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Softwood Lumber War:
The US-Canadian Lumber Dispute
Lu, Wit, Alish, Jeremy, Titinia, Henry, Jun
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General Overview
Lumber I: 1982
Lumber II: 1986-91
Lumber III: 1991-2001
Lumber IV: 2001-
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US Trade Restrictions
1
IV
III
II
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ITC and Department of Commerce:The Institutions and Processes Behind U.S. Trade
Policies
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What is ITC?
International Trade Commission (ITC)
an independent, bi-partisan, quasi-
judicial, federal agency
provides trade expertise to both
the legislative and executive branches.
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ITC
Formed September 8, 1916Preceding agency U.S. Tariff Commission
Jurisdiction International Trade Issues
Headquarters Washington, D.C.
Employees 360 (2010)Agency executive Deanna Tanner Okun,
Chairman
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Key Points on ITC
The ITC is responsible for conducting global safeguard
(escape clause) and market disruption investigations
The President makes the final decision concerning whether to
provide relief and the type and duration of relief
In making its determination, the ITC is not required to find an
unfair trade practice
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Department of Commerce
International Trade Administration (ITA) an agency in the Department of Commerce that
promotes United States exports of nonagricultural
U.S. services and goods.
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Goals of ITA
1. Provide practical information to help Americans select
markets and products.
2. Ensure that Americans have access to international
markets as required by the U.S. trade agreements.
3. Safeguard Americans from unfair competition
from dumped and subsidized imports.
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Antidumping and Countervailing
Duty
Both the ITC and the Department of Commerce are
responsible for conducting antidumping (AD) and
countervailingduty(CVD) (subsidy)
investigations and five-year (sunset) reviews
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The Process
5 stages: each ending with a determination by
either DOC or ITC
(1) initiation of the investigation by DOC
(2)the preliminary phase of ITCs investigation
(3)the preliminary phase of DOCs investigation
(4)the final phase of ITCs investigation
(5)the final phase of DOCs investigation
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The Process
With the exception, negative determination by either
DOC or ITC results in a termination of proceeding at
both agencies
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Understanding Five-Year (Sunset)Reviews
The Department of Commerce and the ITC require to
conduct reviews no later than five years after an
antidumping or countervailing duty order is issued
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Understanding Five-Year (Sunset)Reviews
If the ITC's determination is affirmative, the order will
remain in place. If the ITC's determination is negative,
the order will be revoked.
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Lumber IV:ITC and DOC at Work
Following the expiration of the Softwood Lumber
Agreement on April 2, 2001, the U.S. Coalition for Fair
Lumber Imports filed a countervailing duty petition and
its first anti-dumping petition against Canadiansoftwood lumber.
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Countervailing Duty Case
As part of the investigation, the Department of
Commerce issued a series of questionnaires to the
federal and provincial governments
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Countervailing Duty Case
The International Trade Commission made a
preliminary determination on May 16, 2001
On August 9, 2001, Commerce made its preliminary
determination
Expiration:April 2001
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Countervailing Duty Case
The countervailing duty investigation was aligned with
the anti-dumping case. As a result, the final subsidydeterminations in both cases took place on March 21,
2002.
Expiration:April 2001
ITCpreliminary determination:May 2001
DOCpreliminary determination:August 2001
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Anti-Dumping Case
The Department of Commerce issued anti-dumping
questionnaires to six Canadian companiesCanfor,
Slocan, West Fraser, Weyerhaeuser, Abitibi Consolidated
and Tembec.
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Anti-Dumping Case
In its preliminary determination on October 31, 2001,
Commerce applied company-specific rates to the six
investigated companies; all other Canadian companies
were subject to the average rate of 12.58%.
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Final Determination-DOC
On March 22, 2002 the Department of Commerce
announced its "final determination" in the subsidy and
dumping cases involving Canadian exports of softwood
lumber products.
Contrary to the Preliminary Determination, the Final
Determination did not find critical circumstances
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Final Determination-DOC, Redo
On April 25, 2002, Commerce released revised final
determinations in the subsidy and antidumping cases.
The final subsidy rate was determined to be 18.79%.
Individual company dumping rates were set.
All other companies will pay the average dumping rate
of 8.43%. The combined CVD/AD rate is now set
at 27.22%.
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Final Determination-ITC
On May 2, 2002, the International Trade Commission
released its decision that U.S. producers are threatened
with material injury by Canadian lumber shipments to
the U.S.
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Final Determination-DOC
On May 22, 2002, Commerce published its final orders
in the countervailing duty and anti-dumping case. As a
result, the U.S. Customs requires cash deposits for duties
on all softwood lumber imported from Canada since May
22, 2002.
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Event Agency Days Date
Petition filed Both 0 2-Apr-01
Initiation of DOC Preliminary Investigation DOC 21 23-Apr-01
DOC Questionnaire Released DOC 29 1-May-01
ITC Preliminary Determination ITC 44 16-May-01
Questionnaire Response Due DOC 80 28-Jun-01
DOC Preliminary Determination/Bonds Due DOC 129 9-Aug-01
DOC Verification DOC28-Jan-02 to
2-Feb-02
Submission of Briefs DOC 18-Feb-02
Submission of Rebuttal Briefs DOC 25-Feb-02
Hearing DOC 28-Feb-02
DOC Final Determination DOC 354 21-Mar-02
ITC Final Determination ITC 410 16-May-02
Countervailing Duty Order Issued/CashDeposits
DOC 416 22-May-02
Timetable for April 2, 2001, Countervailing Duty Petition to the U.S. Department of Commerce
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Deeper Look at ITC Ruling
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Domestic Like Product
In determining whether an industry in the U.S.
is materially injured or threatened with material
injury, the Commission first defines the
domestic like product(DLP).
DLP : The product produced in the U.S. which is most
similar to the foreign product covered under the scope
of investigation.
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Domestic Like Product
Why?
Determining the Domestic like product will allow the
Commission to determine what domestic product will
likely be affected by the Canadian exported lumber.
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Domestic Like Product
What?
x Western red cedar
x Eastern white pine
x Remanufactured products (wooden bed-frame components)
The commission wanted to investigate whether thesethree were separated DLP.
x Improve the accuracy of the final investigation
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Domestic Like Product
How? Physical characteristics and uses
Interchangeability
Channels of distribution
Manufacturing facilities, production processes, andemployee
Customer and producer perceptions
Price
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Material Injury by Reason ofSubject Imports
The Commission gets to determine whether the
U.S. industry is threatened with material injury.
x 1) Further dumped or subsidized imports are
imminent
x 2) Material injury by reason of imports would occur
unless an order is issued or a suspension agreement
is accepted
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Booming Canadian Lumber Industry Reasons of the subject imports are likely to increase substantially on
several factors:
Increase in Canadian producers excess capacity
Increase in Canadians production capacity
Export orientation of Canadian producers to the U.S. market
The increase in subject imports over the period of investigation
Forecast of strong and improving demand in the U.S. market
Examples
Canadian production capacity increased 10.4% from 1995 to 1999
Canadian production was 5.2% higher than it was in 1995
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Booming Canadian Lumber Industry
The Volume of subject imports from Canada increased
by 2.8% from 1999 to 2001.
In 2001, The Canadian subject exports to the U.S.
accounted for 68% of their total production.
domestic consumption, subject imports from Canada
increased from 33.2 percent in 1999 to 34.3 percent in
2001.260
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Booming Canadian Lumber Industry
Commerce determined 11 programs that inferred
countervailable subsidies to Canadian producers andexporters of softwood lumber.
Canadian provinces subject holders to requirements to
harvest at or near their annual allowable cut (AAC) or they
will be subject to penalties/reductions in future AACs.
x Increase production even when demand is low and thus increase
the incentive to export more softwood lumber to U.S. market.
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Struggling Domestic LumberIndustry
Domestic production of softwood lumber steadily
declined from a peak level of 36,606 mmbf in 1999 to
34,996 mmbf in 2001. (4.4%)
The end-of-period inventories reported by the domestic
industry fluctuated between years, but increased overall
by 6.2 percent from 1999 to 2001
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Struggling Domestic LumberIndustry
Total operating income declined from $1.26 billion in
1999 to $93 million in 2001
Total net income declined from $1.21 billion in 1999 to
$8 million in 2001
domestic industrys capital expenditures fluctuated
between years but decreased from $327 million in 1999
to $253 million in 2001
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Rebounding Economy =Import Increase
The demand of softwood lumber was expected to
increase in 2003 as the U.S. economy rebounds from
recession.
They concluded there will very likely be an substantial
increases in subject imports. ***
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Effects on Domestic Price
During the period of investigation, prices for softwood
lumber declined substantially, particularly in 2000, due
to excess supply in a price sensitive U.S. market with a
relative level demand.
Is this bad?
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Final ITC conclusion
For the foregoing reasons, the ITC determine that an
industry in the United States is threatened with material
injury by reason of imports of softwood lumber from
Canada that are subsidized by the government of Canada
and sold in the United States at less than fair value.
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Why Tariff Subject imports maintained a significant share of the U.S. market,
accounting for at least 1/3 of apparent consumption in each year
during the period of investigation. *Graph
Finding suggest of likely significant increase in the subject import
volumes.
Further significant increase in the supply will put further downward
pressure on the domestic prices, Home lumber industry production
and its net income.
a number of domestic producers reported actual and potential adverse
effects on their development and production efforts, growth, investment,
and ability to raise capital due to subject imports of softwood lumber
from Canada
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Imports as Percent of Demand
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
1994 1996 1998 2000 2002 2004 2006 2008 2010
Why the downtrend?
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Remedies
The final subsidy rate was determined to be 18.79%.
Individual company dumping rates were set as follows:
Abitibi 12.44%; Weyerhaeuser 12.39%; Tembec 10.21%;
Slocan 7.71%; Canfor 5.96%; West Fraser 2.18%.
All other companies will pay the average dumping rate of
8.43%. The combined CVD/AD rate is now set
at 27.22%.
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Red line: price w/out dumping or subsidiesBlue line: price w/dumping or subsidiesGreen line: price w/ antidumping and countervailing duty
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What is WTO?
The World Trade Organization (WTO) is an organizationestablished in 1995 that intends to superviseand liberalize international trade.
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WTO's mission
-negotiating the reduction or elimination of obstacles to trade(import tariffs, other barriers to trade) and agreeing on rulesgoverning the conduct of international trade (e.g.antidumping, subsidies, product standards, etc.)
-monitoring and reviewing the trade policies of our members,as well as ensuring transparency of regional and bilateraltrade agreements
-settling disputes among our members regarding theinterpretation and application of the agreements
-building capacity of developing country governmentofficials in international trade matters
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WTO Official Dispute Settlement
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WTO
Appellate Body (AB)
Usually make reports on disputesEstablished in 1995, a body of seven (7) persons that hears
appeals from reports issued by panels brought by WTOMembers.
Once adopted by the Dispute Settlement Body, AB can modify,
uphold, or reverse legal findings of a panel.
PanelThey make recommendations between disputes
Dispute Settlement Body (DSB)They decide an outcome on trade disputes between
governments, recommended by the Panel and AB.Generally, DSB agrees with the Panel.
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Anti-dumping Agreement
The WTO agreement does not pass judgement. Its focus ondisciplines anti-dumping actions.
WTO agreement allows governments to act against dumping where
there is material injury to the competing domestic industry.
1)calculate the extent of dumping ( export price < exporters homemarket price)2)show that the dumping is causing injury or threatening
Operate with GATT (Article 6) allows countries to take action againstdumping
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Subsidies and countervailing measures
1) it disciplines the use of subsidies
2) it regulates the actions countries can take to counter the effectsof subsidies
Prohibited subsidies-subsidies that require recipients to meet certain export targets,
or to use domestic goods instead of imported goods-distort international trade and might hurt other countries' trade-need to withdraw immediately or else counter measure applies
Actionable subsidiesComplaining country fail to prove that:-hurt a domestic industry in an importing country-hurt rival exporters from another country when the two compete inthird markets-hurt exporters trying to compete in the subsidizing countrysdomestic market
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Terminology
"Zeroing"
A method used by the U.S. for calculating Anti-DumpingDuties against foreign products.
It is determined by ( Foreign Domestic Price ) - ( UnitedStates Import Price )
"Zeroing" is used by the U.S. Department of Commerce (DOC)
in its calculation of dumping margins.
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Terminology
"Zeroing"
Step 1: determines a product's "normal value," which canbe based on the product's price in the exporter's homemarket, the price charged by the exporter in anothercountry, or on the exporter's production costs.
Step 2: compares the normal price of the good to the pricecharged in the U.S. for each sale and calculates thedumping margin--(the average of the differences between
the two prices).
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Terminology
"Zeroing"
Dumping margin : when normal value >the price charged in the U.S
Zero value: when normal value < price charged in the U.S
This practice of"zeroing" artificially inflates dumping margins,increasing both the likelihood that the DOC will find injury andthe value of punitive duties that can be assessed on "dumped"products.
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Terminology
"Countervailing Duty" (The parallel of anti-dumping duty)
It can only be charged after the importing country hasconducted a detailed investigation similar to that required foranti-dumping action.There are detailed rules for deciding whether a product is
being subsided :
1. criteria for determining whether imports of subsidizedproducts are hurting (causing injury to) domestic industry
2. procedures for initiating and conducting investigations, and
rules on the implementation and duration (normally fiveyears) of countervailing measures.
3. The subsidized exporter can also agree to raise its exportprices as an alternative to its exports being chargedcountervailing duty.
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Softwood Lumber Disputes: 247, 264, 277, 311
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Dispute 247 [3/6/2002]
U.S. Provisional Anti-Dumping Measure on Imports of Certain Softwood Lumber fromCanada
Parties:Complainant: CanadaRespondent: U.S
Timeline:
3/6/2002, Canada requested consultations (urgency procedure) regarding an anti-dumpingmeasure applied by the US to imports of softwood lumber from Canada.
Canada expressed concern about three inconsistencies with the Anti-Dumping (AD)agreement of the US anti-dumping measure:
1. The initiation of the investigation was inconsistent with Articles 5.2 and 5.3
2. The preliminary dumping determination was inconsistent with Articles 2.1 and 2.23. The zeroing methodology applied by the US in the preliminary investigation wasinconsistent with Article 2.4.2
The US, although accepting the request for consultations, however did not accept that thiswas a case of urgency for the purpose of Article 4.8 of the DSU.
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Dispute 264 [1/8/2003 ~ 8/31/2004]
Issue Measure: U.S. final countervailing duty determination
Issue Product: Certain softwood lumber products
Parties:Complainant: CanadaRespondent: U.S
Timeline of Dispute:1/8/03 Establishment of Panel4/13/04 Circulation of Panel Report8/11/04 Circulation of Appellate Body Report
8/31/04 Adoption
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Dispute 264 [1/8/2003 ~ 8/31/2004]
Key Findings:
Panel found US actions were inconsistent for determiningdumping margins. US incorporated zeroing when comparingweighted average of normal prices and weighted average ofexport price.
AB reversed the Panel's findings because the Panel did not"consider all available evidence on the proper allocation ofcosts"[Art. 2.2.1.1.]
Panel found and held USDOC defined "softwood lumberproducts" using narrative description and tariff classification,
which were, again, inconsistent with [Art. 2.6] Panel found that Canada did not use an objective and
unbiased investigation authority for fair comparison. Panel found U.S. used an objective and unbiased investigation
authority and the Panel concluded there is sufficient evidence
on dumping.
Dispute 264 [1/8/2003 8/31/2004]
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Dispute 264 [1/8/2003 ~ 8/31/2004]
Key Findings (final):
The AB reversed the Panel's findings.The AB found that the use of zeroing distorted the prices of
certain export transactions:
Prices were not considered at their real value Prices inflated the magnitude of dumping, resulting in highermargins of dumping and making a positive determination ofdumping more likely.
Di t 277 I ti ti f th ITC i S ft d L b f
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Dispute 277 - Investigation of the ITC in Softwood Lumber fromCanada
Parties:Complainant: CanadaRespondent: U.S
Timeline of Dispute:
12/20/02 Request Consultation04/03/03 Establishment of Pannel03/22/04 Panel Report11/15/05 Article 21.5 Panel Report04/13/06 Article 21.5 Appellate Body Report
10/12/06 Mutually agreed on solution
Article 21.5*- A review of whether governmental measurestaken to comply do in fact achieve compliance with WTO rules
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Dispute 277 - Investigation of the ITC in Softwood Lumber fromCanada
Issue Measure: U.S. final countervailing duty determinationIssue Product: Certain softwood lumber products
Canada: The United States had failed to bring its measures into
conformity with the United States' obligations under theAnti-Dumping Agreementand the SCM Agreement.
U.S: USITC explicitly discussed the relationship between
movements in all factorsnot only selected onesfor the most
recent period and placed these recent movements in the contextof the entire period of investigation.
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Dispute 277 - Investigation of the ITC in Softwood Lumber fromCanada
Panel: USITC's determination is not inconsistent with the obligationsof the United States under Articles 3.5 or 3.7 of the Anti-Dumping
Agreement and Articles 15.5 and 15.7 of the SCM Agreement
Final Ruling: On April 13, 2006, the WTO Appellate Bodyreversed the compliance panel, ruling that it had applied animproper standard of review and had not examined the ITCdetermination with an adequate level of scrutiny.
However, It Cannot determine whetherU.S is inconsistent orconsistent because of the absence of pertinent factual findings by thePanel and undisputed facts on the Panel record.
Di t 311 R i f C t ili D t S ft d
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Dispute 311 - Reviews of Countervailing Duty on SoftwoodLumber from Canada
Parties:Complainant: CanadaRespondent: U.S
Timeline of Dispute:
4/14/04 Establishment of Panel1012/06 Mutually agreed on solution
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Dispute 311 - Reviews of Countervailing Duty on SoftwoodLumber from Canada
Canada's compliance:
(i) The failure of the US Department of Commerce (DOC) to completeexpedited reviews of the countervailing duty order concerning certain
softwood lumber products from Canada in order to promptly establishan individual countervailing duty rate for each requesting exporter
(ii) The refusal and failure ofUSDOC to conduct company-specificadministrative reviews of the same countervailing duty order in orderto establish a final individual
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Softwood Lumber Agreement
The length of the agreement is seven years, beginning in 2006 April.
U.S
1) Remove its countervailing and anti-dumping duty orderson Canadian softwood lumber2) return more than $4.5 billion in duties it had collectedsince 20023) not to initiate any new investigations against Canadiansoftwood lumber during the period of the agreement.*4)now required to provide Canada with six months notice
before ending the agreement, up from three months in theinitial deal.
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Softwood Lumber Agreement
Canada:
1)Canada agreed to a cap on its softwood exports to the USat 34 per cent of the US market
2) Canada agreed to impose an export charge on Canadiansoftwood lumber exports when the price of lumber is at orbelow US$355 per thousand board feet.
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Numbers, Graphs, and Analysis
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Import Value(billions of dollars, 2010)
0
2
4
6
8
10
12
14
16
18
1994 1996 1998 2000 2002 2004 2006 2008 2010
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Import Quantity(billions of feet)
0
5
10
15
20
25
1994 1996 1998 2000 2002 2004 2006 2008 2010
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PriceQuantity / Value
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1994 1996 1998 2000 2002 2004 2006 2008 2010
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0
10
20
30
40
50
60
70
1995 2000 2005 2010
Imports Quatity
Total Demand
Demand Net of Imports
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Imports as Percent of DemandRevisited
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
1994 1996 1998 2000 2002 2004 2006 2008 2010
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Aggregate Labor Hours
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Lumber War Winners
American Lumber Producers
Coalition for Fair Lumber Imports
Canadian Lumber Producers (in the short run)
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Lumber War Losers
U.S. Lumber Consumers
National Association of Home Builders
American Consumers for Affordable Homes
In the Long Run:
Canadian Softwood Lumber Industry
Canadian governments (national and provincial)
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PAC Contributors, 2006
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We can compete against any lumber
industry in the world, but we cant
compete against their government,too. Steve Swanson-President of
Coalition for Fair Lumber Imports
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Conclusion