Canada to End Export Tax on Most Lumber

Canada and the United States signed an agreement Wednesday to cancel a controversial 15% export tax imposed for the past year on softwood lumber from British Columbia, the government announced.

The agreement, signed in Washington, also exempts Canada’s Atlantic Maritime Provinces, including New Brunswick and Nova Scotia, from the tax.

The breakthrough came when British Columbia, with its lumber industry valued at $6.3 billion (Canadian), raised fees for timber-cutting rights. One Canadian dollar is equivalent to about 76 U.S. cents.

British Columbia and the Maritime Provinces produce three-quarters of Canada’s annual $4 billion (Canadian) in lumber exports to the United States. The Maritimes were exempted because their fees were deemed high enough already.

Pending further negotiations, Quebec, Ontario and other provinces will continue to pay the 15% levy imposed last January following complaints from the U.S. lumber industry that Canadian lumber was unfairly subsidized.

Increased Fees

Canadian Prime Minister Brian Mulroney’s Conservative government originally compromised in the dispute and imposed its own export tax, fearing the imposition of heavy U.S. anti-dumping duties. About $290 million (Canadian) in tax was collected between January and August of this year.

The agreement became possible when the U.S. lumber industry accepted figures showing that increased fees for timber rights in British Columbia will raise prices by the equivalent of 15%.

At the heart of the dispute are two different methods for collecting royalties from timber companies. Most U.S. companies bid at auction for lumber rights, while Canadian provinces set widely varied “stumpage” fees.

The U.S. industry complained that many provinces kept those fees artificially low to give their producers a competitive edge.

British Columbia in effect accepted the U.S. argument in October by raising stumpage fees dramatically, in some cases by 400%.

Lumber producers protested that British Columbia Premier William Vander Zalm’s provincial government was more interested in boosting revenues than resolving the dispute or helping the forestry industry.

The new stumpage fees will provide Vander Zalm’s government with more than $800 million (Canadian) next year, compared with about $200 million the year before, federal Forestry Ministry official Jim Cameron told the Associated Press.

Another part of the agreement announced in Ottawa by Trade Minister Pat Carney exempts lumber mills along the border in Quebec and Ontario in cases where they use imported U.S. logs.