In the words of the B.C. Council of Forest Industries, the province’s resource backbone is in transition, which is business association code for going through hell: employment down from 97,000 to 54,000 in two decades, forest fires and pine beetles destroying the resource, low timber prices, trade wars and softwood tariffs, a carbon tax that rises to $45 on April 1, less demand from Asian markets, high cost structures and regulatory burdens, government fees and stumpage rates, mill closures in B.C.’s Interior, a seven-month strike at a major firm, and a 10-year outlook that suggests no growth in timber harvest allowances through to 2030.
As if all that were not enough for an industry that has been struggling to maintain its legendary role in the B.C. economy, along comes John Horgan’s NDP government with a fancy new forest products intervention to add to the list of industry woes.
In an almost secret Order in Council dated Jan. 21, the Horgan cabinet approved a regulatory change that aims to fulfil the perennial dream of resource strategy bureaucrats, market interventionists and politicians, including Premier Horgan. The export of “raw logs” must stop, he has said. “We will find a way through incentives and regulations, through carrots and sticks to make that happen.”
The cabinet order seems to be the stick. It sets out changes to the province’s Manufactured Forest Products Regulation (MFPR). As of July 1, 2020, new rules will come into force that will “ensure more accessibility to fibre for local manufacturers, supporting local employment and encouraging more value for British Columbians for timber harvested from public resources.”
Under the new MFPR, quietly posted on the government website, before certain timber can be exported to Asia, the United States or elsewhere it must first meet new dimensional and finished standards. The new plan will require lumber “made from western red cedar or cypress to be fully manufactured to be eligible for export, which will promote local manufacture of added value products from these species and support B.C. jobs.”
NDP to impose a fee on exported timber that is not fully manufacturered in B.C.
If the new requirements are not met, says the MFPR, ”then an exemption from manufacturing will be required and a fee-in-lieu payable.” In essence, it looks Horgan’s NDP government is looking at imposing something that the global trade system has largely abandoned as ineffective and dysfunctional. The MFPR’s so-called fee-in-lieu is in effect an export tax or tariff, a form of trade interference that was banned by the U.S. Constitution and has largely been associated with politicians in developing countries trying to skim cash on resource exports or stimulate local processing.
Some members of the province’s forest industry, especially in coastal regions where red and yellow cedar are high-value export products, are alarmed by the MFPR proposals. In 2018, almost $1 billion in such lumber was exported from the province. One industry source told me that he estimates more than half the exports worth about $560 million would likely be subject to the new rules.
The fine details of the B.C. plan have yet to be released, but the general outline published last week suggest that companies exporting the targeted $560-million in cedar product would have to either convert the exports into “fully manufactured” products, or make them available to local B.C. manufacturers for further processing and lower prices. If no deal is possible, then the “fee-in-lieu” would have to be paid by the exporting company.
In operation, the imposition of the MFPR export tariff/fee acts as a kind of subsidy for local B.C. manufacturers. The tax is Horgan’s stick designed to force producers to sell to local companies rather than export at higher profits to Holland or China or the United States. Four industry sources I spoke to about the plan said it looks like another troubling intervention that could damage the industry, although they are quick to point out that the skimpy MFPR release fails to spell out how it would work when implemented on July 1.
The province-wide B.C. Council of Forest Industries (COFI) — which represents all sectors from loggers to exporters and local manufacturers — is understandably playing it cautiously. Asked for a comment, Susan Yurkovich, COFI’s CEO, said in an email: “We are currently working with our members to assess the impact of proposed changes to the Manufactured Forest Products Regulation. It is our understanding that the Government of B.C. will consult with industry on the proposed amendments. As that process gets underway, our message to government will be that, at a time when thousands of forestry workers in dozens of communities across the province continue to face challenging times, ensuring that government policy and regulation address escalating costs in B.C. and support our members’ ability to serve our customers globally is critical.”
A World Trade Organization analysis from 2004 reviews in detail the flaws and problems associated with export tariffs, essentially concluding that they are distortive and undesirable, leading to “efficiency losses, lower welfare and lower growth in the long run.”
That is not what the B.C. forest industry needs.