Import Tax on Canadian Lumber Helps United States

The United States usually seems to be sparring with Japan over trade, but the trade battle that most affects lumber mills in the U.S. Pacific Northwest and elsewhere is with Canada.

The United States has long taken a strong stand against Canadian lumber subsidies that boost Canadian mills at the expense of U.S. mills and U.S. jobs.

Recently, however, this policy has been criticized by some claiming to defend the interest of U.S. consumers. In fact, both the claims and the credentials of these critics are deceptive.

The central dispute arises from the practice of Canadian provincial governments of selling timber to Canadian lumber companies at as little as onequarter of its market value in order to encourage lumber production.

In the mid1980s, the Reagan administration negotiated an agreement with the Canadian federal government that gave Canada's provinces the choice of selling timber at a price closer to its market value or paying a tax on lumber exports to the United States that offsets the value of the subsidy. Despite several twists and turns, the same basic arrangement continues today.

A recent study from the Cato Institute, which portrays itself as a defender of the free market, asserts that this export tax has the effect of raising the consumer price of the average new home built in the United States by around $1,000.

This estimate is dubious, since the export tax is applied to less than 2 percent of lumber in the U.S. market, and lumber makes up only about 3 percent of housing costs. But that is not the most serious problem with the claim.

The World Trade Organization condemns subsidies, like those granted to Canadian mills, because they distort markets and contribute to inefficient consumption of resources, among other ill effects. By taking a strong stand against Canadian subsidies, the U.S. government has raised U.S. softwood lumber production by nearly 20 percent compared to the preagreement level.

More important, at least from the perspective of restoring the free marketplace, it has ensured that forest products are appropriately priced to reflect their true costs, not sold at an artificially low price. This, in turn, slows environmentally dangerous over harvesting of Canadian forests.

In other words, current U.S. policy restores the operation of the free market to the benefit of both Canadians and Americans.

The battle over Canadian lumber subsidies also demonstrates why the public should be wary of those who present themselves as advocates of the American consumer in international trade matters.

Revealing the wolf in sheep's clothing, two of Canada's leading newspapers recently reported that the U.S. lobbying campaign to "protect American consumers" by eliminating the U.S.Canada agreement on lumber subsidies is actually largely financed by the Canadian lumber companies responsible for the over logging.

The current U.S. policy of combating Canadian lumber subsidies has helped both the American lumber industry and the environment by curbing over logging in Canada. Rather then being attacked as a "tax on consumers" it should be applauded as an international trade policy that has truly worked on both sides of the border.