Free trade for dummies

Lawrence Solomon
National Post
February 6, 2001

How dumb does Prime Minister Jean Chrétien think President George W. Bush can be? Very, very dumb, judging by the arguments over softwood lumber that our Cabinet ministers and trade officials had been floating prior to Mr. Chrétien’s meeting with Mr. Bush yesterday. Only someone as thick as a plank could buy the lulus put out by our government leaders in what — at over $10-billion per year — is by far the most important trade dispute between the two countries.

“We think our producers are paying fair stumpage and we want complete and open access” to the U.S. market, Brian Tobin, our new Minister of Industry, stated with a straight face last week. Mr. Tobin hopes Mr. Bush cannot understand what his aides have surely told him — that British Columbia forestry giants such as Weyerhaeuser and Interfor obtain much of their lumber from the B.C. government for 25¢ per cubic metre of wood. A telephone pole contains about a cubic metre of wood. Those huge, heavily-laden logging trucks that leave Canada’s Crown forests each carry about 35 cubic metres. The 25¢ stumpage fee forest companies pay the B.C. government works out to less than $9 per truckload of wood.

In the 4th quarter of 1999, Interfor, one of B.C.’s biggest exporters, obtained over half of its lumber from the B.C. coast at that 25¢ stumpage rate. It then resold the wood for up to $300 a cubic metre. That’s fair — the free market at work — insists Mr. Tobin bizarrely, even if no private party would ever part with trees at those prices. Americans just don’t understand how free markets work. “We’re in a free trade era with our friends to the south,” and Canadians may just have to teach them a lesson, he reasons, perhaps by sheltering our lumber trade under NAFTA.

Pierre Pettigrew, our Minister for International Trade, thinks he can persuade Mr. Bush that Canadians are the free traders and Americans are the protectionists. The Canadian government and Canadian forestry companies are united in their belief that Canada’s fees are not artificially low, Mr. Pettigrew explains deftly: “There is a significant consensus in the country for us heading towards free trade in lumber.”

The forest industry — among the beneficiaries of Canada’s nearly-free-trees policies — agrees.

“This time we must fight back for free trade,” stated David Emerson, chairman of the Canadian Pulp and Paper Association and CEO of Canfor Corp, a Canadian forestry company that favours free trade if it can obtain free trees.

Mr. Emerson also wants to fight for “a level playing field,” by which he must be referring to the forest floor after his logging equipment has done with it. He can’t be referring to paying a free market price for our wood, as determined by an auction, as U.S. companies logging U.S. forest lands must. He also can’t be referring to the B.C. system of setting stumpage rates, under which the government often charges little forestry operations more for their trees in order to get away with charging the giant forestry firms less. Or to the Canadian requirement that our forests be cut, even at a loss, to keep forest industry workers employed.

Most of all, when Mr. Emerson speaks of a level playing field, he can’t be referring to the way Canadian forestry firms finance their exports to the United States. Canada’s forest industry has in its camp the federal government’s Export Development Corporation — best known for subsidizing Bombardier’s airplane exports when it isn’t subsidizing exports to Third World countries.

Although our government may think Mr. Bush too thick to know it, EDC’s largest customer by far — accounting for almost one-quarter of EDC’s business — is the forest industry. EDC finances almost four times as much in forestry exports — most of which are destined for the United States — as in aerospace exports. EDC-backed forestry exports, in fact, rival all EDC-backed exports to all Third World countries combined. The U.S. equivalent of EDC, the Ex-Im Bank, finances not a penny of forestry exports to Canada, Japan or any other developed country.

That Canada’s forest industry obtains magnificent B.C. trees at $9 per truckload is well known to the U.S. administration. After the story first broke in the Vancouver Sun last fall, forest interests on both sides of the Canada- U.S. border heatedly debated the fairness of the stumpage calculation system. Yet Weyerhaeuser and Interfor had both cleared their calculation method with the B.C. Ministry of Forests. It’s the best-known secret on the coast, explained Darrel Wong, president of the International Woodworkers of America-Canada local that represents coastal loggers.

The B.C. government sells trees at a price no individual Canadian woodlot owner would ever contemplate selling because it cannot otherwise maintain its forest industry — the industry is in decline even with the government giveaways. “It’s the only way we can stay competitive and the only way we can keep our costs in line,” explains Steve Crombie, Interfor’s director of public relations. If Interfor had to pay higher rates, he explains, the impact on the coastal industry would be disastrous. “You have companies that are barely able to stay afloat.”

Put another way, under a true free trade system — not the Canadian variety — the forest industry would contract greatly, to an economically rational size. Forests along the magnificent B.C. coast would be preserved. Provincial taxpayers would be spared the immense subsidies now required to prop up the timber companies. Federal taxpayers would be spared the need to subsidize forest exports through EDC.

And Canadians as a whole wouldn’t need to wonder just which side of the Canada-U.S. softwood lumber debate is as thick as a plank.


1 thought on “Free trade for dummies

  1. Pingback: Stopping subsidized lumber exports | Environment Probe

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