Market Forces Show Proposed Lumber Pact A Bad Deal For U.s.

WASHINGTON, May 16 - With the housing market showing signs of
cooling and lumber costs edging downward as demand eases, American
home buyers will be forced to pay a premium for this vital
commodity if a tentative managed trade agreement between the U.S. and
Canada goes into effect in the coming months, according to the
National Association of Home Builders (NAHB).

"Once enacted, these trade barriers would harm housing
affordability by artificially boosting lumber prices during periods of
normal or low demand through a complicated system of export taxes
and quotas that would be triggered when the Random Lengths
composite prices fall below $355 per thousand board feet," said Jerry
Howard, executive vice president and CEO of NAHB. "In addition
to higher prices, it would also lead to market disruptions as
Canadian mills accelerate or withhold shipments in anticipation of
changes in quotas or fees."

Under the proposed accord, taxes on Canadian lumber shipments
into the U.S. would move progressively higher once the price drops
below the following thresholds: $355, $335 or $315 per thousand
board feet.

The price of lumber was $377 per thousand board feet when the
pact was announced on April 28 and has since fallen to $364 as
supplies have increased and demand has fallen..

"By the time the agreement is finalized, prices may well be down
below $315, in which case its implementation would be a severe
jolt to the market," said Howard.

If the settlement is enacted and results in new trade barriers
limiting Canadian lumber shipments into the U.S., Howard said
that NAHB would help builders seek lumber sources from other
countries such as Germany, Sweden and Russia, each of which has
increased lumber shipments to the U.S. by several hundred percent over
the past five years. In addition, NAHB is promoting the use of
steel and other alternative building materials wherever
practical.

In the interim, U.S. consumers continue to pay tariffs totaling
nearly 11 percent on Canadian lumber shipments, despite several
North American Free Trade Agreement (NAFTA) panels that have
unanimously ruled that U.S. lumber producers are not threatened
with injury from Canadian softwood lumber shipments, and that there
were no significant subsidies provided to Canadian producers.
The verdicts call for the elimination of tariffs and for the U.S.
Customs Service to refund to Canada more than $5 billion in
duties that have been collected.

Although a NAFTA ruling carries the weight of law in Canada, the
U.S. and Mexico, the Administration has failed to implement
decisions that invalidate the lumber duties and return all duties
paid out by Canadian firms.

"In 2002-2003, when the lumber tariff was 27 percent and housing
starts were in the 1.7 million to 1.8 million range, the price
of lumber was routinely below $315 per thousand board feet," said
Howard. "If this agreement goes into effect and the housing
market continues to gradually cool down, U.S. lumber consumers would
essentially be paying taxes to support the Canadian provinces
and higher prices because of quotas. In short, this is one bad
deal for American housing consumers."