Thank you, Mr. Chairman.
My name is Barry Rutenberg. I'm a home builder in Gainesville, Florida, and a member of the executive board of the National Association of Home Builders of the United States--which we'll call NAHB.
I appreciate the opportunity to appear before the committee on behalf of the 225,000 corporate member firms and their eight million employees. The companies represented by NAHB account for more than two-thirds of all the softwood lumber used in the U.S., and lumber accounts for a larger share of the cost of home building than any other material.
Our views regarding the lumber trade issues are shared by other lumber-dependent industries in the U.S., such as manufacturers of furniture and pallets and lumber dealers, who have worked together under the umbrella of the American Consumers for Affordable Homes. Employment in lumber-dependent industries in the U.S. exceeds employment in the lumber-producing industries by more than 25 to 1.
The legal victories achieved by Canada in the NAFTA process, at the WTO, and in the U.S. Court of International Trade were close to eliminating the current duties. There would be complete refunds, with interest, of the duties already paid. Finishing the litigation would establish important precedents and make it much more difficult for the U.S. lumber coalition to successfully petition for new duties. We are very disappointed by the willingness of the Canadian government to sacrifice those gains, jeopardize Canada's share of the U.S. market, and effectively provide a handful of U.S. companies with veto power over provincial forest policies.
The adverse impact of the proposed agreement will fall largely on Canadian companies and workers, but it will also affect U.S. home builders and home buyers. It would mean less affordable homes, use of less suitable building products, and business risk for builders facing less-certain supplies and prices.
When the agreement was announced, attention was focused on the fact that there would be no trade barriers in effect when prices were above the $355 per thousand board feet. At that time, the price measure to be used in the agreement was about $370, but it has already fallen to $326. Prices in April and in the previous two years were inflated by record levels of home building. Home building is already slowing down, and over the next seven to nine years NAHB expects the average number of housing starts per year to be about 200,000 units lower than in 2005. Other economic forecasts expect even larger declines. In other words, the outlook is for construction at rates similar to 2002-03, when the average lumber price was $308, despite duties of 27%.
In addition to the slowdown in home building, lumber prices will be under downward pressure from continuing improvements in lumber mill efficiency, increased imports from Europe, and wider use of engineered wood products such as wood I-joists and oriented strand lumber. Indeed, faced with the prospect of new barriers to imports from Canada, NAHB feels obligated to facilitate additional imports from Europe and the use of alternative materials.
Under the proposed agreement, lumber prices would probably be higher than they would be under a free market, but below the $315 threshold where the most stringent fees and quotas would apply. That would mean a reduction in Canada's share of the U.S. market.
Provinces operating under option B, with a combination of quotas and fees, will face quotas based on a 30% Canadian market share. Since 1993, Canada's share of the U.S. market has never fallen below 33.4%. Provinces operating under option A would face high fees that will erode their ability to compete.
Some have argued that this agreement would provide stability and predictability. Agreements in 1986 and 1996 didn't do so, and this won't either. There would be quotas for some provinces under option B and for all covered provinces under the surge mechanism. The penalties for exceeding those quotas would be far more severe than under the SLA. The option B quotas would be tied to total U.S. consumption, which is constantly changing and inaccurately measured. Mills won't know whether they will be able to meet supply contracts without exceeding the quotas.
There are reportedly efforts to make the quotas less rigid--for example, by allowing a portion of the quota to be carried forward or back, but disruptions will still undoubtedly occur. Instability and uncertainty will be especially likely if there's a rush to complete a deal before the implications of the complex provisions are fully analyzed and if the agreement drafts are not open to public scrutiny.
It is also wishful thinking to expect the agreement to end conflicts and litigation. Because this framework would wipe out many of Canada's legal victories and dispense half a billion dollars to the U.S. lumber coalition, it will actually encourage future trade disputes during and after the agreement. There are no exit ramps and little reasonable expectation that a transition to free trade will be permitted.
We have worked hard to convince policy-makers in the U.S. that Canadian lumber is not unfairly traded and that barriers to lumber imports hurt U.S. consumers. Nearly every major newspaper in the U.S. has published editorials reflecting that view, and over 100 members of Congress have gone on record in support of the consumer perspective.
Whether or not the language of the agreement says so, this deal sends the message that the U.S. lumber coalition's claims are legitimate and that Canada has been at fault. We don't believe that to be true, and we don't understand why Canada would want to create that impression.
Thank you very much.