The softwood lumber dispute demonstrates that just because the Unite States is an arrogant bully doesnt necessarily mean its wrong.
And while the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) do come into play in this issue, the more important question is how to secure the best value for a Canadian public resource.
This is a complex issue, but one thing is clear: the U.S. has a very strong case for claiming that we subsidize our lumber business through the system of stumpage fees we collect for publicly owned trees.
Its hard enough to beat the Americans when they dont have a case its next to impossible when they do.
There will never be peace in the lumber business until Canada addresses the issue head-on. And there is a huge bonus in doing so.
By complying with the so-called demands of the U.S., Canada could develop a forest policy that yieldsgreater sustainability, more jobs and increased government revenue.
Unfortunately, our negotiators squandered the opportunity and did not have the courage to defend the publics interest in this precious publicresource.
The softwood dispute revolves around the question of how Canada sets lumber prices. In British Columbia the primary producer 94 per cent of the forest is publicly owned.
In the U.S., the forests are predominantly owned by hundreds of private companies and the tree price is market-determined.
Canadian provinces charge for their wood through a system of stumpage fees that have little to do with their actual market value.
Successive B.C. governments have used low stumpage rates as a broad policy tool that tied access to public timber to job creation. A company that wanted access to trees had to make a commitment to process those trees in nearby communities.
One of the negative side effects is that trees that would normally be non-commercial are cut anyway, making the total cut unsustainable.
The irony in B.C.s unflagging defence of this stumpage system is that this trees-for-jobs principle has been eroding for years. The big forest companies have been breaking their agreement with impunity closing local mills while keeping their cutting rights and sending logs out of the communities that depend on them.
In the recent negotiations, B.C. Forests Minister Mike de Jong was ready to scrap any requirement that companies process logs locally.
This would get us the worst of all worlds: a pittance for our public resource, unsustainable cutting and devastated forestry communities. He airily dismissed municipal concerns by flatly stating that the provincial government cannot guarantee employment and community stability.
Just what is Canadas defence against the U.S. charge of trade-distorting subsidies? Our case rests on the dubious claim that a stumpage fee is not a price for the lumber at all, but tantamount to a tax.
Despite court decisions rejecting this line of reasoning, B.C. s position in trade litigation is that once a licence is given to a company, ownership of the trees has been transferred to it.
Canada is distorting reality in an attempt to avoid the WTO agreement on subsidies that applies only to those provided through government pricing of goods or services.
By any reasonable definition, when B.C. provides trees to a forest company it is providing that company with a good.
To claim otherwise is sophistry. A General Agreement on Tariffs and Trade (GATT) panel rejected a similar argument in a 1992 softwood lumber case.
Why are American lumber interests so self-righteous? Imagine a telephone pole in your backyard and then imagine selling it for twenty five cents. Thats what B.C. currently collects for up to 30 per cent of the publicly owned trees from the interior of the province twenty five cents a tree.
The market value would be at least five Canadian-dollars and probably closer to seven.
Thats why the U.S. is demanding that Canada establish a market-based system for pricing our trees. Our negotiators knew this and made a half-hearted effort to meet the U.S. complaint. B.C. offered to put 13 per cent of its publicly owned trees into the market via auctions.
But everyone involved knows that, in an industry dominated by a few large players, 13 per cent is totally inadequate to avoid price manipulation.
The same situation prevails in all the major lumber-producing provinces. A handful of large companies control virtually all the cutting rights.
Most analysts believe 50 to 70 per cent needs to be sold through competitive auctions and log markets to have any real effect on the stalemate.
This is a huge crisis for forest communities and workers in B.C., but it also presents a unique opportunity. B.C.s forest industry could be reformed in a way that would once and for all dispense with the U.S. charge of unfair subsidies, provide long-term jobs and stability for forest communities and sustain our forests indefinitely.
How? Take back 50-60 per cent of the tenure from the large forest companies making it available to smaller players and channel a sizable portion of all the trees through local log markets, where a diversity of buyers would have access through competitive bids.
The market could be designed to favour smaller players, including local community forest projects, First Nations and value-added operations making furniture and other products.
Exporting value-added products instead of two-by-fours to the U.S. would also alleviate the U.S. lumber industrys concern that Canadian producers are taking over US marketshare.
In B.C., the big companies see the writing on the wall. Recently, Weyerhauser, International Forest Products and TimberWest offered up to 30 per cent of their Crown tenure rights on the coast.
In doing so they have admitted the U.S. is right.
They might as well make it 50 per cent and get it over with. Anything less than this will be unacceptable to the protectionist U.S. industry and will rob the people of B.C. and other producing provinces of their rightful return on a public resource.
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