Alberta’s forestry industry is girding for an economic hatchet job next month as softwood lumber exports to the United States are nailed by punitive tariffs.
“There’s no question there is going to be an impact here in the province, particularly the small and medium-sized sawmillers and re-manufacturers who export their lumber products into the U.S.,” said Garry Leithead, executive director of the Alberta Forest Products Association (AFPA).
Alberta ranks fourth in the country behind B.C., Quebec and Ontario in softwood lumber exports to the U.S., but forestry is still the third- largest sector in this province, after energy and agriculture, and employs an estimated 53,000 people.
The U.S. Department of Commerce made the subsidy determination in March, and now the U.S. International Trade Commission is poised to confirm an earlier finding that Canadian lumber is harming or threatening U.S. mills and jobs.
A decision is expected May 6 on both a 19.34-per-cent countervailing duty and a 9.67-per-cent anti-dumping duty, after which Canadian exporters will be required to make cash deposits to U.S. Customs on their exports.
Canada has reacted angrily to the anticipated 29-per-cent penalty and has vowed to launch action under the North American Free Trade Agreement and at the World Trade Organization.
“The Commerce Department decisions are punitive, unfounded in substance and were made to mollify protectionist interests in the United States,” charged International Trade Minister Pierre Pettigrew.
“We have won before. We will win again,” he said.
Alberta industry representatives are hoping a sustained strong housing market in the U.S. will help mitigate some of the financial burden expected to be inflicted by the lumber tariff.
“Touch wood – right now, U.S. housing starts are pretty strong, so it’s kept demand up, and the pricing levels are good,” said Leithead.
A report last week by the Dominion Bond Rating Service agency warned if market conditions weaken, sawmills that haven’t been able to both diversify and cut production costs could face closure.
The Forest Industry Suppliers and Loggers Association in Alberta is also warning of potential layoffs among equipment providers, mill maintenance workers and haulers.
Since December, lumber producers have been posting bonds to cover a U.S. duty of 12.6 per cent.
“But come beginning of May when the final determination is made, and assuming that the duty rates remain as they are, then people are going to have to start posting cash – and that’s going to hurt big time,” said Leithead.
“I think there are going to be some companies experiencing some severe problems here in Alberta at that point in time.”
There have been calls for the federal government to help shoulder the extra tariffs until all appeals have been exhausted, and late last week Federal Natural Resources Minister Herb Dhaliwal was reportedly considering such a move.
Industry and government officials, including Alberta Energy Minister Murray Smith, have already rejected a proposal by Dhaliwal to link other commodities, such as oil and gas or even fresh water, to the timber dispute.
“That’s a very dangerous area for Canada to enter into, because at the end of the day, Canada needs the U.S. more as a trading partner than the United States needs Canada,” said Leithead.
“Canada should be concerned if we’re not careful, we could end up in an all-out trade war with the U.S. – and clearly Canada will be the big loser at the end of the day.”
Some mill operators in Alberta are taking a wait-and-see approach to the duty and how it might affect their own lumber trade.
Family-owned Spray Lake Sawmills, a medium-sized outfit based in Cochrane that employs about 170 people, agrees the impact will largely be determined by the robustness of the U.S. housing market.
“The bottom line is, they need the lumber, and the consumer will bear a portion of that (tariff) cost,” said Ed Kulcsar, a planning forester for the company. But if demand softens, he adds, the brunt of the duty will shift back to the producer.
Kulcsar also disagrees with linking the timber trade with other commodities, or altering Alberta’s current stumpage fee system to give a bigger break to the industry.
“It would certainly help companies in the short term to lower their cost structure, but in the long term, it’s just going to aggravate the conflict,” he said.
“In my mind, free trade is free trade. If you’re really truly into a free-trade deal, it should be free trade on all goods.
“We do not believe we’re a subsidized industry. We feel there should be free trade in lumber, as it is with all the other goods that are headed to the U.S.”
Kulcsar adds the Spray Lake mill may be in a better position than others of its size to weather the trade storm.
It runs a highly efficient operation which processes the entire log, including sawdust and shavings, for sale to customers in a variety of industries.
Canada is the world’s second-largest producer of softwood lumber, with one-fifth of world production.
It also leads in exports with 51 per cent of the world market. Canadian lumber exports to the U.S. are worth about $10 billion, and are used primarily for home construction and renovations.
U.S. claims that Canadian producers and exporters of softwood lumber are selling a heavily subsidized product below fair value, and that provinces don’t charge enough to cut trees on Crown land, are a matter of debate on both sides of the border.
“Whether we’re subsidized or not doesn’t really matter in the process so far,” said Martin Luckert, a forest economist at the University of Alberta.
“What matters is that people in the United States are seeking protection, and through very effective political channels . . . any arguments beyond that (don’t have) a whole lot of relevance so far.”
It’s not a simple matter to calculate any advantages Canadian lumber producers may enjoy, because regulations and stumpage fees vary from province to province.
“The bottom line is there are all these pluses that companies get, and there are all these negatives. Trying to balance them out to find the bottom line is extremely difficult, if not impossible,” said Luckert.
He adds that while he’s not surprised the Americans are claiming unfair subsidies, he wonders at the high tariff rate.
“I would have expected them to not necessarily want to start what could be the beginning of a trade war,” he said.
The AFPA’s Leithead is more blunt, calling the U.S. position “a bunch of malarky.”
“The bottom line in all this is Canada is able to obtain about 30 to 35 per cent of the U.S. market, so they’re using the very broad definition of subsidy in U.S. law as a way of potentially reducing the imports of lumber into their marketplace,” he said.
“We just have to continue having Prime Minister (Jean) Chretien raising the issue with President (George W.) Bush, trying to convince him that we are a good neighbour, and beating up on your good neighbour isn’t the way to have a harmonious relationship.”
