Lumber Case Study - Presentation Outline

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Soft Wood Lumber and Doman Industries
Soft Wood Lumber Disputes
Simmered more than 20 years, but spilled over May 2002
Dispute from May 2002 to July 2006
Canada’s View
Timber is owned by provincial government, which charge a ‘stumpage fee’ (charge to cut the trees down) Subsidized because it is used for many industries
United States’ View
Practice competitive auction, and claims Canadian provision unfair Soft Wood Lumber Disputes (con’t)
Tentative Agreement reached in April 2006
US would lift duties if Canadian lumber stayed in a certain price range If the price went lower than that range, a mix of export tax/quota regime would be implemented on imports to the US US would return over 80% of the $5 billion of the duties collected Agreement last 7 years, with possibility of renewal

Doman Industries
Majors in logging and sawmilling timber into lumber and wood chips Was 2nd largest coastal woodland operator in BC, products sold in 30 countries Hit hard times in the 1990’s
Bad investments
Charges of insider trading
Herb Doman charged for insider trading in 1988 (found guilty in 1996 but appeal filed) (found guilty and charged in 2001?) Invested in Western Forest Products Ltd (WFP), but problems didn’t come up until Doman Industries increased ownership to over 50% Went from being free of debt to near $600 million in debt

Around 1995, lost business with opening of European companies President (Herb Doman) and board members didn’t listen to Rick Doman’s warnings/concerns about the future Bought too much, with the hopes of expanding, but oversea markets (Japan in particular) crashed Debt reached $1 Billion in 1999

2001 – Rick Doman because president, and went straight to work! Reduce inventory, cut costs, and restructure
Able to do first 2, but board refused the third
Doman Industries (con’t)
Tariffs emplaced by US hit Doman Industries hard ($4 million in first month) 65% of Doman Industries sales were in the US
Nov 2002 - $1 billion debt went into court-ordered protection from its creditors 2002 to 2004
Process of restructuring
Company named changed to Western Forest Products Inc.
Quiz #1
Is Canadian timber owned by the provincial government, and do they charge a stumpage fee? True
North American Free Trade Agreement Provision (NAFTA) Highlights Tariff elimination
Streamlining border processing and licensing requirements for truckers Also opening up the border and interior of Mexico
Establishing standards
Raised Health, Safety and Industrial standards
Supplemental agreement
Ease the concerns that companies would shift production to Mexico (for the cheaper labour) Tariff reduction for motor vehicles and auto parts
NAFTA Provision Highlights (con’t)
Reduce textile and apparel barriers
More free trade in agriculture
Use to be up to 10% tariff on imports to Mexico
Expands trade in financial services
Increases protection of intellectual property rights
Mexico use to copy and create a ‘Mexico’ version of chemicals and technology devises Opening of insurance market
Absolute and Comparative Advantage
Absolute Advantage
Definition - The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost at which any other entity produces that good or service Explanation – Entities can produce something using a smaller amount of input than someone else Absolute and Comparative Advantage (con’t)

Comparative Advantage
Definition - A situation in which a country, individual, company or region can produce a good at a lower opportunity cost than a competitor Explanation – 2 companies produce the same 2 products. For one produce, it costs both the same amount. The other product, one company has a large inexpensive market to get raw materials. The second company needs to ship in all the raw materials. Company one, should think about turning exclusively to the second produce, while company two should think about dropping the second produce, and...
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