COLUMNS: Lumber exports to U.S. face restrictions

articipating in trade agreements (NAFTA or TPP) with the Americans seems of little value.

Participating in trade agreements (NAFTA or TPP) with the Americans seems of little value since restrictions on some products are forced on Canada by strong  U.S. lobby groups.

With the expiry of the last softwood lumber agreement the U.S. lumber lobby groups have, as expected, launched another court challenge  which will allow them to force taxes or quotas on the export of lumber from Canada.

So we now enter a long negotiation period while the restrictions with unknown consequences begin.

According to Harry Nelson and Noaio Hotte at the faculty of forestry UBC, the Canada-U.S. softwood lumber dispute has crystallized around two options: a tax or a quota.

The differences may appear merely technical, but they would mean vastly different things economically depending on the size of the operations.

While a quota would impose a cap on exports to the U.S., a tax would allow the level of exports to fluctuate with U.S. consumers’ willingness to pay for Canadian lumber. In other words, as U.S. lumber prices increase, Canadian lumber would still be able to enter the U.S. market to meet demand.

The previous softwood lumber agreement, signed in 2006, included both options.  B.C. and Alberta, which collectively account for nearly 60 per cent of lumber exported to the U.S., opted for the tax, while Manitoba, Saskatchewan, Ontario and Quebec chose the combined tax and quota based on the expectation that their lumber exports would remain below their quota level.

A recent study of the market effects of the 2006 agreement found that the tax reduced U.S. lumber imports from Canada by 7.78 per cent, worth nearly $1 billion (U.S.)

And while U.S. lumber producers gained $1.6 billion, U.S. consumers lost $2.3 billion.

This time around, the U.S. Lumber Coalition is angling for a quota that would apply across all provinces. Lobbyists like quotas because they offer greater certainty to producers and increase profit. From an economic perspective, trade quotas are inefficient: Protectionism imposes a cost on many to create benefits for a few. Trade quotas are the reason that Japanese cars became more expensive in the United States and dairy and poultry products cost more in Canada.

A quota on all Canadian lumber imports would limit the amount of lumber that crosses the border, thereby restricting supply and boosting prices.

This is good news for U.S. producers, who would rake in higher profits. The impact on Canadian lumber producers is more mixed: Those that hold quota and can adjust production or access other markets may also benefit, while those that cannot would suffer. Most small and family-owned businesses fall into the latter category.

Even U.S. producers should expect any gains from a quota to be short-lived as other countries clamour to fill the shortfall.

American consumers would be forced to pay higher prices and either source lumber from other markets such as Germany, Finland and Sweden or find substitutes such as concrete or steel.

Either way, they will find alternatives to meet demand.

Another unfortunate consequence is Canadian provincial and federal governments’ reluctance to invest in our  forest sector for fear of fuelling accusations of unfair subsidies.

Jim Hilton is a professional agrologist and forester who has lived and worked in the Cariboo Chilcotin for the past 40 years. Now retired, Hilton still volunteers his skills with local community forests organizations.