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Countervailing Duty Causing Much Confusion and Disagreement
U.S. imposes a 19.3% countervailing duty on softwood lumber imported from Canada; ramifications for pallet industry still somewhat unclear
By Ed Brindley
Date Posted: 10/1/2001
A "border war" over Canadian lumber coming into the U.S. has been ongoing for decades. When the five year quota system expired on March 31, a period of waiting to see what the U.S. would do began. The U.S. has claimed for decades that the Canadian government subsidizes the stumpage that is cut from Crown land and sold to the mills. Since the Canadian government owns much of this magnificent Canadian resource, particularly in British Columbia, the claim has been that U.S. mills cannot compete because we have to buy stumpage on an open market.
Nobody seems to know with absolute certainty whether or not the subsidy claim is justified. It is somewhat ridiculous that we rode out a five year quota system, knowing full well that the subsidy issue would not go away. What did we do during that time to learn the truth? Apparently nothing. To my knowledge we did not conduct an exhaustive study of the lumber and stumpage marketplaces to help make an intelligent decision before the quota expiration date arrived.
Since the U.S. Department of Commerce recommended a 19.31% countervailing duty (CVD) on August 10, confusion has been the best way to describe the market. Ironically lumber prices in the U.S. did not skyrocket. In fact, they have exhibited what to me is a somewhat surprising softness. Nobody seems to know for sure whether or not the CVD will standup to the pressures being placed. Obviously Canadians are unhappy, but many U.S. citizens are unhappy as well. Concerns over a CVD increasing the cost of lumber, and hence housing, have many people South of the border voicing their concerns.
But concerns run much deeper than just prices. A day doesn’t pass without the Canadian papers carrying articles about people being laid off by the thousands in the forest products industry. To put it bluntly, the Canadians are ticked off. Suggestions of ways to speak back run as extreme as cutting off our rights to move oil and gas across Canada to the U.S. No other border in the world has been any more friendly than this one, but feelings run very deep. If the current 19.3% CVD structure is allowed to stand, it may not be a pretty picture to the forest products industry.
There is confusion concerning whether or not certain products are exempt. Initially the proposed U.S. CVD exempted "unassembled pallet kits if they include the exact number of pieces for a complete pallet, bundled together." Nobody seemed to know for sure what this would mean. In the past, kits were shipped so that a shipment contained the correct number of stringers and deck boards to make a specific number of pallets, but they were not bundled specifically for each individual pallet. It is my understanding that the Dept. of Commerce has decided to follow this same interpretation in the new CVD. The proper number of pieces have to be packaged together as a shipment that will assemble into a specific number of pallets with a given specification.
The CVD exemption for pallet kits also states "the three pieces of dimension lumber used for runners or stringers must already have the large notches which are used by a fork lift to lift a pallet (each notch is 11/2" deep by 8" wide). What happens for a four stringer pallet? Will four stringer pallet kits be allowed, or can the fourth stringers be bundled together under the separate "stringer" exemption category? And what about block pallet kits? I am told that the Dept. of Commerce has decided to allow any number of stringers, as well as block pallet kits, to come across the border duty free.
And what about the notches? While some pallet manufacturers probably do manufacture 8" notches, a 9" notch is the most common standard size. I understand that they are permitting any notch that is at least 8" long.
The initial Commerce announcement suggested that any pallet cut stock that is longer than 48", whether decking or stringers, would not be exempt. Apparently they will now allow longer length pallet kit material to enter duty free. Because of the potential problem associated with differentiating between long stringers and lumber, buyers should beware of ordering cut stock that is unusually long. But this kind of pallet has not typically been a factor in the past cut stock market.
I also understand that all assembled pallets are exempt. Thus, pallet style and size are not an issue since completed pallets will move duty free across the border. Many U.S. pallet manufacturers are not happy to be paying more for raw material. But some pallet manufacturers located near the border are particularly concerned that they have to pay duty on RL Canadian lumber, while Canadian pallet manufacturers just across the border can ship finished pallets duty free. For those U.S. markets that are close to the Canadian border this double standard could put U.S. pallet manufacturers at a considerable disadvantage.
Even random length material is not settled for sure. It now appears that it will experience a 19.3% CVD. But with the growing sentiment against this CVD will the U.S. Dept. of Commerce change its mind? Time will tell. Until then, people will probably proceed as if the 19.3% duty will stand. Duty money will be set aside waiting for a final decision.