It should be under ten. I'll just read this and then have the questions.
I thank you for inviting the Independent Lumber Remanufacturers' Association, which I will refer to as the ILRA, to appear before your committee. Our 120 member companies represent the majority of British Columbia's non-tenured forest products sector. Non-tenured means that we do not harvest public timber that has been administratively priced by provincial governments. We pay market price in competition with the Americans and the rest of the world for all of our input wood fibre. We are small, family-owned companies employing over 4,000 employees. Annually we do $2.5 billion in sales on four billion board feet. We sawmill; we remanufacture; and we wholesale. Our markets are all over the world, but our primary market is the United States.
The constitution of the ILRA directs our group to maximize the socio-economic benefit per cubic metre of Canadian timber harvested by promoting business conditions that result in the further processing of wood products in Canada. We are the only growth opportunity in the forest sector, as we are the companies that employ more Canadians to do more work to less wood fibre by adding value to it. We're a collection of Canadian entrepreneurs who are used to having hurdles placed in front of us. In one way or another we always seem to find our way around or over supply problems, currency fluctuations, market swings, foreign competition, and the like.
Today, my members want me to tell you about a new hurdle that we may not be able to get around. As you know, a group of our competitors in the United States, known as the Coalition for Fair Lumber Imports, has used the U.S. Department of Commerce to impose conditions upon us to make us less competitive in the U.S. market. We have jumped this hurdle before and we knew that we could do it again. The trick is to survive to see the victory. Most of us did survive, although just barely, and we ultimately won this fight on all fronts. Even the U.S. government attempts to circumvent the NAFTA and WTO victories were thwarted by the U.S. Court of International Trade, which recently ordered the withdrawal of the duties and the return of all the deposits. Not only that, we finally had the coalition on the ropes. They've lost half of their original membership, as measured by their ability to fund future cases. They even had to resort to recruiting small timber landowners and remanufacturers with the promise of money via the Byrd Amendment, but now they have lost even that tool.
With yet again no return on investment, the prospect of the coalition's being able to launch and fund a fifth softwood lumber case was looking very poor for them. Even if they could get a petition together and funded, it is doubtful if they could ever get another finding of injury and a punitive level of CVD or anti-dumping. They had just confirmed to NAFTA that the actual CVD rate should have been zero all along, and they can no longer use zeroing in their calculations of anti-dumping.
We also must remember that the U.S. government is seeking to be the big guy in this series of binational free trade agreements instead of being just another name plate and a chair at the WTO. As you know, they are in the midst of negotiating a bunch of these FTAs. The administration's appetite for another round of softwood lumber is waning, as they know that these other countries have been watching them try to skate around their NAFTA obligations while wondering what, if the U.S. disrespects their agreements with their friends, they will do to them.
This in itself begs the question of why anybody would make a deal with someone who does not freely abide by the one they already have. But Canada has done just that, and we now face a hurdle that we may not be able to pass. The Canadian government has joined forces with the coalition and the U.S. government in their fight against us. They seek to moot our legal victories. They are taking our money from us and using it to provide funding and a return on investment to our U.S. competitors. They are imposing commercially unworkable business conditions on us. They are taking over the role of the U.S. Department of Commerce, ensuring that our products will be uncompetitive in the United States.
The objective of the U.S. coalition in this agreement was to have our government impose taxes and quotas upon us, which would make us uncompetitive in the U.S. market. Getting their legal fees paid and a return on investment was just a bonus. With Canada's help they have succeeded. The vast majority of our U.S. competitors use U.S.-grown wood fibre to produce duty-, tax-, and quota-free, value-added products. We cannot compete with them if our federal government taxes the products that we make in Canada for export to our primary market.
It must also be remembered that we are not the only country producing value-added wood products for sale in the United States. We cannot compete in the U.S. market with countries such as China, when our government taxes our exports and their government does not tax theirs.
We had been suffering under a 10.5% duty that allowed us to ship as much as we wanted. Instead of negotiating a deal that led to free trade, or taking our legal victory--paying no duty and getting all our money back--the Government of Canada has apparently decided that our industry is better off being forced to pay 15% to 22% and to give away a billion of our dollars to our competitors. This is to ensure that they will be sufficiently rewarded this time, which will virtually guarantee a next time.
Even the Canadian Lumber Trade Alliance, which is the umbrella group for Canada's major forest companies, recognizes this. On Friday they filed a response to the U.S. Court of Appeals opposing the U.S. and Canadian governments' efforts to have the coalition's constitutional challenge of NAFTA chapter 19 vacated. In supporting the coalition, the Canadian Lumber Trade Alliance stated:
While we vehemently dispute Petitioner's baseless characterizations of the reasons for the softwood lumber dispute and the conduct of the Canadian parties, we do agree that there is almost certain to be future lumber litigation initiated by the Petitioner, and the parties inevitably will end up before NAFTA BNPs again in the future.
Given that this agreement makes another case almost certain, they're saying let's find out now if it is worth bothering with NAFTA, or maybe we should just go straight to the Court of International Trade.
The ability to even do business under this agreement is very questionable. Depending on a composite price, there are eight different possible tax percentages and three different values for calculating it.There is the possibility of actually turning the shipment around if one of three different shipment levels has been exceeded. And it could apply either regionally or individually. These tax rates or quotas will change every month. One of the taxes will even be retroactive.
Our members are extremely discouraged. Let me read a comment from one of them to illustrate. You need to know what a “surge mechanism” is first. The 10.5% duty is now a 15% tax. But if a region ships over its quota in a given month, the tax goes to 22.5%. That's called the “surge mechanism”.
So here is his comment. I've received many, but this one's very illustrative:
The new fundamentals are just starting to be realized by most people. I just had my first experience. My last cut made a very small profit if the tax is 15%. I lose if we surge. The interesting part about this is that it feels kind of like the lottery. I will find out next month if I won or lost. Further, I find that it leads to a very interesting business decision. Do I double down? Repeat the process and double my profits, or double my losses? I don't know if I am making money or losing money while trying to make this decision.
We can't do business like this. We buy wood fibre at arm's-length market prices, and we manufacture it to serve niche markets with custom products. It takes time. We cannot even quote our customers if we do not know at what level our government will tax our shipments when they're ready to ship or if they will retroactively want more tax at a later date.
The uncertainty and lack of stability inherent in this agreement is already resulting in questions from our increasingly nervous bankers. Our members believe their already stressed businesses will suffer further negative impacts if this agreement proceeds. They believe it will result in further decreases in Canadian value-added processing and that there will be further employment losses and business failures.
The Independent Lumber Remanufacturers Association urges you to recommend convening international trade committees again, so that the parties affected by Bill C-24 may appear as witnesses and express their views on this pending legislation.
We realize that sessions were held earlier in this process, as we appeared at them, but things have changed a great deal since that time. For example, we were originally assured that all our interest would be returned to us, but now Canada will take some of it too. We were originally told in writing that we would get all our money back if we elected not to sell to the EDC at a discount, but now Canada is imposing a special charge and will take that money from us too. We were originally told that 95% support was required, but when it was not there, Canada changed this requirement. We were originally told that all litigation must be dropped, but when it was not dropped, the Government of Canada changed that requirement too.
We have yet to even see the much-changed final agreement that the GOC plans to force upon us, and yet we are currently operating under it. We now have experience with this agreement and what it will do to our industry. We need the opportunity to relate this new knowledge to the trade committee.
At the July 31 trade committee's meeting, a motion by Mr. Julian was passed to take the committee to the affected parties and hold meetings in B.C., Quebec, and Ontario.
