Douglas County mill owner Steve Swanson says he would lose money if he sold lumber as cheap as the Canadians do. Swanson must compete with British Columbia mills for customers such as Home Depot and Lowe's. He says his products are as good as anybody's, but he can't overcome what he calls unfair trade practices.

“We shouldn't be this damaged by foreign countries,” he said. “We have great mills.”

Underpriced Canadian lumber joins the housing slump and logging restrictions on federal forests as main reasons for layoffs at the Glendale-based Swanson Group's mills, Swanson said.

Swanson may not be able to do much to turn the economy around, and forest management polices are tied up in litigation and politics.

But he does help lead a campaign that may be making headway in changing how Canadians price lumber.

Swanson chairs an industry group, the Coalition for Fair Lumber Imports, which argues Canada is violating the 2006 Softwood Lumber Agreement, which is intended to create free and fair trade between the two lumber-producing countries.

Under the agreement, Canadian timber is priced by the quality of lumber it will yield. The poorest — and cheapest — logs are categorized as suitable for making pulp.

The coalition charges, and U.S. trade officials agree, that Canada is using a mountain pine beetle infestation as an excuse to underprice timber, giving B.C. mills an unfair advantage over their U.S. competitors.

U.S. trade officials filed a complaint last summer with the London Court of International Arbitration. Canada filed a defense last month, and the court set oral arguments for February.

The U.S. complaint alleges that the Canadians are rating too many logs as low grade. B.C. mills couldn't possibly be producing so much lumber if the logs were as severely damaged by beetles as the Canadians say, according to the U.S.

If arbitrators take the American side, B.C. mills would pay higher export taxes. The damages, currently estimated at $499 million, would be distributed to the Canadian government and raise B.C. mills' production costs.

The arbitration case is the latest dispute arising from the lumber trade agreement,

The coalition says problems stem from the fact that while the overwhelming majority of timber is grown on public lands in Canada, U.S. mills rely mostly on private timberlands.

Swanson said he pays $50 for a 40 foot tall, 12 inch diameter tree that costs a Canadian mill 25 cents. Buying the logs accounts for most of the cost of producing lumber, he said.

“I can compete with any lumber company in the world, but I can't compete with the government of Canada,” he said.

The trade agreement expires in 2013, though the countries may approve a two-year extension.

Although the coalition argues Canada isn't following the agreement, the group supports an extension, Coalition for Fair Lumber Imports Executive Director Zoltan van Heyningen said.

“None of us want to go back to full-scale litigation,” he said. “We would like to see this agreement work. ... We're willing to give it one more shot.”

Van Heyningen said he's confident in the U.S.'s case. “It's litigation. There's never any guarantees, but we're comfortable where we're at,” he said.

The president of the B.C. Council of Forest Industries, John Allan, said he believes the court will take Canada's side.

“We put in a very strong submission with lots of back up to show the panel there is no merit to the American claim,” he said.

He noted that the U.S. already collects a 15 percent tax at the border and said that comparing what Canadian and American mills pay for timber is difficult because of their different systems.

Canadian mills also have to compete for logs, he said. Low-grade logs may start at 25 cents, but sell for more at auction, Allan said.

Allan said Canadians are not exaggerating the extent of the beetle damage. The infestation has damaged 800 million cubic meters of B.C. timberland and is the reason for an increase in low-grade logs, Allan said.

“Those logs are legitimately scaled as low grade,” he said. “They're cracked, they're gray, they're brittle.”

With some skill, the poor logs can still be milled into lumber, he said.

“The lumber you make from those logs is tough to process,” Allan said.

Swanson said his mills don't use the type of low-quality logs that B.C. mills are purportedly using to turn out marketable lumber.

“You can't make lumber out of a pulp log,” he said. “Our mills are as good as their mills. ... It's just not possible.”

Swanson said he hasn't seen a let up in competition from Canada, even with China's growing demand for wood.

He said he hopes the court of arbitration will favor the U.S. because mills like his can't afford to compete with Canada much longer.

Swanson Group has gone from operating six mills and having 1,200 employees in 2007 to four mills and 700 workers today, Swanson said.

The consequences will be dire if arbitrators side with the Canadians, he said.

“They're going to continue to drive us out of business,” he said.

• You can reach reporter Inka Bajandas at 541-957-4202 or by email at ibajandas@nrtoday.com.