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Environmental, Campaign & Website News > Trees Fall in Canada's Forests, but U.S. Isn't Buying (New York Times)

Trees Fall in Canada's Forests, but U.S. Isn't Buying (New York Times)

Date : 3rd September 2002, Source : Newsgroup

The New York Times
Saturday, August 31, 2002

Trees Fall in Canada's Forests, but U.S. Isn't Buying

By Clifford Krauss

VALEMOUNT, British Columbia In this tiny lumber village in the Canadian Rockies, people are more likely to take their vacations in Las Vegas or Disney World, retire in Arizona, drive Chevrolets and live in mobile homes imported from the United States.

With the ties to the United States here so tight, disruptions in relations with the United States can hit as hard as a family squabble. And relations now are pretty raw.

The squabble is over a 27 percent American tariff levied in May on Canadian softwood lumber wood from any conifer, like spruce, fir or pine. People here blame the levy for the shutting down of their only lumber mill in September, causing one in three local workers to lose their jobs.

"The United States is acting like a bully," said Valemount's mayor, Jeannette Townsend, an otherwise soft-spoken official. "Our military went over to Afghanistan even though it was not our war. That was a neighborly act, and in response the U.S. government and lumber barons are devastating our communities."

A look at the dispute from both sides of the border, however, shows that this trade issue is a lot more complex than it may look to the parties involved. The tariffs have not stopped American mills from closing or curtailed Canadian exports or bolstered slumping lumber prices. The finger-pointing may be as much a measure of a troubled industry on both sides of the border as anything else. The underlying reason, analysts say, is that despite a housing boom in the United States and Canada the last few years, the world is awash in lumber, thanks largely to the enduring recession in Japan and a marked increase in exports from Russia.

Months of trade negotiations have been fruitless, making the lumber issue the greatest irritant between the two countries in years. The dispute is so bitter it appears to have hardened Canadian government views on other issues, including the Bush administration's policies toward Iraq and American pressure to strengthen the Canadian military in the campaign against terrorism.

Annual Canadian softwood lumber sales to the United States amount to between $6 billion and $12 billion, depending on highly volatile prices, and supply about a third of American needs. In June, a month after the tariffs were imposed, Canadian softwood sales to the United States plunged 40 percent, shrinking the country's trade surplus and signaling that a deep recession may have descended on the lumber sector.

There are 70,000 Canadian jobs directly involved in softwood production, half of which is destined for the United States. The Canadian Forest Service predicts a loss of 25,000 jobs if the dispute goes on for more than two years, which seems possible.

The signs of hard times are already visible in this village of 1,300 people, where 40 percent of the households have at least one member who works in the lumber industry. Outside the Slocan Forest Products Ltd. plant, 30,000 trees lie like piles of matchsticks, open to weathering by the sun and rain. The local food bank, founded during a previous slump in the early 1990's, is gearing up again, and the Slocan mill has hired a social worker to counsel the newly unemployed.

"When the U.S. goes to war they always have to have Canada on their tail, and is this the thanks Canada gets?" asked Shirley Gonyou, who has worked in the mill for 27 years. "Do Americans want to know if Canadians are on their knees yet?"

But the same rage expressed in lumber towns across British Columbia, Quebec and Ontario can be heard south of the border as well, where even more lumber mills have been closing down in recent years. In the 13 months before the tariffs were put in place, 93 American mills and 53 Canadian mills temporarily or permanently shut down production. (In the four months after the tariffs, 42 Canadian mills and 28 American mills sharply reduced production or shut down.)

"The Canadians want to access our markets at the expense of our workers," said Robert Lockwood, president of TreeSource Industries Inc. His company, which had 12 mills employing 1,500 people in 1998, was already down to four mills employing 400 and another was scheduled to close at the end of August.

At the core of the dispute is a divergence in lumber economies.

In the United States, most timberlands are privately owned, with harvesting rights auctioned off or sold at market rates. But in Canada, more than 90 percent of timberlands are owned by provincial governments that set cutting fees. The governments adjust the fees and otherwise regulate cutting and manufacturing in such a way as to guarantee employment in remote rural areas.

American companies say Canadian timber fees are so low they amount to a hefty subsidy. The Commerce Department has estimated that the margin of cutting costs between the countries is 27 percent hence the size of the tariffs. Canadian officials say that figure is based on old data, and that their fees more or less match market forces.

Canadian government officials and lumber executives say their older forests are superior to those in the United States, producing a better product favored by American carpenters. And they maintain that their American competitors are suffering more from their own inefficiency than from unfair competition. In the southern United States, analysts note, costs of logs have risen more than sixfold over the last 30 years for lumber producers while the selling price of lumber has increased only by a factor of 2.6.

Stephen G. Atkinson, a forest-products analyst at the Bank of Montreal, wrote in a recent report that when American officials speak of Canadian "stumpage fees" they are merely stating the average cost paid to the government for timber. He noted that harvesting costs also include fees for forest management, road building, replanting and environmental remediation.

"Canadian companies are responsible for forest management and the U.S. companies are not," Mr. Atkinson wrote. "An honest comparison looks at total costs and profitability."

But according to Cheri Burda, a forestry analyst at the David Suzuki Foundation, a Canadian environmental group, Canadian companies do not have to abide by the kind of strict endangered-species legislation that restricts operations in the United States and raises costs substantially.

Lumber prices for American mills have remained low despite the tariffs because Canadian companies stepped up production in the weeks before the duties took effect and because Russian, Scandinavian and Eastern European producers have increased their exports to the United States. Currently, 1,000 board feet of green Douglas fir fetches around $285, well below the $400 average since January 1995 and the $305 required for the average mill to break even, according to American industry sources.

Talks between the two countries broke off in March, but are expected to resume in the next few weeks. Meanwhile, Canada is appealing to panels of the World Trade Organization and the North American Free Trade Association.

"The tariff policy has backfired," Canada's trade minister, Pierre Pettigrew, said in an interview. "We will win before the W.T.O. and Nafta, but that will take time, and in the meantime Canadian communities are suffering and American consumers are being deprived of Canadian lumber."

In a separate interview, Peter Allgeier, the deputy United States trade representative, said he saw no likelihood of a quick solution. "If the Canadian provinces were to sell their timber through a market mechanism like an auction we would say that would be a good way to solve the problem," he said.

Just south of Tacoma, Wash., at a TreeSource mill that closed in mid-August, there was little argument over who is to blame for the industry's troubles.

"Free trade and the Canadians bringing their lumber in have brought the lumber prices down to nothing," said Ted Smith, a 36-year-old mill operator. "There's a bitterness, but we don't have a whole lot of control. I just hope the tariff will help."

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