Thank you very much, Mr. Chairman.
I want to thank you and the members of your committee for inviting the Saskatchewan government and the forest industry to speak to you this afternoon about the implications of the softwood lumber agreement 2006--or SLA-2, as it's being called--on our province.
My colleague and co-presenter here today is Mr. Alan Brander, the president of the Council of Saskatchewan Forest Industries and CEO of NorSask Forest Products Inc., our second largest producer and exporter of softwood lumber. Since we'll be sharing this presentation time, I will keep my opening remarks brief and to the point.
Before I speak to the new agreement I'd like to take a couple of minutes to describe the economic footprint that the forest and softwood lumber industries have in Saskatchewan.
To those who have travelled across Saskatchewan on the Trans-Canada Highway, you may be wondering why we're here at all to talk about lumber. On the great plains we don't have many trees--the odd caragana, I suppose--but almost two-thirds of Saskatchewan's land area is forested. We are home to some 300 forest industry firms that produce along the entire wood value chain. The forest industry is now our third largest manufacturing sector. It directly contributes an estimated billion dollars a year to the provincial economy and employs 8,000 people directly and likely double that indirectly. Finally, about 25% of our forest is currently allocated to first nations' interests.
This committee will be particularly interested to know that Saskatchewan has five large sawmills, one paper mill, and two pulp mills that are fully integrated and mutually sustaining commercially. Unfortunately, as some of you will know, that very integration is today causing an unprecedented crisis in our forest industry that in our judgment is likely to be made much worse by SLA-2.
At the outset I'd like the committee to know two things. First, both the Government of Saskatchewan and our provincial industry were and are profoundly disappointed by the lack of opportunity afforded to us to contribute or agree to the so-called terms document on which the final text of the SLA-2 is based.
Since July 2005, neither the provincial government nor our industries were consulted or even informed about the possible terms of settlement of this dispute until immediately before they were announced in the House. Previously, Saskatchewan had been fully involved in both the internal and bilateral negotiating processes, not the least because the U.S. formally included Saskatchewan in its case against Canadian lumber exports.
Second, I'd like you to know that Saskatchewan has always accepted in principle that a negotiated settlement is preferable to never-ending litigation, provided the settlement is fair to Canada and Saskatchewan and delivers long-term, secure access to U.S. markets. In our view, the proposed SLA-2 fails both tests, and we believe it to be especially unfair to Saskatchewan. I want to explain why we've reached those conclusions.
Saskatchewan shares a number of concerns about the proposed SLA-2 that other witnesses before the committee have identified and discussed in depth, including its provisions for calculating provincial quota shares and surge limits--the so-called running rules--for both border measures and the anti-circumvention exit policy and termination clauses.
My colleague Alan Brander may wish to speak to the industry implications of some of these, but I want to address these three issues that are of particular concern to the Saskatchewan government.
First is the issue of fairness. For Canada as a whole, we think we've earned the right to free trade in lumber and the return of all our companies' money with interest.
As you know, the current U.S. Court of International Trade essentially confirmed our rights in these respects last week. Instead, the proposed SLA-2 could dramatically and unfairly restrict our trade for almost a decade. Yet in one of the very plausible scenarios under the so-called option A border measure, our companies could be paying an export tax of over 22% if we exceed our existing market share. For that privilege, the SLA-2 will see our companies paying the U.S. government in interest over $1 billion U.S. and will provide them with the ability to veto, or at least to seriously constrain, the further exercise of provincial governments' options for pursuing for us the interest development.
We simply don't think this is fair to Canada, or to any affected province or its forest industries. But we also believe that the terms of the SLA-2 are particularly unfair to Saskatchewan.
Under current and foreseeable market conditions in North America, we think one of the proposed border measures will apply to Saskatchewan. Due to the way their base periods are calculated under this agreement, either border crossing measure will basically lock our existing sawmills into a status quo situation of serious capacity underutilization, especially relative to our peak performance in 2000, before the latest trade action commenced.
Under the agreement, the commercial reality for Saskatchewan is that the operation of either border measure is likely to cap our U.S. export volume at a level that is 30% to 40% below what we actually shipped in 2000, and over 50% below what we could and should be shipping in 2006 in the free trade arrangement.
In sharp contrast, this agreement provides our two neighbours to the west, for example, with quota volumes and surge limits that are 25% to 30% higher than their shipments were in 2000. Why? It's because, unlike the case in Saskatchewan, many of their mills could afford to absorb the punishing U.S. duties and keep expanding their exports States-side over the past five years.
SLA-2 as currently proposed is likely to impose disproportionately severe trade restrictions on Saskatchewan and Manitoba simply because most of our sawmills couldn't afford to pay U.S. duties and instead shifted their sales into Canada's domestic market. We just don't think it's fair that SLA-2 should punish our industry now for having made that shift in export destination for sound business reasons.
Furthermore, for a province like Saskatchewan, with substantial unallocated timber and harvest rates well below our annual allowable cut, we think the operation of either of the proposed border measures in SLA-2 will effectively preclude any build-out of new lumber capacity in our province.
I'd like the committee to know that in 2001 when the trade challenge was launched, there were plans for three new aboriginal-owned sawmills in Saskatchewan's north that had to be shelved in the face of the U.S. duties. With this new deal, the prospects for reviving those expansion plans appear to be slim to none.
Finally, because our sawmills and our two pulp mills and paper mill are tightly integrated commercially, the SLA-2's new trade restrictions on our sawmills are likely to seriously aggravate the current prices gripping our pulp and paper sector. That's because under the prevailing market conditions, which include the illegal U.S. duties and their proposed replacement by the new Canadian border measures, our existing sawmills will need to sell their softwood chips to our pulp mill in Prince Albert to remain commercially viable. But right now that pulp mill has shut down, and consequently, so have several of our bigger sawmills. Yet an essential precondition for successful restructuring of our ailing pulp and paper sector is a significant build-out, not a significant contraction, of lumber production in and export from Saskatchewan.
I'll wrap up briefly by commenting on two other provisions in SLA-2 that are essentially problematic from Saskatchewan's perspective.
The first is the agreement's so-called policy exits. In light of our impact analysis, Saskatchewan will certainly do everything reasonable to qualify for exit from this deal in the shortest possible time. However, as even federal officials have described them, the policy exit provisions of SLA-2 are likely just faint hope clauses. We think that, having achieved their objective of managed trade through this deal, neither the U.S. government nor its lumber industry has any incentive to be reasonable with provinces about the terms and/or timing of exit from border measures.
The last concern I want to share with the committee is the information-sharing and anti-circumvention language in the new agreement. Our lawyers tell us that, read together, those provisions could seriously constrain the use of existing ministerial authority in our forest resources management regulations. They can preclude Saskatchewan's future use of resource and/or industry development options similar to those that the agreement formally shields or grandfathers for some other provinces. If true, this is also unfair to Saskatchewan and other provinces not similarly protected.
In summary, we think the proposed SLA-2, as is, is unjustified, unfair, and unworkable for Saskatchewan. Like most provincial lumber industries across Canada and, I'm told, like both the B.C. and Ontario governments, we think Canada should now be seeking to secure changes to this deal that address the deficiencies we have all identified.
I want to thank you very much.
I'll now give the floor to my colleague Mr. Alan Brander, who will speak for his industry.
