Timber Industry Welcomes Trade Extension, With a Disclaimer

By Beacon Staff

After Canada and the United States announced a two-year extension to their Softwood Lumber Agreement last week, the news was greeted warmly by U.S. lawmakers and lumber officials who consider the accord vital to the health of the country’s timber industry.

Furthermore, the timing of the announcement was important, as it came on the heels of President Barack Obama’s denial of the Keystone XL oil pipeline permit, a decision that disappointed Canadian officials and raised the prospect of strained relations between the two countries. Canada and the U.S. are the world’s largest trading partners.

But the extension’s warm U.S. welcome came with a disclaimer that highlighted a frequent point of contention: The agreement won’t work if the rules aren’t followed and enforced stringently.

U.S. politicians and lumber industry representatives have long complained that Canadian provincial governments in effect subsidize their lumber companies by charging low fees for the right to harvest timber – also called stumpage fees – on public land, while American producers must competitively bid on the open market and pay far higher prices. Timber market woes in recent years have added another wrinkle to the long-standing dispute.

The U.S. Lumber Coalition claims that Canada’s “unfair trade practices” have led to hundreds of American lumber mill closures, thousands of job losses and suppressed markets in the past. Numerous disputes have landed in court.

The agreement, originally enacted in 2006 and now extended until 2015, seeks to address those concerns and foster stable markets for both Canada and the U.S. The agreement was set to expire in October 2013. U.S. Trade Representative Ron Kirk and Canadian International Trade Minister Ed Fast announced the extension on Jan. 23.

“This extension agreement will bring much-needed stability and predictability to the lumber industry,” Fast said, adding that the Keystone XL pipeline denial hasn’t soured relations: “The trade relationship between Canada and the United States remains strong.”

Chuck Roady, general manager at F.H. Stoltze Land and Lumber Co. in Columbia Falls, called the extension “extremely important,” explaining that the two countries have “totally different systems” and the agreement helps to ensure that producers and markets are dealing with “apples to apples instead of apples to oranges.”

“Canadians don’t bid on stumpage fees, so they can sell into markets for dramatically less money,” Roady said. “With this (agreement), the tariffs kick in and it levels the playing field.”

But Roady offered an often-repeated caveat: “It works as long as both sides follow it and as long as it’s enforced. Any of these agreements are only as good as the people living up to them and the people enforcing them. All those concerns are still there.”

After the extension was announced, Montana Democratic Sen. Max Baucus hailed the accord as “an effective tool in our fight to make sure Montana lumber workers can compete on a level playing field with Canada,” but also called for strict administration of the rules.

“That’s why I’ve pushed our U.S. Trade Representative to aggressively go after violations – and we’ve gotten some good results for Montana timber workers so far,” Baucus said last week. “I’ll keep fighting to make sure the extended Softwood Lumber Agreement is strongly enforced.”

Roady and Tom Ray, vice president of northwest resource and manufacturing for Plum Creek Timber Co., both said Baucus and fellow Democrat Sen. Jon Tester, along with Republican Rep. Denny Rehberg, have been important advocates of the trade agreement. Like Baucus, Tester and Rehberg released statements last week praising the extension.

“While I join Montana’s struggling timber industry in celebrating the extension of this agreement with Canada, I’m also hopeful that everyone will start living up to their end of the bargain in good faith,” Rehberg said, adding: “The agreement is a good one, as it is currently written. We just need to do a better job with enforcement.”

The U.S. Lumber Coalition, an alliance of large and small lumber producers from around the country, maintains that Canadian companies have skirted the agreement’s provisions in the past, to the detriment of American producers. Coalition officials released a statement following President Obama’s state of the union address, commending the president for his commitment to trade rules enforcement.

The alliance highlighted Obama’s statements that he “would not stand by when our competitors don’t play by the rules” and that it’s “not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidized.”

“The U.S. lumber industry proves every day that what President Obama said is true – that America’s hardworking men and women are among the most productive on the planet,” said Steve Swanson, the coalition’s chairman and president of the Oregon-based Swanson Group.

“The U.S. lumber industry can compete against any foreign industry on a level playing field,” Swanson added. “But we cannot compete against massive foreign subsidies that are distorting open and competitive markets.”

In an interview, U.S. Lumber Coalition Executive Director Zoltan van Heyningen said an improved housing market would help alleviate some compliance concerns, because he believes Canadian provinces “feel pressured” to help local timber companies in times of economic uncertainty and are in the position to do so, given the nature of the government-influenced Canadian system compared to the U.S. open bidding system.

“It’s not that someone sits down and says, ‘Let’s see how we can violate it today,’” van Heyningen said. “Our hope is that as the market recovers there will be fewer incidences where the provinces feel the need to run amuck of the agreement.”

Van Heyningen said with the agreement, if properly followed and enforced, his coalition can spend time advocating on behalf of the U.S. lumber industry outside of the courtroom, though it must always be prepared for the possibility of litigation.

“As long as the agreement in place, no, we’re not actively litigating,” he said, “although we spend a fair amount of time making sure we can pull that trigger when we need to.”

In one ongoing dispute, the U.S. is alleging that British Columbia violated the agreement by under-pricing pine beetle-damaged timber and is seeking damages worth nearly $500 million. The case is expected to be heard in an international arbitration court soon.

It remains to be seen what will happen when the agreement again approaches expiration in 2015, but until then Montana lumber officials are relieved to have the accord in place during a time of continued market woes. Dean Sturz, sales manager at Stoltze Land and Lumber Co., said not having the Softwood Lumber Agreement “would kill us.”

“There would be way more mills in the U.S. closed if there wasn’t that agreement,” he said.