Posted on 03/30/2005 1:34:33 PM PST by -=[_Super_Secret_Agent_]=-
American protectionism creates fitter Canadians
“IT'S the biggest trade battle on the planet,” says Pierre Pettigrew, Canada's trade minister, with only mild exaggeration. In 2001, Canada exported softwood lumber and wood products to the United States worth C$10 billion ($6.5 billion). Unfairly so, thanks to subsidies, squealed the American lumber lobby. Last May, America imposed countervailing duties averaging 27% on Canadian imports. This was supposed to force Canada to negotiate. But now it is the Americans who are suing for peace. This week, at the invitation of the United States' Commerce Department, all parties in the dispute were to gather in Washington for talks.
The duties have certainly hit Canada hard—and especially British Columbia, which accounts for about half of the exports. Mills were closed, thousands of workers were laid off and profits have crashed. But the industry has emerged even fitter than before. With production now concentrated at the more efficient mills, the industry's average costs have fallen by $65 per thousand board feet of lumber (even after adding on the duties). That has allowed Canadian firms to maintain their share of the American market while still turning a thin profit.
Meanwhile, the duties have not shielded American producers from pain. European producers have increased their exports, and prices have fallen by 10% since May. Twice as many American mills (114) as Canadian ones (51) have shut, or cut their output. Many managers admit that the duties have failed. So they want to replace them with export quotas.
That is precisely what Canada wants to avoid. In the past, Canada has agreed to managed trade, as a quick fix to a dispute which first flared 20 years ago. This time, it wants a long-term settlement. “The problem is very simple. It's that the American companies are not competitive,” says Mr Pettigrew. The roots of the dispute lie in different traditions. In the United States, most forests are privately owned, and timber prices are set by private contracts or auctions. In Canada, almost all forests belong to provincial governments, which grant companies long-term cutting-rights in return for promises about job numbers and sustainable forestry. Governments set harvest levels, restrict the export of raw logs and set stumpage rates (or cutting fees) according to market conditions.
The American lumber lobby instinctively suspects that a system where government has such a big role must involve subsidies. But on three earlier occasions, trade tribunals have disagreed. Mr Pettigrew is confident that the World Trade Organisation (WTO) and a tribunal under the North American Free Trade Agreement will come back with the same answer this time. Already, a WTO panel has ruled that the United States violated trade rules in applying preliminary countervailing duties.
That may explain why the Americans seem to be wobbling. Last month, Grant Aldonas, the under-secretary of commerce, set out for the first time the changes that America wants Canada to make if the duties are to be lifted. He called for the provinces to eliminate any rules that “insulate lumber producers from the market” and to use timber auctions to set stumpage fees. In other words, Canada should adopt the American model outright.
Nobody in the industry expects this to happen. Even so, Canada has agreed to talk, though British Columbia is keener to do so than Quebec, the other big producer. That is partly because British Columbia has its own plans to make forest management more market-oriented. These would double auctions of public timber (to at least 13% of the total cut), and base stumpage rates on those auctions. They would also scrap rules that require companies to harvest lumber even when the price is low and process it in their own local mills, and that make it hard for them to close mills. The reason? The government reckons that far from subsidising the lumber industry, its regulatory regime has hurt productivity and raised costs, without creating jobs.
The irony is that whether or not there is a settlement, British Columbia's lumber producers are set to become even more efficient. The big losers in all this, of course, are American consumers, whose houses are unnecessarily expensive—and protectionists, who are being given a lesson in textbook economics.
Funny people do not dispute the laws of supply and demand, but they somehow think they can transcend supply and demand.
What this article doesn't mention is that the improvements in Canadian mill productivity haven't only helped them stay competitive with U.S. mills -- they've allowed them to sell lumber for substantially less than U.S. mills in major export markets (Japan and Korea, for example).
Framing with steel is good for the US Steel industry, and keeps any recyclable steel here, instead of it going to China to be used eventually by their military...Check the price of steel and who is hoarding and buying up all the scrap!
Link to the steel framing alliance:
http://www.steelframingalliance.com/mc/page.do
Steel framing is dead simple, I've done it before, in some applications it goes up faster, is more durable, and it's fire proof.
I'm a Canadian and I advocate steel framing...besides...most of the good lumber comes from BC, where I'm from...most of the trees I've seen in Alberta are runts compared to coastal trees in BC...
MD
If I am reading this correctly, the Canadian sellers are getting free trees from the government owned forest while the US sellers are buying them at auction from private timber growers. Heck, even I could probably under sell my competitors and still make a profit with free raw materials.
That is the reality of the lumber marketplace in Canada - a country larger than ours with only 32 million people living in it. The only way we can stay competitive with them in the short term is to slap unfair tarifs on their products. Then, when we want Canada to play ball with us on other issues (MD, Iraq)we seem surprised when they say no.
We HAVE to stop giving our largest trading partner the finger on things that are important to them if we want them to stop giving us the finger on things important to us...
R.F.E. PING
B. Read my post -- the "protectionist" tariff has done more to HURT lumber producers in the U.S. than HELP them.
There's a very simple reason why Canadian lumber is so much cheaper, and it really has nothing to do with the so-called "government subsidy" in Canada. The reality is that Canadian lumber is so much cheaper because there's a lot more trees up there.
In addition, the element of U.S. demand for Canadian energy sources comes into play as well. Canadian mills along the eastern slopes of the Rockies in Alberta have a cheap source of lumber at their disposal -- the trees that are cut for oil and gas exploration and production. The energy companies cut these trees to clear land for seismic cuts and oil and gas rigs, and sell them at major discounts just to generate some extra revenue from something that would otherwise go to waste.
Yep, that's how I see it too. There is surpluss capacity in the US lumber production, which leads to companies bidding over each other for the right to cut the trees of private owners. The companies have to either buy the right to cut at a price which leaves them running a deficit, or go out of business. When cutting capacity in the US lumber industry has been reduced to match forest supply again, demand for cutting rights will drop, and loggers wil turn a profit.
Tariffs on foreign producers has no effect on this, as the resulting increase in profits for US logging companies is passed on to forest owners in higher stumpage fees.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.