The Atlanta Journal-Constitution | By PERALTE C. PAUL | April 6, 2004
As a forester in the northeast Georgia town of Washington, Jenny Brown is tied to the Southern yellow pine forests she and her father manage for clients.
But Brown and other Georgia timber forest and lumber mill owners say an international logjam between the United States and Canada has them thinking it may be time to cut those ties and sell out to land developers.
At issue: a two-decades-old tug of war between the two nations over Canada's lumber imports.
U.S. officials contend America's closest ally and biggest trading partner enjoys an unfair trade advantage because the Canadian government owns most of the timberland harvested for softwood lumber. In the United States, most of the land harvested for timber is privately owned.
The crux of America's argument: Canada subsidizes its lumber industry --- to keep employment numbers high --- and sells government-owned timber to sawmills at prices their American counterparts can't match.
In turn, those mills dump lumber in the United States at below-market prices. That hurts timber-dependent states such as Georgia, where the industry contributes $25.5 billion a year to the economy, U.S. operators say.
Not so, says Canada, whose share of the American softwood lumber market has hovered around 34 percent for the last several years. Softwood lumber is commonly used in home building.
"Illegal subsidization has never been proven by the U.S.," said Andre Lemay, a spokesman with Canada's Department of Foreign Affairs and International Trade.
The situation, as Canada sees it: American consumers and housing builders want multiple options for lumber. They prefer Canadian wood because it's better suited to some home-building uses --- and it happens to be cheaper. But home builders favor Southern pine for outdoor uses because it much easier to pressure-treat and holds up better against the elements.
"We still believe the best [solution] would be to have free trade in softwood," Lemay said. "We've got it in just about everything else."
W.J. "Rusty" Wood, president of Tolleson Lumber Co. Inc. in Perry, says he would like nothing better --- as long as it's fair. Tolleson Lumber employs some 300 in Perry and at a second mill in Preston.
"They've got a right to do what they want to do if they want to give away their resources for full employment," said Wood, who also chairs the Washington-based Coalition for Fair Lumber Imports.
"But when that product is dumped, then we have our rights. ... They're giving it away below cost."
Conflicting claims
Between the huffing and posturing, tariffs and threats of import quotas, both sides have pleaded their cases before the World Trade Organization and the North American Free Trade Agreement panel that reviews trade flare-ups.
The WTO and NAFTA have issued a series of rulings since 2001 --- sometimes conflicting with each other --- leading to both countries' claims of victory.
Last month the WTO ruled that some U.S. tariffs on Canadian lumber are illegal, which Canada's government quickly hailed as a win --- though the United States can appeal the decision.
Meanwhile, the NAFTA review panel is expected to make a ruling April 30 that addresses whether the U.S. lumber industry has been been injured or severely harmed by Canadian imports.
Georgia landholders like Brown say both sides have been going back and forth so long that until a final resolution is reached, neither side can say it's won.
And a growing number of Georgia timber owners are signaling they're no longer willing to wait it out.
"It's getting more and more difficult for private landowners to justify replanting in pines and holding onto their land," she said. One group of clients is selling about 3,500 of 10,000 acres to individuals for recreational use or as second homes, she said.
Besides import pressures, landowners also must contend with rising land values, which means higher taxes. And timber growers have to wait the better part of 40 years before trees are mature enough to harvest --- a risky wait vs. the safer bet of selling out to residential developers.
"When your dirt prices go up, it's hard to justify keeping land toward timber," said Brown, who, along with her father, manages about 50,000 acres of timber forest in northeast Georgia for private landowners. "Why wouldn't you just go ahead and sell out like everybody else?"
Supporting status quo
Even as the U.S. lumber industry lobbies for tough tariffs and import quotas, some on this side of the border have banded together to oppose any efforts at restricting imports.
The National Association of Home Builders and Atlanta-based Home Depot are allies in the fight against import restrictions.
"We could not get along without imported lumber," said Michael Carliner, an NAHB economist. "Restricting trade is a way of creating monopoly profits rather than protecting something that's going to create jobs."
Besides, Canadian and American lumber serve different functions, he said. Canadian wood is better suited for molding and wall construction, while lumber culled from timber in the South is the wood of choice for outdoor uses such as backyard decks and railroad ties, he said.
The NAHB also is arguing that import restrictions will further raise home construction costs, which could price some low- and moderate-income consumers out of buying a home.
As it is, wholesale lumber prices rose dramatically in the past year.
The typical American home uses about 16,000 board feet of lumber. It now costs $377 for every 1,000 board feet, according to Random Lengths, an industry trade magazine.
That's a spike of 13 percent since January and a nearly 37 percent jump from the $276 per 1,000 board feet it cost a year ago.
For consumers, these cost increases mean they'll shell out more green --- about $2,000 more when other costs like sales taxes and other fees are factored in --- to buy a home, Carliner said.
The cost increases are due to the red-hot U.S. housing market of the last several years. And since the U.S. dollar has lost value relative to other currencies, it takes more greenbacks to buy raw lumber from Canada, Carliner and other analysts said.
So last year --- one of the best for new housing construction starts in recent years --- should have been a boon for sawmill operators like Wood, who runs Tolleson Lumber.
It wasn't. For most of last year, his employees worked four-day weeks.
"Mills are profitable now, but we're at the all-time peak of housing starts and low interest rates," Wood said. "It's been a perfect environment, but the last couple of years have been rough."
Analysts say technology, which has made mill operations more efficient and allows operators to churn out more wood on average now than they did 20 years ago, also affected the lumber mill sector. And industry consolidation has been a major factor in the last decade, analysts said.
Those favoring import restrictions say the domestic industry will continue to suffer without tougher measures.
"Our system is a market system, and we cannot compete with the subsidies that the producers in Canada receive from the Canadian government for their timber," said Scott Shotwell, executive director of the Coalition for Fair Lumber Imports.
"This whole thing would have gone away if they went to a market-based system," he said. "What they're making sure of in that way is full employment. Are we to be harmed because of this?"
Some proponents admit they're not sure how effective existing tariffs have been in helping their businesses.
"The tariff is good for the U.S. but really hasn't helped us any," said Glenn R. Jones, president of AAA Log Homes Inc. in Washington, Ga. Besides log homes, the company manufactures flooring, molding and paneling.
Jones purchases his lumber from loggers within a 150-mile radius. Going outside that radius to get wood isn't cost-effective.
"I think it's more of a regional threat," he said, referring to timber-dependent border states in the Northeast and Pacific Northwest. "It affects the whole economy, but not our economy as much as the Northeast and especially the Northwest."
New threat looms
While the two sides chop away at each other, some analysts say there's a greater threat to timber growers south and north of the border.
"I'm worried that while we fiddle over this problem, both Canada and the U.S. will lose market share over the long run to substitute products," said Robert L. Izlar, director of the Center for Forest Business at the University of Georgia's Warnell School of Forest Resources.
Already, some construction companies and home builders are using steel to make joists or two-by-four beams composed of a plastic-and-wood mixture.
"Who would've thought you'd build your backyard deck out of plastic wood?"
Meanwhile, other countries with sizable timber industries --- New Zealand and Chile among them --- are taking advantage of the squabble by making moves to grow their export market share at the expense of the United States and Canada, Izlar said.
Canada holds the lion's share of lumber imports to the United States, but the American lumber industry still may lose even if it gets protections via permanent tariffs or quotas, said Mark Wilde, a Deutsche Bank analyst who follows the lumber sector.
"You've got so many small landowners in the southern U.S. that want protection because if lumber prices go up it tends to bid up the prices of the trees," Wilde said.
If that happens, lumber users will seek substitutes and look to other lumber sources such as Uruguay, Chile and Brazil, he said.
"Ultimately, you're going to bring in imports from places other than Canada," Wilde said. "I personally don't think we're ever going to come up with a solution."The Atlanta Journal-Constitution:
