Monday, July 10, 2006

Don't go there

Babble on.

I golfed with some good friends this weekend. Sitting around the fire at my Dad's cottage afterwards, with port and rusty nails in everyone's hands, and cigars smouldering between our fingers, I heard something very interesting.

One of the fellows had popped in from the Vancouver area. He's a business owner and not unfriendly to the Conservatives, although he's not particularly political. He shared his thoughts on the softwood lumber debate. Granted it's only one man's view, but you'll have to trust me that he's quite a shrewd observer. Not only are his in-laws loggers, but deals with the public every day, and his livelihood depends in large part upon reading their emotional state.

In his opinion, the dynamic surrounding the proposed softwood lumber deal in BC is changing from concern over the deal itself, to concern that Ottawa is going to put it to the West Coast yet again.

Think about that for a moment.

If he's right, and the major issue in BC has shifted from the policy itself to the fact that nobody in the Conservative government seems to be even listening to the concerns about it, then Harper and Emerson are on the verge of opening up a whole different can of worms. Regionalism will complicate this to no end, and the poisonous fallout from a province disregarded will seep into other federal-provincial issues for years to come. True or not, BC sees this as a BC issue.

Whether or not the softwood lumber deal with the U.S. is the best we can do or it isn't, the Conservative PR strategy isn't working. This risks becoming a touchstone of Western Alienation.

Remember, nobody even talks about the underlying issues surrounding the NEP anymore. It's simply cited as Central Canada sticking it to Alberta. It has become an emotional issue more than a policy one, a still-sore point of reference in the provincial psyche.

The federal government needs to rethink its handling of this file, before the softwood lumber deal becomes BC's NEP.

Babble off.


At 2:44 p.m., Blogger Chris Taylor said...

I have a dumb question

Your earlier post in April posited the theory that this is the best deal we can get, due to subsidizing the industry with low stumpage fees, winning NAFTA arguments on loopholes, etc.

If it really is the best deal we can get, and B.C. hates it, I don't see how a concerted selling job by the feds is going to change anybody's mind anytime soon.

At 2:47 p.m., Blogger Chris Taylor said...

And of course I forgot to post the question -- how could the Conservatives dress this up as a shiny happy victory if we're taking some lumps (assuming, theoretically, that we ought to be)?

At 3:01 p.m., Blogger Babbling Brooks said...

"...I don't see how a concerted selling job by the feds is going to change anybody's mind anytime soon."

Chris, sales involves presenting your product in the best possible light. "A concerted selling job," as you somewhat pejoratively put it, would address why this is the best deal we can get, why not taking it would be bad for the stakeholders (esp. voting loggers in BC), why the cup is half-full.

To paraphrase Zig Ziglar, a good PR effort will not make an unpopular deal popular, but it will make an unpopular deal more popular than a bad PR effort will.

At 11:03 p.m., Blogger Scott Tribe said...

This deal, as I have constantly harped at Prog Blog and BlogsCanada... isnt worth the paper its written on.

The sooner it dies, the better.

If someone robs my house, I'm supposed to be grateful when the thief offers some of it back.. but gets to keep a stash for himself.. on top of making me promise I cat take him to court for it any longer.. but oh.. he reserves the right to rob me again if he thinks my house deserves to be robbed again because I might be doing ok in spite of the robbery?

I fail to see how this reasoning gets accepted by some as "its the best we can do"

At 11:38 p.m., Blogger Dr. Strangelove said...

Chris, BB had it right originally. And anyway this isn't just a BC issue and Campbell was behind it the last I heard.

The 3000 lb elephant in the room is that Canada subsidizes this industry. But it is taboo to say so north of the 49th. Mind you, there are good arguements why that is. But there are equally good arguements why the yanks won't tolerate the disparity in stumpage.

Up here, anything short of full capitulation by the US would be spun as capitulation by Canada. I seem to recall the Canada-US free trade agreement was also seen as Canada capitulating to the US. And some corners of the Canadian left are still shilling that notion but the jury's long been in on that one.

Furthermore, and correct me if I'm wrong, but about the only reason the Liberals couldn't get a similar or even moderately inferior deal done with the US was because they didn't carry the influence with the sitting president. It's almost ridiculous to believe the CPC concocted this deal in a few short months after taking office. So the Liberals are playing this one like A-stan - 'we started it but since it's out of our hands now, we don't support it'.

You can't retail this one in Canada because Canadians have worked this one to such a patriotic frenzy over the course of decades that no amount of marketing (or reason) will penetrate the collectice Canadian intransigence and sanctimony.

At 2:43 a.m., Blogger Candace said...

I emailed someone in Ontario that is affected by the file. Apparently, the bulk of the tariffs against Cdn lumber have had to do with BC practices, so while BC might be bugged, the rest of the country is not.

Does this equate to the NEP? I don't know and as an Albertan that lived through the trainwreck that was the NEP I can't possibly look at this objectively.

But we know (as mentioned above) that stumpage rates in Canada are crap and are the root of the issue. "Free trade" means... free trade. If we are playing word games, we deserve what we get.

And by the way, that same Ontarian (I can't believe I'm actually defending an ON opinion, btw) says that YES, this is the SAME deal that 2 or 3 months ago was heralded by ALL regions as a win, except we've ADDED some additional wins to it.

Go figure.

At 2:45 a.m., Blogger Candace said...

Oh, and that billion we left on the table?

How much of the loan guarantees etc that the lumber industry has won are repayable?

That would be ZIP and all the "helping hands" provided by the feds through this add up to more than a billion.

Just sayin'

At 6:46 p.m., Blogger deaner said...

"The 3000 lb elephant in the room is that Canada subsidizes this industry."


Say it as often as you like, but that does not make it true. The value of standing timber in BC (I can't speak for the rest of the country) is less than in the southern US (or even Washington State) for a number of reasons. Some of these include:
> A 'cut it or lose it' tenure system, which forces companies to operate at a loss in order to maintain an option to run when the market is good and profits can be had;
> A high degree of unionization, resulting directly from government labour policies, which increases wage rates and benefits costs;
> A high corporate tax rate (relative to the US) and, until recently, corporate capital taxes, which increase the cost of operation and further reduce the value of inputs;
> Requirements that companies maintain public access to forestlands.

All of these are policy choices that we have made - deliberately in some cases, by accident and history in others. We have given up on extracting the highest financial value for the resource in exchange for commitments to continued high-wage employment and capital investment. Other jurisdictions (in the US south, say) have chosen to extract higher value from the resource, but they don't get the same non-financial benefits out of it. Our policy choice is no more a "subsidy" to the industry than Alabama's decision to operate a low-wage economy with boom-bust conditions in the timber sector is a subsidy. Try telling Alabama that they must increase unionization and wage rates otherwise they are subsidizing the industry and just see the reaction.

"If it really is the best deal we can get, and B.C. hates it, I don't see how a concerted selling job by the feds is going to change anybody's mind anytime soon."

I think we need more than a "selling job" - that brings to mind Dalton's "visit Caledonia" campaign. As a British Columbian, I would like to know just how hard Harper and Emerson pushed, and how hard Bush (or really, the Office of the Trade Representative) pushed back. As it is, I have no doubt that we are being sold down the river - but in this country, that's nothing new - I would at least like to know that we weren't sold cheaply.

At 10:56 p.m., Blogger lance said...

Deaner said: "All of these are policy choices that we have made - deliberately in some cases, by accident and history in others. We have given up on extracting the highest financial value for the resource in exchange for commitments to continued high-wage employment and capital investment."

So let me get this straight. BC has opted to low-ball their lumber (stumps) via public policy rather than the free market because the province preferred to have employment rather than profit.

And this doesn't translate to subsidies, how?


At 12:21 a.m., Blogger deaner said...

Lance - there is a given value in standing timber (or oil, gas, gold in the ground, etc). The province, deliberately or otherwise, said: "whoever develops this resource has to do so under these conditions" - and set an industry structure that emphasised continued employment, high levels of unionization and high tax rates. These are all policy choices that governments are free to make - whether we like them or not, I think we agree that they are within the purview of a sovereign government. In respnse, the industry placed a low cash value on the standing timber - the government had already extracted the value in the conditions of development. How is that a subsidy? - the owner of the resource extracts the same value (in their mind) - it just comes in the form of high wage employment and a high tax rate - and the buyer gets no more value; they just write the cheques to different people.

If you quote a customer for a job and don't extract immediate top dollar because you insist on value (for you) in other ways, like relaxed delivery schedules or an extended support contract that you and the customer know is inflated, you have not subsidized the customer - you have just structured the deal in a way that meets your needs, and presumably those of your customer. That's what the Province and the industry have done - we have sold the stumps, plus a long-term support contract, because the Province saw more value in that long-term cash flow (via mill employment) than in a higher stumpage fee. We are free to argue whether that is the right trade-off for the province. The Yankees are not free to argue that the Privince is not entitled to make that trade-off; but that is exactly the Coalition's line of attack.

The Coalition's position (which is common for Americans in trade deals) is that any deal structure that doesn't match the structures used in the USofA is prima facie a "subsidy." After all, the US does things perfectly, so the only reason to deviate would be to cheat somehow. Personally, I still think we should tell Jim McNerney to stuff his C-17s up his ass - no US product or salesman is welcome in a Government of Canada office until the Coalition drops their lawsuits, shuts the fuck up, and goes home - but that's just me.

At 12:26 a.m., Blogger deaner said...

Lance - on reading your post (immidiately after clicking on "Log In and Post") I should make something clear. The Province didn't set a low price in the random hope that the owners of timber rights would employ peope in the province. They attached obligations to the timber rights (like construction of a mill, "cut it or lose it" rules, local processing requirements, building public access roads, etc. These requirements transferred the cost of some policy decisions from the Province to the (prospective) timber right-holder. As would be expected, that reduced the value of the rights - but that was a deliberate quid pro quo

At 1:21 a.m., Blogger deaner said...



At 11:26 a.m., Blogger lance said...

Deaner, I can appreciate and agree with your arguments. Given your points; it isn't BC that is subsidizing the lumber industry the Province is taking out value by other means.

Having said that, why then are companies charging less than market rate for their product? That seems like a fairly stupid business plan to me.

It also adds fuel to the fire that Darcey brought up the other day here. Darcey's point was that only the inept lumber companies are against the deal.



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