NAFTA The Timber Industry And Some

Consequences Essay, Research Paper

Agricultural Trade Policy

INTRODUCTION

Over 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’s 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 ( by a few billion board

feet per year). We were the powerhouse when it came to timber production, and we continued to be 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 (World Book Encyclopedia @1985).

With Canada so close in proximity, more and more of their

found it’s way into the United States. We are not saying 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 (Newsweek April ‘95), 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.

CANADIAN TIMBER INDUSTRY

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 drives 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 (rumor has it that they weren’t complaining about their position in the market).

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.

QUOTAS

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 slighten these quotas, maybe even do away with them completely. Unfortunately for the U.S. side

was that with NAFTA 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 ( Lumber is bought quarterly). 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.

TARIFFS

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’s 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, the mills said they saw an immediate

impact. Noone 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 (Western Wood Products).

MEXICO’S ROLE

Most of the people involved in the NAFTA agreement overlooked it’s implications on Mexico. After

all not to many people were keen on selling to a market which 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 ( Georgia-Pacific Co.). After

all Mexico’s economy could crash and how would the millions of dollars in lumber be paid off that were

sold to them?

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 cancelling 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 timber

dropped, 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 after the Mexican economy stabilized, this once

underdeveloped land with a volatile economy seemed a little more appealing (Mac-Millan Bloedell).

Corporate leaders are starting to reconsider Mexico as a source of newfound revenue.

THE ENVIRONMENT

The Northamerican continents’ supply of timber should probably have no direct effect, unless

Mexico’s construction activity takes off. This is not a far-fetched thought in the least; the

increasing number of companies changing location in search of more lenient environmental laws grows every

day, the Mexican people will be likely to relocate along the border ( the most probable location for

U.S. companies), and in turn demand new construction to serve their shelter needs. This could lead to an

increased exhaustion of timber, however that might not be so considering that the growth rate is nearly

30% higher than the consumption rate.

Canada needs to implement a full-scale tree-replacement legislation, to ensure their prosperity

in the future. Canadians also want the quotas to remain in place, in regards to the environment, this

will keep logging and timber production to it’s lowest feasible rate.

CONCLUSION

NAFTA appears to be a little bit of positive and a little bit of negative for both sides.

However 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.