A rescue plan for Canada's forest industry

To say that times are tough in the Canadian forestry sector is a gross understatement. With the U.S. housing collapse and global financial services meltdown, the sector has lost 50,000 jobs and more than 250 mills over the past two years.

In situations like this, people look to government for the fix. And governments grapple with what they can come up with that won't jeopardize delicate trade relations. Providing safety nets and economic stimulus is part of the answer but there is more - improve business conditions.

Both the provinces and the federal government have taken steps in the right direction. Some provinces, like British Columbia, are modernizing their tenure and forest management policies to make them more flexible and market-oriented. Federally, the recent budget showed that the Harper government sees the industry's promise and accepts a role in helping achieve that potential by doing such things as strengthening the powers of the Export Development Bank.

But the needed sense of urgency and ambition is still missing. If governments wait too long to improve business conditions, many more thousands of jobs will be needlessly lost. Here's what has to be done:

COMBAT U.S. PULP SUBSIDIES

The U.S. government is providing billions of dollars of subsidies to the pulp industry for the renewable fuel that they produce and use in their mills (“black liquor”). As a result, U.S. mills are receiving $200 (U.S.) to $300 a ton on pulp that costs $500 a ton to produce. This is a huge subsidy that will cause Canadian mills to shut down and less-competitive U.S. mills to reopen.

Ottawa must quickly level the playing field by offsetting this subsidy before more Canadian mills close and thousands more jobs are unnecessarily lost.

MODERNIZE PROVINCIAL POLICIES

Provinces own most of the wood used in the industry's mills. For too long, they have managed the forest resource with an eye to short-term politics rather than long-term economic growth.

A number of provinces, including Quebec, retain the antiquated policy of “appurtenancy,” whereby the government, instead of the market, decides where wood will be processed on a mill-by-mill basis. And provincial governments have regularly prevented companies from merging and expanding their operations so they aren't able to withstand an economic crisis.

Where governments have modernized their policies, the result has been more investment and stronger companies that can go the distance.

REWARD INVESTMENT, R&D

The forest products industry is a major investor in innovation. Ottawa's main incentive for industrial R&D is through the Scientific Research & Experimental Development tax credit. But companies can't take advantage of it when they're not profitable - so it's useless during an economic downturn. And to make matters worse, when companies are in financial difficulty, the government withholds tax credits they're owed just to be on the safe side. This needs to change.

Countries that aggressively favour investment get more of it, which is why France and the U.S. have included this approach to investment as part of their response to the recession. Canadian governments have made progress on this front by eliminating capital taxes and harmonizing the GST and PST. But Canada can do better. Governments must extend the accelerated depreciation rates on capital investment and the loss carry-back provisions.

BUST RAIL MONOPOLY POWERS

Canada's two national railways have monopoly power over many rural communities and provide poor service and inflated prices that make mills less competitive. It's estimated that forest companies pay almost $300-million in excess rail costs because they don't have access to competition.

We have seen how competition in telecommunications in this country has resulted in dramatically improved service and much lower rates for customers. The same sort of change is needed in the rail system. Federal law creates the monopoly power and only changes to federal law can fix it.

HELP US GET GREENER

The forest products industry is by far the largest generator of renewable energy in Canada. The future of the industry is even greater with its potential to contribute to Canada's overall energy balance.

But to achieve this, the right policies must be in place. Investments by industry in renewable energy production are not recognized; instead, governments offer perverse incentives to create new facilities to generate power from wood fibre, a move that will dramatically reduce the competitiveness of existing producers.

There are many exciting new opportunities to create green fuels and chemicals using forest products. Governments should be pursuing these with the help of industry, while offering greater incentives for green production efforts already under way.

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Issued by:  The Globe and Mail

Author: Avrim Lazar

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Issue date: April 27, 2009

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Ottawa must act on unfair U.S. subsidy

August 22, 2009: What they are toasting these days in the U.S. forest industry is hard to swallow because it has been mixed up with a shooter that is priced in half-gallons and appropriately named "black liquor."

The black liquor raising U.S. spirits, and leaving us with a hangover, is a concentrated residue of wood lignin that is a byproduct of making kraft pulp. Now, some enterprising American pulp and paper producers have implemented a scheme to generate billions of dollars in tax credits from their black liquor use.

They receive an "alternative fuel tax credit" of 50 cents a gallon from the U.S. government for the use of fuel mixes that combine alternative, renewable fuels, such as ethanol or black liquor, to fossil fuels such as diesel or gasoline.

It is a massive subsidy that directly imperils Canadian pulp and paper mills and thousands of jobs because it allows the U.S. industry to flood the Canadian market with subsidized paper that even further depresses its price. The damage to our pulp and paper mills is already considerable. If this loophole is allowed to run its course, it might very well be irreversible.

Knowing a typical mill burns between 200 and 300 gallons per ton of paper produced, how big and fat can these cheques be at 50 cents a gallon? At $150 to $200 per ton, the drain on the U.S. Treasury is estimated to be $6 billion to $10 billion for 2009. International Paper collected $71 million in December 2008 alone.

This disastrous scenario spurred our union into action. On June 2, about 4,000 of our members — many from Atlantic Canada — marched to the office of the prime minister on Parliament Hill.

The week before, some of our members occupied the offices of seven Conservative MPs — four of whom are in cabinet. About 10 forestry workers from Northern New Brunswick occupied Tobique-Mactaquac MP Mike Allen’s Grand Falls office.

The next thing we heard, Natural Resources Minister Lisa Raitt announced $1 billion in tax credits for environmental improvements in mills. That means Canadian companies get a credit toward money spent on improvements over the next three years. But those credits are no good to companies on the brink, like many in the Atlantic region.

What these viable mills need now are federal government loan guarantees — the key to preventing further bankruptcies. We are not talking about subsidies, or about taking taxpayers’ money and putting it into investors’ pockets. We are talking about back- stopping loans at commercial rates because otherwise, Canadian banks will only finance mills at huge rates of interest.

CEP has legal opinions indicating such loan guarantees do not violate the Softwood Lumber Agreement. All federal political parties, except the Conservatives, agree with our position on this issue.

The Conservatives were willing to breach their laissez-faire philosophy to shore up the auto industry in Ontario. But they are stony faced when it comes to making a real move to offset the completely unfair trade advantage the U.S. is giving its mills in the form of the black liquor subsidy.

The Americans have decided that when this recession is over, they will have an industry, they will have pulp and paper mills, they will have productive capacity and they will have a future.

The forest industry in Canada, the paper industry in Canada, also has a future. We are a land of trees and water, and forestry is a renewable resource. If allowed to compete on equal terms, Canada’s industry would be unbeatable.

The Canadian government must immediately request that the U.S. government close the loophole to eliminate the massive tax credit to a limited group of kraft pulp and paper mills. And it must provide loan guarantees to our viable mills.

Here are the cold numbers: 55,000 forest jobs in two years; 75,000 forest jobs in five years —three times that amount with the economic spinoff effects. The numbers don’t convey the anguish of uprooted families and decimated communities, but they do convey the urgent need for the Conservative government to act now to give forestry a future.

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Issued by:  The Cronicle Herald

Author: DAVE COLES

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Issue date: August 22, 2009

Link to Article: Origin of text