Published On: Friday, 17 March 2017
Banning Log Exports Would Harm Provincial Economy
- Joel Wood is an assistant professor in the School of Business and Economics at Thompson Rivers University and a senior fellow at the Fraser Institute.
BC - With the BC provincial election a few months away, the contentious issue of log exports has emerged once again. Some politicians, policy analysts and unions have argued for a ban on log exports. While the current government has allowed limited exports of logs, it has imposed an overly complex export approval process.
Banning log exports would be an economically harmful policy and there are better policy options that could benefit the forestry sector and BC businesses.
By preventing access to the higher log prices available in other countries, a ban would further suppress local log prices, hurting log owners, log producers, and those employed in logging. And while it would benefit mill owners and mill workers with cheaper logs, this benefit is less than the negative impact on the logging sector.
In a 2014 study, I evaluated three options to reform BC’s log export policies: A ban on log exports, a streamlined export quota system, and a policy of free-trade in logs.
The results clearly indicate that the latter two policies have much higher net-benefits than banning log exports.
Banning a product from export is also inconsistent with how we treat other goods and services. Should we ban exports of salmon and only export prepared, frozen salmon meals and other salmon products? Should we ban the export of gold and only export jewellery?
Rather than falling victim to the value-added fallacy of supporting jobs in manufacturing over jobs in primary sectors, BC could focus on getting the best prices for our resources by reforming and streamlining the current log export process.
To export a log from the coastal region of BC, a company must go through a process to obtain export approval from the federal government and, in many instances, the provincial government. To apply for an export permit, a log must be first offered for sale to domestic buyers.
A government appointed committee then decides whether any domestic offers were “fair” and whether they deem the log “surplus” to domestic needs. Only then can the log be exported.
This process results in delays for logging companies that increase handling costs and tie up capital. It also prevents logging companies from securing long-term contracts with foreign buyers to reduce price volatility. Streamlining the export process would reduce these problems.
Furthermore, banning log exports would be a minor and costly policy option to support manufacturing in BC, and taking advice from the Commission on Tax Competitiveness would be a better option.
Currently, businesses pay Provincial Sales Tax (PST) on capital expenditures and on many of inputs of production, e.g., software, energy, telecom services. PST is also embedded in many of the prices of these inputs that were produced by another firm since that firm payed PST on the inputs they used.
The result – consumers aren’t just hit with the PST at time of purchase, but also accumulated PST hidden in the purchase price. The 2016/17 BC Budget exempted electricity from PST, but did not exempt the other inputs. Reforming the PST is a good place to start, if the goal is to help businesses in BC regardless of sector.
Simply put, streamlining the log export process and reforming the PST are both better options than banning log exports if we want to ensure a prosperous province.
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