A ruling by the U.S. government last week could further harm the slowing real estate development market by significantly increasing the cost of lumber.

In a preliminary ruling issued Monday, the U.S. Department of Commerce determined that Canada subsidizes its softwood lumber industry by selling government timber to sawmills a below-market prices, causing harm to U.S. sawmills and their employees. To offset these alleged unfair trade practices, duties have been set on Canadian lumber at a rate of more than 19 percent.

This is not the first time the U.S. government has accused Canada of unfair trade practices supporting the lumber industry. Similar findings were made in 1986 and 1992. And under international trade laws, the U.S. can leverage such findings to set duties.

But the price increase, which is effective immediately, set off a furor among consumer groups, home builders, developers and real estate players, all of whom see increased building costs negatively affecting American consumers and businesses.

"This decision represents free trade in reverse gear. It's bad trade policy, bad economic policy and it would hurt housing consumers by raising the cost of housing," said Bruce Smith, a home builder from Walnut Creek, Calif., and president of the National Association of Home Builders (NAHB).

The Commerce Department's decision was prompted by a petition from the Coalition for Fair Lumber Imports (CFLI), a group of domestic lumber producers. CFLI wanted a 40 percent countervailing duty and an additional 38 percent anti-dumping duty to be imposed on imports of lumber from Canada. A preliminary decision regarding the anti-dumping investigation is expected in late September.

"Uncertainty caused by the countervailing and anti-dumping cases has already raised the price of lumber, and that's reflected in the cost of housing. A 19.3 percent countervailing duty could add more than $1,000 to the cost of an average new home," Smith said. "And if anti-dumping duties were imposed, it would increase housing costs even more."

And if additional tariffs are placed on lumber, the price increase for an average new home could be $2,000 to $4,000, pricing nearly 2 million Americans out of the market. The impact on large commercial construction projects could, of course, be even more costly.

Home builders and retail businesses like Home Depot are hoping that the tariff will not survive the lengthy administrative and judicial process it faces. They are heartened by the fact that more than 100 U.S. lawmakers already have lined up against the tariff.

"New lumber tariffs will only raise the cost of housing and slow production. Such a scenario could further weaken an already fragile economy," Smith said. "There is no reason why lumber should not be freely traded as part of the North American Free Trade Agreement."

American Consumers for Affordable Homes calls the 19 percent tariff "totally ludicrous."

"U.S. consumers deserve free trade without any new trade restraints," said Susan Petniunas, spokesperson for the alliance. "We are hopeful that a fair process at Commerce will end up considering consumer interests as more significant than those of a small number of U.S. protectionist companies that want to penalize consumers who ultimately pay the cost."

Petniunas also charged that the Commerce Department did not follow its own guidelines when imposing tariffs.

"To have critical circumstances, Commerce must show that the imports have increased more than 15 percent, year over year," she said. "Our information, which comes from numbers released by the Department of Commerce itself, July 27, shows that imports increased slightly over 11 percent. Everyone knows that lumber sales increase in the second quarter when more construction of new homes begins."

Of course, the lumber industry was pleased that the Commerce Department sided with their request.

Final decisions are expected in December or January. In the meantime, don't expect a good deal on your next purchase order for 2 by 4s.

For more articles by Lesley Hensell, please press here.

Published: August 14, 2001

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