Pact Sets Builders Searching for New Lumber Sources
Expressing disappointment that the Canadian government is doing what’s politically expedient instead of the right thing in accepting a controversial U.S. lumber deal that will push up prices, NAHB Executive Vice President and CEO Jerry Howard said that the nation’s home builders will be looking to widen their supply of lumber once the pact goes into effect.
“Legal victories achieved by Canada in the NAFTA process, at the World Trade Organization and in the U.S. Court of International Trade were close to eliminating the current duties,” said Howard. “This deal not only undermines NAFTA itself, it fails to address housing affordability concerns. It’s unfortunate that Ottawa pressured its lumber industry into giving grudging support in order to ink a deal with the U.S.”
Canadian Prime Minister Stephen Harper announced last week that his government will give parliament legislation to implement the agreement next month and seek to have the accord ratified by early October.
Far from promoting free trade, the settlement would establish a complex system of quotas and new tariffs that artificially boost prices during periods of normal or weak demand.
It is also expected to increase the volatility of the lumber markets.
“With quotas being set month-to-month, mills won’t know whether they will be able to meet supply contracts without exceeding their quotas, and if they are unable to ship due to transportation bottlenecks, this could create even more uncertainty in the marketplace,” said Howard.
In addition, the lumber accord provides no incentive or means for Canadian softwood lumber companies to withdraw from the terms of the managed trade agreement, which Howard said would likely keep prices high and increase housing costs.
To mitigate any damaging effects of the pact, NAHB is working to ensure that builders will be able to purchase lumber at a consistent and reasonable price.
“First, we are seeking to facilitate increased imports from Europe,” said Howard. “We have delegations planning to visit Sweden and Russia this fall. We will meet with the lumber industry representatives there, establish contacts with producers and identify any policy barriers to raising the volume of imports from the current 5% level. And we are also promoting the use of steel and other alternative building materials wherever practical.”
The seven-year pact, which includes a six-month termination clause after the agreement has been in force for 18 months, would cap Canadian lumber imports at 34%.
The treaty would require both countries to end all litigation efforts and would eliminate current duties now totaling about 11% on softwood lumber shipments into the U.S. It also calls for the U.S. to return $4 billion in duties to Canada and keep about $1 billion, half of which would go to the domestic lumber firms that originally brought suit against their Canadian competitors.
If the pact were in effect today, Canadian lumber producers would be forced to pay duties of 15% because current prices for framing lumber are well below a $315 per 1,000 board foot threshold that is included in a complicated system of export taxes and quotas based on market prices.
The decision by the Canadian government to proceed with the accord is perplexing, in light of several recent legal victories.
Earlier this month, the World Trade Organization ruled that the current tariffs violate international trade rules. This was the third ruling in Canada’s favor since July 1, when that country indicated it would agree to the deal with the U.S.
Last month, the U.S. Court of International Trade essentially ruled that softwood lumber duties are illegal and that the Byrd Amendment, which allows U.S. firms to receive duties from foreign rivals, violates the terms of NAFTA.
“Finishing the litigation would allow Canada to obtain a complete refund of duties with interest,” said Howard. “It would also establish important precedents and make it much more difficult for the U.S. lumber coalition to successfully petition for new duties.”
While some Canadian government officials are trumpeting the agreement as a way to end the long-running cross border lumber conflict and litigation, Howard said that is just wishful thinking.
“Because the accord wipes out many of Canada’s legal victories and dispenses half a billion dollars to the U.S. lumber coalition, it will actually encourage future trade disputes during and after the agreement,” he said.
For more information, e-mail Michael Strauss at NAHB, or call him at 800-368-5242 x8252.