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Canadian Lumber Duties — Their Impact on the Pallet Industry
Conflicts over Canadian softwood lumber imported into the U.S. have been a major concern for over 20 years

By Staff
Date Posted: 5/3/2002

Conflicts over Canadian softwood lumber imported into the U.S. have been a major concern for over 20 years. On March 22, the U.S. Department of Commerce decided to impose a total duty of 29% on Canadian lumber coming into the country. Countervailing duty and anti-dumping cases have combined since the quota system expired on March 31, 2001 to penalize most imported softwood lumber. After a great deal of bickering and accusations, the Dept. of Commerce was facing a deadline to fish or cut bait so to speak.

In the United States, news coverage of this border dispute has been much less extensive than the coverage in Canada. Canadian lumber exports to the U.S. are a serious matter to the Canadians because they are such an important part of their economy, particularly in the West. About 13% of Canada’s trade with the U.S. involves forest products, including some $6 billion (U.S.) of solid lumber.

The Coalition for Fair Lumber Imports has led the U.S. challenge because its members are typically active in the sawmilling industry. By no means, however, do all Americans agree with the concept of putting a duty, quota system, or anti-dumping tax on Canadian lumber. The homebuilders organizations are strongly opposed because of its impact on the cost of a new house. Canadian SPF dimension lumber is favored by many builders because of its ease of handling and shaping, as well as its normally competitive price.

This issue impacts the pallet industry because low-grade Canadian SPF softwood (typically #3 and #4 grades) is an important lumber source for U.S. pallets in the Western part of the country and along the northern U.S. border. The dispute over what does and does not have tariffs or duties has excluded quite a few lumber products. In the pallet industry, precut material packaged as pallet kits was not part of the previous quota. All indications are that pallet kits will be exempt under the new 29% duty as well. Random length dimension SPF lumber is the major item that is scheduled for the duty. In the previous five year quota system, the vast majority of lumber crossed the border without any tariff or duty. Only after the quota was exhausted did a duty arise. The new Commerce ruling should impact random length lumber starting with the first piece. Discussions between the U.S. and Canadian officials have been held since the Commerce Dept. ruling, but as of mid-April no compromise had been reached. If the two countries reach a resolution, it could remove the need for the 29% duty to become active. The new duty is a combination of the 19.3% countervailing duty that had been put on previously because of Canadian subsidies and an average 9.7% anti-dumping decision. The final duties are down from the earlier preliminary duty of about 32%, but they are higher than many people had anticipated.

The duties will not become official unless the U.S. International Trade Commission rules that the U.S. lumber industry has been injured by Canadian lumber imports or there has been a threat of an injury. This ruling group is a government commission that is independent of thefederal administration. It is a sitting panel that rules on trade issues affecting all aspects of our economy.

Efforts to resolve this issue have started, and a final ruling is expected some time in mid-May. If the trade commission affirms the duty, then cash deposits to cover the duties will be required once the notice is published in the Federal Register.

This border clash over subsidized Canadian stumpage from federal land includes most of Canada’s forests, particularly in the West. There seems to be little reason to expect an agreement satisfactory to both sides. In fact, it appears that the extremes on both sides will probably both be unhappy. Obviously, the Canadians do not want a duty and they will use every tactic that they can to reduce it to a more palatable level. Many of the hard liners in the U.S. do not think that even 29% is enough. We see nothing on the horizon that suggests there will be a happy resolution, and certainly nothing to suggest anything like a long term permanent solution.

There had been speculation in the Canadian press that the Canadian government might retaliate in some way, such as boycotts of American goods or restrictions on energy going South across the border. However, Trade Minister Pettigrew ruled out retaliation as being too risky. It appears that the Canadian government will pursue the litigation route instead. Canada has about a $60 billion (U.S.) trade surplus with the U.S. that it doesn’t want to jeopardize if possible.

I wrote in my March letter about the ironic condition that may exist in northern U.S. pallet markets because of the mixture of lumber duties and the new international pallet treatment standard. Canadian softwood pallets can come across the border duty-free, while U.S. pallet manufacturers trying to buy the same lumber will have to pay a duty. Canadian pallet manufacturers did not have to pay any kind of duty on the same lumber when they bought it to make their pallets. Once hardwood pallets have to be heat treated, as it appears almost inevitable they will, the common U.S. practice of using hardwood for pallets may not be as economical. Thus, the duty imposed by our government and the international agreement approved by our government could work against many U.S. pallet companies that are located close to the border.

Pallet people can help themselves by establishing a relationship with their congressional representatives and educating them on this complex issue. Being active in the National Wooden Pallet and Container Association and pulling together as an industry may be the best long term solution for pallet people. Lately government decisions have had an increasing impact on the forest products industry. If the industry does not take the necessary steps to speak up for itself, nobody else will.

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