Failing to see forest for the trees

Don

Wright’s response to my article

is typical of the arguments that make the softwood lumber dispute such a hotly contested issue, especially when it involves persons who have been deeply involved in the file as bureaucrats and politicians. They often fail to see the forest for all the trees.

My analysis represents an attempt to see the forest by stripping away as many empirical and historical trees as possible. In this spirit, I have focused on the consequences of two key elements of British Columbia’s forestry policies.

The first is the use of stumpage fees to collect the economic rent for taxpayers. To obtain the true value of the economic rent in timber owned by the crown, only free market bidding for the cutting rights is proper. The present licensing agreements and the calculation of the value of timber and production costs do not do the job.

From this perspective, my key question for Mr. Wright is: Is there a genuinely free market for timber cutting rights in British Columbia?

The second contentious issue involves quantitative restrictions on the export of logs. My analysis does not depend on the restrictions from the U. S. Northwest that Mr. Wright raises. The hypocrisy of the U.S. lumber producers is not an issue here.

The key question is: Are all of the logs produced in British Columbia sold in a free market in which U.S. sawmills can buy as much as they want?

If the correct answer to these two questions is yes, then my analysis if faulty and I apologize to Mr. Wright and anyone who was upset by it. If it is no, the central points of my analysis are valid.

Mr. Wright asserts “no WTO panel, NAFTA panel or U.S. court has ever endorsed the U.S. position that Canadian lumber producers receive stumpage subsidies.” That assertion is inconsistent with an international tribunal’s finding that U.S. authorities had overestimated the damage done by Canadian policies and ordered the lowering of U.S. tariffs. Canadians often mention this finding as a major victory in the dispute and the U.S. tariffs were lowered as requested. How can any damage be too high, if it does not exist?

Mr. Wright notes that the Canadian share in the U.S. lumber market has not increased during the last 20 years. This fact simply shows that the import restrictions have done their job. Could Mr. Wright tell us what our market share would have been in the absence of the import restrictions?

Mr. Wright states that the ”real roots of wrath” stem from “the insatiable appetite of the U.S. lumber industry coalition for never-ending restrictions on exports of Canadian lumber to increase the price that U. S. consumers pay for lumber and thereby increase the coalition’s profits.” This is a personal opinion to which Mr. Wright is entitled, but its relevance is doubtful.

So what if lumber firms have an insatiable appetite for profits at the expense of consumers? Does Mr. Wright think Canadian lumber firms do not?

Fortunately, competition among firms and government regulations protect consumers from such firms, including foreign firms that might engage in dumping, and that might attempt to drive out domestic firms and then monopolize the market. Such laws exist in the United States and Canada. The dispute settlement mechanism of international trade agreements is designed to deal with problems they cause between countries. The softwood lumber case is just one of these instances investigated every year in both countries.

I wished these opportunities to protect domestic interests from foreign competition did not exist since, in my view, global competition provides the best protection for consumers, while the regulations are a rich playing field for special interest groups and politicians.

However, we have to deal with reality. These laws exist and the relevant U. S. authorities have no choice but to abide by them. The U.S. president cannot simply intervene in the resultant quasi-judicial proceedings, however long they may last, just as there would be a great outcry if our prime minister interfered in the many legal processes that involve claimed damage from imports our authorities have to deal with every year.

It is ironic, therefore, that there are so many high-minded calls, including that of Mr. Wright, for the United States to uphold the rule of law. It is doing so. The problem is that we do not like the laws it upholds, i. e., the domestic laws of the United States.

Perhaps there is a problem with the interface between domestic law on one side and the NAFTA and WTO treaties on the other. If this is so, we should ask for a new round of international negotiations aimed at changing these treaties.

However, I am not sure that we Canadians are willing to give up more of the existing and already limited rights to protect our own industries in return for getting the Americans to give up theirs. In addition, most experts believe that the renegotiation of the NAFTA treaty would open up areas of agreement that were based on mutual concessions by all three member countries. All of these bargains would be at serious risk.

So, instead, why not change domestic forestry management policies and auction off timber cutting rights and logs? We cannot be certain whether such policies would end the softwood lumber dispute, but they would certainly eliminate the moral base of the U.S. position. Besides, these policies would be good for B. C. taxpayers and the overall efficiency of our economy.