The Softwood Lumber Dispute

1. The Softwood Lumber Dispute

2. agenda • Evolution of softwood lumber dispute • Underlying causes • BC reforms to avoid • Forest Revitalization Plan • 2006 agreement • themes

3. ModernHistoryof Dispute • Lumber I: early 80s - increasedUS countervailing duty pressures • Lumber II: 1986 – MOU - export tax • Lumber III: 1992 US countervailing duties (6.5%) • 1994 - Canadian victory in binational panel • US changes law to undermine basis for ruling • 1996-2001 – softwood lumber agreement • Certain amount tax free • Substantial export fees above that level • Lumber IV: • April 2002 – US DOC final determinations: 27.2% duties • Canada won every major case • October 2006 – new Softwood Lumber Agreement

4. US arguments • Stumpage system - prices timber at less than market value • Cut controls – flood market at low point of cycle • Log exports – increase supply of domestic logs, depressing price • Direct grants/loans

5. BC Policy Reforms • How US trade pressures influenced BC forest policy - 2003 • Market-based pricing • Tenure takeback • Economic deregulation

6. Stumpage Defined • Stumpage is the price paid by a licensed forest company for a publicly-owned tree

7. BC’s Stumpage System (until 2004) • Comparative Value Pricing (>90%) • Product prices – logging costs, adjusted to account for gov target revenue • auction-based market pricing (<10%) • small business sales FRST 415

8. Agenda 2 BC policy reforms announced as response to US softwood lumber challenge

9. Agenda 2 BC Proposal in Softwood Lumber Dispute • institute market-based pricing • eliminate below-cost sales • eliminate “blending” of blocks with significantly different stumpage values to reduce “cross-subsidies” • award new timber rights competitively, by awarding them to the highest bidder • allow Forest Licences and Tree Farm Licences to be subdivided • reduce restrictions on the transfer of tenures, including eliminating the 5% AAC takeback • eliminate “cut control” requirements that require a minimum amount of timber be harvested regardless of market conditions • eliminate utilization requirements; • eliminate appurtenancy provisions that tie harvesting rights to requirements to process the timber in company-owned mills

10. Decision: Forest Revitalization Plan

11. Forest Revitalization Plan“biggest change in 50 years” • Takeback and Redistribtion • 20% taken back from long term replaceable licences • first 200K m3 exempt • 10% to auctions • 10% redistributed to • First Nations (8%) • Woodlots • Community Forests • Compensation: $200 million FRST 415

12. Forest Revitalization Plan“biggest change in 50 years” • Changes in economic regulations • allow subdivision and transfer without penalty • eliminate appurtenancy • eliminate minimum cut control requirements FRST 415

13. FRP – Setting a Fair Price

14. Canada-US Softwood Lumber Agreement of 2006 • 7 year term, with option to renew for 2 • end to litigation, US pledges to dismiss new actions • Canada to receive $4 billion • US receives $1 billion • $500 million to US companies • $450 million to “meritorious initiatives” • $50 million to create a “North American Lumber Council”

15. Softwood Lumber Agreement of 2006 – managed trade

16. Lumber prices – 2001-13 http://cfs.nrcan.gc.ca/selective-cuttings/43

17. International Context: Summary • International Forces: Contribute to crisis, constrain reform • environmental agreements • world market trends • push prices down • green markets - certification, boycotts • push costs up, threaten demand • US trade pressures • push costs up • Force difficult policy reforms • major challenge to sovereignty

18. Themes • US trade pressures have pushed costs up and constrained BC’s policy sovereignty. • BC’s market-oriented forest policy reforms were strongly influenced by trade pressures by the United States