Softhead Lumber

Softwood lumber, a long-term simmer between Canada and the United States, has never truly posed a major threat to trade relations. Until now, despite high-level and steamy political rhetoric, the protagonists in the decades-old dispute -- industry players, local bureaucrats, provincial politicians, unions -- have mostly been wreaking havoc in their own backyards with tariffs, subsidies, legal dogfights, export rules and other business-damaging schemes. Suddenly, more that softwood seems to be at stake. The NAFTA court challenge is one of several recent developments that could convert the softwood dispute into large-scale economic mayhem. We've heard serious talk in Canada of retaliating against the U.S. by imposing an export tax on oil, or by engaging in some other trade war tactics. More than a few Canadians believe we can use energy as a countervailing weapon to force the Americans to surrender on the lumber file. Tory Leader Stephen Harper mused loosely about revisiting NAFTA, an explosive idea. In view of U.S. legal and procedural intransigence over softwood, he dismissed more negotiations as out of the question. Then he went on to propose some grand game of geopolitical realignment. If the U.S. doesn't work out as a NAFTA partner, we can always reposition Canada as a big trade player with India, China and other nations that want our natural resources. How Chretienesque and Trudeaunian; a Harper-led Team Canada visit to China is the next logical step. The idea that the government of Canada can direct trade flows betrays a wrong-headed flirtation with statist trade policies, with government managed trade rather than free trade. Market forces, not governments, produce trade patterns. Trade relationships flow from business deals dictated by prices, technology, demand and a host of other factors. If Canadian business and energy companies see opportunities in India and China, then trade with those countries will develop. What market forces show, regardless of auto pacts and other government schemes, is that Canada is a North American economy. It would be foolish, even catastrophic, to work up a rash of angry political plans for oil pipelines to China and special resource deals with India so as to punish the United States, especially over something as unworthy as the softwood lumber dispute. Let us not, as Canadians, be too gullible on softwood. Fulminating politicians wrangling over incoherent trade law give the impression that Canada is a free trade saint up against the bullying U.S. devil. There's plenty of evidence that Ottawa, but especially the provinces, operate forest policies that prevent free trade and protect Canadian industry. Whether any of these practices technically contravene trade laws is difficult to say. There is no doubt, though, that Canada economically subsidizes and protects its forest industries -- especially its lumber industries. The U.S. lumber crowd may be running a guerrilla trade war, but we should not pretend that Canada operates clean, market-driven lumber regimes. Does Canada want free trade in forest products? No. Under a tangle of protective laws, it is illegal to export logs from Canada. There are federal laws and provincial laws against any exports without permits, which are hard to come by. The non-free-trade objective is to promote log processing in Canada. Governments of British Columbia, Ontario and Quebec operate lumber regimes that force logs into Canadian sawmills, which produce lumber that is then shipped to the United States. There's a good chance the log export ban, coupled with other government help, keeps log prices low in Canada and helps make Canadian lumber artificially below market levels. The other measures include provincial government-run stumpage regimes. Environmentalists and trade experts agree that British Columbia and other provinces give forest industries operating on Crown land favourable access to lumber resources. Herb Grubel summarizes Canada's dubious forest trade practices elsewhere on this page. That Canada might be operating trade distorting, subsidized and non-market-based forest industries is nothing new. No market prices exist. The government manages prices so as to maintain jobs and industries. It's a laudable objective, perhaps, but one that produces uneconomic and destructive consequences. Proposals for reform, including privatization and auction systems, have long existed but are systematically ignored or rejected. With the current escalation in the softwood dispute, protecting Canada's lumber industry from free trade threatens to become even more destructive. In the name of free trade they are putting free trade at risk so as to defend their system of trade protectionism. http://www.canada.com/national/nationalpost/columnists/story.html?id=9d2206d8-9ebf-43df-9f7d-5c90f747bc4d

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