December 14, 2017
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Many Maine sawmill owners are not cheering Trump’s lumber tariff

By Darren Fishell, BDN Staff
Updated:
BDN File | BDN
BDN File | BDN
Lega Medcalf, a teacher at the Lake Region Vocational Center, took at tour of Moose River Lumber, a mill in Jackman, in July 2014. The mill's owners announced expansion plans in response to a tariff on Canadian softwood imports, but other producers with operations on the other side of the border are concerned about impacts on their business.

PORTLAND, Maine — The 3-mile haul into Maine from Fontaine Lumber’s Woburn, Quebec, mill just got a lot more expensive.

Each load of rough-cut and dried spruce and fir will get hit with a new 20 percent tariff at the end of Route 161, as the wood enters Coburn Gore and heads for finishing at the company’s Maine mill in Stratton. About half of the Stratton mill’s supply of rough-cut wood comes across the border.

The rest is dried and milled in Maine.

“For us, it’s not good news,” Nicolas Fontaine, president of Fontaine Lumber and Stratton Lumber, said.

Fontaine’s operation is one of three with mills on both sides of the Maine-Quebec border, turning out lumber mostly from spruce and fir. Much of it comes from Maine woodlots.

The complex cross-border ties mean the preliminary tariff from the U.S. Department of Commerce is getting mixed reviews.

“It looks like, in Maine, it’s difficult to have a broad-brush approach to satisfy all of the different players,” Patrick Strauch, executive director of the Maine Forest Products Council, said.

And there’s some disagreement about the impact the tariff will have on softwood lumber and thereby on home prices. Prices for the wood, used mostly in construction, have risen this year. Some attribute that to a rush to buy before the tariff ruling.

“Some say it will stay there and some say now it’s the time to drop,” Charles Tardif, a vice president of Maibec and head of the group representing the eight border mills, said. “It’s real tough to expand on where [prices] will go in the long term.”

Mixed reactions

Only two Maine mills putting out spruce and fir lumber don’t have any Canadian ownership, and both are operated by Pleasant River Lumber. The company celebrated the tariff Tuesday with an announcement that it would expand its Jackman mill this summer.

“We’ve got expansion plans on the table at all times,” Jason Brochu, the company’s co-president, said. “It’s a matter of timing when you make those decisions. When we see a strong emphasis on fair trade and leveling the playing field, it gives the confidence for those plans.”

Brochu said the cross-border issue is largely limited to spruce and fir mills putting out framing lumber for construction, “and that’s what all the [Quebec] border mills are,” he said. Pleasant River also operates two mills working with eastern pine.

J.D. Irving, Maine’s largest landowner, also has softwood mills on both sides of the border, with a Maine mill in Ashland. It successfully made the case through 9,000 pages of submissions to U.S. trade officials that imports from its mills in New Brunswick and Nova Scotia should be taxed at a lower 3 percent rate.

That decision “provides further support for all New Brunswick lumber producers to be excluded from these trade remedy proceedings,” the company wrote in a prepared statement. “This exclusion has existed for 35 years and nothing has changed.”

The company had support of U.S. Sens. Angus King and Susan Collins, who in March requested a call with trade officials to encourage setting a separate tariff rate for Irving.

Fontaine and others along the Quebec border are still holding out hope that they can petition the U.S. government later this year to lower their tariff rate or eliminate it. But they’ll have to make their own case.

Tardif said they didn’t have the resources to get individual tariff rates, but he thinks they have a better case than Irving.

Wood sourcing is the key issue for regulators who decided to assess the tariff on Canadian wood producers. They determined in a preliminary ruling that many were getting cut-rate deals on wood sourced from land owned by the Canadian government.

Fontaine argues that the relatively low value of the Canadian dollar also accounts for some of the pressure U.S. producers feel from lumber imports, which were up about 20 percent last year.

[Canadian lumber imports were up 20 percent last year]

With the Canadian dollar at a low, it makes exporting to the United States more attractive, but Fontaine said that’s not as much of an advantage for Quebec border mills as it is for sawmills in places like British Columbia, which accounts for about half of the lumber imported into the United States.

“That’s really what drives this conflict,” Fontaine said. “They’re doing very well over there because of the exchange rate and it gives them a real edge, but in our case with the border mills it’s a little different.”

Fontaine said that’s because many of their expenses are in U.S. dollars, and they’re more often competing with U.S. firms for the same wood supply from private lands.

They could ask to make that case after a final tariff ruling from U.S. trade officials, expected in November or December. Outside of that process, U.S. and Canadian negotiators could also strike a different deal.

Maine consequences

Maibec — the name is a combination of Maine and Quebec — also has softwood lumber mills in the Aroostook County town of Masardis and the Quebec town of St. Pamphile, about 35 miles west of Allagash. The Masardis mill employs 140.

The Jackman-based E.J. Carrier in 2015 bought the Quebec business Materieux Blanchet, which has two softwood mills in Quebec. The company doesn’t have softwood operations on the U.S. side of the border.

And many landowners in the state’s northwest corner depend on those Quebec mills to buy their softwood harvest.

“They have an interest in the health of those border mills because they would double their transportation costs to go somewhere else,” Strauch said.

Each of those companies produce a different mix of products, so the impact of the new tariff will vary, according to Tardif. Maibec, for instance, also makes wood siding and shingles.

“But for sure, we know that the lumber business for all of us is still a real significant part of our business,” Tardif said. “We can’t minimize that, and that will stay important to all of us but at different degrees.”

Eventually, Canadian softwood exporters to the U.S. will get a bill to pay tariffs dating back to the beginning of February.

Fontaine said the tariff won’t have a short-term impact on his company, but he worries it could prompt cutbacks in Stratton, if the rate continues.

“If, over a long period of time, we have to reduce production at our Canadian facility because we have to pay the duty, then I’m afraid we’re going to have to reduce our capacity in Stratton,” Fontaine said.

Fontaine said he does not plan to make any cuts, however. He’s hopeful the border mills can make their own case for a lower tariff.

If the countries strike a deal or the tariff is reduced, they could also get some or all of that money back.

Old battle, new twists

In the trade dispute process, mills on the Quebec side of the border and Brochu might find a little bit of common ground. While Brochu said he’s opposed to any full exemption to the tariff, he said a company that can prove they don’t deserve the full tariff should not pay it.

“We wouldn’t object to the result of anyone that goes through the steps and proves their case,” Brochu said. “We’re not supportive is skirting around that process and trying to do it politically or another way.”

He said he’s also open to a negotiated deal between the countries, if that deal would “allow the U.S. industry to grow to our potential.”

There’s still a potentially long road ahead for the tariff, according to Strauch, with the Forest Products Council. That includes a separate anti-dumping investigation that could add still more tariffs on top of those announced earlier this week.

The tariffs announced this week resulted from an investigation into countervailing duties. Those findings are intended to counteract the effect of any subsidy. Anti-dumping investigations focus on whether companies are charging less for imports to the U.S. than product sold in their home markets.

Strauch said the trade dispute largely looks like history repeating the early 2000s, though the tariff imposition was just the start of that story. It led to a four-year international trade dispute that ultimately resulted in a deal between the two countries.

But now, Strauch said, there are a few key differences, such as uncertainty for the North American Free Trade Agreement.

“We’re right in the middle of President Trump talking about renegotiating NAFTA,” Strauch said. “We’re certainly caught in an interesting point in the Canadian-U.S. discussion about free trade.”

[ ‘I was all set to terminate’: Inside Trump’s sudden shift on NAFTA]

And there’s also the looming threat of the spruce budworm moth, which can decimate white spruce and balsam fir trees. State officials continue to monitor the moth’s progress south, from Quebec and New Brunswick.

[ Task force warns budworm outbreak could harm Maine’s economy]

A task force last year recommended landowners focus short-term harvests on susceptible species. That’s particularly true for forests in Aroostook, Penobscot, Piscataquis and Somerset counties, which all had the highest share of at-risk acreage, according to a University of Maine analysis.

Strauch said a glut of balsam fir and spruce trees could also leave loggers and landowners looking for ready markets, which in some cases are right over the border.

“If you were to look at a map, you’d see that northwest corner where everyone thinks it’s wilderness beyond the Maine border, but there’s a public road there and electricity and people,” Strauch said. “And that’s where the mills have been located for a long time.”

Housing impacts

Granger MacDonald, chairman of the National Association of Home Builders, on Tuesday called the tariff a “protectionist measure to prop up domestic lumber producers at the expense of millions of U.S. homebuyers.”

The group expects the tariff of nearly 20 percent for most importers will increase home prices, but parties in Maine disagreed about whether or how the move would affect lumber prices.

Those prices rose 22 percent since the beginning of the year, according to the homebuilders association. They and sawmill owner Fontaine project that will continue.

Brochu, who supports the tariff, said he expects prices will stay relatively flat as demand tapers from the rush to buy before the tariff ruling. Tardif, with Maibec and the Quebec mill group, said it’s too difficult to tell.

“There’s many forces that influence the market price,” Tardif said.

 


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