Posted at 11:00 a.m.
Although I actively follow Canadian economic activity, I must admit that I do not fully understand how the application of the tax on softwood lumber crossing the border into the United States works. I would like to read an article that clearly explains the whole process, the application of the special taxes resulting from the American requirements, clearly showing the price differences. Why is it not only US customers (buyers of products) who bear the additional costs of products that cross borders?
Robert Raby
In order to adequately answer this question, The Press called upon Richard Ouellet, international trade specialist and professor at Laval University, as well as Michel Vincent, economist at the Quebec Forest Industry Council.
The softwood lumber war between Canada and the United States has been going on for more than 30 years and has seen several battles that all play out pretty much the same way.
Taxes imposed on Canadian softwood lumber are the US government’s response to complaints from US lumber producers, recalls Richard Ouellet. They are of two types: anti-dumping duties, if it is proven that Canadian producers are selling in the United States at a lower price than in Canada, and countervailing measures, which correct the alleged subsidies granted to the Canadian forestry sector.
When, following an investigation, the American Department of Commerce finds that there is dumping and subsidies from Canada, it imposes anti-dumping duties and countervailing measures on Canadian lumber that crosses the border.
These duties are paid by importing companies – usually a US subsidiary of the Canadian producer – and collected by US customs authorities. If the Canadian government disputes them, as is usually the case, the money is placed in trust pending resolution of the dispute. Without challenge from Canada, the money would go directly to the US Treasury.
If an agreement is reached, it normally provides for a sharing of the sums placed in trust between the two countries.
Changing demand, stable supply
These duties increase the price of lumber on the American market and the homebuilders of the United States strongly oppose them, specifies Michel Vincent. The Canadian lumber producer, whether he sells on the Canadian market or in the United States, realizes the same income, he says, even taking into account the exchange rate and transportation costs.
“It’s an integrated market, where prices tend to equalize, a bit like for oil”, he illustrates.
Quebec, in this large market, does not weigh heavily. As for the price of 2 X 4s purchased at the hardware store, it can vary according to the retailer’s commercial strategy, but there is no significant difference between the selling prices on the two sides of the border.
The soaring price of softwood lumber that occurred last summer, which could happen again this summer, has nothing to do with the taxes and duties imposed by the Americans. Rather, it is due to the pandemic, which has prompted Americans and Canadians alike to renovate like never before and build bigger and bigger homes.
The supply of wood is stable, recalls Michel Vincent. The wood is allocated to companies according to the allowable cut and the trees always grow at the same rate. “Sawmills only have two speeds: open or closed,” he says.
So when demand increases as much as we saw last year, prices explode.
Do you have questions about personal finance, the world of work, the stock market, finance, technology, management or another related subject? Our journalists will answer one of them every week.