2s

‘Forest sector trate mission reveals exciting and new
export opportunities in the Japanese marketplace

By Phillip Legg
Assistant Research Director
IWA-CANADA

ITH a softwood lumber
trade battle looming be-
tween Canada and the Unit-
ed Sates, British Columbia's
new NDP government is moving to
strengthen and diversify the prov-
ince’s trade relations with important
overseas markets. By far the most
important of these from a forest in-
dustry perspective is Japan which
consumed more than a billion dollars
worth of B.C. wood products in each of
the last three years.
__ The move to diversify B.C.’s trade
interests was initiated by premier
Mike Harcourt who, shortly after his
October provincial election victory,
led a trade mission group of industry,
jovernment and labour representa-
tives to Japan. The focus of Har-
court's mission was to demonstrate
his government's commitment to
enhancing the B.C.-Japan trade rela-
tionship. As part of that commitment
Mr. Harcourt promised that in early
1992 a number of sector-specific trade
delegations would visit Japan to
assess opportunities for expanded
trade in their sector.

Given the dominant role that forest
products has in B.C.-Japan trade, Dan
Miller, the province's new minister of
forests, proposed that a forest sector
trade mission be the first sectoral
delegation to visit Japan in 1992.

The group, which was led by Mr.
Miller, included representatives from
BC. coastal and interior forest prod-
ucts companies, IWA - CANADA, B.C.
Trade Development Corporation, the
aboriginal community and Ministry
of Forests. During their week-long
tour in February, the group met with
Japanese lumber importers, govern-
ment officials, and a variety of impor-
tant lumber consuming companies.

From the outset it was clear that
Japan represents a unique opportu-
nity for the BC. industry. From a
volume perspective the Japanese mar-
ket is often eclipsed by the dominance
of shipment to the U.S. Since 1987, for
example, B.C. mills have directly
shipped an average of 8.68 billion
board feet per year to the U.S. market.
A comparable figure for exports to
Japan is approximately 1.53 billion
board feet per year.

However, from a value perspective

eX Japanese market is clearly one in
hich B.C. has to have a keen interest.

In 1989-90, total direct shipments of

BC. wood products to all markets

alan over $4.5 billion annually.

ie portion accounted for by ship-

ments to Japan was close to 23%.

More significantly, on a value per

_ board foot basis, the Japanese ship-

_ ments averaged over $600 per thou-

sand board feet compared to a value

_ of $277 per thousand board feet for
_ Shipments to the U.S. market.

___ Despite the premiums available for
Wood products shipments to Japan,
cessing the Japanese market has

and continues to be a major
lem for B.C. producers. The main
les include competition from
e sawmillers, building code
tions for various types of wo
ased structures, and product and
specific tariffs.
ie competition from the Japanese
g industry involves a varl-
ors, the most pepiicant ie
the continuing relianc
ta s to meet the needs of the
manufacturing industry.
Japan has a well managed
ource, annual harvests levels
‘sufficient to supply the
s sawmills which operate in

try.

a a

Assistant Research Director Phillip Legg, and B.C. Forests Minister Dan Miller.

The important news for B.C. pro-
ducers is that log exports to Japan are
coming under increasing downward
pressure as major supplying regions
try to cope with domestic pressures
for less logging and more processing.
The U.S. Pacific Northwest, for exam-
ple, which has been a major log
exporter to Japan, is coming under
increasing pressure from environmen-
tal groups and domestic sawmilling
interests to restrict the export of logs.
As well, the changing profile of log
harvesting in the P.N.W. (more sec-
ond growth, less old-growth) has also
been a factor in reducing the volume
of log exports to Japan.

Because new home construction
activity is the major end use for
imported lumber and other wood prod-
ucts, building codes and standards
play an important role in determining
how much access B.C. shippers have
to the Japanese market.

To-date, the B.C. industry has been
relatively successful in securing
approval of the North American
platform-frame (2x4) method of con-
struction for new homes. Unfortu-
nately, 2x4 housing starts only
account for about 3.5% of total hous-
ing starts.

Despite its small share of total
activity, the 2x4 housing market has
enormous growth potential. In a coun-
try where land and skills are in short
supply, the ability of 2x4 home build-
ers to pre-assemble walls, trusses,
floors and other components off-site
provides substantial savings and effi-
ciencies. As well, the 2x4 method is
flexible enough to incorporate both
traditional and modern floor plans, a
feature that makes it possible to reach
a wider range of home buyers.

The larger market for wood prod-
ucts continues to be the construction
of traditional {post and beam) Japan-
ese houses. That end of the market
accounted for almost 42% of total
construction activity in 1991. The
balance of new housing units, about
54% of the total in 1991, were built

from materials other than wood (eg.
steel, concrete, etc.).

Another aspect of the code and
standards issue that has great poten-
tial for B.C. mills is the effort being
made by the Council of Forest Indus-
tries (C.O.F.I.) as well as the provin-
cial and federal governments to gain
approval for 3-story wooden town-
houses. Current Japanese building
code provisions make it difficult for a
8-story wood structure to meet the
very strict fire and earthquake safety
standards that are applied in urban
areas. Testing and standards reas-
sessments are on-going and the Cana-
dian and B.C. representatives are hope-
ful that approval can be achieved in
the near future.

Labour shortage
problems in Japan
create an opportunity
for labour-intensive
production in Canada

While building codes and standards
represent non-tariff barriers to the
Japanese market, there are a number
of product and specie-specific tariffs
applied to various wood product
imports from B.C. For example,
Spruce-Pine-Fir (S-P-F) faces an 8%
tariff in Japan. Similarly, a number of
laminated products also have tariffs
applied against them.

Through the federal government,
B.C. is hoping that in the current
round of G.A.T.T. negotiations those
tariff levels can be reduced or elimi-
nated. Although a Canadian proposal
on that point has been put forward,
there has been no substantial prog-
ress recorded so far on the tariff issue.

Despite the obstacles, B.C. produc-
ers have recorded some impressive
gains in the Japanese market. From
1981 to 1990 the volume of lumber

bs Ete es

° Meeting with a Japanese lumber industry official in Osaka were (I. to r.) Tolko Industries Al Thorkelsson, IWA-CANADA's

shipped from B.C. to Japan has almost
doubled, rising from 872 million board
feet in 1981 to 1.67 billion board feet
in 1990.

Based on the information gathered
during the tour it is clear that a
number of factors should help B.C.
build on the success achieved to-date.
Current demographic (aging work-
force) and labour market problems in
Japan are forcing more and more
industries to import finished or semi-
finished material rather than manu-
facture in Japan.

Both the sawmilling industry and
the new home construction industry
are facing severe labour shortage prob-
lems which, in turn, are forcing those
industries to develop alternate strate-
gies. In the case of construction, more
of the new home construction busi-
ness is being handled by pre-manufac-
turing and pre-assembly operations
because of the difficulty that con-
struction contractors have with
attracting and hiring trained carpen-
ters.

Similar labour shortages are affect-
ing the sawmilling industry. In that
sector the combination of an aging
workforce and a preference amongst
younger workers to work in other
industries have made it difficult to
staff mills properly.

Both of these problems represent
important advantages for B.C. because
they create an opportunity to shift
some of the labour-intensive activity
to this province. That opportunity is
even more compelling when combined
with problems like log supply for Jap-
anese mills and the high cost of estab-
lishing and/or maintaining a manu-
facturing facility in Japan (high cost
of land).

Given the provincial government's
re-vitalized interest in diversifying
BC. trade relationship with Japan
and Mr. Miller’s first-hand exposure
to the opportunities that exist in that
market, the stage is set for further
gains by BC. mills in the Japanese
market.

LUMBERWORKER/APRIL, 1992/13