Two Mississippians are playing leading roles on the issue of Canadian timber tariffs — on opposite sides of the fence.
Bobby Rayburn, a homebuilder from Jackson who is the first vice president of the National Association of Home Builders (NAHB), has been a national spokesman on the issue of the Canadian timber tariffs that the homebuilders feel unfairly increases costs for housing.
On the opposite side of the ring of the contentious international issue is Charles Thomas Jr., co-chairman of the Coalition for Fair Lumber Imports and vice president of Shuqualak Lumber Company in Shuqualak, who says the Canadian government’s unfair subsidization of timber justifies heavy tariffs.
Thomas says at stake in the battle is the profitability of the timber industry in Mississippi, which vies with poultry each year as the state’s top economic product. But Rayburn argues that the affordability of housing nationwide is harmed by the current tax of about 28% tax on Canadian lumber from the countervailing duties and an anti dumping tax.
“This is a tremendous issue for homebuilders all over the country,” Rayburn said. “The reason is that it potentially dramatically increases the price of the homes and apartments that builders build. Secondly, it will — if taken to the fullest extent — increase the cost of new homes by $1,000 per home, which will price out of the market 300,000 new families.”
Rayburn said that the tariffs imposed in May of 2002 have amounted to $1.5 billion. And because of what is known as the Byrd amendment, that money could potentially go back to members of the Coalition for Fair Lumber Imports.
“All this goes back to greed,” said Rayburn, who has met with the Canadian prime minister and many other top Canadian political and lumber industry leaders regarding this issue. “The Canadian industry companies that have paid that $1.5 billion in the duties and tariffs — that is what the argument is about — whether the coalition group can get their hands on that money. Plus the coalition group wants to unduly restrict Canadian softwood coming into the country.”
Thomas, as you might expect, disagrees. “Greed?,” he asks. “I sure wouldn’t use that word. Virtually every lumber company in the U.S. in the past two years has been losing money. We have here. The reason we are losing money is that Canada is sending subsidized lumber into the U.S. so cheap that we can’t compete with it. The $1.5 billion that Canada has deposited into the U.S. treasury because they are subsidizing timber was collected to allow them to continue to subsidize shipments into the U.S. So under the Byrd amendment that money could be returned to the lumber manufacturers in the U.S.
“But I doubt very seriously that will happen. The coalition has made an offer to split that money with the Canadian and U.S. manufacturers if we could come to an agreement. I don’t think the greed is really there. What we are looking for is to be able to survive in the lumber business.”
A recent ruling from a bi-national NAFTA panel was hailed by the homebuilders as progress on the issue. The tariffs are still in place, but the Commerce Department has been directed to calculate the tariffs differently.
“The ruling is encouraging, but there is still a ways to go before the tariffs are lifted,” Rayburn said. “The goal on this issue is free trade, and that is what everybody ought to be after.”
Thomas said that no one knows what the result of using a different method of calculation. The tariffs could be the same, higher or lower.
Both men agree that many U.S. mills have gone out of business in recent years, but they disagree about the reasons for that. Rayburn said many of the U.S. mills have gone out of business because they didn’t modernized, making it difficult to compete with the state-of-the-art Canadian mills. Thomas said the U.S. mills have closed because of the problems with subsidized Canadian imports.
“Our mills are as efficient as any mill in the world,” Thomas said. “I’ve been to Canada and looked at their mills. They are no more efficient than ours are. Some are less efficient. The Canadian government owns 95% of the timberland in Canada. They guarantee every mill up there that they will have enough trees to cut, and price it so they are guaranteed a profit no matter what the price of lumber is. I wouldn’t say they give it to them, but they sell it to them awfully cheap. Trees we pay $340 for the Canadian mills pay $10 for. That is your subsidization right there. That is why NAFTA ruled that they are subsidized.”
Thomas said that the Canadian mills are required to continue to run at top capacity even when the market is down. In the U.S. when lumber prices fall, the mills generally cut production. But Thomas said that doesn’t happen in Canada, and the failure to cut back during periods of over supply undercuts prices even more.
“When we get into oversupply, it makes the situation even worse because they just keep cutting,” Thomas said. “ It continues to make it worse because they continue to produce. In the U.S. we slow up when the market gets bad. They can’t because they are mandated to cut a certain amount of timber.”
But Rayburn said the issue is more than the economics of running the mills; the Canadian mills cost as much to turn on and run at 50% capacity as 100% capacity.
The two men don’t even agree on what kind of wood is used to build most American homes and other buildings.
“In Mississippi we grow lots and lots of Southern yellow pine,” Rayburn said. “The Southern yellow pine produced in Mississippi is not, for the most part, used as studs in homes. Spruce, fir and in some cases cedar are used in American homes. Most of that lumber comes from Canada. It has to because we don’t have the supply of lumber for use in the U.S. It can be found in the Northwest, but for the most part cannot be cut. All lumber is not interchangeable. Half of the Southern yellow pine produced in the U.S. today goes for treated lumber and not for studs in homes. Our builders wouldn’t use Southern yellow pine because when you turn on the heat, the studs twist and warp because of the high sap content.”
But Thomas said millions of yellow pine studs are used every day.
“As a matter of fact, you can go into Home Depot or Lowe’s and you will see Southern yellow pine studs in every store. The chairman of the coalition, Rusty Wood, who has some mills in Georgia, took some people from the Department of Commerce and let them look at a building they were putting Southern yellow pine in. We manufacture Southern yellow pine studs every day, and believe me, we wouldn’t manufacture them if they weren’t used.”
Thomas also disagrees about the additional $1,000 increased cost from timber tariffs, the figure used by NAHB. Thomas said the cost would depend on the size of the home.
“The lumber that goes into a home today is 2.1% of the price of the house,” Thomas said. “And I hardly see how it could add a whole lot being that small amount of the price of a house. We have calculated the monthly payment on a house would increase by $3 because of the tariffs. That is not very much.
“In Mississippi, timber is either number one or number two every year as the largest business in Mississippi. There are thousands of people employed in the lumber business in Mississippi. And about 70% of the timber land in Mississippi is owned by individuals. If we are going to allow Canada to put all of us out of business and destroy all of these people who own this timberland, that is not right. We cannot allow that to happen. And that is what is going to happen if these tariffs are eliminated.
“We have told Canada, ‘If you will stop subsidizing, we
#8217;t want a tariff anymore. The moment you stop subsidizing, we will remove all tariffs.’ That is the agreement we are trying to work out.”
Rayburn said that while NAHB does not believ