An Escalation Clause in Contracts

27 Jul 2017 12:44 PM | Colleen Corrigan (Administrator)

by Jane DeAustin, CMBA Government Affairs Director, BAM and NAHB

In a move that will raise housing costs and price countless American households out of the housing market, the Commerce Department on June 26 imposed a preliminary 6.87% anti-dumping duty on Canadian lumber imports on top of the 19.88% countervailing duties announced in April.  Combined, the two duties impose a 26.75% total tariff on Canadian lumber imported into the U.S. 

Note:  According to NAHB, in the St. Cloud area, for every $1,000 increase in housing costs, about 200 households are priced out of the housing market.

Although the feud pertaining to softwood lumber between the United States and Canada may be nothing new, the anticipated NAFTA renegotiation certainly is.  The 30 year old battle, which began when the US industry argued that Canada provided cheap access to public land, which in return they say unfairly subsidized its lumber, has ceased to subside.

In May of this year, Congress was notified that President Trump intends to renegotiate the North American Free Trade Agreement (NAFTA). Minnesota, along with 34 other states, have Canada as its largest trading partner, so the status of NAFTA extends beyond just the cost of lumber for Minnesota's economy.  NAFTA talks are expected to begin as soon as mid-August and will address trade policies including energy and agriculture.

NAFTA's pending renegotiation has created a fluctuating market, demanding builders to protect themselves. It is known that the uncertainty surrounding a new trade pact has already triggered a 22% spike in lumber prices since the beginning of the year, and the fact that it takes about 15,000 board feet to build a typical single-family home, it's really important that members pay attention and protect themselves from the fluctuation in costs.

Because of this uncertainty, the CMBA, BAM, and NAHB, strongly encourage members to review their contracts to determine whether they might need an escalation clause.

At the federal level, NAHB is working hard to address the softwood lumber trade agreement in a fair and balanced way that will increase supply and contain costs. At NAHB's Legislative Conference, BAM members put into action part of NAHB's plan when addressing Minnesota's Congressional Delegation. Members asked Congress to hold hearings into the long-running trade dispute between the United States and Canada over softwood lumber and to consider ways to increase the domestic supply of timber from public lands.