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Officials Disagree on Canadian Lumber Tax Impact

Tuesday, May 2, 2017

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Last week the U.S. Department of Commerce announced it would begin imposing an import tax on Canadian softwood lumber, averaging about 20 percent. The move comes after an investigation on Canadian subsidies, and the impact of the tax on the U.S. housing industry is getting mixed estimates.

What Happened?

The most recent Softwood Lumber Agreement ended in 2015, and after a one-year moratorium on legal action, U.S. lumber producers asked the Commerce Department in November 2016 to investigate Canada’s alleged use of unfair subsidies.

© iStock/istock80

Last week the U.S. Department of Commerce announced it would begin imposing an import tax on Canadian softwood lumber, averaging about 20 percent.

The investigation found that Canadian timber producers have an unfair advantage over American timber producers, because while American producers typically have to get their wood from privately owned property, Canadian producers get theirs from government-owned land, which results in cheaper rates.

Washington decided to impose the tariffs, which vary between 3 and 24 percent, to level the playing field. The Commerce Department announcing the taxes as “preliminary anti-subsidy duties,” (retroactive by 90 days), which breaks down into the following:

  • West Fraser Mills: 24.12 percent;
  • Resolute FP Canada: 12.82 percent;
  • Tolko Marketing and Sales and Tolko Industries: 19.50 percent;
  • Canfor: 20.26 percent;
  • J.D. Irving: 3.02 percent; and
  • All other companies: 19.88 percent.

In a statement, Canadian Natural Resources Minister Jim Carr and Foreign Minister Chrystia Freeland said the claim about Canadian subsidies was “baseless and unfounded” and that Canada will make moves to protect its lumber in court.

Current State & Reactions

The U.S. spent about $5.7 billion on Canadian softwood last year alone—mainly for residential building—and this accounts for about a third of America’s lumber supply. Industry professionals disagree on how this will impact American homebuilders and consumers.

© iStock/JanJutamas

The U.S. spent about $5.7 billion on Canadian softwood last year alone—mainly for residential building—and this accounts for about a third of America’s lumber supply.

The National Association of Home Builders has released multiple statements, saying that the reason why America gets one third of its lumber from Canada is because the U.S. doesn’t produce enough lumber to meet the country's needs.

Proponents of the tariff, however, say that there will be more produced, driven by the demand that the duties will create, therefore ramping up jobs and production, not eliminating them.

The NAHB went on to detail in numbers the possible outcome of the tariff.

“If the 20 percent lumber duty remains in effect throughout 2017, NAHB estimates this will result in the loss of nearly $500 million in wages and salaries for U.S. workers, $350 million in taxes and other revenue for the governments in the U.S. and more than 8,200 full-time U.S. jobs,” said NAHB Chairman Granger MacDonald in a press release. “Lumber prices have already jumped 22 percent since the beginning of the year, largely in anticipation of new tariffs, adding nearly $3,600 to the price of a new single-family home.”

© iStock/ImagineGolf

The National Association of Home Builders has released multiple statements, saying that the reason why America gets one third of its lumber from Canada is because the U.S. doesn’t produce enough lumber to meet needs.

Bob Wetenhall, an analyst at RBC Capital Markets, disagrees. He says that the impact on the U.S. housing market would be “no more than a papercut” and "It's not going to affect the real estate market, [and] it's not going to impact housing prices."

What Now?

The duties are yet to be finalized, which still needs to be done by the Department of Commerce, and then confirmed by the U.S. International Trade Commission after an investigation and testimony from both the U.S. and Canada.

This is assuming a new SLA won’t be reached, which is also still possible.

This latest lumber blowout comes weeks before the U.S., Canada and Mexico are set to renegotiate the North American Free Trade Agreement, which historically has never addressed the softwood lumber issue.

   

Tagged categories: Building materials; Construction; Government; Taxes

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