SpruceRoots Magazine - July 2001

Soft Wood Hard Heads

by Mark Stephens

For Canadian lumber producers, it's like looking down the barrel of a shotgun. One barrel contains 40 per cent in countervailing duties, the other, 36 per cent in anti-dumping duties. Now it's just a matter of whether the US Department of Commerce and the International Trade Commission pulls the trigger.

The five-year Softwood Lumber Agreement (SLA) between Canada and the US expired on March 31. Canadian lumber producers could now face US import duties costing up to $8 billion a year nationally, and up to $2 billion a year for BC alone.

While these duties could spell trouble for Island forestry companies, it's still too early to tell what will happen.

Mr. Larsen also says the potential trade war might not impact the Islands' forestry industry as much as it will other areas. Red Cedar, a substantial portion of the local softwood harvest, is exempt from the trade agreement.

"It's business as usual for now, but there is concern in the marketplace," says Dave Larsen, vice-president of public affairs for Weyerhaeuser. "It's been a bad year for lumber markets, and that's the bigger issue for now."

But the complaint by the US lumber industry could be the start of a long and expensive trade war, one that will undoubtedly affect BC's economy. US lumber producers launched a complaint with the Department of Commerce and the International Trade Commission as soon as the SLA expired. In as little as 90 days from the time the complaint was filed, the US could begin imposing duties.

The US lumber industry claims that Canada's lumber producers get more than $5 billion a year in illegal government subsidies, primarily through low provincial timber-cutting fees (stumpage), rail subsidies and log-export restrictions. The US industry also alleges that some provinces, particularly Quebec and BC, have a system that allows producers to keep harvesting trees even when demand is weak, and that depresses prices and forces US mills to close.

The SLA included exports from four provinces: BC, Alberta, Ontario, and Quebec. Lumber originating from other areas of Canada were exempt. (The Atlantic provinces, for example, were exempt because three-quarters of their forest land is privately owned and because most of the timber is sold under a US-style auction system.) Under the SLA, the four provinces could export up to 14.7 billion board feet (bbf) annually to the US without incurring export fees. BC exported the bulk of this lumber, shipping 9.8 bbf to the US annually. Canadian exports are worth around $10 billion a year, and make up roughly a third of the US lumber market.

Over the past several months, efforts have been made between the two countries to reach a temporary agreement, but the talks have been unsuccessful. It now appears that the US will begin imposing countervailing duties as soon as the Department of Commerce and the International Trade Commission reach a decision, which will almost certainly find in favour of US lumber producers.

This won't be the first time the US has imposed countervailing duties against Canada for allegedly subsidizing its softwood lumber industry. It's happened three times since 1980, and all three times Canada has appealed through the North American Free Trade Agreement (NAFTA) and through the World Trade Organization (WTO) and won.

The Canadian government has already initiated a WTO challenge in anticipation of the expiry of the SLA. However, the average length of time for a WTO decision is three years, during which time Canadian companies could be paying billions in countervailing duties.

But, there are other options. One option, which the Bush administration supports, is for Ottawa to impose an export tax on softwood lumber. This way the money collected would remain in Canada, while making Canadian softwood prices comparable to those of US domestic lumber. The BC Lumber Trade Council has asked Trade Minister Pierre Pettigrew to consider this option. However, many producers in Canada want free trade, and argue that imposing export taxes could be seen as a sign that Canada is conceding to the US.

Another option is to change the Canadian stumpage pricing system. However, as Canadian lumber producers contend their industry is not subsidized, this seems unlikely. Finally, there's free trade, which, in the near future, is unlikely considering the opposition from US lumber producers.

The dispute is not simply a matter of Canada vs the US. Politicians, lumber producers, their associations, and environmental, labour, and aboriginal groups on both sides of the border have waded into the dispute.

In Canada, lumber producers want free trade. The former SLA was unpopular, and not simply because it limited exports to the US. Smaller Canadian lumber companies were unhappy with the agreement, claiming that the larger producers had found ways around the SLA. The BC Lumber Trade Council also pointed to the exemption of the other provinces from the SLA as unfair.

Environmental groups on both sides of the border have expressed concern about Canada's environmental record regarding its forestry practices. They charge that cutting practices by Canadian logging companies are threatening several species of animals that inhabit both sides of the border. But Canadian officials have pointed out that US timber cutting laws are no more stringent than Canada's.

Opinion in the US is split. The US Senate is almost evenly divided on the issue. Many senators, primarily from lumber-producing states, as well as Democrats siding with environmental groups, support imposing duties against Canadian lumber. Others claim that limiting imports from Canada hurts the US economy.

One of the more visible groups in the debate is the Coalition for Fair Lumber Imports, an umbrella organization that represents about 225 US lumber companies. The coalition, which launched the complaint against Canada with the Department of Commerce and the International Trade Commission, claims that 20,000 mills and up to 700,000 forestry jobs are at stake in the US.

However, some US groups, like the National Association of Home Builders (NAHB), point out that the current SLA actually jeopardizes US jobs. In 1999, there were 4.5 million people employed as builders and subcontractors. According to NAHB statistics, the SLA added up to $1,300 (US) to the price of every home built. For every $50 increase in the price of 1,000 board feet of framing lumber, the US Census Bureau calculates that more than 300,000 households are priced out of the market. That translates into a potentially large number of jobs affected by duties on Canadian lumber.

Many claim that the US lumber industry is being hypocritical since it also receives tax breaks as well as subsidies. In a 1998 filing with the WTO, the US government acknowledged that it gives its lumber industry subsidies totaling US $600 million a year. While the Coalition for Fair Lumber Imports acknowledges that the US does subsidize its softwood industry, it claims that subsidies are allowed under international law as long as they don't injure another country.

Canada's lumber industry also has another advantage which is beyond the control of legislators and lumber producers. Recently, lumber prices have fallen from US $340 per thousand board feet in 1999 to a current level of below US $200. These low lumber prices have hurt US producers more than Canadian producers because a weak Canadian dollar has allowed Canadian companies to produce lumber at a cheaper price than their US counterparts.

For now, it's a matter of waiting to see what will happen. Until the US Department of Commerce and the International Trade Commission reach a decision, the issue is at a standstill. But if they decide to impose duties on Canadian lumber, it looks like the two countries will be in for another long, nasty trade war, one that will certainly have an effect on BC's economy.


SpruceRoots Magazine - July 2001

graphics - InHouse/SRs