U.S., Canada extend lumber trade pact, but dispute continues

Published: Monday, January 23, 2012, 6:26 PM     Updated: Monday, January 23, 2012, 7:05 PM

By Richard Read, The Oregonian

 

View full sizeJAMIE FRANCIS/THE OREGONIAN

Logs head for the Warm Springs Forest Products mill in Central Oregon.

 

The United States and Canada have decided to extend a lumber trade agreement for two years, but a dispute continues over Canadian exports that U.S. mill managers consider unfair.

U.S. lumber industry leaders still contend that British Columbia misgrades and
underprices timber, enabling Canadian mills to undercut competitors in the
United States and abroad. That perception and other disputes over the years
explain the lukewarm reaction Monday from Oregon industry leader Steve Swanson,
chairman of the U.S. Lumber Coalition.

"We are supportive of the extension, but compliance with the existing Softwood
Lumber Agreement is imperative," Swanson said. "If Canada continues to violate
it, then we need to make sure that our government continues to pursue those
violations."

The 2006 agreement will remain in effect through Oct. 12, 2015, U.S. Trade
Representative Ron Kirk said Monday. Canadian news reports described the
extension, closely following President Barack Obama's rejection of the Keystone
XL pipeline from Alberta to the U.S. Gulf Coast, as an olive branch from the
United States.

Swanson, president of the Swanson Group based in Glendale, Ore., described the
agreement as a compromise that is "not ideal." He cited the current dispute,
which is undergoing arbitration expected to wind up later this year.

Canadian exports to the United States have fallen, along with the collapsed
housing sector, to account for about a quarter of the U.S. market, said John
Allan, president of the BC Lumber Trade Council in Vancouver, British Columbia.
Exports to China have boosted Canada's mills.

Sales to China helped prevent closure of Swanson's Glendale mill, which now runs
at three-quarters capacity serving the U.S. market. With two sawmills, two
plywood mills and an aviation division, Swanson Group has about 750 employees,
down from more than 1,200 at its peak in 2007.
-- Richard Read, twitter.com: ReadOregonian
 

U.S. wins trade case, Canada must stop subsidizing lumber mills

Published: Friday, January 21, 2011, 6:02 PM     Updated: Friday, January 21, 2011, 6:09 PM

 By Richard Read, The Oregonian 
Follow

Ontario and Quebec must stop subsidizing lumber manufacturers or levy nearly $60 million in tariffs on Canadian exports to level the playing field for U.S. producers, a trade tribunal ruled Friday. 

Steve Swanson, chairman of the U.S. Coalition for Fair Lumber Imports, welcomed the ruling. "By providing new subsidies, Canada knowingly violated the terms of the lumber trade agreement to provide an unfair advantage to Canadian producers in this very challenging market," said Swanson, president of Swanson Group mills in Glendale. 

The tribunal of the London Court of International Arbitration found that the provincial subsidies violated a U.S.-Canada softwood lumber trade agreement reached in 2006. Under the agreement -- effective for seven years -- Canada collects export taxes on shipments of softwood lumber to the United States when lumber prices fall below certain levels. The agreement prohibits Canadian federal and provincial governments from circumventing these tariffs by increasing subsidies beyond those in effect in 2006. 

The U.S. coalition began dispute proceedings in 2008, citing plans by Quebec and Ontario to provide hundreds of millions of dollars in grants, subsidized loans and loan guarantees. The decision issued Friday requires Canada to end the illegal subsidies or levy additional tariffs. If Canada doesn't act within 30 days, the United States can slap import duties on Canadian lumber. 

U.S. Trade Representative Ron Kirk applauded the ruling, saying the result is "important for U.S. workers, firms and our softwood lumber industry." 

Peter Van Loan, Canada's international trade minister, said the ruling could have been much worse for Canada. He noted the tribunal dismissed 97 percent of the initial U.S. claim of $1.86 billion. 

The decision is the second consecutive win for the U.S. at an arbitration tribunal. The court previously ruled against Canada over the calculation of export quotas in 2007. 

Canada's lumber industry faces a bigger threat from a third U.S. case, filed Tuesday. The United States claims British Columbia has been misgrading and underpricing publicly owned timber in the province's interior region, hurting U.S. producers. Canada denies the allegations, saying trees damaged by a mountain pine beetle infestation are being graded and sold correctly. 

If the United States wins the next case, Canada's bill could reach nearly $500 million. 



--Richard Read 

United States picks international trade fight with Canada over softwood lumber

Published: Tuesday, January 18, 2011, 8:11 PM     Updated: Tuesday, January 18, 2011, 8:11 PM

 By Richard Read, The Oregonian 

Randy L. Rasmussen, The OregonianThe United States contends Canadian timber policies violate a 2006 agreement and harm Pacific Northwest mills like Seneca Sawmill Co. in Eugene, which processes Douglas fir into lumber.

 The United States aims to take Canada to the woodshed over what trade officials contend is under-priced British Columbia timber that unfairly competes with U.S. lumber companies and workers. 

U.S. Trade Representative Ron Kirksaid Tuesday the Justice Department would file for arbitration under a softwood lumber agreement signed in 2006 after years of disputes. Kirk said British Columbia was selling timber harvested from public lands for prices below amounts set by the agreement, undercutting mills in the Pacific Northwest and other regions. 

"This type of benefit harms U.S. workers and firms in the lumber industry and is inconsistent with Canada's obligations," Kirk said. "Canada is in breach of its commitments." 

Canadian government and industry officials rebutted the claims. 

"There's no substance to this," said Pat Bell, British Columbia's minister of forests, mines and lands. "We should be working on developing other markets together, like Korea, like China, like India." 

Disputes over U.S.-Canadian lumber trade are as old as the hills. But in this round, the United States contends British Columbia resorts to a new tactic, improperly grading timber as beetle-killed salvage material and selling it for pennies per cubic meter to Canadian mills. The mills turn the timber into lumber sold cheap in America, hurting U.S. businesses and workers, said Steve Swanson, an Oregon lumber producer who chairs the U.S. Coalition for Fair Lumber Imports. 

Swanson, chief executive of Glendale-based Swanson Group, said British Columbia should reverse its practices, charge proper timber fees and levy export taxes to even the playing field. 

"North American lumber producers have curtailed production, closed mills and been forced to let go thousands of workers," Swanson said. 

The Justice Department is requesting a judgment by a tribunal of the London Court of International Arbitration. 

John Allan, president of the BC Lumber Trade Council, said U.S. officials brought the latest action in response to political pressure. 

"It seems to be an attack on how we manage our forests with respect to the mountain pine beetle," Allan said. "They're basically saying, 'You should have left those trees to die on the stump.'" 

Bell, the forests minister, said British Columbia grades timber just as it did before the 2006 agreement. Lumber prices are higher than expected, proving the agreement works, he said. China is also buying lumber, he said, due in part to Canadian marketing. 

Chinese purchases also helped sustain a Swanson mill in Glendale that would have closed as unfair Canadian competition intensified, said Zoltan van Heyningen, the U.S. lumber coalition's executive director in Washington, D.C. 

"Hopefully this case will help enable it to keep open," van Heyningen said. 

--Richard Read

Oregonians say Canadian logs are misclassified, undercutting U.S. mills and jobs

By Richard Read, The Oregonian 

Daniel Webster would instantly recognize the lumber trade dispute erupting once again between the United States and Canada. 

The legendary American statesman helped settle the Aroostook Lumber War, an 1842 skirmish in the same conflict. But the treaty he negotiated only briefly interrupted the strife that dates all the way back to 1789, when Congress passed a 5 percent tariff that included Canadian lumber. 

This time, the fisticuffs feature a cast of obstinate characters including hard-pressed Oregon mill owners, a renegade Canadian lumber baron and North America's most destructive bark beetle. 

The conflict entangles two nations that otherwise are the best of friends, with two-way trade exceeding $430 billion a year. 

U.S. industry leaders contend British Columbia misclassifies timber as salvage material so Canadian companies can bombard the United States with subsidized lumber, undercutting U.S. mills and jobs. 

Managers of southern Oregon's Swanson Group, for example, blame unfair Canadian competition, in large part, for continuing production cuts and the 2007 closure of their Glide mill that employed 100. 

Canadian government and industry leaders dispute the charges while bracing for the next U.S. legal salvo. Washington could haul Ottawa back to a London tribunal as soon as this week. 

Jeff Redd, associate editor at Eugene-based Random Lengths, which tracks the forest-products industry, says the housing crash has heightened tensions as companies fight for shares of a diminished $6 billion U.S. softwood lumber market. 

Randy L. Rassmussen/The OregonianA loader carries Douglas fir tree tops to the mill at Seneca Sawmill Co. in Eugene.

Redd expects the conflict to continue indefinitely, potentially raising prices. 

"It's very seldom there's been peace in this lumber war," Redd says. "I don't imagine either side's going to change its basic premise anytime soon." 

Northwest hard hit 
The dispute is crucial to the economies of Oregon, Washington and British Columbia, where forests contain vast stands of fir, pine and other softwoods.

The softwoods are milled into studs and beams for construction, in contrast to hardwood used for cabinetry and floors. Canada holds a 28 percent share of the U.S. softwood market. 

Timber was important in Daniel Webster's era, too, when Congress authorized 50,000 troops to mass on Maine's disputed border with New Brunswick. These days, lumber battles are mainly confined to courtrooms, but Congress remains involved. Rep. Peter DeFazio, D-Ore., and other Northwest delegation members want the Obama administration to fight what they consider illegal Canadian subsidies. 

Speaking for Canada, John Allan, president of the BC Lumber Trade Council, claims politics trumps common sense. "The U.S. lumber lobby is using U.S. senators, namely Max Baucus of Montana and Olympia Snowe of Maine, to press the administration to take us to the woodshed and beat the hell out of us," Allan says. 

Allan says his industry organization spent more than $100 million as litigation exploded between 2001 and 2006. "Once you get dug in on that stuff," he says, "surrender's impossible." 

The heart of the timber tussle is the U.S. claim that Canada maintains a government-controlled system that unfairly subsidizes the lumber industry while the United States uses a market-based approach. 

In Canada, officials set prices of timber, most of which is owned by provincial governments. In the United States, companies buy timber at auction. 

The Coalition for Fair Lumber Imports, a U.S. industry group based in Washington, D.C., claims British Columbia and other provinces provide timber at below-market costs, depressing lumber prices. 

"It allows Canadian companies to chase the lumber price down further and still make money," said Zoltan van Heyningen, the U.S. coalition's executive director. "U.S. lumber producers - who are, especially in the Northwest, the most efficient in the world - struggle to survive day-to-day while these guys in Canada make record profits and capital investments." 

Randy L. Rasmussen/The OregonianA rainbow forms above Douglas fir logs stacked at the Seneca Sawmill Co.'s yard in Eugene. Canadian lumber that is essentially subsidized is making it hard for the Oregon company to compete successfully.

Multiple go-rounds 
Since 1982, the dispute has gone through four rounds, dubbed Lumber I, Lumber II and so on. Lumber IV culminated in a 2006 agreement. The United States agreed to stop collecting countervailing and anti-dumping duties. Canada committed to tax and limit lumber exports, and to introduce no new subsidies. 

"Almost immediately upon signing the agreement, we had violations occurring," says Steve Swanson, chief executive of Glendale-based Swanson Group. U.S. trade officials twice took Canada to the London Court of International Arbitration. 

Swanson, who chairs the Coalition for Fair Lumber Imports, says British Columbia came up with a way to circumvent the 2006 agreement, using a mountain-pine-beetle infestation as an excuse. 

Historically the B.C. government charged only 25 cents a cubic meter for pulp-quality logs, deeming them Grade 4 on a four-point scale. That's far below the normal stumpage price for lumber-grade logs, which average $12 a cubic meter, Swanson says. 

Grade 4 logs used to make up only 10 percent of timber from British Columbia's interior regions used for dimensional lumber. But van Heyningen says provincial officials have jacked up the share to almost 50 percent, citing bug kill. "If you look at the numbers," van Heyningen says, "it's impossible that such a vast amount of logs are correctly graded as Grade 4." 

So B.C. lumber mills enjoy cut-rate wood prices, based on falsely graded timber, van Heyningen says, while U.S. producers pay much higher market rates. 

Not true, says Pat Bell, British Columbia's minister of forests, mines and lands. Grading standards and enforcement haven't changed since 2006 when the agreement was signed, Bell says. Grade 4 timber volumes have increased legitimately because of widespread bug kills, he says, which were plainly evident in 2006. 

"I live in Prince George, at about the center of the province," Bell says. In 2006, "there were days when you could travel 50 miles in any direction and not see a live tree." 

View full size

Bell, who co-owned a logging company before entering politics, says most of the wood being sold for 25 cents is so badly degraded it has to be used for pulp or bioenergy. "This is just another tactic of the American coalition trying to provide a subsidy to their industry by putting tariffs on the Canadian forest-products industry," he says. 

Yet Bell's position is contested by an unlikely source: a fellow Canadian. Rick Doman, chief executive of Montreal-based Eacom Timber Corp., comes from a family that owned a wood-products business in coastal British Columbia. 

Doman says the U.S. coalition is right about falsified grading of timber. Despite being bug-killed, he says, the timber is good enough to be shown off by Canada as material for the gigantic roof of the Richmond Olympic Oval, built for the 2010 winter games in Vancouver. He says the 25-cent price enjoyed by interior-British Columbia mills forced his family's coastal company, which had to pay $20 a cubic meter, into creditor protection. 

"The losers were the B.C. taxpayers," whose timber assets were sold for a song, Doman says. 

Enter China 
Allan, the B.C. industry spokesman, dismisses Doman's comments as sour grapes. 

He says mills in British Columbia's interior have invested in optical scanners and other improvements so they can make lumber from beetle-killed timber. Van Heyningen says Allan disproves his own point, because Grade 4 timber is defined as wood so degraded that less than half of it can be sawed into lumber. 

Allan responds that B.C. companies shouldn't be penalized for innovating to handle salvaged logs. His industry group includes giants such as Canfor Corp. and West Fraser Timber Co., whose spokesmen decline to comment on the trade dispute. 

Allan says U.S. companies should stop spending money on lawyers and invest it instead, as British Columbia does, in promoting exports to China and other expanding markets. In October, Bell says, B.C. producers sold $144 million of lumber to China and Japan and only $124 million to the United States. 

Indeed China is breathing life into a Glendale mill owned by Swanson Group, the Oregon company that blamed Canadian competition, in part, for closing its Glide plant. The Glendale mill, which was to close as well, is working to fill the company's first Chinese contract. 

But Steve Swanson figures his mills, running at 50 percent capacity, would be operating at 75 or 80 percent if not for the competition from Canada. The company pays line workers $30,000 a year plus benefits. Salaries for electricians and other tradespeople reach $80,000. 

In Eugene, Rick Re, vice president and general manager of Seneca Sawmill Co., tells a similar story. 

"If subsidized lumber continues to come into the U.S., our wood-products industry is going to contract," Re says. "The Canadians are exporting their unemployment to the United States, and we're living with it." 

--Richard Read 
http://www.oregonlive.com/business/index.ssf/2011/01/oregonians_say_canadian_logs_a.html