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| Soft U.S. housing market will spur softwood charges: gov't |
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2006/7/25
A struggling U.S. housing market will mean border measures outlined in the proposed U.S.-Canada softwood lumber agreement will almost certainly kick in if it's adopted, according to an analysis produced by B.C. Stats.
Under the agreement, which must still be ratified by the House of Commons, Canadian producers exporting into the U.S. must either pay an export tax or a smaller export tax combined with a volume restraint if the price of lumber drops below $355 per 1,000 board feet.
As of June 2, the price had slumped to $325, and there is belief the price will drop even further over the next several months as demand for housing in the U.S. wanes in the facing of rising mortgage rates.
Seasonally-adjusted private housing starts in the U.S. slumped to 1.85 million in April, the lowest level in over a year, from a peak of 2.27 million in January.
"Most economic forecasts predict that U.S. housing starts will be well down from 2005 levels, so it appears unlikely that starts will rebound significantly later this year," B.C. Stats said in its Infoline report Friday.
Moreover, not only would border measures kick in, but the need to deal with the surfeit of beetle-damaged lumber will further complicate matters by triggering a surge mechanism against regions that exceed their quota.
Whenever a region's exports are greater than 110 per cent of its allocated share, producers will have to pay an export charge of 150 per cent of the normal charge under the proposed agreement.
All that said, some may still find the agreement preferable.
"For one thing, the export taxes would be collected by the Canadian government and kept in Canada, with no possibility of being used to subsidize American competitors," B.C. Stats said. "Another positive aspect of the deal is that it provides certainty to Canadian lumber companies both in terms of access to the U.S. market, as well as in knowing that they will not have to engage in a protracted legal battle. The American government has shown very little hesitation in making attempts at bypassing decisions from both NAFTA and WTO panels, using sometimes questionable methodology to ensure that duties remain on Canadian softwood lumber."
Moreover, at least $4 billion U.S. would be returned to Canadian lumber manufacturers, although $1 billion would remain in the U.S., half of which would be distributed directly to the companies that launched the complaint against Canadian lumber in the first place.
There is also some possibility of winning exemption from the restrictions through changes in government policy -- the agreement outline states that participants will make best efforts to define "policy exits" from the export measure within 18 months of the agreement coming into force.
"However, there is no guarantee that 'best efforts' will result in a mutually-acceptable agreement on policy exits and the fact that these exits are not already stipulated in the agreement creates some uncertainty for provincial government looking to achieve free trade in lumber," the report said.
The Conservatives plan to introduce legislation in September to enact the deal, with the hope of completing the trade agreement by Oct. 1.
Currently, producers pay an average of just under 11 per cent on lumber exports to the U.S. regardless of the price per 1,000 board feet.
Under the proposed agreement, the export tax would increase the further the price of lumber drops below $355, from as little as 10 per cent to as much as 15 per cent. If the option of an export tax and a volume restraint is chosen the export tax would range from 2.5 to five per cent, but the restraint would drop progressively from 34 per cent to 30 per cent of U.S. consumption.
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| Source:http://www.princegeorgecitizen.com |
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