Canada primarily responsible for softwood lumber dispute

Most forestry activity in Canada is conducted by US, not Canadian companies - and they should pay fairly - and reforest properly - in exchange for logging rights

By: Gary Gallon

  The fact is that forest companies operating in Canada are receiving more subsidies and paying lower stumpage fees than their counterparts in the United States. Forest companies in Canada do less reforestation and protect less endangered species than those in the US Forest companies in Canada have been purposefully low-grading valuable timber for which they pay much less stumpage fees than they would if they were more honest. As a result, the forest companies in Canada are operating a definite competitive advantage over the US forest companies.
  Canada is allowing its valuable forests to be stripped as quickly as possible and sold at a discount to the United States - without giving a thought to sustainable yield, adequate old growth protection, and long-term economic protection of the forest industry into the next generation. Home builders and commercial lumber companies in the United States love it, because they can get such cheap timber from Canada, when they can't it from their US forest companies.
  Also, it is suspected that Quebec forest companies are cutting trees and selling the timber cheap through the Atlantic provinces to the US without being subject to the more expensive US - Canada softwood trade agreement (see, "Lumber Unity in Tatters as BC Breaks Ranks", by Ian Jack, Financial Post, March 21, 2001). If Canada is going to participate in free trade then it must play on a level playing field. It can't dump cheap timber into the United States just to boost the immediate income of foreign and Canadian forest companies operating in Canada. Ironically, Canada has placed itself in a position where the US will end up placing a countervailing duty on the Canadian timber that enters the US
  This money will be taken by the US and used in the US. Instead, Canada should have bitten the bullet and charged the proper stumpage fees and thereby force the companies to reforest and protect endangered species. Then Canada and its citizens and environment would benefit from the stumpage fees rather than the United States. We only have to remember that the US forest companies in Washington and Oregon were stopped dead in their tracks in a national effort to protect the habitat of the "Spotted Owl". Some forest companies in the largest exporting province, BC, know this and have broken ranks with the federal government and forest companies in the other provinces that have stuck with the position that Canada has done nothing wrong and is not operating at a competitive advantage. BC companies like Canfor (Canadian Forest Products) and Lignum Ltd. believe that they have to cut a deal with the US that in effect increases their stumpage fees, or implement a "Canadian Voluntary Export Tax" (in lieu of stumpage fees).
  The real solution is for Canada to stop acting like a "hewer of wood and drawer of water" for the United States, and begin to treat its forests as if they are going to sustain industry in Canada for the next several generations, rather than allow the companies to cut and run. It should be understood as well that the majority of the forestry activity in Canada is being conducted by US-controlled companies, not Canadian companies. For example, MacMillan Bloedel, Canada's largest company with $3.2 billion in annual sales is controlled by Weyerhaeuser Co., based in the State of Washington. Cascades Canada with annual forest products sales of $1.6 billion a year, is controlled by Boise Cascades Co., based in Boise, Idaho. Fletcher Challenge Canada, with $975 million in annual wood sales in Canada, while not a US company, is controlled by the giant multinational forest company out of New Zealand, with no real roots in Canada.
  Ironically, it will be free trade under NAFTA and WTO that will force Canada to finally come in line and operate on the same playing field as the US, and action that will see a better protection of the environment and a better stewardship of the renewable forest resources. See the Rainforest Action Network website at www.ran.org/ran.
  Also visit the Council of Forest Industries (COFI) website at www.cofi.org.

Behind the softwood lumber dispute - what's it about?

  Canada and United States signed a five-year Softwood Lumber Agreement in 1996. It expires March 31, 2001. In 1996, the Softwood Lumber Agreement was negotiated at the behest of US lumber producers by the US Commerce Department and the Office of US Trade Representative. It capped the amount of lumber that could be imported duty-free from Canada into the US at 14.7 billion board feet (bbf) per year, and taxed lumber over and above this amount on a sliding scale. While this quota applies to the whole of Canada, the bulk of lumber exported into the US - 9.8 bbf - comes from British Columbia. Alberta, Quebec and Ontario supply the rest under the Agreement. However, 14.7 bbf of timber exported under the Softwood Lumber Agreement is only the duty-free amount exported into the US. Many Canadian lumber producers have simply chosen to pay the tariff in order to have access to lucrative US markets, increasing the total amount of lumber products exported to the US to 25 bbf.
  The Softwood Lumber Agreement covers lumber exports to the United States from four provinces, which accounted for 16.2 billion board feet (BBF) of the 17.0 BBF imported from Canada in 1995. There are high Canadian export fees on shipments in excess of 14.7 BBF. Under an amendment to the Agreement announced in August 1999, shipments from British Columbia (the largest producer) face fees of up to $148 per million board feet (MBF). Shipments in excess of the fee-fee quota from Quebec, Ontario, and Alberta are subject to fees of up to $108 per thousand board feet (MBF). The government involvement allows producers to restrict competition without facing antitrust charges. From 1991 to 1994, Canadian lumber faced a countervailing duty (CVD), based on findings of subsidy by the Department of Commerce and injury by the US International Trade Commission. Each finding was appealed to a binational panel. The subsidy finding was struck down in a 3-2 decision. The injury finding was rejected 5-0. The binational panels' decisions were based on US trade law. After the countervailing duty (CVD) was struck down, US law was changed, by provisions attached to the bill implementing the Uruguay Round GATT, passed by Congress under fast-track rules in December 1994. Using the leverage provided by the changes in US trade law, US lumber firms were able to threaten a new CVD and demand limits on shipments from Canada.
  The result was the 1996 Softwood Lumber Agreement, with its "voluntary" restraints. The scope of the Softwood Lumber Agreement is specified in terms of classifications under the Harmonized Tariff Schedule (HTS). The US Customs Service has reclassified some products, putting them under the quota. The products involved - drilled studs, notched studs, and rough header lumber - were reclassified from HTS 4418 "Builders' Joinery and Carpentry" to HTS 4407 "Wood Sawn or Chipped Lengthwise" Prior to the Softwood Lumber Agreement, when there was a higher duty on products under HTS 4418 than on products under HTS 4407, the US Customs Service insisted that these products could not be imported under HTS 4407. The Harmonized Tariff Schedule of the US is based on an international agreement of over 170 countries. The Harmonized System Committee of the World Customs Organization issued a final decision in October 1999 that drilled studs were properly classified under HTS 4418, not under HTS 4407, but the US has refused to follow that decision. Restricted supplies of timber from US public lands have limited lumber output in the West, increasing the share supplied by the South and by Canada. What happened was that sales of timber from federal lands fell from 10.4 BBF in 1990 to 3.2 BBF in 1998. Supplies of lumber from the Western US declined by 19 percent from 1989 to 1999. Imports of lumber from Canada grew by 35 percent from 1989 to 1999. Imports of lumber from other countries grew by 737 percent from 1989 to 1999. Supplies of lumber from the South grew by 35 percent from 1989 to 1999. About 34 percent of lumber consumed in the US in 1999 was from Canada. Source, National Association of Home Builders (NAHB), 1201 15th street, NW, Washington, DC 20005, ph. 202-822-0200, email info@NAHB.com. See the article at www.nahb.com/lumber/lumber_background.htm.
  Also see www.ecosystem.org/transb/art9.html.

This article is excerpted with permission from the March 21 edition of The Gallon Environment Letter, an e-mail bulletin produced by environment researcher / consultant Gary Gallon. The Gallon Environment Letter is available by subscription. Info: 506 Victoria Ave., Montreal, Quebec H3Y 2R5 Ph. (514) 369-0230, Fax (514) 369-3282 ggallon@pcstarnet.com

Posted: March 26, 2001

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