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Blog

New Log Export Tax Will Impact BC Forest Industry

July 29, 2019
Author: Keta Kosman

The government of British Columbia (BC) recently implemented Bill 22—a new tax on log exports from the coastal area of the province—which has caused quite a stir in the regional forest products industry. The Bill has had cascading effects, and forestry and sawmill operators in the Interior of BC are also concerned about what affect this change in policy might have on their operations. Timber companies are now required to prove that logs slated for export are “excess” to lumber manufacturing needs before the province will grant them export permits. As a result, BC coast timber harvesters must now submit data to the government about their log export volumes.

The provincial government’s new targeted fee-in-lieu of manufacturing is for exported logs harvested from a coastal BC Timber Sales (BCTS) license, which account for about 20 percent of overall coastal timber harvests. The fee will be dependent on the economics of individual timber stands. Stands containing high-value species that are easily accessible will have a higher fee than stands with low-value species that are remote and difficult to access. This policy will be in effect for five years, beginning on July 31, 2019.

“In the extreme, it will rise to 50 percent of the Vancouver log-market price for timber from the existing level of 10 percent,” said Doug Donaldson, BC Minister of Forests, Lands and Natural Resource Operations to the Vancouver Sun.

The policy is expected to discourage exports of higher-value timber, making more of the supply available to domestic mills that have a more difficult time competing, and to encourage investment in value-added manufacturing. From a broad forest industry perspective, log exports are viewed as a tradeoff to maintain employment for loggers and contractors that would be lost if offshore shipments were banned outright.

Under Bill 22, the BC government intends to control transfers of tenure within the forest sector. Critics of the plan claim that as the industry adjusts to a declining fiber supply caused in part by the Mountain Pine Beetle infestation, this legislation may be used to impede necessary rationalization and undermine the value and security of the Crown-issued tenures to harvest timber that forest companies have long relied on. Government restrictions on log exports from private lands could also mean that timber resources are undervalued, creating complications with key trading partners and adding to the coastal industry’s pain.

Although log exports remain a relatively small portion of BC’s overall timber harvest, the volume shipped offshore has risen significantly over the last decade. BC exported 5.1 million cubic meters (m3) of unprocessed timber in 2018, compared with 2.5 million m3 in 2009. Export volumes peaked in 2013 at 6.7 million m3 and have wavered between 5.6 million and 6.3 million m3 per year since then. During most of the 1990s, however, offshore shipments were much lower, ranging from a low of 168,141 m3 in 1997 to a high of 1.8 million m3 in 1999.

The activities across all segments of forestry combined account for billions of dollars of BC’s economic output (GDP), provide direct employment for more than 50,000 British Columbians, and pay $4 billion per year in taxes, royalties and fees to various levels of government. Tens of thousands of additional BC jobs also depend on forestry due to the industry’s extensive connections with other sectors of the economy.

Forestry’s contribution to BC’s exports has not fallen, even though other industries (e.g., energy, agriculture and high technology) have gained a higher profile over time. Indeed, if anything, forestry’s place in BC’s merchandise export mix expanded slightly over the 2009-17 period.

madisons_july_2019

The new log export fees are to be calculated on a case-by-case basis, depending on the harvest cost and value of the timber in each cutblock. The system applies first to new BC Timber Sales harvests on the coast and will expand to other coastal timber harvesting in December 2019. These changes remove an export exemption for western red cedar, a sought-after commodity that commands high prices in Japan and other overseas markets. Under the new system, cedar logs could only be exported for a cultural use, such as a totem pole or a Japanese or Korean temple.

The current cabinet orders provide blanket log export exemptions already in place to allow logging to carry on in areas where there are no sawmills. The exemptions are 35 percent of tenure for the Mid Coast and Haida Gwaii, 20 percent for North Coast and Northwest Interior and 100 percent for the Nass timber supply area.

Madison's Lumber Reporter

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