Tension surrounding the latest softwood lumber showdown between Canada and the United States is not just limited to the lumber industries in the two nations.
As Canada’s lumber companies brace for the expected announcement Tuesday of new import tariffs on Canadian softwood heading into the United States, internal battles within the Canadian industry may prove just as difficult for the federal government to manage as its dispute with the United States.
Harry Nelson, a professor of forestry at the University of British Columbia, said the largest forestry companies, especially in British Columbia, can withstand a long dispute with several years of U.S.-imposed import tariffs on softwood. They not only have bigger cash reserves to help weather the storm, they have more market options in non-U.S. markets, such as China or India, which don’t make financial sense to any other region in Canada.
“Any company that is larger, has more production in the U.S. and has the ability to go to the Chinese or offshore export market is going to be in a better position,” he said.
Quebec’s largest softwood producer, Resolute Forest Products, says there’s one more important reason why British Columbia’s biggest companies have a “conflict” when it comes to advising Canada on how to solve the latest dispute.
“Three B.C. companies, the big ones, now own 39 sawmills in the U.S. southeast,” said Resolute vice-president Seth Kursman. “They did not own 39 sawmills in the U.S. southeast the last time around.”
Kursman said when the United States slaps an import tariff on Canadian softwood either tomorrow or under a new negotiated agreement, U.S. market prices for American lumber will likely go up, which means Canadian companies which produce a lot of American wood will benefit. Depending on the price and how much they produce, this could offset entirely the hit of the import tariff on their Canadian products, or in some cases, actually exceed it, he argued.
Resolute and the government of Quebec, want Canada to settle for nothing less than full, unfettered access to the U.S. softwood lumber market. Kursman said the situation has changed in Canada significantly since the 2006 softwood agreement was negotiated, which allowed provinces to choose between a lower import tariff with an annual export quota or a higher tariff with no quota.
The softwood dispute largely stems from the fact most Canadian lumber is harvested on government-owned land while American lumber comes mainly from private land. The American lumber lobby has long accused Canadian governments of allowing companies to cut wood for less than market prices, which they say is an unfair subsidy.
Kursman said in 2013 Quebec changed how its logs are sold to the lumber companies and now has an auction-based system that is very similar to that which exists south of the border. He said Ontario has a panel ruling from 2005 under the North American Free Trade Agreement which ruled that if subsidies do exist in Ontario, they are so small as to be irrelevant.
This means Central Canada has no subsidies and shouldn’t have to negotiate any kind of agreement with the Americans, Kursman said.
However, he said the biggest companies in British Columbia will be pushing for a managed deal like 2006. because it benefits them the most.
“They’ve got a natural hedge,” he said. “Their perspective on a managed trade agreement is quite different than where we stand in Quebec and Ontario.”
A spokeswoman for the B.C. Lumber Trade Council said it is preparing to respond to the tariff announcement and was unable to comment Monday.