Trading lumber

The Department of Commerce last week looked over the decades-long complaint by the United States that Canada unfairly subsidizes its softwood lumber industry, considered Canada’s claims that it is merely more efficient at its sawmills and decided preliminarily both were right, sort of. The decision, which is not yet final, makes a reasonable attempt to untangle the complicated series of subsidies, grants and other potential public benefits to private enterprises in Canada. As important, it highlights the problems with the notion of free trade.

The complaint against Canada was brought by a number of groups, including environmental, which didn’t appreciate the aggressive cutting practices on public land. The primary group, however, was The Coalition for Fair Lumber Imports, essentially domestic lumber producers that were losing out – especially since last spring when a treaty limiting Canadian imports died – and suspected provincial governments were unfairly helping out. The coalition wanted a 40 percent countervailing duty (and a 38 percent anti-dumping duty, not yet determined) but wrested from Commerce about half that, 19.3 percent.

As a matter of free trade, the decision looks merely punitive – one nation’s enforcers stopping another nation from succeeding at what it is well equipped to do. But the United States and Canada don’t merely have free trade or merely a Free Trade Agreement, they have filing cabinets full of trade pacts, which lay out in excruciating detail how to behave in regard to subsidies. The investigation looked at two subsidies in particular: the Development Corporations of the Government of Ontario Export Support Loan and Export Assistance from Investissement Quebec and found that they did offer a small benefit to Canadian businesses at the expense of U.S. businesses. The specific effect of the subsidies, like so many issues around them, is in dispute, but there seems to a measurable effect. Certainly since the treaty ended last year, the increase in the U.S. market of Canadian wood is an indication of the importance of any countervailing duty.

Whether this is enough to make a difference to Maine sawmills – the duty would cover such products as flooring, siding, studs and a dozen others – could be seen if the preliminary ruling stands. But already the lumber dispute has highlighted what free-trade buccaneers don’t like to mention. Open borders are a theory only; the advantage goes to those who can get the rules to work on their side.