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Industry Watch

There's a Brooklyn Bridge for Sale to Gullible Canadians.

By John Clarke
Copyright 1998. Contact publisher for permission to use.

It was back in April that MacMillan Bloedel's chief executive officer Tom Stephens dropped a bombshell into the stumpage problem in British Columbia.

Nobody noticed the shock wave at the time.

Stephens told shareholders at their annual meeting: "What the current system doesn't do very well is anticipate market forces. MB believes that we should move toward a market system based on competitive bidding for lumber coming off Crown land. We envision the bidding process would set stumpage prices for timber. We believe the balancing forces of supply and demand and the impact of competition should drive stumpage, not a bureaucratically derived formula that only looks backward."

This was no mere idle aside. It was a loud call for fundamental change in the way the public's trees should be sold. But the media missed it entirely while they concentrated on the sexier - but far less significant - offer he made to end clearcutting in old-growth forests.

If taken to a logical conclusion, Stephens' ideas would mean the establishment of an open log market. That's something the Americans have pushed for throughout the tiresome dispute over how much Canadian softwood should be allowed into their market.

John Ragosta, the lawyer and chief spokesman for the Washington, DC-based Coalition for Fair Lumber Exports, says great, that settles the whole export problem. If BC goes to a log market system, it won't have any more trouble from his group.

If anybody believes that, there's a Brooklyn Bridge for sale to all comers, including gullible Canadians. In the words of Gordon Ritchie, one of Canada's leading negotiators on the North American Free Trade Agreement, "this (continuing stumpage fight) doesn't have anything to do with unfair trade or subsidies. It's just the language of the Americans whenever any Canadian industry captures too large a share of the US market or even a rapidly growing small share."

The comments are a lot rougher in the corporate boardrooms where the American campaign against stumpage is seen as nothing but a bottom-line strategy to boost their profit margins. The more foreign timber that's kept out of their market, the more money they'll make. So much for free trade.

Still, the Americans hold the Ace hand. They have the consumers, to whom BC wants more access, now that the Asian economies have collapsed. But the coalition has powerful influence in Washington, for more, for instance, than the American home builders who want more Canadian timber.

So for Stephens, market share is everything. At the shareholders' meeting he said: "A market-driven system can also solve our most pressing problem today, which is lack of access to the huge US market. Unrestricted trade across the US border should be our highest priority and the price of a ticket to the party will be major reform of the stumpage and tenure system. Assuring Unrestricted access has to be the number-one priority for BC coastal lumber producers."

This may be easy for an American like Stephens to say, with his American reverence for the idea, if not always the practice, of free markets and the unfamiliarity with our traditional stumpage processes. But his ideas are beginning to find some resonance in BC.

The Glen Clark NDP government has shown serious interest in changing the tenure system. It would like to see more of the forest harvested by small operators. To make that kind of switch, the large tree farm licences (TFLs) held mainly by the big corporations would have to be sliced up, maybe even abandoned altogether. An open log market would have to be part of a less monolithic industry.

The idea got some desultory discussions in government circles about a year ago. But the talks never went very far, for a couple of reasons.

First, changing tenure would be such a radical move that apprehensions outweighed aspirations. Second, the government didn't want to take the idea any further without some significant support from within the industry itself.

But there's no doubt now that the question is making the rounds in the corporate offices. The BC industry is in crisis, "on the edge of a precipice", as one official puts it. American import restrictions are squeezing it on one side and Japanese economic failure on the other. And there's increasing resistance in Europe to Canadian logging methods, at risk to sales there.

Stephens seems to be thoroughly embracing the open log market idea and that may give shape to the debate now emerging within the industry. Victoria will let the idea mature a bit more before getting into the discussions again.

There are some hurdles. The whole idea of what is called "appurtenancing", whereby big harvesting licence-holders would be required to run sawmills and other plants as well as their logging operations, would probably have to be dropped.

Whether harvesting and manufacturing should be separated structurally is a very big question. But to get rid of appurtenancy would predicate such radical rethinking that the industry might need to have its hand held very tightly.

Would it be worthwhile? Well, the University of BC forestry faculty estimates that appurtenancing policies and export restrictions are costing the province $1.5 billion a year.

One option being reviewed is that 20 to 30 per cent of the harvest be open to a log market where prices would be used to set stumpage rates. That doesn't seem to have much real logic, since it would subject the big operators to control by small operators, and a small part of the total industry.

Still, an open bidding system for the whole market would be awfully difficult to achieve among all the competing influences at play in an industry inured to traditional methods. If the idea is to be pursued, it should not be simply as a way of getting rid of American objections to our softwood exports. It's well understood in BC that the Americans would probably look for something else to complain about. An open log market should be justified on its own merits.

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