International Context 2Certification and Softwood

Agenda

Global Context - overviewInternational

Environmental Agreements

Trade flowsCertification Softwood Lumber Dispute

October 7, 2014 2

Trade-Related Vulernabilities

3. green market pressures– Boycotts– purchasing policies– certification

• How should purchasers evaluate claims by environmental groups?

October 7, 2014 3

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 4

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 5

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 6

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 8

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

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 10

Commitments in Canada

• Forest Products Association of Canada• January 2002 - 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 11

Canadian Certification by Standard

October 7, 2014 12

Canadian Certification – Global Perspective

October 7, 2014 13

Certification in BCby program, year-end 2013

October 7, 2014 14

CSA FSC SFI0

5

10

15

20

25

30

Area Certified (million ha)

15

October 7, 2014 16

Source for what label means: http://www.fsccanada.org/docs/fsccertification_chainofcustody_explained.pdf

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 17

October 7, 2014 18

ForestEthics campaign attacking the credibility of SFI

Certification – Major Unknown

• How much it influences forest management above and beyond government policy

October 7, 2014 19

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

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 21

The Softwood Lumber Dispute

agenda

• Evolution of softwood lumber dispute

• Underlying causes• BC reforms to avoid

– Forest Revitalization Plan

• 2006 agreement• Current status• themes

Modern History of Dispute• Lumber I: early 80s - increased US countervailing duty

pressures• Lumber II: 1986 – MOU - export tax• Lumber III: 1992 US countervailing duties (6.5%)• 1994 - Canadian victory in binational panel

– US changes law to undermine basis for ruling• 1996-2001 – 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 24

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 25

BC Policy Reforms

• How US trade pressures influenced BC forest policy - 2003– Market-based pricing– Tenure takeback– Economic deregulation

Stumpage Defined

• Stumpage is the price paid by a licensed forest company for a publicly-owned tree

27

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

October 10, 2013 FRST 415 28

BC policy reforms announced as response to US softwood lumber challenge

29

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

30

Agenda 2

Decision: Forest Revitalization Plan

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 32

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 33

FRP – Setting a Fair Price

34

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 35

Softwood Lumber Agreement of 2006 – managed trade

October 10, 2013 36

Price per thousand board feet

Option A –Export Charge (%)

Option B – Export Charge plus Volume Restraint**

Over US$355 0 0

US$336-355 52.5% + regional share of 34% of U.S. Consumption

US$316-335 103% + regional share of 32% of U.S. Consumption

US$315 or under 155% + regional share of 30% of U.S. Consumption

Lumber prices – 2001-14

http://cfs.nrcan.gc.ca/selective-cuttings/43

http://www.nrcan.gc.ca/forests/industry/13309#softwood

Month Reference Price(US$/MBF)

BCcoast(%)

BCinterior(%)

AB(%)

SK(%)

MB(%)

ON Footnote1

(%)QC Footnote1

(%)

December US$387 0 0 0 0 0 0.1 2.6

November US$380 0 0 0 0 0 0.1 2.6

October US$353 5 5 5 2.5 2.5 2.6 5.1

September US$353 5 5 5 2.5 2.5 2.6 5.1

August US$326 10 10 10 3 3 3.1 5.6

July US$356 0 0 0 0 0 0.1 2.6

June US$407 0 0 0 0 0 0.1 2.6

May US$443 0 0 0 0 0 0.1 2.6

April US$416 0 0 0 0 0 0.1 2.6

March US$395 0 0 0 0 0 0.1 2.6

February US$385 0 0 0 0 0 0.1 2.6

January US$357 0 0 0 0 0 0.1 2.6

2013 Export Charge Rates

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

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 40

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

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.