Audio Coalition's reaction to tariffs How Canada subsidizes lumber industry Imports' impact on U.S. producers A call for free and fair trade Hidden taxes or not? Government subsidies revisited Canadian message, U.S. face Duty gap

Erik Gabrielson: Today I'm interviewing Deborah Regan of the Coalition for Fair Lumber Imports. Deborah, please tell us a little about the Coalition for Fair Lumber Imports.

Deborah Regan: Our membership is comprised of producer associations, forest landowners, and large and small lumber producers. Our membership represents 75% of the softwood lumber produced in the United States. The [countervailing duty and anti-dumping] petitions are supported by two unions as well: the United Brotherhood of Carpenters and Joiners and PACE International Union.

EG: What's the coalition's reaction to the U.S. International Trade Commission's decision to impose the 27% tariffs on Canadian softwood lumber?

DR: The coalition is pleased that the International Trade Commission recognizes the imminent harm to American workers and lumber companies from unfair trade. The ITC unanimously found that the Canadian government's practices, selling trees to the Canadian lumber industry at one-third to half of the market value, will harm the U.S. lumber industry and its tens of thousands of employees if immediate action is not taken. We very much would like to see negotiations resume immediately to try to pick a long-term, durable solution based on free and fair competition for timber and lumber in the U.S. and Canada. But until the Canadian government stops subsidizing our competition and preventing open and competitive timber markets, U.S. companies must rely on U.S. and international trade laws to offset that artificial advantage. ( Listen. )

EG: Can you describe how the Canadian government subsidizes their lumber industry?

DR: The Canadian provincial governments have been proven to give their lumber producers timber at one-third of the market value, on average. For example, the Department of Commerce found that the average market-based tree in the U.S. costs $128. Right across the border, similar trees … on the other side of the border have an average, administratively set price of $48.

The governments prevent competition for the timber and allocate long-term contracts to the companies at these artificially low rates. In exchange, the Canadian governments mandate that Canadian companies harvest and process timber regardless of market conditions. Such policies force U.S. lumber producers and workers to close at twice the rate of Canadian mills in bad markets, giving our competitors a huge cost advantage in good markets. ( Listen. )

EG: How have U.S. producers been impacted by imports of Canadian lumber?

DR: U.S. mills have been adversely impacted by subsidized Canadian lumber imports. In the past three years, over 100 U.S. lumber mills have closed permanently. Approximately 10,000 jobs have been lost related to the bad lumber markets and oversupply, which relates back to the fact that in bad markets Canadian companies are not allowed to shut.

In British Columbia they have applied for a mandate to even curtail operations. We feel that the policies there are helping the Canadian workers stay in business and are causing twice as many mill closures in the U.S. The lost sales and curtailments are immeasurable. Independent studies have found that the Canadian profits and costs overall exceed U.S. costs. The only Canadian advantage is their undervalued timber.
( Listen. )

So we're not trying to prevent all Canadian lumber from entering the U.S. market. We're trying to compete with the Canadian lumber producers on a level playing field. Let the market set the price for the timber rather than using Canadian treasury funds to subsidize it.

EG: Let me go back to something you said earlier. You said that you would be willing to open negotiations again. What would an acceptable agreement look like for the coalition?

DR: We have been calling for free and fair trade. They tend to phrase it as private versus public ownership because in Canada 94% of the timberland is owned by the government. We don't care if the government owns it. The government has to sell it. They can't just give it away.

We've opened up to many different ways that this can be solved. In general, we know that auctions work. That is our preferred system. Make it all competitive. They come back with, "No, that's too hard." So we've said, "OK, come up with a system that is market-based." ( Listen. )

Right now you have to negotiate through the government, and we have gone to our government with proposals. We have made it clear in every single press statement since the Department of Commerce finding of 29%, and then at the ITC finding, and all along: We are willing to negotiate. Their government has not been able to come to the table to negotiate.

EG: Some critics of the tariffs say the tax on Canadian lumber is basically a "hidden tax" for American consumers that will harm housing affordability. How does the coalition respond to this argument?

DR: Ending subsidies will have very little impact on home buyers because lumber only accounts for a tiny fraction, it's 2.1%, of the cost of a new home. Congressional Research Service recently documented that even the tiniest shift in an interest rate swamps any possible impact of lumber pricing on a new house. Thousands of Americans are not losing their jobs in the housing sector because of the U.S. industry and timberland owners and workers wanting Canada to end subsidies and dumping. ( Listen. )

A hidden tax on American consumers would be if the U.S. lumber industry convinced the U.S. government to provide the trees at half or two-thirds of today's price - if we convinced our government to subsidize us. In fact, it's unfair trade that's hurting Americans, not the minuscule change in lumber price that does not get passed on directly to consumers.

EG: Independent trade panels have found three times that the Canadian government did not provide subsidies to its lumber industry…

DR: Can I stop you there? Your statement is just going off in the wrong direction. The statement that independent trade panels have found three times that Canadian governments didn't provide subsidies to its lumber industry is simply not true. There have been five international dispute panels concerning softwood lumber. In four of those cases, Canada's claims were dismissed. Let me go through them quickly.

In 1986, there was a GATT [General Agreement on Tariffs and Trade] case dismissed after Canada settled. In 1992, the GATT panel rejected Canada's argument that timber could not be subsidized. And by the way, that's the same argument Canada is now making at the WTO [World Trade Organization]. In 1994, a NAFTA panel reviewing the finding that Canadian lumber injured the U.S. mills was dismissed as moot. In 2001, a WTO panel, and this is the only WTO panel, threw out as premature Canada's challenge to a potential U.S. finding that log export restrictions are a subsidy. This isn't even an issue that is raised in our current case.

Only in one instance, in 1994, was there a decision that ruled in Canada's favor. In the 1994 ruling, it was a NAFTA panel. They basically found our fundamental point. They hold that the Canadian governments give their timber to Canadian producers for less than market value, but three Canadians voted against two Americans to find that the noncompetitive practices could not be defined as a subsidy under U.S. law. NAFTA panels only define U.S. law. They don't have their own set of laws. Congress later clarified that that U.S. law meant to define timber subsidies as actionable. Thus, Canada can't win that appeal today. The law has since been clarified. ( Listen. )

To your point, Canada has already filed five WTO cases related to lumber and is likely to file three more, not to mention the three NAFTA appeals that they have going. We are confident our cases will withstand all appeals.

EG: What is the best way for someone to learn more about the Coalition for Fair Lumber Imports and the Canadian softwood lumber issue in general?

DR: The best way for someone to learn about the coalition is probably to visit our Web site at www.fairlumbercoalition.org. For more detailed information, they might want to read the Department of Commerce's decision memorandum, and that can be found at http://ia.ita.doc.gov/. On that page you can actually read their decision, and it will define what products are covered under the scope, what methodology was used to come to this conclusion.

EG: Is there anything else you would like to add?

DR: It is interesting … the federal Cabinet in Canada has approved $50 million for the softwood lumber fight, $20 million of which is an advocacy campaign to urge U.S. legislators to side with Canada. And they are speaking publicly about, "Oh, we don't want to look like we're manipulating anything, so we're going to fund the U.S. home builders, and we are going to funnel money in ACAH, the American Consumers for Affordable Housing, and make sure that they get our message out for us." We find that very disturbing, that the Canadian message is under a U.S. face. ( Listen. )

	This photo, taken May 7, 2002, is of Gwynn Lumber in Eureka, Mont., which is approximately six miles from the Canadian border. The coalition estimates the amount of Canadian lumber stored here is enough to build more than 750 homes. *Photo and caption information provided by the Coalition for Fair Lumber Imports.

DR: That's about it. The only other thing that's really going on right now that disturbs us is this duty gap. Many times you will hear that it has raised the cost of homes. Well, they haven't been paying duties. There's a misperception that since the 27% was announced that they've been paying that. … Under customs you can import stuff 10 business days before filing paperwork. So since April 22 the lumber has been duty-free, and it has been stockpiled in the U.S. We have photos now of bulging reload centers, and we are anticipating that 125,000 homes could be built with the amount of lumber that is being shipped in this month duty-free. ( Listen. )