Softwood deal will spur more raw log exports

The
recent vote in the House of Commons ratifying the softwood lumber
agreement with the United States may bring temporary relief in Canada’s
long running dispute with its biggest trading partner. But it comes at
a terrible price, one that British Columbia, the province with the
lion’s share of US softwood shipments, will disproportionately bear.

Take
one example. Nearly two thirds of the 82-page agreement is appendices,
including one outlining which Canadian products are subject to export
taxes. The appendix is dizzying in specificity, which makes what is
missing all the more glaring.

Taxes will apply to “coniferous
wood, sawn or chipped lengthwise, sliced or peeled, whether or not
planed, sanded or finger-jointed, of a thickness exceeding six
millimeters.” In similar minutiae, wood siding, flooring and fencing is
discussed.

Throughout the appendix, however, one searches in vain
for the word “logs”. Yet the on-again, off-again dispute with the US
has always been about how provincial governments priced publicly owned
trees, not whether they somehow underwrote the costs of specific
manufacturing processes.

So if a subsidy exists — and various
trade dispute panels have concluded it does not or if it does that it
can’t be quantified — then logs, the first product generated after
cutting down a tree, ought to be on that list.

But they are not,
as the BC government knows full well. And their absence, combined with
forest policy changes that the province specifically enacted to appease
the well-funded, US lumber lobby, means the door may be wide open to
sharp increases in raw log exports in the months and years ahead.

Back
in December 2001, as the latest lumber dispute heated up, then
provincial Minister of Forests Mike de Jong received a copy of a
document prepared by his ministry's revenue branch. The document
subsequently served as BC’s bargaining position with the US and
outlined plans whereby the province would create “truly competitive
markets” for timber, logs and forest tenures.

To address US
allegations that certain forest policies distorted domestic timber
prices, BC proposed to “eliminate” its longstanding practice of linking
company logging rights to the operation of certain mills. It also
proposed scrapping any “non-price criteria” governing how timber was
allocated, a provision that would end BC’s practice of channeling a
small portion of timber to a limited bidding pool consisting of
value-added mills that actually produced jobs. Instead, the province
proposed that such wood go to “open” auctions where all companies could
bid. These and other changes were ultimately enacted even though the
growing number of wins by Canada before trade panels suggested that
BC’s earlier forest policies did not constitute subsidies.

Flash
forward. Despite the policy changes, the US insists with the current
deal on capping our market access. And Canada and BC — to their lasting
discredit — have agreed. Once the caps are exceeded, costly export
taxes kick in. Except, that is, on logs. Now look at BC’s coast. One
company — Western Forest Products — directly controls nearly half the
logs on public forestlands. It, along with other coastal companies,
already has log export approvals from the province. Now, thanks to the
scrapping of provisions linking forest tenures to sawmills, we face the
prospect of increased log exports should further coastal sawmills, as
is widely anticipated, close. And why wouldn’t they? The “reward” for
processing US-bound lumber may be a 15 per cent tax once certain export
or price thresholds are exceeded. The corresponding tax on logs is zero.

Worse
yet, BC’s much touted reforms have so far failed to produce increases
in what companies pay for timber — quite the opposite, in fact. Thanks
to accelerating forest company concentration — an outcome only the
willfully ignorant could not have foreseen – a few companies have a
stranglehold on the market. Last year, those companies paid an average
of $7.68 a cubic metre for coastal logs. The year before that it was
$14.16, and the year before that $19.37. So BC collects fewer stumpage
dollars, fewer men and women work in its sawmills and more and more
logs are shipped out of province to US benefit.

And don’t think
for a moment that this is over. The US Coalition for Fair Lumber
Imports is undoubtedly hatching plans for the next round in the
interminable softwood trade war. Two years hence, when either party can
legally walk from the latest deal, expect the Coalition to latch on to
numbers like those above to once again allege that Canada is
subsidizing its forest industry. Worse yet, the Coalition’s costs to
lobby Congressmen and Senators will be paid for by a portion of the $1
billion or so in countervailing and anti-dumping duties that Canadian
companies paid and that the US keeps under the terms of the new
agreement.

Prime Minister Stephen Harper and Premier Gordon Campbell, BC’s forest communities thank you.

Ben Parfitt is the resource policy analyst with the BC Office of the Canadian Centre for Policy Alternatives (www.policyalternatives.ca).