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Sept 1999 Main Page

 

--  SPOTLIGHT   --

Roslyn vs. Goliath

Roslyn Nugent, the head of a medium-sized Winnipeg reman company, is battling the powerful US Coalition for Fair Lumber Imports.

By John Dietz

When the real battle over softwood lumber exports begins in the next two years, the outcome of a cur-rent Canada-US skirmish could play an important role. The skirmish is over rights and accountability associated with the US-Canada Softwood Lumber Agreement, signed in 1996 and due for renewal in 2001.

Canada’s point-person in the battle is Roslyn Nugent, president of a medium-sized remanufacturing company in Winnipeg. She didn’t ask for this scrap, but she’s not backing away. Besides, it’s a matter of international law and principle which, she hopes, will finally lead to just treatment for the whole industry.

Nugent and Gerry Wersch laid the foundation for Bayridge Lumber in south Winnipeg 13 years ago, long before the cur-rent trade disputes. The company started as a wholesaler, then moved into distribution and remanufacturing. Today, its 125 employees make a range of lumber-based products, such as roof truss components and pre-drilled studs, up to 95 per cent of which is exported to the US.

About the time the softwood lumber agreement was being signed, Bayridge began making pre-drilled studs. "Any time you restrict trade in one area, industries on both sides of the border will creatively enhance products to bring them into other tariff classifications which are more free-flowing," Nugent says. "That’s a very natural tendency, and fair game."

Studs intended for wall construction were already being cut to 92 and 5/8ths inches and end-painted for easy identification by contractors. One more value-added step, pre-drilling the studs for electrical wiring, was a logical progression, justifying the product to be classed as joinery and carpentry. Bayridge picked up the idea and ran with it. They had a full shift going on the pre-drilled stud market when, without for-mal notice, the border slammed shut on July 1, 1998.

Nugent estimates that the day the door to the US effectively closed, Canada’s annual export of pre-drilled studs was approaching 500 million board feet (approximately 3.5 per cent of its total softwood export flow to the US). Bayridge was a small player in this market, however. The industry includes giants like Canadian Forest Products in British Columbia, with total lumber production of over 1.3 billion board feet.

Three months earlier, US Customs had posted a notice of intent to reclassify pre-drilled studs from joinery, which is quota exempt, to lumber subject to duty. Remanufacturers were already up in arms, but unorganized, when the trade restriction hit. "We started to network because Ottawa wasn’t interested in talking with individual companies," Nugent recalls.

Networking led to the formation of the Canadian Wholesale and Remanufacturing Lumber Association (CWRLA), with Nugent chosen as its chair. Since then, CWRLA has organized associations within each province and identified many issues now being tackled with a unified approach.

Along with other interested industry-related groups, the newly-formed CWRLA immediately filed for an injunction against the US Customs Service tariff change at the US Court of International Trade in New York.

Canada’s remanufacturers, along with US dealers, distributors and builders, want-ed tariff-free trade for the building material. American lumber producers, represented by the Coalition for Fair Lumber Imports, argued that the original classification was subterfuge, aimed at avoiding quota restrictions.

The first volley of the complaint launched arguments on two fronts. With Nugent spearheading the effort, Canada and its US allies "won" the first and "lost" the second front. An injunction request on a tariff issue normally takes 2 1 / 2 years. Through heavy negotiations in early July, 1998, the case was put on a fast track and Bayridge Lumber took the US Government to court. US Court of International Trade Judge Judith Barazilay heard oral arguments in October and ruled on December 16, 1998.

On the first front, US law requires that all importers must receive 60 days notice when a product classification is being changed. This provision, which allows for an orderly transition, was clearly violated. The court ruled in favor of the complainants, declaring a 60-day quota-exempt period would apply from July 1, 1998.

The second front challenged the core of the issue, the tariff classification of pre- drilled studs. The United States administration, through the strong lobbying efforts of the US Coalition for Fair Lumber Imports, unilaterally and arbitrarily changed their tariff classification to bring these products under the Softwood Lumber Agreement (SLA), without the agreement of Canada, the co-signatory to the agreement.

"The principle of changing an agreement half-way through, by one side, is not fair game," Nugent states. "And, it was an incorrect revocation of a tariff classification because it doesn’t follow the laws of the harmonized system."

The SLA states product coverage in terms of US Customs’ classification rather than Revenue Canada Customs’ identification, although both countries follow the guidelines of the international harmonized system.

"I think Canada always believed that if they (US Customs) were going to make a change that didn’t agree with Revenue Canada’s interpretation of our harmonized system, that it would be discussed," says Nugent. "Well, the judge ruled against us on the tariff classification, and we still don’t understand why, but we do have that decision under appeal at the Courts of Appeal in Washington, DC." This challenge will be decided in early 2000.

Before the Court of International Trade ruling was delivered, a second volley against the trade restriction was in progress—at the World Customs Organization (WCO) court in Brussels. This is an international body that governs international trade disputes on an impartial basis. Canada’s application for a review of this issue by the WCO in late 1998 was delayed by the US. However, a second application went through. In May 1999, the WCO voted overwhelmingly— 21 to 1—in favor of Canada’s position that pre-drilled studs should remain classified as joinery and carpentry material.

The WCO court ruling has strong inter-national moral authority, but it is not a bind-ing court over US law. To this point, US Customs has ignored the ruling and has not reversed its reclassification of pre-drilled studs.

The skirmish, Nugent explains, is larger than pre-drilled studs. "We fought this revocation because we were fearful this was the beginning of many revocations. If we didn’t fight the first one, a series of revocations might take place and eventually force all the Canadian remanufacturers to close down."

Time has justified that concern. Two more products have been hit with reclassification. On June 2, 1999, notched studs and rougher-header lumber were ruled by US Customs as counting against Canadian manufacturers’ quotas. A 60-day grace period, to August 8, allowed manufacturers to continue export of products without counting that product against quota.

The US trade action, spurred by the Coalition for Fair Lumber Imports, is serving to galvanize opposition in Canada. This time when the Softwood Lumber Agreement is ready to expire in 2001, Nugent believes Canada’s sawmills, remanufacturers and wholesalers will be strongly united with their US customers to advance the benefits of free trade to the US consumer and to "right the wrong" of the past twenty years.

In October,1998, Nugent was involved in organizing Canada’s own lobbying arm, the Free Trade Lumber Council. A member of the executive, she chairs a policy committee. "We’re working hard at making sure our industry knows what’s happening and is part of the process. We also want to take a really good stab at quashing the US Coalition from doing further damage to the entire North American lumber industry."

Behind the scenes, Nugent and friends have been investigating the Coalition for Fair Lumber Imports, formed in July 1982. "They don’t like to be exposed, company by company," says Nugent. "The Coalition has been lobbying really strongly with the US administration for over 15 years, but we know now they represent less than 25 per cent of US lumber production."

Nugent says it appears that only five US companies pay the bills for the Coalition and they include: Georgia-Pacific Corporation, International Paper, Temple-Inland, Sierra Pacific, and Union Camp. "They’re five of the key members, and may be the only members, of the Coalition," she says.

Since the Free Trade Lumber Council and CWRLA began networking with US industry, Nugent says, it’s become obvious that the Coalition is not representing the majority of the US lumber industry. "For the sake of that group’s special interests, at least 60 per cent of the US lumber industry is disadvantaged and the entire Canadian lumber industry is disadvantaged."

Three months of lobbying this spring in Washington, DC by customers of the Free Trade Lumber Council is already paying off, behind the scenes. "We’re changing some of the dynamics that hap-pen in Washington," she says. "We’ve got quite a few US Senators on side, and they’re challenging the US Customs Service actions."

As well, an ad hoc alliance of US-based organizations interested in promoting afford-able housing in the US has formed. The alliance includes home builders, lumber dealers, Home Depot and other US mass retailers, mortgage bankers, consumers for free trade and affordable housing advocates. Together, they support open markets in lumber between the US and Canada.

In short, an international process has begun to educate the lumber industry in Canada and in the United States on the true impact of tariff restrictions.

"We will not tolerate a General Agreement on Tariffs and Trade illegal agreement signed by two countries to the financial benefit of a handful of companies," Nugent says. "That’s the bottom line. The US consumer has been forced to pay higher prices for lumber due to the trade-restrictive Softwood Lumber Agreement, and we’re (the majority of the North American lumber industry) not going to put up with this nonsense any more."


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