Free trade to axe profits from the forest firms?

Lawrence Solomon
The Globe and Mail
May 16, 1989

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Robert Rivard of the Canadian Lumbermen’s Association would like to go back to “the old free trade deal.” He feels the previous arrangement reflected a more Canadian brand of free trade that better served his association’s members.

“In the United States it’s capitalistic and it’s all for profit. They don’t like to operate at break-even prices.”
The corporations in Mr. Rivard’s association don’t like break-even prices either, of course, but he feels the provinces (which own most of Canada’s forest) should. The problem, as Mr. Rivard sees it, is that the U.S system is relentlessly, and successfully, pressing Canada’s provincial governments to reduce subsidies to the lumber industry. The inevitable result is higher fees for trees.
The trade deal’s potential to stop subsidies for social and cultural programs enraged its detractors during the last federal election campaign. Their fears may yet be realized. But that same subsidy-stopping power when applied to resource industries such as forestry, would please many of those same critics: should trees become costlier, destroying Canadian forest would become less lucrative.
In the United States, where most forest lands are privately held, woodlot owners auction off their trees to the highest bidder. This system, in Mr. Rivard’s view, inflated the price of wood to unrealistic levels.”
In Canada, the provinces use formulas that let them sell their trees if they can recoup two costs-the cost of fire protection and of aerial surveys to determine how much forest is left.
For decades, these formulas have provided trees to lumbermen at a cost so low that the industry has been able to clear forests that would otherwise have been uneconomic. In facts, the more remote the timber, the more the formulas compensate to make clear cutting profitable.
“Our philosophy is to try to get a fair price based on the industry’s ability to pay,” explains Bill Wardle at Ontario’s Ministry of Natural Resources. Ontario not only doesn’t insist on selling its timber for profit, it doesn’t even attempt to break even. Mr. Wardle cites the $200-million a year the province spends on forest management, while collecting only $82-million-an average of just $1 a tree- from the forest companies. In effect , the government pays forest companies to clear the land of forest. The companies have responded to the challenge so well that the government is now forced to push deeper into remote and disputed regions, such as the Temagami Indian’s wilderness area, to find forest lands to clear.
Because the government loses money on every tree it sells, and the forest companies don’t own the lands they harvest, neither has a financial incentive to replant. The result is a legacy of deforestation similar to that of some Third-World countries. In the United States, where the profit motive spurs vigorous replanting programs, as much forest land exists today as at the turn of the century.
Ontario and its policies are still in Mr. Rivard’s good books. But not British Columbia, which is capitalizing on the free trade climate to boost the price of lumber to Canadian as well as U.S purchasers. This extracting of profits from corporations for the public resources they purchase has loaded the B.C treasury with $600-million a year that Mr. Rivard reckons belongs to the forest companies.
“The deal is a windfall for them (the province),” says Mr. Rivard, “Win-win for the provincial government and lose-lose for the industry.”
But there is also a win for the environment and for native peoples: the fervor for resource profits will make the wilderness in much of the B.C hinterland less vulnerable to the lumberman’s axe.
Through similar subsidy reductions, the free trade deal may squeeze Canada’s mining industry-another environmental pariah-by curtailing uneconomic resource exploitation. U.S mining interests feel short-changed because the free-trade agreement deal didn’t stop Canadian subsidies, and in round two of the trade negotiations, which will settle the definition of subsidy, they are determined to score.
“Canadian subsidies are a matter of grave concern to us,” says Robert Muth, president of the U.S. Non-Ferrous Producers Committee, which represents copper, lead and other mineral interests. But he is confident that the heyday of subsidies is drawing to a close.
“The negotiators are not poles apart,” Mr. Muth says, “I would be shocked if any agreement would sanction the kind of subsidy we’re talking about- not subsidies to the health-care system but audacious grants of half a billion dollars shoveled out to the Canadian non-ferrous industry in the last three to five years.
Much of Canada’s mining industry exists only because governments, in the name of job creations, regional development or other social goals, have taken tax dollars from other parts of the economy and put them into this resource exploiting sector. If free trade forces Canadian governments to divide tax revenues more equitably, or to accomplish social goals through other means, such as by diverting subsidies to tax cuts or debt reduction-Canada would have fewer mines but more prosperity.
Removing economic subsidies from an environmentally harmful industry will almost always help protect the environment. But the free-trade pact’s potential to change the rules of the game could be far more sweeping if environmental standards in Canada and the United States become harmonized.
So far, the Americans have not attacked the Canadian industry for its low environmental standards, says Mr. Muth, contending that some Canadian plants, such as Noranda’s copper smelter, “ wouldn’t be allowed to operate anywhere in the United States… I’m not saying that we won’t make that argument in the future.”
Mr.Muth came close to arguing that Canadian environmental standards should be raised in a 1987 letter to Peter Murphy, the U.S trade negotiator. It noted that “Canadian smelting and refining capacity would contract if it were required to bear the full cost of.. meeting modern pollution control standards.” He cited a 1982 report of joint Canadian government-industry conference which predicted that pollution control costs would contribute to a shutdown of one third of the U.S copper-smelting industry. The conference warned Canadian industry to avoid those costs-a warning it has largely heeded.
As predicted, more than one-third of U.S copper smelters closed. The rest installed new technology to meet more stringent U.S. air-quality standards.
George Miller, president of the Mining Association of Canada, acknowledges that Canadian standards often lag behind those across the border. But Mr. Miller points to environmental progress made by his industry, and expects more.
“I suspect that there will be an attempt to harmonize standards,” he says-this inevitably follows increased trade and communications between nations.” “The harmonization,” he adds, listing examples in West Germany, Sweden and elsewhere, “ is always upward.”
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