Friday, April 28, 2006

From the "I'm no expert" file

Babble on.

What I know about the softwood lumber dispute would fit on the back of a cocktail napkin. Buy me a drink and I'll show you what I mean. But having said that, I have an idea about what's going on that I'd like to run past you, Gentle Reader, in the hope that you might pat me patiently on the head and explain to me in short, simple words why I'm completely out to lunch. Deal?

Okay, here goes. If Canada is on the side of the angels in this little dispute, if we're kicking Yankee tail in court and in dispute-resolution panels and anywhere else this thing is being fought, then why is this compromise a good deal for Canada?

I wonder if it's a good deal because we know we're subsidizing our forestry industry with low stumpage fees, we know we're winning the NAFTA arguments on legal loopholes, and we know the Americans know it too? I wonder if we know the loophole is going to get closed one way or another, and we figure we might as well do it on the best terms we can? I wonder if the federal and affected provincial governments are in a bit of a spot from a communications standpoint because every politician of every stripe over the years has told Canadians we're trading fairly when we're actually pulling a bit of a fast one, and because the current crop of politicians now have to convince the electorate that this is a better deal than we really have any business demanding without saying any such thing out loud since that admission would bury the deal south of the border?

And if that's the case, I wonder if Canadians will realize it and be pissed off about having the wool pulled over their eyes for so long, or if we won't pick up on the signals and will instead be pissed off at our various governments - with the Conservatives in Ottawa being first in line - for caving to the bullying Yanks?

I'm just floating what is probably a very unoriginal and misinformed hypothesis, and hoping someone with a better grip on the topic than me can let me know if I'm close or if I'm in left field.

Babble off.


At 1:19 p.m., Blogger Reg said...

That would be one massive cocktail napkin because you nailed it.

At 1:31 p.m., Blogger Serenity Now! said...

It's my understanding that this is really the best deal that we can get because the Americans do not HAVE to capitulate to anything. We could drag this out for eons and eons and sometimes it is better to get 75% of something than be told you are right and get 100$ of nothing.

Unless we are willing to play brinkmanship with the US (who, I have to say, are much better at it than us these days), we'll likely lose in the end.

But I'm far less informed than you. So I could be talking out of my a$$. It's been known to happen.

At 2:22 p.m., Blogger Steve said...

It is hard to make the case that our forest industry is subsidized if you look at its abysmal financial performance. However, that does not mean that certain producers do not get sweet deals from the provinces with respect to their access to wood fibre.

But such access comes at high cost. It is more accurately described as blackmail. Essentially, the provinces tell you to keep that old, inefficient mill open in this town, or we'll cut off the wood supply at your other mills. No industry person will speak up against such practises for fear of getting their wood supply taken away.

There is no doubt our timber allocations systems suck. They are managed for jobs and votes, not for efficiency, productivity and profits. The industry is caught in the middle and is afraid to speak out.

Now that we have this deal, let's fix the system. Determine the amount of land we want to allocate to industrial forestry and let the bidding begin. We can do better.

At 2:39 p.m., Blogger darcey said...

Absolutely - good comment. I've expressed my thoughts that in the end this dispute did a number of good things for the Canadian industry like getting rif of a lot of the fat and we've seen movements towards more efficient mills which in the end make us more competitive against the US. The only large company out there that I see currently in trouble over the issue is Tembec but their problem is partly because they've overextended themselves by buying too much. The other big ones like Abitibi or West Fraser seem to be doing quite well but they've also diversified into EWP as well.

I think they'd be silly to and in some case are to complain about this deal for another reason which is look at that incredibly climbing looney.

At 7:08 p.m., Blogger deaner said...

The stumpage system is not a subsidy - it just represents a different way of allocating the economic value created when standing timber is turned into lumber, pulp, or paper. It is true that at times the 'face rate' on stumpage looks pretty low, but along with cheap access to fibre comes very union-friendly legislation (especialy compared to the US, particularly the states where the CfFLI companies are based) and higher corporate tax rates. The result is that much of the value of low fibre costs is allocated to workers or skimmed off by the government on the way through. As Steve alluded to, it is largely a "cut it or lose it" system, so companies keep logging and milling when the market is telling them not to; they loose money in those periods, but we avoid the social costs of an extreme boom and bust forest sector (to a limited extent - anyone who has lived or worked in a mill town knows something about up and down economies, if not absolute boom and bust).

The CfFLI telling us that our stumpage system is a subsidy is akin to us alleging that union legislation in Alabama or tax rates in Georgia are a subsidy (and you can imagine the US reaction if we told them they had to change them). They are - but only when taken in isolation from the rest of the picture. The problem the US has is that their world-view is that their system, in every way, is perfect. Any deviation is either an error (and they are doing everyone a favour by helping to correct it) or an attempt to cheat - and they are honour bound to put an end to it.

As goodapple said, we caved because the US doesn't have to give in - we need them far more than they need us, and they are willing to take advantage of that fact. I think the lesson for Canada is to remember that when the shoe is on the other foot.

At 11:16 p.m., Blogger Robert McClelland said...

This comment has been removed by a blog administrator.

At 8:02 p.m., Blogger Babbling Brooks said...

Robert, I'm not sure how you missed it after almost two years of deleting your drivel, but I don't care what you think on any given topic. Your thoughts are of no worth to me. You contribute nothing to a conversation.

There are millions of blogs out there, some of which would surely not eliminate every comment you post. Go there and pollute them with your bile.

This is my site, the only one I call entirely my own. I don't want you here. I'm not sure how I can say it more plainly than that.

At 8:45 p.m., Blogger Robert McClelland said...

This comment has been removed by a blog administrator.

At 7:41 p.m., Blogger deaner said...

"I don't want you here. I'm not sure how I can say it more plainly than that."

At 8:45 PM, Robert McClelland said...
This post has been removed by a blog administrator.

Funniest two-post sequence I have ever seen. Please don't spoil it by telling us that the second one wasn't real!

At 1:15 a.m., Blogger Derek Kite said...

The whole thing comes down to what happens when the cyclical lumber market hits a low. British Columbia forest policy was (maybe still is) to force mills to cut trees or lose their allocation. Stumpage was based on market prices, ie. when the price dropped due to a slow market, stumpage dropped, production remained high, driving prices lower and lower to where US mills couldn't compete.



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