e In every major producing region in Canada and the U.S. a significant volume of "chip driven" production has been creat- ed by the pulp and paper industry. Duty threat Continued from page one paign to file another petition with the U.S. government. They continue to ar- gue that B.C. and Canadian lumber is subsidized and that those imports have injured the U.S. industry. Until 1991 the subsidy allegation was based almost exclusively on the accusation that provincial government stumpage charges are too low. But after the revi- sions to the British Columbia stumpage system in 1987, as well as changes that had been made in other provinces, the U.S. Coalition deliber- ately enlarged the subsidy calculation by adding the charge that British Co- lumbia’s restraints on the export of unprocessed logs from provincial Jands also constituted a form of sub- sidy. During the last round B.C. log export restrictions accounted for roughly two-thirds of the 6.51 percent average Canadian subsidy calculation, and an extremely large number for British Columbia, which is the only significant province imposing such re- straints. The last countervailing duty case ap- peared to end during August, 1994 Unemployement Insurance Continued from page one tougher eligibility will somehow put people back to work. However, even their own studies show that those assumptions are not true. For example, the recently com- pleted study on seasonal work and U.I. showed that the overwhelming problem was the lack of any compre- hensive employment strategy within government or industry. The study confirmed the obvious - people want to work, they want to maintain and improve their standard of living, but they can’t achieve either one when government’s economic policies con- sistently feeds unemployment and not the expansion of jobs. Similarly, em- ployers in Canada have to demon- strate a greater commitment to strate- gies that create new work oppor- tunities, not downsizings and closures that add to current high levels of un- employment. Phillip Legg is I.W.A. CANADA’S assistant research director. with the lifting of the 6.51 percent U.S. tariff on Canadian lumber imports. Un- fortunately, there was an extremely high probability that the U.S. Coalition would soon file another petition against Canadian lumber because the last round ended on a very sour note. The U.S. industry maintained that they had been robbed of a victory on the subsidy argument because it was the Canadians’ turn to have a majority of representatives on the Free Trade Agreement appeal panels. After the U.S. Commerce Department was forced to drop the case in August of 1994 the U.S. Coalition tried to contin- ue it by filing a constitutional court challenge to the Free Trade Agree- ment appeal process. The U.S. indus- try agreed to drop that challenge late in 1994 on the promise that the federal governments of Canada and the Unit- ed States would hold “consultations” over stumpage and forest management practises in the two countries. Although the subsidy issue is com- plicated, there is a much better chance of winning the injury argu- ment. Under U.S. trade law it is only necessary to win either of the subsidy or injury issues in order to prevail. Over the past few years we have car- ried out a number of major studies which show that because of dire shortages of timber the United States will soon become heavily dependent on Canadian lumber imports. As a re- sult, there can be no allegation of in- jury to the U.S. industry. Since timber supplies from public lands in the U.S. West have already al- most disappeared, the tightened avail- ability on private lands will cause more sawmill closures and a decline in lumber production. As a result, softwood lumber output in that region will continue to fall in 1995 and 1996. By the beginning of August, 1995 lum- ber production in the U.S. West had already fallen by over a billion board feet from the volume reported for the first 7 months of 1994. The United States will therefore become more de- pendent on Canadian softwood lum- ber imports. THE U.S. MARKET IN 1995 This entire situation has been brought on by the stagnating growth pattern in the U.S. and offshore economies over the past few months. In addition to the imposition of pine nematode controls on Canadian lum- ber imports since 1991, the European market has recently become saturated with lumber. And the Japanese mar- ket has also reached an “overbought” condition. It is still too early to see the effects of the earthquake reconstruc- tion that will eventually be carried out in Japan. When that happens there It is important that a full defense be mounted against the current attack will be increased demand for B.C. and Canadian lumber and plywood. As a result of the current depressed demand in offshore markets and the sharp drop in the relative values of the Canadian and U.S. dollars, Canadi- an softwood lumber exports to the United States surged by one billion board feet in 1994, following a 500 million board foot rise in 1993. And during the first 4 months of 1995 they climbed by another 300 million feet over shipments during the same peri- od in 1994, Altogether Canadian soft- . wood lumber exports to the United States jumped by L8 billion board feet from the beginning of 1993 to the Spring of 1995. Unfortunately, the 1995 increase in shipments took place at the same time that the market has been softening. In simple terms, supply has greatly out- paced demand. Between 1993 and 1994 softwood lumber production in eastern Canada rose by 811 million board feet while B.C. Interior output dropped by 208 million feet. And dur- ing the first 5 months of 1995 eastern Canadian production rose by an addi- tional 338 million board feet, which more than offset the 112 million board foot drop in the British Columbia Inte- rior. At the same time, the U.S. housing market has been softening. During the first 6 months of 1995 starts of single- family homes fell by 100,000 units compared to the same period in 1994. Most of that decline resulted from overbuilding in late 1994, which brought the full-year total to 1.2 mil- lion single units - a robust number un- der current market conditions. As a result, inventories of unsold new homes jumped from a 5.1 month sup- ply in 1993 to 7.5 months in 1995. That. situation depressed housing starts during the first half of the year. Additional problems have been cre- ated by the adoption of a just-in-time, (J-I-T) purchasing philosophy by wholesalers and retailers, which has kept their inventories low, By June 16, 1995 the price of western SPF 2x4’s had dropped to $190 (U.S.) per thou- sand board feet, less than half of the 1993 and 1994 highs. By mid-August they had recovered to $230, still well below profitable levels. As a result of the increase in Cana- dian lumber imports and the one bil- lion board foot decline in U.S. West production the Canadian share of U.S. consumption now exceeds 34 percent. - well above the 26 percent ratio of the late 1980’s Given the low lumber prices being received by U.S. sawmills, the increased Canadian share has become a sensitive issue. FORECAST FOR 1995 AND 1996 During the last 5 months of 1995 the U.S. housing market should improve. As overbuilt single-family house stocks from late 1994 have been worked off during the early summer, Continued on page three e In 1994 Canadian softwood lumber exports to the United States surged by one billion board feet. In 1995 shipments have increased as the market has been softening. 2/LUMBERWORKER/AUGUST, 1995