Tariffs, Trade and Son of NAFTA

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Tariffs, Trade and Son of NAFTA

By HBSDealer Staff - 10/19/2018
Chicago -- Why is there no solution to the U.S.-Canada softwood lumber trade dispute? And can President Trump unilateral withdraw from the North American Free Trade Agreement?

These were some of the questions posed during a presentation called Lumber and Wood Products Trade Issues Update, the final presentation of the 2018 ProDealer Industry Summit. And the answers to these and other questions were complicated.

Stephen Claeys, a partner at Wiley Rein LLP and expert on international trade law, provided background on the softwood lumber dispute – a long-running dispute that dates back to the 1930s and represents about $15 billion in annual trade.

“It comes down to who owns the trees,” he explained. “In Canada, it’s the Queen of England. In the U.S., it’s private landowners.” In the Canadian provinces, the government is accused of setting the stumpage price artificially low, giving Canadian lumber producers an unfair advantage.

A previous trade agreement expired in 2015, and a getting a new deal might take a while. Why? Claeys pointed to several reasons. First, there are many seats at the table. The national governments, the provinces, Canadian industry and the U.S. industry. Just among the provinces, each province has its own type of tree and its own pricing. And the issues add up quickly. There are many complications from dealing with privately owned Canadian lumber to lumber that comes from old barns, and third-country imports.

And then there’s the issue of what happens to the duties that have already been collected.

“These are real issues that you have to work out,” Claeys said. “It’s kind of crazy, but that’s why it’s so hard to do. “

Why can’t we just return to the old agreement? Claeys said that’s what it appeared the Canadian government had hoped to do. But there was objection from U.S. industry.

In the meantime, anti-dumping duties range from 3.2% to 7.28% on these products, and countervailing duties designed to offset subsidies range from 3.34% to 18.19%.

On the topic of Chinese tariffs, Claeys laid out the recent history.

On July 6, the U.S. slapped 25% tariffs on $34 billion of Chinese imports. China retaliated.

On Aug. 23, the U.S. slapped another 25% tariffs on $16 billion of Chinese imports. China retailiated.

And effective September 24, the U.S. slapped another 10% tariffs on $200 billion of Chinese imports. And that tariff will increase on 25% on Jan. 1. And whether or not China will retaliate remains to be seen.

“As you can imagine with each list, it’s getting harder and harder to avoid affecting products used in home building. Sinks, granite counter tops and a whole range of products used in home building are now included in list 3.

He described both sides now in a sort of holding pattern over international trade. But there is a real possibility that China could again retaliate. And there is still $267 billion of Chinese imports that have not been identified for tariffs yet.

Other high and low points from international trade as recounted by Claeys include the North American Free Trade Agreement – NAFTA, and “Son of NAFTA.” The U.S.-Canada-Mexico Agreement, which is expected to replace NAFTA, would preserve North American supply chains and continue tariff-free trade among the countries. It will probably receive congressional approval next year. As a bargaining chip, the President could conceivable withdraw unilaterally from existing North American Free Trade Agreement, but at an uncertain and perhaps expensive economic and political cost.

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