Lumber COALITION Thinks Circumvention Important, SBCA Agrees

The Structural Building Components Association (SBCA) is currently undertaking efforts to ensure the U.S. Department of Commerce (DOC), policymakers, members of the component manufacturing industry and the public clearly understand how component manufacturers (CM), their suppliers and their customers are harmed by the current softwood lumber trade dispute between the U.S. and Canada.

Toward that goal, SBCA sent the letter below to the DOC’s Assistant Secretary for Enforcement and Compliance requesting the department consider a key question regarding the issue of circumvention: Why are wood truss, wall panel and lumber-based I-joist products made from Canadian softwood lumber not subject to trade tariffs? SBCA makes the point that the U.S. lumber producers represented by the COALITION, who petitioned the DOC, were very concerned about ensuring trade tariffs and import quotas could not be circumvented.

Subjecting structural building components made from Canadian softwood lumber to the trade tariffs and import quotas would be a significant step towards ensuring these trade measures are not circumvented.

At right are SBCA’s observations regarding the Canadian softwood lumber dispute. Click on the image to view an easier-to-read version.

May 31, 2017

Ms. Judy Reinke

Acting Assistant Secretary for Enforcement and Compliance

U.S. Department of Commerce (DOC)

1401 Constitution Avenue NW.,

Washington, DC 20230

Via judy.reinke@trade.gov

Re: Certain Softwood Lumber Products from Canada A-122-857; C-122-858

To the Honorable Assistant Secretary:

Pursuant to 19 CFR 351.310(c) and Federal Register Volume 82, Number 81, SBCA is a party whose members are directly affected by and therefore very interested in the determinations made with respect to Antidumping (“AD”) or countervailing duty (“CVD”) Investigations of Certain Softwood Lumber Products from Canada. 

Please find a brief introduction of the Structural Building Components Association (SBCA) in appendix A.

The goal and objective of this letter is to ask about considerations that the US Department of Commerce (DOC) has evaluated regarding circumvention of possible AD and CVD orders. Circumvention can easily be implemented through products manufactured in Canada using Certain Softwood Lumber Products. This may easily include lumber that is taxed under AD/CVD orders currently being considered. Our questions relate to a focus and concern of the Petitioner on circumvention concepts.

The Petitioner states their circumvention concerns in a May 24, 2017 letter to Secretary Ross, Re: Certain Softwood Lumber Products from Canada: Response to Scope Comments Supplemental Questionnaire. The pertinent part of this letter follows and the section of interest is highlighted:

“9. To the extent that the COALITION’s responses to the above questions would alter proposed scope or exclusionary language that is currently on the record, please submit revised language.

Answer: As stated in its May 5, 2017 comments on proposed scope exclusions and its amendment to the petitions, Petitioner has affirmatively proposed only one scope exclusion for ALB-certified lumber. Although Petitioner has expressed support for other scope exclusions, Petitioner did not draft the language of these exclusions. Instead, Petitioner reviewed them to determine if they: (1) cover products that are produced by Petitioner or that are directly competitive with products produced by the Petitioner; (2) are adequate to prevent Petitioner’s circumvention concerns; and (3) are administrable for the Department and CBP based on Petitioner’s understanding of the agencies’ administration of AD/CVD orders.

If preventing circumvention is one of the goals of the Petitioner, and assuming that we have read the information available to us on exclusions and inclusions properly, it is puzzling to the SBCA membership that lumber used in wood components made in Canada would be excluded from the AD and CVD orders. The reason for our query is that it appears to be obvious that an easy way to circumvent a lumber AD and CVD order is to make tariff free lumber-based trusses, wall panels and I-joists in Canada and ship these products to US markets. The business case and logic path is as follows:

1. Canadian lumber manufacturers sell lumber to Canadian wood truss, wall panel and lumber based I-joist customers, which are, by AD/CVD investigation definition exempt from AD/CVD tariffs, or
2. The Canadian lumber manufacturers start or buy Canadian wood truss, wall panel and lumber based I-joist operations.
3. Either of the above scenarios circumvent any AD/CVD lumber tariffs.
4. With lower lumber costs, due to this tariff circumvention, Canadian wood trusses, wall panel and lumber based I-joists are more cost competitive than any US manufactured product by at least the AD/CVD tariff amount.
   
   1. Canadian lumber-based manufactured products may be even more competitive when labor costs and exchange rates are considered.
   2. Has the DOC seriously considered this potential unintended consequence of an AD/CVD tariff given that when you tax something you get less of it to meet US market needs and/or costs rise for those products in the US market that will need to be paid for by US consumers?
      
      1. Clearly, there are consequences when costs go up in the US market and costs go down for Canadian products that are direct substitutes. Canadian wood truss, wall panel and lumber-based I-joist operations can ship into the northern half of the US very competitively.
      2. This is a common sense and easy path to circumvention, which is a key concern of the Petitioner. 
5. This means that there are $5 to 6 billion in sales of wood truss, wall panel and lumber based I-joists in the US market where a competitive advantage to Canadian producers of Canadian wood truss, wall panel and lumber based I-joist exists. New Canadian sales will easily bring new jobs and new profits to Canada and conversely reduce jobs and profits of competing US manufacturers.

In summary, if Canadian lumber producers desire to circumvent duties it seems clear there are common sense approaches for doing so, particularly if the DOC does not evaluate all unintended consequences thoroughly.

A key concept that needs full consideration and evaluation is the concept of Canadian lumber producers helping Canadian component manufacturers undertake expansion to increase production of Canadian lumber based components while also helping support needed market development efforts to increase component shipments to  US general contractors (GCs) and builders. The key market advantage is lower structural framing costs. GCs and builders always appreciate getting the same or better products at a lower price.

Therefore, circumvention questions become:

1. Given that the foregoing scenario is common sense based and plausible, why would the DOC not include wood truss, wall panel and lumber-based I-joist products inside the CVD/AD tariff?
   
   1. This would take this circumvention possibility completely off the table.
2. When a CVD/AD tariff is implemented, it is natural for markets to look for ways to circumvent any tax. Why would a border tax on all lumber-based products coming from Canada and elsewhere NOT be a DOC consideration?
   
   1. This would create expanded tariff based revenue streams, eliminate circumvention tactics and protect all US lumber-based manufacturing jobs that now serve US markets.

Thank you very much for your consideration of the information and concepts contained herein. We would appreciate your confirmation of receipt and look forward to getting thoughts back at a suitable time. 

Respectfully yours,

Kirk Grundahl, P.E.
Executive Director
 

Appendix A

SBCA is a national trade association of companies that produce and sell innovative-engineered floor, wall and roof structural components and related building envelope oriented products. Currently SBCA’s membership includes 436 companies and 950 manufacturing locations in the US, along with the support of a variety of suppliers. SBCA represents approximately 90% of the more than $8 billion (best estimate in 2015) in building components sold in these markets. This represents roughly 80,000 jobs, which does not include all the supply side and buy side jobs that are created because wood truss and wood wall panel manufacturers exist.

Our industry also deploys many professional engineers and works closely with building departments across the country to implement new and innovative products, such as trusses, that use generally accepted engineering practice concepts for acceptance into the market.

Professional engineering and the building code are intended to foster a spirit of innovation. This creates and expands new opportunities for US manufacturers given that the building code is intended to encourage creative engineering and promote the use of innovative materials, systems, or building designs, such as wood truss and wall panel designs.

Unfortunately, there are times when artificial constraints, such as lumber CVD/AD determinations, are put in the way of implementing the use of innovative products through generally accepted engineering practice due to an altered supply demand relationship.

SBCA Related Articles

1. October 31, 2016 -- Understanding the SLA and What Will Happen Next
   
   1. The most recent softwood lumber agreement (SLA) between the U.S. and Canada expired a little over one year ago. Here's what will happen next.
2. February 21, 2017 -- Lumber History Repeats Itself, and It's Gotten Ugly
   
   1. Lumber prices have risen 26 percent over the past three weeks, but the most important thing component manufacturers (CM) should do is DON’T PANIC. This article explains briefly why.
3. February 27, 2017 -- Lumber Market has Gone Emotional – Nothing Good Comes of This
   
   1. Lumber prices have risen again. Last week typically followed random lengths print levels were nearing all-time highs. It has also been said that some lumber purchases are costed above print.
4. March 13, 2017 -- Future Lumber Supply May be Greater Concern than SLA
   
   1. Lumber supply will likely continue to evolve in the near future, so it will be be important for all lumber purchasers to keep their eyes open for new developments.
5. April 10, 2017 -- Why Lumber Costs Continue to Rise and What to Do
   
   1. The following article provides some insight into the causes behind the sudden spike in cost, what may be happen in the near future, and what CMs should consider going forward.
6. May 1, 2017 -- Sorting Through Media Reports on Softwood Lumber Tariff
   
   1. The softwood lumber trade dispute between the U.S. and Canada received a significant amount of national media attention over the past week.