The heart of the dispute is the claim the Canadian lumber industry is unfairly subsidized by the federal and provincial governments. Specifically, most timber in Canada is owned by provincial governments. The price charged to harvest the timber (the “stumpage fee”) is set administratively rather than through a competitive auction, as is often the practice in the United States. The United States claims that the provision of government timber at below market prices constitutes an unfair subsidy. Under U.S. trade remedy laws, foreign goods benefiting from subsidies can be subject to a countervailing duty tariff to offset the subsidy and bring the price of the product back up to market rates.
A “border war” over Canadian lumber coming into the U.S. has been ongoing for decades. The U.S. has claimed for decades that the Canadian government subsidizes the stumpage that is cut from Crown land and sold to the mills. Since the Canadian government owns much of this magnificent Canadian resource, particularly in British Columbia, the claim has been that U.S. mills cannot compete because we have to buy stumpage on an open market. Nobody seems to know with absolute certainty whether or not the subsidy claim is justified, confusion has been the best way to describe the market . Since the U.S. Department of Commerce recommended a 19.31% countervailing duty (CVD) on August 10, Obviously Canadians are unhappy, but many U.S. citizens are unhappy as well. Concerns over a CVD increasing the cost of lumber, and hence housing, have many people South of the border voicing their concerns.
A day doesn’t pass without the Canadian papers carrying articles about people being laid off by the thousands in the forest products industry. To put it bluntly, the Canadians are ticked off. Suggestions of ways to speak back run as extreme as cutting off our rights to move oil and gas across Canada to the U.S. No other border in the world has been any more friendly than this one after all Canada and the U.S. are each others largest trading partner, but feelings run very deep and concerns run much deeper than just prices.
These concerns on either side of the border may also be attributed to issues that have been a result of the duty.
Aside from the commodity dimension markets that the duty was meant to primarily target, there also is a diversified and robust “industrial grade” market in the U.S. Historically these markets have utilized species such as Western Red Cedar, Sitka Spruce, White Spruce, Douglas Fir, Pine and Hemlock resources of Canada for a multitude of uses including factory flitch’s and cants, clears, door & window stock, cutstock, molding grades, finger joint blanks and blocks and many other needs for specialized products.
The duty became literally a blanket coverage over virtually all lumber items produced in Canada with little to no exception, all the while these industrial markets have never been able to be wholly supplied solely by U.S. resources and its manufacturing base which in turn have caused these companies to outsource overseas resources to fulfill their needs.
There may be confusion as to what timber was really subsidized in Canada, with the advent of the bark beetle infestation and degeneration of its interior forests there may have been what appeared to be “cheap” stumpage when in fact this affected timber was degenerating and needed to be dealt with quickly. It has also been so fraught with quality issues and divergent lumber recovery factors, that it could even be the case that if you gave away this timber, a company might not be able to make a profit out of it.
There may be confusion as to how timber volumes are measured and sold, therefore this is not an “apples to apples” comparison of values. Timber in Canada is scaled on a Cubic Meter basis which is fundamentally a gross measurement of the total volume, in the U.S. it is Scribner based or similar to Scribner where there is a taper and defect deduction from the gross scale which allows mills an over run factor, so that log prices that appear at face value are not really the same.
There is a need in both countries to promote the proper and prudent use of our forest products resources.
Especially in the U.S. many State and Federal forest have been locked out much to the demise of the economy. Numerous examples of what was once a communities source for a robust industrial base that included much diversity of small, medium and large companies that included Shake and Shingle mills, logging operations, Sawmills, Trucking companies and related industries, today there is virtually nothing.
These forest lands and others like them throughout the U.S. and Canada are sustainable and as the jobs they could be creating.
With President Obama advocating and searching for ideas on how to create jobs in America one has to wonder if the opportunity has risen up once again to enable another type of “New Deal”, the forest products industry in both the U.S. and Canada simply need reasonable access to a good variety of the resources and people will be put to work.
This is part 1 of a series you will see over the next few issues; we welcome and encourage comments and also provide for guest editorials, if you would like your voice heard to our global community please send a copy to editorial@woodweekly.com
