Jack M. Mintz: TPP should raze forest protectionism

July 2, 2015

By: Financial Post

With fast-track approval by the U.S. Congress, President Obama moves ahead with one of his most important initiatives of this second term: the negotiation of the Trans-Pacific Partnership (TPP). For Canada, a successful conclusion of the TPP will mean access to markets with 792 million people and $28.2 trillion in GDP, 40 per cent of the world economy. It would be a successful step to diversifying our trade with the U.S., Japan and growing emerging economies.

No doubt our pathetic supply management policies for dairy, poultry and eggs will be under the microscope. Virtually no argument can be given in favour of a policy that hits most heavily the poor with higher staple product prices, circumscribes the export of dairy and other products due to high input prices and undermines our ability to participate in new trading partnerships. Australia and New Zealand have successful dismantled their policies, resulting in these two countries becoming major exporters of dairy products as well as leading to a more efficient agriculture sector and ultimately lower consumer prices.

Canadians appear to be increasingly bullish about building closer ties with trading partners in the Americas, Europe and Asia, according to a new poll by the Angus Reid Institute, particularly in the level of support for the proposed Trans-Pacific Partnership currently being negotiated among 12 Pacific Rim nations in Asia and the Americas. .Read on

Supply management is not the only issue that the TPP could address to Canada’s benefit. We have engaged in other trade-distorting policies that have diminished our standard of living. Federal and British Columbian policies that restrict log exports are another example.

With the advent of another round of softwood lumber negotiations with the Americans this fall, Canada could use TPP as an opportunity to rid itself of a policy that restrict exports. The current system has federal and BC governments in cahoots with each other to restrict log exports so that logs are sold to BC wood producers at a discounted price.

The federal government restricts log exports from federal lands, including Aboriginal holdings and private land granted before March 12, 1906. The BC government regulates Provincial Crown Land and private land granted after March 12, 1906. Currently, most log exports come from the BC coastal region.

Log exports are restricted by a “surplus test,” which applies in British Columbia and not other provinces (the federal government has a memorandum of understanding with BC). An exporter advertises logs on a bi-weekly notification to give opportunities for log processors to offer a domestic price for the logs. If no offer is made, the logs are determined to be surplus and could be sold to the international market. BC further restricts exports from its land by applying an export tax that is 12 to 16 per cent of the domestic selling price.

Logs are not auctioned off to processors. Instead, a government-appointed committee determines whether an offer is “fair.” This Soviet-type approach to price determination is largely based on historical prices and is advantageous to the processors.

For some forest companies, domestic sales are below cost today – they make money only on exported logs. Chinese landed prices in Vancouver have been twice domestic prices in the past three years. Both federal and BC export restrictions have therefore imposed a large “tax” on value-added that would accrue to workers and owners of BC forestlands.

An argument in favour of restricting log exports is that it subsidizes the forest processing industries and employment. However, Peter Pearse, who headed a Royal Commission on forest industry, argued in 2006 testimony that log export restrictions do not improve economic performance. As he states, “in a predominantly market economy, you cannot get more value out of something by restricting the market for it.”

 

By: Financial Post

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