A long history of ‘subsidized’ timber

The long running dispute between Canada and the U.S. over lumber in Canada being a "subsidized" product is now a hot issue again. This has been going on even longer than most people realize.

When I arrived here to start work with Industrial Forestry Service (IFS) in the spring of 1955, I found an active Cariboo Section of the Canadian Institute of Forestry (still active today). At the first meeting I attended that fall, we heard from the visiting Dean of Forestry from Syracuse, New York, of the project he was contracted to undertake for the Northern Interior Lumbermen's Association (NILS).

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The American lumber producer's lobby had convinced the American government that duties should be levied on Engelmann Spruce lumber being produced in B.C. and shipped to the U.S. Presumably this was because U.S. producers also produced Engelmann Spruce lumber and were having trouble competing with exports from B.C.

The NILS maintained that the timber in this area was Western White Spruce and not Engelmann Spruce and the Dean's job was to check this out and prepare a report. He reported that he had determined that the NILS lumber was from Western White Spruce and not Engelmann Spruce by examining "cone scales" from the local spruce forests. The result was the duty was not charged for the time being.

Incidentally, we now know that the B.C. Interior spruce forests are a mix of Engelmann and White Spruce and contain many stands where the two species have "intermarried" and the trees cannot be classified as either of those species.

During my nearly 40 year career with IFS, I was twice part of the group that prepared a defense against new proposed lumber duties. In both cases we found that the claims of the U.S. lumber lobby were not supported by the facts.

They claimed that Canadian producers were being subsidized by charging below market value for the timber and not having to pay for the cost of growing another crop. Since most of the timber in the U.S. is in private hands, producers there do not pay government any fees for most of their log input. Those producers owning their own timber supply, put a high value on the logs they consumed, reducing any profits from the mill operation but really just shifting the profit to the growing of the timber, where they were able at that time to claim that as a non-taxable capital gain.

One year the U.S. producers worked out a calculation that the duty should be seven per cent, based on the cost of their timber at the mill compared with the cost of timber in B.C. They also did another calculation based on the cost of growing timber and came up with a seven per cent duty by that method as well. Both calculations were for the same thing - the cost of timber entering a sawmill but the lobby added them together and requested a 14 per cent duty.

The group working on this problem on behalf of the B.C. lumber producers wanted to see the case put before a World Court where we were pretty certain that no duty would be supported but the U.S. lumber lobby pressured their government representatives and the requested duty was put in place.

The problem is not subsidization - it is simply the advantage we have when the U.S. dollar appreciates in relation to the Canadian dollar. When the U.S. and Canadian dollar are at par there is never any complaint from the U.S. about subsidization, but when the Canadian dollar sinks to levels like it is now, costs in B.C. remain much the same in Canadian dollars, but are significantly less in U.S. dollars, and the countervail duty problem arises again.

That same situation affects every U.S. purchase of all products imported to the U.S. when their dollar is high. Those are the times when Canadian producers of all different products exported to the U.S. make their best profits.

Harry Gairns, RPF, P.Eng, is a retired forest engineer from Prince George.

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