British Columbia lumber companies recently persuaded the BC government to change the way that logs harvested from government land are graded. The change dramatically increases the BC government's timber subsidies to its lumber producers, by allowing them to pay next to nothing for timber purportedly downgraded by pine beetle infestation.

The price paid by BC Interior lumber mills for provincially owned timber has fallen dramatically since 2007, to levels far below those elsewhere in North America for comparable timber.

Most of the price collapse is due to a very large increase in the amount of timber that is classified as "Grade 4" and thereby eligible for the minimum stumpage price of C$0.25/m3. Although Grade 4 is defined as "lumber reject" logs that normally would not be used in lumber production, it is clear that most of this timber is in fact being used for lumber production.

Although much of the timber now being classified as Grade 4 is affected by the mountain pine beetle (MPB), BC's own studies of the impact of the MPB on log quality demonstrate that the large increase in Grade 4 - and the corresponding large decrease in government timber prices - are unjustified.

The large increase in the amount of timber that is classified as Grade 4 and eligible for the C$0.25/m3 minimum price has saved BC Interior lumber producers hundreds of millions of dollars in fiber, compared to what they would have paid under the timber pricing system that was in place when the SLA was signed.

As North American lumber producers close mills and lay off thousands of workers due to the ongoing lumber market depression, this expanded and unfair BC government subsidy cripples and devastates the rest of the industry in the USA, and indeed in other parts of Canada. This beggar-thyneighbor policy keeps more BC sawmills in operation through shameless manipulation of the stumpage fees system, and does further damage to an already disastrous market.

This decrease in the price for government-owned timber in the BC Interior amounts to significant circumvention of Canada's commitments in the SLA 2006, and must be addressed.

In accordance with the SLA’s dispute settlement rules, the United States requested formal consultations with Canada on October 8, 2010. The 40-day consultation period provided for in the SLA passed without any resolution of the matter. Following the procedures agreed upon by the United States and Canada in the SLA rules, the United States formally requested arbitration of the matter on January 18, 2010.

For more information on British Columbia's Softwood Lumber Agreement violation, see Fact Sheet.