Bullies in the woods

Mary Janigan December 24 2001

Bullies in the woods

Mary Janigan December 24 2001

Bullies in the woods

Mary Janigan

It will be a hollow victory if the United States and Canada finally grope their way to a framework agreement on softwood lumber this month. For Canada, it will mean bowing to pressure by amending its system of forest management under which firms lease Crown land by paying provincially set stumpage fees. Instead, provinces will now adopt some form of the U.S. system of market auctions for timber rights—in remrn for “unfettered” market access. For the United States, it will mean the triumph of private bullying by the U.S. lumber lobby, deploying the full weight of U. S. trade law. There likely will be no chance to conduct a full examination of resource pricing: Canada will have been forced to change because Washington issued a decree that stumpage fees are subsidies —on grounds they are priced below U.S. market rates for timber—and clamped penalties averaging 32 per cent on our exports. Everyone, except a powerful lobby, is the loser.

We may never know who was right in this centuries-old battle. Stumpage fees are arcane rents for resource extraction that differ among provinces. They were a key tool of industrial development in the early 20th century because the prospect of long-term, affordable leases encouraged firms to build mills, create jobs and find export markets. They worked only too well: the U.S. now takes $ 10 billion per year of our conifer timber—roughly 34 per cent of its needs. Such hefty market share sparked the modern-day round of squabbling in 1982, flooding world trade bodies and U.S. agencies with millions of pages of arguments. Each side can claim limited victories. But, says Michael Hart, distinguished research fellow at Carleton University’s Centre for Trade Policy and Law, “there has never been a definitive ruling. This is a delicate issue because what the Americans are really doing is challenging what rents we want to gain from our ownership of resources.”

The question is: does stumpage constitute a subsidy? The World Trade Organization says a subsidy occurs when “revenue that is otherwise due is forgone”—or the government provides “goods and services other than general infrastructure.” It does not specifically deal with a system of widespread public ownership of resources which prevails in many nations other than the U.S. Stumpage is an odd bird. In British Columbia, which accounts for more than half of the exports, leasing contracts require that firms harvest their quota of timber whatever the state of the lumber markets. That provision maintains jobs—perhaps unfairly. “We cut more than we should in the down times,” says Simon Fraser University economist John Richards. “The Americans bear the brunt when markets

Even if Canada finally gets a softwood lumber deal, we may never know who’s right-thanks to American tactics

turn sour. Then our steady supply worsens their prices.”

But is it a subsidy? Richards says no. The U.S. Coalition for Fair Lumber Imports says yes: it maintains that stumpage fees are 67 per cent to 75 per cent below U.S. market rates— partly so firms can continue to export their enforced harvest in depressed times. Canada has appealed to the WTO over the use of U.S. market rates as the standard for judging how provinces price their resources. Ottawa argues that stumpage fees are fair because firms pay plenty to comply with rules to protect the environment in Canada—and that cost is not included in stumpage. So stumpage fees alone are not a fair gauge of corporate timber costs. “Let’s sell it competitively and find out what happens to the price,” retorts coalition lawyer John Ragosta. “Clearly the government is giving away its heritage for less than it is worth.”

He cites a 1993 ruling from the WTO’s precursor in which Canada argued that resource rents were not subsidies. In convoluted language, the panel replied that it wasn’t clear that stumpage “could not include an element of government cost or revenue forgone.” In other words, it didn’t buy Canada’s plea that stumpage was not a subsidy. But it did not assert that it was wrong either. It merely stipulated that more investigation was required. Canada has also won a few initial rulings. And it is hard to believe the WTO would rule that every nation must move to U.S.-style market auctions to price its resource exports. Canada might have succeeded in overturning those U.S. penalties at the WTO—with minor changes to its own regime. It is hard to escape the suspicion that much of the problem arises simply because the two systems differ. Almost 95 per cent of Canadian timber is harvested from Crown land; 90 per cent of the U.S. harvest comes from privately owned land. It is disquieting. “This issue represents the first time the Americans interfered with somebody else’s resource policies anywhere,” says SLU geography professor Roger Hayter. “We have never been able to shake them off.”

The bottom line is that Canada likely will adopt American ways because private U.S. firms used public U.S. law to punitive advantage. Last month, Washington reluctantly agreed to put those laws, which allow firms to force investigations, on the table in future WTO talks. “The Americans take international trade rules and apply them with perverse vengeance,” says Toronto trade lawyer Lawrence Herman. “It has gone too far—and is being used for protectionist purposes.” Our forestry rules, such as enforced harvests, may need changing— for our own good. But this is no way to treat a neighbour, dl