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Pact Would Keep Lumber Prices High Even as Demand Softens
Even with the housing market showing signs of cooling and lumber costs edging down as demand eases, American home buyers will be forced to pay a premium for lumber if a tentative managed trade agreement between the U.S. and Canada goes into effect in the coming months, according to NAHB.
“Once enacted, these trade barriers would harm housing affordability by artificially boosting lumber prices during periods of normal or low demand through a complicated system of export taxes and quotas that would be triggered when the Random Lengths composite prices fall below $355 per 1,000 board feet,” said Jerry Howard, executive vice president and CEO of NAHB. “In addition to higher prices, it would also lead to market disruptions as Canadian mills accelerate or withhold shipments in anticipation of changes in quotas or fees.”
Under the proposed accord, taxes on Canadian lumber shipments into the U.S. would move progressively higher once the price drops below thresholds of $355, $335 and $315 per 1,000 board feet.
The price of lumber was $377 per 1,000 board feet when the pact was announced on April 28 and has since fallen to $345 as supplies have increased and demand has slackened.
“By the time the agreement is finalized, prices may well be down below $315, in which case its implementation would be a severe jolt to the market,” said Howard.
If the settlement is enacted and results in new trade barriers limiting Canadian lumber shipments into the U.S., Howard said that NAHB would help builders seek lumber sources from other countries such as Germany, Sweden and Russia, each of which has increased lumber shipments to the U.S. sharply over the past five years. In addition, NAHB is promoting the use of steel and other alternative building materials wherever practical.
In the interim, U.S. consumers continue to pay tariffs totaling nearly 11% on Canadian lumber shipments, despite several unanimous rulings by North American Free Trade Agreement (NAFTA) panels that U.S. lumber producers are not threatened with injury from Canadian softwood lumber shipments, and that there have been no significant subsidies provided to Canadian producers. The verdicts have called for the elimination of tariffs and for the U.S. Customs Service to refund to Canada the more than $5 billion in duties that have been collected.
Although a NAFTA ruling carries the weight of law in Canada, the U.S. and Mexico, the Administration has failed to implement decisions that invalidate the lumber duties and return all duties paid out by Canadian firms.
“In 2002-2003, when the lumber tariff was 27% and housing starts were in the 1.7 million to 1.8 million range, the price of lumber was routinely below $315 per 1,000 board feet,” said Howard. “If this agreement goes into effect and the housing market continues to gradually cool down, U.S. lumber consumers would essentially be paying taxes to support the Canadian provinces and higher prices because of quotas. In short, this is one bad deal for American housing consumers.”
For more information, e-mail Michael Strauss at NAHB, or call him at 800-368-5242 x8252.
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Seiders Says, 'Builders Have Not Lost Touch With Demand' on the NAHB Economics Blog
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