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Cutting through the softwood lumber dispute

March 2, 2017

By: Rossland News

Softwood lumber strife between Canada and forestry titans to the south is certainly burning upheadlines this year.

The buzz on Thursday was about Prime Minister Justin Trudeau’s telephone chat with U.S.President Donald Trump Canadian Press reported that softwood lumber negotiations were atopic of discussion, as a follow-up to the leaders first White House meeting the week previous.

So timber news is certainly a hot topic these days. But in reality, the softwood lumber dispute isnot a “new” news story. In fact, lumber conflicts between the two nations date back almost 40years.

With so many jobs in the West Kootenay tied to forestry, the Trail Times talked about thecurrent industry climate with ATCO Wood Products owner Scott Weatherford. The family-owned Fruitvale company has been operating since the 1950s, now producing softwoodveneers for plywood customers in Canada and the United States. The Weatherfords (Scott andwife Rebecca) took over the business 10 years ago, and in that time, ATCO has joined theU.S./Canadian Sustainable Forestry Initiative program and become well known for their long-term business model and community-minded vision.

Weatherford points out that although softwood lumber is hot on the radar, the industry haslong been the centre of trade disputes between the neighbouring countries.

The current manifestation of conflict is the fifth time the matter has formally risen since theearly 1980’s, he explained.

“Generally, the U.S. softwood lumber industry will file a complaint with the U.S. Department ofCommerce alleging that the import of softwood lumber from Canada to the U.S. is unfair andharms the U.S. industry,” Weatherford began. “The U.S. Department of Commerce willinvestigate the complaint and if they agree, which usually happens, import duties on softwoodlumber from Canada will be levied.”

Historically, trade representatives from Canadaand the U.S. pursue negotiations alongside thesemore formal trade actions, and end up coming toagreement on some form of managed trade onsoftwood lumber for a period of time, he added.

“When that agreement expires, the cycle startsagain.”

According to the Council of Forest Industries,B.C. is the largest producer of softwood lumber inCanada (52 per cent), contributes $12 billionannually to the provincial GDP, one in 16 B.C. jobs is tied to the forest industry, and 40 percent of regional provincial economies are dependent on forestry.

Whittled down to basic economics, softwood lumber is critical to the economy of small townrural B.C. Terms that land in a new Softwood Lumber Agreement (SLA) will impact localforestry companies and thereby affect the local economy, in addition to economies incommunities across the province.

“The imposition of trade restrictions on softwood lumber will affect the entire forest industry inB.C. and in the West Kootenay,” Weatherford said. “Trade restrictions on any item that istraded between two countries will affect markets on both sides of the border.”

Market changes in response to trade restrictions are difficult to predict, there are many factorsto consider, he continued.

“In addition, we do not know yet what exact form or magnitude those trade restrictions willtake.”

B.C. wood products are exported to numerous countries, but the United States is a naturaldestination for sales due to the close proximity of the American market.

“ATCO has customers in both Canada and the U.S., as do most forestry companies in B.C.,”Weatherford said. “ATCO belongs to an industry association called the ILMA (Interior LumberManufacturers Association). Our membership is comprised of independent, family-ownedforest companies in the southern interior of B.C.”

Unique, long standing business models within the B.C. forestry sector have been carved outover time.

“All of our companies generally focus on producing specialty wood products and service nichemarkets,” Weatherford shared. “In addition, our companies are intricately tied to thecommunities where we operate and consequently have a very deep bond with thosecommunities. Our work within the ILMA is to educate on the benefits of our business model,and work to ensure that our type of family-owned, forestry businesses remain viable in the everchanging forest industry landscape for decades to come.”

Wood products manufactured in British Columbia are often the result of complex supplychains such as forest management companies, harvesting companies, primary manufacturers,remanufactures, specialty wood product manufacturers, commodity traders and brokers.

“Trade restrictions at the border will impact that particular export market and cause ripplesthroughout the industry and the supply chains,” Weatherford said. “Those ripples will affectthe companies along the supply chain in different ways according to their individual businessmodels.”

Another worry for export/import industries surfaced when the U.S. government changedhands in November. That is, Trump’s stated intention to alter NAFTA, a 1994 free tradeagreement between Canada, the U.S. and Mexico.

“This topic is a hot news item lately because of the positions that Donald Trump took withrespect to NAFTA during his campaign and his stated desires to renegotiate or eliminateNAFTA,” Weatherford noted. “Depending on what actually happens with NAFTA, will drivethe answers of who those changes will affect and their impact on specific companies, sectors,and economies on both sides of the border.”

The more significant the change a “new NAFTA” may take from the current agreement, themore significant the change to the industries and economies on both sides of the border, headded.

“Until some more clarity is obtained on exactly how NAFTA would change, it’s impossible tosay what those effects would be, and who would feel those effects,” Weatherford explained. “Isuspect this will be a story that will continue to develop as time marches on, and as the Trumpadministration gets further along in its tenure. It’s certainly one that we are continuing tomonitor closely at ATCO.”

The most recent Softwood Lumber Agreement between Canada and the States expired in 2015after a 10-year run.

Following the October expiration, the agreement called for a 12-month standstill period whereno trade actions could be brought by either country.

That standstill period ended in October 2016, and the trade disagreement cycle resumed.

The American lumber industry filed its complaint with the U.S. Dept. of Commerce inNovember 2016, then that department began investigating the complaint.

The heart of the dispute is the claim that the Canadian lumber industry is unfairly subsidizedby federal and provincial governments, as most timber in Canada is owned by provincialgovernments. Stumpage fees, or the prices charged to harvest the timber, are setadministratively, rather than through the competitive marketplace like in the United States.Also, most softwood lumber lots are privately owned in the States, owners form a politicallobby.

“The recent headlines have been related to the various, expected milestones in the U.S. Dept. ofCommerce’s investigation process,” Weatherford said. “Given the press releases from the U.S.Department of Commerce, it is likely that their investigation will conclude within the next fewmonths with the imposition of some level of trade restrictions on softwood lumber beingexported from Canada to the U.S.”

Forestry, like all industries and sectors, has and will always have, its unique set of challenges.

“We live in an ever changing world, with evolving macro economic forces, changing markets,shifting political landscapes, and new opportunities and challenges everyday,” Weatherfordconcluded. “Business is always challenging, and we fight everyday to ensure our business isopen tomorrow. That’s how it’s always been, and I’m certain that’s how it always will be.Whether it’s forestry or any other industry, if it was easy, everyone would be doing it.”

By: Rossland News

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