The Canadian forest industry is on the verge of another watershed moment. The Softwood Lumber Agreement has lapsed, while efforts are underway to ratify the Trans-Pacific Partnership, creating both opportunities to take advantage of new markets and growing fears about future trade actions from the United States, its largest trade partner. The weak Canadian dollar and rebound in the U.S. economy has raised the stakes for Canadian lumber producers looking to sell their products to American buyers.
Rumours are rampant about whether a new agreement can be reached and, if so, what it might entail. While the Canadian government favours free trade, a tax on forest products entering the U.S. or a quota that limits the total amount of cross-border trade are seemingly more likely outcomes given how the dispute has played out in the past.
Each of these options could influence major shifts in the B.C. forest industry, where consolidation has hollowed out the middle class and led a few companies to control a large proportion of the forest resource. The U.S. forest industry has raised concerns about this consolidation, suggesting it is suppressing timber prices and hampering competition for wood. Powerful companies can benefit from lower timber prices because they reduce production costs, leaving more room for profit. A side-effect of consolidation has been to reduce opportunities for small and community- or First Nations-owned businesses.
Of the three options currently being discussed, free trade would offer the highest degree of market efficiency and longer-term certainty for producers of forest products, but the U.S. has resisted this option to date. An export tax would be the next best thing: Market access and export taxation would be consistent across producers. In contrast, imposing a quota could further entrench the position of existing firms with preferential access to the U.S. market. A quota would exacerbate the very conditions the U.S. forest industry has argued so hard against.
In the past, trade disputes have spurred the B.C. government into action. Anticipated accusations from U.S. negotiators about the lack of competition led to some positive policy changes in the 1980s, including a shift toward forestry licensees taking on reforestation responsibilities and the development of a competitive timber sales program.
The same opportunity for change exists today. The threat of another softwood lumber dispute has created a window for policy change to address a host of issues that are plaguing the forest industry: the need for meaningful recognition of aboriginal interests, the status of faltering rural economies and the lagging competitiveness of the industry, to name a few. The traditional approach to resolving these issues — increasing the amount of logging — is no longer possible. No new long-term forest licences have been issued since the 1970s and we are reaching the limits of what can be sustainably harvested. The effects of the mountain pine beetle, combined with the protection of forests for recreation, the environment and other needs, has left forestry companies bumping into one another in the hunt for available timber.
A simple but transformative change could rejuvenate competition and set the sector on a path to recovery: a forest licence buyout that could support redistribution of logging rights.
The idea of a buyout is not unprecedented. In the early 2000s, the last time the B.C. government undertook a major policy overhaul, a buyback was conducted as part of a suite of changes intended to make the industry more responsive to markets. Forestry companies protested government intervention, but it wasn’t long before they found a way to regroup.
Despite the existence of regulations designed to protect competition, major companies simply bought out smaller ones and established an even stronger position. Over time, five companies gained control of nearly 70 per cent of the long-term timber harvesting rights in B.C. The government intervention to diversify the industry in fact produced the opposite effect because of a failure to enforce regulations.
Competitiveness, however, remains critical to the long-term health of the B.C. forest industry and the communities that depend on it. What is needed is a fair, equitable forest licence buyback that can re-establish a middle class in the B.C. forest industry. By allowing a reshuffling of B.C.’s forest licences, the government can restore opportunities for a larger number of small- and medium-sized profitable forestry businesses, including First Nations- and community-owned enterprises.
A more competitive forest industry is not only good for the B.C. economy but can address tensions that have historically fuelled the Canada-U.S. softwood lumber dispute. Regardless of the outcome of future negotiations, levelling the playing field for forestry in B.C. will make the industry stronger and more resilient.