By William Mauldin
MADAWASKA, Maine -- The river that divides the U.S. and Canada
in this border town also cuts directly through the Twin Rivers
Paper Co.'s wood pulp and paper operation.
The two-country arrangement has worked for years in the tightly
integrated operation, with a Twin Rivers Canadian lumber mill up
the road supplying wood chips to a plant that turns the chips into
pulp in Edmundston, New Brunswick. The pulp is then piped across
the St. John River into Maine, where it gets pressed into massive
rolls of paper used to make Bible pages, food packaging and
shipping labels.
Today, company managers say the entire operation -- including
500 jobs on the U.S. side -- is at risk, threatened by a trade
fight between the U.S. and Canada over the softwood logs from which
the chips are collected to make the pulp. This year the Trump
administration announced preliminary 27% tariffs on the lumber from
Twin Rivers's sawmill, squeezing the margins of the operation and
weighing on the rest of the business.
Sawmills and timberland owners from Alabama to Oregon are eager
to benefit from the higher lumber prices that come with tariffs on
their Canadian competition, which they say benefits from unfair
subsidies. But U.S. home builders are complaining about higher
lumber prices, and American businesses, like Twin Rivers's paper
mill, that rely on raw materials from north of the border, find
themselves caught in the middle.
"Ultimately [the tariff] affects everything from where the trees
come in to where the paper comes out," said Ken Winterhalter,
president of Twin Rivers. "It is an economic driver for that area,
and the impact would be felt in the entire northern part of
Maine."
The forest fight is putting Washington and Ottawa at loggerheads
at time when senior officials from both countries are sitting down
with Mexican counterparts to renegotiate the North American Free
Trade Agreement for the first time since the pact was enacted 23
years ago. Officials are hoping to resolve the matter separately
but concede it could bleed into the talks, complicating political
support in the U.S. and Canada.
Fights over lumber and logging have plagued U.S. relations with
its northern neighbor for two centuries, especially in and around
Maine. In recent decades, logging and lumber production have
remained an important part of Canada's economy especially on the
other side of the continent, in British Columbia. There, forests on
government-owned land provide the biggest share of wood for the
U.S. home-building industry.
Lumber mills across the U.S. say their Canadian counterparts get
below-market access to logs from government-owned land and have
urged the U.S. to take actions like the one hitting the Twin Rivers
operation.
One of them, the Pleasant River Lumber mill in Dover-Foxcroft,
Maine, churns out 2 by 4s and other boards from fragrant spruce,
with an American flag printed on each stick. The Brochu family,
which has worked in forest products for four generations, says it
uses nearly all American spruce and pine logs in its mills.
Jason Brochu has traveled to Washington with the U.S. Lumber
Coalition to argue that Canadian mills in general aren't paying
market prices for coniferous logs cut from "crown," or provincial
government-owned, land. He backs the preliminary tariffs that
Commerce Secretary Wilbur Ross imposed this year and believes any
deal to avoid tariffs should limit Canadian lumber strictly to a
limited share of the American market.
"That's one thing we like about a quota system -- it just evens
everything out," Mr. Brochu said on a recent afternoon after
showing off laser-guided machines for optimizing the board sizes
from each log.
With the uncertainty hanging over the market, the Brochus for
now are delaying a goal of expanding production, instead investing
in upgrading equipment to boost efficiency.
"If we can't be competitive because of subsidies, then we have
to maintain what we have," said Mr. Brochu. He said his firm faces
competition from companies in Quebec that obtain logs both from
private land and Canadian public land.
Quebec has faced lumber tariffs before, but neighboring New
Brunswick was for years previously excluded from U.S. tariffs.
This year, Mr. Ross included New Brunswick in the preliminary
tariffs. The move is supported by the U.S. Lumber Coalition, a
powerful group that has the backing of at least 25 U.S. senators.
Led by Democratic Sen. Ron Wyden of Oregon, the senators signed a
letter in October 2016 saying any deal struck with Ottawa to avoid
tariffs should limit Canadian imports to "at or below an agreed
U.S. market share."
In Maine and New Brunswick, politicians are concerned that
penalizing New Brunswick lumber could hurt the Twin Rivers paper
operation as well as major timberland and sawmill owners on both
sides of the border.
The Canadian government and the country's industry groups call
the U.S. allegations baseless and are prepared to fight the
tariffs.
In the sparsely populated northern tip of Maine, the paper
plant's unionized manufacturing jobs are an important economic
driver, a fact not lost on the state's U.S. senators who have
visited the plant, or Republican Gov. Paul LePage, who himself once
worked in the paper and lumber industry.
Several Maine paper mills closed as local firms struggled to
acquire affordable wood chips and compete with low-cost paper mills
abroad. The housing crisis of a decade ago crimped home builders
and the lumber and related paper industries.
Faced with the preliminary tariffs, Twin Rivers formally wrote
to Mr. Ross in Washington to ask that lumber produced in New
Brunswick get excluded from tariffs, alongside lumber form
Newfoundland, Nova Scotia and Prince Edward Island.
Meanwhile, the company is setting aside funds in case the
preliminary tariffs are made permanent, a process that could
advance in early September if the U.S. and Canada don't come to an
agreement.
Permanent tariffs would "drastically increase the cost of the
wood chips and biomass used by the Madawaska paper mill," Twin
Rivers's Mr. Winterhalter wrote to Mr. Ross. "These increased costs
have the potential to destroy the financial viability of the
Madawaska operation and eliminate thousands of jobs in northern
Maine."
Write to William Mauldin at william.mauldin@wsj.com
(END) Dow Jones Newswires
August 21, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.