Part 2 of 2
Russ Cameron
Unless we abandon BC’s forest tenure system, there are 3 likely outcomes to the current softwood lumber dispute with the USA.
One, the Duties remain on permanently. Result … value added in BC will continue to decline. The purpose of the US imposed 20% Duty is to make us uncompetitive in the USA by raising the price of Canadian lumber products in the US market. It works.
Two, we eventually win the case at NAFTA after a couple more years of paying Duty. Result … a brief period of free trade until a new US Coalition Petition reimposes Duties and we can start all over again.
Three, we reach an Agreement with the Americans. Result … it’s not that simple. An Agreement can be Border Tax based or Quota based, and they each have very different outcomes for BC’s non-tenured value-added wood processors.
BC’s big 5 tenured companies want a Border Tax based Agreement. The only difference between US Duties and a Border Tax is that the proceeds of the former go to the US Treasury and the later to the Canadian Federal Government. Either way, Duties or Border Taxes are fatal for the Premier’s value-added vision and for many of BC’s surviving value-added firms.
If you were wondering why the big 5 would want to pay a Border Tax instead of have a Duty free Quota, it’s because they have purchased over 50 US sawmills in the last 15 years.
One of them currently leads the pack with 70% of its softwood lumber production in the USA and 30% in BC. Half of the BC production goes to China Duty free. So, they pay the 20% Duty on the remaining 15% but get to raise the price by 20% on the 70% produced in the US. The result is that they are more profitable under Duties or Border Taxes than they are under free trade. A good strategy for their shareholders, but not so good for BC.
Fortunately, the US Coalition is expected to insist on a Quota-based deal or no deal at all. A Border Tax based Agreement requires that the Coalition freeze BC Forest policy “as is” and then monitor it to ensure it remains “as is”. But a Quota based Agreement does not require freezing or monitoring because changes to BC Forest Policy cannot increase the volume of lumber shipped to the USA. But even if the Coalition prevails, BC’s value-added firms would not necessarily be out of the woods, so to speak. It depends on how the Quota is allocated within BC.
The 1996 Quota based Agreement distributed Quota pro-rata based upon a company’s history of US shipments. That method of allocation capped BC’s value-added production at a level that was somewhat lower than it was the day before the Quotas took effect. In 2019, the situation is worse. The US now requires cash deposits from the Importer of Record (IOR) and most of BC’s family owned and operated value-added companies can’t afford to make these deposits. Hence, BC’s value-added firms would get very little, if any, quota.
But there is a way to allocate BC’s Quota that would be beneficial to all. We call it the “Growth Pool”.
It goes like this. Canada gets a Quota and the Provinces duke it out for their share. Once BC has its share, the BC Gov allocates it only to tenured producers but requires them to leave a portion of it in Victoria … the Growth Pool. Non-tenured companies purchase lumber from the tenured sawmills, add the value, and use Quota from the Growth Pool to ship their value-added products across the line.
As a result, we can grow value-added in BC and BC’s tenured sawmills can cut more lumber per unit of Quota.
Here is why. If a sawmill ships 1000 board feet of lumber across the line, they use 1000 board feet of BC’s Quota. But if they sell 1000 board feet of lumber to a BC value added company (we pay the same price by the way), we trim off and chip the waste and rejects to sell to pulp mills, pellet plants, and bio-energy companies and we sell some of our resulting value added products in Canada and overseas. By the time we are done with that 1000 board feet, there will only be about 750 board feet left to ship to the USA. We will therefore only use about 750 bf of BC’s precious Quota from the Growth Pool instead of the tenured company using 1000 bf of its Quota.
Why waste Quota shipping trim loss, fall down products, and our jobs to the USA?
So, let’s get a Quota based Agreement, allocate it as above, and the result will be more logging jobs, more trucking jobs, more sawmill jobs, more remanufacturing jobs, and more Government Revenue. And these benefits will increase in direct proportion to the amount of wood to which we add value to in BC.
And the Premier’s vision can become a reality.