Nafta And The Timber Industry Essay Research

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Bill Brennan 11/09/00NAFTA and the Timber Industry Per. 4-5Over the past four hundred years or so, timber has helped to fuel the economy of the United States of America. Billions of dollars change hands every year on timber alone just from the United States’ producers and their counterpart retailers. In the 1970’s the United States was second on the list of the largest lumber producing countries in the world trailing only Russia. We were the powerhouse when it came to timber production, and we continued to be that way well into the 1980’s. During the 1980’s the industry began to take on a new shape with one of our closest neighbors, Canada, discovering it had a vast supply of a natural resource which was quite marketable. Canada soon took advantage of this, and by the late 1980’s exceeded the United States output (per board feet) by a few million board feet. With Canada so close in proximity, more and more of its lumber found its way into the United States. This is not to say that Canada was not a major player in the market before; it had just begun to maximize it’s potential in the American market. This is also the most significant part of history in regards to the North American Free Trade Agreement (NAFTA). The emergence of Canada was due in part to the increasing number of United States regulations on the timber industry. Clearcutting was a process of cutting down every tree in the area without leaving the unsalvageable trees. This production process caused a spark of interest in several U.S. organizations. Clearcutting had raised the eyebrow’s of the proponents of the endangered species act because clearcutting was leading to the extinction of the spotted owl, a species whose home was in the northwest region of the country, home to many clearcutters. Also the Environmental Protection Act (EPA) was putting increased pressure on policy makers to do something about the poor foresight of these lumber companies in regards to the exhaustion of resources. With the costs of lumber production going up in the United States, Canada was growing in popularity with United States retailers and wholesalers. Lower labor costs and a lower standard of living, compared with the United States helped to keep the price of timber production down in Canada. This was not the only thing the Canadians have going for them though, apparently the Canadian government subsidizes stumping charges from timber producers. With the Canadian government helping the Canadian producers, it drove prices down even further. This is not great news if you harvest timber in the United States, but it seems to work out pretty well for the Canadians. All of this said, we can now venture into the different sides of NAFTA, it’s shortcomings, and how it may have opened doors to new markets. Before NAFTA had came into the mix, there was always the annoying aspect of quotas, a certain amount of lumber that could be imported into the United States. With the forthcoming of NAFTA people at the head of most of the large lumber companies in the United States believed that this new agreement would lessen these quotas, maybe even do away with them completely. Unfortunately for the U.S. side, the quotas became more rigid. Many in the industry were not expecting this agreement and it turned out to be a worse situation for the Americans. Before, when stock was low or lumber was in high demand companies used to be able to get their hands on it. Now with the introduction of strict quotas companies are forced to wait until the beginning of the next quarter. A lot of U.S. companies are not to happy about this and want there to be no quotas at all. The United Forest and Paper Association continues to push Congress to get the timber industry a better deal with Canada in this aspect. Prior to the trade agreement, a significant amount of tariffs and taxes were placed on the exported lumber from Canada. These tariffs, applied to all lumber coming to us was just passed right down the line, with the United States’ retail lumber stores feeling the blow most heavily from a steady drop in profit margins. NAFTA did erase these tariffs between countries, including Mexico, a move that was excellent for the United States. Many spokesmen from retailers, wholesalers, and the mills said they saw an immediate impact. No one would say how much, but even a few percentage points extra in profit margins in a billion dollar industry translates into a lot of money (Northeastern Lumber co.). Canada got left out in this part of the agreement, of course they didn’t want to see the revenue generated by their tariffs be wiped away. There was the saving grace in that they did hold a significant amount of control on the market with these strict quotas in place. Most believe that this is the sole reason Canada backed off of the ‘no tariffs ‘ issue.

Most of the people involved in the NAFTA agreement overlooked its implications on Mexico. After all not to many people were keen on selling to a market that was very volatile, not to mention quite underdeveloped. U.S. and Canada alike were both hesitant to plunge into an uncharted and unstable territory. Mexico had never been seen as that appealing for that sole reason. Mexico had a peculiar place in this market because it presently bought most of it’s timber from South America. It had never looked to their neighbors from the north for a source of natural resources. Then came NAFTA, tearing down all kinds of trade barriers, encouraging trade amongst the three countries, and at the same time canceling the tariffs imposed on all imported goods to Mexico. According to many sources, Mexico made out real well in the deal. With no tariffs prices of timberdropped, and the quota factor was of no real significance to them. After all, if they were in need of timber and had already fulfilled their quota for the quarter, they could always look to the South American timber-producing companies. Soon after NAFTA was in effect and the Mexican economy stabilized, this once underdeveloped land with a volatile economy seemed a little more appealing. Corporate leaders are starting to reconsider Mexico as a source of newfound revenue. NAFTA appears to be a little bit of positive and a little bit of negative for both sides. Most of the companies in this particular industry find NAFTA to be an overall win-win idea, something they consider rare in today’s world of unmatched opinions. In essence, if the legislation is respected, Mexico should benefit, along with the United States, not too mention Canada who appears to hold the edge in this dispute.

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