April 9, 2010 / 9:25 PM / in 8 years

Taxes on Canada lumber exports to U.S. to drop

VANCOUVER (Reuters) - Lumber prices have recovered enough to allow Canadian forestry firms to begin paying a lower export tax on softwood shipments to the United States starting in May, British Columbia officials said on Friday.

Data released on Friday showed the North American lumber price over the past four weeks has averaged $325 per thousand board feet, high enough to reduce the tax rate paid by Western Canadian sawmills to 10 percent from 15 percent.

It marks the first time that lumber prices have been high enough to allow for a tax rate reduction since the taxes were imposed under the 2006 U.S.-Canada Softwood Lumber Agreement, British Columbia Forests Minister Pat Bell said.

Major lumber producers in British Columbia and Alberta include West Fraser Timber, Canfor, Tolko Industries, and International Forest Products

Eastern-headquartered producers include Tembec and Domtar, which recently announced it was selling its mills to newcomer Eacom Timber Corp .

Sawmills in Central Canada, whose exports are subject to a combination of export taxes and shipment quotas, will see the tax rate drop to 3 percent from 5 percent and quota restrictions ease slightly.

An Ontario official said the province was still awaiting confirmation from the federal government that the rates will be reduced.

Federal officials were not available for comment.

Under the terms of the treaty, the lower rates will take effect May 1.

Sawmills in British Columbia and Alberta are required to pay a 15 percent rate when the four-week average price is $315 or less. The tax could drop to 5 percent if the average climbs above $335 and would be eliminated if it goes above $355.

The taxes and restraints on shipments from Ontario and Quebec are readjusted at the same price marks.

The average framing lumber composite price last week was $328 per thousand board feet, up from $319 a week before and $196 last year, according to Friday’s Random Lengths market report, which is used in treaty to determine the export tax rate.

“It is a positive indicator that British Columbia’s forest sector may be starting on the road to recovery,” said Bell, whose province accounts for about half of Canada’s softwood lumber exports.

Industry analysts have said that while the higher prices are encouraging, they likely reflect reduced production capacity rather than significant increased demand for the wood used largely in housing construction.

Sawmills across Canada and the United States have cut production or shutdown completely over the past three years because of the U.S. housing market collapse.

Production in Atlantic Canada was not covered by the 2006 trade deal, which was aimed at ending U.S. complaints that Canada subsidizes its lumber industry.

The Canadian government collects the taxes on exports, with the money refunded to the provincial governments.

Reporting Allan Dowd, editing by Peter Galloway

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