U.S. Taxes Canada’s Softwood Industry
The Commerce Department imposed punitive tariffs of up to 19% on Canadian softwood imports Wednesday, a move critics say will increase tensions with the United States’ largest trading partner and hurt the economy by raising lumber prices.
The action is the second penalty levied against the Canadians since the U.S.-Canada softwood lumber agreement expired in March. In August, the U.S. government imposed an additional 19.3% duty on softwood lumber imports, which prompted the angry Canadians to file an appeal with the World Trade Organization.
Wednesday’s ruling came in a complaint filed last April by International Paper Co. and other U.S. wood products companies that accused the Canadians of dumping cheap lumber in the U.S. market. The decision followed a flurry of unsuccessful negotiations on both sides of the border, as officials tried to head off a bitter trade war between the two close trading partners and clear the air for next month’s meeting of the WTO.
In a measure of how globalization complicates these cross-border disputes, U.S. timber giant Weyerhaeuser Co. was caught in the middle of the spat, with 18 sawmills and 11,000 employees across the border. Its Canadian subsidiary, which already has set aside $50 million to cover the previous penalty, was among the mills singled out Wednesday for dumping duties. The double-whammy of U.S. penalties and slowing demand already have forced the U.S. firm to cut back its Canadian production by 15% to 20% and lay off 770 employees at seven mills.
“Things were already bad enough without the U.S. government imposing a punitive duty,” said Paul Barnum, Weyerhaeuser communications director.
Major retailers and the construction industry opposed the U.S. action. The National Assn. of Homebuilders said the softwood penalties could increase the cost of a new home by $1,500 and price as many as 300,000 Americans out of the home-buying market.
So far, lumber prices in the U.S. haven’t risen because of the slump in the economy. But any move that could increase home construction costs when the U.S. economy is teetering on recession is bad economic policy, according to Michael Carliner, economist for the homebuilders association.
At the heart of this 20-year battle is the U.S. charge that the Canadian government, which owns 94% of its timberland, unfairly subsidizes its lumber industry by charging a low timber-harvesting fee. In recent years, Canadian softwood imports have gained a 36% share of the U.S. market.
“This ruling proves that Canada’s provincial lumber policies encourage unfair trade,” said Rusty Wood, president of Georgia-based Tolleson Lumber Co. and chairman of the Coalition for Fair Lumber Imports.
The Canadians say the U.S. findings are based on faulty data that don’t take into account their different natural resource policies and vast timber reserves.
Elliot Feldman, an attorney representing Canadian timber interests, said U.S. producers want a new agreement that includes quotas or an export tax but Canadians don’t want to enter another market-restricting pact, particularly when the U.S. won’t agree to abstain from future legal action.
“Since the Canadian objective is to have free and open access to the U.S. consistent with the principle of NAFTA [North American Free Trade Agreement], it’s hard to see any grounds for compromise,” Feldman said.
The latest round of softwood lumber duties, which average 12.7%, are preliminary. Until the U.S. government’s final decision, which is expected next spring, the Canadian lumber exporters must post a bond equal to their estimated penalties.
