Vote. Lumber deal seems to have Canadian support. (Photo courtesy of Ontario Forest Industries Association)

A pending U.S.-Canada trade agreement on softwood lumber still has a hurdle ahead but is moving closer to final approval. Nevertheless, as U.S. housing markets soften and lumber prices fall, U.S. housing construction firms worry that provisions in the pact dealing with tariffs tied to market prices will increase Canadian lumber's cost.

Prospects for the deal brightened Aug. 22 when Canadian Prime Minister Stephen Harper said "a clear majority" in his country's timber industry supports the pact. Harper, the Conservative Party leader who took office in February, said Parliament will vote on enabling legislation for the agreement after it returns to session Sept. 18. He says the vote "will be a confidence measure." Thus, if the bill is defeated a new election would be held.

The two governments announced an agreement in April, seeking to end a festering dispute between them. The pact would end limits on Canadian lumber exports when prices top $355 per thousand board feet. Shipments would be subject to a sliding scale of export charges when prices fall below that level, as they have lately. Canadian companies also would get $4 billion of the estimated $5.3 billion in duties the U.S. has collected since 2002.

Officials from both countries initialed the detailed text for the agreement July 1. But some Canadian timber interests were reluctant to give it their backing. The governments then made changes, winning more support.

NAHB worries that provisions calling for tariffs and volume caps as market price falls will boost costs of lumber.

The pact has Canadian critics. Peter Julian, a New Democratic Party House member, argues it would leave $1 billion in tariffs in the U.S. and "will kill 20% of forestry jobs in some regions" of Canada.

In the U.S., the National Association of Home Builders isn't happy either. "We've always wanted free trade," on Canadian lumber, says Michael Strauss, an NAHB spokesman. But he says that through the agreement's system of tariffs and quotas, "What it does is artificially boost prices during times of normal or weak demand."

Under the pact, when prices dip below $316, Canadian lumber would be subject to a 15% export charge or a 5% charge plus a limit on volume shipped. For July, the composite price was $293 per mbf, down 20% from July 2005, reports Random Lengths, a Eugene, Ore., company that monitors lumber markets.

If the agreement does get Parliament's approval, Strauss says NAHB will seek more exports from Europe and promote use of steel or other materials where feasible. "What we want to do in essence is give builders as broad a choice as possible," he says.