The Hardwood Federation Newsletter

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Hardwood Federation December 2019 Newsletter

From the Executive Director:  Welcome Trade News Is a Gift for Us All

It has undoubtedly been one of the toughest years (well, 19 months if you are counting…) in recent memory for many in the hardwood industry.  No one has to tell you – even if we have in every newsletter in 2019 – that the trade war with China and subsequent tariffs and counter-tariffs have caused more than just a few headaches.  People across the U.S. have been hurting.  But after months of reporting only bad news and delays in progress, it is good to be able to finally have a little good holiday cheer to spread, even though it may come with some caution.  All of the industry’s hard work appears to be paying off as the holiday season approaches as two important trade deals seem to be coming together. A final USMCA agreement seems to be in place between the Administration, Congress, and our neighbors Mexico and Canada.  And probably more importantly for many in the industry the news that a “Phase 1 Deal” has been reached with the Chinese and that hardwoods will apparently be included.

Things came together in the US-Chinese deal rather quickly after months of back and forth, hot and cold negotiations.  Although the US is not going to remove tariffs completely, there is said to be a commitment by the Chinese to buy $50 billion in Agriculture products.  The Hardwood team was very pleased to see U.S. Trade Ambassador Lighthizer specifically mention that hardwoods and forest products are included in the Agricultural chapter of the agreement during an appearance on Fox News on Tuesday Dec. 17th  ( view it here).  Hardwood and forest products are mentioned at 1:56 of the interview noting how other areas of agriculture also classified as manufacturing will be used by the to get to the $50B/year of agricultural purchases that the President and Administration are pushing for.

This is a tremendous step forward and a victory for all of those in our industry who have been working so hard to make Washington D.C understand the terrible impacts the trade war has had on the industry.  But the work is not yet done.  Translators and lawyers are going through the 86-page deal line by line to make sure there is no discrepancy between the sides and the formal signing is expected to take place the first week of January.  Details about exactly how and when purchases will be made are also murky. The long-term success of the deal, of course, still largely depends on the Chinese honoring these commitments and following through on their end of the deal.  As we know all too well, anything can happen and we must continue to be engaged, tell our story and keep those negotiating the deals to stay on task!

Ensuring that hardwoods, and the impact the trade war with China has had on the industry, were considered by the Trump Administration during trade negotiations was a combined effort of many in the industry, including the many individual hardwood company leaders that came to Washington to speak directly with members of the Administration and Congress, during Hardwood Federation events like the Fly-In and on their own, hardwood company employees who wrote, called and e-mailed their Congressional representatives and the Hardwood Federation Member Association Executives who shared information, encouraged engagement and supported Federation outreach and activity.

Also seeing significant progress this month was the USMCA.  After being formally announced more than a year ago, the US-Mexico-Canada Agreement (USMCA) to replace NAFTA (North American Free Trade Agreement) was officially reached on Tuesday December 10th.  Having to be approved by Congress after the initial framework was announce in November 2018 House Democrats methodically worked with USTR Robert Lighthizer for over a year to reach a compromise that satisfies both parties in Congress, the Administration, and can still be ratified by our trade partners in Mexico and Canada.  The slow and tumultuous process saw a number of peaks and valleys and was often criticized as a political play.  In the end the deal seems to work for all included as both Democrats and Republicans have claimed victory on the deal with Dems saying “this is our deal” and that “President Trump won’t even recognize it” and the White House saying “There is no doubt this is President Donald J. Trump’s deal and it’s exactly what candidate Trump Promised America”.  Not one to show his cards, Ambassador Lighthizer was quoted as saying at the signing in Mexico City that “it’s nothing short of a miracle that we have all come together.”  Either way, it is done and a final vote in the House of Representatives could come as early as Dec. 19th, with the Senate likely to follow in early 2020 after the impeachment process concludes.

Issues

Appropriations Spending Deals – Two Packages of FY2020 Spending Bills Clear the House Just in Time

Biomass

A couple of key provisions important to the Hardwood Federation were included as part of the FY 2020 spending bill.  One is the biomass carbon neutrality provision.  This language directs federal departments and agencies to recognize the carbon neutral nature of forest-based biomass energy that we use in our mills every day.  We are hopeful that at some point we can make this provision permanent, but until we do, we are in a position of working to have it reauthorized as part of the appropriations process each fiscal year.  Reauthorization of the biomass carbon neutrality directive was one of our priority “asks” during our fly- in this September and throughout the year.  We are pleased that the language made it into the final spending deal.  

We are also pleased that the Community Wood Energy and Innovative Products Program (CWEIP) was appropriated $5 million for FY 2020 so that the Forest Service can stand this program up next year.  Recall that this Hardwood Federation-supported program was included in the last Farm Bill to help accelerate deployment of heating systems that run on our sawmill residuals and also provide funding for innovative wood products facilities, such as cross laminated timber manufacturing sites.  The program is authorized at $50 million per year for each of the 5 years of the current Farm Bill.  The $5 million for 2020 is a fraction of the authorized amount but the thinking among the program’s champions on the Hill is that appropriations will be easier to secure once the program is up and running and that $5 million was the maximum figure that was achievable during this appropriations cycle.    We will continue to work for more funding for this program when the FY 2021 appropriations cycle begins early next year.   CWEIP has potential to generate markets not only for our residuals but for hardwood lumber products. 

Market Access and Foreign Market Development Programs

And last but not least, funding for our two main overseas promotion programs were fully funded in the spending deal passed by the House and to be considered before recess in the Senate.  H.R. 1865 provides the full $255 million for Agricultural Trade Promotion and Facilitation, as authorized in the 2018 Farm Bill.  As a result, the Market Access Program (MAP) and Foreign Market Development Program (FMD) will receive no less than $200 million and $34.5 million respectively for FY 2020.  Funding of $3.5 million for the Priority Trade Fund is also included as part of the overall $255 million level.  The Trade Fund will provide additional funding for MAP and FMD.  Again, full funding for these two critical programs has been a continual request in our advocacy efforts and we are pleased that both programs were afforded their full authorized funding amounts in the spending deal. 

Export-Import Bank

The Export-Import (Ex-Im) Bank is set to be reauthorized for 7 years in the newly released spending bill.  Additionally, the bill would place increased restrictions on the bank’s lending with regards to China.  Senate Majority Leader Mitch McConnell (R-KY) had previously refused taking up legislation passed by the House of Representatives to extend the Bank’s charter for the next decade after it expired on Nov. 21st.  He, instead, chose to use the government funding bill as the vehicle to keep Ex-Im running.

Estate Tax – IRS Issues Regulations Clarifying Future Impacts of Estate Gifting

The IRS and Treasury Department have issued final regulations clarifying that individuals benefitting from the increased estate tax and gift exclusion amounts stemming from the December 2017 Tax Cuts and Jobs Act.  The guidance essentially says that those taking advantage of the increased amounts in effect from 2018-2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to revert back to pre-2018 levels.  The exemptions of $11.58M for individuals and $23.16M for couples can be fully utilized without fear of a taxation “claw back” in 2026.

Happening in the Hardwood World

A further collection of impactful hardwood articles and media hits from the past month:

https://time.com/5740290/trade-war-lumber-hardwood-environment-forests/

https://www.channelnewsasia.com/news/business/us-exports-of-hardwood-to-china-fall-as-trade-war-continues-12153246

https://www.post-gazette.com/business/pittsburgh-company-news/2019/12/16/Tariffs-China-lumber-Northwest-Hardwoods-Hopwood-Fayette-County-exports-trade-war/stories/201912150024

Powell Valley Millwork Reclaims Original Facility

In a time of uncertainty and what seems like a constant bad news cycle it is a pleasure to be able to report on some more good news as the holidays approach.  Powell Valley Millwork, based in Clay City, KY announced on December 9th their (RE)acquisition of the Metrie Poplar manufacturing facility in Jeffersonville, KY.  We put a heavy emphasis on the “re” part as this facility was the company’s original manufacturing operation but was sold to Metrie in 2007.  We know the Thornberry family and all involved are beyond excited to have this back in the fold and wish them all the best as they return home!

Happy Holidays from the Hardwood Federation!

The Hardwood Federation wishes everyone in the industry a very Merry Christmas, Happy Holidays and a Successful New Year.  We hope to see you all in 2020 as we work together to communicate the industry’s story and perspective in Washington D.C. 


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