U.S. to move ahead with penalty on Canadian lumber

The United States was set to impose duties on Friday against Canadian lumber used for home building, the second time in less than a month that Washington will take action to shield a domestic industry from foreign competition. The United States accused Canadian provinces of unfairly subsidizing softwood lumber, then dumping it at cheap prices in the American market. Canada, which ships more than $6 billion of lumber across the border annually, said the United States was being protectionist. Attempts to reach a settlement for a temporary export tax collapsed late on Thursday after marathon negotiations stretching more than a week. U.S. President George W. Bush and Canadian Prime Minister Jean Chretien had urged negotiators to try to reach a deal to avert penalties against Canadian shipments, which account for a third of the American market.

On Friday, the U.S. Commerce Department is required by law to finalize duties against Canadian lumber under a timetable established in a trade case filed by American sawmills. In a preliminary ruling last year, the department proposed duties averaging 32 percent on various types of wood. The U.S. Commerce Department could raise, lower or maintain that level in an announcement expected by midday on Friday. Canadian Trade Minister Pierre Pettigrew said the talks failed because U.S. demands were "quite unreasonable." The Canadians were angered by a final American proposal for a temporary export tax of about 19 percent, nearly double the level Ottawa was willing to consider, according to sources.

Pettigrew said Canada would challenge the lumber duties before World Trade Organization or NAFTA panels, but he left open the possibility that Ottawa might return to U.S. negotiations in the future. "The demands of the Americans were clearly intrusive in Quebec and British Columbia and other provinces," he said. "Frankly, they (the United States) were not offering very much as a counterpart." Slapping Canadian lumber with penalties will mark the second time this month that Washington has acted to protect a U.S. industry complaining of price-cutting by foreign competition. The Bush administration on March 5 imposed tariffs up to 30 percent on a range of steel imports, saying cheap imports were hurting U.S. steelmakers. The move angered steel producers around the world, and Japan already has challenged the action at the World Trade Organization. U.S. negotiators, keenly aware of Canada's status as their nation's biggest trading partner, sought to downplay the impact of the duties.

"The United States will remain committed to negotiating a solution to the underlying problems here," a senior U.S. trade official said. "In some ways, it (the Commerce Department duties) takes away one piece of uncertainty and it may actually make the sides better able to assess the benefits and costs of an agreement," he added. Duties on Canadian softwood lumber shipments could boost costs for American consumers. The lumber, which includes spruce, pine, fir and red cedar, is used for everything from kitchen cabinets to framing for new homes.

U.S. lumber companies initiated the trade case, but a group of their customers, including giant Home Depot Inc. , claim the duties may hike the price of a new home by $1,000. Lumber futures traded on the Chicago Mercantile Exchange soared on Thursday in anticipation of the trade penalties. The May contract rose by $10, the daily trading limit, to close at $324 per thousand board feet. A report recently released by accounting firm PricewaterhouseCoopers estimated that the U.S. duties could cost the Canadian industry hundreds of millions of dollars each year. Under complicated rules for trade disputes, the U.S. International Trade Commission will hold a hearing on Tuesday and then vote in late April or early May on whether the U.S. lumber industry was injured or threatened by Canadian lumber exports. A positive ruling by the commission would require Canadian companies to begin posting cash deposits by the end of May related to the duty rates.