Lumber industry awaits US ruling on new Canada duty

North American timber firms were anxiously awaiting Friday's announcement by the U.S. Commerce Department on whether Canadian lumber is unfairly subsidized and should be punished with stiff duties. The Commerce Department was to announce its decision around noon EDT (1600 GMT) Friday, agency officials said. Some U.S. lumber sources on Thursday speculated the Commerce Department could impose a 15-20% countervailing duty on Canadian softwood lumber shipments to offset alleged provincial government subsidies the Canadian industry enjoys. Also expected on Friday is an announcement by Commerce on whether Canadian lumber imports surged in the April-June period, thus making any duties retroactive to early May.

Friday's ruling will be a preliminary finding by the Commerce Department, with a final decision in the countervailing duty case possible by the end of October. But in the meantime, if a new duty is imposed, U.S. importers of Canadian softwood lumber would have to post a bond or cash deposit with the U.S. Customs Service, thus adding to the price of the Canadian wood. Last year, Canada shipped 18.3 billion board feet of softwood lumber to the United States, valued at $6.4 billion and accounting for about a third of the U.S. market. The wood is used extensively in home building and renovating. Canada denies it has done anything wrong. Ottawa contends it has a right to free trade in lumber and that the United States is being protectionist.

Lumber retailers and builders said home buyers were unlikely to see an impact from the Friday ruling because lumber prices have already increased in anticipation of duties being imposed. "I think a duty of 20% or less would not produce a jump in prices,'' said Michael Carliner, an economist with the National Association of Home Builders. Home builders and retailers such as Home Depot Inc - who want access to cheaper lumber -- generally side with Canada in the trade dispute. Besides the anticipated countervailing duty, Canada also faces a potential anti-dumping duty if the Bush administration finds Canadian lumber has been sold in the United States at less than fair value. The U.S. industry is seeking an anti-dumping duty of up to 38%, on top of the 39.9% countervailing duty it has requested. A Commerce Department preliminary decision on this case is expected by Sept. 24. It could be late this year or early next year before the Bush administration completes its review of the lumber dispute. Government-to-government talks could yield a compromise, thus ending the trade dispute before then. But if negotiations fail, Canada is expected to challenge any duties before the World Trade Organization or a NAFTA dispute panel. The U.S. investigation began soon after the March 30 expiration of a bilateral deal limiting Canada's duty-free exports to 14.7 billion board feet per year.

Canada is the United States' largest trading partner, with $385 billion worth of goods exchanged between the two countries in 2000, according to the U.S. International Trade Commission. Vehicles, machinery and fuels lead the list of products most actively traded. Despite the strong trade ties and a free-trade agreement that has been in effect since 1989, the two countries for years have been arguing over the flow of lumber, as well as wheat. In 1986, the Commerce Department found Canada's lumber industry was receiving subsidies and the United States was prepared to impose a 15 percent countervailing duty. But before that happened, a deal was reached with Canada setting a 15 percent export tax on its softwood lumber. By 1991, Canada said its provinces had changed their lumber practices and the export tax was terminated. Another U.S. investigation ensued the following year, with the Commerce Department ultimately settling on an 11 percent duty. But that duty was rejected by a NAFTA panel. In 1996, the two governments worked out the voluntary quota system that has now expired. The trade dispute has unsettled the lumber market. Lumber futures prices at the Chicago Mercantile Exchange closed on Thursday at $326.50 per thousand board feet, up from $230.50 the week of April 1, when uncertainty began escalating over the future of U.S.-Canada lumber trade and the home-building season in the United States was fully under way.