[Congressional Record Volume 147, Number 115 (Thursday, September 6, 2001)]
[Senate]
[Pages S9148-S9151]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
CANADIAN SOFTWOOD LUMBER
Mr. BAUCUS. Mr. President, I rise today to discuss the U.S.-Canadian
dispute on softwood lumber.
Although it might have escaped the attention of many in Washington,
the Bush administration announced a critical trade policy decision over
the August recess.
After considering truck loads of evidence provided by a legion of
lawyers, the Department of Commerce once again decided that Canadian
provinces giving away timber at a fraction of its value was a subsidy
to Canadian lumber production.
Specifically, the Commerce Department issued a preliminary finding
that these subsidies amounted to 19.3 percent of the value of Canadian
lumber. Further, the Commerce Department
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took the unusual step of declaring critical circumstances, which back
dates the duties by 90 days. It did this because it determined Canadian
producers were flooding the U.S. market--in an attempt to take
advantage of the expiration of the previous U.S.-Canada agreement on
this topic.
The Commerce Department is due to issue another preliminary finding
under another U.S. fair trade law, antidumping law, in the middle of
October. I agree with most observers that this will likely result in a
substantial increase in the current duty.
But I do not rise today to discuss the intricacies of U.S. trade
laws.
Nor, Mr. President, do I plan to discuss the details of Canadian
lumber programs.
I have never understood how giving away timber at a fraction of its
market value and allowing government-set prices instead of market
prices could be anything but a market distortion. But that is a debate
that we have had for 20 years and I myself have discussed on the Senate
floor at least a dozen times.
I see little point in repeating facts that the Commerce Department
and independent observers on both sides of the border have long
acknowledged. I ask unanimous consent that the forward and executive
summary of an excellent analysis of Canadian subsidy programs in
British Columbia, prepared by a coalition of Canadian environmental
group--``Cutting Subsides, or Subsidized Cutting?'' be printed in the
Record after my statement.
The PRESIDING OFFICER. Without objection it is so ordered.
(See Exhibit 1)
Mr. BAUCUS. Instead I want to look to the future. I rise today to
offer a true and lasting solution to what has become the world's
largest bilateral trade dispute and, by far, the largest fly in the
ointment in the U.S.-Canada relationship. Given some political changes
on both sides of the border, I believe it is now possible to negotiate
a lasting and real agreement on the U.S.-Canada softwood lumber
dispute.
In 1986, at a similar juncture in a trade case, the U.S. and Canada
agreed to resolve the dispute by allowing Canada to collect an export
duty--a duty the United States would have otherwise collected. At the
same time, Canadian provincial officials agreed to a set of forestry
program reforms to eliminate the underlying subsidies.
This arrangement broke down when Canada unilaterally--and without
explanation--withdrew from the arrangement. But with some adjustments,
a similar approach could be pursued to a real solution.
The basic concept is simple. Once the final preliminary duty is
known, Canada would agree to collect this on its exports and thus gain
the revenue that would otherwise go to the U.S. treasury.
The antidumping element complicates this understanding, but it could
be addressed through a minimum export price or a duty adjustment to
account for the dumping.
Once the basic export duty rate was set, both sides would agree that
the duty would be lowered as Canadian provinces eliminated subsidies.
For example, if Canada--or particular provinces--stopped artificially
lowering the price of stumpage, the portion of the export duty aimed at
offseting stumpage subsidies would be dropped.
Unfortunately, evaluating the impact of proposed reforms in Canada's
forestry subsidies is a complex task and, sadly, these complexities
have been used to hide subsidies and replace old subsidies with new
ones.
In order to assist the trade negotiators from both countries in
evaluating proposals for reform, I propose an ad hoc commission--made
up of representatives of the forest industry from both countries,
representatives of organized labor from both countries, and
representatives of the environmental community form both countries.
This panel would evaluate proposals for forestry reform in Canada and
provide a non-binding evaluation of the proposed changes to relevant
U.S. and Canadian government officials.
I feel particularly strong that representatives from the
environmental community be included in this group because they are the
closest thing to truly independent observers of Canadian forestry
practices.
In addition to providing a fair and thorough evaluation of proposals
for change, this group could be a watchdog against backsliding. And it
could provide a forum to discuss cross-border cooperation on
sustainable forestry practices, joint positions for international
negotiations on trade and forestry issues, and joint approaches to
problems, such as protection of endangered species.
I believe such non-binding oversight could ensure real progress
toward a final and lasting solution to this difficult trade problem.
I have read in the Canadian press some statements that Canadian
officials--or perhaps the U.S. lawyers that represent them--that Canada
should pursue no such deal until after the issue is fully litigated
before the World Trade Organization and perhaps the NAFTA.
But the central fallacy of this position is that the U.S. would
negotiate after it has turned back challenges. And there is no reason
to believe that Canada would succeed in such litigation. Despite the
rhetoric of some, Canada's record in past complaints is mixed, and U.S.
law and practice has been refined to avoid past problems. If
challenged, I believe the U.S. actions on softwood lumber will survive
international scrutiny.
Obviously, Canadian officials will choose whatever strategy they see
fit, but such a litigate-at-all-costs strategy would result in the duty
being in place for most of a year--at minimum.
The bottom line is this: Out-of-court settlements are struck when
neither party is certain of the outcome of litigation; no one settles
after they have won the final appeal.
If the U.S. duties survive Canadian challenges, I would then oppose
any effort to settle the dispute along the lines I have laid out. If
the U.S. is forced to litigate and succeeds, there will be no domestic
support for a settlement, no export duty, and no compromise. A
compromise is possible now, not later.
Again, I congratulate the Commerce Department--and particularly the
hard work of Secretary Don Evans, Undersecretary Grant Aldonas, and
Assistant Secretary Faryar Shirzad--for decisive action in this case.
Lumber mills and their workers in Montana and across the country have
suffered because of Canadian lumber subsidies. I plan to work with the
Commerce Department to ensure that the suffering is over so that
efficient, environmentally sound U.S. mills can compete on a level
playing field--one way or another.
Exhibit 1
Cutting Subsidies, or Subsidized Cutting?
Report Commissioned by BC Coalition for Sustainable Forestry Solutions,
July 12, 2001.
Prepared by: Tom L. Green, M.A., Ecological Economist; Lisa Matthaus,
MSc, Resource Economist, Sierra Club of BC
Foreward
(By Dr. Michael M'Gonigle)
Textiles, dairy products, newsmagazines, steel, airplanes,
fish plants, forest products--throughout the world, subsidies
exist for every industry imaginable. Talk of reducing these
subsidies dominates for daily news with seemingly endless
rounds of bilateral and multilateral trade talks. But despite
the hype, and the rhetoric, the topic is rarely treated in
the thoughtful manner it deserves.
There are, of course, many good reasons for government
subsidies. In today's increasingly homogenized mass-market
world, it makes sense to protect a nation's ballet and local
newspapers. So too it is important to keep the rural base
vital by maintaining support for family farms,and even
encouraging new organic producers. Indeed, subsidies are most
useful in helping fledging industries make inroads against
the predatory behaviour of much larger, and often
inefficient, older industries.
But subsidies are all too frequently destructive and
unsustainable. Such subsidies can be the most difficult to
undo because they are deeply embedded, hidden from view, and
reward the most powerful interests in society.
As Tom Green and Lisa Matthaus demonstrate in this paper,
such is the case with the BC forest industry. Here is an
industry that from its inception to the present day is
supported by a raft of subsidies. Once designed as a way to
develop the province, many of these subsidies are today
almost completely invisible, propping up an industry against
all economic and social logic, and determining the potential
for good public policy. This paper only addresses this
situation in British Columbia, but many of their arguments
apply to the industry worldwide.
The phrase ``perverse subsidies'' captures the situation
admirably, perverse because
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government is spending money, or not collecting rents in a
fashion that undermines economic as well as social (and
environmental) interests. Take, for example, the hundreds of
millions of dollars that have gone to prop up outdated mills
in northern BC. These subsidies seemingly respond to the
social need of keeping remote communities afloat. In fact,
this money undercuts other, more efficient communities by
artificially depressing their markets, while it robs even the
host communities of the opportunity to direct that money, and
the local industry, into creating new value-added industries
that would foster more stable, longer-term, employment.
Many subsidies are not so high profile, however.
Undoubtedly, the most pernicious subsidy exists in the lax
environmental standards that have long existed in BC. This
situation permits the industry as a whole to shift a vast
array of costs out of its own production processes, and
impose them instead on logged out salmon streams, disrupted
caribou habitat, and clearcut coastal watersheds. In such
cases, the fishing industry, First Nations, and tourism
operators pay the costs of this industry.
The authors are self-described ``ecological economists.''
To many readers, this will be an unfamiliar phrase. But it
signifies a new type of economic analysis, a critically
important analysis if society is to weed out our landscape of
perverse subsidies. As our common sense tells us, the human
economic system is a subset of our natural ecological system.
Creating a sustainable future means re-embedding our over-
extended economy in the natural world.
That challenge is, as the authors makes clear, structural.
The forest industry is underpinned by a land tenure system
that blankets the province. These long-term tenures
artificially depress prices (through lack of market
competition) while they discriminate against innovative new
entrants (through exclusion from access to timber). Indeed,
this is the very sort of state-chartered, state-protected,
and bloated industry that, 200 years ago, Adam Smith railed
against in his classic text, The Wealth of Nations. Only by
taking away their privileged position, Smith argued, could
the natural abilities of the citizenry to innovate, and
prosper, be set loose.
Smith's radical argument applies equally in British
Columbia today. Indeed, in a thoughtful addition to the
discussion of structural subsidies, the authors turn our
attention to the failure to pay due regard to aboriginal
entitlements to the resource base. As any economist will
explain, market values reflect the existing distribution of
wealth between sellers and buyers. In British Columbia today,
a whole group of buyers (the forest industry) secures its
products well below its potential costs because the seller
(the provincial government) excludes another legitimate
interest (First Nations) from the bargain. This situation
dramatically skews the whole forest products market,
drastically reducing the obligations of the corporate sector.
The authors have bravely raised the flag on a critical
topic for the new Liberal government in British Columbia.
This paper is only a beginning, however. Much work remains to
be done to ferret out the true costs of an industry that has
for too long gotten by without public scrutiny. Despite its
avowed commitment to the ``magic of the marketplace'', the
new government will quickly find that it is easier to
continue with the status quo than to challenge it fully and
transparently.
Forestry is a powerful industry in BC, its power coming
from exactly those subsidies that must now be uncovered, re-
examined and withdrawn. Remove the subsidies, and you
transform the industry.
This is no small task. But the future health of the BC
economy, and the sustainability of its endangered ecosystems,
depends upon our doing it.
____
1. executive summary
Following his recent election victory, Premier Campbell has
repeatedly asked British Colombians to hold him accountable
to the Liberal Party election promises. For a party generally
perceived as pro-business, one of the boldest promises was to
eliminate corporate subsidies. The Liberals also committed to
developing a ``leading edge forest industry that is globally
recognized for its productivity and environmental
stewardship.'' Together, these two commitments provide an
opportunity for structural reform of the forest industry that
could have far-reaching consequences for the future of
British Columbia's environment and economy.
However, to fulfill its commitments, the new government
must phase out the subsidies that have inhibited the logging
industry from developing into an innovative, diverse and
sustainable industry. The elimination of subsidies is
necessary to create that ``leading edge forest industry'',
because existing subsidies encourage economic inefficiency
and the depletion of resources. Existing subsidies inhibit
change, innovation and investment. They also hinder the
development of value-added industry.
This report focuses on subsidies to the BC forest industry.
Subsidies occur when public resources are available to
private interests at less than their true cost. Resource
industries are frequently heavily subsidized, often receiving
``perverse subsidies''--subsidies that hurt both the economy
and the environment. As a result, subsidies to the logging
industry deserve special attention in the BC government's
drive to eliminate business subsidies.
The report examines five main categories of subsidies:
Stumpage: The fee charged by government to companies for
harvesting trees from public land is called stumpage. This
report concludes that flaws in the calculation methodology
result in the BC government charging companies stumpage rates
below market stumpage. The failure to ensure that the rules
for calculating stumpage are equitably implemented and
enforced provided a potential subsidy of about $350 million
over a two and a half year period. Comparing BC's stumpage to
competitively driven stumpage rates in similar timber regions
in the US demonstrated total subsidies to the BC forest
industry resulting from undervaluing of public timber at $2.8
billion for one year.
Bailouts and Handouts: Direct payment of cash to forest
companies is the most readily understandable of forest
industry subsidies. Although sometimes public investment may
be justifiable to meet broader societal objectives, the $329
million bailout of the antiquated Skeena Cellulose mill is a
textbook example of a perverse subsidy. Handouts are endemic
in BC. The report documents ongoing efforts of the Job
Protection Commissioner to find ways to reduce company costs
through the use of public monies and through regulatory
waivers.
Waiver of Environmental Protection. When government allows
industry to operate without full compliance with
environmental legislation, industry is able to transfer the
cost of bad environmental practices onto the public,
resulting in a substantial subsidy. In BC, neither provincial
nor federal environmental rules related to forestry are being
fully implemented or enforced, allowing companies to
financially benefit from lack of regulatory compliance. It is
estimated that this amounts to a subsidy of $950 million
annually.
Non-recognition and Infringement of Aboriginal Title. First
Nations traditional territories include virtually all of BC's
commercial forests. Although Aboriginal Title is
constitutionally protected right, logging activities--that
would amount to infringements of Aboriginal Title--routinely
occur in BC without consent of or meaningful consultation
with affected First Nations. Compensation will ultimately be
required for both the extraction of First Nations' resources
and for restoration of traditional territories damaged by
logging. This burden will fall on taxpayers, not the
companies who have profited, resulting in a subsidy. In 1999
this subsidy is estimated at between $233 million and $1.163
billion.
Tenure, BC logging companies operate predominantly on
public land and under government licenses, or tenures.
Because of BC government consistently undervalues the
stumpage rate, tenures have acquired a market value related
to the ongoing stumpage subsidy. Furthermore, the BC
government has allowed corporate interests to shut down mills
in violation of obligations in tenure agreement yet retain
secure supplies of timber, thus providing further corporate
benefits.
While the BC Liberal Party has made the general promise to
eliminate business subsidies, it has also other more specific
promises that directly bear on the subsidies outlined above.
These promises include:
Create a market-based stumpage system that reflects global
market realities and local harvesting costs;
Cut the forestry regulatory burden by one third within
three years;
Introduce a legislative framework for legally respecting
Aboriginal Rights and Title and work to expedite interim
measures agreement with First Nations;
Develop a working forest land base on public land and fully
protect private property rights and resource tenure rights.
Depending on how these promises are implemented, they could
help reduce subsidies, but they could also dramatically
increase the subsidies to the BC forest industry.
The Liberals also made other specific election promises
that speak to other potential subsidies to the forest
industry, including:
Apply 1% of all direct forest revenues, not including
``super stumpage'' to global marketing of BC's forest
practices and products;
Increase the Allowable Annual Cut over time through
incentives to promote enhanced silviculture.
A high level of vigilance will therefore be required to
ensure that subsidies to the BC forest industry do not
persist or even increase under the Liberal watch.
The elimination of subsidies in any sector causes economic
change and human displacement. As one researcher commented,
Obstacles to removing subsidies tend to be highly
political. Opposition of vested interests, local businesses
and segments of the workforce can be very powerful. Once
payments are in place then a type of addiction follows, and
there may be uncertainty and fear over the consequences of
subsidy removal.
This report therefore recommends that subsidies to the BC
logging industry be phased out gradually and carefully.
Taken as a whole, the federal and provincial government
subsidies of the BC forest industry are considerable and
counter-productive. The amount of subsidies coming from the
provincial government alone (including those proposed by the
Liberals) is between $3 billion and $6 billion each year.
These subsidies represent a significant cost
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to the taxpayers of British Columbia, while encouraging over-
exploitation of forest and hindering the development of a
modern, competitive forest industry. British Columbians
deserve better.
____________________