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NORDHAUS CITES FLAWS IN COMMERCE DEPARTMENT'S PRELIMINARY FINDING ON CANADIAN LUMBER

NORDHAUS CITES FLAWS IN COMMERCE DEPARTMENT'S PRELIMINARY FINDING
 ON CANADIAN LUMBER
 WASHINGTON, April 29 /PRNewswire/ -- The U.S. Commerce Department used flawed economic reasoning in reaching a preliminary determination that Canada subsidizes its softwood lumber industry, according to a former member of the U.S. Council of Economic Advisors (CEA).
 In a written report submitted to the Commerce Department, Dr. William D. Nordhaus, an economic consultant to Canada's federal and provincial governments and the Canadian Forest Industries Council (CFIC), said Commerce failed to analyze whether Canadian provincial stumpage fees -- the fees paid for access to standing timber -- have any economic effect on Canadian softwood lumber production or prices. In an earlier analysis, Nordhaus had explained that Canadian stumpage programs do not lead to a greater output, or lower prices, of logs and softwood lumber than in a competitive market, and therefore do not constitute a subsidy.
 Instead of looking at the economic effects of the programs, Commerce used price comparisons within Canada's provinces which, Nordhaus said, "actually ha(ve) little or no relevance" as to whether the programs constitute subsidies.
 An analysis of the profitability of Canada's forest products companies further demonstrates that the Commerce Department's findings of subsidy are incorrect, Nordhaus noted. The profitability of Canadian forest products' companies was below the profitability of all Canadian manufacturing, Nordhaus said. "These findings contradict Commerce's findings that timber is being provided to forest products companies at preferential prices," he said.
 In addition, Nordhaus observed that Commerce made several fundamental economic errors in its analysis, such as comparing short-term and long-term stumpage charges. According to Nordhaus, prices of long-term and short-term contracts do not indicate that a subsidy is being provided because "the prices of long-term contracts tend to differ substantially from spot prices."
 Nordhaus testified today at a Commerce Department hearing regarding its March 6 preliminary determination to impose a 14.48 percent duty on Canadian softwood lumber exports to the United States.
 In a separate written submission filed before today's hearing, Canada's federal and provincial governments and CFIC also strongly challenged the Commerce Department's view that lumber prices must be established by auction to be truly competitive. Calling the Commerce Department's position "demonstrably unsound," the Canadians said that "auctions are not the best or the only way by which competitive prices are established. Relatively few prices in the U.S. economy are established by auction."
 In his critique of the department's preliminary determination, Nordhaus said less than 5 percent of the U.S. gross national product originates in industries whose output is sold in auction markets. "Virtually all private businesses in the U.S. operated in markets where prices are negotiated, posted or otherwise determined," he said. Nordhaus said that establishing stumpage fees through the provincial long-term tenure programs is an economically rational method for governments or private owners to allocate rights to natural resources.
 The Canadian parties were also highly critical of the Commerce Department's preliminary finding that log export controls in British Columbia constituted a subsidy. The U.S. restricts log exports from all federal and some state lands.
 Moreover, the Canadians said, the Commerce Department's finding erroneously assumes that any price differentials between export and domestic log prices are attributable to export regulations.
 In rendering its log export determination, Commerce ignored other critical economic factors such as the differing cost in transporting logs from the coast and interior of British Columbia. Had they taken this elemental difference into account, the Canadians said, the entire subsidy calculated by Commerce would have disappeared.
 The Canadian governments and industry also objected to the U.S. government's decision to alter the rules by which it determines the existence of subsidies. They said the department departed substantially from the approach it followed in 1986 and subsequently. "The department now condemns changes in provincial stumpage charges which it invited through its 1986 preliminary determination and in the Memorandum of Understanding which followed. Such action is arbitrary and unlawful."
 -0- 4/29/92
 /CONTACT: Clare Lynam for Canadian Forest Industries Council, 202-457-9270/ CO: U.S. Department of Commerce; Canadian Forest Industries Council ST: District of Columbia IN: PAP SU:


TW -- DC028 -- 4491 04/29/92 14:52 EDT
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Date:Apr 29, 1992
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