December 14, 2017
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Your house was likely built with Canadian lumber, and it’s reigniting a trade war

By Christopher Burns, BDN Staff
Updated:
George Danby | BDN | BDN
George Danby | BDN | BDN

A wave of cheap imports is threatening jobs in Maine. Only, they aren’t coming from China or Mexico but from the forests of our largest trading partner: Canada.

For years, the U.S. lumber industry has alleged that Canadian producers have an unfair advantage because they harvest most of their wood from publicly owned forests, where they pay cheaper prices to cut timber. When that wood, primarily used to build houses, is unloaded in the U.S. market, it hurts local lumber manufacturers who employ thousands across Maine.

“All that wood coming across the border depresses prices, forcing producers to sell their wood at cheaper prices or shut down,” Eric Kingsley, a forest industry consultant and vice president of Innovative Natural Resources Solutions in Portland, said.

The U.S. Lumber Coalition is fighting back, again, making good last month on a promise to petition the U.S. government to investigate a flood of imported Canadian softwood lumber with an aim at imposing stiff tariffs, reigniting the decadeslong trade fight over trees.

It’s a threat that looms large for sawmills in Maine, where the state’s economy still relies on logging and a slew of paper mill closures over the last decade has left fewer options for those who make a living in the woods to bring their products to market. But new tariffs — if they’re imposed — won’t be slapped onto Canadian lumber until March or April at the earliest. And that’s if the U.S. and Canadian governments can’t reach a new deal, which so far has proven elusive.

In the meantime, wood continues to flow across the border.

‘Unfair competition’

The so-called lumber wars are the longest running trade dispute in modern history between the U.S. and its largest trading partner. At issue is what size tariff — if any — the U.S. should impose on Canadian lumber harvested on publicly-owned land, often referred to as “crown land.”

Most timber in the U.S. is harvested on private land at prices set by the market. In Canada, provincial governments own about 90 percent of the land and charge fees for private companies to lease the land and harvest timber. The U.S. lumber industry has accused the provincial governments of setting these fees below market prices, giving Canadian producers an unfair competitive edge when their lumber is exported into the U.S. market.

“The amount of that subsidy is at the heart of the softwood lumber dispute,” Kingsley said.

The Canadian lumber industry has long shipped most of its production across the border, supplying about a third of the U.S. demand for softwood lumber.

That has sparked four trade disputes between the U.S. and Canada over softwood lumber since the 1980s. When tensions last flared in the 2000s, the U.S. smacked a 27 percent tariff on Canadian lumber, which Ottawa challenged in trade tribunals under the North American Free Trade Agreement and at the World Trade Organization. That conflict ended in 2006, when the two nations signed a new softwood lumber agreement that set up a quota and tariff system on Canadian lumber imports.

After that agreement expired in October 2015, Canada stepped up its exports of lumber across the border, according to documents filed with the U.S. International Trade Commission. Exports to the U.S. surged to 11,185 million board feet of lumber in the first eight months of this year, up 34 percent from the same period in 2015.

For a year, Canada has been able to ship all that lumber to the U.S. tariff-free, before the U.S. lumber industry could file for trade protections to give negotiators time to hammer out a new deal.

“I go past the rail yard in Hermon frequently to get to Bangor, and there’s lumber racks moving a lot now. You can see lumber racks going north empty and coming back down full. There is a lot of lumber coming out of Canada,” Jack Lutz, a forest economist at the Forest Research Group in Hermon, said.

Missing out on a housing boom

The increased flow of Canadian lumber across the border has coincided with a boom in construction as the number of new homes built nationally in October soared to a nine-year high, according to the U.S. Census Bureau. That has meant a steady rise in demand for boards, beams and framing, Lutz said.

That should be good news for lumber manufacturers such as Jason Brochu, co-president of Pleasant River Lumber, which employs 300 at its sawmills in Dover-Foxcroft, Jackman, Hancock and Sanford. But U.S. lumber producers aren’t seeing much of that business. It’s going across the northern border. In first eight months of the year, U.S. producers only saw a 3 percent increase in lumber shipments, according to the documents filed with the trade commission.

“Without an increase in housing starts, the Canadian lumber would have been a bigger problem for the U.S. mills,” Lutz said. “If the agreement hadn’t expired, the U.S. mills would have been better off when housing starts went up.”

That’s little solace for lumber producers here, however. Maine sawmills and the wood products sector contribute $1.1 billion to the state’s economy and employ 4,800 people, according to the Maine Forest Products Council. Maine sawmills alone employ 1,996 people. All that Canadian lumber circulating through the U.S. market has created an oversupply that is forcing down prices of the products they sell.

“This increase in imports has caused prices to remain at a lower level than if normal market forces were in play,” said Brochu, who is among the business owners to sign onto the coalition’s petition. “Our business has been forced to run below capacity during this cycle due to intense and unfair competition from Canadian imports.”

Taking a hard line

Earlier this year, the U.S. and Canadian governments affirmed their commitment to reaching “ a durable and equitable solution” for producers on both sides of the border. But the deadline to reach an agreement passed on Oct. 12, and an agreement appears elusive as negotiators have failed to overcome “ significant differences.”

Jeff Easterling, president of the Northeast Lumber Manufacturers Association in Cumberland, said “there’s a lot of frustration” among mill owners over the last year about the softwood lumber talks because of the inability of the two governments to reach an agreement.

Here’s at least one major sticking point: The U.S. has reportedly sought a hard quota on lumber imports that would limit them to around 22 percent of the U.S. market, down from an average of 28 percent since the 2006 agreement, according to Canadian media reports. That’s hard to stomach in Canada, where more than 250,000 work in the forestry sector and 70 percent of lumber exports are bound for the U.S., according to Statistics Canada.

Not everyone may want to see the U.S. succeed in its push for a hard quota. Owners of remote woodlots in western and northern Maine often have wood harvested from their land trucked across the border to sawmills in Quebec, which is cheaper than hauling to sawmills hundreds of miles away in Maine, Kingsley said.

How Maine landowners would fare depends on how the quota is portioned throughout Canada, and those details remain uncertain. If Quebec received only a small portion of the total quota, that could reduce demand for wood cut in Maine.

Trade officials continue to soldier on with negotiations. An agreement, while unlikely, would resolve the lumber industry’s petition for an investigation. But with a change of leadership coming in Washington, the fate of the current softwood lumber talks is uncertain.

On the campaign trail, Donald Trump tapped into unease over international trade. His hardline protectionist trade policies — including a proposed 45 percent tariff on imports from China and ripping up the Trans-Pacific Partnership, a proposed trade agreement between the U.S. and 11 Pacific Rim nations — resonated with working-class voters in Maine.

When he enters office in January, the Trump administration could propose wrapping an agreement on lumber imports into the NAFTA as part of his strategy to counter “unfair imports,” according to a memo drafted by the president-elect’s transition team obtained by CNN. Or his administration could withdraw from NAFTA entirely or even slap stiff tariffs on imports of Canadian lumber as sought by domestic lumber interests.

His tough policies, if enacted, could prove beneficial to Maine lumber manufacturers. But they aren’t waiting until Inauguration Day for a resolution.

“While we are certainly encouraged by the strong statements on trade by the incoming administration, we are still focused on working with the current administration while the Trump administration takes shape,” Brochu said. “Either way, we think it is time for Canada to take the process of negotiating a new agreement seriously.”

 


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