Canadian timber chief bullish on softwood lumber trade

With export tax poised to disappear next month, high prices and heavy logging of cheap B.C. timber has the U.S. worried about a flood of softwood across the border

Barrie McKenna
Published on Tuesday, May. 11, 2010 6:00AM EDT Last updated on Tuesday, May. 11, 2010 1:32PM EDT
West Fraser Timber Co. (WFT-T43.081.483.56%)chief executive Hank Ketcham thinks Canada is on the brink of a new era of trade peace with the United States.
No duties, no border taxes and no litigation. Within a few years Canada would be free to sell as much softwood lumber as it wants to the United States.
“It's too soon to say, but I subscribe to that notion,” Mr. Ketcham, who runs North America’s largest lumber producer, said recently.
Mr. Ketcham must be dreaming. The U.S. lumber industry and its trade arm, the Washington-based Coalition for Fair Lumber Imports, is unlikely to concede defeat any time soon. The group is a perpetual litigation machine, committed to protecting as much of the U.S. market as it can, for as long as possible.
If anything, the coalition has become more emboldened since Canada and the United States signed a six-year deal in 2006 to limit Canadian softwood exports. It has been quietly collecting a list of alleged violations by Canada, including what it says are illegal subsidies to mills in several provinces and policies in British Columbia that give away healthy tracts of timber for pennies to companies such as West Fraser under the guise of the pine beetle infestation.
Mr. Ketcham’s sunny demeanour comes as the export tax is poised to disappear in next month – at least temporarily. Under the 2006 softwood deal, the tax ratchets down as North American prices go up.
And thanks to a wave of mill closings on both sides of the border and an apparent end to the U.S. housing depression, prices have been climbing since late last year.
In May, the tax dropped to 10 per cent from 15 per cent. With prices still climbing this month, the tax will vanish altogether in June, and stay off for as long as prices remain high. Last week, the average price for 1,000 board-feet of standard lumber hit $361 (U.S.) for the period used to calculate the tax, or above the zero-tax threshold $356 per 1,000 board-feet.
Mr. Ketcham may see the removal of the tax as a sign of hope.
For the U.S. industry, it is a call to arms.
Coalition officials, who are huddling in Atlanta this week, worry that a combination of high prices, the removal of the tax and heavy logging of cheap B.C. timber will trigger a flood of Canadian softwood across the border.
And they aren’t about to stand idly by and let that happen.
The U.S. industry argues that Canadian provinces are routinely violating the softwood agreement’s anti-circumvention clause.
No. 1 on the coalition’s target list is British Columbia, Canada’s largest lumber-producing province. The U.S. industry alleges that about 40 per cent of the trees now being harvested in B.C.’s interior are being labelled “reject” timber because of a tree-destroying pine beetle infestation. So the province sell the timber for roughly 25 cents per cubic metre, compared to the normal rate of $5, providing a direct benefit to companies such as West Fraser.
“The beetle outbreak cannot obscure the government’s continuing policy to take timber pricing in the province even further away from market timber pricing, in direct violation of the terms of the U.S.-Canada accord,” coalition chairman Steve Swanson pointed out last month.
The coalition has similarly complained about proposed government loans to Miramichi Lumber Products in New Brunswick and AbitibiBowater in Quebec.
In 2008, the U.S. government fought and won a multi-million-dollar judgment from the London Court of International Arbitration related to how Quebec, Ontario, Manitoba and Saskatchewan applied their export quota.
The pattern is well established. The United States will fight anything that gives the Canadian industry a cost or volume edge in their market.
So while Canadian lumber producers are about to enjoy a break from the export tax, it would be naive to see it as a harbinger of free trade.