For as long as Canada has been harvesting trees, the issue of log exports has dogged politicians caught between maximizing jobs here and maximizing prices for the country’s natural resources. Satisfying one objective has usually meant sacrificing the other.
Export restrictions on raw logs have been a perennial irritant in trade relations with the United States, preventing a permanent resolution of the softwood lumber dispute. The current iteration of that battle has led to hefty U.S. duties on Canadian lumber.
Now, a federal rule that forces private forest operators to offer a right of first refusal to domestic sawmills before obtaining export permits could lead to Canada’s first trade dispute under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
According to an article this month in the Nikkei Asian Review, Japan and Canada are at odds over the interpretation of a side letter to the CPTPP under which Ottawa agreed to ease restrictions on raw logs in exchange for the elimination of Japanese tariffs on Canadian lumber and plywood. Japanese plywood producers argue the Canadian export restrictions on raw logs violate the spirit if not the letter of the CPTPP.
The prospect of a trade spat with Japan puts additional pressure on Ottawa to relax export restrictions on raw logs. Vancouver-based Mosaic Forest Management shut down harvesting operations on privately-owned forest lands on Vancouver Island last November, saying Ottawa’s rules had forced it to sell logs to domestic sawmills at a loss. Canadian logs exported to Japan, on the other hand, fetch premium prices.
Mosaic last month announced it would resume harvesting activities in “coming weeks,” providing jobs for some 2,000 loggers who had been left without work during the winter hiatus and pandemic-related shutdown. But the company maintains its ability to operate remains threatened by Ottawa’s export rules.
“No forest company can sell production at below cost – nor should they have to,” Mosaic said in May after reaching a deal with the United Steelworkers under which the union agreed to support “immediate temporary relief” from export restrictions to enable the company to restart its coastal logging operations.
Mosaic, which is owned by public sector pension funds British Columbia Investment Management Corp. and PSP Investments, accounts for about a quarter of logging in B.C.‘s coastal forest sector. Its move to cease logging constituted a serious blow to the entire provincial forest industry, which has been suffering from U.S. duties and the closure of dozens of sawmills in recent years.
Still, a coalition of B.C. sawmill owners has challenged Mosaic’s arguments. In an open letter published in May, they wrote: “With the exception of Mosaic, the vast majority of the harvestable land on the coast is under public tenure, which attracts government stumpage. How is the rest of the industry able to profitably harvest the logs on their lands, while Mosaic is unable to do so?”
So far, Ottawa appears unmoved by Mosaic’s pleadings. Ryan Nearing, a spokesperson for Small Business, Export Promotion and International Trade Minister Mary Ng, said in a statement: “The government regularly explores ways to further streamline the federal log export permitting process to ensure that Canada’s domestic policy objectives and trade opportunities are maximized,” subsequently adding that “Canada is in compliance with its CPTPP commitments regarding log exports.”
B.C.‘s New Democratic government has also largely sided with the sawmill owners. The party’s 2017 election platform accused the previous Liberal provincial government of “enabling” log exports. “We believe that B.C mills should have access to the logs they need to create good jobs here,” the platform said. “We will work with B.C.’s forest industry to find fair and lasting solutions to keep more logs in B.C. for processing.”
Since his election, however, NDP Premier John Horgan has been less categorical about protecting domestic mill jobs at the expense of Mosaic. Besides, his government has only a limited say in the matter, since Mosaic’s private forest holdings are regulated by Ottawa. Crown-owned forests, on the other hand, fall under provincial jurisdiction.
B.C. log exports totalled about $660-million in 2019, a fraction of the nearly $4.8-billion worth of lumber the province sold to other countries. China accounted for more than half of raw log exports, while sales to Japan totalled $190-million. But B.C. logs fetched much higher prices in the Japanese market, a fact that should not be lost on Ottawa.
Federal and B.C. restrictions on log exports have long been decried by the U.S. lumber industry as an indirect subsidy to B.C. sawmills, leading to U.S. duties on Canadian lumber. Now, Ottawa’s rules could result in a trade dispute with Japan, which had been counting on the CPTPP to level the playing field for access to B.C. logs.
Ottawa should address Japan’s concerns before it’s forced to. It might not like the outcome otherwise.
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