aggregate export price data from the U.S. entry form. (Under the act, CBP 

is reconciling this information only for Canadian exports because Canada 

is the only country with which the United States has an international 

agreement specifically on softwood lumber.) As shown in figure 1, CBP 

obtains the export price from the U.S. entry form, which the U.S. importer 

should copy from the Canadian export permit. CBP then compares 

aggregate monthly data from the U.S. entry forms with the publicly 

available export price data that are posted on the Web site of Canada’s 

DFAIT. 

 

1219 U.S.C. § 1638a and 19 C.F.R. § 12.142. 

1319 U.S.C. § 1683d. 

Page 7 GAO-10-220 Softwood Lumber Act of 2008
 

Figure 1: CBP’s Process for Reconciling Export Price Data under the Act 

Canadian

export

permit

$100

U.S.

entry 

form

$100

U.S. export price

$100

Canadian 

export price

$100

Canadian exporter fills out 

Canadian export permit

Canadian exporter sends

Canadian export permit to 

importer

U.S. importer fills out U.S. entry 

form by copying export price 

from the Canadian export permit

Export 

price

Canadian exporter sends Canadian

export permit to Department of Foreign 

Affairs and International Trade (DFAIT)

U.S. importer sends U.S. entry form to U.S. 

Customs and Border Protection (CBP)

DFAIT posts

aggregate regional 

export price data

on Web site

Sources: GAO analysis of CBP data; map (Map Resources); clip art (Art Explosion).

Canadian

export

permit

$100

Canadian

export

permit

$100

Canadian

export

permit

$100

CBP compares aggregate information. 

Are the total export prices the same?

According to CBP officials, on a monthly basis, they reconcile aggregate 

export price data based on the Canadian region of export. CBP first 

combines the individual-level export price data from each U.S. entry form 

for all shipments during a 1-month period and reconciles these values with 

the aggregate Canadian export data. According to CBP, each month, 

analysts run a computer program to compare the U.S. and Canadian data 

and to identify discrepancies. In its October 2009 semiannual report to 

Congress, CBP reported that the overall variance between the export price 

on the entry summary form and the export price received from the 

Page 8 GAO-10-220 Softwood Lumber Act of 2008
 

“country of export” for the 6-month period between October 2008 and 

March 2009 was 1 percent. 

CBP Adapted Existing 

Mechanisms to Comply 

with the Verification 

Requirements under the 

Act 

As required by the act, CBP has developed processes to verify the importer 

declaration,14 which includes verifying that 

• the export price declared by the importer is the same as the export price 

provided on the export permit, if any, issued by the country of export; 

• the estimated export charge is consistent with the applicable export 

charge rate as provided by Commerce; and 

• importers have “made appropriate inquiry, including seeking appropriate 

documentation from the exporter,” and to the best of the importer’s 

knowledge and belief that the exporter has paid or committed to pay all 

applicable export charges.15

To meet these legislative requirements, CBP adapted its existing Entry 

Summary Compliance Measurement program16 to include softwood lumber 

as a subcomponent. The program selects softwood lumber entries for 

verification via random statistical sampling. When an entry is selected for 

verification, import specialists at the ports review the entry form to ensure 

that all of the required information is included and request supporting 

documentation from the importers to verify that the information on the 

entry document has been recorded correctly. The import specialists then 

enter the results into an electronic database system that CBP headquarters 

accesses and analyzes. 

In its October 2009 semiannual report to Congress, CBP reported that 

approximately 82 percent of the samples its officials verified during the 

 

1419 U.S.C. § 1683e. 

1519 U.S.C. § 1683a. 

16According to CBP, the Entry Summary Compliance Measurement (ESCM) program is a 

primary method by which the agency measures risk in the areas of trade compliance and 

revenue collection. The program is also a key performance indicator used to determine 

whether CBP’s internal controls are operating effectively as they pertain to ensuring 

compliance with laws and regulations. ESCM is intended to provide an indication of how 

compliant the importer universe is based on a random sample and statistical weighting of 

all import transactions. CBP utilizes ESCM to measure the effectiveness of its control 

mechanisms currently in place and the execution in collecting revenue rightfully due. 

Page 9 GAO-10-220 Softwood Lumber Act of 2008
 

first 6 months of the process, from October 2008 to March 2009, correctly 

reported the export price—with a higher rate, almost 85 percent, for 

imports from Canada.17 Regarding the export charge, about 77 percent of 

the entries CBP sampled from Canada had that value reported correctly. In 

addition, CBP reported that about 90 percent of the importer declarations 

were reported properly. According to CBP, the requirements did not apply 

to an additional 5 to 10 percent of the selected Canadian samples because 

they were exempt from the provisions of the bilateral trade agreement. 

Officials stated that the combination of samples that were reported 

correctly and those for which the requirements were not applicable 

brought the overall results for the softwood lumber samples for Canada 

close to what they see for other commodities. 

CBP Officials Attribute 

Discrepancies Partly to 

Data Entry Errors 

Because the importer or customs broker should copy the export price 

from the Canadian export permit onto the U.S. entry form, CBP officials 

said they expect discrepancies in the data to result mainly from the 

following: (1) human errors in copying the export price from one form to 

another and (2) differences caused by converting from Canadian to U.S. 

dollars. In addition, CBP officials explained that the export price for a 

shipment could be listed as one line on the Canadian export permit, but 

broken into multiple lines on the U.S. entry form. CBP has instructed 

importers in how to resolve this issue,18 but officials said that importers 

sometimes do not perform this calculation correctly. 

In its October 2009 report to Congress, CBP reported that discrepancies 

between the export price reported on the Canadian export permit and the 

export price reported on the U.S. entry form have decreased over time. 

CBP reported a variance of almost 16 percent between the U.S. and 

Canadian data in October 2008, the first month of reconciliations under 

the act. By March 2009, the variance between the U.S. and Canadian 

export prices had decreased to approximately 2 percent. 

 

17CBP analyzed 309 entries of softwood lumber from all countries occurring between 

October 2008 to March 2009. Of these entries, 194 were from Canada. 

18On its Web site for frequently asked questions about the act, CBP provided the following 

example of how to perform this calculation: “If the export price listed on the export permit 

is $1,000 and you have two lines on the entry summary, divide the $1,000 [between] the two 

lines. If 75 percent of the entered value is on one line and 25 percent is on the other, then 

list $750 as the export price on the first line and $250 as the export price on the other line. 

The export price listed on both lines on the entry summary should add up to the export 

price on the one line of the export permit.” 

Page 10 GAO-10-220 Softwood Lumber Act of 2008
 

CBP officials told us that 5 to 10 percent of the entries randomly selected 

for review as part of the verification process were not recorded correctly 

due to data entry errors by either the importer or CBP’s import specialists. 

These errors may have been caused by an import specialist incorrectly 

recording the verification data in CBP’s database or not following the 

instructions consistently. CBP officials added, however, that the errors are 

not surprising considering that the requirements are new, and that the 

importers and the CBP import specialists are still learning how to 

correctly record information. 

We identified the following two reasons for data entry errors: 

• Miscoding: Import specialists manually type specially developed softwood 

lumber codes into the remarks section of CBP’s existing electronic 

database system, which could lead to miscoding. For example, preliminary 

results from the first round of the verification cycle from October 2008 to 

March 2009 show “over-reporting” for the importer declaration. The 

verification involves the import specialist obtaining documentation to 

substantiate the importer declaration. There is no calculation or number 

associated with the declaration itself; correct reporting would be 

considered either “not reported” or “reported correctly.” There should be 

no over- or underreporting. 

Officials told us they are migrating from the existing system and will be 

using a new system, Automated Commercial Environment, starting 

January 2010. They stated that the new system will allow them to create 

custom data entry fields, which they believe will most likely diminish 

errors associated with miscoding. 

• Inconsistent application of guidance: Guidance for the import specialists 

conducting the verifications at the ports states that the export price on the 

U.S. entry form could be within a 2 percent margin of the export price 

reported on the Canadian export permit to be considered correctly 

reported. However, at one of the two ports we visited, we observed that 

some, but not all, import specialists had inappropriately applied the 

2 percent margin to the export charge as well. CBP officials at 

headquarters stated that they were unaware of the differences in the 

application of the guidance, but that they were continuing to provide 

outreach to import specialists regarding how to correctly conduct the 

verifications and record the results. 

CBP officials attribute issues with the quality of the data used in the 

reconciliation and verification processes to the relative newness of the 

process. The act was enacted in June 2008 and went into effect in August 

Page 11 GAO-10-220 Softwood Lumber Act of 2008
 

2008, 60 days later. According to CBP’s May 2009 report to Congress, CBP 

delayed enforcement of the importer declaration program 30 days, to give 

CBP time to publish the interim rule describing the new entry 

requirements and to give the trade community time to make the necessary 

changes to provide the three new data elements required for each line of 

softwood lumber articles on the entry form. Industry representatives also 

said they had very little time to reprogram their computer systems to 

collect the necessary data. CBP began selecting random samples of 

softwood lumber entry summaries on October 1, 2008. 

CBP officials told us they conducted a series of training and outreach 

programs to educate import specialists and importers on how to correctly 

fulfill the new requirements the act imposed on shipments of softwood 

lumber. For example, they established an e-mail box to receive questions 

and a “Frequently Asked Questions” section on the agency’s Web site to 

address the new requirements. CBP officials told us they consider the first 

6 months of the verification process a dry run to observe the process and 

determine areas that need improvement. The officials stated that they have 

ongoing efforts to provide further guidance and clarification. As an 

example, they cited memorandums sent to import specialists every 

6 months identifying specific examples that were entered into the system 

incorrectly and needed to be corrected. In addition, headquarters conducts 

quarterly conference calls with staff at the ports and hosts an annual 

meeting to discuss issues related to the overall Entry Summary 

Compliance Measurement process used for all commodities, with 

softwood lumber being one subcomponent of this process. 

CBP Reported Incurring 

Initial Costs to Implement 

the Act, but Indicated That 

Ongoing Resource 

Requirements Are Very 

Limited 

In CBP’s May and October 2009 reports on the agency’s implementation of 

the act, CBP reported that it undertook extensive changes to its systems to 

collect the required data elements on the U.S. entry form. The 

reprogramming of these systems, training personnel, and providing advice 

to the trade community on changes to the entry form required extensive 

effort for the agency. CBP further reported that headquarters had to divert 

resources from import safety, intellectual property rights, and other areas 

to implement the act. However, CBP officials told us that, now that they 

have established the reconciliation and verification processes required by 

the act, the agency’s ongoing efforts related to the act’s requirements do 

not consume as much time as did its initial efforts. For example, CBP 

officials at headquarters and at the ports we visited said that work on 

softwood lumber verifications in particular is not time intensive. 

Page 12 GAO-10-220 Softwood Lumber Act of 2008
 

CBP, Commerce, and USTR officials stated that the information produced 

through the reconciliation and verification requirements under the act do 

not directly help them monitor compliance with the 2006 Softwood 

Lumber Agreement with Canada. The purpose of some of these legislative 

requirements is to ensure the proper implementation and operation of 

international agreements on softwood lumber and assist in the 

enforcement of these obligations.19 The 2006 agreement with Canada 

contains mechanisms for monitoring compliance, and, according to U.S. 

government officials, the added reconciliation and verification 

requirements of the Softwood Lumber Act of 2008 do not provide the U.S. 

government with additional assurance of compliance with the bilateral 

agreement. Specifically, CBP officials told us the requirements of the act 

do not provide them with direct assurance that the Canadian exporter paid 

the export charges owed to the Canadian government under the 

agreement. 

CBP officials said that comparing the aggregate export price data from the 

Canadian export permits with the aggregate export price data from the 

U.S. entry forms provides no additional information on the collection of 

the Canadian export charge. CBP does not examine any export charge 

data in the reconciliation process under the act. The export price, as 

defined in the act,20 does not contain any information on the export charge. 

The export price on the export permit is an estimated price at the time of 

shipment. According to CBP officials, because the export price on the 

Canadian export permit and the U.S. entry form is not the final revised 

export price reported by the exporter to the Canada Revenue Agency, it 

does not represent the value upon which the export charge is paid.21

Agency Officials 

Believe That the Act’s 

Requirements Add 

Little to Their Efforts 

to Monitor 

Compliance with the 

Bilateral Trade 

Agreement; 

Requirements Are 

Likely to Continue 

after the Agreement 

Expires 

Similarly, CBP officials said the verification process for imports from 

Canada does not provide the agency with additional information about 

whether Canadian exporters are complying with the provisions of the 

 

1919 U.S.C. § 1683d and H.R. Rep. No. 110-627. 

2019 U.S.C. § 1683(5). 

21The act states that CBP is to reconcile the export price (or revised export price) declared 

by the importer with the export price (or revised export price) on the export permit, if any. 

In its semiannual reports to Congress, CBP has stated that it does not receive revised 

export price data from any country and therefore is unable to reconcile revised export 

price data. The revised export price data would provide more information about the final 

export price upon which the Canadian export charges under the agreement would actually 

be based. However, since the Canadian government is not obligated to provide that 

information to the United States, CBP cannot reconcile the revised export price. 

Page 13 GAO-10-220 Softwood Lumber Act of 2008
 

bilateral trade agreement, because the U.S. government does not have 

access to the Canadian government’s tax records and therefore has no 

means to confirm whether Canadian companies actually paid the export 

charge. None of the data elements the act requires CBP to verify—the 

export price, estimated export charge, or importer declaration—provide 

additional evidence that the exporter paid the export charge, according to 

CBP officials. As with the reconciliation process, the export price is 

copied from the Canadian export permit to the U.S. entry form and does 

not contain export charge information. The estimated export charge on 

the entry form is reported by the importer based on the estimated export 

price and Commerce’s determination of the export charge rate for that 

month and province. Furthermore, the importer declaration only requires 

importers to affirm that they made the appropriate inquiry that the 

exporter has paid, or committed to pay, any applicable export charges. 

Finally, for CBP to impose a penalty on importers who violate the act, CBP 

is required to prove that the importer committed a “knowing violation.”22

CBP officials told us that this violation is harder to prove than other 

violations of customs laws. In October 2009, CBP reported that it has not 

initiated any penalty actions for violations of the act. 

The requirements of the act, however, may have an indirect effect on 

Canadian exporters’ compliance with the bilateral trade agreement, 

according to USTR and Commerce officials, because the act’s 

requirements demonstrate that the United States is looking closely at 

softwood lumber imports. A representative of the U.S. softwood lumber 

industry said that the act’s requirements may also have improved the 

accuracy of the Canadian data, and that the importer declaration program 

is useful because he believes that it provides additional information on 

whether the export charge was paid. 

Some of the act’s requirements are to ensure the proper implementation 

and operation of international agreements on softwood lumber and assist 

in the enforcement of these obligations.23 The 2006 Softwood Lumber 

Agreement is in force until 2013; however, the act does not have an 

expiration date. As a result, it is unclear whether, or to what extent, CBP 

will need to continue to implement the U.S. legislative requirements when 

the bilateral trade agreement expires. CBP officials said they have not yet 

determined how they will fulfill their requirements under the act when the 

 

2219 U.S.C. § 1683f. 

2319 U.S.C. § 1683d and H.R. Rep. No. 110-627. 

Page 14 GAO-10-220 Softwood Lumber Act of 2008
 

agreement expires, but assume that they will have to continue 

implementing the verification and importer declaration requirements. 

However, without the bilateral trade agreement, CBP would no longer 

have the data for the export charge calculation that are included as part of 

the verification process. A senior CBP official said that the agency would 

probably devote more attention to this issue closer to 2013. 

One purpose of the Softwood Lumber Act of 2008 is to ensure the proper 

operation and implementation of international agreements related to 

softwood lumber. CBP has established mechanisms to comply with its 

requirements. However, officials from USTR, Commerce, and CBP told us 

the act’s requirements add little direct benefit to their efforts to monitor 

compliance with the 2006 Softwood Lumber Agreement, although U.S. 

officials and some industry representatives stated there may be some 

indirect benefit resulting from the increased scrutiny of softwood lumber 

imports from Canada. The act does not state what CBP’s reconciliation 

and verification requirements would be in 2013—when the bilateral trade 

agreement is currently scheduled to expire. It is unclear how CBP would 

implement its continuing requirements under the act and what purpose 

these requirements would have in the absence of an international 

agreement. 

Conclusions 

To provide Congress with sufficient time to clarify the U.S. Customs and 

Border Protection’s requirements under the Softwood Lumber Act of 2008, 

we recommend that the Secretary of Homeland Security direct the 

Commissioner of CBP to report to Congress on how the agency plans to 

fulfill the requirements of the act upon the expiration of international 

agreements related to softwood lumber. 

Recommendation for 

Executive Action 

We provided a draft of this report to the U.S. Customs and Border 

Protection, Department of Commerce, and Office of the U.S. Trade 

Representative. We received written comments from CBP and Commerce, 

which are reprinted in appendixes V and VI. CBP concurred with the 

report recommendation, stating that it will consult with Congress on how 

to proceed when the Softwood Lumber Agreement expires. Commerce 

also concurred with the draft report. We also received technical comments 

from CBP and USTR, which we incorporated as appropriate. We also 

provided relevant sections to Canadian officials for technical comment, 

which we incorporated as appropriate. 

Agency Comments 

Page 15 GAO-10-220 Softwood Lumber Act of 2008
 

We are sending copies of this report to interested congressional 

committees, the Secretary of Commerce, the Secretary of Homeland 

Security, and the U.S. Trade Representative. In addition, this report will be 

available at no charge on GAO’s Web site at http://www.gao.gov. 

If you or your staffs have any questions about this report, please contact 

Loren Yager at (202) 512-4347 or yagerl@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on the 

last page of this report. Individuals who made key contributions to this 

Loren Yager 

report are listed in appendix VII. 

Director, International Affairs and Trade 

Page 16 GAO-10-220 Softwood Lumber Act of 2008
Appendix I: Scope and Methodology Appendix I: Scope and Methodology 

To describe U.S. Customs and Border Protection’s (CBP) processes for 

meeting the reconciliation and verification requirements of the Softwood 

Lumber Act of 2008, we reviewed related documents and interviewed CBP 

officials. We analyzed planning and programmatic documents describing 

CBP reconciliation and verification procedures, reviewed CBP reports 

covering the results of its efforts and discussed these results with CBP 

officials in Washington, D.C. We also traveled to Blaine, Washington, and 

Buffalo, New York, to interview CBP port officials to determine how they 

conduct verifications under the act. We met with lumber industry and 

customs brokers in Washington, D.C.; Blaine; and Buffalo to discuss the 

impact of the act’s requirements on industry. 

To better understand how the act’s requirements for reconciliations and 

verifications contribute to U.S. monitoring of the 2006 Softwood Lumber 

Agreement,1

 we interviewed knowledgeable officials, and obtained 

information from the Department of Commerce (Commerce), the Office of 

the U.S. Trade Representative (USTR), and CBP. We also met with lumber 

industry representatives and customs brokers in Washington, D.C.; Blaine; 

and Buffalo to discuss the effect of the act’s reconciliation and verification 

processes on U.S. government agencies’ monitoring efforts of compliance 

with the bilateral trade agreement. 

To update our June 2009 report2

 about the U.S. government’s efforts to 

monitor compliance with the 2006 Softwood Lumber Agreement, we 

obtained documents summarizing the LCIA (formerly the London Court of 

International Arbitration) decisions and agency documents on compliance 

concerns. We also discussed the status of current compliance concerns 

with officials from Commerce, USTR, and CBP. Our review focused on 

Canada because it is the only country with which the United States has an 

agreement specifically related to softwood lumber and is by far the largest 

exporter of softwood lumber to the United States. Shipment-level data for 

the reconciliations under the bilateral trade agreement were not publicly 

available. GAO did not independently verify the results of these 

reconciliations done under the agreement. CBP provided data on U.S. 

imports from Canada at the regional level. We compared these CBP 

 

1

Softwood Lumber Agreement between the Government of Canada and the Government of 

the United States of America (Sept. 12, 2006). 

2

GAO, U.S. and Canadian Governments Have Established Mechanisms to Monitor 

Compliance with the 2006 Softwood Lumber Agreement but Face Operational 

Challenges, GAO-09-764R (Washington, D.C.: June 18, 2009). 

Page 17 GAO-10-220 Softwood Lumber Act of 2008 
Appendix I: Scope and Methodology 

regional-level data with Census data for volume and value to assess the 

accuracy and consistency of the two data sets. We interviewed officials 

from Canada’s Department of Foreign Affairs and International Trade 

(DFAIT) to update the status of Canadian efforts to comply with the 

bilateral trade agreement and its related coordination efforts with U.S. 

agencies. 

We conducted this performance audit from December 2008 to December 

2009 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives. 

Page 18 GAO-10-220 Softwood Lumber Act of 2008
Appendix II: Key Provisions of the 2006 Appendix II: Key Provisions of the 2006 Softwood Lumber Agreement 

Softwood Lumber Agreement 

The 2006 Softwood Lumber Agreement established a framework for 

managing the U.S.-Canadian softwood lumber trade and includes key 

provisions that are summarized below: 

• Export measures:

1

 The agreement allows Canadian regions2 to choose 

between two export control systems, with export measures that vary 

according to the prevailing monthly price of lumber (see table 2).3

 All of 

the regions were allocated a percentage of U.S. softwood lumber 

consumption based on the regions’ historic exports to the United States.4

That share of a region’s U.S. consumption is used by the Canadian 

government to calculate quotas. 

 

1

(SLA 2006, art. VII.) The export measures do not apply to certain softwood lumber 

products that are first produced in the Maritimes from logs originating in the Maritimes. 

(See SLA 2006, art. X(1) for more details on excluded products from the Maritimes.) The 

export measures also do not apply to softwood lumber products first produced in and from 

logs originating in the Yukon, Northwest Territories, or Nunavut. (SLA 2006, art. X.) The 

agreement also excludes certain companies from the export measures. (SLA 2006, annex 

10.) 

2

The agreement defines “region” as Alberta, the British Columbia Interior, the British 

Columbia Coast, Manitoba, Ontario, Saskatchewan, or Quebec. (SLA 2006, art. XXI(45).) 

3

The prevailing monthly price is defined by annex 7A of the agreement. In January 2010, the 

provinces will have their first opportunity to change which export control option they 

implement. (SLA 2006, art. VII(9).) 

4

The regions’ shares of U.S. consumption are set forth in table 1 of annex 7B of the 

agreement. 

Page 19 GAO-10-220 Softwood Lumber Act of 2008 
Appendix II: Key Provisions of the 2006 

Softwood Lumber Agreement 

• Option A consists of an export charge, but no quota.5 Additionally, a 

region is subject to a surge penalty if the total volume of exports for 

that region exceeds its trigger volume, which is calculated, in part, by 

its share of U.S. consumption in a month.6

• Option B consists of an export charge and a quota.7

Table 2: Export Control Options under the 2006 Softwood Lumber Agreement 

Option B – export charge plus quota 

Prevailing monthly 

price per thousand 

board feet (US$) 

Option A – export charge 

rate (percentage of export 

price) 

Export charge rate 

(percentage of export price) 

Quota (based on region’s share of 

U.S. consumption) 

Over $355 No export charge No export charge No quota 

$336-$355 5.0% 2.5% Region’s share of 34% of the expected 

U.S. consumption for the month 

$316-$335 10.0% 3.0% Region’s share of 32% of the expected 

U.S. consumption for the month 

$315 or under 15.0% 5.0% Region’s share of 30% of the expected 

U.S. consumption for the month 

Source: GAO analysis of the 2006 Softwood Lumber Agreement. 

• Information exchange: 

• The United States and Canada are required to exchange information to 

identify changes in Canadian federal and provincial forest management 

and timber pricing policies.8

 Canada is required to notify the United 

States of changes made to certain timber pricing or forest management 

systems and, among other information, provide evidence of how these 

 

5

Option A was chosen by Alberta, the British Columbia interior, and the British Columbia 

coastal regions. (The agreement divides British Columbia into two regions.) 

6

Under article VIII of the agreement, if the volume of exports from a region exceeds its 

trigger volume by 1 percent or less in a month, Canada shall reduce the applicable trigger 

volume for that region during the next month equal to the overage. Furthermore, if the 

volume of exports from a region exceeds the region’s trigger volume by more than 

1 percent in a month, Canada shall retroactively apply to all exports to the United States 

from that region an additional export charge equal to 50 percent of the applicable export 

charge for that month. Trigger volume is calculated in annex 8 of the agreement. 

7

The quota for option B is calculated in annex 7B of the agreement. Option B was chosen 

by Saskatchewan, Manitoba, Ontario, and Quebec. 

8

SLA 2006, art. XV(13). 

Page 20 GAO-10-220 Softwood Lumber Act of 2008
Appendix II: Key Provisions of the 2006 

Softwood Lumber Agreement 

changes improve statistical accuracy and reliability of a timber pricing 

or forest management system or maintain and improve the extent to 

which stumpage charges9

 reflect market conditions.10 The agreement 

requires each party to respond to requests from the other for 

information relevant to the operation of the agreement.11

• The United States and Canada also are required to exchange 

information to reconcile value and volume data on a region-specific 

basis.12 If the two countries are unable to reconcile region-specific 

aggregated data, the agreement requires the two countries to compare 

more specific data, including comparing information on the Canadian 

export permit with that on the U.S. entry summary form.13 The 

agreement calls for “complete reconciliation” within 9 months of each 

quarter where the parties cannot reconcile region-specific data.14

• Anticircumvention: Under article XVII of the agreement, neither party 

shall take action to circumvent or offset commitments made under the 

agreement, including any action having the effect of reducing or offsetting 

the export measures or undermining the commitments set forth in article 

V.15 Article XVII(2) of the agreement provides clarification with respect to 

the types of actions parties consider would or would not reduce or offset 

the export measures. Some of the actions listed under article XVII(2) 

include provincial timber pricing and forest management systems as they 

existed on July 1, 2006, any modifications or updates to those systems that 

meet specified criteria, and other government programs that provide 

benefits on a nondiscretionary basis in the form and total aggregate 

amount in which they existed and were administered on July 1, 2006. For 

an elaboration of the programs, please see the 2006 Softwood Lumber Act, 

article XVII(2). 

 

9

According to a Congressional Research Service report, stumpage charges are fees for the 

right to harvest timber from province-owned timberlands. 

10SLA 2006, art. XV(14). 

11SLA 2006, art. XV(B)(13). 

12SLA 2006, art. XV(6). 

13SLA 2006, art. XV(8). 

14SLA 2006, art. XV(8). 

15SLA 2006, art. XVII(1). 

Page 21 GAO-10-220 Softwood Lumber Act of 2008
Appendix II: Key Provisions of the 2006 

Softwood Lumber Agreement 

• Dispute settlement: The agreement has mechanisms to resolve disputes 

over compliance, which includes arbitration under the auspices of the 

LCIA. 

In addition, the agreement ended existing U.S. trade remedy 

investigations. It also established the Softwood Lumber Committee, with 

joint Canadian-U.S. representation, and several technical working groups 

to oversee implementation of the agreement. Because of recent low 

softwood lumber prices, the Canadian softwood lumber industry has been 

paying the highest export charge rates mandated by the agreement since 

the enactment of the agreement. (See fig. 2.) 

Figure 2: Lumber Price and Export Charge Rates, October 2005 through September 2009 

150

200

250

300

350

400

450

Oct 05 Jan 06 Apr 06 July 06 Oct 06 Jan 07 Apr 07 July 07 Oct 07 Jan 08 Apr 08 July 08 Oct 08 Jan 09 Apr 09 July 09 Sept 09

U.S. dollars per thousand board feet

Source: GAO analysis of Department of Commerce and 2006 Softwood Lumber Agreement data.

Month/Year

0.0% Export charge rate

5.0% Export charge rate

10.0% Export charge rate

15.0% Export charge rate

2006 Softwood Lumber Agreement

Prevailing monthly price of

softwood lumber products

Option A Provinces

0.0% Export charge rate and no quota

2.5% Export charge rate and quotaa

3.0% Export charge rate and quotab

5.0% Export charge rate and quotac

Option B Provinces

a

Region’s share of 34 percent of the expected U.S. consumption for the month. 

b

Region’s share of 32 percent of the expected U.S. consumption for the month. 

c

Region’s share of 30 percent of the expected U.S. consumption for the month. 

Page 22 GAO-10-220 Softwood Lumber Act of 2008
Appendix III: CBP Continues to Address 

Challenges to Reconciling Value Data under Appendix III: CBP Continues to Address the 2006 Softwood Lumber Agreement 

Challenges to Reconciling Value Data under 

the 2006 Softwood Lumber Agreement 

In June 2009, GAO reported on the challenges that U.S. and Canadian 

officials identified in reconciling the U.S.-entered value and the Canadian 

export price data.1

 Under the 2006 Softwood Lumber Agreement, the 

United States and Canada are required to compare and reconcile the 

import volume and value data from the United States to the export volume 

and value data from Canada by region on a quarterly basis.2

 As of early 

November 2009, the two countries had reconciled 6 quarters of volume 

data but had not been able to fully reconcile the value data for any quarter 

since the 2006 Softwood Lumber Agreement went into effect. (CBP stated 

that they planned to have additional meetings with Canadian officials 

about the reconciliations in November 2009.) We previously reported the 

factors that U.S. and Canadian officials have identified that make 

comparing and matching the U.S. import values to Canadian export values 

challenging. The Canadian value data on the Canadian export permit uses 

an approximate value determined at the time of shipment based on the 

export price definition in the 2006 Softwood Lumber Agreement, while the 

U.S.-entered value on the U.S. entry summary form is defined by statute3

and is expected to be higher because it may include export charges, which 

are not part of the Canadian export price data. More broadly, factors that 

may cause the U.S. values to be different from the Canadian values include 

the following: (1) inconsistent units of measurement, (2) estimated versus 

actual values, (3) inconsistent inclusion of export charges in the prices, 

(4) remanufactured goods, (5) a $500 cap, and (6) a mismatch of shipment 

dates and entry dates. (For a more detailed discussion of each of these 

factors, see GAO-09-764R.) 

CBP officials stated that they have made progress in value reconciliation 

as the quality of data has improved. They acknowledged that, despite this 

improvement, larger differences persist at regional levels compared with 

 

1

GAO-09-764R. 

2

SLA 2006, art. XV(6). 

3

19 U.S.C. § 1401a. 

Page 23 GAO-10-220 Softwood Lumber Act of 2008 
Appendix III: CBP Continues to Address 

Challenges to Reconciling Value Data under 

the 2006 Softwood Lumber Agreement 

aggregate countrywide data. CBP officials believe remanufactured goods4

account for the majority of differences, based on their review of an 

analysis conducted by Canadian officials. As provided in the 2006 

Softwood Lumber Agreement, the U.S. value reported on the U.S. entry 

summary form is the value of the final finished product, while the 

Canadian value on the export permit should be the original cost of the 

wood and should not include the value-added by the remanufacturer. 

According to CBP, the difference between the value of the original wood 

and the final product can exceed thousands of dollars. According to CBP 

officials, they reviewed an analysis by Canada of 1 quarter, which showed 

that remanufactured goods accounted for about 5 percent of the total 

value of softwood lumber shipments for that quarter, but 95 percent of the 

total value discrepancies.5

 CBP officials told us they have not 

independently analyzed the impact of remanufacturers on the value 

differences observed in value reconciliation. They told us that they have 

not yet developed the programming capacity to identify and separate 

exports from remanufacturers from other exports. 

Representatives from the U.S. industry group continue to be skeptical of 

the reconciliation under the bilateral trade agreement and believe Canada 

may be undercollecting export charges based on its own data analysis. 

This analysis, using publicly available data from the U.S. Census Bureau, 

showed that the actual tax collected is consistently lower than the amount 

that the representatives estimate should be collected. Representatives 

from the group told us that they do not believe it is possible for the factors 

identified by the U.S. and Canadian officials to explain the level of 

differences in the values they observed. The U.S. and Canadian trade data 

used in the official reconciliation are not publicly available. GAO did not 

conduct independent evaluation of the reconciliation results. 

 

4

An export charge is applied to the price at primary processing, rather than after it has 

undergone additional processing by a remanufacturer. The agreement defines 

remanufactured softwood lumber products as softwood lumber that has been processed to 

“produce components, semi-finished and/or finished Softwood Lumber Products.” 

Specifically, article XXI of the agreement states: “‘Remanufactured Softwood Lumber 

Products’ means Softwood Lumber Products that are produced by reprocessing lumber 

inputs by subjecting such inputs to one or more of the following: a change in thickness; a 

change in width; a change in length; a change in profile; a change in texture; a change in 

moisture; a change in grading; joining together by finger joisting; turning; or other 

processes that produce components, semi-finished and/or finished Softwood Lumber 

Products.” 

5

According to officials from Canada’s DFAIT, they have conducted this analysis for other 

quarters as well. 

Page 24 GAO-10-220 Softwood Lumber Act of 2008
Appendix III: CBP Continues to Address 

Challenges to Reconciling Value Data under 

the 2006 Softwood Lumber Agreement 

However, CBP provided us with data on U.S. imports from Canada at the 

regional level. Our analysis comparing the CBP data with the Census data 

revealed many differences and inconsistencies. For example, the regional 

differences between CBP value and Census data are not in proportion with 

the size of exports from the region. Quebec accounts for about 20 percent 

of the exports from Canada, but close to 40 percent of the value 

differences between CBP and Census. In addition, the differences between 

CBP and Census data are usually proportionally larger for the value data 

than for the volume data. CBP officials stated it is not possible to replicate 

the official reconciliation using the Census data. 

Page 25 GAO-10-220 Softwood Lumber Act of 2008
Appendix IV: U.S. Agencies Continue 

Monitoring the 2006 Softwood Lumber Appendix IV: U.S. Agencies Continue Agreement and Have Identified Concerns 

Monitoring the 2006 Softwood Lumber 

Agreement and Have Identified Concerns 

U.S. agencies continue to monitor Canada’s compliance with the 2006 

Softwood Lumber Agreement and have identified a number of concerns.1

U.S. agencies monitor compliance through a variety of sources, including 

notifications from Canada that are required under the agreement, news 

reports, and provincial and federal government Web sites for 

announcements of changes to forest policies and programs. According to 

U.S. officials, they have spent substantial resources to determine whether 

some Canadian or provincial programs represent a new or substantial 

change to existing programs that might be exempted from the 

anticircumvention provision of the agreement.2

 U.S. agencies state that 

they investigate their concerns and, where appropriate, request additional 

information from Canada. Should the concerns remain unaddressed, the 

United States may resort to the dispute settlement mechanisms contained 

in the agreement, which can include arbitration under the auspices of the 

LCIA. 

LCIA decisions regarding Canada’s calculation of volume measures.

The first arbitration regarding Canada’s calculation of volume measures 

began in August 2007 (LCIA Case No. 7941). The Canadian government 

contended that adjusting U.S. consumption only applied to provinces 

under the quota provision, and that the adjustment mechanism only 

applied beginning in July 2007. The United States contended that the 

adjustment mechanism applied to calculating expected U.S. consumption 

for all provinces and should have been used beginning the first quarter of 

2007. The arbitration tribunal found that, although the adjustment of 

expected U.S. consumption did not apply to the provinces without a quota, 

Canada should have begun applying the adjustment mechanism to the 

provinces with quotas in January 2007. 

 

1

Our June 2009 report (GAO-09-764R) discussed a variety of compliance concerns. We 

provide in this report an updated status of these issues as well as descriptions of more 

recent concerns. 

2

Under article XVII of the agreement, neither party shall take action to circumvent or offset 

commitments made under the agreement, including any action having the effect of 

reducing or offsetting the export measures or undermining the commitments set forth in 

article V. Article XVII(2) of the agreement provides clarification with respect to the types of 

actions parties consider would or would not reduce or offset the export measures. Some of 

the actions listed under article XVII(2) include provincial timber pricing and forest 

management systems as they existed on July 1, 2006, any modifications or updates to those 

systems that meet specified criteria, and other government programs that provide benefits 

on a nondiscretionary basis in the form and total aggregate amount in which they existed 

and were administered on July 1, 2006. For an elaboration of the programs, please see SLA 

2006, art. XVII(2). 

Page 26 GAO-10-220 Softwood Lumber Act of 2008 
Appendix IV: U.S. Agencies Continue 

Monitoring the 2006 Softwood Lumber 

Agreement and Have Identified Concerns 

The arbitration tribunal determined that 30 days from the remedy award 

was a reasonable period of time for Canada to cure its breach of the 

agreement. Pursuant to the agreement, the arbitration tribunal determined 

that if Canada failed to cure the breach within the 30 days, as 

compensation for the breach, Canada shall be required to collect an 

additional 10 percent export charge on softwood lumber products 

exported to the United States from the option B regions until they had 

collected CDN$68.26 million (US$54.8 million).3

On April 2, 2009, the Canadian government requested arbitration to 

determine whether its proposed payment of US$34 million plus interest to 

the United States had cured the breach (LCIA Case No. 91312). The U.S. 

government did not consider Canada’s offer to make a payment as having 

cured the breach. In addition, because the United States considered that 

Canada failed to either cure its breach or impose the compensatory 

measures determined by the arbitration tribunal, on April 15, 2009, 

pursuant to the agreement, the United States imposed a 10 percent 

customs duty on imports of softwood lumber products from Ontario, 

Quebec, Manitoba, and Saskatchewan.4

In September 2009, the LCIA issued a decision in which it did not consider 

Canada’s tender of US$36.66 million (US$34 million plus interest) to the 

U.S. government as having cured the breach and determined that the 

remedy required Canada to impose export charges on the involved 

regions. The LCIA decision did not issue any ruling on whether the United 

States was required to remove its 10 percent ad valorem customs duty on 

softwood lumber products from the involved Canadian provinces at this 

time. The decision encouraged both parties to agree on an amicable 

settlement regarding this issue. According to Canadian government 

officials, the Canadian government has developed mechanisms to collect 

the 10 percent export charge from these provinces. Canada has proposed 

 

3

The tribunal ruling is in Canadian dollars. The U.S. dollar amount is based on the exchange 

rate at the time of the award. 

4

In the Federal Register notice announcing the imposition of the duty, USTR stated that the 

2006 Softwood Lumber Agreement provides that in the event the complaining party finds 

that the defending party has failed to cure the breach or impose the compensatory 

adjustments determined by the tribunal within 30 days of an award, the complaining party 

is entitled to impose the compensatory measures itself. Accordingly, with regard to 

Canada’s 2007 breach of the agreement, the agreement authorizes the United States to 

impose duties in an amount not to exceed the additional export charges that the tribunal 

has specified as compensation for the breach. 74 Fed. Reg. 16436 (Apr. 10, 2009). 

Page 27 GAO-10-220 Softwood Lumber Act of 2008
Appendix IV: U.S. Agencies Continue 

Monitoring the 2006 Softwood Lumber 

Agreement and Have Identified Concerns 

to the United States that the two countries coordinate on establishing a 

mutually acceptable date to lift the U.S. duty and impose a Canadian 

export charge. According to USTR officials, the United States is 

considering Canada’s proposal. 

U.S. request to LCIA regarding Ontario and Quebec provincial 

programs. In January 2008, the United States requested arbitration to 

determine whether six provincial programs or other measures in Ontario 

and Quebec circumvent the agreement (LCIA Case No. 81010). The U.S. 

government contends that these measures include a number of grants, 

loans, loan guarantees, tax credits, and programs to promote wood 

production that circumvent the commitments made by Canada in the 

agreement. Canada maintains that these measures are in full compliance 

with the agreement. A decision on this case is expected in 2010. 

Concern about the large amount of low-grade timber harvested in 

Central British Columbia. U.S. agency officials remain concerned about 

the large amount of lumber being produced from low-grade timber from 

the mountain pine beetle-infested British Columbia interior region. 

Although the grade definitions existed prior to the agreement,5

 U.S. 

agencies question whether the grading system is being appropriately 

applied. Lumber producers pay the minimum harvest fee of CDN$0.25 per 

cubic meter for this low-grade wood. Since the mid-1990s, large sections of 

central British Columbia have been infested with the mountain pine beetle, 

a bark beetle that attacks and kills mature lodgepole pine trees. Natural 

Resources Canada, a federal agency, anticipates that the beetle will kill 

80 percent of British Columbia’s mature pine forests by 2013. As a result of 

the beetle infestation, lumber companies in the British Columbia interior 

region are currently harvesting a large volume of dead trees. British 

Columbia’s lumber industry has adopted the practice of heating mountain 

pine beetle-infested timber to reveal any preexisting cracks, a process that 

 

5

Under article XVII of the agreement, neither party shall take action to circumvent or offset 

commitments made under the agreement, including any action having the effect of 

reducing or offsetting the export measures or undermining the commitments set forth in 

article V. Article XVII(2) of the agreement provides clarification with respect to the types of 

actions parties consider would or would not reduce or offset the export measures. Some of 

the actions listed under article XVII(2) include provincial timber pricing and forest 

management systems as they existed on July 1, 2006, any modifications or updates to those 

systems that meet specified criteria, and other government programs that provide benefits 

on a nondiscretionary basis in the form and total aggregate amount in which they existed 

and were administered on July 1, 2006. For an elaboration of the programs, please see SLA 

2006, art. XVII(2). 

Page 28 GAO-10-220 Softwood Lumber Act of 2008
Appendix IV: U.S. Agencies Continue 

Monitoring the 2006 Softwood Lumber 

Agreement and Have Identified Concerns 

they contend allows for correct lumber grading. U.S. industry contends 

that this process inflates the amount of low-grade timber and thus reduces 

cost for British Columbia lumber producers. 

U.S. agency officials visited British Columbia in summer 2008 to 

investigate the grading of beetle-killed timber. Subsequently, the United 

States sent Canada a number of technical questions, including questions 

on the grading system. In spring 2009, a delegation from British Columbia 

traveled to Washington, D.C., and briefed U.S. government officials on 

grading and the mountain pine beetle issues. In October 2009, the 

delegation again met with U.S. government officials and provided specific 

responses to each of the outstanding questions that the United States had 

sent to the province prior to this meeting. According to USTR and 

Commerce officials, the United States is now reviewing and analyzing 

these data and other information provided. 

Concern about reduced fees for harvesting timber in coastal 

British Columbia. U.S. government officials have questions about the 

January 2009 reduction in the fees charged for harvesting timber in the 

British Columbia coast. The British Columbia Ministry of Forests and 

Range uses an equation, under the coast market pricing system, to 

determine the fees charged for harvesting timber from public land. The 

equation is updated annually to account for changes in the market value of 

timber and in other factors, such as the cost of road construction or 

replanting trees, and is also adjusted quarterly to reflect changes in market 

conditions. The equation was grandfathered into the agreement; however, 

U.S. officials are concerned with how British Columbia has adjusted the 

equation. According to British Columbia officials, the January 2009 fee 

reduction was the result of the confluence of the annual and quarterly 

updates of the timber fee equation. U.S. agency officials have requested 

additional information from Canada. USTR officials stated in September 

2009 that Canadian officials have invited U.S. econometricians to British 

Columbia to discuss the details of the adjustments with the British 

Columbia provincial officials who made the adjustments to the equation. 

Concern about potential abuse of the Temporary Importation 

under Bond program. CBP headquarters and port officials expressed 

concern that the Temporary Importation under Bond (TIB) program could 

be abused by the softwood lumber industry. According to data from CBP, 

a comparison of TIB imports to total softwood imports shows that TIB 

represented less than 0.08 percent of total softwood lumber imports for 

fiscal year 2009. Although officials acknowledge that TIB imports are a 

small amount of total imports, they stated that they are examining the 

Page 29 GAO-10-220 Softwood Lumber Act of 2008
Appendix IV: U.S. Agencies Continue 

Monitoring the 2006 Softwood Lumber 

Agreement and Have Identified Concerns 

issue. TIB is a procedure whereby, under defined circumstances, 

merchandise may enter into a U.S. Custom’s territory temporarily, for a 

period of up to 1 year.6

 Such goods must be covered by a bond, and the 

importer must agree to export or destroy the merchandise within a 

specified time or pay liquidated damages, normally double the estimated 

duties applicable to the entry.7

 Although softwood lumber products from 

Canada covered under the Softwood Lumber Agreement are subject to the 

export measure and export charge, they are not subject to a U.S. import 

duty.8

 The liquidated damages for products under TIB is limited to 

$100 per entry. For example, according to CBP port officials in Blaine, 

some softwood lumber products that enter the United States from Canada 

under TIB are not required to be accompanied by a permit issued under 

the Canadian export permit program, because the intent is to manufacture 

the lumber into wood siding at a U.S. plant. Port officials pointed to the 

positive economic benefits for local U.S. businesses from such shipments. 

However, these port officials also raised concerns that they are limited to 

applying a $100 liquidated damages fee if they are not supplied with proof 

of export. These officials stated that the $100 liquidated damages would 

represent a small fraction of the 15 percent Canadian export tax that 

would normally be applied to softwood lumber exports. The port officials 

stated that in recent years, about 9 percent of softwood lumber entries at 

that port were under the TIB program and that for fiscal year 2009, about 

5 percent of these entries had not been properly closed out showing 

export. The officials stated that they are not certain whether the failure to 

close these TIB movements was a paperwork oversight or represented 

cases where the goods had stayed in the United States without making 

formal entry and without paying the Canadian export charge. 

 

6

An item imported under TIB must be exported within 1 year from the date of importation. 

However, upon application, this period may be extended but cannot exceed a total of 

3 years. The importer must present proof to CBP that the item was exported to avoid 

paying liquidated damages. See 19 C.F.R §§ 10.31-10.40 

7

19 C.F.R. § 10.39. 

8

However, softwood lumber imports from Ontario, Quebec, Manitoba, and Saskatchewan 

are subject to the current ad valorem tax of 10 percent. 

Page 30 GAO-10-220 Softwood Lumber Act of 2008
Appendix V: Comments from the Department Appendix V: Comments from the Department of Homeland Security 

of Homeland Security 

Page 31 GAO-10-220 Softwood Lumber Act of 2008 
Appendix V: Comments from the Department 

of Homeland Security 

Page 32 GAO-10-220 Softwood Lumber Act of 2008
Appendix VI: Comments from the Department Appendix VI: Comments from the of Commerce 

Department of Commerce 

Page 33 GAO-10-220 Softwood Lumber Act of 2008 
Appendix VII: GAO Contact and Staff Appendix VII: GAO Contact and Staff Acknowledgments 

Acknowledgments 

Loren Yager, (202) 512-4347 or yagerl@gao.gov

In addition to the contact named above, Celia Thomas, Assistant Director; 

Jason Bair; Ming Chen; Karen Deans; David Dornisch; Tim Fairbanks; 

Rachel Girshick; Grace Lui; and Christina Werth made key contributions to 

this report. Kate Brentzel and Etana Finkler provided technical support. 

Page 34 GAO-10-220 Softwood Lumber Act of 2008

GAO Contact 

Staff 

Acknowledgments 

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