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From: Gary Gallon
Sent:
Sunday, January 06, 2002 4:21 PM
To:
Subject: Canada Should Stop
Subsidizing Softwood Lumber Exports - Gallon Environment Letter
THE GALLON ENVIRONMENT
LETTER
506 Victoria Ave., Montreal, Quebec H3Y
2R5
Ph. (514) 369-0230, Fax (514)
369-3282
Vol. 6, No. 1, January 6, 2002
SPECIAL ISSUE ON THE CANADIAN LUMBER
SUBSIDIES
This is a special issue on the softwood lumber export dispute between
Canada and the United States. It examines why the U.S. believes that Canada is
excessively subsidizing its lumber exports and the reasons behind the U.S.
imposing at first a 19.3 per cent countervailing duty on August 10, 2001, and an
additional 12.53 per cent import duty in October 2001, retroactive to May 20,
2001. Presently, Canadian companies shipping softwood lumber into the United
States are stuck with having to post bonds with U.S. customs to prove they can
pay a 31.83 per-cent duty on U.S. lumber exports. You can review a full analysis
of the Canada - U.S. softwood lumber dispute posted at the American University
of Washington, D.C. website at www.american.edu/TED/USCanada.htm
.
BOTH CANADA AND THE UNITED STATES
SUBSIDIZE THEIR FOREST INDUSTRIES, ONLY CANADA DOES IT
MORE
For decades the forest industries in Canada and the United States have been
subsidized by their federal and state governments. Logging roads are subsidized
or built by governments. Low stumpage fees are charged (below their actual value
to society). Special grants and tax allowances are provided. Fuel for off-road
vehicles are exempt from taxes, and so on. However, it is becoming clear that
Canada provides even greater subsidies to its forest industry than the United
States does. The greater subsidies has in the past decade and more resulted in
Canada virtually "mining" its valuable forests and selling it for a song to the
U.S., Japan, and other regions of the world. It has resulted in Canada selling
primarily raw logs instead of sawn and kiln-dried lumber which would have
provided more jobs and a greater value-added in Canada. It is time that the
economic playing field is levelled between Canada and the United States before
Canada completely strips itself of high-grade wood for dimes on the dollar, when
Canada could otherwise be making much more money and hiring many more people in
the forest industry if it treated the wood as a valuable commodity to be worked
and prepared by the skilled labour in Canada for the export market. If the
economic subsidies were equalized with the U.S., Canada's $10 billion a year
softwood exports would not be subject to such steep import duties in the U.S.
And Canada would not be facing the huge reduction in exports and the resultant
job losses as a result of the large tariff now imposed by the U.S. for Canadian
softwood lumber. See the website www.aacb.com/Softwood/index.asp
. And see www.ecosystem.org/BC_CVDpress.html
.
GOVERNMENTS HARM ECONOMY, NOT HELP
IT WITH THEIR MISGUIDED SUBSIDIES
Governments think that they are creating or saving jobs with subsidies.
They think that they are fostering a long-term resource economy based on the
extraction and sales of raw logs as quickly as they can be clearcut. But their
economics are all wrong. If they would open their eyes and modify their economic
models to take into account the realities that exist around them, they would be
much more judicious with the valuable natural resources that they have at hand -
the world's best remaining high-grade trees, and the world's best skilled
forestry workers. Now both have been put at risk by sloppy subsidies - subsidies
that are not well thought out and result in short-term gain only to destroy the
long term. The detrimental economic aspects of Canada's softwood lumber
subsidies are as follows:
o undervaluation of the peoples' (governments') trees which are
sold for a song to forest companies that have already begun to shift their
investment money to clearcutting other regions of the world . Hundreds of
millions, if no billions of dollars are not being paid to the taxpayer by the
forest company, compliments of a weak government.
o countervailing taxes and borders being virtually closed to
Canadian softwood lumber that would have otherwise been going across the border
to meet demand. The flow of product one way and cash the other way has been cut
to a trickle. Tens of thousands of people have been laid off in the Canadian
forest industry. This would not have happened if the governments had taken
seriously the value of the trees that they were "giving away" at .25 cents per
cubic meter and charged industry the proper price.
o We should not have handed out grants to old,
decrepit and failing pulp and paper mills, even if it mean gaining votes then.
The provincial government is lossing more votes now. The governments should have
enforced their own existing forest management laws and let laggards get away
with cheap or free access to trees that are not theirs. This is just another
subsidy. Now Canada is jammed by all of its forest stumpage mismanagement. And
it is losing billions of dollars in business as the U.S. border remains
virtually shut. If the governments had followed the environmentalists/economists
advice to raise stumpage fees, bring them to market value, and to enforce forest
management laws, we would have had a more stable and productive softwood
industry sector. See the Natural Resources Defense Council (NRDC), Washington,
D.C. website at www.nrdc.org/land/forests/default.asp
.
U.S. IMPOSES A 19.3% COUNTERVAILING
DUTY AND AN ADDITIONAL 12.57% ANTI-DUMPING DUTY ON CANADA'S EXPORTS OF SOFTWOOD
LUMBER
The United States Government announced August 10, 2001, that it imposed a
19.3 percent penalty tariff on softwood lumber imported from Canada. In October
2001, the U.S. imposed an additional 12.57 percent anti-dumping tax on softwood
imported from Canada. The stiff duties were imposed for what the US
Government called unfair government subsidies provided by the federal and
provincial governments to the Canadian lumber industry. The U.S. charges that
Canada subsidizes its mills by charging fees for government-owned timber that
are artificially low compared with U.S. timber, most of which is grown on
private property. The two duties were applied separately in the period since the
expiration of the softwood lumber agreement between the Canadian and U.S.
governments, which governed exports from April 1, 1996 to March 31, 2001. Under
the agreement, the United States guaranteed market access to Canadian exporters
for the five years and permitted the import of 14.7 billion board feet per year
of lumber without fees. It applied to $10 billion worth of lumber manufactured
in British Columbia, Alberta, Ontario and Quebec and primarily exported to the
U.S.
The U.S.-Canada Softwood Lumber Agreement (SLA) was signed in 1996 after
more than 15 years of disputes concerning the fairness of U.S.-Canada trade in
softwood lumber. The agreement expired in April 2001. The SLA allowed 14.7
billion board feet of timber into the U.S. duty free annually. Beyond that
amount, duties were added on a sliding scale. The agreement covered lumber from
Alberta, British Columbia, Ontario and Quebec -- the four major softwood lumber
producing provinces that export to the United States. Environmental groups and
U.S. lumber interests support efforts to create a new SLA, reasoning that
Canada's economic subsidies, comparatively weak environmental laws and lack of
enforcement give Canadian lumber companies a competitive advantage.
Environmental groups maintain that Canada's weak regulatory system means logging
there is particularly destructive to North American ecosystems. Illustrating the
concerns of environmental groups and U.S. industry, the U.S. Commerce Department
on July 27 reported that imports of softwood lumber from Canada increased 31
percent since the expiration of the SLA in April 2001. Environmentalists would
like to see a new Softwood Lumber Agreement that addresses underlying economic
and environmental subsidies and takes into account the impact of timber trade on
waterways, wildlife and forests. U.S. listed endangered species such as grizzly
bear, woodland caribou, bull trout and marbled murrelet are affected by Canadian
timber subsidies. Approximately 80 percent of Canada's exported forest products
are sent to the United States. Source, www.ems.org/softwood_lumber_agreement/facts.html
.
A DETAILED REVIEW OF THE CANADIAN
SOFTWOOD LUMBER SUBSIDES
Much of this analysis will focus on British Columbia since it provides more
than 50 per cent of the United States' softwood lumber imports. All other
players are peanuts alongside B.C. which still contains some of the best
commercial forests in North America. The list of subsidies provided by both the
federal and provincial governments in B.C. looks like this:
- allow low-grading and undervaluing of the trees
to be assess government- controlled
stumpage fees; further reducing their stumpage fees in
1998
- Provide outright grants to failing pulp and
paper mills that are old, decrepit and
pollute using old out-of-date equipment
- Government builds roads, plants trees and other direct financial
involvement
- Provide tax allowances, accelerated
depreciation, and exemptions such as no taxes for
gasoline used in off-road vehicles such
as those used for logging.
- failure to monitor and enforce existing provincial and federal laws that would protect other
commercial operations including salmon fisheries, tourism and the sport fishery.
NRDC ESTIMATES THAT B.C.
UNDER-ESTIMATES ITS SOFTWOOD TIMBER FROM BETWEEN C$842 MILLION AND CDN $2.6
BILLION PER YEAR
The Natural Resources Defence Council (NRDC) based in Washington, D.C.,
reports that in British Columbia, the provincial government allows timber
companies to regularly clearcut up to the banks of small fish-bearing streams on
public land in violation of the Canadian Fisheries Act and the Pacific Salmon
Treaty. Canadian timber companies are not bound by environmental assessment,
requirements for sustainable rates of logging or cumulative-effects analyses of
the areas that they harvest. British Columbia uses an administrative system to
set timber prices on 95 percent of the commercial forest, undervaluing its
timber by between C$842 million and C$2.6 billion per year. Independent Canadian
government audits show that stumpage fees are often reduced or returned to help
with heli-logging and road building funding projects that are required by
statute.
The NRDC studies found that the B.C. provincial rules governing forestry
practices also provide substantial economic subsidies to the major timber
companies licensed to log on public land. Although timber companies pay a
stumpage fee for every tree cut to the provincial government, not only are these
fees below market prices, but they are often reduced or returned to the timber
companies. These subsidies do not exist in the United States and create an
uneven playing field between U.S. and Canadian timber industry. In addition,
most timber companies could not afford to log many of the ancient forests
currently being clearcut without these subsidies. Provincial economic subsidies
include:
Administratively set timber prices: British Columbia uses an administrative
system to set timber prices on 95% of the commercial forest, undervaluing its
timber by between C$842 million and C$2.6 billion per year. Stumpage fee
reductions and return of stumpage revenues: Independent government audits show
that stumpage fees are often reduced or returned to help with heli-logging and
road building funding projects that are required by statute. Forest companies
allowed to circumvent higher-end stumpage rates: By taking advantage of
loopholes in the government's stumpage system, large companies are able to
choose the quality of timber they harvest, paying lower rates for top-quality
cedar and fir. Many companies harvest their low-grade logs first so that all
stumpage rates are set at a lower rate even though high-grade logs are harvested
later. Source, www.ems.org/softwood_lumber_agreement/subsidies.html
.
NEW REPORT BY CANADIAN
ENVIRONMENTALISTS SETS OUT THE PROBLEMS WITH CANADA'S SUBSIDIES TO SOFTWOOD
LUMBER
A coalition of major Canadian environmental groups including The Sierra
Club, Sierra Legal Defense, the Suzuki Foundation, and Western Wilderness
Committee completed an indepth report entitled, "Cutting Subsidies, or
Subsidized Cutting? Subsidies to the BC forest industry and the BC Liberals'
Commitment to End Them." It details from a Canadian point of view the flaws in
the subsidies by the federal and provincial governments to the forest industry.
The report "Cutting Subsidies, or Subsidized Cutting? Subsidies to the BC
forest industry and the BC Liberals' Commitment to End Them." was commissioned
by the British Columbia Coalition for Sustainable Forestry Solutions, July 12,
2001. Among the member organizations of the coalition are the Sierra Club of
Canada, West Coast Environmental Law Association, the Canadian Parks and
Wilderness (CPAWS), Ecotrust Canada, David Suzuki Fdn, and the Council of Haida
Nation. The report was prepared by Tom L. Green, M.A., Ecological Economist and
Lisa Matthaus, MSc., Resource Economist, Sierra Club of BC. See the full report
at the website www.forestsubsidies.ca/ . The
report examines five main categories of subsidies:
Stumpage: The fee charged by government to companies for harvesting trees
from public land is called stumpage. This report concludes that flaws in the
calculation methodology result in the BC government charging companies stumpage
rates below market stumpage. The failure to ensure that the rules for
calculating stumpage are equitably implemented and enforced provided a potential
subsidy of about $350 million over a two and a half year period. Comparing BC's
stumpage to competitively driven stumpage rates in similar timber regions in the
US demonstrated total subsidies to the BC forest industry resulting from
undervaluing of public timber at $2.8 billion for one year.
Bailouts and Handouts: Direct payment of cash to forest companies is the
most readily understandable of forest industry subsidies. Although sometimes
public investment may be justifiable to meet broader societal objectives, the
$329 million bailout of the antiquated Skeena Cellulose mill is a textbook
example of a perverse subsidy. Handouts are endemic in BC. The report documents
ongoing efforts of the Job Protection Commissioner to find ways to reduce
company costs through the use of public monies and through regulatory waivers.
Waiver of Environmental Protection: When government allows industry to operate
without full compliance with environmental legislation, industry is able to
transfer the cost of bad environmental practices onto the public, resulting in a
substantial subsidy. In BC, neither provincial nor federal environmental rules
related to forestry are being fully implemented or enforced, allowing companies
to financially benefit from lack of regulatory compliance. It is estimated that
this amounts to a subsidy of $950 million annually.
Non-recognition and Infringement of Aboriginal Title: First Nations
traditional territories include virtually all of BC's commercial forests.
Although Aboriginal Title is constitutionally protected right, logging
activities— that would amount to infringements of Aboriginal Title — routinely
occur in BC without consent of or meaningful consultation with affected First
Nations. Compensation will ultimately be required for both the extraction of
First Nations' resources and for restoration of traditional territories damaged
by logging. This burden will fall on taxpayers, not the companies who have
profited, resulting in a subsidy. In 1999 this subsidy is estimated at between
$233 million and $1.163 billion.
Tenure: BC logging companies operate predominantly on public land under
government licenses, or tenures. Because the BC government consistently
undervalues the stumpage rate, tenures have acquired a market value related to
the ongoing stumpage subsidy. Furthermore, the BC government has allowed
corporate interests to shut down mills in violation of obligations in tenure
agreements yet retain secure supplies of timber, thus providing further
corporate benefits.
The report states that, "taken as a whole, the federal and provincial
government subsidies of the BC forest industry are considerable and
counter-productive. The amount of subsidies coming from the provincial
government alone (including those proposed by the Liberals) is between $3
billion and $6 billion each year. These subsidies represent a significant cost
to the taxpayers of British Columbia, while encouraging overexploitation of
forest and hindering the development of a modern, competitive forest industry.
British Columbians deserve better. Perverse subsidies related to forests cause
forest loss or degradation and have no lasting positive impact on economic
development. They have resulted in damage to ecosystems, forest degradation and
economic inefficiencies. As one leading researcher says, Often local communities
and wider society bear the costs while privately owned companies reap the
benefits." Source, "Cutting Subsidies, or Subsidized Cutting? Subsidies to the
BC forest industry and the BC Liberals' Commitment to End Them."See the full
Canadian NGO report at www.forestsubsidies.ca/Release2.htm
B.C. GOVERNMENT ROLLED BACK ITS OWN
STUMPAGE FEES IN 1998
The target rate on which the whole stumpage calculation rests is an
arbitrary relationship to lumber and chip market indices. The relationship is
based on government's revenue objectives rather than an accurate assessment of
what the timber would be worth in a well-functioning market situation. For
example, in 1994, to create and fund Forest Renewal BC (and to respond to
American criticisms about low stumpage rates), the target rate was increased by
63% on the coast and over 80% in the interior. The objective was to generate a
specific amount of revenue ($400 million on average), which would then fluctuate
over time as the index changed. In 1998, this rate was significantly rolled back
about a third of the 1994 increase was cut in the interior, and more than half
of it on the coast in order to account for the unforeseen costs of the Forest
Practices Code and other government initiatives. This rollback, which aimed to
reduce total stumpage by $293 million annually (about 17% of total stumpage in
1997), was justified by a report by KPMG that claimed that implementation of the
Forest Practices Code had resulted in greater industry costs than initially
estimated. However, this study was based on a flawed questionnaire survey of
company forestry staff asked to use professional judgement to estimate the
impact of various cost drivers, such as Code-related costs and stumpage. Despite
the fact that there is considerable incentive in such a methodology for
respondents to inflate costs and skew their Cutting Subsidies, Or Subsidized
Cutting? A Report By The BC Coalition For Sustainable Forestry Solutions
attribution in survey responses, the government accepted this as a sufficient
basis for a $293 million stumpage reduction. Source, "Cutting Subsidies, or
Subsidized Cutting? Subsidies to the BC forest industry and the BC Liberals'
Commitment to End Them."See report at www.forestsubsidies.ca/EXEC.htm .
B.C. COMPANIES CAUGHT LOW-GRADING
THEIR ACTUAL FOREST RESOURCES TO REDUCE STUMPAGE FEES
The complexity and non-transparency of the stumpage system make it open to
manipulation by logging companies. The latest and most explicit example is the
"grade-setting" scheme revealed in a report by Sierra Legal Defence Fund in
January 2001. To take advantage of loopholes in the stumpage setting process, a
company removes the worst wood from a cut block first. Because the quality
('scaled value') of logs coming off the cut block is consistently below the
estimated quality ('appraised value'), a stumpage reappraisal is triggered and a
new (lower) stumpage rate is set based on the lower quality scaled logs. The
company then removes the higher-grade wood remaining on the cutblock at stumpage
rates meant for bottom-of-the-barrel wood. Researchers estimate coastal
companies saved $138 million through grade-setting between the first quarter of
1998 and the second quarter of 2000. Of that total, the researchers estimated
International Forest Products saved almost $100 million with this technique. On
one Interfor cutting permit alone, grade-setting techniques appeared to result
in the initially appraised stumpage rate falling from $41.01 a cubic metre to
$2.19 a cubic metre, resulting in savings to the company of over $5 million. A
significant portion of British Columbia's wood was shipped to the U.S. at the
minimum stumpage of $0.25 per cubic metre (m3), (or approximately $10 per
logging truck's worth of timber). For the period between the first quarter of
1998 and the second quarter of 2000, thirty percent of all wood harvested in the
province's interior went at the minimum rate of $0.25 per cubic metre (m3) while
in the Kalum forest district ninety percent of the stumpage paid was at
$0.25/m3. At that value, it is likely the contribution of the standing trees to
environmental services, environmental amenities, quality of life and non-timber
forest-dependent economic activities would be much greater than such low
stumpage payments. The Sierra Legal Defence Fund of Canada report documented
that the province had underachieved its own target rate by $224 million over the
previous two and a half years.31 In their subsequent report on grade-setting in
BC's interior, Sierra Legal Defence Fund determined the target rate was
underachieved by another $120 million, bring the total shortfall in the public's
revenues to almost $350 million over two and a half years. Source, "Cutting
Subsidies, or Subsidized Cutting? Subsidies to the BC forest industry and the BC
Liberals' Commitment to End Them."See report at www.forestsubsidies.ca/ .
DIRECT GOVERNMENT BAILOUT SUBSIDIES
IN CANADA
The provincial governments, particularly, British Columbia, have been known
to spend hundreds of millions of taxpayers' dollars to bailout aged failing
forest mills.Direct government investment is the best-known form of bailout. In
the case of Skeena Cellulose, the Government of British Columbia invested $329
million in loans, loan guarantees, unpaid Workman Compensation Board premiums
and other financing from government programs. Evans Forest Products received a
$21.5 million bailout from BC in loans forgiven, new loans and FRBC funds.
Though less well recognized as a bailout, regulatory concessions that reduce a
company's logging or manufacturing costs are also subsidies. The Job Protection
Commissioner has recently completed or proposed job protection plans that
include a number of incentives and exemptions, and hence subsidies, for Kispiox
Forest Products, Triumph Timber, Skeena Cellulose, Interfor and West Fraser.
These subsidies could include: exempting companies from timber cruises and
relaxing regulations for leaving behind waste wood. In the last few years the
province's Job Protection Commissioner has brokered numerous deals for specific
companies that included regulatory concessions. In so doing, the Commissioner
has subsidized these companies' operations. Source, "Cutting Subsidies, or
Subsidized Cutting? Subsidies to the BC forest industry and the BC Liberals'
Commitment to End Them."See report at www.forestsubsidies.ca/ .
LACK OF GOVERNMENT ENFORCEMENT OF
CURRENT LOGGING REGULATIONS RESULTS IN DE FACTO SUBSIDY TO FOREST
INDUSTRY
In the British Columbia's Auditor General's 1989 report, the province was
warned that due to inadequate monitoring procedures, the Ministry of Forests was
not preventing fraud and theft.35 In 1995, with full access to Ministry records,
Professor Pendleton of the University of Washington found pervasive failure by
Ministry staff to enforce scaling and timber harvesting requirements, with
direction to go easy on enforcement coming from the upper echelons of the
Ministry. This approach appears to be continuing. A recent survey of Ministry of
Forests employees concluded: "Ministry of Forests has insufficient presence in
the field to ensure that companies are properly identifying the quantity and
value of trees in their cutblocks. Given the current levels of monitoring of
company cruising and appraisal, the public cannot be sure that harvesting rates
are sustainable or that it is receiving fair value for its trees." Source,
"Cutting Subsidies, or Subsidized Cutting? Subsidies to the BC forest industry
and the BC Liberals' Commitment to End Them."See report at www.forestsubsidies.ca/ .
THE ARGUMENTS OF THE U.S. DEPARTMENT
OF COMMERCE AND THE U.S. INTERNATIONAL TRADE COMMISSION (ITC)
An earlier U.S. Department of Commerce (DOC) study found that approximately
half of the 1992 Canadian subsidy of 6.51% came from Canadian stumpage pricing
policies and half from Canadian restrictions on log exports. When applied to
annual softwood lumber imports of $10 billion Canadian dollars ($6.5 billion
U.S. dollars) per year, the DOC found that the 6.51% subsidy would be an annual
benefit to Canadian producers of more than $650 million Canadian dollars ($400
million U.S. dollars). The U.S. International Trade Commission (ITC) found that
Canadian policies may have "materially injured" U.S. producers and represented a
subsidy of 15% in 1986 and 6.51% in 1992. The Congressional Research Service
issued a detailed report on Canadian lumber (hereafter, the CRS Report)
identified these findings of fact by the ITC, and how the felt that
countervailing duties were avoided by Canada through political negotiations
between the U.S. and Canada. In 1986, an earlier U.S. investigation found that
Canada then had softwood lumber subsidies of 15% ad valorem (as a percent of
sale value); the expected CVD was supplanted by a Memorandum of Understanding
(MOU). CRS reported that, "Canada, concerned that they would lose the case,
signed the MOU with the United States in late 1986. As part of the MOU, Canada
agreed to self-impose a 15% export tax on softwood lumber exports to the United
States from Alberta, British Columbia, Quebec and Ontario on the understanding
that if those provinces increased their stumpage fees, those increased fees
could replace all or part of the 15% export tax." See the Congressional Research
Service report on the Canada-U.S. Softwood Lumber dispute at www.cnie.org/NLE/CRS/Detail.cfm
. Read the complete report at  www.cnie.org/nle/for-35.pdf
.
U.S. CONGRESSIONAL RESEARCH SERVICE
(CRS) STUDY INTO CANADA'S SOFTWOOD LUMBER EXPORTS
The Congressional Research Service reported that, "by 1991, Canada gave
notice that it intended to terminate the Memorandum of Understanding MOU in
September 1991." Canada withdrew from the MOU in 1991, arguing that the
provinces had responded to the earlier concerns. In response the United States
imposed a 15% import duty on Canadian softwood lumber. See the Congressional
Research Service report on the Canada-U.S. Softwood Lumber dispute at www.cnie.org/NLE/CRS/Detail.cfm
. Read the complete report at www.cnie.org/nle/for-35.pdf
.
MORE HISTORY ABOUT THE CANADA - U.S.
SOFTWOOD LUMBER DISPUTE
The same Congressional Research Service (CRS) report on softwood lumber
reported, that, "a subsequent investigation confirmed that Canada's stumpage
policies constituted an unfair subsidy. The United States imposed a 6.51% ad
valorem duty on imports in 1992. Canada appealed the import duty ruling
under dispute resolution provisions of the U.S.-Canada Free Trade Agreement.
Canada won the appeal and in mid-1994 the United States was forced to return all
duties collected (estimated to be $850 million Canadian dollars). Between 1995
and 1999 Other imports more than doubled, from 389 million to 912 million board
feet, reaching to almost 5% of the U.S. market." CRS found that, "major
exporting countries are, in order of magnitude, Brazil, Chile, New Zealand,
Austria, and Mexico. In 2000, imports from Europe reached record levels, and
imports from New Zealand, Chile, and Brazil were at all-time highs." According
to the CRS Report, it more than likely does because market prices can be
expected to be higher than administratively set prices. However, like everything
else associated with this issue, the answer is inconclusive: "In most of the
Canadian provinces, stumpage fees are determined administratively, and range
from a fixed, province-wide fee to fees established separately for each tenure
agreement. CRS reported that, "these fees are adjusted periodically to reflect
changes in the market prices of lumber and other wood products, adding that,
"administrative stumpage fees are unlikely to match market-determined prices,
because the fees are determined by agency personnel, not by markets. ... Some
observers assert that the provinces have intentionally set the fees
substantially below market prices, to assure the competitiveness of their
producers. Whether provincial stumpage fees approximate market values or are
substantially below market values can only be determined by examining provincial
fees and U.S. prices for comparable timber, but such comparisons are difficult."
CRS wrote that, "evidence from U.S. Forest Service timber sales suggests that
competitive bidding for timber results in a market price higher than the value
using the appraisal system. ... Thus, much of the timber from lands in the
United States is probably sold at fair market values. This is not likely the
case in Canada, where leases (rather than competitive bids) are used to allocate
timber. ... The U.S. ITC and ITA have found significant differences in stumpage
fees in various examinations dating back to 1982. However, other analyses have
shown little or no difference between U.S. and Canadian fees." Source,
Congressional Research Service report on the Canada-U.S. Softwood Lumber dispute
at www.cnie.org/NLE/CRS/Detail.cfm
.
THE U.S. HAS NOT YET INCLUDED
CANADIAN ENVIRONMENTAL SUBSIDIES IN ITS CALCULATIONS
Environmental regulations are a non-issue to the Department of Commerce and
the International Trade Commission. Nevertheless, Mr. Simmons included the issue
in his arguments. The ITC is concerned solely with subsidies to Canadian
producers. The laxity of Canadian environmental regulations are a Canadian
issue and not a trade issue. The Coalition for Fair Lumber Imports has hardly
touched upon environmental practices in Canada in any of their briefs submitted
to the Department of Commerce or the ITC, and when they have, it is almost as an
afterthought. Some 255 firms representing 35% of U.S. lumber production capacity
belong to the Coalition for Fair Lumber Imports. Conservation organizations in
both Canada and the U.S., however, are trying to expand the trade issue from the
economic dimension to include adequate concern for wildlife and wilderness
preservation: "United States conservation organizations have recently charged
that the United States Government had failed to properly follow the provisions
of the National Environmental Policy Act 31 when it originally entered into the
Softwood Lumber Agreement. These arguments focus primarily on the potential
impacts of the Agreement on transboundary wildlife species in Canada (i.e. in
the Castle Wilderness in southwestern Alberta adjacent to Waterton Lakes-Glacier
International Peace Park). The effect of that case has been to broaden the
softwood lumber debate from a purely economic and international trade issue to
also include environmental issues." Economic considerations can be associated
with environmental regulation because of the cost of compliance. Whether
Canada's requirements on provincial forests are more stringent, and therefore
pose more costs to Canadian producers than U.S. producers face, is debatable.
Data do not exist to make broadly meaningful comparisons. The CRS Report says:
"Differing environmental policies have also been raised as a cause of differing
cost structures; some allege that weaker Canadian environmental protection
further subsidizes the Canadian lumber industry. Many environmental groups in
the United States and Canada argue that subsidized Canadian stumpage prices lead
to over cutting, and that 90% of the harvest is extensive clearcut of
irreplaceable old-growth timber. They also assert that Canada's laws do not
provide nearly as much protection as U.S. environmental laws, especially the
Endangered Species Act. U.S. lumber producers have asserted that complying with
U.S. environmental laws significantly increases their cost of production.
The Castle-Crown Wilderness Coalition (CCWC) in Idaho, filed a
submission with the United States Trade Representative (USTR) in April 2000:
"The CCWC submission to the USTR documents that the Government of Alberta's
current softwood lumber practices are providing direct economic and indirect
environmental subsidies to Alberta's softwood lumber industry. These subsidies,
combined with poor environmental regulations in Alberta, have resulted in
widespread environmental degradation of forested landscapes in that province.
They have also allowed Alberta's softwood lumber industry to dramatically
increase its production and exports of softwood lumber products into the United
States softwood lumber markets over the past ten years. The CCWC submission
reviewed various aspects of Alberta's softwood lumber practices and concluded
that Alberta's public timber is not being sold at fair market value established
through a competitive bidding system but that prices are administratively set by
the Government at well below market value. The submission also documents that
Alberta's annual revenues from the sale of public timber is chronically less
than annual public expenditures to manage Alberta's forest for timber
production. In a comparison of Alberta's administratively set timber price with
what identical timber sold for under the competitive system used by the U.S.
Forest Service, the submission showed that Alberta softwood lumber producers
paid only 12 to 26 percent of what US softwood lumber producers in Montana and
Idaho paid for identical timber species. This discrepancy in timber pricing
translates into an annual subsidy to Alberta's softwood lumber industry of
approximately $465 million U.S. dollars." Source, Congressional Research Service
report on the Canada-U.S. Softwood Lumber dispute at www.cnie.org/NLE/CRS/Detail.cfm
.
THE TREES WERE FOUR TIMES MORE
VALUABLE THAN STUMPAGE RATE
Canada's Forest Resources Commission reported in 1991 that, "clearly the
asset base generated through private transactions is markedly higher than the
asset base generated through provincial stumpage. In fact, the private
transactions (i.e. for logs) produce an asset value more than four times higher
from the forests than the government. This suggests that industry is capturing a
much higher value from forests than is the government. Stumpage payments are not
capturing the full value of the resource." "Injury to the U.S. lumber
industry remains a major and complex issue. The Canadian share of the U.S.
softwood lumber market grew substantially over the past 50 years, from less than
7% in 1952 to more than 35% in 1996 [essentially where it is today]. During this
period, U.S. lumber production for domestic consumption grew slowly – from
nearly 30 billion board feet (BBF) in the early 1950s to 35 BBF in 1999 – while
imports of Canadian lumber rose substantially – from less than 3 BBF in the
early 1950s to more than 18 BBF in 1999. Under the 1996 agreement, imports have
continued to grow, although market share has been relatively stable. Lumber
imports from Canada may have limited opportunities to expand domestic lumber
production, but whether this long-term pattern is sufficient to constitute
injury or whether the limited growth in domestic production is due to other
factors is not clear from the existing data." Source, Congressional Research
Service report on the Canada-U.S. Softwood Lumber dispute at www.cnie.org/NLE/CRS/Detail.cfm
.
CANADA ARGUES AGAINST THE UNFAIR
TARIFF AND SUBSIDIES ALLEGATIONS
On April 5, 2001, the Hon. Roger Simmons, PC, Consul General of Canada,
wrote to Idaho State Representative Charles Cuddy regarding the Idaho Senate
Joint Memorial No. 106 adopted by the Idaho Legislature. SJM 106 relates to
trade in softwood lumber between Canada and the United States, Canadian forest
practices and the Canada U.S. Softwood Lumber Agreement. The Consul General of
Canada stated that, "SJM 106 contains a good deal of inaccurate information and
I hope you will accept this letter as a friendly effort to ensure a full and
fair exchange of views on this important bilateral issue and to correct
allegations of unfair trade by Canada." Simmons stated that, "subsidy
allegations were unfounded," adding that, "the memorial takes as its premise
that the Canadian system of land tenure and provincial government forestry
management result in unfair subsidies to our lumber industry. Timber pricing by
provincial governments in Canada has been the subject of three U.S.
countervailing duty investigations over the past twenty years. In two of the
three investigations, the U.S. Department of Commerce found that Canadian
stumpage fees did not confer a counteravailable subsidy the third was never
completed because both governments concluded that a negotiated solution was
preferable to a lengthy, costly, and politicized countervailing duty
process."
Hon. Roger Simmons, PC, Consul General of Canada wrote that, "different
systems have different costs," going on to say that, "it is assumed that a
U.S.-style system (where land is largely privately owned and timber is largely
put up for public auction would result in much higher stumpage fees. This
premise was rejected in September 2000 by Mark Suwyn, CEO of Louisiana-Pacific
Corporation, a Portland, Oregon- based lumber company operating on both sides of
the border. Mr. Suwyn said, The U.S. wants somehow for the (Canadian) provinces
to go to a free bidding process where everyone can bid on every sale ... this is
one of those things you should not wish for if you are a U.S. producer because
if you get your wish you may be very unhappy as stumpage rates might go down
rather than up." See the full letter reported at, "Softwood Lumber Imports
from Canada: An Issue Brief", by Jay O'Laughlin, Contribution no. 933, Idaho
Forest, Wildlife, and Range Experiment Station, University of Idaho, Moscow, ID
83844-1131, April 23, 2001. See the full report at the website www.canadianlumberimports.org/pdf/contrib_933.PDF
.
BC FOREST MINISTRY REPORTS THAT THE
U.S. TARIFFS WILL BE SHORT-LIVED
The BC Ministry of Forestry reports that the combined Countervailing
Duty/Anti-dumping Duty (CVD/AD) rate of nearly 32% (19.31% plus 12.58%) would
only be in effect until mid-December, since the World Trade Organization (WTO)
does not allow provisional CVD duties to extend beyond four months. The Ministry
reports that only the anti-dumping duty (12.58%) will apply from mid-December
2001 to mid-May 2002. Also, importers may be able to avoid countervailing duties
on some imports during several days prior to December 15. U.S. Discussions with
the U.S. U.S.-Canada discussions have been taking place over the last few months
to determine whether possible policy changes could lead to a durable resolution
of the softwood lumber trade dispute with the United States. The B.C. government
is engaged in these talks, along with the federal and other provincial
governments. The next talks were to be held in Toronto the week of November 26
and in Washington the week of December 3, 2001. When on October 31, 2001, the
U.S. Department of Commerce announced its decision to impose an anti-dumping
duty of 12.58% on Canadian softwood lumber imports, Canada filed company
exclusion requests with the U.S. Department of Commerce. On October 25, 2001,
the Government of Canada notified the WTO of its intent to request a panel to
hear Canada's claims that the U.S. Department of Commerce's (DOC) preliminary
subsidy and critical circumstance determinations are inconsistent with U.S.
international trade obligations. Source is the B.C. Ministry of Forestry's
website on softwood lumber www.for.gov.bc.ca/HET/Softwood/
. Also see the B.C. Lumber Trade Council website at www.bclumbertrade.com/bc_lumber.htm
.
PIERRE PETTIGREW DEFENDS CANADA'S
POSITION
Canada's Trade Minister Pierre Pettigrew said that because of the two
duties Canadian lumber companies will have to put 30 per cent of the value of
their goods into a trust while an anti-dumping investigation continues. The
Coalition for Fair Lumber Imports, a trade group made up of such companies as
Georgia-Pacific and International Paper, countered that lumber accounts for less
than 3 percent of the cost of a home. 36 percent of the softwood lumber used in
the United States last year was imported. Of the imports, 94 percent was
provided by Canada (primarily B.C. And Quebec). The tariffs will be imposed on a
preliminary basis by August 20, 2001, while the Commerce Department considers a
final ruling in the long-running dispute with Canada over lumber. To become
final, the U.S. International Trade Commission (ITC) will also need to issue a
final determination that the U.S. industry is being significantly harmed by
imported lumber from Canada. A previous five-year agreement expired in April
2001, prompting what U.S. timber and now U.S. government officials agree was a
flood of subsidized lumber from the vast government- owned tracts of pine and
fir in western Canada. Canada's international trade minister, Pierre Pettigrew,
said that exports grew only by 11.3 percent in the second quarter of 2001 and
that the Commerce Department ignored such factors as the growth of the U.S.
housing market. Source, "Calling Canadian Lumber Subsidies Unfair, U.S. Plans
Tariff on Imports," Seattle Post-Intelligencer, Seattle, Washington, August 11,
2001. See the full story at seattlep-i.nwsource.com/business/34838_softwood11.shtml
. Visit Canada's Department of Foreign Affairs and International Trade (DFAIT)
website on softwood lumber at www.dfait-maeci.gc.ca/~eicb/softwood/lumber-e.htm
.
UNIVERSITY OF ALBERTA PROFESSOR
DISPUTES THAT THERE IS A DIFFERENCE IN SUBSIDIES BETWEEN THE U.S. AND
CANADA
Dr. Michael Percy a professor at the University of Alberta disputes the
claims that Canada's softwood lumber production and exports are subsidized. He
asks, ""is there merit to the American allegations of subsidy?" And goes on to
say, "the answer most forest economists would give is no. At a cursory level it
appears the American allegations are factual. In some instances the price of
standing timber (or stumpage as it is called) for certain species in Canada
might be only 10 per cent of those in a nearby American state. American
producers argue that they purchase timber from the U.S. Forest Service or from
privately owned lands using a competitive bidding system, unlike their
counterparts in Canada. They claim that low timber prices in Canada reflect the
use of administered prices set by provincial governments as a subsidy to
softwood lumber producers. The reality is that there is little merit to this
allegation of subsidy. One has to understand how timber prices are set. The
value of standing timber, or at least how much money firms are willing to pay
for it, is the result of a number of forces. You start off with the value of
wood products that the timber could yield and then subtract from it the labour,
capital, marketing and transportation costs associated with getting that timber
processed and to market. The residual that remains reflects that value of
standing timber." See the full article in the University of Alberta newsletter,
www.expressnews.ualberta.ca/expressnews/articles/ideas.cfm?p_ID=933
.
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Notes for #1034
Wednesday Dec 19, 2001
CANADA WILLING TO MAKE DEAL ON SOFTWOOD cbc ![[Version en français]](images/fr.gif)
Canada's International Trade Minister, Pierre Pettigrew, says the provinces are
willing to change the way they manage their softwood lumber industries, but only in exchange for permanent free access to the United States market. Must See an example of Gary Gallon on Guaranteed, long-term market access key point for Canada in softwood dispute cp
Tuesday Dec 18, 2001
CANADA WILLING TO MAKE DEAL ON SOFTWOOD cp
Canada's International Trade Minister, Pierre Pettigrew, says the provinces are
willing to change the way they manage their softwood lumber industries, but only in exchange for permanent free access to the United States market.
Wednesday Dec 5, 2001 LUMBER DISPUTE NOT TO RESOLVED SOON: MINISTER ap
International Trade Minister Pierre Pettigrew doesn't expect the softwood lumber dispute to end by Christmas, saying he's prepared to spend a few more weeks in January if needed to
reach a satisfactory long-term deal with the United States.
Friday Nov 23, 2001 WORKERS FEEL BRUNT OF LUMBER FIGHT
MILL Mill workers in the Saguenay region say they feel like they're being
held hostage by the soft wood lumber dispute after Quebec's largest softwood lumber producer announced it is temporarily shutting down all of its sawmills at the end of November.
1/Nov/2001
VANCOUVER (CP) - Widespread anger greeted the imposition Wednesday of a second punitive duty against Canadian softwood lumber exports to the United States, with one industry official warning of a shutdown of the entire B.C. lumber sector next spring if the tariffs stand.
The decision to pile an average 12.6 per cent anti-dumping duty on top of a 19.3 per cent countervailing duty imposed last August was a "kick in the teeth" to Canada as it tried to negotiate an end to the longstanding lumber trade war, said B.C. Forests Minister Mike de Jong.
1/Nov/2001 LUMBER INDUSTRY LASHES OUT AT NEW U.S. TARIFF
The Canadian lumber industry expressed its frustration and disapproval
Wednesday at a U.S. announcement to impose an extra anti-dumping duty of
12.57 per cent on Canadian softwood lumber exports.
October 31, 2001 LUMBER INDUSTRY LASHES OUT AT NEW U.S. TARIFF
The Canadian lumber industry expressed its frustration and disapproval
Wednesday at a U.S. announcement to impose an extra anti-dumping duty of
12.57 per cent on Canadian softwood lumber exports.
Monday, October 22, 2001 Pettigrew says litigation pursued as U.S. softwood lumber talks continue
TORONTO (CP) - Ottawa plans to fight the U.S. lumber dispute through the courts and the world trade body even though provincial and industry groups have been pursuing a negotiated solution, Trade Minister Pierre Pettigrew said Monday.
Pettigrew said that while the federal government was part of the proposals put forward to the United States by the B.C. government last week, it is continuing to look at legal recourses. "We're maintaining that absolutely," Pettigrew said after a speech to the Toronto Board of Trade.
Wed 8/22/01 CANADA TO CHALLENGE U.S.LUMBER TARIFF
Trade Minister Pierre Pettigrew announced Tuesday Canada will launch a
challenge to the recent United States tariff on Canadian softwood
lumber, calling it "unwarranted and punitive."
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