October 19, 2016 6:58 pm
Updated: October 19, 2016 7:07 pm

Baldrey: Protectionist U.S. politics mean trouble for softwood lumber

A section of forest is harvested by loggers near Youbou, B.C. in Jan. 2015.

THE CANADIAN PRESS/Jonathan Hayward
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The B.C. economy keeps chugging along and leads all provinces in terms of performance, but there is a dark cloud on the horizon that may change all that.

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The one-year truce that followed the expiration of the nine-year softwood deal with the United States has ended and no new agreement is in sight. As a result, U.S. lumber companies are expected to quickly file lawsuits and B.C. lumber producers could face serious financial penalties come next March, when hefty duties will almost certainly be slapped on B.C. softwood shipments south of the border.

Layoffs in the forest industry are more than likely, and the shutdown of mills could also occur. While B.C.’s forest industry has declined in terms of numbers and economic activity since say, the 1980s, it remains a vital component of the provincial economy.

And while the softwood industry itself may seem like a remote thing to many who live in Metro Vancouver, it is a very real and vital part of the local economies of many communities throughout the Interior and the northern reaches of this province.

WATCH: New concerns for B.C. communities as softwood lumber deal expires with U.S. 

 

This has been a long-running dispute going back decades, and comes down to a central argument: how much of a share of the U.S. market should Canadian lumber companies be entitled to?

In recent years, Canada has enjoyed a share of about 30 to 33 per cent of the market, but the U.S. industry is said to be pushing for a permanent cap of about 22 per cent based on a quota system. Canadian softwood companies say that reduction is both unacceptable and unfair.

In making its case, the U.S. industry argues Canadian lumber companies receive a de facto government subsidy because provincial governments charge too little to harvest timber on Crown land (U.S. producers harvest trees on privately owned land, and use an auction system that costs them more than what Canadian companies pay).

READ MORE:  5 things to know about Canada’s softwood lumber trade war with the U.S.

International trade panels have consistently ruled in favor of Canada and B.C.’s counterargument that it does not use a subsidized system, but that matters little to the aggressive U.S. Lumber Coalition, the major industry lobbying group that simply won’t let this fight go.

And if past action taken by U.S. lumber producers in this never-ending trade war is any indication, the financial penalties for Canadian companies could be substantial. For example, the last dispute ended in 2006 and for years before that the U.S. slapped an average 27-per-cent tariff on Canadian softwood, which amounted to more than $5 billion during the length of that dispute.

Talks are continuing for a new deal, but neither side is expressing optimism that something might be agreed on soon. Colouring the situation in a negative way is the fact that we are in a particularly nasty U.S. election campaign south of the border, where protectionist feelings (which favors tariffs and duties on imports to protect local industries) are rampant within both major political parties.

READ MORE: Canada, U.S. vow to continue softwood lumber talks despite deadline expiry

Both U.S. presidential candidates — Hillary Clinton and Donald Trump — have expressed everything from reservations to outright condemnation of trade deals, and that has no doubt played a role in the snail’s pace of progress at the negotiating table.

If Clinton wins (a scenario suggested by recent polls, but who really knows?) it’s important to note that her Democratic Party is traditionally far more protectionist when it comes to trade than the Republican Party. In fact, B.C.’s worst enemies on this issue for years were Democratic senators and members of Congress.

Of course, whichever party controls the House and the Senate will likely have more impact on how softwood is dealt with than whoever is in the White House, but it’s easy to see that, no matter what the election outcome, it’s going to complicate things.

In any event, that black cloud on the horizon should come clearly into sight when those duties kick in as early as next March, just before B.C. heads into its own election campaign. That means there’s a chance the lack of a deal could become an issue in that election, although it’s far from clear if any of our main political parties will be hurt by it.

Nevertheless, some of our regional communities had better brace for the kind of economic hit they haven’t seen for quite a while, especially while our overall economy has been doing so well.

Keith Baldrey is chief political reporter for Global BC

Keith.Baldrey@globalnews.ca

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