On April 27, 2006, the United States and Canada announced a seven-year framework agreement to resolve their longstanding dispute over U.S. imports of Canadian softwood lumber. The United States-Canada Softwood Lumber Agreement (2006 SLA), which entered into force with amendments on October 12, 2006, establishes Canadian export charges, with the level generally depending on average lumber prices, except for lumber from logs harvested in the Yukon, Northwest Territories, Nunavut, and Atlantic Provinces. As required under the 2006 SLA, the United States has revoked its antidumping (AD) and countervailing duty (CVD) orders on softwood lumber, and 80% of the estimated duties collected are being returned to importers of record. The SLA also provides for the termination of pending litigation, the most recent phase of the dispute having been notable for the volume of domestic and international legal proceedings initiated by Canada and Canadian producers challenging U.S. trade remedy actions. Concerns among U.S. lumber producers about softwood lumber imports from Canada have been raised for decades; the current dispute has persisted for 25 years. U.S. producers argue that they have been harmed by unfair competition, which they assert results from subsidies to Canadian producers, primarily in the form of low provincial stumpage fees (fees for the right to harvest trees from province-owned timberlands) and Canadian restrictions on log exports. Canadians defend their system, and U.S. homebuilders and other lumber users advocate unrestricted lumber imports. This report provides a concise historical account of the dispute, summarizes the subsidy and injury evidence, and discusses current issues and events. The current dispute began in 1981, when letters from Members of Congress and a petition from the U.S. lumber industry asked the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (ITC) to investigate lumber imports from Canada for a possible CVD. The ITC found preliminary evidence of injury to the U.S. industry, but in 1983, the DOC determined that the subsidies were de minimis (less than 0.5%), ending the CVD investigation. In 1986, the U.S. lumber industry filed a petition for another CVD investigation. A 1985 court ruling on a DOC determination of countervailable benefits on certain imports from Mexico was seen as a favorable precedent for reversing the DOC finding on Canadian lumber subsidies. In addition, numerous Senators made it clear to the President that action on lumber imports was necessary for legislative approval of fast-track authority for a United States-Canada free trade agreement. The ITC again found preliminary evidence of injury to the U.S. industry, and the DOC reversed its 1983 determination, with a preliminary finding that Canadian producers received a subsidy of 15% ad valorem (i.e., 15% of lumber market prices). On December 30, 1986, the day before the final DOC subsidy determination was to be issued, the United States and Canada signed a memorandum of understanding (MOU) with Canada imposing a 15% tax on lumber exported to the United States, to be replaced by higher stumpage fees within five years. The U.S. industry then withdrew its petition. In September 1991, the Canadian government announced that it would withdraw from the MOU because most of the provinces had increased their stumpage fees. The U.S. Trade Representative (USTR) responded by beginning a Section 301 investigation, pending completion of a new CVD investigation by the DOC and the ITC. In March 1992, the DOC issued a preliminary subsidy finding of 14.48% ad valorem, with a final determination in May establishing a 6.51% ad valorem subsidy leading to a 6.51% ad valorem duty. In July 1992, the ITC issued a final determination that the U.S. industry had been materially injured by Canadian lumber imports. The Canadian federal government appealed both the DOC and the ITC final determinations to binational review panels established under Chapter 19 of the United States-Canada Free Trade Agreement (FTA), which had entered into force on January 1, 1989. In May 1993, the binational panel reviewing the subsidy determination remanded the DOC finding for further analysis, and in September, the DOC revised its finding to 11.54% ad valorem. In December, the binational subsidy panel again remanded the DOC finding and ordered the DOC to find no subsidies. In January 1994, the DOC complied with the order. Using a provision of the FTA, the USTR requested an Extraordinary Challenge Committee (ECC) to review the binational panel decisions, but the ECC was dismissed in August 1994 for failing to meet FTA standards. The DOC then revoked the CVD, and in October, the USTR announced that it would terminate the Section 301 action. Two events in September of 1994 induced Canada to negotiate restrictions on its lumber exports to the United States. First, the U.S. lumber industry filed a lawsuit challenging the constitutionality of the binational panel review process, now contained in the North American Free Trade Agreement (NAFTA). Second, the President submitted implementing legislation for the GATT Uruguay Round agreements, which explicitly approved the President's Statement of Administrative Action (SAA) accompanying the proposed legislation, the document containing language indicating that because of Canadian practices, lumber imports from Canada could be subject to a CVD. In February 1996, the two nations announced an agreement-in-principle—a fee on Canadian lumber exports to the United States in excess of a specified quota for five years—with the final U.S.-Canada Softwood Lumber Agreement (1996 SLA) signed in May and retroactive to April 1, 1996. The 1996 SLA was effective through March 31, 2001. Annual Canadian lumber imports have risen from less than 3 billion board feet (BBF), about 7% of the U.S. market, in the early 1950s to more than 18 BBF, more than a third of the U.S. market, since the late 1990s. U.S. lumber producers argue that subsidies to Canadian producers give them an unfair advantage in supplying the U.S. market and that this has injured U.S. producers. These two issues—subsidies and injury—are the basis in U.S. trade law for determining whether a CVD is warranted. In addition, critical circumstances , which allow for retroactive duties, are deemed to exist if imports rise significantly after ending import restrictions. Finally, dumping—selling imports at less than the cost of their production—can lead to additional duties. The U.S. lumber industry has argued that the stumpage fees charged by the Canadian provinces are less than the market price of the timber would be and are therefore a subsidy to Canadian producers. About 90% of the timberlands in the 10 provinces are owned by the provinces. The provinces require management plans for forested areas and allocate the timber harvests through a variety of agreements or leases, often for five or more years with renewal options. Stumpage fees for the timber are determined administratively, often with adjustments to reflect changes in market prices for lumber. This contrasts with the U.S. situation, where 42% of the forests are publicly owned and where public timber is typically sold in competitive auctions; thus, much of the timber in the United States is sold by public and private landowners at market prices. The use of administered fees in Canada opens the possibility that the Canadian system results in transfers to the private sector at less than their fair market value, as the U.S. lumber industry has charged. However, comparisons of U.S. and Canadian stumpage fees are often disputed, because of: differences in measurement systems and the imprecision of converting Canadian cubic meters of logs to U.S. board feet of lumber; differences in the diameter, height, quality, and species mix of U.S. and Canadian forests; differences in management responsibilities imposed on timber buyers (e.g., road construction, reforestation); differences in environmental conditions and policies; and other factors. In its 1992 CVD investigation, the DOC identified export restrictions by British Columbia (BC) as a subsidy to BC softwood lumber manufacturers. The DOC found that the BC export scheme constituted indirect government action having the effect of lowering the price of logs sold in the BC domestic market and as a result conferring a benefit on the BC manufacturers by reducing their production costs. BC generally prohibits the export of logs from Crown (provincial) lands to ensure domestic production, provide jobs, and encourage economic development. Export restrictions on public timber in the United States indicate substantially higher prices for export logs than for comparable logs sold domestically. Most economists would consider restrictions that reduce domestic prices below the world market price to be subsidies, and the General Agreement on Tariffs and Trade (GATT) generally prohibits export restrictions. The DOC affirmed its earlier position on the countervailability of export restraints in implementing the Uruguay Round Agreement on Subsidies and Countervailing Measures (SCM). Canada later challenged this approach in a World Trade Organization dispute settlement proceeding, arguing that treating export restraints in this way violated the SCM Agreement. The case is discussed under " WTO Challenges ," below. Proving injury or threat of injury to U.S. lumber producers is also essential to establishing a CVD. The share of the U.S. softwood lumber market provided by Canadian lumber has grown substantially during the past 50 years. In 1952, lumber imports from Canada were less than 3 BBF and Canada's market share was less than 7%. Beginning in 1998, Canadian lumber imports have been more than 18 BBF, rising to 22 BBF in 2005, and Canada's market share has fluctuated between 33% and 35% since 1995. These facts are cited by U.S. producers as evidence that Canadian imports have come at the expense of normal domestic growth in industrial lumber production.