Canada's Lumber Industry: Trade, Policy, and Environment

Introduction

Contemporary society is characterized by several defining features, including the opening of borders to international trade and the rapid advance of technology, both of which have come to affect virtually all areas of life. Beyond these, however, a more pressing characteristic of the modern era is the threat of environmental instability.

Global warming is becoming increasingly pronounced, and the risks it poses for humanity demand integrated action. Problems contributing to environmental instability include higher levels of consumption, increased dumping of industrial waste in waterways and on land, and high rates of deforestation. The consequences are severe: skyrocketing pollution levels, the death or extinction of species due to habitat loss, deteriorating air quality, and illness and death among people who consume polluted water.

Economy, Demographics, and Lumber Trade

In light of this serious environmental threat, a question arises regarding the ways in which countries manage activities such as deforestation and industrial waste disposal. Against this backdrop, the particularities of lumber trade and lumber management are assessed in Canada — one of the world's largest lumber exporters.

Canada is one of the most developed economies in the world. Part of its success has been tied to its close alignment with the economic trajectory of the United States — its sole land neighbor. The United States represents the primary destination for Canadian exports and has for many years been the principal driver of Canada's trade surplus. The country has sustained its economic growth through a skilled and efficient labor force as well as technological strength. In 2007, as the global economic crisis took hold, Ottawa reported deficits after 12 consecutive years of surplus. Nevertheless, due to its prudential lending practices and strong capitalization, the Canadian banking sector emerged from the crisis as one of the strongest in the world, supporting the revival of the broader economy.

At a more concrete level, the Canadian economy can be characterized by the following indicators:

A gross domestic product of $1.279 trillion, making Canada the 15th largest economy in the world; a GDP per capita of $38,200, significantly above the global average of $10,400; a GDP composition of 2.3 percent agriculture, 26.4 percent industry, and 71.3 percent services; a labor force of 18.39 million, with an unemployment rate of 8.3 percent and 10 percent of the population living below the poverty line; an inflation rate of 0.3 percent and a federal debt of 74 percent of GDP; main exports including motor vehicles and parts, industrial machinery, telecommunications equipment, aircraft, chemicals, plastics, timber, wood pulp, crude petroleum, and natural gas, directed primarily toward the United States, the United Kingdom, and China; and main imports of machinery and equipment, motor vehicles and parts, crude oil, chemicals, electricity, and consumer goods from the United States, China, and Mexico (Central Intelligence Agency, 2010).

In terms of demographics, the key characteristics are as follows: the total Canadian population is 33,487,208, with a life expectancy at birth of 81.23 years — among the highest in the world; 80 percent of the population lives in urban areas, with a rate of urbanization of 1 percent per year; in terms of ethnic composition, the most common backgrounds are British Isles and French origins, followed by other European, Amerindian, Asian, African, and Arab; the literacy rate stands at 99 percent, and the average school life expectancy is 17 years (Central Intelligence Agency, 2010).

Canada's climate is varied — moderate in the south and sub-arctic in the north. The country is rich in a wide array of natural resources, including iron ore, zinc, copper, nickel, gold, lead, diamonds, fish, and timber. From an environmental standpoint, the country faces ongoing damage to its forests from polluting industrial operations. This constitutes not only an environmental threat but also an economic one, since timber exports account for a significant portion of national wealth and stability.

Canadian lumber has long been an important source of export revenue and has supported the country's economic development. In 1871, an article in the Quebec Mercury (quoted in the New York Times) noted: "The exports for the years 1870 and 1871 show a favorable condition of affairs, and tend still further to impress one with the magnitude of the lumber interest of the Dominions."

Timber trade emerged as both an economic and national force in the early nineteenth century, originating in the eastern and central Canadian forests. The demand for Canadian timber grew out of the Napoleonic Wars, during which Great Britain identified a "seemingly inexhaustible supply of wood" (Canada Museum of Civilization, 2010) — much needed for its naval vessels. As the war ended, demand for timber continued to rise, and Canadian wood was used primarily for exports to Europe. Over time, it also came to support the development of both Canada and the United States. At a broader level, the patterns of timber export are difficult to summarize concisely: globalization and the opening of borders, combined with increasing global demand, allowed Canada to deliver timber to an ever-expanding range of destinations. Great Britain was the first major destination for Canadian timber, followed in time by the United States. Canadian timber was also shipped to the West Indies (The Canadian Encyclopedia, 2010).

Timber cutting and processing were carried out under difficult winter conditions — cold temperatures, hard physical labor, and isolation in the mountains. Winter was the preferred season for timber operations due to several advantages: the practical benefit of hauling timber over snow and the financial advantage of an abundant, low-cost workforce during the cold season. Workers were separated from their families until spring, and the prolonged isolation created a range of social problems (Canada Museum of Civilization, 2010).

National Policies Governing Lumber Trade

The evolution of lumber trade in Canada has been shaped by a series of policies designed to regulate the sector. These can be divided into two categories based on the institutions that issued them: national policies and international policies.

The most significant national policy has been the decision to provide subsidies to the timber industry. The Canadian government subsidized the domestic timber industry in order to make its products more competitive internationally. At the national level, this decision resulted in higher export volumes — particularly to the United States, where Canadian timber became more affordable and cost-efficient than domestically produced American timber. The American timber industry responded quickly, filing complaints alleging dumping practices. A cross-border dispute emerged that has yet to be fully resolved.

On one side stands the Canadian government, which subsidizes the timber industry and allows its products to be sold in the United States at lower retail prices. On the other stands the U.S. timber industry, which argues that Canadian subsidies are fundamentally unfair. American industry representatives invoke economic principles and emphasize that prices should be set by market competition rather than federal intervention. The United States authorities responded by implementing countervailing duty tariffs — import tariffs on heavily subsidized products that bring retail prices in line with prevailing industry levels. Canada has not accepted these measures, and the dispute remains unresolved.

In light of this conflict, Michael Percy and Christian Good Yoder (1987) draw several lessons for Canadian economic actors involved in international trade. Among them:

In cases of international trade, long-term costs and benefits must be carefully assessed. When exporting to the United States in particular, it is highly likely that foreign industries will push back and accuse the exporter of anticompetitive practices. Resources should be set aside for such disputes, and the genuine risk of accusations and trade conflicts must be acknowledged. When free trade agreements are signed, they must specifically address how disputes will be resolved, and the agreements should be constructed so as to leave no room for misinterpretation or illegal conduct. The costs of resolving disputes consistently outweigh those of preventing them. In the case of the softwood lumber dispute between the two countries, by 1987 the cost had "been estimated at about $11 million. These costs do not include time costs of senior management or those of officials of federal and provincial governments involved in the dispute" (Percy and Yoder, 1987).

Conclusion

Foreign Affairs and International Trade Canada. (2010). Softwood lumber. http://www.international.gc.ca/controls-controles/softwood-bois_oeuvre/index.aspx?lang=eng

Canada Museum of Civilization. (2010). The timber trade.

Central Intelligence Agency. (2010). The world factbook — Canada. https://www.cia.gov/library/publications/the-world-factbook/geos/ca.html

The Canadian Encyclopedia. (2010). Timber trade history.