Walmart.com

[Peter_Puget]

PLC said:

In response to the tariff, Canadian timber companies increased their output, allowing them to realize further economies of scale (as I recall now, this had something to do with needing to earn a return on their equipement investments).

 

PLC - Just a question why would this not have happen if a tarrif was never imposed?

 

PP

[PLC]

Wall Street Journal

June 9, 2003 8:15 a.m. EDT

 

IN THE MONEY:US Lumber Woes Grow Despite Tariff On Canada

 

By STEVEN D. JONES

 

A Dow Jones Newswires Column

 

VANCOUVER, Wash. -- Wood products companies fighting off cheap lumber imports from Canada are discovering that the cure they sought a year ago is worse than the disease.

 

Tariffs imposed by the Bush administration in May 2002 designed to stem the flow of Canadian softwood lumber and prop up prices to the benefit of U.S. mills have had the opposite effect.

 

Production is up north of the border and prices are down in the United States, which doesn't bode well for holders of wood products company stocks.

 

Now in its second year, the trade dispute has moved from the headlines to the income statement where it is taking a toll on dozens of companies. Weyerhaeuser Co. (WY) reported a first-quarter loss of $54 million largely because of a $150 million loss in its lumber business.

 

High tariffs and low lumber prices contributed to a $7.6 million first-quarter loss at Pope & Talbot Inc. (POP) even though revenue increased 18% over a year ago thanks to healthy gains in the price of pulp for making paper.

 

Even companies with relatively small lumber operations, such as newsprint manufacturer Bowater Inc. (BOW), aren't enjoying the seasonal boost that lumber production usually adds to earnings.

 

A year ago, lumber prices plunged as the tariffs took effect. This year, a spring rally has fizzled and prices are hovering near $250 per 1,000 board feet, well below the seasonal peaks of nearly $300 the market achieved in 2000 and 2001, or $350 in 1999.

 

Currency fluctuations and a weak economy contribute to the problem, but lumber markets have risen through such difficulty in the past. What's different this time, say executives and economists, is that the tariff structure is spurring output from Canada.

 

"Some of the producers have ramped up production in order to bring down their unit costs at which they are selling at in the United States," said Lois McNabb, director of the economics and trade branch of the British Columbia Ministry of Forests.

 

Companies that can lower production costs by whatever means in comparison with wholesale prices in the states come out ahead.

 

"I hear anecdotal evidence that companies are watching every stick of wood going into the U.S. to make sure it is going in at a price that is above the cost of production," she said.

 

"In a number of cases it has increased production coming out of Canada," said Michael Flannery, chief executive of Pope & Talbot, which operates sawmills on both sides of the border. "That is an unintended consequence of the U.S. tariff."

 

In 2002, Canadian mills increased production 4.6%, according to Random Lengths, an Oregon publication that monitors lumber markets. Most of the gains came late in the year and in the West, says Jon Anderson, publisher.

 

Awash In Wood

 

Statistics for December, the most recent month available, show production in British Columbia surged 30% to 1.03 billion board feet.

 

"We are awash in wood," said Scott Shotwell, executive director of the Coalition for Fair Lumber Imports, the 300-member trade group that led the campaign for tariffs. But Shotwell claims the tariffs are not to blame for the mess.

 

"It's not the tariff. It's how Canada responds to the tariff," he says.

 

The U.S. has collected more than $1 billion in tariffs in the year since it was imposed, which the coalition would like to see redistributed to manufacturers harmed by the imports. "It could be distributed, that is the way the law is written," said Shotwell. "Whether it is remains to be seen."

 

A Commerce Department spokesman had no comment. A department policy bulletin on the tariff to be issued this month may or may not deal with the issue.

 

The trade dispute revolves around logging practices in the two countries.

 

Most U.S. timber is cut from private land at market prices often set through bidding. In Canada, the government owns 90% of timberlands and charges "stumpage" for logging. The fee is based on the cost of maintaining and restoring forests, not the market value of the wood.

 

The United States contends that Canada's stumpage is artificially low and amounts to a subsidy that allows Canadian mills to sell wood below market value.

 

This isn't the first time the United States has attempted to prove Canadians subsidize their industry. Three previous attempts to impose limits have had middling success.

 

In 1997, the Canadian's agreed to a tariff-free quota system on exports to the U.S. It expired in 2002 and talks to modify or extend its terms broke down. The U.S. imposed the tariff structure in its place.

 

Timber tariffs are not new, but what is different this time is that the U.S. Department of Commerce is charging that the structure of the Canadian stumpage system enables manufacturers to dump product into the United States below the cost of manufacturing.

 

In May 2002, the U.S. Commerce Department imposed a countervailing duty of 19.3% on Canadian softwood imports to adjust for the alleged supply subsidy. In addition, the agency imposed an anti-dumping duty that averages 8%. Combined, the tariff and duty totals about 27%.

 

But dumping penalties aren't the same for all mills.

 

For example, using U.S. dollars and measurements, say it costs a mill $280 to cut and manufacture 1,000 board feet of lumber that it sold in the U.S. For $250 the company would be dumping wood at 10% below cost. The mill would be subject to the 8% anti-dumping fee.

 

But a mill that could saw the same amount of lumber at a cost of $250 and sell it for $250 would escape the tariff.

 

Applying that analysis to the output of dozens of mills in a corporation creates a wide variation in duties. West Fraser Timber Co.'s (T.WFT) pays an average anti-dumping duty of 2.2%. Canfor Corp. (T.CFP) pays 6%.

 

However, with high fixed investments in plant and equipment, one of the quickest ways a mill can lower its cost of production is to cut more wood.

 

Suppose the first mill in this example could reduce its average production cost to $250 from $280 by adding a shift. The mill could escape the anti-dumping tariff as well. In other words, the anti-dumping portion of the tariff creates a financial incentive for Canadian companies to produce more.

[Peter_Puget]

Hmm I guess the article is a response to my question. But it merely restated what was said before not providing a rational for why the increase in production would not have occurred if the tarrif was never imposed. In other words why would a Canadian producer voluntarily reduce its revenue stream? I do not believe they would but want to hear an argument as to why they would.

 

PP

[JayB]

Jim said:

JayB said:

The most effective way for a developing country to assure that their industries are overwhelmed by foreign competition is to squander what little capital they have in efforts to develop industries in sectors where they will always be at a competitive advantage instead of using their resources to invest in sectors where they can compete.

 

This gleefully ignores the fact that unfair trade practices are used by larger countries against smaller countries that don't have the resources to subsidize industries or commodities. If the markets were truely free you might have a good argument. But in practice the less developed countries just become little economic colonies of the bigger boys. How quaint.

 

Actually, attempting to compete against nations that have a competitive advantage and subsidize their production would be even more disastrous for the underdeveloped country, as they are not only squandering their capital by trying to compete in a sector in which they lack a natural advantage, they are going a step further and essentially trying to outspend a country with several orders of magnitude more wealth to waste on such things.

 

Better an economic colony with a decent standard of living than an imploding carcas of a nation state with the population sacrificed on the altar of anti-market ideologies that were tossed on the intellectual slag heap decades ago if you ask me.

[j_b]

as long as it is cheaper to buy new lumber than recycle whatever is being torn down while at the same time we witness deforestation of public land and non-compensated heavy impact on fisheries and such, i won't believe one word about how a fair market price supposedly comes about. these industries are heavily subsidized through land swaps, road building at public expense, etc ... , in canada and the US. it is obvious pricing does not account for the real cost of mining a resource that is essentially not renewable on a human time scale (considering the rate at which it has been depleted over the last century).

[Fence_Sitter]

Better an economic colony with a decent standard of living than an imploding carcas of a nation state with the population sacrificed on the altar of anti-market ideologies that were tossed on the intellectual slag heap decades ago if you ask me.

 

true enough... idealist idealogies can only get you so far... in the real world the ideal usually requires compromise of one's ideals... to be sucessful, this is a necessity, either that or you have to have no (or have blatently selfish) principals... some would say taht we jsut have to play the game... others try to change the system... two modes of thinking... guess each one will hav a different take on this....

[JayB]

Ending the subsidies would go a long way towards addressing most of these problems, and the additional revenue generated by actually charging market rates for the timber could be tapped to ameloriate the rest....

[slothrop]

Peter_Puget said:

Hmm I guess the article is a response to my question. But it merely restated what was said before not providing a rational for why the increase in production would not have occurred if the tarrif was never imposed. In other words why would a Canadian producer voluntarily reduce its revenue stream? I do not believe they would but want to hear an argument as to why they would.

 

PP

 

The only way the Canadians can reduce their unit costs is to increase production, which would lower the market price. There's no reason to do that, since, before the tariffs, they were already out-pricing the US (selling below cost? maybe just to keep US competition at bay) and probably making their money in other markets.

 

Now that the tariffs are in place, they increase production, flooding the market, because they'd rather see the glut eventually bring the price lower than pay extra duties to the US.

 

Hmm... dunno if that makes sense.

[slothrop]

iain said:

I would rather read the proceedings of NAFTA than this thread

 

Doesn't talking about the Canadian lumber industry give you WOOD?

 

[Peter_Puget]

slothrop said:

Peter_Puget said:

Hmm I guess the article is a response to my question. But it merely restated what was said before not providing a rational for why the increase in production would not have occurred if the tarrif was never imposed. In other words why would a Canadian producer voluntarily reduce its revenue stream? I do not believe they would but want to hear an argument as to why they would.

 

PP

 

The only way the Canadians can reduce their unit costs is to increase production, which would lower the market price. There's no reason to do that, since, before the tariffs, they were already out-pricing the US (selling below cost? maybe just to keep US competition at bay) and probably making their money in other markets.

 

Now that the tariffs are in place, they increase production, flooding the market, because they'd rather see the glut eventually bring the price lower than pay extra duties to the US.

 

Hmm... dunno if that makes sense.

 

Not buying it.

[AlpineK]

Ya know I was into this thread when we were talking about WalMart. Now....

[Stefan]

Thread drift is good Alpine K. Hey, I AM reading those articles you gave to me. Interesting reads. And by the way, I find economics interesting too!

[Peter_Puget]

Fuel for thought.

 

Nice Link where the graph came from

 

PP

[Fence_Sitter]

AlpineK said:

Ya know I was into this thread when we were talking about WalMart. Now....

 

yeah dood! wallmart kicks ass!

[Szyjakowski]

WALMART and WALLY

and homedepot has shitty lumber! whoever said that money isn't the issue is fukin dillusional and stupid...

why are we after terrorists and drug dealers and such...

get a clue!!!!

BTW- it is fukin hot in ltown right now!

[Fence_Sitter]

if money was the issue...wouldn't the goverment legalize it and tax it? jus stirrin the shit...

[Szyjakowski]

the government makes more money busting the criminals...where does all the confiscated dollars go... back to the mob boss...prolly not!

PLUS busting people means the government has more jobs available for good hard workin americans.... (eg. dea or homeland security)..

but back to the point of the thread..fuk wallyworld!

 

[Fence_Sitter]

the government makes more money busting the criminals

 

and i'm sure that their amazing prison bills are totally covered by this... conspiracy theorist...

[Szyjakowski]

right we need more prisons..

i guess that means the government should tax us even more and take money from other programs to build em...

[Fence_Sitter]

did i say this? ne eh... in fact quite the opposite... legalization would create less pressure on the prison system...

[Pencil_Pusher]

No doubt. Legalizing drugs to a certain extent would relieve quite a bit of pressure on the prisons. Side track, of the 'add more prisons' or 'add more cops' themes, we should first beef up the court system to allow for speedier processes and, in the long run, less screw-the-victim-or-surviving-family through plea bargains.

But back to drugs. Who's that governor in some Yuper state who said he'd prefer to legalize pot? Minnesota or something? Some bald ex-wrestler dude with a moustache. No, no, that is far too unethical an idea for our country to support. This from our great politicians and religious right(eous). Hey, when the president smoked pot in his youth, just how bad of a drug is it? Yeah, didn't inhale whatever... his subsequent lies of Lewinsky and then getting caught red-handed were hilarious. Especially when the republicans started screaming all these ethical concerns and then that dude from Hustler mag (the dude in the wheelchair) offers some exorbant amount of moola for dirt on either dem or repub senator/congress folks who have a mistress and guess who takes the next fall? Yup, some high ranking republican who screamed how unethical it was for Lewinsky/Clinton, was caught bopping his own little chiquita aside from his wife. I think that's about the time both sides realized maybe it was better to drop this issue from the hot press.

But I digress as does this thread. Walmart and other stores like it will prosper as most people (except those who can afford to) don't give a rat's ass about buying a more expensive product for 'ethics'. Just look at us and climbing gear... everyone's looking for the best deal. The REI/Pro Mountain Sports thing doesn't really compute because REI makes their killing off clothing and Jim's got the whole local alpinist thing going (if this were Topeka, Kansas, probably no climbing shop would survive if REI did). If a miracle happens and alpinists start popping up faster than tennis players (and the NR of Stuart becomes via ferrata) then REI will probably think more towards the climber. Jim will be making money hand over fist in the meantime and probably open up several other shops; or sell the business and get a beer gut. Maybe the old man already has one... does he climb anymore? Well, he's found his niche to survive in the face of REI

 

Good websites, AlpineK. Walmart is as screwed up as you said it was. I think there was mention in the news a while back of gender discrimination too... some class action suit being brought against them for discriminating against women. Hopefully the L&I or whomever takes away that self-insurance option from them.

[Rodchester]

Is walmart changing its stripes? Would mom and pop do this?

 

No more discrimination

 

Just couldn't let this thread die.

 

Now, all of you, lets

 

Edited July 2, 2003 by Rodchester

[Bandit]

Rainman says K-Mart sucks. Wee, so does Walmart

[bulldog]

FS, I agree. Can anyone tell me one thing in economics that does not benifit from competition. My dad is a small business owner / sole P. He builds houses against the big cookie-cutter manufactureers. He has had to figure out how to compete with the big evil "Wal-mart" style house builders. He is doing great, in fact better than ever because he has learned how to compete - AGAINST THE BIG GUY. I have been playing basketball and climbing for 18 years. I am only 5'10" and play against 6'6". I have to learn how beat him. I have to do big guy moves in a short guy body. Work it out folks. There millions of low income people out there who love Wally-world.