BC economy would gain from streamlined log export policies

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posted June 24, 2014

Almost no topic in BC forestry has been more controversial than what to do about log exports. Unions and some politicians argue for a complete ban, while many economists have favoured free trade in logs. The current government has been happy to allow limited log exports so long as the logs are not of the highest quality and are deemed surplus to domestic needs.

Many of the rules surrounding log exports impose needless costs on log producers and owners. Streamlining the log export process, while continuing to restrict exports, will ensure BC gains the most value from its forestry resources.

There are a multitude of regulations imposed on log exports in BC. In most cases, to export a log from the Coastal region, the producer must secure a federal export permit and possibly an addition provincial permit if under provincial jurisdiction. The province also imposes export prohibitions on the highest grades of logs and an outright ban on all grades of Red Cedar.

To obtain a permit, a log must be cut, then transported and offered for sale to domestic buyers on the Vancouver Log Market. The log owner can then apply to a government committee for an export permit; the committee considers the domestic offers the log received and applies a Surplus Test to determine if the log is deemed surplus to domestic needs. If the committee is satisfied that the log did not receive any “fair” offers, export permits are granted.

The log export approval process adds significant delays and uncertainty into the operations of logging companies. The current log export approval process prevents log owners from securing long-term contracts with foreign buyers that can mitigate price volatility, prevents log owners from sorting logs based on customer requests, and imposes time delays that increase log handling costs and ties up capital. It is possible to solve these issues while continuing to restrict log exports through a simplified export quota system that does not involve a subjective, non-transparent Surplus Test.

A new study, Log Export Policy for British Columbia recently published by the Fraser Institute, develops a trade model for the BC coast and the Asian log market and finds that restricting log exports through an export quota system provides net benefits to BC when compared to policies of banning log exports or unilaterally allowing unlimited log exports.

One thing is exceedingly clear from the analysis, an outright prohibition on log exports from BC, as advocated by many interest groups is costly relative to the alternatives. Both free trade in logs and the export quota policy yield much larger benefits to BC than the proposed export ban. This suggests that it is worthwhile to lift export prohibitions currently imposed on specific species and grades.

It’s also worth considering that free trade in logs is a more desirable policy when a global perspective is incorporated. Chinese and Japanese log consumers directly benefit from BC allowing more log exports; this presents an opportunity. Canada is currently in talks to join the Trans Pacific Partnership, which includes Japan. There have also been calls in the media and policy circles for the commencement of trade negotiations with China in the future. It is possible that removing all log export restrictions as part of a trade agreement could leverage concessions of a similar size that benefit BC.

If the BC and federal governments are intent on building a healthy and sustainable forest industry in BC, consideration should be given to streamlining the log export process in the short term while looking to free trade in the long term as negotiations further develop.

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