Softwood debate hardens

Home Channel News, Oct 25, 1999 by Jason Gonzalez

U.S. and Canadian officials seem willing to let trade pact expire in 2001

NATIONAL REPORT -- A U.S. trade ambassador last month told Canada's international trade minister that the U.S. government has no plans to renew the controversial 1996 Softwood Lumber Agreement (SLA) when it expires in 2001.

In a Sept. 24 letter to Pierre Pettigrew, Canada's Minister for International Trade, U.S. Special Trade Ambassador Peter Scher stated that his office "believes both governments ... should get out of the business of regulating lumber trade. Therefore, we are not inclined to support an extension of the SLA."

It's open to interpretation when Scher's statement is a negotiating ploy or a response to pressure by SLA's staunchest critics. But his words have reignited the contentious debate about lumber trade policy in North America.

American builder and lumber dealer associations -- bitter opponents of the SLA since its enactment -- quickly supported the ambassador's position. "This is a huge vindication for lumber dealers who ... persevered and fought our government and the large, well-financed U.S. timber industry coalition over the principles we believe in," said Gary Donnelly, president of the National Lumber and Building Material Dealers Association, a 9,000-member trade group.

NLBMDA has lobbied the government for more than three years to overturn or limit the reach of the SLA. A few months ago, it lost a court battle to exclude pre-drilled studs from the SLA. Among the trade group's closest allies has been the National Association of Home Builders (NAHB), one of America's most powerful lobbies.

Citing a boost to free trade principles, NAHB expressed full support for Scher's position. The government's intention not to renew the Agreement "represents a major step forward in breaking down barriers to free trade on lumber," said NAHB's president Charlie Ruma.

Critics of the SLA charge that the policy restricts the natural flow of lumber between the U.S. and Canada, causing unnatural supply and demand cycles as well as artificially instigated price volatility.

About one-third of the wood consumption in the United States is supplied by Canada. Under the agreement, Canadian suppliers can ship 14.7 billion board feet of lumber to the United States annually; shipments exceeding those quotes are subject to fees of up to $106 per 1,000 board feet in most Canadian provinces and up to $146 per 1,000 board feet in British Columbia.

U.S. lumber dealers and builders say the problem is not the additional fees but that Canadian suppliers withhold their shipments to time them just right and avoid over-the-quota fees. That leads to shortages and subsequent price hikes.

In its recent quarterly report to shareholders, for example, West Fraser Timber noted that a settlement of a dispute over a reduction in stumpage rates resulted in an amendment of the U.S. softwood lumber export rules to increase penalties which British Columbia-based suppliers must pay on shipments to the United States that exceed quotas. The higher penalties, said West Fraser, are likely to result in production curtailments.

SLA's proponents -- namely American forest products suppliers -- argue that tariffs are required for their companies to compete fairly with their Canadian suppliers that have access to their country's vast publicly owned timberlands. More important, these suppliers face fewer logging restrictions and typically pay a low "stumpage" fee to the provinces for the logging rights. U.S. suppliers argue that the minimal stumpage fees -- a practice the provinces have shown no intention of changing -- amount to a subsidy that in effect reduces the price of Canadian lumber imports.

U.S. timber suppliers also argue, with a fair degree of accuracy, that the trade pact isn't te only factor influencing lumber prices. In 1998, for example, lumber prices reached historic lows even though demand related to home building was high.

Scher's letter did not propose unbridled free trade. If Canadian timber companies continued to operate under subsidized logging policies, Scher wrote, then "the United States will not be inclined, nor well-positioned, to resist U.S. lumber industry's urging to return to addressing Canada's unfair trade practices through whatever means deemed appropriate at the time."

In the early 1990s, the U.S. imposed a duty on Canadian imports that was later overturned by international courts. The long-running lumber dispute is one of the few areas that have resisted the influence of the now five-year-old North American Free Trade Agreement. Lumber industry officials insist that their situation is too minor to impact any of NAFTA terms.

Canada's Pettigrew responded to Scher in a letter in which he expressed a desire to let the SLA fade away. The similarities ended there, however, as he strongly disagreed with his U.S. counterpart's insistence on a wider trade policy change.

"We too look forward to a time when there will be no border restrictions on our trade in softwood lumber and an end to the endless U.S. litigation aimed at limiting Canada's market share," Pettigrew wrote in his letter.