Lumber tariffs nail state's wood-products plants

• To protect its forest industry, the United States has slapped tariffs on timber imports from Canada. Ironically, the move has left wood-products manufacturers in Washington increasingly hurt by growing competition from the north.

LYNDEN, Whatcom County — When Jack Louws needed to replace the aging saw at his truss factory, he invested in a $250,000 model that can be taken apart easily and moved.

Louws wants to stay put in Lynden, where his dad started the business a half-century ago and where he is mayor. But the way things are going, he may have to relocate five miles up the road to Canada, taking dozens of jobs with him.

Louws Truss, which makes roof supports for homes and businesses, is one of scores of companies hurt by U.S. tariffs on lumber imported from Canada.

The tariffs are designed to protect U.S. timber companies by making Canadian lumber more expensive. But they don't apply to Canadian companies that use the lumber to make finished products sold in the United States, giving them a price advantage over U.S. manufacturers.

"I'm being punished for operating in the U.S.," said Louws, who has been forced to lay off workers as he has lost business to Canadian competitors. "It doesn't make sense that I'm not able to provide living-wage jobs just because I'm on this side of the border."

His plight shows how trade policy designed to protect some U.S. workers often comes at the expense of other U.S. workers.

Like policies sheltering the domestic steel and farm industries, the lumber rules are having unintended consequences: U.S. loggers and millworkers benefit at the expenses of workers who make things out of wood.

Government-owned forests

At the heart of the trade dispute are the low prices companies pay for wood from Canadian forests, which are largely owned by the government.

The tariffs are calculated to offset the lower cost of Canadian wood, the U.S. government says. They add extra charges averaging a total 27 percent on softwood, which includes fir, cedar and pine.

The charges make Canadian lumber more expensive to sell in the United States, which helps an estimated 117,000 sawmill workers, primarily in the Southeast.

But the tariffs apply only to raw lumber, not to finished products such as trusses, doors or pallets.

"There are stories of people punching a hole in a piece of wood just to get it in to the U.S. for less," said Michael Mosman, an executive at Port Blakely Tree Farms in Tumwater, Thurston County.

The result is a booming industry in Canada building wall panels, cabinets, stairs and other products for export to the United States. The competition threatens the U.S. wood-products industry, which generates $48 billion in sales and 390,000 jobs in 30 states.

Softwood manufacturing employs 14,727 people in Washington, according to the state Employment Security Department — about the same number who work in logging and sawmills.

"U.S. government trade intervention has created an economic structure that favors the Canadians," said Kirk Grundahl, a spokesman for the U.S. Value-Added Wood Products Alliance in Madison, Wis. "We're not going to lose all our jobs at once, but they are at risk."

Louws Truss, which employs 38 workers, may sound like a variation of the sad story repeated countless times by U.S. industry struggling to adapt to global trade. But it's anything but an outmoded Rust Belt factory.

From Route 539 in Lynden, Louws Truss looks like any other lumber yard. Stacks of 2x4s, 2x8s and 2x6s from Weyerhaeuser's sawmill in Raymond, Pacific County, and smaller Northwest mills wait to be turned into house parts.

Under a roof the size of a football field, workers move lumber to a precision cutting machine.

Workers arrange the pieces together in the middle of the plant, securing them in place with steel braces. A conveyer belt carries the finished trusses out the other end of the building to be loaded onto delivery trucks.

In the office, Joe Jancovic receives blueprints from architects and translates their rough structural plans into precise dimensions.

Computers, which years ago replaced rows of draftsmen, do calculations that make complicated rooflines possible.

With computer designs and the new saw, three workers can do five times the production that 10 workers used to do on manual saws.

"We're the local touch that adds value for each customer," Jancovic said, scrolling through the 19 projects the factory was working on one recent day.

Raw lumber accounts for 40 percent of a finished truss's cost. An order for a 5,000-square-foot house being processed required 40 separate trusses and came to $6,394.

The U.S. tariffs mean a Canadian manufacturer theoretically could make the same product for about $750 less.

Lost customers

The current tariffs, imposed in May after years of debate, make the wood more expensive, squeeze margins and lead customers elsewhere.

Despite continuing growth in nearby Bellingham and surrounding Whatcom County, Louws Truss is doing less business than four years ago.

Even setting up a sales staff to scour neighboring Skagit and Island counties hasn't been enough.

The Coast Guard station in Bellingham, the Lynden library, Naval Station Everett, Whidbey Island Naval Air Station and dozens of apartment projects have all used Canadian trusses, he said.

In 2000, Louws told a third of his workers that he had to let them go. Since then he's obtained a British Columbia business license and says he's ready to move.

Closer to Seattle, where decamping to Canada isn't a realistic option, companies on the wrong side of the tariffs are shrinking.

Nepa Pallet & Container, set on a sprawling yard off Highway 2 in Snohomish, should be booming. Demand for pallets, which carry bulk products inside shipping containers and hold most products sold at warehouse chains like Costco, has grown sharply since the days when stevedores loaded bulk products into ships.

Pallets are made with cheap wood that often has imperfections. But since wood accounts for 60 percent of a finished pallet's cost, tariffs give Canadian pallet makers a huge advantage.

Patrick Sherry, Nepa's vice president and co-owner, said the company invested a quarter-million dollars in a wood-sorting machine so it could save money by buying odd-length lumber from Northwest mills.

But Nepa's Canadian competitors have such a cost advantage, they can ship pallets long distances and still compete. Gradually, they're gaining bigger customers, such as grocery stores and farms that buy a truckload of pallets at a time.

Nepa, which Sherry figures still has about 30 percent of the market around Seattle, is increasingly being forced into a niche. Business is off 15 percent from 2001, though some of that is the slumping economy.

The company is battling back by offering customers more flexibility and speed. One recent morning, Nepa fielded an order for 75 pallets and delivered them the same day.

"We have to be flexible," Sherry said. "Canada's getting the choice business, and we're stuck with the leftovers."

Nepa, which offers employees paid vacation and a 401(k) plan, has cut its work force by one-fifth over the past few years, to 78.

"All I care about is that they do good work," Sherry said. "There's just less work to do."

Aggravating the situation is another tariff imposed by the Bush administration on foreign steel in March. That 30 percent surcharge raises the price American manufacturers pay for steel hardware — such as the parts that hold trusses together.

"If you could level the tables, then we could compete, said Roy Schiferl, operations manager at Woodinville Lumber, which employs 285 making wood panels in Woodinville and 140 more making trusses in Burlington, Skagit County. "What we would like is free trade."

Schiferl estimates the tariffs cost his company about $3 million last year in lost revenue.

Companies north of the border are benefiting.

The 600 members of the B.C. Wood Specialties Group have seen sales grow by 70 percent in the past decade, in part because of tariffs, and now employ more than 20,000.

The group was established to coordinate sales worldwide, targeting Japan and other Asian markets. Wood-products companies in British Columbia export 73 percent of their goods to the U.S. and forecast continued growth.

Sales should double to $6 billion within seven years, the group said.

The Canadian companies saw growth accelerate after a temporary lumber trade agreement lapsed in 2001, despite negotiations for a longer term fix.

After November's congressional elections, U.S. manufactured-wood companies lobbied Congress and wrote to the Commerce Department asking for changes in the tariffs.

Louws, Schiferl and others testified for 90 minutes at a Dec. 5 meeting of the International Trade Commission in Washington, D.C., to explain how they were being hurt.

The pro-tariff lobby, represented by The Coalition for Fair Lumber Imports, a Washington D.C.-group that represents 260 U.S. mills and lumber companies, says the tariffs will eventually force Canada to rethink how it manages its forests.

Extending existing lumber tariffs to cover products made with wood would bring only temporary relief to manufacturers, said Ken Marson, president of Marson & Marson, a Leavenworth truss maker with 70 workers.

More tariffs Band-Aid

"More tariffs might be a Band-Aid, but we need an equitable settlement," said Marson, who put an expansion of his truss plant on hold after the latest tariffs were imposed.

"We can compete if it's apples to apples. But this is competing apples to tomatoes."

Some companies also argue that extending the tariffs to manufactured goods would increase costs to consumers even further and make Canada less willing to compromise on a long-term agreement.

Weyerhaeuser, which has huge Canadian operations that are hurt by the lumber tariffs, proposed that the U.S. drop the tariffs altogether in exchange for Canada taxing its own exports and eventually moving toward a more market-based timber industry.

In an indication of how its loggers and millworkers have been hurt by the tariffs, the British Columbia government last month echoed the idea with its own proposal for a 17 percent temporary export tax on its lumber.

So far, however, the Canadian government has only moved to give financial aid to Canadian industry hurt by the U.S. trade policy, and to challenge the tariffs before the World Trade Organization, where a final ruling could take years.

Bradley Meacham: 206-515-5066 or bmeacham@seattletimes.com