April 19, 2002
Do we subsidize our softwood? An American think-tank says "no"
Do we subsidize the softwood lumber industry in Canada? A Washington D.C.-based think-tank argues "no". In addition, the CATO Institute points out that it is actually Americans who subsidize their forest industry. The study Nailing the Homeowner, was released two years ago but is more relevant than ever to the ongoing softwood lumber dispute.
First important point to remind the Americans about? CATO notes that for every one worker in logging and sawmill industry in the U.S., there are 27 workers in the lumber-using sector. While there were 217,000 payroll jobs in logging and sawmills, downstream manufacturing industries that used softwood employed 510,000 people, 744,000 jobs existed in the wholesale and retail lumber trade, and more than 4.7 million people were employed in homebuilding. That's some 6 million workers, not including another one million self-employed contractors besides. Thus, slapping tariffs on Canadian softwood props up jobs in U.S. sawmills. But, because higher prices cost jobs elsewhere, at the expense of the much larger workforce in the lumber-using sectors in that country.
Point Number Two: The CATO study argues "there is no evidence to suggest that Canadian timber harvesters are receiving supranormal profits from alleged subsidies," and points to "a forest industry average return on assets over a 10-year period of 1.0 percent in British Columbia."
Third, this juicy gem: According to CATO, the U.S. has notified the World Trade Organization (as required under WTO rules) of a variety of American special tax provisions that benefit the U.S. forest industry. "Special provisions include special capital gains treatment for qualifying timber sales, authorization to expense rather than capitalize timber-growing costs, a special investment tax credit and amortization schedule for reforestation expenses, and an exemption from fuel taxes for helicopters used in logging operations." Combined revenue loss from those provisions, i.e., the forest industry specific subsidy? $600 million (U.S.).
Fourth: In addition to that federal help, various U.S. states prop up American forestry firms. North Carolina, Maine, and Wisconsin offer tax credits for new investment by timber firms. Montana and Georgia provide direct financial assistance to the forest industry.
Fifth: How about the effect on U.S. consumers? Very negative. When the study was first published - before the latest tariff slap on Canadian softwood - CATO estimated that existing U.S. protectionist measures already added between $800 and $1,300 (U.S.) to the price of a new home. And for every $1,000 increase in the cost of a home, the U.S. Bureau of Census estimated 300,000 families are unable to purchase a home. Their conclusion on the existing tariffs? "Hurt the most are lower-income Americans, first-time homebuyers and the elderly on fixed income because a higher percentage of lumber is used in lower priced housing than in more expensive homes."
The report's conclusions are blunt: "Trade restrictions on Canadian lumber have long been justified on the ground that ensure a 'level playing field,' but the evidence that Canadian stumpage rates provide a subsidy is dubious at best. Furthermore, allegations of Canadian subsidies ignore the U.S. government program that benefit American lumber producers."
And one final shot from CATO across the protectionist Senators and Governor's bow: "It is time for the United States to stop lining the pockets of a few producers at the expense of U.S. homebuilders and families who dream of owning their own homes." Some of us up north couldn't have said it any better.
Nailing the Homeowner: The Economic Impact of Trade Protection of the Softwood Lumber Industry is available at:
freetrade.org |
