09/02/01 -- Tariff tiff: U.S. tax on lumber imports from Canada brings relief, grief

Tariff tiff: U.S. tax on lumber imports from Canada brings relief, grief

DATELINE: EUGENE, Ore. - The 19.3 percent preliminary penalty tariff the United States recently slapped on lumber imported from Canada has gained fans and detractors on both sides of the border.

Fans include U.S. sawmills in the Pacific Northwest and elsewhere who see the tariff pushing up the price of lumber from Canada, thus helping to prop up prices that U.S. mills can charge.

Environmental groups, too, are lauding the tariff, saying it will likely slow logging in Canada. Conservationists are appalled by rapid logging of Canada's old-growth forests. They say the Canadian government imposes few of the logging restrictions commonplace in the United States. But U.S. consumers and retailers along with Canadian lumber mills aren't thrilled. Consumers here are seeing a spike in lumber prices, while Canadian mills expect a drop-off in business.

The retail price of a 2-inch-by-6-inch 10-foot piece of construction-grade fir has risen from about $4.30 earlier this year to about $5.50, said Tim Wenzel, general manager of Square-Deal Lumber Co. in Springfield.

It's not just the tariff that has pushed up prices, though, Wenzel said. Sweeping logging curtailments throughout the West in the face of widespread fires has dried up the supply, he said.

Most of Square-Deal's customers are contractors, Wenzel said, and they notice price hikes immediately.

"We're just passing it along," Wenzel said. "And they pass it along too, and ultimately the homeowner pays for it."

But if the history of the long-running trade war between the two countries is any guide, the relief and grief could be short-lived.

The tariff is preliminary, and a final decision is scheduled for October.

Canada has filed a complaint urging the World Trade Organization to reject the tariff, and Prime Minister Jean Chretien has linked the lumber issue to greater U.S. access to Canadian oil and natural gas.

As U.S. and Canadian negotiators haggle, they're likely to settle on a far smaller levy, Wenzel predicted.

Lumber prices, already on their way up in anticipation of the provisional tariff, increased 5 percent immediately following the announcement of the duty, one of the steepest price hikes of the year, according to industry newsletter Random Lengths.

But as prices rose, sales volumes dropped because many U.S. buyers were unwilling to pay the higher prices.

"Prices may go up some, but how much remains to be seen because the market will dictate the prices," said Paul Ehinger, a Eugene-based wood products industry analyst.

Lumber prices nationwide have been weak for much of the past 12 months due to industry overcapacity.

Sawmill operators in Oregon greeted the new tariff cautiously.

"I've got to believe it will add a modicum of stability for U.S. producers," said Dick Rohl, general manager of Swanson-Superior Forest Products Inc. in Noti.

But Rohl, like others, doesn't expect the tariff alone to send prices upward and keep them there. The lumber industry's fortunes rely on the health of not only the domestic economy but on global wood products production and consumption.

Nationally, housing starts have been unusually strong this year despite a slowdown in other segments of the economy. If the housing market slows, sawmills in both the United States and Canada will feel pain - duty or no duty. New home construction accounts for about two-thirds of all lumber consumed in the United States.

Jon Anderson, publisher of Random Lengths, said there is great uncertainty in the industry over how the provisional duty, if U.S. officials make it permanent in October and it then survives the inevitable legal challenges, will shake out given the complexities of the market.

The U.S. Commerce Department on Aug. 9 imposed the tariff, saying it was in retaliation for the Canadian government's subsidies to that country's softwood lumber industry. Softwood includes lumber from coniferous trees such as pine, spruce and fir.

The complaint accused Canadian provinces of selling logs from government lands at exceptionally low rates. Those subsidized "stumpage fees" give Canadian sawmills an unfair advantage and allow them to undersell and harm U.S. mills, the Commerce Department and the U.S. International Trade Commission charge.

Canada last year supplied 34 percent of the lumber - 18 billion board feet - to the $36 billion U.S. market.

Canadian officials have denied the subsidy charge and accused the administration of protectionism. Canada has vowed to fight the tariff in U.S. courts and also appeal to international trade bodies.

Trade bodies, including the precursor of the WTO, in the past 20 years have twice found Canada does not subsidize its lumber industry. A third case, in which injury to U.S. producers was found, was settled when Canada imposed a lumber export tax on its mills.

The new tariff imposed by the United States seeks to level the playing field for U.S. producers who have to bid at auction for timber to feed their mills. Most of the trees used by U.S. mills come from private land.

By comparison, Canadian producers buy lumber from the government under long-term licenses without public bids. The government, using information from timber companies, determines the sale price. About 95 percent of the forests in Canada are government-owned.

The industry had been expecting the tariff since March, with the expiration of a five-year agreement that capped the amount of softwood Canada could export to the United States without incurring a special tax.

Many in the industry warned that a flood of cheap Canadian timber would be sent across the border when the Softwood Lumber Agreement expired.

Shortly after the agreement's sunset, the U.S. Coalition for Fair Lumber Imports, a group of mainly Southern lumber producers, asked the Commerce Department to impose the new tariff.

The majority of imported Canadian lumber is sold in the Midwest and South, said Butch Bernhardt Jr., spokesman for the Portland-based Western Wood Products Association. The bulk of lumber produced in Oregon and Washington goes to California or elsewhere in the West.

A Commerce Department investigation found Canadian lumber imports rose at a seasonally unadjusted rate of 31 percent in the second quarter compared to the first.

The tariff has created unusual alliances.

The Natural Resources Defense Council, the Northwest Ecosystem Alliance and Defenders of Wildlife joined traditional enemies Plum Creek Timber, International Paper, Georgia-Pacific and other wood products companies in support of the tariff.

Environmental groups charge that Canada inadequately protects forests and wildlife, the same charge the groups have leveled against the U.S. forest industry for decades. The groups allege that forest protection rules in Canada are frequently ignored in order to keep sawmills running and workers employed.

"In the (Canadian) interior, clear-cut size is virtually unlimited," said Joe Scott, conservation director of the Bellingham-based Northwest Ecosystem Alliance. "I don't think anything in the U.S. has ever approached the insanity that is going on up there."

He said "the levels of logging in British Columbia in particular are outrageously high" and are threatening old-growth forests.

The tariff, "as stiff as it is, should reduce those logging levels to some extent, at least temporarily," Scott said.

Other interest groups, however, reacted angrily to the tariff.

Weyerhaeuser Co., which operates mills in both countries and is the world's largest supplier of softwood lumber, announced it would temporarily shut three mills in the Vancouver, B.C., area as a result of the tariff, laying off hundreds of workers. Other mills in Canada said they, too, would have to close.

The National Association of Home Builders said the tariff could add $1,000 to the cost of a new home. But just how much of any price hikes can be blamed on the tariff is open to question.

Lumber generally accounts for 2 percent to 3 percent of the cost of a new home, said Bernhardt of the WWPA.

On July 13, several weeks before the tariff was announced, the Random Lengths composite price for 1,000 board feet of lumber was $326. As of Aug. 17, that was up to $349. That would suggest that on a 2,000-square-foot home, the price hike would cost the homeowner an additional $322. Error: Unable to read footer file.