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.