December 16, 2008 / 4:50 PM / in 9 years

Canadian forest industry asks for budget aid

OTTAWA (Reuters) - Canada’s limping forestry industry fears it may get overlooked in the political scramble to stimulate the economy, but also says it is not asking for an auto sector-style bailout.

Tax changes, expanded unemployment insurance for workers, and ensuring credit is available for producers are among the ideas industry representatives told the federal government on Tuesday should be part of the government’s upcoming budget.

“We have more employees in the forestry sector than the automobile sector and the banking sector combined,” said Forest Products Association of Canada President Avrim Lazar, noting the forest products industry provides 300,000 direct jobs.

Industry Minister Tony Clement said on Sunday that Canada would consider special aid to the forestry, mining and other industries in the federal budget due on January 27, though the auto sector remained the top priority.

Canadian lumber producers have struggled since the U.S. housing construction market began to collapse in 2007, and most forest industry observers do not expect it to have a meaningful recovery until at least early 2010.

Paper and pulp producers were hit by the strong Canadian dollar in 2007 and early 2008, and although the currency has weakened somewhat they are now struggling with lower demand because of the global economic slowdown.

Unlike the auto and banking sectors, Canada is prohibited from giving direct financial aid to lumber producers - many of which also have pulp and paper operations - because of its trade agreements with the United States..

“A (direct) bailout is not really what the industry is asking for... There’s no point producing more lumber because we’ve already got too much,” said John Allan, head of the Council of Forest Industries.

The Forest Products Association on Tuesday presented five urgent priorities to the federal government as it decides what kind of stimulus to put in its budget:

- Ensure credit markets work, the association’s top priority

- Reform the tax system to encourage investment in Canadian mills

- Assist research and market development

- Help the transition to the green economy, from the production of green energy to new green biochemicals

- Expand employment insurance coverage

The proposed tax measures would cost C$300 million ($245 million) up front but in the long run would be revenue neutral. The spending measures would cost C$600 million over five years, according to the association.

Communities hit by sawmill shutdowns also need help to ensure laid-off workers can receive retraining and do not have to move away, Allan said.

By providing aid to the forest industry with measures that would also help mining and other sectors, Canada would not run into trouble with the restrictions contained in the U.S.-Canada softwood trade agreement, he said.

The United Steelworkers union, which represents sawmill workers, says Ottawa should use duties on Canadian softwood exports collected under the trade agreement to stimulate the industry.

($1=$1.22 Canadian)

Reporting by Allan Dowd, Randall Palmer; editing by Peter Galloway

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