Decision Nears on Canadian Lumber Imports

Published June 1, 2003

A 27 percent duty imposed by the United States on imported Canadian softwood lumber is currently being deliberated on free trade grounds by a binational panel established by the North American Free Trade Agreement (NAFTA).

The U.S. federal government defends the duty as a response to a Canadian trade practice it deems unfair: the granting by some provinces of non-competitive, inexpensive logging permits on Canadian public lands.

The NAFTA panel held hearings on the matter April 15-17 and is expected to decide this summer whether the Canadian permitting procedures result in improper “dumping” of Canadian lumber into the U.S. at below-market costs.

Years-Old Controversy

The U.S. imposed the duty in May 2002, a year after Canada refused to renew a U.S.-Canada Softwood Lumber Agreement. The agreement had limited exports of softwood lumber from Canadian provinces that granted discretionary and inexpensive logging permits, rather than award the permits by competitive bidding, on public lands.

The U.S. asserts the permitting practice runs counter to free-market principles and gives Canadian lumber companies an unfair advantage over U.S. companies, whose public lands logging contracts are awarded by competitive bidding.

Most lumber produced in Canada is logged on public lands, U.S. negotiators point out, while U.S. lumber is logged primarily on private lands that don’t benefit from the subsidy of cheap public logging permits.

Softwood lumber is one of Canada’s largest exports to the United States. Canada exported more than 18.6 billion board feet of lumber to the U.S. in 2001 alone. Those exports, worth $6.1 billion, accounted for one-third of the U.S. softwood lumber market that year.

Fair Trade vs. Free Trade

In a news release marking the mid-April NAFTA panel negotiations, the Coalition for Fair Lumber Imports, which represents U.S. lumber manufacturers, their employees, and landowners, warned “Canada’s lumber subsidies are destroying the U.S. lumber industry, threatening its workers with mounting unemployment, and denying many tree farmers a market for their timber crops.”

“Virtually every sawmill worker in the United States is at risk,” said Scott Shotwell, the Coalition’s executive director.

“Despite a strong home building market,” continued the Coalition news release, “U.S. lumber prices are touching new lows, and bankruptcies and mill shutdowns are high and climbing higher. Canada’s share of the U.S. market approaches 35 percent, a near record high.”

Shotwell said a key component of free trade–in support of which NAFTA was adopted in January 1994–is “fair trade.” Trade cannot be fair, Shotwell explained, when one party is heavily subsidized and uses that subsidy to undercut the price of its competitors.

“Recent Canadian practices, particularly in the [British Columbia] Interior, have further undermined fair and free trade by increasing subsidies and dumping in the U.S. market,” accused Shotwell.

Consumer Benefits

Not all U.S. lumber interests agree with the Coalition’s position.

Eric Johnson, president of Johnson’s Millwork in Tacoma, Washington, opposes the softwood duty imposed by the U.S. According to Johnson, the duty has raised the prices and limited the supply of Canadian lumber he needs for his business. “It’s cost my customers and me money,” he said.

John Allan, president of the British Columbia Lumber Trade Council, agrees with Johnson. “Canada has one-third of the U.S. lumber market not because of subsidies … but because the U.S. industry has been unable to meet U.S. lumber demand for decades. Imports from Canada play a vital role in the U.S. market, serving needs that U.S. mills simply cannot satisfy.”

“The import tariff has caused huge hardships in Canada without producing any commensurate benefits in the United States,” added forestry scholar Randal O’Toole of the Thoreau Institute.

Brink Lindsey, director of the Center for Trade Policy Studies at the Cato Institute, called the duty “a boondoggle that benefits a few lumber producers here in the United States at the expense of millions of workers in lumber-using industries–not to mention millions of American homebuyers.”

“Consumers are the ones who end up paying the cost in higher prices, which only benefit a few U.S. companies,” said Susan Petniunas, spokesperson for American Consumers for Affordable Homes (ACAH).

In a friend-of-the-court brief submitted to the NAFTA panel, ACAH contends U.S. and Canadian lumber have different characteristics that make them non-competitive with each other. Accordingly, even if the Canadian practice of awarding inexpensive logging permits amounts to a “subsidy”–a claim ACAH disputes–the subsidy nevertheless does not adversely affect U.S. lumber companies.

According to ACAH, U.S. builders prefer Canadian spruce pine fir over American southern yellow pine due to the quality of the wood rather than differences in price. Petniunas noted home builders and lumber dealers testified to that effect before the U.S. International Trade Commission.

Issue Splitting Both Parties

The Canadian position is not without support in the U.S. More than 100 members of the U.S. House and Senate have publicly supported repeal of the duty.

The issue appears to transcend party lines. Senators Don Nickles (R-Oklahoma), Jack Reed (D-Rhode Island), James Inhofe (R-Oklahoma), Evan Bayh (D-Indiana), Jim Bunning (R-Kentucky), Pat Roberts (R-Kansas), Jon Kyl (R-Arizona), Chuck Hagel (R-Nebraska), Peter Fitzgerald (R-Illinois), and Richard Lugar (R-Indiana) have sponsored a Senate resolution calling for the repeal of trade duties.

“It’s time for our trade policy to reflect fairness to all of the stakeholders, including consumers, in discussions about trade in lumber,” said Nickles, lead sponsor of the Senate resolution.

“Lumber tariffs distort the marketplace and harm housing affordability by creating huge volatility in lumber prices,” agreed Bobby Rayburn, first vice president of the National Association of Home Builders (NAHB) and a builder from Jackson, Mississippi.

“It is home buyers and home owners who ultimately pay the cost,” he said. “The Senate resolution hammers home the fact that trade barriers are bad economic policy and that the needs of consumers must be taken into account regarding trade disputes.

“It would be impossible to meet the demand for housing without imports,” Rayburn added. “Imports don’t replace domestic production. We can’t significantly increase lumber production or lumber mill employment in the U.S. because we don’t have any more trees available.”

James M. Taylor is managing editor of Environment & Climate News.