Softwood Subsidies - Tariffs on Canadian Lumber Imports

Amid howls of anguish and surprise, accusations of treachery and market fixing, as the US imposes a punishing tariff on Canadian softwood lumber imports, a few brave voices continue to insist the Timber Beast has no clothes.

by Will Horter, Forest Futures

On July 17th, the newly formed BC Coalition for Sustainable Forest Solutions released a report which documented $3 to $5 billion annually in subsidies to the BC logging industry. Cutting Subsidies or Subsidized Cutting, co-authored by economists Tom Green and Lisa Matthaus, focuses on five main types of subsidies: tenure, stumpage, bail outs, environmental waiver, and infringement of aboriginal title.

The BC Forest Minister, Mike de Jong responded with a denial that the BC industry was subsidized and a reprimand to the Coalition groups for “jumping in bed with the Americans.”

The BC Coalition for Sustainable Forest Solutions includes a broad cross-section of BC First Nations, labour and environmental groups. Information about the Coalition and the report is available at: http://www.forestsubsidies.ca.

Subsidies occur when public resources are available to private interests at less than their true cost. It is apparent to virtually everyone in BC that there are major systemic features of the British Columbia forest management regime that subsidize logging operations and promote, or do not discourage, environmentally and economically destructive behaviour.

Cutting Subsidies describes how the land tenure system is the foundation for other subsidies. As Michael M’Gonigle, Eco-Research Chair of Environmental Law and Policy at the University of Victoria points out, “these long-term tenures artificially depress prices (through lack of market competition) while they discriminate against innovative new entrants (through exclusion from access to timber).”

Cutting Subsidies also highlights the impact of subsidies on First Nations. The report estimates the subsidy resulting from non-recognition and infringement of Aboriginal rights and title at between $188 to $939 million annually.

Soon after Cutting Subsidies was released, and just before the decision on softwood lumber tariffs, which imposed a heavy penalty on BC producers and their workers, the BC government and the BC Lumber Trade Council submitted comments to the US Commerce Department based on a report by Yale Professor, Dr. William D. Nordhaus. This report mistakenly concludes that stumpage is merely like an arbitrary tax levied by the provincial government on rents earned by timber companies arising from their “ownership” of timber in provincial forests, rather than a price for goods purchased by the licensees, i.e., Crown timber. Taken together, the government submission and the Nordhaus’ report misrepresent the strength of property rights granted to tenure holders in BC.

In response, Forest Futures and the Sierra Club of BC, commissioned a legal opinion from West Coast Environmental Law which identifies the following inaccuracies and mistaken assumptions in Nordhaus’ report, which:

  • Inaccurately implies that licenses that grant timber harvesting rights (timber tenures) involve “ownership” of trees in provincial forests;
  • Inaccurately indicates that timber tenures grant tenure holders rights to economic rents;
  • Contains inaccuracies regarding the legal history of so-called “long-term” tenures in BC;
  • Inaccurately indicates that stumpage payments are not a contractual obligation;
  • Ignores the full implications of mandatory cut control requirements in the BC Forest Act; and,
  • Ignores BC legal decisions which hold that stumpage is a purchase price for timber, not a tax, a conclusion directly contrary to that contained in the Report.

The newly elected government continues to ignore repeated attempts to dialogue with organizations involved in the Coalition. In fact, Forest Minister Michael de Jong convened a “Softwood Jamboree” to discuss structural reforms including “changes to the way companies hold timber land and pay to log.” One hundred and forty industry representatives attended the meeting, but not one environmental representative was invited.

In the coming months the Coalition plans to release additional reports, including a study comparing Vancouver Log Market log prices with equivalent US market prices. Later this fall the Coalition will also be crafting a Solutions Paper or “Citizen’s Agenda for Forestry Reform” to simultaneously provide a means to defuse brewing trade disputes and to help to reform forest policies and practices to benefit all British Columbians.

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