History

     A Brief History of the U.S. - Canada Softwood Lumber Dispute

     Recent Customs Reclassifications Change Scope of SLA

     The Softwood Lumber Agreement (allow a minute for page to load)

A Brief History of the U.S.-Canada Softwood Lumber Dispute

            Since 1982, the Coalition for Fair Lumber Imports (“CFLI”), a group of U.S. lumber producers primarily funded by Georgia Pacific and International Paper, have tried three times to have countervailing duties imposed on softwood lumber imports from Canada.  None of these cases, after appeal,  has resulted in a finding that Canadian softwood lumber is subsidized.  These cases, which are known commonly as Lumber I, Lumber II and Lumber III, are described briefly below.

Lumber I

            On October 7, 1982, U.S. producers filed a countervailing duty (“CVD”) petition against softwood lumber from Canada.  The petition alleged that Canadian provincial and federal governments subsidized softwood lumber production by selling the right to cut timber on public lands (“stumpage rights”) at artificially low prices.  The allegations were investigated by the U.S. Department of Commerce (“DOC”) and the U.S. International Trade Commission (“ITC”), and the case was terminated on May 31, 1983 when the DOC determined that the stumpage programs conferred no subsidy because stumpage rights were not  provided to a specific industry at preferential rates.

Lumber II

            On May 19, 1986, CFLI filed a second CVD petition alleging new evidence and a change in U.S. law to support its claim that Canadian federal and provincial stumpage rights subsidized lumber production.  In October of 1986, the DOC reversed its prior determination in Lumber I, issuing a preliminary determination that stumpage rights were sold at preferential rates and benefited a specific industry.  The DOC calculated a preliminary CVD margin of 15%, ad valorem.  To avoid the expense and politics of continuing the case, Canada and the United States executed a Memorandum of Understanding (“MOU”) before  the DOC issued its final determination in Lumber II.  The MOU imposed a temporary 15 % ad valorem tariff (phased in as a stumpage rates rose) on imports of Canadian softwood lumber, in exchange for a termination of the investigation.

Lumber III

            On September 8, 1991, Canada advised the United States of its intention to terminate the MOU effective October 4, 1991, citing the elimination of alleged subsidies. On October 4, 1991, the DOC took the extraordinary step of self-initiating a CVD investigation of alleged subsidies derived from Canadian stumpage rights and  log export restrictions.  Also on October 4, 1991, the United States Trade Representative (“USTR”) took the extraordinary step of initiating a Section 301 investigation to suspend liquidation and require bonds posted on imports of Canadian softwood lumber.  DOC issued a final affirmative determination of subsidization on May 28, 1992, finding that both Canadian stumpage rights and log export bans conferred a subsidies on Canadian lumber production.  DOC imposed a CVD of 6.51%, ad valorem on Canadian softwood lumber imports.

Canada invoked the panel review process of the General Agreement on Tariffs and Trade (“GATT”) on November 1, 1991 to challenge the DOC and USTR initiations.  In June and July of 1992, Canadian respondents challenged the  DOC and ITC final determinations  before U.S.-Canada Free Trade Agreement (“FTA”) dispute settlement panels.  On February 19, 1993, the GATT panel issued a final report finding sufficient evidence for DOC to initiate the investigation, but that USTR’s imposition of the interim bonding requirement was invalid.  On May 6, 1993, the panel reviewing the DOC decision found that determination to be invalid.  Following two rejected remands (during one of which DOC raised the CVD to 11.54%), the DOC issued a final determination that Canadian softwood lumber was not subsidized.  That decision was affirmed by the panel on February 28, 1994.  The United States challenged these findings before an FTA Extraordinary Challenge Committee (“ECC”), which upheld the FTA panel on August 3, 1994.  The panel reviewing the ITC determination rejected the injury finding and remanded the issue twice to the ITC.  The ECC decision rendered the injury panel moot.

Despite the determinations on appeal that Canadian softwood lumber imports were not subsidized, USTR Mickey Kantor refused to refund the CVD deposits collected under the invalidated countervailing duty order.  Faced with the loss of hundreds of millions of dollars and threats of a fourth countervailing duty petition, Canada agreed to enter into the U.S.-Canada Softwood Lumber Agreement (“SLA”) on May 29, 1996.  The SLA, which is effective from April 1, 1996 to March 31, 2001, requires Canada to impose an export tax on softwood lumber exports in excess of 14.7 million board feet.

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Recent Customs Reclassifications of Softwood Products Previously Exempt from the SLA

Result Will Drive Up Home, Remodeling Costs to U.S. Consumers

-         Adds $2,000 to $2,500 to average cost of home purchases

-         Decision ignored Members of Congress, U.S. Consumer Groups, Associations

-         Manufactured home could cost $7,000 more over life of mortgage

A decision, implemented on 8/9/99 by the U.S. Customs Service to reclassify two more lumber products, formerly exempted from the U.S.-Canada Softwood Lumber Agreement (SLA), will further escalate the cost of homes as new tariffs are passed on to U.S. homebuyers, homeowners and other consumers, according to American Consumers for Affordable Homes (ACAH). The SLA was signed in 1996 between the U.S. and Canada to give a five-year truce in the battles over lumber products between the two countries.

Customs announced last May it would reclassify rougher headed lumber and notched studs, forcing them into the current quotas which control the amount of softwood lumber Canada can sell to the U.S.  The two products had been exempt from the quota, and the reclassification will mean that duties will now have to be paid on the products or those products will be shipped in lieu of other products covered in the original agreement.  Customs delayed implementation in May after several members of Congress expressed concern about the impact of the decision, but despite continued opposition moved ahead on the reclassifications.           

Among those urging U.S. Treasury Secretary Lawrence Summers to intervene and delay the implementation of reclassifications were more than 30 Members of the Senate and House of Representatives, both Democrats and Republicans, from across the U.S. 

In a joint letter to Summers, Sens. Edward Kennedy and John Kerry, and Rep. Joe Moakley, all of Massachusetts, cited the cost of housing as “reaching historic heights …Subjecting the (wood) product to higher tariffs would necessarily increase the price of a new home, sending us in the wrong direction.”

“Over the past year we have seen lumber prices rise to over $475 per 1,000 board feet, compared to under $350 per 1,000 board feet last year at this time,” said Charles Ruma, National Home Builders Association 1999 president.  “This increase adds about $2,000 to $2,500 to the cost of a new home, and that doesn’t include the cost of higher taxes, mortgage payments and insurance associated with a higher priced home.  It is the consumer who ends up holding the tab while a small group of U.S. producers keep pressuring Customs to add more products to the original softwood agreement.  This is wrong.”

It is estimated that another 20 exempted products could be considered for reclassification by Customs, ACAH said.

Rep. Jim Kolbe (R-AZ), chairman of the House Treasury Appropriations Subcommittee, and Rep. Steny Hoyer (D-MD), ranking subcommittee Democrat, told Summers:  “If there are questions about the classification of these wood products, they should be addressed when the U.S.-Canadian Softwood Lumber Agreement is up for renegotiations in 2001.”

The World Customs Organization (WCO) advised Customs, in a letter last winter, that it would be inappropriate to reclassify drilled studs, another previously exempt product that Customs was forcing it into the quota. But Customs made the decision anyway and kept the document secret until after the reclassification was challenged in court when it was leaked to media. That case is still in the courts. In May, the reclassification issue was again formally reviewed by the WCO, which voted 21 to 1 against the U.S. efforts to sweep a previously exempted product into the current agreement. WCO noted that the U.S did not meet the standards used by more than 170 countries to classify products.  Customs is asking for yet another review of that decision at an October WCO meeting.

“We believe it is highly unlikely – if not impossible – for the U.S. to think it can change 21 other countries’ points of view on this issue, and it should have not moved forward on these reclassifications,” said Susan Petniunas, spokesperson for the Alliance. “The entire reclassification process makes a mockery of the Softwood Lumber Agreement and is especially troubling in light of the World Customs Organization position on drilled studs.”

Robert J. Verdisco, president of the International Mass Retail Association (IMRA) said,  “We are very concerned about the U.S. Customs Service overstepping its bounds and reclassifying these two products, especially after the World Customs Organization ruled that the first reclassification on drilled studs was incorrect. Who’s to say the reclassifications will stop with these products_  Customers rely on IMRA’s members to provide every day low prices for home building and improvement, and the price increases that will result from the reclassifications will surely be passed on to the consumer.”

Fine grain Cedar rougher headed lumber, which is not readily available in the U.S., is used in fascia and other exterior applications, not for structural building properties. Notched lumber is used extensively in the construction of manufactured housing.

“The impact of this reclassification on manufactured homes will be significant,” said Chris Stinebert, president of the Manufactured Housing Institute.  “Manufactured homes are one of the most important products for first-time home buyers, and even small increases in cost means the difference in their ability to own their own home.”  It is estimated that over the life of a mortgage for a $40,000 manufactured home, the reclassifications and agreement could add up to $7,000 more.  

Doreen Brown, president of Consumers for World Trade, said: “Customs’ reclassifications of rougher headed and notched lumber is bad news for house buyers who will be faced with even higher prices because of new tariffs. Consumers have already suffered the inflationary effects of the Softwood Lumber Agreement."

ACAH had urged Summers to delay the implementation of the reclassification until legislative challenges were exhausted or the agreement ends. 

“Treasury’s excuse that to delay was not legal is ridiculous,” said Allynn Howe, vice president, government affairs for the National Lumber and Building Material Dealers Association.  “They already delayed the implementation once this summer, and there is plenty of legal precedent to support continued delays until court appeals on drilled studs and the WCO review are both completed.  Customs just caved in to pressure from the small group of U.S. forest owners in the Coalition for Fair Lumber Imports (CFLI), all of whom are making out like bandits at the consumer’s expense.”

CFLI is a heavily financed lobbying group representing a handful of producers in the U.S. who for years have successfully pressured the government to block imports from Canada.  According to lobbying disclosures, Dewey Ballantine,  CFLI’s lobbying firm, spent millions of dollars lobbying this issue over the past several years for member companies: Georgia-Pacific, International Paper, Temple-Inland, Potlatch and Sierra Pacific. “They claim the list is longer, but keep it secret and do not include other companies in their filings,” Howe added.

ACAH was formed recently because of the significant effect of the Softwood Lumber Agreement between the U.S. and Canada on housing affordability, trade restrictions, market volatility, supply of product, and jobs throughout the U.S. The alliance is committed to take the issue directly to consumers and Congress.  The Alliance includes diverse groups representing consumers and constituents such as the National Retail Federation, Consumers for World Trade, National Association of Homebuilders, International Mass Retail Association, National Lumber Material Building Dealers Association, Manufactured Housing Institute and others representing remanufacturers, affordable housing groups, consumers, and advocates for free trade. 

The ad-hoc alliance supports free trade in lumber between the U.S. and Canada upon termination of the current Agreement in 2001. The alliance aggressively opposes efforts by Customs to reclassify exempted wood products, forcing them into the currently restrictive quotas, thus making the impact of the Agreement on homeowners and consumers even more significant.  

For actual press release, please see the news page.

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