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Could timber tariffs end like steel did?

By Bradley Meacham
Seattle Times business reporter

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The 21-month-old steel tariffs were designed to shelter U.S. steel makers in states that are key to President Bush's re-election. Those tariffs were dropped yesterday after Europe threatened retaliatory duties on a range of American products unless the U.S. heeded a World Trade Organization ruling striking down the trade barrier. Though WTO and North American Free Trade Agreement rulings against on the lumber issue also have run against the U.S., Canada has less power to force a decision.

"It was better politically before to have the tariffs on steel — now it's not. This really doesn't set a precedent," said Barry Bosworth, a trade expert at the Brookings Institution in Washington, D.C. "In lumber, this is a dispute between an elephant and a mouse," Bosworth said. "The mouse doesn't have much leverage."

The U.S. imposed tariffs averaging 27 percent on lumber shipments from Canada in May 2002 — two months after the steel tariffs — arguing that companies in Canada have an unfair advantage over U.S. companies. Many Canadian sawmills have closed since the tariffs went into effect, but others have increased production to lower the per-unit cost of the duties. The resulting glut lowered wood prices, costing jobs on both sides of the border and hurting corporate profits.

Optimism that timber tariffs might end was buoyed this week because U.S. and Canadian negotiators are meeting in Washington, D.C., the most concrete move toward a settlement since talks fell apart nearly four months ago. Industry officials also said that Canadians may be willing to reach an agreement before Prime Minister Jean Chrétien leaves office next week.

"I do think Bush is trying to get things back on track. And the Canadian side has reasons to get something done, too," said Mark Bishop, an analyst at RBC Capital Markets in Vancouver, B.C. "But no one wants to say this is it. We've been close before only to see things fall apart."

Shares of Canadian timber companies rose yesterday on the possibility that ending the tariffs could lead to more profits. But shares in Weyerhaeuser, which does business in both countries, fell. Lumber futures also fell, suggesting that commodity traders don't expect an end to the dispute.

Bradley Meacham: 206-515-5066 or bmeacham@seattletimes.com

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