FORESTRY: Facts about Irving subsidies and the Canada US tariff battle – Cheryl Urquhart Tait – 2018

The battle between forestry interests in Canada and the United States just never seems to end and generally the issue is about real or perceived subsidies given to Canadian companies, particularly the forestry giant JD Irving, Limited (JDI). With major operations in New Brunswick, Nova Scotia, Maine and elsewhere, JDI has tremendous clout and independent Canadian wood operators often wonder about the “special deals” that JDI gets. More particularly, the small Canadian operators themselves wonder what kind of subsidies JDI does get, compared to their situation. Meanwhile in Maine, the forestry giant now is said to be the largest land owner in the State and is proceeding on with forestry practices that , for decades, have been of major concerns to many in the Maritime province.

Cheryl Urquhart Tait a retired education specialist has put together the following summary of subsidies received by Irving corporations.

Irving Pulp and Paper Mill, Saint John, NB

Subsidies Given to Irving Companies

The Softwood Lumber Agreement signed by Canada and the U.S. in 2006, exempted the Maritime region for the reason that the region is not subsidized in the same way as the rest of Canada. The agreement has expired and has not yet been renewed. Negotiations are ongoing, and the concern is that large import duties could be imposed on Canadian timber exports.

During the period of negotiations, a complaint has been launched by an American industry group, The Coalition for Fair Paper Imports, to the U.S. International Trade Commission, (2015). The coalition stated that subsidies given to forestry companies, by provincial and federal governments in Canada, depressed prices and hurt American companies.

This gave reason for an investigation in to N.B.’s largest forestry company, J.D. Irving Ltd.

The U.S. Department of Commerce conducted the review of subsidies provided to Irving. Some of these subsidies are recurring and some are non-recurring. The department used a specific formula to calculate which subsidies they would consider for the final report, (Preliminary Results of Expedited Review of the Countervailing Duty Order on Supercalendered Paper from Canada; Section IV.) The review covered the time period from January 1, 2014 until December 31, 2014.

The following list of subsidies is taken directly from the report. Italics indicate direct quotes.

Financial Assistance to Industry Program

The FAIP provides funding from GNB to eligible companies with the goal of helping companies establish or maintain their presence within the province. Irving reported receiving assistance in the form of loans and the payroll rebate program.

The Federal Pulp and Paper Green Transformation Program
The purpose of the program was to improve the environmental performance of Canada’s pulp and paper industry.

Grants from the Total Development Fund to J. D. Irving
IPP received a grant from The New Brunswick Regional Development Program. GNB stated that IPP received certain grants from the RDC and identified three separate programs – (1) The Innovation Program; (2)The Northern New Brunswick and Miramichi Regional Economic Development and Innovation Funds, and, (3) The Total Development Fund, But the TDF is available only to provincial government departments, Crown corporations, and not-for-profit corporations.
Because IPP received these funds outside of eligibility requirements that limit the funding to provincial government departments, Crown corporations and not-for-profit corporations, it was determined that the grant provided under this program constitutes a financial contribution in the form of a direct transfer of funds from the government.

Northern New Brunswick Economic Development and Innovation Fund
The NNBEDIF provides assistance to eligible companies with the goal of diversifying and growing the northern New Brunswick economy. Under the NNBEDIF program, assistance may be provided in the form of loans, loan guarantees or non-repayable contributions. Irving reported that JDIL received assistance under this program in the form of non-repayable contributions,( I,e,, grants), for two separate projects. The grants received by JDIL provided assistance for the training of forestry workers and were used toward a capital investment project. Funding under this program is limited by geographic region; only companies with projects in the northern counties of Victoria, Madawaska, Restigouche, Northumberland and parts of Kent qualify.

Irving reported assistance to JDIL Sawmills Division under what is titled, ”Northern New Brunswick Economic Development and Innovation Fund” and assistance to the JDIL Woodlands Division under the “Northern New Brunswick Economic Development and Innovation Fund, – Forest Workforce Training”. The GNB called the sawmill’s grant “Regional Development Corporation – Grant”, ad reported the funds going to the Woodlands Division, and called the Woodlands grant, “Forest Workforce Training Grants” and reported the funds going to the Sawmills division. Funding for both grants, apart from a small amount that went to JDIL, was actually paid by the GNB to IPP. Irving reports that mistakenly made to IPP, and that IPP later forwarded these amounts to the proper JDIL division.

Workforce Expansion – One Job Pledge
Irving reported that IPP and JDIL received wage subsidies through this program. The program is administered through The Employment and Continuous Learning Services Branch of The Department of Post-Secondary Education, Training and Labour. The employer must create a new position for the new hire and must demonstrate that such a position would be sustainable after one year.

The language of the implementing provisions for this program does not limit eligibility to a specific enterprise or industry or group thereof.

Of the 33,000 corporate tax filers in NB, very few were approved. We, therefore, preliminarily, determine that this program is de facto…as the actual recipients are limited in number.
Furthermore, we preliminary determine that the Workforce Expansion – One Job Pledge program constitutes a financial contribution in the form of a direct transfer of funds from the GNB.

Atlantic Investment Tax Credit
This federal tax credit is limited by geographic region to companies with projects in the Atlantic region of Canada. It is administered by the CRA. It is a credit against federal income tax owed and its purpose is to encourage investment in the Atlantic region of Canada. Companies in the region can earn investment tax credits in machinery and equipment used for manufacturing, and for farming, logging and fishing. IPP and JDIL have both taken advantage of these credits.

New Brunswick Large Industrial Renewable Energy Purchase Program.
The LIREPP program is available to any large industrial company that produces renewable energy and owns and operates a facility that has an electrical energy requirement of not less than 50 GWh per year; that obtains all or a portion of its electricity on a firm basis from NB Power, and that exports at least 50% of it primary product produced to another province or territory within Canada or outside the country.

NB Power first determines the credit it wants to give the large industrial customer such as Irving. NB Power then works backwards to build up to that credit through a series of renewable energy power purchases and sales and additional credits. These credits are recorded in Irving’s accounting system as rebates.

The inquiry determines that this is to be considered a substantial subsidy.

New Brunswick Provision of Stumpage to Irving for Less Than Adequate Remuneration
JDIL acquires logs from NB Crown land as both a licensee and as a sub-licensee. All logs are subject to stumpage fees.

The N.B. Department of Natural Resources, (NBDNR). Sets the allowable harvest allocations for both licensees and sub-licensees every year. Licensees enter in to a 25-year forest management agreement with the N.B. DNR under which the licensees are responsible for managing the land and ensuring that the FMA is followed. Further, they are responsible for performing certain license management duties, including silviculture, for which they are reimbursed by GNB.

Stumpage rates can be adjusted by GNB through e-scale adjustments and post-payment adjustments, which are based on both operating conditions and the GNB’s year-end reconciliation process. For example, an e-scale adjustment may be made by the NBDNR if the timber to be harvested is on a severe slope or if it has been affected by pests or fire damage. Irving reported all of these adjustments in their stumpage purchase data.

The provision of stumpage provides a benefit to the extent that the GNB received less than adequate remuneration when measured against an appropriate benchmark for stumpage.

A survey of private stumpage prices in the Maritime provinces indicates that thousands of private woodlot owners accounted for less than one-fourth of harvested timber in N.B. According to The Private Woodlot Owners Association, its members cannot compete with the low prices set on Crown land. According to the Auditor General Report, (2008), it is the leverage of private mills as dominant consumer that suppresses prices from private woodlots, and that it is those suppressed private prices that lead to an artificially low “Market based” price for Crown stumpage.

The record evidence in this review establishes that the GNB holds a majority share of the market for stumpage in New Brunswick and that it restricts eligibility for Crown stumpage rights to companies that operate pulp and paper or lumber mills.

The record further indicates that the private mills’ status as the dominant consumer of stumpage creates an oligopsony effect such that both private woodlot owners and the Crown are responsive to price-setting behavior by the private mills. Based on these facts, we preliminarily determine that private New Brunswick stumpage purchases are not “Market determined”.

New Brunswick Provision of Silviculture Grants
Irving is reimbursed for silviculture activities carried out on Crown land. When JDIL has completed eligible silviculture activities, it submits invoices to the GNB for reimbursement. The inquiry determines that the silviculture grants that JDIL receives from GNB constitute a financial contribution in the form of a direct transfer of funds.

License Management Fee
Under the terms of its FMA, JDIL is obligated to perform certain management activities. They include road maintenance and construction costs, as well as the costs of administering all forestry-related activities, including submitting scale information, (Reporting the volume harvested), to the GNB and conducting all invoicing of the sub-licensees on behalf of the GNB. The GNB establishes the rate at which it reimburses JDIL.

The license management activities required under the FMA are activities that JDI would also undertake on its private freehold land, in the regular course of business, and for which it would not be reimbursed by GNB.

The inquiry considers this to be – a financial contribution in the form of a direct transfer of funds.

Accelerated Capital Cost Allowance for Class 29 Assets
Class 29 assets are machinery used in manufacturing and processing operations. Under this allowance, class 29 assets can be fully depreciated at an accelerated rate, over three years, and the amount of depreciation can be claimed as a credit to reduce the taxpayer’s taxable income.

Irving reports that Irving, JDIL and IPP claimed these tax credits. The actual recipients are limited in number.

New Brunswick Research and Development Tax Credit (NBR&D Tax Credit)
The NB R&D Tax Credit provides a credit against NB provincial taxes equal to 15% of eligible expenditures to carry out experimental development, applied research and basic research work, to any corporate or individual business in N.B. The credit is fully refundable, therefore, if the corporation did not owe provincial taxes, it can receive the credit in the form of a refund. Irving and JDIL used this credit.

Inquiry determines that this tax credit constitutes a financial contribution in the form revenue foregone.

The following programs were determined to confer non-measurable benefits:

ACOA – Atlantic Innovation Fund
Irving reported that JDIL used this program. Inquiry calculated the amount of interest JDIL paid on these loans during the POR to the amount it would have paid under the benchmark interest rate, (See IV.D in original doc.). The calculated benefit resulted in a subsidy rate that is less than 0.005 percent. Consistent with our past practice, this program does not have an impact on Irving’s overall subsidy rate and we did not include this program in our calculation of the countervailable subsidy rate for Irving.

ACOA – Business Development Program
JDIL used this program. The inquiry din not use this program for the same reason as above.

GOC NSERC – Industrial Undergraduate Student Research Awards (IUSRA)
JDIL received a grant under this program. Grants under this program are recurring. The subsidy rate is less than 0.oo5 so the inquiry did not use it.

SERG International
JDIL was approved for assistance and received disbursements.
The inquiry did not use it

Canada Summer Jobs Program
JDIL received assistance under this program.
The inquiry did not use it.

Apprenticeship Job Creation Tax Credit
JDIL received assistance under this program.
The inquiry did not use it

Grants to JDIL
Irving reported that JDIL received numerous small grants from GOC, GNB and GNS, of which only one was reported as being within the designated time period. It fell below the 0.5 percent expense test.

Subsidies to Irving that fall outside the POR. (Period of review) Jan. 1, 2014 – Dec. 31, 2014

GOC National Research Council Industrial Research Assistance Program
JDIL received grants in 2004..

GOC Natural Sciences and Engineering Research Council (NSERC) Industrial R%D Fellowship
JDIL received grants in 2010.

3, Investment in Forest Industry Transformation Program (IFIT)
IPP received assistance in 2013.

Forest Workforce Training Grants
JDIL received grants in 2012.

New Brunswick Climate Actin Fund Grants
Irving received grants from this fund prior to the POR.

Industrial Energy Efficiency Project Implementation
Irving, IPP and JDIL received assistance under this program prior to the POR.

Efficiency New Brunswick Industrial Program
Irving, IPP and JDIL received benefits under this program prior to the POR.

Efficiency New Brunswick Commercial Energy Smart Program
JDIL received benefits under this program prior to the POR.

Nova Scotia Manufacturing and Processing Investment Credit
JDIL received benefits under this program prior to the POR.

Province of Nova Scotia: Efficiency Nova Scotia
JDIL received benefits prior to the POR.

The decision by the inquiry is being deferred for the following reason:

In its September 8 submission of Factual Information, Irving reported that JDIL received exemptions and refunds of gasoline and fuel tax from both the GNB and the GNS. Insufficient time remains before the scheduled time for the review expires to examine what appears to be a countervailable subsidy. Other companies involved did not use this possible subsidy.

The above is an attempt to summarize an extensive document in to a more concise list of subsidies given to the Irving group of companies.

Much more information is provided within the full report although financials are not made available. The report can be found at:

http://federalregister.gov/documents/2016/11/28/2016-28505/supercalendered-paper-from-canada-preliminary-results-of-countervailing-duty-expedied-review