Forestry sector wants auto-style bailout

The forestry sector is using Prime Minister Stephen Harper's defence of auto sector bailouts to support its argument that it, too, deserves billions to offset a U.S. aid program, known as the "black liquor" subsidy to pulp producers.

Avrim Lazar, president and chief executive officer of the Forest Products Association of Canada, and forestry executives are urging Ottawa to match the U.S. subsidy, saying a Canadian version would cost up to $2-billion.

Forestry officials held meetings with government ministers from industry and natural resources late last month to press their case.

The push for such a subsidy got fresh momentum this week when Mr. Harper defended billions in loans for auto makers by saying that failure to match U.S. subsidies would have meant "six-figure job losses" in Canada within months, as jobs bled south and suppliers were forced to shut down.

That scenario is the precise danger confronting pulp producers, Mr. Lazar said in an interview Wednesday.

For months, Canada's forestry sector had said it neither needed nor wanted direct government help.

But the sudden emergence of a massive - up to $8-billion (U.S.) - subsidy of American pulp producers has dramatically altered the Canadian industry's stance.

Now the industry is in crisis.

The entire pulp sector is suddenly unable to compete with U.S. rivals that have more than a third of their operating costs paid for by Washington.

Canadian pulp operations are already closing, including two Fraser Papers Inc. plants - one in Thurso, Que., and one in Edmundston, N.B., which closes Thursday - which will see the company lay off a quarter of its work force. "It's not a fair fight," said Jeff Dutton, president and chief operating officer of Fraser.

That is just the first glimpse of what could be thousands of jobs shed this year in the forestry industry, according to officials and analysts. The recession has already battered the sector, but this latest blow is political rather than economic.

The subsidy for black liquor, a remnant from the chemical processing of wood pulp that is used as fuel, will give the U.S. industry billions of dollars, money that it is using to drive down pulp prices and underbid Canadian firms, Mr. Lazar said.

In the longer term, the subsidy will give U.S. firms a pool of cash to retool their plants and deliver an enduring competitive advantage, he said.

Canadian producers simply cannot match their subsidized U.S. rivals on cost. If they shut down, the immediate effect will be lost jobs in pulp operations, but the ripples will go on to wash over lumber producers, who need the revenue from their sales to pulp producers in order to turn a profit.

But B.C. Premier Gordon Campbell warned yesterday that any such subsidy - even if simply matching U.S. moves - would backfire. He said any targeted aid flowing to the forestry sector would result in the U.S.-Canada softwood lumber agreement being scrapped and countervailing levies being slapped on producers in this country.

RBC Dominion Securities forestry analyst Paul Quinn said it is possible to construct a subsidy program that would not violate the agreement if payments, for instance, were directed to job retraining or environmental efficiency improvements.

Mark Milke, director of research at the Frontier Centre for Public Policy in Calgary, agreed the auto bailouts will make it difficult for the federal government to justify refusing aid to other industries facing tough times. But he said Ottawa must nevertheless say no to the forest sector.

"Once you get into subsidizing companies or sectors, there is no end to the supplicants who will show up at your door," Mr. Milke said. "What industry in the world can't make an argument that it needs transition funding [from governments]"

With files from Konrad Yakabuski