When American lumber companies persuaded the U.S. government to slap a countervailing duty on Canadian softwood imports more than 15 years ago, Canadian mills cut back their production, and the dispute quieted down quickly.


This time around, things are about as quiet as a screaming band saw.


Since May, when the U.S. government again hit Canadian producers with a countervailing duty, the Canadians have ramped up production, lumber prices have dropped like a fresh-cut fir falling from the stump, and many Inland Northwest mill workers have lost their jobs.


William Gilcrist, president of Castle Rock Industries Inc., a Spokane remanufacturing company that makes 2-by-4s and industrial cut stock from wood milled elsewhere, says that, Castle Rock laid off four of its 22 employees in Augustthe first layoffs hes made in 10 years.


Although demand for lumber is high because of record U.S. housing starts, supply is outrageous, Gilcrist says. Theres so much fiber being dumped by Canada, were choking on the stuff, he says.


Castle Rock has chopped its prices, and Gilcrist blames Canadas hyperactive production pace for the cuts.


Last month, Duane Vaagen, president of Vaagen Bros. Lumber Inc., which has sawmills in Colville and Republic, Wash., said, Our government thought they helped us with the duty, but it did just the opposite of what they thought it would do.


In August, Vaagen Bros. laid off 15 of its 240 employees. Vaagen said in early November that lumber prices were still sliding and theres no hope in sight, and he warned that a harsher round of reductions seemed likely.


That prediction came true Nov. 25, when he announced the closure of the 60-year-old Republic mill, effective Jan. 27.


Recently, Vaagen Bros. was receiving just an average of $264 per thousand board feet of framing lumberfar lower than the $375 that its 2-by-4 studs commanded as recently as 1999and Vaagen says Canadian lumber imports were a factor in the companys loss of $2 million over the past two years.


The closure of the Republic mill casts a long shadow over the little mountain town, population 1,000.


About 90 workers will lose their jobs at Vaagen, he says.


Its probably going to be the most devastated little town in the state of Washington, Vaagen says.


Vaagen doesnt have immediate plans to sell or dismantle the mill, and says he cant predict how long he will wait before he considers doing so, but calls the closure in Republic permanent.


Wed like to think that the politics of this thing will get solved, but we dont have a lot of time to sit and wait, he says.


Because of the glut, Louisiana-Pacific Corp., of Portland, Ore., has announced temporary shutdowns of its mills in Moyie Springs and Bonners Ferry, Idaho, and Deer Lodge and Belgrade, Mont., throwing 630 people out of work. L-P says the layoffs come after a 21 percent drop in lumber prices.


It says it has hewed its own price for 2-by-4 studs down to $186 per thousand board feet.


John Allan, president of the British Columbia Lumber Trade Council, which is based in Vancouver, B.C., confirms that Canadian mills, in response to the U.S.s countervailing duty, have ramped up production to keep their unit costs down.


Still, he says, Canadian softwood lumber exports to the U.S. this year had fallen by 6 percent through Nov. 1, although the dropoff wasnt uniform along the 3,000-mile U.S.-Canadian border.


British Colum-bias exports, for example, were up 1 percent.


Its a double-edged sword, Allan says. Canadian mills are running at reduced cost, but the end result is theres a lot of lumber in the market. Companies on both sides of the border are hurting.


He predicts that some Canadian mills will shut down during the winter, the lumber industrys least-active season.


Both Canadian and U.S. mills will see some rough months ahead, Allan says.


Jon Anderson, publisher of Eugene, Ore.-based Random Lengths, an international newsletter that covers the wood-products industry, but doesnt advocate for any group or issue, says that while some American mills are either closing or curtailing production, not a single Canadian mill has shut its doors since May.


Says Anderson, I think the Canadian manufacturers have been put into a position of survive or go out of business. Theyre showing they intend to survive.


He adds, Given the results so far, youd at least scratch your head and wonder whats going on.


If you look at the tariff to this point, it has not had the effects desired by American policy-makers and industry supporters.


U.S. lumber prices are hovering at 10-year lows, and with winter approaching and homebuilding slowing down, demand for lumber isnt expected to increase soon, Anderson says.


The duty


For something thats triggered such a ruckus, the counter-vailing duty isnt well understood.


Such a duty is imposed as a check on advantages foreign competitors receive in subsidies from their governments. U.S. law protects American manufacturers from such unfair practices, it says.


If manufacturers here believe foreign competitors are being subsidized, or are dumping goods, which is selling imports in the U.S. at less than market prices, they can seek relief from the Department of Commerce.


The department imposed the countervailing duty on Canadian lumber to counter what U.S. producers claimed were subsidies that enable Canadian companies to buy logs from provincial governments inexpensively, make them into lumber, then undercut prices charged by U.S. mills for lumber in the U.S. market. The 27 percent duty is broken down between countervailing (18.79 percent) and anti-dumping (8.43 percent) charges.


The U.S. side also contends that the Canadians dumping of lumber in the U.S. market has forced more than 100 U.S. mills to close in recent years.


The Canadian government denies that it subsidizes Canadian lumber companies inappropriately.


It has long said that its system, in which single companies have long-term tenure to log large areas under license with the government, simply is different from the U.S.s system.


Allan says Canadian companies pay stumpage fees for logs, as U.S. producers do south of the border, but also take on forest-management responsibilities, which are costly.


Vaagen believes U.S. producers problems will continue to worsen unless the government on this side of the border begins managing more forestland for timber production rather than other uses.


If they put more raw resource material on the table, well be more competitive with the Canadians, he says.


U.S. producers who advocated the tariff say it might just take more time for its benefits to fall into place.


The fundamental issue hasnt changed: The Canadians subsidize their industry, says Mike Sullivan, spokesman for Potlatch Corp., of Spokane, which operates 12 mills in four states. Its a philosophical, as well as practical, issue.


Sullivan blames lagging U.S. lumber prices on the abundant supply of softwood looming over the marketincluding a flood of lumber shipped from Canada in the days before the tariff took effect.


That inventory is still being worked off, Sullivan says.


As for the glut of production, Sullivan says, Nobody wants to be shut down. The higher the volume youre willing to produce, the lower the unit cost, and the low-cost producer is usually the one who survives in this business.


Potlatch, one of the leading supporters of the tariff, hasnt turned a profit in two years and said Nov. 18 it will cut 106 salaried positions and restructure its operations to cut costs.


Tribunals look at issue


In recent weeks, the World Trade Organization, which reviews trade disputes, has found fault on both sides of the border in the lumber dispute.


In a ruling, a WTO panel condemned the way the U.S. Commerce Department calculated the countervailing duty, Canadas Department of Foreign Affairs and International Trade said in a press release.


The WTO also found Canada had made financial contributions to companies that sell timber in the U.S., thus supporting U.S. claims that Canadian softwood is subsidized, the Globe & Mail newspaper, of Toronto, reported.


The WTO has not made details of its ruling public, but industry sources say the U.S. has disregarded its rulings in the past.


Allan, the B.C. industry spokesman, says his hopes are on a North American Free Trade Agreement (NAFTA) tribunal, which meets next spring.


Any country can ignore a WTO ruling, Allan says. A decision from NAFTA would be stronger.


Allan expects the long, dark winterand idled mill sawsto inspire the two countries to negotiate.


Yet, Anderson, of Random Lengths, doesnt think negotiations to reduce or eliminate the duties will occur any time soon.


Our sources say that this duty against Canada is now U.S. law, Anderson says. For that to change, he adds, It would take some action on the part of Canada to address the concerns of the Coalition for Fair Lumber Imports, the U.S. industry group that was the driving force behind the tariff.


Industry leaders here say the most effective way to remedy the situation would be a reduction in the amount of lumber available.


Says Sullivan, Something has to happen on the supply side in order for us to see some improvement.