U.S. Calls for Duties on Subsidized Canada Lumber : Commerce: Penalties could add $270 to the average nationwide price of a new home and more than $500 in the Southland.
The federal government ruled Thursday that Canadian lumber shipments are injuring American competitors and upheld penalties that could add $270 to the average nationwide price of a new home and more than $500 in the costly Southern California market.
The International Trade Commission, the independent agency handling the penalty phase of trade disputes, agreed with the Commerce Department that the softwood lumber shipments have been improperly subsidized by Canada’s provincial governments.
Canada is the world’s biggest exporter of lumber and sells about $2.5 billion worth of products annually to the United States, where its lumber is in great demand for home construction. Much of the Canadian wood comes from old-growth forests, and is considered of unusually high quality, according to housing industry officials.
In a 4-2 vote, the ITC ruled that U.S. lumber producers have been harmed economically by shipments from Canada, and endorsed a 6.51% duty imposed by the Commerce Department.
Canada will appeal the ITC ruling to an arbitration panel created under the free trade agreement between the U.S. and Canada. The issue is politically sensitive in Canada, where the timber industry is a major employer in British Columbia. The argument over lumber is one of the most contentious issues between the world’s biggest trading partners.
Canadian lumber is used in the basic framing of the rooms of a house. The average home uses 16,000 board feet of lumber, and the levy would add about $270 to a typical home now priced at $120,000, according to Gopal Ahluwalia, director of research for the National Assn. of Homebuilders. In Southern California, where typical new home prices often surpass $250,000, the added cost will be closer to $500, he said.
The cost of lumber already is highly volatile, reflecting the uncertainties about U.S. timber production because of increased restraints on logging under environmental laws. Lumber prices have leaped 40% and then fallen 30%, all during the past six months, Ahluwalia said.
When the housing market strengthens and demand rises, there will be additional upward pressure on prices, he said.
Canada last year eliminated a 15% fee it had charged on lumber shipments to the United States, a levy arranged under a 1986 trade agreement between the two countries.
This gave an immediate financial boost to Canadian producers, and the United States retaliated by requiring payment of a 15% bond on Canadian lumber imports. The United States opened a formal two-step trade investigation. The Commerce Department determines whether there are subsidies, and the ITC decides if U.S. producers have been harmed.
The Commerce Department said in May that Canada illegally subsidized lumber sales by charging artificially low fees for cutting timber on government lands. Instead of the initial finding of 15%, Commerce said a 6.51% penalty would equalize competition between U.S. and Canadian producers.
The free trade agreement between the U.S. and Canada wiped out numerous tariffs, duties and other barriers to commerce. But the countries could not agree on the types of government actions that should be banned as illegal subsidies.
Canada considers its provincial regulations and fees as normal and acceptable. But the United States views them as thinly disguised gimmicks to help Canadian lumber capture more of the U.S. market.
This impasse will push the dispute into the special arbitration panel created to handle the tough cases that arise under the U.S.-Canada free trade pact.
The Thursday decision demonstrates the unpredictability and independence of the ITC. Although it is a government agency, it can reject the findings of the Commerce Department, which represents the political Administration in power.
The victory for U.S. lumber producers came just a day after the ITC rebuffed the domestic car industry. The ITC ruled on Wednesday that General Motors, Ford and Chrysler were not injured despite the Japanese subsidy for minivans shipped to this nation.
