Proposed Canada-US Trade Rule May Cost $600 Million a Year

Online, January 23, 2011 (Newswire.com) - A Canadian industry sector will pay $30 million a year to comply with new trading rules to the United States, while Canadian exporters and consumers face new costs of $300 million.

An international protocol requires all wood packaging material to be heat-treated to stop the transfer of forest pests between countries. Since 2006, Canada and the US have observed a bilateral exemption, which the US wants to terminate early next year.

The wood packaging industry in Canada employs 5,000 people and manufactures 26 million pallets and container boxes for sale to the US. The cost to treat the wood for these new units will be $30 million a year, estimates the Canadian Wood Pallet & Container Association.

In addition, the industry group estimates that 300 million pallets currently carry goods south, and the cost to treat this existing inventory will be $300 million, although this annual cost will drop to $200 million as the stock of wooden pallets is recycled.

"Improved phytosanitary security is in the best interests of all parties on both sides of our border, and we trust that this accelerated phase-out is based on environmental goals only," says the CWPCA. US documents claim that the import of non-treated wood pallets from Canada "now poses elevated risks of movement and introduction of these wood-boring pests into uninfested parts of the US," although the documents cite China, the European Union and other countries as the origin of forest pests.

It is "misleading" to claim that wooden pallets originating in Canada are the source of the increasing entry of invasive pests into the US, the association explains. It agrees to comply with the US desire to accelerate the schedule subject to a number of observations.

There are concerns that an accelerated requirement to treat wooden packaging "could result in trade impediments if border officials are allowed to exercise arbitrary discretion" over the movement of pallets which are certified under the IPPC protocol, and the CWPCA wants assurance that no exports will be delayed if the pallet is properly certified. "Border officials must receive clear policy direction that a valid IPPC stamp is analogous to a national passport," it states.

The industry also wants consistency on the implementation of the new rules and the CWPCA notes that any additional cost to treat wood packaging will reduce the economic competitiveness of wood relative to non-renewable packaging options, such as plastic pallets.

There are concerns that the increased demand for heat-treated wood will strain existing supply facilities, and governments "should consider monetary compensation or fiscal assistance to affected industry sectors to offset the economic impacts of this accelerated implemented," suggests the association. The US documents conclude that "the impact of this rule is likely to fall on foreign manufacturers of pallets and not on US firms or consumers."

The CWPCA administers the certification program required under the international protocol on behalf of the federal government, and the wood packaging industry "fully supports efforts to improve the integrity of the forestry system and to introduce a level playing field in phytosanitary matters for all stakeholders." It recognizes that "environmental objectives often involve costs, but these costs must be kept to a minimum and all actions in this accelerated termination must be taken for phytosanitary reasons, and not to be used as a hidden trade barrier against Canadian exports or Canadian wood packaging material."

In addition to the $30 million of new costs for domestic wood pallet manufacturers and the additional $300 million cost for exporters and consumers, the CWPCA notes that US pallet manufacturers, exporters and consumers will also face costs as the exemption ends for US stakeholders. CWPCA officials have just returned from a US pallet conference, where they explained the implications to their US counterparts.

The consultation on the proposed termination of the bilateral exemption continues until January 31.