BUSINESS

A lumber showdown looms

MALCOLM GRAY January 24 1983
BUSINESS

A lumber showdown looms

MALCOLM GRAY January 24 1983

A lumber showdown looms

Tom Waterland, British Columbia’s forestry minister, is in the fight of his political career, constantly flying to Washington and Ottawa as he tries to head off an attack on Canadian lumber exports to the United States. As one of the key players in a major dispute over tariffs, he knows that if a U.S. campaign for a new 65per-cent duty on Canadian wood is successful, it would have devastating political and economic effects on Canada, crippling British Columbia’s forestbased economy. The threat to $2 billion worth of wood exports (most of it used in house building) comes from a coalition of 350 U.S. forestry firms which claims that Canadian lumber exports are unfairly subsidized through the low fees that governments charge companies in Canada to cut Crown-owned trees. The coalition, which has powerful friends in the U.S. Congress, represents about 20 per cent of U.S. forestry firms and it is seeking the tariff to reduce what it calls “unfair competition.” “Such an event could literally destroy the underpinning of the B.C. economy and, with it, the single most important industry in this entire nation,” warned Waterland last week.

The seeds of the conflict were sown in the late 1970s when Canadian lumber exports, aided by a weak dollar and a housing industry hungry for wood, expanded to the point where they supplied 30 per cent of the U.S. market in 1981. But, by that time, with the United States gripped by hard times, house building had slumped from the usual two million starts in a good year to half that number. As house building slowed and the demand for lumber shrank, U.S. forestry companies found it increasingly irritating that the Canadian share of their domestic market continued to grow. “I don’t think Canada is really the target. I think we are the scapegoat,” said Waterland, explaining that some of the friction between the countries is caused by the U.S. system of selling off federal and state timber to the highest bidder. Lumber prices have fallen since the bids were accepted, but the U.S. buyers are still stuck with high timber prices—unlike Canadian firms, which pay fees based in part on the rise and fall of timber prices. The U.S. commerce department is currently investigating the system, partly through a list of 205 questions now being filled out by federal and provincial governments, a questionnaire Canada has to answer under terms of the General Agreement on Tariffs and Trade.

Under a bureaucratic process that is relatively immune to lobbying from B.C. interest groups, the commerce de-

partment must decide by March 7 if Canadian governments do indeed subsidize the country’s lumber industry. That ruling, in turn, has to be followed 75 days later by a decision on the charge that Canadian competition has injured the U.S. lumber companies. Canadian forestry firms are growing increasingly nervous about the threat to their exports as they wait out the timetable, but they are not without hope—or allies in the United States. “The interesting thing is that the [U.S.] National Association of Housebuilders is on the Canadian side,” said John Ross, senior vicepresident at MacMillan Bloedel Ltd., one of the companies heavily dependent on exporting to the United States. “They want Canadian lumber to keep coming in because housing prices would shoot up if it didn’t. The United States

is only 70-per-cent self-sufficient in lumber, and [without Canadian production] they would have to log another 30 per cent in very difficult areas. Prices would skyrocket.”

Even as the commerce department bureaucracy grinds toward a decision, the waiting Canadians are hoping that signs of revival in the U.S. housing industry—as many as 1.5 million housing starts are expected this year—will provide enough of a market for everyone. If it does not and the Americans impose a duty on Canadian lumber for the first time, the chill of that decision would be felt by Canadian pulp and paper exporters. They, too, would be vulnerable to the same charge: that their products are subsidized by low government fees

on Crown-owned trees. “It could set a precedent for duties on resource-based commodities,” said a B.C. government economist. “Billions of dollars worth of pulp and newsprint exports, most of them from Ontario and Quebec, could be affected.”

Waterland predicts even more dire consequences from a 65-per-cent tariff: “Dropping an economic bombshell of this nature on the world’s leading exporter of forest products could well set off a series of protectionist moves throughout the trading nations of the world to such an extent that the patterns of trade will be seriously distorted and perhaps irreparably damaged,” he said.

Ottawa and the provinces have cooperated—so far—to prevent just such a development. But some provincial officials are worried that the federal government may decide voluntarily to limit lumber exports to the United States, a

gesture that would remove the need for the tariff, but at the same time effectively transfer control over forestry production from the provinces to Ottawa. Waterland and the estimated 2,000 Canadian forest products firms, which have retained the prestigious Washington law firm of Arnold and Porter to represent them in hearings, prefer instead to remember 1962 and the last great battle over Canadian lumber exports. The Canadians won that battle when then President Lyndon B. Johnson vetoed a bill that would have required all imported lumber to be marked with country of origin. They are hoping history will somehow repeat itself.

-MALCOLM GRAY in Vancouver.