'Significant improvements' in province's lumber market system, says auditor general

Auditor General Kim Adair-MacPherson has thrown a potential lifeline to the province's forestry industry, saying a major irritant that helped provoke U.S. tariffs has been fixed.

Her report released Tuesday says the province now has a better system for accurately calculating sales to mills from private woodlots, a benchmark that helps set royalties paid for timber from publicly owned Crown lands.

"A lot has changed," Adair-MacPherson told reporters. "There has been what we call significant improvements in the process and the methodology." 

An earlier report in 2008 by then-Auditor General Michael Ferguson concluded that the New Brunswick wood market "is not truly an open market" because of flaws in how the province surveyed private wood sales to set the Crown rate.

It said data was often incomplete and sample sizes in some parts of the province were too small, making it difficult to assess whether the Crown rate reflected market conditions. 

That 2008 report was cited by the U.S. forestry industry when it argued New Brunswick's system was "heavily flawed" and convinced the Trump administration to eliminate a long-standing exemption for New Brunswick from U.S. tariffs on softwood lumber.

Another factor in that decision was the rising share of wood from Crown land, which in the eyes of American policymakers amounts to subsidized lumber.

In 2017 the U.S. applied new tariffs on Canada and eliminated the traditional New Brunswick exemption it had in place during previous tariff battles.

J.D. Irving Ltd. pays 9.38 percent on its exports to the U.S. while other mill owners pay 20.8 percent.

"We hope today's report advances rightful pursuit of duty free lumber exports to the United States for the NBLP," said Jerome Pelletier, a vice-president of J.D. Irving Ltd. and chair of the New Brunswick Lumber Producers. 

System now working

Adair-MacPherson says the process for measuring private wood sales is now working. "It's a valid tool to use in setting the Crown timber rates."

But she says the province must now use the improved system to update rates annually, as required by law. The rates haven't been updated since 2015.

Natural Resources and Energy Development Minister Mike Holland says he was glad to see the audit.

"We've listened, we've corrected some drift and we're moving in the right direction," he said.

"I'm very pleased that she came back and indicated that we have a functioning market here in the province." 

He said his department would be "working toward" updating the rates annually but would not comment on whether the new audit would be used by New Brunswick to argue for its traditional exemption from tariffs.

The World Trade Organization recently ruled that the U.S. was wrong to impose the tariffs on Canada in 2017.

It said the U.S. Commerce Department made errors in determining the benchmark Canadian timber prices to determine whether producers here were paying adequate stumpage fees to provincial governments. 

But the Trump administration swiftly attacked the ruling as unfair. 

Last  year the Higgs government announced plans to give private woodlots a larger share of the market to supply large mills in New Brunswick, while freezing the amount coming from Crown land.