LOS ANGELES, Jan. 19 (UPI) -- The disputed tariffs slapped on Canadian lumber imports by the United States were upheld Monday at a time when the U.S. homebuilding market is expected to cool off.
If the slowdown materializes as predicted, a decline in housing construction could cause a noticeable sag in the market price that is used to calculate the tariff.
The World Trade Organization released a decision Monday declaring that the U.S. tariffs on Canadian softwood -- including pine, which is used heavily in home construction -- were justified on the grounds that Canada provides a virtual subsidy to its timber industry by giving them access to government-owned forests in exchange for bargain stumpage fees.
The WTO panel rejected the Canadian government's argument that giving companies access to trees was not the same as providing a material subsidy such as giving the companies the trees outright.
"Stumpage arrangements give holders a right to enter onto government lands, cut standing timber, and enjoy exclusive rights over the timber that is harvested," the WTO panel said in its meticulously written 70-page ruling. "We conclude that such arrangements represent a situation in which provincial governments provide standing timber (to the companies). We disagree with Canada's submission that the granting of an intangible right to harvest standing timber cannot be equated with the act of providing that standing timber."
Ottawa has not decided its next move in the dispute that has pitted Canadian lumber exporters and U.S. homebuilders against American timber companies. The basic argument in favor of the tariffs ring similar to the arguments heard in the ongoing steel dispute -- that low-priced foreign imports are squeezing U.S. companies out of their market share and are causing a loss of profits and jobs.
"These are historic victories for U.S. sawmills and mill workers, U.S. landowners and Canadian taxpayers," Rusty Wood, chairman of the Coalition for Fair Lumber Imports, said in a statement Monday. "This should be the beginning of the end for provincial timber polices that give timber to Canadian mills at a fraction of its value and artificially encourage production. These subsidies and the dumping of Canadian lumber are decimating the U.S. lumber industry."
Like steel, the issue of jobs is critical to arguments both for and against the tariffs, which run at around 27 percent of the market price.
"This plan to subsidize domestic lumber producers by restricting legitimate competition in the marketplace runs contrary to the interests of consumers and the national economy," Bobby Rayburn, president of the National Association of Home Builders, said in a recent statement. "Artificially capping Canada's duty-free share of the U.S. market and then charging prohibitive tariffs will limit lumber supplies and raise the cost of this vital building material. It is essentially a hidden tax on American home buyers and consumers."
Critics of the tariffs contend that Canadian companies are not strangling the U.S. lumber industry at all since Canada only controls about 34 percent of the U.S. softwood market, and American companies don't have enough mill capacity or commercially viable trees to meet rising demand. Most U.S. lumber is cultivated on private land as opposed to the Canadian forests that are largely maintained by the government.
Since Canada supplies about one-third of the lumber used by the United States, its $6 billion export industry depends probably as much on the U.S. economy as it does on the tariffs charged by Washington. And the outlook for that vital market in the coming year is mixed.
The Western Wood Products Association said in its lumber outlook for 2004 that housing starts were expected to decline slightly as home prices remain high, particularly in the West, and interest rates appear ready to sneak up. At the same time, the U.S. job growth is already sputtering.
It all points to more people being priced out of the home market, although the Portland, Ore., industry association predicted only a "mild slowdown" in both new construction and remodeling that will trim U.S. lumber consumption by 1.8 percent to a total of 55.7 billion board feet.
"The housing sector has been a bright spot of the U.S. economy the past few years, fueling unprecedented demand for lumber products," pointed out WWPA President Michael O'Halloran. "While activity will be slower in 2004, we foresee another year of strong demand for western lumber products."
Nevertheless, any drop in demand for a commodity such as lumber could lead to an oversupply that would require timber companies to cut their selling price in order to move inventory.
A bear market for lumber in the United States could then conceivably result in lower tariffs for the Canadians. The train of logic would then result in more Canadian wood being thrown into a construction market that is still strong but may have stalled for the year.
