Anti-dumping penalties that could raise the price of imported Canadian softwood lumber--in turn boosting the cost of new U.S. homes--edged closer to reality Wednesday.
The U.S. International Trade Commission ruled unanimously that there is a "reasonable indication" that U.S. timber interests have been hurt by unfair Canadian government subsidies. The ruling could lead to the imposition of duties on Canadian wood.
The case is a thorn in U.S.-Canadian trade relations and has inflamed the debate on U.S. industries' use of trade sanctions to keep out cheaper foreign goods. U.S. timber interests are demanding tariffs of as much as 78% on Canadian imports, a duty that could add as much as $4,000 to the average cost of a new house, home builders say.
Roughly one-third of the $20 billion in softwood used in U.S. construction, pulp and paper manufacturing comes from Canadian forests. Canadians have slowly gained U.S. lumber market share, which stood at less than 20% two decades ago. Canada says it has done so with efficient forest management, while U.S. companies insist it's due to government help.
The dispute occurs against a backdrop of increasing criticism from abroad of U.S. companies' use of anti-dumping rules as a legal tool to fend off competition. Brazil and Chile both have warned they will not join an expanded hemispheric free-trade zone unless the United States eliminates or waters down such barriers.
In addition to lumber, there are several outstanding trade disputes involving U.S. industries and importers they say compete unfairly. The disputed imports include Canadian potatoes, Chilean mushrooms and salmon and Mexican table grapes.
Wednesday's ITC ruling clears the way for the Commerce Department to decide June 26 whether a "preliminary countervailing duty" should be slapped on incoming Canadian timber. Although the case is months away from final resolution, the United States could begin collecting the added tariff next month if the government finds U.S. companies have been damaged.
Attempts to Resolve Dispute Have Failed
The dispute has been building since March 31, when a five-year U.S.-Canada Softwood Lumber Agreement expired. Attempts by both countries to resolve it, most recently at the Quebec Summit of the Americas, have failed. The possibility of a new tariff looms at a time when wholesale lumber prices have hit a 14-month high and are up 45% since the beginning of the year.
Some observers say the dispute is the inevitable outcome of radically different methods each country uses to manage its forest resources. Canada grants timber companies larger and longer-term leases, while American companies bid on smaller forest lots in frequent auctions.
"The Canadians are adamant that their process is reasonable and we argue that it is not," said economist Darius Adams of Oregon State University's School of Forestry in Corvallis, Ore.
The Coalition for Fair Lumber Imports, a Washington-based group of some 271 U.S. timber companies representing two-thirds of domestic sales, hailed the ITC ruling as a victory and said tariffs are necessary to save U.S. jobs.
"We expect the Commerce Department will find evidence of subsidies and dumping and assess duties accordingly," said John Ragosta, a coalition spokesman and attorney.
The crux of the coalition's complaint is that the Canadian government, which owns 95% of that nation's forests, charges less-than-competitive "stumpage" rates to timber companies that harvest its wood. Not all U.S. lumber companies agree: Weyerhaeuser and Louisiana-Pacific, each with extensive Canadian operations, are siding with the Canadians.
The Canadians downplayed the Wednesday vote, saying the ITC could have found "injury" to the domestic industry, instead of saying that Canadian timber practices "threatened" injury to U.S. companies. In any case, Canada says it will appeal any tariff to the World Trade Organization, which has the power to reverse a U.S. duty.
"With prices up, it's going to be hard for U.S. producers to prove they have suffered economic injury," said Rodney Moore, a spokesman at the Canadian embassy in Washington.
Christopher Sands, a fellow and director of the Canada project at the Center for Strategic and International Studies think tank in Washington, said Canadians have good reason to think they will prevail with a WTO appeal, based on previous favorable rulings in timber disputes. It's also a reason Canada has spurned a settlement so far.
"The Canadians are cocky, and they feel they are morally right, that they can get a clean win on this on appeal," Sands said.
The National Assn. of Home Builders, a Washington-based trade group, in one of many industry and consumer groups lined up against any new tariffs. "It is our view that if this is evaluated on a fair and impartial basis, there should be no duty," said NAHB economist Michael Carliner.
Jeffrey Schott, senior fellow at the Institute for International Economics in Washington, says both the United States and Canada have reasonable arguments.
"The U.S. anti-dumping laws are consistent with international trading laws in that they are a source of protection for U.S. companies against unfairly traded goods," Schott said. "The problem is that the anti-dumping rules can be used to hit both fairly and unfairly traded goods."