We thank you for having the Independent Lumber Remanufacturers Association back again so soon and for taking a second look at this proposed softwood lumber agreement.
We're also very pleased to see the National Association of Home Builders here today, and we thank them for supporting Canada and free trade.
The 112 members of the ILRA represent the majority of British Columbia's non-tenured forest products companies. Our markets are all over the world, but our primary market is the United States. Our ILRA constitution directs us to maximize the socio-economic benefit per cubic metre of timber harvested by promoting business conditions that result in the further processing of wood products in British Columbia.
Our members believe that their already stressed businesses will suffer further negative impacts if this agreement proceeds. They believe it would result in further decreases in Canadian value-added processing and that there will be further employment losses and business failures. Our members have paid about 3% of the national total of duties, and most, if not all, of that 3% will not sign on to this agreement.
We used to speak about an agreement as being “the policy changes leading to free trade”. The quotas and the border taxes were called the “interim measures”. In this agreement, the interim measures are the agreement, and there is no exit to free trade. We presently have a 10.5% duty that allows us to ship as much as we want, get our money back in 6 to 24 months, preserve NAFTA chapter 19, set legal precedents, and discourage future cases. Why trade that for 15%, or a higher tax, or a 30% quota, and give up $1 billion to pay our competitors' past and future legal fees? Why would we want to guarantee that we will have another case and that we will fight it without the benefit of our hard-won legal precedents and NAFTA chapter 19?
In this agreement, the objective of the U.S. coalition is to have our own government impose taxes and quotas that will make us uncompetitive in the U.S. market. Canada has been told many times that making our sector uncompetitive on a first-mill basis, instead of an ad valorem basis, will not make us competitive. Whoever proposed that for our sector must think that all the U.S. remanufacturers use Canadian wood fibre. That is simply not the case. The vast majority of our U.S. competitors use U.S.-grown wood fibre to produce duty-free and tax-free value-added products. We cannot compete with them if our federal government taxes the products that we make in Canada.
It must also be remembered that we are not the only country producing value-added 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.
Given that the random length index was $302 as of July 28, if this deal was in place today, under option A we would be expected to try to compete, paying either 15% or 22.5%. Even with the $500 price cap, the $75 to $112 per thousand tax that our government would expect us to pay to them simply isn't there for us.
For many of us, the option B, “quota plus tax”, alternative will result in an even quicker demise. If it is a quota that applies to the region in which we are located, there will be a race to the border. We do not have the ability or cash to time our shipments. At some point every month, the quota will be reached and our full trucks will be sent back to us.
If it is a quota that is allocated to companies, some of us will get quota and some will not. Our shipments have been down between 15% and 30% due to the present duties. Our quota allocations will therefore be less than last time, and none of us will get enough to sustain our reduced levels of shipments. This of course prevents recovery, growth, and new entrants.
Some producers that held quota under the old SLA have been financially unable to post deposits and would not even qualify for quota. Given that the random length index was $302 as of July 28, were this deal in place today, under option B, Canada's market share would now be down to 30%.
For the survivors, the ability to even do business under this agreement, from a practical point of view, is very questionable. There are eight different possible tax percentages, three different values for calculating it, and there is the possibility of actually turning a 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, and one tax will even be retroactive.
We buy wood fibre at arm's-length market prices, and we manufacture it to serve niche markets with custom products. That takes time. We cannot even quote to our customers if we do not know at what level our government will tax our shipments, or if we do not know if we will even be allowed to ship them. The uncertainty and lack of stability inherent in this agreement are already resulting in questions from our increasingly nervous bankers.
In their April 28, 2005 proposal, the coalition stated:
The settlement accord should provide that a province's adoption of fully open and competitive timber and log markets would automatically result in lifting of interim measures for that province. Absent fully open and competitive markets, however, the nature of criteria on the basis of which interim measures would be reduced or lifted remains in question.
We assume the tenured companies consider their tenures to be a benefit. If not, they would simply hand them in, and this would be over. The price to be paid for their decision to keep their tenures is duties, taxes, and quotas. We accept their decision, but we cannot survive under any agreement that has our government forcing us to bear the cost and consequences of retaining a benefit that our sector does not have.
We therefore ask the federal Conservative government to abandon this agreement, to deliver their promised aid package, and to get on with the litigation to force the United States to live up to their NAFTA treaty obligations.
Thank you.