Canadian forestry companies will pay no export taxes in June on wood sent to the United States for the first time since the 2006 Softwood Lumber Agreement, the latest jolt of good news for an industry rebounding after a severe depression.
While recovery is widely expected to be choppy, a new era in forestry is emerging, with the export tax at zero another marker of the change. Supply and demand dynamics are quickly shifting: There are far greater exports to China and supply faces a crunch, from forests in British Columbia killed by the pine beetle to regulatory reductions in the amount of trees that can be cut down in Ontario.
The decades-long acrimony around softwood lumber trade between Canada and the United States could soften. By 2013, when the current deal expires, the market could evolve so much that the complex legal battles that marked the last round of softwood disputes may not happen at all, effectively ending one of the longest-running trade fights between Canada and the U.S.
"It's too soon to say but I subscribe to that notion," said Hank Ketcham, chief executive officer of Vancouver's West Fraser Timber Co., the largest lumber producer in North America.
In the short term, Canadian producers are celebrating the end of the export tax under the current agreement, at least for the month of June. Higher lumber prices - tight supply has buoyed rates in recent months - reduces the export tax and for June it will be down from 15 per cent at the start of the year to zero.
When prices are low -- meaning there's ample amounts of wood available - Canadians have to pay taxes under the softwood lumber deal in which the U.S.'s primary concern was allegedly subsidized supply from Canada, asserting that it hurt U.S. producers.
For West Fraser, the tax has constantly cut money out of its business during the worst industry depression in living memory. In the first quarter, the cost was 3 per cent, $19.2-million paid on sales of $688-million. For Canfor Corp., the No 2 player, it was 2 per cent, $11.6-million on $588-million.
As supply of wood from Canadian is reduced, more is going to mainland China. In 2005, the peak of B.C. supply, 86 per cent of the province's wood went to the U.S. One per cent was sent to China. Last year, 67 per cent went south and 14 per cent sailed to China.
A top U.S. trade expert believes it could "mitigate the conflict."
"If you're sending it to China, and you're not sending it here, it becomes far less an issue," said Peter Morici, a University of Maryland business professor and former chief economist at the U.S. International Trade Commission.
Export taxes are expected to re-emerge later this year, as lumber prices fall as additional supply comes from mills re-opened after pro-longed shutdowns. Demand for wood to build new houses in the U.S. remains extremely weak.
B.C. Forests and Range Minister Pat Bell predicts provincial exports to Asia, led by China, could rival the U.S. by 2013. That, coupled with longer-term supply constrictions, is good news for Canada, Mr. Bell said.
"From a negotiating position, B.C. would be far better off if we had a market that mirrored the U.S. in Asia," Mr. Bell said. "The softwood lumber agreement largely becomes moot at that point. We're very focused to get to that point by 2013."