Softwood capitulation: Epilogue

Ben Parfitt, the CCPA’s BC Resource Policy Analysis reflects on the capitulation we know as the new Softwood Lumber Agreement and what is means for BC, the most affected province.

Softwood deal will spur more raw log exports

By Ben Parfitt

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.