Is it time to ease limits on export of B.C. raw logs?
Exporting raw logs remains highly controversial in B.C. because of the forest industry’s economic importance and because most of our vast forests are public property, managed by the provincial government. The policy also perversely undermines the value of our precious forest resources.
The often confusing debate usually centres on jobs. Opponents of exports argue foreign buyers of logs reduce the raw material available to our domestic sawmills and pulp mills, and thereby diminish local employment opportunities (as summarized in the slogan “Export logs = Export jobs” on road signs along the Malahat Highway). This view is widely held, especially by those engaged in manufacturing forest products.
Proponents of free trade in logs, however, point out access to foreign markets hikes the demand and value of logs, which increases employment in forestry and timber production. In addition, logs are exported only when they bring prices higher than domestic sales, so exports advance the public interest in the economic return on our forest resources.
Proponents of a free market for logs include the companies and contractors that harvest timber and the owners of forest land, including ranchers, woodlot owners and First Nations, who sell logs, and consequently welcome foreign buyers.
Often forgotten in this debate are the restrictions on exporting logs that our federal and provincial governments now have in place. These restrictions are complicated by ownership and jurisdiction, but they have two notable features: one is that anyone seeking to export logs must first obtain a permit to do so from federal or provincial authorities and in some cases from both governments.
These permits are issued only if the applicant can demonstrate that the logs to be exported are surplus to the needs of domestic mills. To meet this so-called “surplus test,” an applicant must first offer the logs for sale to local mills, and if he receives an offer from a local buyer, whether he accepts it or not, he will be refused an export permit.
The second important feature of this policy is that provincial export permits require recipients to pay a hefty tax on the timber they export.
These substantial restrictions ensure domestic buyers have first call on timber, free of foreign competition, but at considerable cost to the province in terms of the value of its timber.
Nevertheless, in recent years some 10 per cent of the provincial production of timber, drawn almost entirely from the coastal region, has been exported as logs to buyers in Asia — notably to China, Japan and South Korea — for prices often 50 per cent or more above local market prices.
Our policy of restricting log exports is perplexing in several respects.
For one thing, the federal restrictions were imposed during the Second World War. Today, forest products are the only products (apart from some products restricted for reasons of national security) that the federal government restricts from export.
Another oddity is the federal restrictions apply only to timber produced in B.C. — no other province. And, meanwhile, sawmills and pulp mills in B.C. import logs freely from other provinces and the United States.
Moreover, the provincial tax on logs exported to both other countries and other provinces is worrisome because of its apparent inconsistency with the principles, at least, of our Constitution. (Perhaps for this reason it is not called a tax, but rather a “fee in lieu of manufacture.”)
But the most conspicuous anomaly of our log export policy is its inconsistency with Canada’s broader economic policy of promoting free international trade.
Over the years, our restrictions on exporting logs have been evaluated by researchers at the University of B.C. and other Canadian universities, the Stanford Research Institute and governmental reviews and commissions. Overwhelmingly, these investigations found restrictions on access to the export market for logs diminish the economic benefit we derive from our forest resources.
Neither federal nor provincial governments have clearly stated their purpose in restricting log exports. Nevertheless, we can identify the effects of this policy and the winners and losers.
Restrictions on exports obviously constrain the demand for our logs, depress their domestic market price and hence also the quantity produced. So the direct beneficiaries are the local buyers, mainly sawmills and pulp mills and their employees and shareholders. But, for the same reason, those involved in producing logs suffer from the reduced production and value of their product. In effect, the loss suffered by log producers serves as a subsidy to manufacturers.
However, there is another, often forgotten, player in this industry, namely the owners of the timber. In B.C., where most of the timber is harvested on public land, the government sells timber to logging companies for a “stumpage price,” calculated as the difference between the market value of the logs and the cost of harvesting them.
Export restrictions depress the value of logs, so stumpage revenues are reduced accordingly, shifting the ultimate burden of log export restrictions onto us, the hapless taxpayers.