March 28, 2001

The President
The White House

Dear Mr. President:

The impending expiration of the U.S.-Canada Softwood Lumber Agreement concerns all Americans interested in affordable new homes and economic growth. As Chairman of the Consuming Industries Trade Action Coalition ("CITAC"), I write to offer the perspective of consuming industries on this important issue.

Consuming industries dependent on open markets for lumber include homebuilders (including pre-manufactured homes and mobile homes), furniture manufacturers, makers of shelving and other home accessories and other industries. Collectively, these industries employ some six million workers, compared to 200,000 in lumber and allied industries, a ratio of 30 to 1. The welfare of consuming industries must be considered before any decisions about further restrictions on trade in lumber are made.

The Softwood Lumber Agreement ("SLA") unfairly injures lumber consumers. As the Washington Post editorialized on Saturday, March 24, the SLA effectively imposes a hefty tax on Americans by requiring Canada to tax exports of lumber to the United States. New homes in this country are nearly $1000 more expensive than they would be if lumber were freely traded; this puts new homes out of reach of many American families. One study estimates that fees from the SLA puts new homes out of reach for 300,000 American families.

The SLA also suffers from extremely dubious legality under international trading rules. The World Trade Organization rightly condemns such "gray area measures" as alien to the principles of open markets and trade liberalization. As members of NAFTA, the U.S. and Canada clearly should avoid such measures in their trading relationships. Therefore, it is right and proper that the SLA be allowed to expire.

Some American lumber producers complain that Canada unfairly subsidizes lumber production. Canada responds that subsidies are mischaracterized by U.S. interests or do not exist at all (as in the case of log export restrictions, for example). The U.S. countervailing duty law is intended to address such issues. It should be allowed to work fairly and transparently. There is simply no credible case to be made that the U.S.-Canada lumber trade situation is so flawed that trade laws cannot redress any conceivable imbalance.

Unfortunately, U.S. countervailing duty law suffers from several defects. First and foremost, in the adjudication of these cases, the interests of consuming industries and individual consumers are not adequately considered. U.S. businesses that purchase domestic and imported products should have full party status in these cases, including the right to comment on all the evidence presented, as is now the case for domestic and foreign producers and importers of the products investigated.

In addition, the law should provide for an examination of whether the imposition of countervailing duties (or antidumping duties, which may also be sought by U.S. lumber producers) would be contrary to the public interest. Moreover, antidumping and countervailing duties should be limited to the amount necessary to offset the injury suffered by the affected U.S. industry (the "lesser duty" rule). Finally, U.S. consuming industries should have an effective and fair mechanism for temporary relief from antidumping and countervailing duties for products unavailable from domestic sources or in short supply.

We also respectfully disagree with those who argue that the U.S.-Canadian lumber market is "unfair" because each country has a different method of allocating timber on public lands. This does not justify taxing consumers or subsidizing comparatively inefficient producers of lumber. While the systems of allocating timber may be different in Canada, the fact remains that Canada has huge timber resources and therefore enjoys a comparative advantage in lumber. U.S. consumers are entitled to choose based on the best products at the best prices. The SLA has denied Americans that choice; it is time to put the matter right.

While U.S. law has important shortcomings, they do not and should not justify the extension of the SLA or any other "gray area" measures in lumber trade. Those measures, which lack any meaningful transparency, would simply operate to disguise subsidies to American producers that will make new homes and other construction more expensive and hurt many more Americans than they would help.

With best wishes,

Jon E. Jenson





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