this comes from our paper analyst….I thought some of you may not have heard about it, yet. I post with no comments:
NAFTA Rules in Favor of Canada in Lumber Tariff Dispute
• A NAFTA panel announced yesterday that the US was unable to prove that alleged subsidies on Canadian lumber harm the US industry. The US had argued that Canada unfairly subsidized lumber and therefore required 27% duties on lumber imported to the US. However, without the evidence of injury to the US lumber markets, the justification for punitive duties becomes negligible.
• The NAFTA panel ruling mandates the US to remove tariffs that have been levied on Canadian lumber since May 2002 and return the $2.6 billion in duties that have been collected. The NAFTA panel also ordered the International Trade Commission to comply with the ruling within 10 days. However, we believe the US will not comply with the ruling until next February, after all other appeals processes have been exhausted. The US government could still contest this ruling to an ECC, which should be completed by February 2005.
• In terms of stocks, the ruling has positive implications for Canadian lumber producers and negative implications for US producers, particularly in weaker lumber markets. ….. the companies with meaningful lumber exposure are primarily WY and BOW, and secondarily GP and IP.
• Two of the US lumber producers in our coverage have operations in Canada as well as the US: WY and BOW. Both companies have been paying duties on Canadian produced lumber shipped to the US. WY’s penalty is about $105mm annually, or $0.28/share. BOW’s total penalty is roughly $30mm annually, or $0.35/share.
• The duties should be eliminated by next year and the duties paid to date will probably be returned. The potential negative fallout is the cost of Canadian lumber entering the US should come down, which could have a negative impact on pricing,particularly when the market weakens.
• Note that Canadian currency has appreciated 19% vs. the US dollar since the imposition of the duties. Currency is still a key factor in the cost/price equation since more than 1/3 of US lumber consumption is satisfied with Canadian lumber.
Edited 9/2/2004 10:11 am ET by big bob
Replies
It's hardly big news. There have been other rulings and lots of debates about it.
No one seems to favor the tarrifs except the people who are getting the cash from it.
In calm water every ship has a good captain. [Swedish Proverb]
Yeah, the WTO rulings have been overwhelmingly in favour of the Canadian position, and the Commerce department has recalculated the tarriffs much lower recently, but it's good to know the NAFTA ruling too. There's been speculation re: the WTO rulings that the U.S would try and hold on to the tarriffs already collected (billions....which would be distributed among the companies that complained if their position had been upheld).
One thing that happened during this was that a number of smaller, older Canadian mills were closed (mills more similar to the southern and Minnesota mills that make up most of the coalition).....the newer mills have been focussed on productivity and process, and they've become super-efficient, and have been making money even with the tarriffs. Some Bowater (Bowater has Canadian and American operations)guys came to a workshop on quality control I helped put on around the province (taught by some really smart guys at U.B.C)....these Bowater guys are very smart also, very focussed.
cabinetmaker/college woodworking instructor. Cape Breton, N.S
agreed...probably not so big news. and definitely agreed about the tariffs.
So does this mean I'll be able to buy more lumber for less money next spring? I'm especially interested in plywood prices.
-- J.S.
no effect there. The tariff was on milled lumber - not manufactured items. An example of the finer points of distinction between the two - there were some Canadian mills pre-drilling studs with holes for the electricians. This made them manufactured studs exempt from tariff while plain old KD 2x4s were under the tariff
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That one got closed up a while ago....you're right, the hole made them a value-added product.....exempted them for a while. There have been some shots fired across the bow re: other value-added products though, including trusses. For a while, it was looking like there would be a move against Canadian wood products in general.....with the WTO and NAFTA rulings, I think the odds are against that now. It's the value-added industries I work with from here in the college, and I'm involved in three industry orgs....we've been watching that pretty closely.
You know the ironic thing?....a lot of market share for dimensional lumber has been taken by the Scandinavian and eastern European countries......and they are huge subsidizers.cabinetmaker/college woodworking instructor. Cape Breton, N.S
Now all they have to do is drop tarrifs on cement fromMexico