Research Paper on "International Trade of Canadian Lumber"

Research Paper 8 pages (2379 words) Sources: 10

[EXCERPT] . . . .

International Trade of Canadian Lumber

The contemporaneous society is characterized by a series of elements, such as the opening of boundaries to international trade or the massive advent of technology, which has come to impact virtually all life activities. Aside from these however, a more concerning characteristic which is common in the modern day society is given by the threat of environmental instability.

Global warming is becoming more and more present and the risks it poses for humanity call for an integrated action. Problems which contribute to environmental instability include actions such as higher levels of consumption, increased dump of industrial waste in waters and other fields or high levels of deforestations. The impacts are disastrous and include sky rocking levels of pollution, the death or even extinction of species due to the loss of their natural habitats, the lowering quality of the breath air or even the illness and death of people drinking polluted waters.

In light of the important threat on environmental stability, a question is being posed relative to the means in which countries manage actions such as deforestation, industrial waste dumping and so on. At this stage, the particularities of lumber trade and lumber management would be assessed in Canada -- one of the world's largest lumber exporters.

2. Economy, demographics and lumber trade

Canada is one of the most developed economies of the globe. Part of its success has been due to its alignment to the evolution of the United States -- its sole land neighbor. The United States of America represents the main destination of the Canadian exports and it has for years constituted the main reason for Canada's trade surplus. The country has managed to support its economic growth through the skilled and efficient labor force, as well as the technologic strength. In 2007, as the world faced the internationalized economic crisis, Ottawa reported deficits, after 12 years of surplus. Nevertheless, due to its prudential lending procedures and its strong capitalization, the Canadian banking sector emerged from the crisis as one of strongest banking sectors in the world, supporting the revival of the entire state.

At a more pragmatic level, the Canadian economy can be characterized by the following:

A gross domestic product of $1.279 trillion, making Canada the 15th largest economy of the globe

A GDP per capita of $38,200, significantly over the $10,400 global average

A GDP composition as follows: 2.3 per cent agriculture, 26.4 per cent industry and 71.3 per cent services

An 18.39 million labor force, with an unemployment rate of 8.3 and 10 per cent of the population living below the poverty line

An inflation rate of 0.3 per cent and a federal debt of 74 per cent of the gross domestic product

Main exports in motor vehicles and parts, industrial machinery, telecommunications equipment, aircraft, chemicals, plastics, timber, wood pulp, crude petroleum and natural gas towards the United States, the United Kingdom and China

Main imports in machinery and equipment, motor vehicles and parts, crude oil, chemicals, electricity and consumer goods from the United States, China and Mexico (Central Intelligence Agency, 2010).

In terms of demographics, these can be summarized as follows:

The total size of the Canadian population is of 33,487,208 individuals, with a life expectancy at birth of 81.23 years -- among the highest in the world

80 per cent of the population lives in urban areas, with the rate of urbanization being 1 per cent per year

In terms of ethnicities, the most common ones are British Isle and French origins, followed by other European, Amerindian, Asian, African and Arab

The literacy rate is of 99 per cent and the average school life expectancy is of 17 years (Central Intelligence Agency, 2010).

The climate in Canada is combined, being namely moderate in the south and sub-arctic in the north of the country. The country is rich in a wide array of natural resources, including iron ore, zinc, cooper, nickel, gold, lead, diamonds, fish or timber. From the environmental standpoint, the country faces the damage of its forests due to polluting industry operations. This constitutes not only an environmental threat, but also an economic one, since timber exports account for a significant portion of economic wealth and stability.

Canadian lumber has constituted an important source of export revenues and it has supported the economic endeavors of the country. Specifically, lumber has helped the country consolidate its international position. In 1871, an article in the Quebec Mercury (quoted in the New York Times) noted: "The exports for the years 1870 and 1871 show a favorable condition of affairs, and tend still further to impress one with the magnitude of the lumber interest of the Dominions."

Timber trade emerged as an economic and national power in early nineteenth century and it originated in the eastern and central Canadian forests. The demand for Canadian timber was created as a result of the Napoleonic wars, during which Great Britain seemed to have identified a "seemingly inexhaustible supply of wood" (Canada Museum of Civilization, 2010), much required for their vessels. As the war came to an end, the demand for timber came to increase and the Canadian wood was mostly used in exports to Europe. In time, it came to be also used to support the development of both Canada and the United States. At an overall level, the patterns of timber export are difficult to summarize due to the fact that globalization and the opening of boundaries, as well as an increasing global demand, allowed Canada to deliver timber to more and more global regions. The first largest destination for Canadian timber was constituted by Great Britain. In time, the U.S. became the largest destination. Canadian timber has also been shipped to the West Indies (The Canadian Encyclopedia, 2010).

Timber cutting and processing would be completed in difficult winter conditions, of cold, hard work and isolation in the mountains. Winter was the selected season for timber cutting and processing due to a series of advantages it offered, such as the practical benefits of hauling the timber over the snow or the financial advantage of an abundance of cheap workforce during the cold season. The men were away from their families until spring, and the loneliness created a series of social problems (Canada Museum of Civilization, 2010).

3. Policies and regulations in lumber trade

The evolution of lumber trade in Canada has been influenced by a series of policies created and implemented in order to better regulate the field. These regulations and policies can be divided into two categories, defined by the institutions which issued them -- specifically national policies and international policies.

3.1. National policies

The utmost important national policy has been constituted by the decision to offer subsidies to the timber industry. In other words, the Canadian government subsidized the national timber industry in order to make the products more competitive in the international arena. At a national level, the decision materialized in higher levels of exports -- especially to the United States of America, where the Canadian timber became more affordable and cost efficient than American timber. The response of the American timber industry did not tardy and it integrated complaints of dumping procedures. A cross-border dispute emerged and it has yet to be resolved.

On the one hand sits the Canadian government which subsidizes the timber industry and has the products sold in the United States at lower retail prices. On the other hand, there is the United States timber industry which argues the unfairness of the Canadian subsidies. They forward economic principles and note the importance of the price being set by the market competition, rather than the federal decisions. The United States authorities have decided to implement the countervailing duty tariffs -- or import tariffs on highly subsidized products by which these items are brought to a retail price faithful to that in the industry. The Canadians do not approve of the measure and a resolution to the conflict is still pending.

In light of this conflict, Michael Percy and Christian Good Yoder (1987) draw several lessons to be remembered by the Canadian economic agents. Among them, the following:

In cases of international trade, the long-term costs and benefits must also be assessed

In the case of trade operations with the United States -- especially export operations -- it is highly possible for the foreign industries to fight back and accuse the exporter to uncompetitive practices

Resources should be placed aside for such battles and the real threat of accusations and disputes has to be recognized

In case free trade agreements are signed, they need to specifically address the means in which any disputes would be resolved. The agreements should however be constructed in such a manner that they do not leave room for misunderstandings or illegalities.

The costs of resolving disputes outweigh those of preventing disputes. In the case of the softwood lumber dispute between the two countries, in 1987, the cost had "been estimated at about $11 million. These costs do not include… READ MORE

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