NAHB

Bill Lurz, senior editor of Professional Builder magazine, interviews the NAHB's Barry Rutenberg about the softwood lumber dispute between the United States and Canada.
Bill Lurz, Senior Editor

Audio Introduction to the trade dispute Uses of Canadian lumber A primer on the proposed duty Where the issue now stands The prospects of the duty taking effect Weyerhaeuser's stance Alternative materials Other sources of lumber Small vs. large builders Rutenberg's advice on how to affect the outcome

Bill Lurz: I'm here with Barry Rutenberg, who is a home builder from Gainesville, Fla., and also national vice president of the National Association of Home Builders and chairman of the NAHB's Building Materials Task Force.

Barry, give us a little background on this trade dispute with Canada over softwood lumber. What's the history of it from your prospective?

Barry Rutenberg: The trade dispute has been going on for some time. This is the fourth round of tariffs that the U.S. industry has asked for in the last 20 years. Of the previous three, when they reached either an international or bi-national panel, the Canadians have always won. But there have been periods of mutual agreement of imposition of tariffs. One of them ended last year, which was called the Softwood Lumber Agreement. ( Listen. )

BL: How much of the lumber used in the American housing industry is imported from Canada?

BR: We currently import approximately $6 billion of softwood lumber from Canada. This represents approximately a third of the softwood lumber that's used in homes. Of this $18 billion market, the American home building and remodeling industry consumes about three-fourths of that - about $13.5 billion a year.

BL: Why do we use so much Canadian lumber?

BR: Canadian lumber is spruce-pine-fir (SPF). And it's used extensively in the vertical walls or studs. During the '90s, the government has taken most of the American lumber that was available from national or state parks off the market. We're getting less than 10% of the supply that we used to get. One of the substitutes, southern yellow pine, has been harvested at very close to the rate where it would be exceeding its replacement. Another problem is that southern yellow pine is that it doesn't stay straight. It will tend to warp and twist in the walls and therefore gives us problems and has not been found to be very suitable as a substitute. ( Listen. )

BL: What's the duty on that imported lumber now, and what will it be if the new duty goes into effect?

BR: The administration had, between the countervailing duty and the anti-dumping duty, come up with a preliminary duty of 32%. There was a final ruling by the Commerce Department last month, and that was reduced from 32% to 29%. Normally, they're cutting about half between the final and the preliminary, and one wonders if they were kept high this time to keep the negotiating pressure on Canada in this round because there are negotiations continuing. This 29% tariff … could be imposed in May if after the International Trade Commission issues their rulings later this month, … there has been injury to them, or there is potential of injury. Either no injury or just the potential of injury would be a victory for our side because it could lead to the overturning of some of those tariffs. ( Listen. )

BL: If the duty is imposed, what would it add to the cost of building materials for the average American home builder?

BR: The NAHB has predicted that it would add $1,500 to the average cost of a house and would keep 450,000 families from being able to qualify for a mortgage.

BL: What's the legal process that's under way right now?

BR: I testified before the ITC about 10 days ago, and we are now waiting for their ruling. Their ruling will have a lot to do with what tariffs could be imposed in May. Both the head of the American and Canadian governments had met and pledged to try to reach an agreement last month, which did not happen. Those trade talks have stopped, but they're likely to pick up again as the imposition dates of the tariffs come closer. There is some chance that there will be a negotiated settlement based upon export tax that Canada would impose on its own industry. This would be bad news for the American consumer because it would raise the cost of both the Canadian wood and the American wood. ( Listen. )

BL: Who are the players in these processes?

BR: The Coalition for Fair Lumber Imports … is fundamentally funded by just a couple of large companies. They have brought forward a legal action asking for these tariffs. As such, the U.S. government cannot settle it without the concurrence of the plaintiff, which is the CFLI.

NAHB has been a player because we have spent a lot of time meeting with government officials in the U.S. and Canada. We have spent a lot of time on the Hill, meeting with government officials and Cabinet members such as Don Evans, secretary of commerce. The consumers have gotten a bigger voice during the negotiations for the Softwood Lumber Agreement, where we were essentially asked not to show up for the negotiations and that our input was not required.

BL: What are the prospects that this proposed duty will actually take effect in May?

BR: Very good. One of three things will happen. One, the ITC will rule that there was no injury, and only part of the duty will be imposed. If they rule that there's only a potential for injury, then the Canadian government can appeal. The second thing that would stop it would be a negotiated settlement. So if you don't have a favorable ruling by the ITC and there's not a negotiated settlement, then you can expect that there will be the imposition of these tariffs until such time as the Canadians would win in some international body. ( Listen. )

BL: Should the tariff take effect, are there alternative materials that could be used in place of Canadian lumber?

BR: Most of the alternative materials we use in this country had been taking the place of southern yellow pine. Steel is an alternative to studs. The tonnage of light-gauge steel in residential construction has been increasing 50% a year for the last two years, which are very significant gains. There are some OSB products coming out with studs that are gaining acceptance in some markets. We are also starting to get wood from other markets besides Canada. A lot of trim wood is coming from the Southern Hemisphere, but you have to be careful about some of the Southern Hemisphere structural woods because they don't have the same strength quality as some of the ones from the Northern Hemisphere - even the same species.
( Listen. )

BL: So if the alternative materials don't pan out, there aren't any other sources of comparable lumber?

BR: There are limited amounts. You have to be careful where you get it. You do not want to bring in wood from the Chernobyl area of the former Soviet Union because there's been radioactivity problems. Some people have tried to bring in Siberian lumber, and it hasn't been economically successful. But if you put a 29% tariff on Canadian lumber, it will be interesting. There will be some alternatives that will come slowly. We will all take an immediate hit from this, and then slowly we will start to even things out. The American consumer and the American builder are very ingenious. But this could be economically very damaging for some intermediate period of time.
( Listen. )

BL: Do you see this import issue affecting large, national builders differently from the small and midsize builders who form the bulk of the American housing industry?

BR: I think the larger builders have longer-term relations with their suppliers, and you see one or two instances where a national builder has a preferred supplier for five years, and they're able to lock in some price protection that the small and midsize builders are unable to. So it impacts the larger builders less than some of the smaller builders like myself. ( Listen. )