Daily Inter Lake: U.S. pushes for new lumber deal

Following the Oct. 12 expiration of a major trade agreement between the United States and Canada, American timber companies are pushing for a new deal that will limit the flow of cheap lumber into the states from their neighbors to the north.

The softwood trade agreement was finalized by the two countries in 2006 after decades of trade grievances arising from two starkly different styles of timber harvesting.

Prior to 2006, Canadian producers would respond to declining lumber prices by ramping up production to compensate, and cheap Canadian timber would flood the U.S. market, to the detriment of American producers.

Zoltan Van Heyninegen, the executive director of the U.S. Lumber Coalition, said that the main problem lies in how the American and Canadian governments award timber contracts.

“About 80 to 90 percent — depending on where you are — of the delivered log fiber supply is owned by the [Canadian] government,” Van Heyninegen said Friday. “The government in Canada therefore sets the price of that fiber supply for the industry.”

Meanwhile in the United States, most timber is harvested from private land, and publicly owned timber sales must be shopped out through a competitive bidding process, resulting in a more market-driven log price. According to Van Heyninegen, that price makes up 70 percent of the average production costs for lumber mills.

“You can see that if the government controls that price — not the market — they can basically make sure their industry is able to operate in all different market conditions,” he said.

The 2006 agreement sought to change that, protecting U.S. timber producers by limiting the volume of logs shipped in from Canada, then placing tariffs on those imports when the volume limit was exceeded.

For Van Heyninegen, a simple extension of the previous agreement is not enough to protect the industry in the U.S. One reason is the recent fall of the value of Canadian currency, which undermined the benefits from tariffs.

“The compromise agreement, on balance, worked reasonably well until maybe 2012 or so,” he said. “The original border measures that were designed to offset, as much as possible, the Canadian subsidies to counter the harm to U.S. producers just weren’t as effective anymore.”

It’s no secret that the Montana timber industry has struggled over the past several decades.

According to the Montana Wood Products Association, 23 of the state’s lumber mills closed between 1990 and 2009. Each averaged about 100 employees. And producers in the state were hit especially hard by the 2008 financial crisis and housing market crash. The value of Montana wood and paper products plummeted from $1.2 billion in 2004 to $592 million in 2009, according to the University of Montana’s Bureau of Business and Economic Research.

Currently, 1,708 Montanans are employed in the wood products industry, with an average annual pay of about $68,000.

The international agreement — or lack thereof — is hardly the only issue threatening the survival of timber jobs. Litigation against state and federal timber sales by environmental organizations are cited by industry experts as the main barrier to domestic production.

But even before the trade agreement expired, the possibility of losing its protections rattled domestic timber companies. At the end of September, Tricon Timber’s St. Regis mill announced it was laying off 93 employees — more than half of its work force.

Calvin Sheahan, Tricon’s vice president of production, said the layoffs increased the unemployment rate in sparsely-populated Mineral County between 3 and 4 percent.

“There’s a lot of trickle-down that comes. It’s not just our employees, it’s log truck drivers, it’s loggers, it’s local restaurants and gas stations,” he added. “If some of these guys are moving away and going somewhere else, they’re taking there families and there’s less kids in the schools. It’s a big issue.”

Tricon’s mill was founded in 1989 and had grown steadily over the years. Before last month’s layoffs, it was Mineral County’s largest employer and had even begun construction of a new planer last year to increase production. That project has since been placed on indefinite hold.

Sheahan credits much of the company’s growth to the protections created by the softwood agreement, and said that if a new deal can be struck, the company will hire back some of those employees.

“It benefited us extremely, I think,” he said. “The market was doing well then, so it was a little bit harder to see it. When the market crashed [in 2008], we could definitely see that it had paid off.”

Getting a new agreement won’t be easy.

Canadian timber producers are reaping the benefits of a low Canadian dollar, further lowering the country’s price of lumber exports in the already-depressed softwood market.

Montana’s congressional delegation recently met with Canadian Ambassador to the U.S. Gary Doer to push for a resumption of trade talks.

Sen. Steve Daines, R-Mont., hosted Doer and the rest of the Treasure State delegation on Wednesday and said he believes Canadian trade representatives might be persuaded to restructure the agreement for the sake of the bigger trade picture.

“We’ve had historic trade relations with Canada. They’re a very important trading partner, and trade goes both ways,” Daines said Thursday. “It’s the bigger picture. It would not be in Canada’s best interest nor the U.S.’s best interest to get into some kind of a trade war, and that’s why we need to have both sides sit down at the table and get this resolved.”

Daines said Canada’s membership in the proposed Trans-Pacific Partnership trade agreement could provide a bargaining chip, noting that if Canada is unwilling to negotiate on softwood lumber, it could further complicate the politically challenging, 12-nation trade deal. He expects a vote on the Trans-Pacific Partnership sometime next spring.

“This all ties in to TPP, which creates a sense of urgency,” he said. “Congress will have a vote on TPP, and this issue will need to be resolved, certainly as part of my support for TPP.”

His counterpart in the Senate, Democrat Jon Tester, agreed that when and if the international trade deal passes, the U.S. will lose some bargaining power for a timber deal.

“But on the other side of the coin, the lawsuits are going to force them to the table,” Tester added. “When unfair trade practices go to court on this one, we win. And they know that.”

The agreement prevents both countries from filing any trade grievances for one year after its expiration, but Van Heyninegen felt confident that come October 2016, if there’s no lumber deal, the U.S. will see Canada in court.

“They said the only thing they were interested in talking about is a renewal or extension of the now-expired agreement, and they didn’t want to talk about anything else,” he said. “But since the expiration of the agreement, we’re seeing a shift, and we’re hopeful that means the Canadian government will come to the negotiating table.”

Rep. Ryan Zinke agreed that the agreement needs to be renegotiated rather than extended. But the Whitefish Republican placed some of the blame on U.S. policies, particularly the failure to increase federal logging and approve the Keystone XL Pipeline — an issue of major importance to Canada.

“Our ties run deep, and we have to do our duty on our side as well,” Zinke said Friday. “When we don’t support Canada’s core industries, like oil and gas, what incentive is there to support our industries?”

Tester said he agrees that domestic timber production is needed for the long-term health of Montana’s timber industry. But he said he also believes the trade agreement needs to happen soon, and is skeptical that Zinke’s Resilient Federal Forests Act will pass muster in Congress.

“The political realities are, we can’t even pass a highway bill, for God’s sake. It has to be an on-the-ground collaborative process,” Tester said. “It needs to include not just more timber cut, but expansions of recreational opportunities and expansion of wilderness. … To get things passed here, you need to build coalitions.”

North of the border, the tide may be turning toward renegotiation. Van Heyninegen noted that the Canadian press has begun giving the issue more ink, and he hopes that will translate to more pressure on the government to strike a new deal with the U.S.

In an emailed statement, Plum Creek Timber Co. spokeswoman Kathy Budinick stated that with the Canadian elections over, she hoped an agreement will be forthcoming. But she added that Plum Creek — the largest private landholder in the state — hadn’t experienced any disruptions from the agreement’s expiration so far.

“The status of the agreement has not affected our operations at Plum Creek,” she stated. “We continue to operate — business as usual — at our two lumber mills in the state.”

Sheahan also noted there didn’t appear to be a glut of cheap timber hitting the U.S. market just yet, but expects it’s just a matter of time for the effects to trickle down.

“Part of the reason the agreement was put in place was the concern that the government was subsidizing stumpage up there,” he said. “If you’re paying more for logs than you can match in the lumber market, you’re bleeding before you even start.”