1. International Context 2 Certification and Softwood

2. Agenda
Global Context - overview International Environmental Agreements Trade flows Certification Softwood Lumber Dispute
October 7, 2014

3. Trade-Related Vulernabilities
3. green market pressures
Boycotts
purchasing policies
certification
How should purchasers evaluate claims by environmental groups?
October 7, 2014

4. Certification -- Overview
Definition
independent actor attests that products meets agreed standards
non-governmental
voluntary
change in governance: privatization of forest policy
political conflicts within and between certification organizations
October 7, 2014

5. Evolution
Phase I: environmental efforts to improve forest management in the wake of failure to get international convention
Phase II: strategic response from industry and government
Phase III: conflict and competition among systems
October 7, 2014

6. Forest Stewardship Council
1993
environmental organizations - WWF
principles and criteria
regional processes
certification permitted without regional standards
accrediting certifiers (e.g. Smartwood, SGS)
October 7, 2014

7. FSC: Principles and Criteria
1. Compliance with laws and FSC principles 2. Tenure and use rights and responsibilities clearly established 3. Respect Indigenous people’s rights 4. Promote Community relations and worker’s rights 5. Encourage Multiple Benefits from the forest
6. Minimize Environmental impact: maintain ecological function 7. Establish Management Plan 8. Conduct Monitoring and assessment 9. Maintenance of High Conservation Value Forests 10. Plantations
Plantation defined: Forest area lacking most of the principal characteristics and key elements of native ecosystems as defined by FSC-approved national and regional standards of forest stewardship
October 7, 2014

8. FSC in BC Started in 1996 acrimonious process
2005 – FSC International gives BC standard accreditation
Tembec -- TFL 14 near Cranbrook
only “industrial” company to become certified
Bought by Canfor in 2011
October 7, 2014

9. Canadian Standards Association
CSA: non-governmental standard setting body
set by negotiations by firms in industry
forest industry coalition funded CSA to develop standards
Coordinated with Canadian Council of Forest Ministers
Performance standards developed at local level through multistakeholder process
detailed procedural requirements
first forests certified May 1999
October 7, 2014

10. Sustainable Forestry Initiative (SFI)
American Forest & Paper Association (AF&PA) in October 1994
Must be certified to be a member of association
Now provides third party, and a label
Performance standards originally much less “demanding” than FSC
Some tightening over time
October 7, 2014

11. Commitments in Canada Forest Products Association of Canada
January announces that all members must be 3rd party certified by 2006
one of FSC, CSA, SFI
As of Dec 2006, “FPAC members had essentially achieved their goal”
October 7, 2014

12. Canadian Certification by Standard
October 7, 2014

13. Canadian Certification – Global Perspective
October 7, 2014

14. Certification in BC by program, year-end 2013
SFI up, both CSA and FSC down – at year end 2013
October 7, 2014

15.
Map of certification as of year end 2013

16. Source for what label means: http://www. fsccanada
October 7, 2014

17. The Future Consolidation inevitable? Scenario I - unilateral victory
Scenario II - compromise
Mutual recognition
Scenario III: continued competition and confusion
Current: evidence of some convergence toward FSC, but FSC insists on persistent distinction
October 7, 2014

18. ForestEthics campaign attacking the credibility of SFI
October 7, 2014

19. Certification – Major Unknown
How much it influences forest management above and beyond government policy
October 7, 2014

20. Reminder – Themes from groups
Environmentalists have effectively used market-oriented strategies to increase their power
Canfor, Submission to the Province of British Columbia Legislative Assembly Special Committee on Timber Supply

21. New Themes
Changes in international markets and technology have undercut BC’s comparative advantage
A combination of globally valued resources and reliance on trade makes BC highly vulnerable to international influences
Certification has increased the influence of private standard-setting organizations but there is little evidence of on-the-ground impacts
October 7, 2014

22. The Softwood Lumber Dispute

23. agenda Evolution of softwood lumber dispute Underlying causes
BC reforms to avoid
Forest Revitalization Plan
2006 agreement
Current status
themes

24. Modern History of Dispute
Lumber I: early 80s - increased US countervailing duty pressures
Lumber II: – MOU - export tax
Lumber III: 1992 US countervailing duties (6.5%)
Canadian victory in binational panel
US changes law to undermine basis for ruling
– softwood lumber agreement
Certain amount tax free
Substantial export fees above that level
Lumber IV:
April 2002 – US DOC final determinations: 27.2% duties
Canada won every major case
October 2006 – new Softwood Lumber Agreement
October 10, 2013

25. US arguments Stumpage system - prices timber at less than market value
Cut controls – flood market at low point of cycle
Log exports – increase supply of domestic logs, depressing price
Direct grants/loans
October 10, 2013

26. BC Policy Reforms
How US trade pressures influenced BC forest policy
Market-based pricing
Tenure takeback
Economic deregulation

27. Stumpage Defined
Stumpage is the price paid by a licensed forest company for a publicly-owned tree

28. BC’s Stumpage System (until 2004)
Comparative Value Pricing (>90%)
Product prices – logging costs, adjusted to account for gov target revenue
auction-based market pricing (<10%)
small business sales
Both Target rates are based on a composite of lumber and chips, although different fractions
government revenue objectives reflected in setting relationship between the index and the target stumpage rate, e.g., by altering the slope and level of the line
main regional difference is in setting harvesting unit-specific value index, where coast using V log market, and interior using lumber and chips and work backwards
October 10, 2013
FRST 415

29. Agenda 2
BC policy reforms announced as response to US softwood lumber challenge

30. BC Proposal in Softwood Lumber Dispute
Agenda 2
BC Proposal in Softwood Lumber Dispute
institute market-based pricing
eliminate below-cost sales
eliminate “blending” of blocks with significantly different stumpage values to reduce “cross-subsidies”
award new timber rights competitively, by awarding them to the highest bidder
allow Forest Licences and Tree Farm Licences to be subdivided
reduce restrictions on the transfer of tenures, including eliminating the 5% AAC takeback
eliminate “cut control” requirements that require a minimum amount of timber be harvested regardless of market conditions
eliminate utilization requirements;
eliminate appurtenancy provisions that tie harvesting rights to requirements to process the timber in company-owned mills
eliminate below-cost sales by increasing the minimum stumpage rate (now $0.25 a cubic metre) so that timber will not be sold at less than the Ministry of Forest administrative costs;
eliminate “blending” of blocks with significantly different stumpage values to reduce “cross-subsidies”;
award new timber rights competitively, by awarding them to the highest bidder;
allow Forest Licences and Tree Farm Licences to be subdivided;
reduce restrictions on the transfer of tenures, including eliminating the mandatatory 5% AAC takeback;
eliminate “cut control” requirements that require a minimum amount of timber be harvested regardless of market restrictions;
eliminate utilization requirements;
eliminate appurtenancy provisions that tie harvesting rights to requirements to process the timber in company-owned mills;
eliminate government authority to take back AAC in response to mill closures;
eliminate company-specific assistance under the Job Protection Act

31. Decision: Forest Revitalization Plan

32. Forest Revitalization Plan “biggest change in 50 years”
Takeback and Redistribtion
20% taken back from long term replaceable licences
first 200K m3 exempt
10% to auctions
10% redistributed to
First Nations (8%)
Woodlots
Community Forests
Compensation: $200 million
October 10, 2013
FRST 415

33. Forest Revitalization Plan “biggest change in 50 years”
Changes in economic regulations
allow subdivision and transfer without penalty
eliminate appurtenancy
eliminate minimum cut control requirements
October 10, 2013
FRST 415

34. FRP – Setting a Fair Price

35. Canada-US Softwood Lumber Agreement of 2006
7 year term, with option to renew for 2
end to litigation, US pledges to dismiss new actions
Canada to receive $4 billion
US receives $1 billion
$500 million to US companies
$450 million to “meritorious initiatives”
$50 million to create a “North American Lumber Council”
2012: agreed to extend it to October 2015
October 10, 2013

36. Softwood Lumber Agreement of 2006 – managed trade
Price per thousand board feet
Option A –Export Charge (%)
Option B – Export Charge plus Volume Restraint**
Over US$355
US$ 5
2.5% + regional share of 34% of U.S. Consumption
US$ 10
3% + regional share of 32% of U.S. Consumption
US$315 or under 15
5% + regional share of 30% of U.S. Consumption
July $284
February 2006: $344
October 10, 2013

37. Lumber prices – 2001-14 http://cfs.nrcan.gc.ca/selective-cuttings/43

38. 2013 Export Charge Rates
Month
Reference Price (US$/MBF)
BC coast (%)
BC interior (%)
AB (%)
SK (%)
MB (%)
ON Footnote1  (%)
QC Footnote1  (%)
December
US$387
0.1
2.6
November
US$380
October
US$353 5
2.5
5.1
September
August
US$326 10 3
3.1
5.6
July
US$356
June
US$407
May
US$443
April
US$416
March
US$395
February
US$385
January
US$357

39. Softwood lumber dispute: bottom line
Since 1982, US trade actions against Canada have had a major impact on the BC forest industry and BC forest policy
Given the structure of the current deal, because of relatively high lumber prices, at present there are no taxes of BC lumber exports

40. International Context: Summary
International Forces: Contribute to crisis, constrain reform
environmental agreements
world market trends
push prices down
green markets - certification, boycotts
push costs up, threaten demand
US trade pressures
push costs up
Force difficult policy reforms
major challenge to sovereignty
October 10, 2013

41. Themes
US trade pressures have pushed costs up and constrained BC’s policy sovereignty.
BC’s market-oriented forest policy reforms were strongly influenced by trade pressures by the United States

42. Thursday Tutorial 1: Overview and Problem Definition
Watch video or read 2 pager BEFORE CLASS
Tasks for Problem Definition Tutorial (in class):
What are your organization’s core interests? You might find it very useful to examine their mission statement if there is one
Define the policy problem from your group’s perspective. By 12:10, be prepared to present a one to two sentence problem definition to the class.