Lumber Dispute Builds Over Pre-Drilled Studs -- U.S., Canada Fight Over Timber Tariffs

WASHINGTON - Here's a hot question in the ongoing U.S.-Canadian battle over timber tariffs: When is a stud not a stud?

Lumberjacks have one idea. Carpenters another.

The U.S. Customs Service is caught in the middle.

It's the latest twist in a decades-old, multibillion-dollar dispute over tariffs on Canadian lumber - mainly 2x4s and 2x6s for housing construction - shipped into the United States.

In addition to straining relations between the world's two best trading partners, the fight pits two U.S. industries against each other: timber companies, which want to limit imports of cheaper Canadian lumber that they consider government-subsidized, vs. home builders, who prefer the cheaper foreign wood.

Timber companies, with congressional allies in the Southeast and Northwest, have had the upper hand in recent years, slowing Canadian imports through duties and quotas that bring the prices closer to even.

Canada making inroads

But Canada appears to be making new inroads with the "pre-drilled stud" - boards with holes already drilled to accommodate electrical wires and plumbing.

The Customs Service ruled last winter that the holes put the lumber in a category of finished or value-added products - not covered by most duties in the U.S.-Canadian Softwood Lumber Agreement.

American home builders say that ruling eventually could pare $2,000 off the price of a typical single-family home.

But U.S. timber companies say those pre-drilled 1-inch holes are really loopholes - a way to get around the intent of the 1986 agreement and subsequent international panel rulings.

"We say a stud is a stud," said Scott Shotwell of the Coalition for Fair Lumber Imports, a Washington-based timber lobbying group representing Georgia-Pacific, Temple-Inland, International Paper, Potlatch and others.

"It doesn't matter if there is a hole in it. Its use is the same. The price is the same. The building code treats it the same. Studs are studs," he said.

Sen. Richard Shelby, R-Ala., is challenging the Customs Service ruling on the timber industry's behalf. He wrote language into the agency's 1998 budget bill attaching strings to a $2 million allotment for enforcement of the lumber agreement.

Until Congress can address the issue, the bill says, Customs is to stop enforcing any ruling that eliminates tariffs for lumber "because it has been drilled or otherwise subject to minor processing."

Criticism from home builders

Home builders say Shelby's move is out of line, a sop to a constituent industry that could undermine an international trade agreement.

"It doesn't have the force of law, but it is kind of a threat," said Michael Carliner, vice president of the National Association of Home Builders.

"The people at the Customs Service are interpreting it as a threat. If they don't bend, they might have the money taken away," he said.

Customs Service spokeswoman Pat Coss would say only that the ruling is under review.

The issue is so controversial that the largest forest-products trade group in the country - the American Forest & Paper Association, with members on both sides - has no formal position on it.

Environmentalists think it's a hoot because it puts some of the nation's largest timber companies in the awkward position of trying to keep imported wood out of the country while arguing that logging cutbacks on U.S. national forests have severely diminished the domestic supply.

Among those who have come out swinging for the home builders, urging Customs to hang tough on the pre-drilled studs, are Sen. Rod Grams, R-Minn., a former home builder himself, and Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance subcommittee on trade.

A reversal "would create a dangerous precedent," Grams said in an October letter to acting Customs Commissioner Samuel Banks.

A political motive

"This appears to be an attempt to manipulate the tariff classification process to pursue a political objective," Grams wrote.

Home builders and lumber dealers maintain the pre-drilled studs are significantly different from the undrilled ones.

"Having the hole, in our view, precludes it from being used for anything else. They are for a specific use," Carliner said.

And that, he says, is the key.

Customs agreed last February, when it notified the Border Brokerage Co. of Sumas, Wash., that pre-drilled studs would be categorized differently than undrilled studs.

"This classification is based on the belief that the holes drilled into the wood suit it for certain structural purposes and disqualify it for others," Customs said in a Federal Register notice Oct. 27 seeking public comment on the ruling through Dec. 26.

Only a few hundred million board feet of pre-drilled studs were shipped from Canada last year, but there's been an 185 percent increase since February and additional, similar products are expected to follow.

If Customs reverses its ruling, home builders say the real losers will be home buyers.

"We are becoming more and more dependent on Canadian lumber . . . due to cutbacks in timber cutting, particularly in the Northwest for environmental reasons," said Jay Shackford of the National Association of Home Builders.

"Right now, we are paying about $400 per 1,000 board feet of lumber. If you add on $100, that is significant," he said.

But U.S. timber producers say the Canadians shouldn't be allowed to get around the intent of the agreement: to protect against unfair competition.

"I think they know darn well this is a way to circumvent it," Shotwell said.