In 2004, Canadian companies earned about $5.7 billion (U.S.) selling softwood into the United States. American consumers of framing lumber and wood siding spent about $7 billion to purchase that same lumber. The difference, approximately $1.3 billion, went into the pockets of the U.S. Customs Service, adding to a stack of cash (now totaling more than $5 billion) that the United States has been collecting at the border since 2002. (The money continues to pile up in a special U.S. Treasury escrow account while a seemingly endless series of legal appeals grinds on before U.S. courts and international trade panels. The ultimate fate of the growing fund is uncertain: Depending on the outcome of the various court battles and on U.S. congressional politics, the money could eventually be returned to the Canadians suppliers, paid out to their U.S. competitors, or simply “liquidated” [combined with other U.S. revenues and spent by the federal government].)
Under U.S. free-trade treaties with other countries, “countervailing duties” and “antidumping penalties” applied to imports are subject to international panel review; and the taxes targeting Canadian lumber have been challenged, often successfully, before tribunals of the World Trade Organization (WTO) and the North American Free Trade Agreement (NAFTA). But politicians from lumber-producing states have applied enough pressure on U.S. trade officials that the border tax collections continue apace, despite repeated rulings against them.
In a trillion-dollar construction industry, a billion or so in trade duties may seem like a drop in the bucket. But the bite on Canadian lumber has become an irritant to builders who, after years of boom times, are feeling the pinch of tight markets for materials. Canada supplies a third of the U.S. building industry's softwood lumber, and builders say that U.S. sources of softwood can't match the quality of Canadian spruce, pine, and fir—meaning U.S. builders can't just switch to domestic sources, but have to pay the artificially boosted price. Accordingly, the NAHB estimates that U.S. duties add some $1,000 to the price of an average house. And while building material prices rose only moderately in 2001 and 2002, Association of General Contractors (AGC) economist Ken Simonson reported last fall that prices for construction materials had been rising at double-digit rates since 2003, quadruple the inflation rate for consumer goods. Even before last summer's devastating hurricanes, builders were facing spot shortages and volatile prices for key materials. As mortgage rates increase and the new-home market begins to cool, U.S. trade taxes are one more factor that raises the cost of homes and puts the squeeze on home builder profits.
Construction industry groups like the NAHB and the AGC oppose the duties, but U.S. timberland owners back them—and with more success. The action against Canadian lumber stems from complaints by a group called the Coalition for Fair Lumber Imports (CFLI), representing a collection of U.S. softwood lumber producers and timberland owners. Even though the U.S. industry cannot satisfy domestic demand without help from foreign suppliers, the CFLI actively opposes any relaxing of import restrictions—arguing, in fact, that the trade limits should be tightened. So far, Congress and the U.S. trade agency bureaucrats have been receptive to timber owners' views.
TIMBER TIMELINE The timber argument is an old one: Debates over whether to tax imported Canadian wood raged in the 1840s, the 1890s, and the 1930s, with the various sides couching their arguments in much the same terms as they do today.
More recently, U.S. timber interests have complained about Canadian lumber imports four times since 1982. Three of those times, they've succeeded in getting sanctions applied. In the 1982 case, the Commerce Department ruled (for technical reasons) that there was no basis for trade penalties. But in 1986 and 1991 the agency imposed tariffs. In each of those cases, Canada backed down and agreed to negotiate limits on trade. The 1986 “Memorandum of Understanding” put a 15 percent Canadian export tax in place. In 1996, despite a trade-panel victory that had resulted in the return of duties already collected, Canada accepted a “Softwood Lumber Agreement” that limited Canada's market share directly by means of an export quota.
In 2001, when the quota system expired, Commerce again imposed a U.S. tariff; but by that time, NAFTA and its appeals process were in force, the United States and Canada (along with most of the world) had joined the WTO, and Canada decided to contest the penalties in the newly constituted international trade tribunals.
In theory, the NAFTA process has gone largely Canada's way, with decision after decision instructing the United States to lower or remove penalties. NAFTA panel decisions in August, October, and November of 2005 favored the Canadian side, and on their face would seem to require the end of the border tax and the return of monies already collected. But the Commerce Department has resisted implementing the rulings, and as “extraordinary appeals,” the last step in the NAFTA appeals process, have gone Canada's way, timber lobbyists have upped the ante, filing a federal lawsuit to overturn the entire NAFTA process on the grounds that the NAFTA panels themselves unconstitutionally circumvent the U.S. judicial system. CONGRESSIONAL PRESSURE Nor are timber allies in the U.S. Congress ready to give up so easily. In November Senate hearings, senators from forested states worked to stiffen the resolve of the U.S. trade agency, grilling the nominees for several Commerce Department posts about lumber trade and extracting an explicit commitment to find ways around the NAFTA decisions.
“Your job is to protect U.S. business,” said Montana Democratic senator Max Baucus sternly to Franklin Lavin, the nominee for undersecretary of commerce for international trade (Baucus' state is the original home of Plum Creek Timber, one of the United States' top forest-owning firms and a key backer of the timber lobby). “I agree, Senator,” responded Lavin, “and ... the trade experts in the [International Trade Administration] say that ... we can go ahead with other techniques to keep this issue alive.” Lavin said the United States can use the $5 billion already collected as a tool to bring Canadians back to the bargaining table to negotiate “some kind of comprehensive settlement.” Pressed further by Arkansas Democratic senator Blanche Lincoln, Lavin said, “We will turn over every single stone we can. ... We are not simply going to be on the receiving end of a NAFTA remand.”