By Alison Rice. The new year opened with a new campaign in the lumber wars: a U.S. proposal on how Canada should reform its lumber practices toward a more market-based system.

The proposal, introduced in January by U.S. Undersecretary of Commerce Grant Aldonas, recommends that Canada end its minimum cutting requirements, sell its timber at auction, and allow raw logs to be exported to America.

Canada--and its provinces, which actually control the country's timber harvesting and lumber production--doesn't exactly agree. In the Toronto Globe and Mail, a speaker from the Quebec Forest Industry Council says adopting such a plan "would be an infringement of sovereignty."

Such a reaction doesn't surprise lumber war-watchers. "At this point, [the proposal] is really just to bring people back to the table," believes Amy Carneal, an economist with economic research firm Global Insight.

That's important to the United States, because the average 27 percent tariffs levied on Canadian lumber last spring haven't gone as planned. Canadian lumber shipments actually increased slightly for the first 10 months of 2002 compared to 2001, according to NAHB economist Michael Carliner. Why are Canadian lumber producers willing to cover the extra duties? Essentially, they're gambling that they'll win this trade war. Carliner mentions the 1992 lumber dispute, where Canada appealed to the World Trade Organization (WTO), winning a $1 billion lumber duty refund. "Canadian producers figure if they pay the duty now, there's a good chance they'll get it all back," he says.

Add more efficient mills producing more lumber from each log, and not surprisingly, lumber prices have remained low despite the dispute.

While those low prices are good for builders, the NAHB doesn't like the ongoing uncertainty. If Canada wins its pending WTO appeal, the country will be "authorized to retaliate [against the United States]," Carliner says. "It's not going to help home builders or home buyers if Canada restricts its [lumber] exports."

It also doesn't address another factor in the lumber wars: U.S. overcapacity. "If things aren't going well now [for U.S. lumber producers], given what's going on in housing, any new proposal isn't going to make any difference," Carliner says. "There's a structural problem with the [lumber] industry. It doesn't need to be protected--it needs consolidation."