The good news is that in December the U.S. Commerce Department cut duties on Canadian lumber imports virtually in half, from 20.2 percent to 10.8 percent. The bad news is that it might not make much difference in the price that big builders are paying. The new countervailing duty is 8.7 percent, down from 16.2 percent; an anti-dumping tariff is now 2.1 percent, down from 4 percent.
The issue has been a lightning rod for the Commerce Department, Canadian lumber industry, and U.S. home builders, who are facing material cost increases on all fronts. Citing U.S. law that allows duties to be imposed if a foreign import is receiving subsidies from its government, the Commerce Department has ignored NAFTA rulings that the duties are illegal. NAFTA, meanwhile, has determined the Commerce Department's calculations justifying a Canadian subsidy to be flawed.
The market has apparently sided with NAFTA. According to NAHB economist Michael Carliner, softwood lumber prices were already anticipating that the federal government will lose pending court cases related to the duties. The evidence of this, says Carliner, is a simple comparison of the price of lumber sold in the United States to lumber sold in Canada for domestic use. “In 2003 or so, the difference was about $70. Once the NAFTA panel in August 2004 ruled the duties had to be terminated and the money refunded, the difference between the U.S. and Canadian price went down to between $20 and $40, which was what it was when there was no duty—it was $20 in 1995.”
Thus, little of the duty is being passed through into the price at this point, so don't hold your breath for a price drop based on the duty relief. Of course, any predictions hinge on the same assumptions that have been driving the market price. “As long as the Canadians pursue their legal case and win, which is what the market is saying, then nothing will happen [in terms of price]. If they were to negotiate an agreement like they did in 1996, then we would have higher prices.”
Fortunately for builders, the Canadians are showing no signs of easing off on their offensive. John Allan, president of the British Columbia Lumber Trade Council, called the Department of Commerce's move a “very positive step as Canada fights to have the illegal duties reduced to zero.”
Weighing in on the Canadian side of the debate is the NAHB, whose president, David Wilson, called the recent Commerce Department action a mere “halfway measure.”