2006–10-13 (Bryan Zandberg, The Tyee) Deal a bitter pill for some B.C. lumber firms
But some timber execs have unburdened themselves to union members, claims Terry Tate, a financial secretary with the United Steelworkers in Williams Lake. “They’re telling us behind closed doors that this deal is horrible.”
Michael Wigen of Wynndel Box & Lumber Company in Creston, B.C. has been an outspoken critic of the deal. He said that operating under the new agreement will be precarious for the family-owned mills that compose the Interior Lumber Manufacturers’ Association.
“We’re losing our ass at 11 per cent,” he said of the current duty. ”[Now] we’re going to go to 15 or 22.”
To be reimbursed $10 million of the duties he paid during the last five years, Wigen first has to sign off litigation to get back all the money he paid, plus agree to 78 cents on the dollar instead. Then he’ll have to pay a 20 per cent tax to the Canadian government.
“We’ve been denied the use of that money for years, and we’ve lost 30 per cent on currency exchange. Now we’re to lose another 20 per cent,” he complained, urging the government to “let this deal die and let us go back to litigating.”
According to the terms and schedules which make up the Softwood Lumber Agreement (PDF) between Canada and the United States, Canadian producers shall be liable to pay export charges (a different term for a penalty) if the average price of lumber as calculated by Random Lengths, a U.S. industry data compilation firm, drops below $355.00 U.S. / thousand board feet.
In addition to export charges being levied, there is a complex system of export quota reductions that is tied to price as well. Both export charges and quota reductions are calculated using the monthly average price as determined by Random Lengths.
Readers may recall that Canadian industry opponents to the deal were concerned about these provisions, in part due to the volatile nature of softwood lumber pricing which has both seasonal as well as economic cyclic influences. More lumber is used when weather makes building easier; more homes are built when housing markets are on the upswing. The price of lumber naturally climbs when both these cycles are pointed in the right direction.
Canadian producers, thanks to sharply declining U.S. housing starts, and the natural seasonality of lumber, are already on the hook for export charges, as the following table shows:
Of the 152 months covered in the summary table showing monthly prices from 1995 to 2006, average selling prices were over $355/thousand board feet in just 71 of those months – less than half the time (46.71%).
What Canada has signed onto is a system designed, deliberately, to shrink Canada’s forest products industry, and British Columbia, which alone provides lumber accounting for almost 19% of U.S. consumption, is the biggest loser.
In a Department of International Trade news release issued today, Emerson marks implementation of Softwood Lumber Agreement, the following misdirection will probably go unnoticed by many:
Very shortly, sawmills and producers in many of the more than 300 forestry-dependent communities across the country will see the return of more than C$5 billion dollars, breathing new life into the sector at this crucial time.
Note the 5 billion dollars referenced? Some might think, “hey, we got the extra billion back and then some”, but that wouldn’t be true.
Approximately 5 billion dollars, U.S. dollars, were collected in illegal duties by the United States, over a course of time when the Canadian dollar was severely devalued. During the past couple of years the Canadian dollar has appreciated from approximately 61 cents to 90 cents. Canadian producers paid U.S. duties in U.S. dollars. The currency exchange losses during this period of time are enormous.
The lost opportunity costs, quite apart from currency losses, are equally significant. 5 billion US dollars could have been used by Canadian industry to further modernize and increase productivity, making them an even more formidable competitor against US producers. For those who worship at the altar of “free trade”, an unhindered and liberalized trade relationship is, according to the dogma, supposed to produce exactly such a result. Clearly this isn’t so when the implementation of such agreements is far from free.
Some might argue that being paid back when the Canadian dollar is at a relative high amounts to some twisted form of enforced savings, but only someone desperate enough to justify this breach of Canadian sovereignty and international law would step out on that limb.
Now Emerson is trying to paper over the lost one billion dollars which the U.S. has decided to keep, despite countless legal rulings by the courts – U.S. courts – which support Canada’s case that the duties were illegal all along.
By converting USD 4 billion and change into CAD, those not paying attention might just think we got back the 5 billion originally owed us. It isn’t so.
[1] Softwood Lumber Agreement 2006 (PDF)