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Seattle PI: "How $1 billion timber deal affected consumers"

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May 1, 2008 -- Posted on Dateline Earth, Seattle PI Reporter Robert McClure’s blog

One of the better-read, -e-mailed and -printed news stories on the P-I website this week was our piece on how the Bush administration arranged a $1 billion bonanza for the U.S. timber industry in a dispute with the Canadian timber industry -- despite losing most of the court rulings in the case, and despite rulings that prohibited payoffs to the domestic industry.

Well, Martin Kaste at NPR jumped in with this piece, which I commend him for because he had to comprehend an enormously complicated story in a day. (I had been working on it for some time; I had to put it down and come back to it several times because of breaking news and so forth.)

The story was reworked considerably by the editors, and we cut it quite a bit because, well, it was just too long. One thing I wished we could have preserved was some of the wisdom dispensed by Dr. Daowei Zhang, professor of forest economics at the School of Forestry and Wildlife Sciences at Auburn University.

Zhang is the expert on the whole deal, and was enormously helpful to me as I tried to understand this story. Zhang has written a book commended to me both by folks in the Bush administration and affiliated with the Canadians: The Softwood Lumber War -- Politics, Economics, and the Long U.S.-Canadian Trade Dispute.

I asked Dr. Zhang: How about the consumer angle?

He says U.S. consumers, along with Canadian timber folks, actually provided the $5 billion-plus (with interest) that built up over the half-decade the timber war went on.

But consumers paid another way, too, Zhang points out. It's a bit of Econ 101 (one of my faves! And I'm not kidding...), but follow us on this:

Because Canadian timber was being hit with a tariff at the border (29 percent at one point, dropping to about 20 percent later), that meant the Canadians could not sell their lumber in the United States as cheaply as they otherwise could have.

That, in turn, meant that prices on this side of the border stayed artificially high. And you know who benefitted from that? That's right: the very U.S. timber companies that brought the charges of unfair competition against Canada -- and lost.

Zhang says you can figure U.S. consumers for all those years were paying maybe 5 to 10 % above what they should have for their lumber.

Then, as my story detailed, they also managed to get $1 billion of the $5 billion-plus the Bush administration had collected as tariffs (or earned in interest) sent back to the States. Of that, $500 million went to the U.S. timber trade group that launched the whole affair and was found wrong by U.S. and international courts. (The remainder went to U.S. non-profits, most of them with ties to the timber industry, as my story explained.)

Critics call that a classic case of a perverse incentive -- by filing what was judged a bogus trade case, U.S. timber companies were able to boost earnings during the dispute and, by agreeing not to appeal further, pocket at least some of the duties collected.

Ultimately, though, Zhang says, this boomeranged on the U.S. industry: With prices set at artificially high levels, the industry had overbuilt its own capacity, and had to contract as prices went down again. That was painful.

If you want to know more after reading my story, I suggest Dr. Zhang's book. Here's what reviewer Don Whiteley of the Vancouver Sun had to say about it:

Daowei Zhang cuts through the bombast on both sides and gets to the heart of the dispute. This meticulously researched analysis should be required reading for every Canadian and U.S. politician. Despite the 2006 agreement, the war is far from over.

Posted by Robert McClure at May 1, 2008 1:03 p.m.