Commentary

Will Canada Cave in to American Demands on Softwood Lumber?

On January 6, the U.S. Department of Commerce released a framework document on the ongoing softwood lumber dispute, which clearly outlined the areas in which the Americans are seeking concessions from the Canadian government. Without these concessions, the U.S. has said it will double the existing duties on the import of softwood lumber - bringing them to over 40 per cent.

The American framework document, dubbed the Aldonas report after undersecretary of the Department of Commerce Grant Aldonas, lays out proposals which will, if implemented, amount to a tacit declaration by Canadian governments that they do not have sovereignty over Canadian forests.

While the framework document states that it is necessary to "ensure that the policies adopted by the Department of Commerce do not inhibit the ability of the provinces to manage their forests on a sustainable basis", it qualifies this with "where such activities do not confer a benefit on Canadian lumber producers."

The Americans have already determined that the entire stumpage system in place in Canada gives Canadian lumber producers a benefit. Given that over 90 per cent of the forest lands in Canada are Crown lands, and fall under provincial jurisdiction, provinces have traditionally negotiated long-term logging tenures with different companies. This is the source of the majority of American complaints with the Canadian softwood lumber industry.

For example, companies granted tenures have to meet different requirements to keep or renew their tenures, including certain levels of reforestation, minimum employment in the communities they are logging in, etc. American companies, who face similar although uniformly less stringent environmental protections for logging on privately-held lands in the U.S., find any requirements tied to the needs of local communities completely unacceptable as they are not "market driven".

The Aldonas document targets entry and exit barriers, which are used by the provincial governments of British Columbia and Quebec to encourage industry employment by limiting the ability of a lumber company to open up and shut down operations in different towns on a rotating basis. It states: "The barrier to entry/exit in any given market consists of the startup/shutdown costs that a firm would incur in order to enter/exit the market. … In Canada, a firm must generally commit to a long-term agreement to obtain this concession. For one thing, this system tends to tie up most of the desirable lands. To exit the market, the same firm would have to get out of an already existing contract."

The report further notes: "The obvious consequence of providing a social safety net through employment in the timber industry is that the provinces may, and often have, made decisions regarding stumpage fees, the waiver of contractual obligations, and other aspects of the tenure system on the basis of preserving specific production facilities, rather than maximizing the return they could otherwise derive from the sale of its resources on a market basis".

In British Columbia, the provincial government has used the tenure system to impose restrictions on log exports, which means some processing on logs must take place within the province, creating jobs. This is another example of "investment decisions that are not based on market forces," according to the report.

In other words, any consideration other than the ability of companies to make maximum profit is targeted.

What is interesting is that the federal and B.C. governments seem willing to accept some of the conditions outlined in Aldonas. B.C. Forests Minister Michael de Jong, commenting on the release of the Aldonas document, said "conceptually, this approach could form the basis of a long-term solution; however, the devil is in the detail." International Trade Minister Pierre Pettigrew has also hinted the federal government is willing to sign on to some of the changes.

This is a far cry from the angry rhetoric that greeted the initial imposition of duties in May 2002. At that time, the Campbell government in B.C. angrily pointed to a PriceWaterhouseCooper's report which estimated the duties would cost the B.C. logging industry $1 billion a year.

Since then, however, over 20,000 jobs have been eliminated in the forestry industry in B.C. alone. Workers have been forced to accept wage concessions in the name of keeping the "struggling" industry afloat. The end result has been that B.C.-based logging companies, even with duties of over 20 per cent, have been able to maintain profits through reductions in labour force and other associated costs.

The Aldonas report, then, could potentially be used as the justification to eliminate whatever existing provisions there are to protect Canadian workers and communities the most impacted by the forestry industry. This would increase profitability for the Canadian capitalists and conform to the neo-liberal dogmas preached by the Campbell government in B.C. and the Chretien Liberals. They could not have planned it better themselves.