One Canadian’s Position...
May 2002 marked the fourth lumber dispute between Canada and the U.S. and it has turned into the most difficult one to deal with so far. Previous investigations were focussed on the countervail (CVD) issue alone which looked at whether government subsidies allowed Canadian Manufacturers to sell into the U.S. at a lower price than a US firm could, but this new one incorporated the anti-dumping (ADD) which looked at whether Canadian firms sold lumber for less in the U.S. than in Canada. This ADD wrinkle has proven to be a regrettable error for the Coalition which filed the grievance, due to the fact that mills found they could manage the ADD portion by increasing production and reducing the cost per unit. Thus, in a period of historically low prices lumber production has increased in most parts of Canada and has created a glut of softwood in North America.

This issue has been brewing for the past 20 years not because the Canadian government subsidizes the industry and not because lumber is sold for less in the US than in Canada, although I’m sure these situations arise from time to time, but because of a significant shift globally in production and consumption of softwood lumber.

All over the world today forests are being harvested; Chile, Argentina, New Zealand and Russia are often mentioned but they are but a few of the countries producing softwood for sale to the world. Lumber production has increased everywhere, and North American softwood is being displaced in places like Europe, the Middle East, and Asia by countries that are closer and lower cost producers. Research has shown that there are a number of countries that will be reaching their peak production capacity in the next 5-10 years while at the same time Alternate products chip away at the consumption base. And the strength of the U.S. dollar has certainly played a major role in making foreign imports from Canada and other countries much more competitive than domestic products.

Canada has a different system of land management than the U.S. In Canada most of the forest base is owned by the Federal government and companies buy the right to harvest timber by paying what’s called stumpage. There are exceptions to every rule, but any adult having reached the age of majority should agree with the fact that government’s generally charge about as much tax as the payer (in this case the companies) can be made to pay. So it’s hard to believe that there’s Canadian conspiracy to undercharge for stumpage, to take money out of the pockets of American sawmills. In fact I would argue that the best case can be made for the large land owners in the US using this CVD/ADD to try and add value to their corporate bottom lines without regard to Canadian sawmills, US sawmills, or consumers of forest products anywhere in the world.

The bottom line is that we have global production issues, global consumption issues, product substitution, currency issues, and corporate greed issues and right now the forest resource is being squandered for all of these reasons. North American production needs to be reduced, sawmills need to close, and companies need to be content with selling less volume and making a profit than with continuing to just sell increasing volumes of cheap lumber to a global economy that doesn’t want it or need it.

Steve Parkinson, Taiga Forest Products, Burnaby B.C.

...and an American’s
One of the most controversial issues currently confronting the Forest Products Industry is the different methodology used to establish timber values for lumber producers in the United States versus lumber producers in Canada. In the U.S., timber sales are sold by “competitive bidding” where companies interested in purchasing available logs, both privately owned and publicly owned, will bid against each other until the highest bidder buys the timber. Once purchased, the buyer assumes all risks associated with cut out volumes, grade recovery and market changes. In Canada where the majority of the timberlands are government owned, the process revolves around allocating a volume of “Crown” timber to area sawmills based on the mill’s timber requirements. The price is established by a “market index” that can be adjusted as lumber prices move up or down. In addition, other companies are restricted from bidding on or purchasing timber from any of these assigned territories.

This lack of competitive bidding by Canadian manufactures has once again raised the issue of whether or not the government is providing a “subsidy” to sawmills in Canada that gives them an unfair competitive advantage in key U.S. markets over their western and southern manufacturing counterparts. In response to the subsidy concern, U.S. lumber producers banded together to form the Coalition for Fair Lumber Imports and lodged a complaint with the United States Commerce Department against the Canadians. That filing resulted in the establishment of a “Countervailing Duty” charge on Canadian lumber products shipped into the US as well as a “Dumping Duty” assessed against Canadian sawmills for selling products below an individual mill’s fixed costs. When combined, the average border tax levied against Canadian shippers ranges from 21% to a whopping 32% and through the Duty’s first year, the U.S. Treasury has collected over $1.6 billion dollars. U.S. manufactures have contented the duty is justified until such time that Canadian timber sales practices are amended to allow “competitive bidding” and conform more closely with open market practices.

Obviously, the implementation of the duty has resulted in a variety of legal countersuits by Canadian manufacturers. Both the World Trade Organization (WTO) and North America Free Trade Agreement (NAFTA) have reviewed challenges to the CVD and the Dumping assessment. To date, rulings have either been postponed or have been inconclusive in their findings. However, the next “critical ruling date” will be August 15th when NAFTA is scheduled to announce if a subsidy exists and to what degree Canadian manufactures will be penalized on sales to U.S. markets. An option to a NAFTA ruling is for the respective governments to reach a negotiated settlement that is responsive to the needs of all parties and has the support of manufactures on both sides of the border. In order to truly resolve this disruptive feud with our largest trading partner, concessions will be necessary from both sides. If not we run the risk of revisiting this issue every five years and incurring the direct costs of countless legal bills or the indirect costs to our trading relationships.

Mike Phillips, President, Hampton Affiliates, Portland OR

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