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Good news for Abitibi-Bowater

The first federal dollars for the pulp and paper industry in some time have finally been approved by the government and are ready to flow. Word of this assistance came with the announcement that AbitibiBowater is eligible for up to $33 million in funds related to its mill operations in Fort Frances and Thunder Bay. This is without question good news for that company, but this onetime payment will do very little to ensure that these mills are able to compete on equal footing against their heavily subsidized US counterparts, and will do nothing to protect local jobs or save pensions for workers affected by bankruptcies in the forestry sector.
First things first though, it must be said that this federal government investment is positive and most welcomed development. The $33 million provided to AbitibiBowater should help local plants become more efficient, which will reduce their operating costs in the long run. This is good news and credit is due to the Minister for taking a first, albeit modest, step in the right direction. However, given the scale and nature of the problems facing the pulp and paper industry this step must be considered the first and will only make a difference to our local mills and companies if other steps follow.
The money provided to AbitibiBowater as a result of its local operations is but a small share of the $1 billion Pulp and Paper Green Transformation Fund. This fund, and the announced payment of $33 million to AbitibiBowater for its two areas mills, has been packaged and sold by the Harper government as an effective counter to the US ‘Black Liquor’ subsidy. However, this onetime tax credit will not offset the soon to be permanent price advantage enjoyed by US based mills benefitting from the Black Liquor subsidy. In reality, there are just two policy options for the Canadian government if it wishes to negate this unfair trade advantage; it must negotiate with the US government to end the Black Liquor subsidy, or it must match that subsidy for Canadian mills. Only these policies will end the unfair advantage enjoyed by US producers and neither would violate the NAFTA or the Softwood Lumber Agreement.
Another serious problem is that this onetime tax credit is tied to Canadian companies investing their own money into making their operations more efficient. Many Canadian producers are in various stages of bankruptcy, so where this company money will come from is unknown at best. It may end up increasing the short term debt of these companies and could interfere with the repayment of monies owed to creditors including small local suppliers, workers, and past workers who may lose all or part of their pensions in restructuring processes. I also find it troubling that there is also no stipulation that will require AbitibiBowater to keep our local mills open once the improvements have been made and they have cashed their government cheque.
Since this federal money is being packaged and sold as our government’s response to the US Black Liquor subsidy, you may be asking, ‘how much do US mill owners get from their government, and what is the size of their price advantage over Canadian mill owners? Well, International Paper (IP) is the largest US producer and is nearly double the size of AbitibiBowater. IP received a cheque last year for $71 million to cover their tax rebate for the month of November alone, and hauled in about $1.06 billion from the US government for the entire 2009 fiscal year. Equity Research Associates, a private forestry industry research firm based in British Columbia, estimates that US mills enjoy a 25 percent price advantage over Canadian producers as a result of the Black Liquor subsidy. That is a huge advantage and it will not be negated by this federal program.
To put the scale of the problem for the Canadian industry in perspective, if the Conservative government were to give AbitibiBowater the same level of assistance that International Paper receives from the US government then it would need to write a $50 million cheque to that company each and every month, and do so without insisting that the company invest any money in its own plants at the same time. Add matching federal cheques for Domtar, Cascades, Tembec, and Canfor among others and you can plainly see that the onetime $1 billion aid package that is being offered by the Conservative government is about half of what is needed for the Canadian Industry this year alone, and would need to be matched each and every year going forward to truly level the playing field for Canadian mills like those in Thunder Bay and Fort Frances.
While investment in the pulp and paper sector is always welcome, this federal program will not protect local jobs and pensions and will not end the 25 percent price advantage the Black Liquor regime provides to US producers. The money made available this week is a step forward and will no doubt help the pulp and paper industry in the long term, but there will be no mills left to help if our federal government does not take action to eliminate the market distortion created by the US Black Liquor subsidy, and fast.