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U.S. Lumber Quota

Some Canadian mills have had to reduce shifts or extend holiday shutdowns. Others have simply stopped shipping to the US.

By Jim Stirling
Copyright 1997. Contact publisher for permission to use.

The February 14, 1996 negotiations culminated on restricting the trade of softwood lumber between Canada and the United States. It's proven more a Valentine's Day massacre than a sweetheart deal for most Canadian producers.

About 600 sawmills and their employees in British Columbia, Quebec, Alberta and Ontario have been struggling with the concept and then the reality of export quotas for nearly a year. Confusion, curtailments and re-alignments persist. Stability and predictability of the US marketplace remains elusive.

Canada and the US have been arguing about the lumber trade since the turn of the century. This latest agreement follows nearly 10 years of protracted debate and challenge during which Canada's case was consistently vindicated by free-trade dispute panels. US lobbyists ignored that and turned to the courts. Canadian government and industry negotiators figured restricting supply was worth five years without any US trade action. The deal restricts softwood lumber exports from the four provinces to 14.7 billion board feet a year. That represents about 91 per cent of 1995's shipments. An export tax of US$50 per thousand board feet is applied to the next 650 million board feet exported and any shipments beyond that get hit with a US$100 per thousand levy.

The agreement kicked in April 1, 1996 and for the first few months lumber producers were winging it. They had to guess what their individual export quotas might be and prorate it across four quarters. But they had also to react to a widely fluctuating lumber market. It was a frustrating and un-business like summer and fall for the industry.

Strong market demand driven by a healthy US home construction industry and reduced Canadian wood supply drove up lumber prices. The situation tempted some Canadian producers to ship heavy volumes and face the consequences of quota surcharges later. That option was not viable for most companies in British Columbia. The province has the highest timber harvesting costs in Canada and assuming export taxes would make a bad sistuation worse.

There were howls of protest last November when each affected company was finally told by the federal government its lumber export quota. They were generally less than companies expected. The lumber production brakes were floored again.

The US market's importance means quota reductions spell curtailments for many companies. The extent varies. For some, the loss of a shift in a mill or planer is helping eke out the quota allocation until the end of the 1996-97 year in March. It creates unemployment and uncertainty. Other companies took longer-than-normal closures during Christmas for quota adjustments. And there were those which opted to halt shipments to the US until the smoke clears.

In theory, that should happen in the 1997-98 quota year beginning April 1. Companies may not like them but they know what their quotas are. But the volatility of the US market in the coming year will mean more best-guess judgement calls with red bottom lines and job losses the penalties for errors.

The Canadian negotiators were well aware the imposition of quotas would cause pain. They had faith the industry would find a mill-by-mill solution based on higher-valued products and a reputation for creativity in marketing wood products. The faith is not ill-founded, but soothing the pain on both fronts will take time.

Some companies are less dependent than others on the US market. But often their advantage under the quota arrangement has proven illusory. Those with a strong presence in the Canadian lumber market, for example, are facing stiff competition from companies trying to move surplus quota volumes into the market.The same kind of situation is happening with selling higher grade material.

Canadian softwood lumber shipments to the European community have been modest recently. Shippers face a Scandinavian transportation advantage and the disadvantage of alleged environmental mismanagement of forest lands. A latent suspicion remains that Canada looks to Europe as a dumping spot for lumber, useful only when the US market is flat.

The Japanese and other Asian markets offer excellent long-term potential, especially for softwood lumber producers in BC and Alberta. In 1994, BC shipped 15.9 per cent of its lumber to Japan. But any company that has gone through the JAS certification process or otherwise made a long-term commitment to the demands of the Japanese market can attest it represents little as a short-term panacea.

A Senate foreign affairs committee hearing recently got an earful from BC-based resource consultants with experience in the Asia-Pacific region. They recommended the federal government has to make a concerted commitment to furthering trade if it is to be of any help to small and medium-sized companies. The experience of forest companies is similar.

It's easy to forget Canada and the US share a long tradition of trading. And they have a common language and culture - sort of. The good news through this latest period of dislocation is the US economy needs Canadian wood to flourish just as Canadian wood producers need the US market. It really should remain a good fit. But who knows what forms of political expediency might be deemed necessary by the US during the remaining four years of the agreement. Remember, NAFTA proved little help. And what happens in 2001?

This page and all contents �1996-2007 Logging and Sawmilling Journal (L&S J) and TimberWest Journal.
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