A report for the British Columbia Minister of Forests and Range Generating More Wealth from British Columbia's Timber: A Review of British Columbia’s Log Export Policies Bill Dumont and Don Wright December 2006 Generating More Wealth from British Columbia’s Timber: A Review of British Columbia’s Log Export Policies A report for the British Columbia Minister of Forests and Range, December 2006 Letter of Submittal 1753 Peerless Road, 4505 Tanglewood Crescent, Cobble Hill, British Columbia Victoria, British Columbia V0R 1L6 V8X 3V3 December 5, 2006 Honourable Rich Coleman Minister of Forests and Range PO Box 9049 STN PROV GOV’T Victoria, British Columbia V8W 9E2 Dear Mr. Minister: Re: Review of Log Export Policy We respectfully submit for your consideration the final report on our review of log export policy in British Columbia. Thank you for the opportunity to review and make recommendations regarding this important element of public forest policy. Sincerely, W.E. Dumont RPF Don Wright i Generating More Wealth from British Columbia’s Timber: A Review of British Columbia’s Log Export Policies A report for the British Columbia Minister of Forests and Range, December 2006 Table of Contents Letter of Submittal Acknowledgements 1 Introduction 1 2 Review Process 3 3 Summary of What We Heard 4 4 Global Log Trade Relative to Canada and British Columbia 8 4.1 Global Log Exports ..........................................................................8 4.2 Canada’s Log Exports and Imports...............................................11 4.3 British Columbia’s Log Exports.....................................................13 5 History of British Columbia’s Log Export Policy 21 5.1 Establishment of Log Export Control Policies, 1865 to 1939 ......21 5.2 World War II Export Controls, 1940 to 1946 ................................23 5.3 Post-War Policy Changes, 1947 to 1969.....................................24 5.4 Advent of Export Exemptions Other Than the Surplus Criteria, 1970 to 1990...................................................................................25 5.5 Conclusions ...................................................................................31 6 British Columbia’s Current Situation 32 6.1 Coast and Northern Transition Zone............................................32 6.2 Southern Interior ............................................................................34 7 Analysis 36 7.1 Log Pricing in a Competitive Market.............................................36 7.2 Log Exports....................................................................................37 7.3 Effects of Relaxing or Tightening Restrictions on Log Exports ...40 7.4 Effects of Log Exports on Employment.........................................41 7.5 Small Public Tenures and Private Land Holders .........................42 7.6 First Nations’ Forestry Issues and Challenges ............................44 ii Generating More Wealth from British Columbia’s Timber: A Review of British Columbia’s Log Export Policies A report for the British Columbia Minister of Forests and Range, December 2006 7.7 Viability of Northern Coastal Tenures and Hembal Stands.........47 7.8 Ecosystem-Based Forest Management.......................................49 7.9 Private Land...................................................................................51 7.10 Log Exports and the 2006 Softwood Lumber Agreement...........52 7.11 Operation of the Surplus Test and Export Procedures................54 7.12 Issues Around Consolidation ........................................................55 7.13 Forest-Based Communities in Transition.....................................56 7.14 Pulp and Paper Sector ..................................................................57 7.15 Summary: Conclusions from Our Analysis ..................................57 8 Recommendations 59 8.1 Principles and Objectives..............................................................59 8.2 Creating the Level Playing Field ...................................................59 8.3 Measures for Particular Species and Grades ..............................62 8.4 Improvements to the Operation of the Surplus Test....................67 8.5 Measures for Small Crown Licence Holders, Small Private Landowners, and First Nations...............................69 8.6 Measures Directed at Medium-Term Improvements in Competitiveness........................................................................71 9 Concluding Comments 74 Appendix A Review of British Columbia’s Log Export Policy: Terms of Reference..............................................................75 Appendix B Review of British Columbia’s Log Export Policy: List of Meetings/Consultations ............................................79 Appendix C Review of British Columbia’s Log Export Policy: List of Written Submissions .................................................83 Appendix D Log Export Policy in British Columbia: A Chronology ........86 Appendix E Log Export Permitting Process: Provincial and Federal Lands......................................................................91 Appendix F Log Export/Import Tables....................................................94 iii Generating More Wealth from British Columbia’s Timber: A Review of British Columbia’s Log Export Policies A report for the British Columbia Minister of Forests and Range, December 2006 List of Tables Table 1. Effects of relaxation of log export restrictions on employment ........... 41 Table 2. Species distribution from the standing timber inventory and the harvest scale summary: Mid Coast TSA.......................................................... 47 Table 3. Species distribution from the standing timber inventory and the harvest scale summary: northern TSAs........................................................... 48 Table F-1. Exports of industrial roundwood, by continent and selected countries, 1990 to 2005 ..................................................................................... 94 Table F-2. Volumes of logs exported by the provinces, by major log type, 1996 to 2005..................................................................................... 95 Table F-3. Volumes of logs exported by the provinces, by destination country, 1996 to 2005 ....................................................................................................................................... 96 Table F-4. Volumes of logs imported by the provinces, by major log type, 1996 to 2005...................................................................................... 97 Table F-5. Volumes of logs imported by the provinces, by country of origin, 1996 to 2005..................................................................................... 98 Table F-6. Volumes of logs exported from British Columbia, by forest region, jurisdiction, and destination .............................................................. 99 Table F-7. Volumes of logs exported from coastal British Columbia, by species and grade distribution ...................................................................... 100 List of Figures Figure 1. Proportion of 2005 global log exports, by country. ........................... 9 Figure 2. Volume of logs exported from British Columbia to major destination countries, 1996 to 2005..................................................................... 13 Figure 3. Map of blanket exemption areas in British Columbia ........................ 15 Figure 4. Volume of logs exported from British Columbia under various export permit types, 1987 to 2005.................................................................. 20 Figure 5. Price of hemlock lumber and hembal logs, 1995 to 2005 ................. 33 iv Generating More Wealth from British Columbia’s Timber: A Review of British Columbia’s Log Export Policies A report for the British Columbia Minister of Forests and Range, December 2006 Acknowledgements We wish to thank Dave Gyton RPF for giving us significant assistance with Sec- tions 4 and 5, and Kathi Hagan for compiling our report. As well, we are especially grateful for the efforts of the 346 stakeholders and First Nations people who took time to meet with us and present their views and recommendations concerning log export policy in British Columbia. We also appreciate the work of those people who prepared the 96 written submissions and responded to our requests for fur- ther information. Finally, we express our thanks to the British Columbia Ministry of Forests and Range staff for their assistance in providing information and analysis. Bill Dumont Don Wright December 2006 v Generating More Wealth from British Columbia’s Timber: A Review of British Columbia’s Log Export Policies A report for the British Columbia Minister of Forests and Range, December 2006 1 Introduction The issue of log exports from British Columbia is one that can generate a lot of public attention, passion and interest. Virtually all stakeholders and First Nations have views on the topic. For more than a century, the British Columbia govern- ment has restricted log exports in favour of converting logs into forest products in our own manufacturing sector. The federal government, which has the constitu- tional responsibility for international trade, also restricts and controls log exports. In May 2006, the British Columbia Minister of Forests and Range committed in a public forum to conducting an external review of log export policy. In August 2006, he appointed a two-person team to review