Lawrence Solomon
National Post
April 4, 2000

It’s not free trade our lumber companies want, it’s free trees.

The rugged individualists attending the Canadian Lumbermen’s Association convention in Montreal earlier this year must have welled up with pride.

“We must unite and present a strong case for free trade to the federal government when it negotiates with the United States,” exhorted Frank Dottori, chief executive of Tembec Inc. and chairman of the Free Trade Lumber Council, a coalition of Canadian forest products companies. Gerry Shannon, formerly a federal deputy minister of international trade and now a top lobbyist with Government Policy Consultants, also talks a tough free trade game: Canada should “return softwood lumber trade between Canada and the U.S. to the rules and principles of free trade,” he states categorically.

These two forest industry defenders have set their sights on the 1996 Canada-U.S. Softwood Lumber Agreement, which was negotiated to appease U.S. loggers opposed to subsidized Crown land lumber entering the U.S. market. Under the agreement, cheap Canadian exports are subject to a quota. Because the five-year agreement, which expires next March, will soon face U.S. congressional hearings, our forest industry is sharpening its free trade rhetoric to demonstrate the justice of its cause.

But Canada’s free trade specimens — the former career civil servant and the CEO of a subsidy-dependent forest company — have a credibility problem. Particularly since their idea of free trade is to get trees for free — or some equivalent — and then trade.

Canada’s provincial governments have the same idea. They provide subsidies to the industry that exceed the stumpage the forestry companies pay our governments for the trees. In effect, our governments are paying the companies to remove our old growth forests for us, convert them into two-by-fours, and send them south. Free trade, Canadian-style.

Our old growth forests — much of them now standing tall in U.S. suburban malls and subdivisions — delight U.S. home builders, who credit them for brisk sales of affordable housing. But the Softwood Lumber Agreement enrages U.S. logging interests, who say Canadians have been cheating on the agreement by drilling holes in construction lumber (making it a “manufactured” product) among other tricks. After losing one-third of their market to cheap Canadian imports, U.S. loggers want to replace the softwood agreement with a requirement that Canadian companies buy Crown-owned logs at full market prices, set by auction, instead of at low bureaucrat-set stumpage rates.

On paper, the U.S. loggers’ plan has some merits, particularly for Canada. Forest revenues would fill our governments’ coffers instead of depleting them, giving the fees to the true owners of the forests, the public-at-large. The economies of the forest provinces would benefit, especially that of British Columbia, the province with the country’s biggest forest industry. By bleeding the productive parts of B.C.’s economy to finance its deforestation program, B.C. governments have stunted the provincial economy, helping to make it Canada’s worst economic performer over the last decade.

But the U.S. loggers’ hope that higher-priced Canadian logs will slash Canadian exports — a hope shared by some environmental groups in Canada and the U.S. — underestimates the Canadian entrepreneurial genius for devising and delivering subsidies. Although the Canadian forest industry is small — about 2% of GDP, including pulp and paper and other manufacturing activities — it is a mighty lobbying machine with a phenomenal record of success at sucking in government subsidies for its maw. Despite handouts, this old economy backwater logged a dismal 2.5% average return on shareholders’ equity over the last decade, according to PricewaterhouseCoopers, a forest industry auditor.

In heavily forested, heavily politicized B.C., where the industry accounts for almost 5% of GDP, the battle over who gets the subsidies is particularly bruising. To please its union friends, B.C.’s NDP government rejigged forest policies in an attempt to boost unsustainable jobs — this in an industry whose workers average $62,000 per year in wages plus benefits, about 50% more than the province’s non-forest workers. Had the NDP not won its upset victory in 1996 against the B.C. Liberal Party, labour unions would have had less influence and the forestry companies — who plied the B.C. Liberal Party with an eye-popping $500,000-plus in political contributions that election year — would have had more. Regardless of what party obtained power, the forest would have lost, the taxpayer would have lost, the economy would have lost.

If the U.S. loggers get their wish of fully priced Canadian logs, political leaders — whoever they may be — will find some way to funnel the funds back to exploiting forests, cheating on the new agreement just as they have on the last one. Five years from now, the Americans will be back, once again complaining that they’ve been had.

Subsidized forest exports are a fool’s game in which Canada loses a little in each transaction and hopes to make it up on volume. Our country’s most spectacular forests and fools lie in B.C., where forest industry exports, utterly devoid of free market discipline, insanely account for over half of all provincial exports. Canadians would do better if we simply wrote U.S. home builders a cheque for the value of our giveaways and left our forests intact. We would do best if we played an honest game of free trade, and kept our money and our trees.