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May 2004

Guest Column

Softwood lumber dispute is a fight that lacks the facts

By Adam Zimmerman

From my perspective, the softwood lumber issue continues to be déja` vu all over again, and again, and again. To start with, the notion that stumpage is a subsidy is both hollow and brilliant. It holds a little water because the vendor of timber in Canada is 90 per cent government, whereas in the United States it’s mostly private ownership. Thus, if one believes the government is not getting “value” for its timber, then it is subsidizing. On the other hand, a favourable tax regime, as in the US, is ignored. At no time did the officials involved in this case formally compare the relative delivered costs of logs to Canadian mills vs US mills. No account was taken of the silviculture and transport cost responsibilities in the two jurisdictions.

There are many differences of this kind which must be accounted for to have a level playing field. I know some of this was done at the technical level, but not, to my knowledge, with the negotiators. Then one might consider the old adage “united we stand, divided we fall” and see if that doesn’t apply to the Canadians. There was a time, roughly 1982 to 1986, when the Canadian industry was well united, but the glue to maintain this position wasn’t there. To the American eye, the softwood lumber dispute was against Canada, which didn’t charge a high enough stumpage.

The fact that “Canada” has ten jurisdictions, each with their own stumpage regime, was conveniently ignored. Even if one took only British Columbia, Alberta, Ontario and Quebec, there are important differences. This division then led to one or more of the provinces trying to take matters in its own hands, and for most of the time Ottawa stood by and watched. For reasons I will never understand, Ottawa chose to try to deal with, and through, each of the provinces. They ignored the Canadian Forest Industry Council which, in 1986, handed a single industry voice to them on a platter. Further than that, notwithstanding the fact that the forest industry operates in something like 700 communities across the land and is or has been Canada’s largest industry, it has had little help from the federal government.

Then there is the question of retribution. Why can’t we charge trucking tolls on US carriers, or export charges on energy, or duties on imported foods? We say that NAFTA precludes this, but does it and why, if the Americans can beat up on softwood lumber? Does an American purchaser of fuel have included in his price the same amount of royalty as a Canadian? Is an American forest owner subject to the same overall tax rate as a Canadian? It comes to mind that Canadian bottlers of water presently pay no royalties. In other words, what differences in American resource regimes give them an advantage? If we are to live in a world where resource pricing must be the same internationally, then sovereign states give up the age-old right to price their own resources as they wish. In her guest column in Logging and Sawmilling Journal last summer, Senator Pat Carney gave a fair rundown on the history of the lumber issue.

She had the grace to admit that there was heavy criticism on the deal she and the Feds made in late 1986, justifying it by continuity of jobs. What she didn’t say, but I’m sure would admit, was that the Canadian industry had twice, in the previous four years, fought and won the issue. Even though we requested it, we got no “help” from the federal government, being refused by Carney’s Conservative government and the Liberals who preceded it. Not a cent—and we spent plenty. Our (the industry’s) advice from the lawyers and trade advisors who had been with us all along was to stay the course, keep fighting, we will win. Unfortunately, the Canadian ambassador of the day was a lover, not a fighter, and advised his government to give in and make a deal. For some weird reason, this was a pre-condition of Free Trade negotiations.

Certainly the industry would have fought, but it was overridden and a 17 per cent duty was imposed. In effect, we were a sacrifice for the Free Trade Agreement. Notably, the free trade advocates were conspicuously absent as defenders of the lumber industry. What one can learn from this are two things (I declare my prejudice since I’ve argued this for years): First, there really should be a national forest trade association capable of objectively synthesizing national issues like stumpage, product specifications, pollution standards, transport and other matters. Second, the federal government should be much more of an informed partner of major industries.

The model could be the Scandinavians. I have been retired for some time now, and certainly have not been briefed on a regular basis. Doubtless, much has happened that I have missed. Nevertheless, I believe this issue is characterized by a stubborn argument unenlightened by the facts. Were there to be an exact comparison of American to Canadian lumber costs, my belief is that Canadians would be seen to be handicapped, not subsidized. How else can superior American profitability be explained? Men of goodwill and intelligence can really always come to the right answer given rational debate based on common facts. I don’t believe this has happened in the softwood lumber case.

Adam Zimmerman is the retired CEO of Noranda Forest (Nexfor), chairman of MacMillan Bloedel and president of Noranda. He is a former chairman of the Canadian Pulp and Paper Association and the founding chairman of the Canadian Forest Industries Council.

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