Week of July 31, 2006
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Major Housing Markets in the West in for a Tough Year

Tentative Agreement Would Destabilize U.S. Lumber Market

A managed trade agreement to end the dispute between Canada and the U.S. over lumber duties that was initialed by both sides in Geneva earlier this month raises serious concerns for the nation’s home builders, Barry Rutenberg, a member of the NAHB Executive Board and a builder from Gainesville, Fla., told the International Trade Committee of Canada’s House of Commons on July 31.

Following up on testimony he provided on June 19, Rutenberg indicated that the shortcomings of the politically-driven agreement have only become more apparent in recent weeks.

Rather than producing stability and predictability, he said, the agreement “would disrupt the market” by imposing border taxes and quotas designed to constrain Canadian lumber imports into the U.S. “Under the agreement, the most severe penalties would apply whenever prices are below $315” per 1,000 board feet, Rutenberg said. The price of framing lumber reported by Random Lengths last Friday was $302, and if the agreement were in force today it would be exerting upward pressure on lumber prices at a time when the market is pushing them down.

Rutenberg also indicated that the agreement was a matter of bad timing, with Ottawa nearing a satisfactory resolution to its quest for free lumber trade through the North American Free Trade Agreement process, the World Trade Organization and the U.S. Court of International Trade, an effort that has brought Canada a series of judicial victories.

“With regard to the litigation, the suspension of the Extraordinary Challenge has blocked the near-certain confirmation of the NAFTA rulings against the subsidy allegations,” he said. “But two key decisions by the U.S. Court of International Trade have placed ultimate victory within reach. Any legal claim by the U.S. lumber coalition to the duties has been eliminated, and a three-judge panel has unanimously found that the ploy used by the U.S. government to avoid implementing the NAFTA decision on injury was illegal.”

The recent rulings against the U.S. also “provide valuable support for the efforts of NAHB and other lumber consumers to discredit unfounded allegations that Canadian lumber is unfairly traded, and to build support in the U.S. Congress for free trade in lumber,” Rutenberg said. “Those efforts are devastated, however, by an agreement that looks like a confession of Canadian wrong-doing.”

With the last-minute insertion of a provision allowing the U.S. to terminate the agreement after 23 months, Rutenberg said that “the only predictable thing about conditions under the agreement is that the U.S. lumber coalition will seize every opportunity to undermine market forces and harass Canadian producers and Canadian governments.”

It has become even more difficult for the U.S. lumber coalition to make a credible case for injury or subsidy, which is the justification for current duties of 11%, Rutenberg said, because a surge in European imports reduced Canadian lumber to 33.4% of U.S. consumption in 2005, the smallest market share in more than a decade, and because provincial timber sales, especially in British Columbia, “have become more transparently based on market value.”

The tentative Geneva managed agreement calls for the U.S. to return $4 billion in duties to Canada and would allow it to keep about $1 billion, half of which would go to the domestic lumber firms that originally brought suit against their Canadian competitors.

In order for the agreement to be enacted, at least 95% of the Canadian companies that currently have duties on deposit with the U.S. Customs Service must agree to end their litigation claims, forfeit a portion of their duties to the U.S. and abide by the terms of the accord.

For more information, e-mail Michael Strauss at NAHB, or call him at 800-368-5242 x8252.

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