Time to focus on the EU markets with new deal—while we wait for Trump's take on softwood lumber

By Tony Kryzanowski

The opening of writer Rudyard Kipling’s now famous poem “If . . .” begins with the phrase, “If you can keep your head when all about you are losing theirs ...”

That phrase and poem, penned by the author of such classics as ‘The Jungle Book’ seems particularly appropriate for the times as it relates to maintaining markets for Canadian wood products.

There is a sense of panic coming from the Canadian forest sector as a quick signing of a new Softwood Lumber Agreement (SLA) with the United States seems highly unlikely, even as the federal government announces a federal-provincial task force on the issue and discussions take place at the highest level.

President Donald Trump’s erratic behavior has raised very legitimate concerns within Canada’s forest sector as to what impact there might be on Canadian trade relations with the Americans. Last year, Canada shipped $4.7 billion worth of lumber to the United States.

So the times call for cooler heads to prevail, and in the midst of these nervous times, very little ink was spared recently in the press about a huge Canadian trade accomplishment and massive opportunity for the Canadian forest sector: the ratification of the Comprehensive Economic Trade Agreement (CETA) with the world’s third largest importer of forest products, the European Union (EU).

The deal removes 98 per cent of tariffs and endorses the concept of ‘preferred trading nation status’ between Canada and the EU, representing 28 individual member states with a total population of over half-a-billion people.

While the Americans talk trade protectionism, Canada has pulled off a massive trade coup, and unfortunately, this fact seems to have barely been noticed by Canada’s forest sector.

As the likelihood of a quick new SLA dims, the thrust towards Asia is an appropriate and admirable response. But the forest sector might want to leave a few eggs in the basket to test this new opportunity with the EU. During a recent meeting between top forestry executives and Alberta Premier Rachel Notley, one key topic discussed was developing new uses for forest products in Alberta. CETA is not only an opportunity for new uses of forest products, but new markets.

While most Canadian forest products already enter the EU duty-free, once CETA comes into force, Canadian products will enjoy duty-free and quota-free market access to the EU. At present, tariffs on forest products range from two per cent to 10 per cent. The panelboard industry is likely to witness the most immediate benefit. Fibreboard has a seven per cent tariff, plywood has a seven to 10 per cent tariff, and oriented strandboard a seven per cent tariff. All these tariffs will disappear.

The Europeans have a history of using other forms of trade barriers to control market access, such as health and environmental regulations, even if a free trade agreement exists. To Canada’s credit, a mechanism has been put in place to facilitate dialogue between Canada and the EU to raise industry concerns with proposed regulations at an early stage. For example, a new Sanitary and Phytosanitary Measures Joint Management Committee has been struck to facilitate discussions between Canadian and EU experts and provides a venue for experts to resolve issues impeding trade—before they become major problems.

Where the real opportunity exists for Canadian forest companies to tap into the European market is in novel forest products like mass timbers, nanocrystalline cellulose (CNC) and lignin. These novel building materials and bio-products derived from wood have numerous applications, and we have barely scratched the surface with them.

In the EU, Canada will be dealing with industrialized countries like France, Germany and Britain (the last at least for a while, before Brexit), with advanced engineering, chemical, aeronautical, pharmaceutical and bioenergy sectors, all of which are potential markets for these materials.

Mass timber technology comes from Europe. They know how to build with it. It should be easy to sell our mass timber products to them. Furthermore, Canada already has a major commercial CNC producer in Quebec-based, CelluForce, as well as significant capacity in Alberta to produce near commercial volumes of this biomaterial. West Fraser also has just opened a $30 million, commercial lignin production plant in Hinton, Alberta, using a novel, more environmentally-friendly, recovery system.

Another significant opportunity exists in the export of wood pellets. Europe’s consumption of wood pellets is expected to grow significantly, climbing by 10 per cent in 2015 alone to 7.2 million tonnes annually. Canada is Europe’s second largest supplier, garnering about $326 million annually, but still trailing the U.S. as the main supplier by a wide margin. With CETA now in place, perhaps there is an opportunity to improve Canada’s market share, especially with the new status that CETA provides to us.

Finally, let’s not forget our strong connection to Europe, as many Canadians are only one generation removed from ‘the Old Country.’ Maybe it’s time we actually tried to monetize our mosaic vs. melting pot approach to Canadian culture, and remind our new European trade partners about that strong, continuing connection many of us still have with them as we develop our trade network.