Thank you, Chair.
Good afternoon. Thank you for inviting me to appear before you today.
I provided a presentation to this committee on May 29 outlining the Alberta industry's concerns regarding the framework agreement that was announced on April 27. Today I will outline the Alberta industry's position with respect to the final agreement announced on July 1.
First, though, I wish to correct the record with respect to remarks made by a member of the standing committee at the standing committee meeting of July 13. At that time, a member stated that the Alberta natural resources minister had said that the Alberta industry was supportive of this agreement. In fact, on July 4, the Alberta Softwood Lumber Trade Council issued a press release stating that a significant majority of the Alberta industry opposed the agreement, finding it unacceptable in its current form. Letters to ministers of both the Government of Canada and the Government of Alberta were issued by our council, concurrent with the news release, requesting further changes to the agreement. I have been assured that the Government of Alberta, and specifically the Minister of Sustainable Resource Development, continues to support the Alberta industry in this position.
The Government of Canada has long been on record as stating that Canada will not accept a softwood lumber deal at any cost. This agreement, however, is a deal at a very high cost indeed: $1 billion. That is $1 billion worth of our duty deposits for a short-term deal that will leave us with significant long-term pain. While some say there is benefit in paying that $1 billion in order to get the remainder of our deposits returned more quickly, that benefit must be weighed against the substantive ongoing taxes that the industry will be forced to pay during the next few years, and that's based upon market projections.
On April 27, the Prime Minister announced a framework agreement that he said would result in no taxes or quotas. However, since that announcement, the random lengths composite index price has dropped from $370 per thousand board feet to $306. As a result, today we'd be paying the maximum tax of 15% and be reduced to the minimum quotas, from 34% market share to 30% market share.
Furthermore, the current exchange rate of 89¢ compared to 63¢ at the beginning of this dispute in 2001 results in a 30% decrease in sales revenues from the same product, as well as reducing the Canadian dollar value of our deposits paid in U.S. dollars.
Given the recent decision of the Court of International Trade, a U.S. court made up of three U.S. judges, that will require the Department of Commerce to revoke the duty orders and return 100% of the illegally collected duties to Canadian producers, it is, to say the least, a bitter pill to swallow to be asked to accept this agreement.
Based upon responses from Alberta industry members to date, unless there are changes to the agreement, the majority will not assign their deposits, and the 95% threshold required for the assignment of deposits to the Government of Canada will therefore not be achieved.
During the May 29 presentation to this committee, I indicated that the Alberta industry had always supported the pursuit of a negotiated settlement--that is, a long-lasting, durable solution that would be deemed fair and equitable and commercially viable. The Alberta industry continues to stand by that position. However, the very serious concerns we expressed regarding the framework agreement have failed to be addressed in the final agreement. Worse, the final agreement now has a termination provision included that essentially eliminates the long-term stability we assume we would get from a negotiated settlement with a seven-year term.
We are of the view that if this provision is included in the agreement, it will be used. We could therefore be faced with another trade dispute, Lumber V, within three years. This is obviously unacceptable, especially as we would have to revoke our legal precedents. An overwhelming majority of Alberta producers are of the view that, at present, continued litigation would be preferable to accepting the proposed agreement.
As was also stated on May 29, the Alberta industry was deeply troubled by the possibility that we could find ourselves faced with a perpetual surge tax under option A. The basis for our concern was the likelihood of increased harvesting levels resulting from the implementation in Alberta of an emergency strategy to combat the spread of the mountain pine beetle. Quite clearly, if Alberta is unable to control the spread of the beetle, as B.C. has been unable to do before us, then the infestation is very likely to become a national problem, and the beetle will advance unchecked through the boreal forest right through to the Atlantic coast.
With the increased harvest levels in Alberta that will be necessary to avoid this scenario will come increased U.S. shipments and therefore the potential to exceed the Alberta market share. If this were to occur, the Alberta industry would be faced with a perpetual surge tax of 150%, making us unfairly disadvantaged and uncompetitive compared to the rest of the Canadian industry.
When the base period for determining market share for option A was changed in the framework agreement to accommodate B.C.'s mountain pine beetle problem and increased harvest levels, it resulted in a considerable negative impact on Alberta's market share. The resulting loss was approximately 90 million board feet for Alberta producers, making it much more difficult to manage the surge mechanism under option A. If we let this stand, the impact of this on Alberta producers will be dramatic.
The Alberta industry had considerable discussion with federal officials leading up to the finalized agreement, and we were advised that the negotiators would make every effort to ensure the provision be incorporated in the agreement, allowing for a choice between whichever was the greater of the base periods of 2001 to 2005, or 2004 to 2005. Allowing Alberta to choose the 2001 to 2005 base period would be consistent with the base period in option B, and while it would not necessarily prevent us from being hit by the surge mechanism, it would at least lessen the mechanism's impact on Alberta.
As we understand it, this provision was tabled but was rejected by the U.S. coalition. The response from our negotiators was that they had done their best and that the agreement was now a take-it-or-leave-it proposition. Unfortunately, we cannot measure success by effort but must measure it by results, and in the end, Alberta became the only province that did not have any of its specific concerns addressed.
In the final agreement announced July 1, under option A, the proposed surge tax is to be applied retrospectively instead of prospectively. As we stated on May 29, a retrospective tax makes it impossible to effectively manage shipments to meet customer needs. If indeed it is the intent to manage shipments to the proposed market share, then a prospective application of the surge tax is the only practical business solution.
As also stated on May 29, the Alberta industry strongly advocated the continuation of litigation before entry into force of the agreement. It is important to set legal precedent to prevent further trade cases against Canada; namely, Lumber V. Since we have received further important legal decisions since April 27, it is essential that the agreement now preserve these new legal precedents.
Since all of the provincial associations have rejected the agreement in its current format and all have recommended a resumption of talks so that changes to the agreement may be incorporated, a pan-Canadian position is being developed through the Canadian Lumber Trade Alliance. The intent is to provide the Government of Canada with a list of changes required to make this agreement palatable for all industry across Canada; not necessarily a great deal, you understand, but something that the industry can live with, can survive with.
The Alberta industry is fully supportive of this process and expects that the federal government will use the CLTA's list of issues to derive an agreement that can be accepted by the entire industry. If, on the other hand, the agreement is left unchanged, as has been indicated by the minister and the U.S. coalition, then we can expect that the 95% threshold for the assignment of deposits will not be achieved and that the entire withdrawal of litigation will not occur either.
As stated earlier, the Alberta industry remains hopeful that a commercially viable agreement can be achieved. We look forward to continuing to work with our federal and provincial governments to that end, so we offer the Government of Canada the following recommendations.
One, incorporate a provision in annex 7, paragraph 4, of the agreement under Canada's softwood lumber national export monitoring system for a choice between whichever is the greater of the base periods of either April 1, 2001, to December 31, 2005, or January 1, 2004, to December 31, 2005, as was tabled by the federal government during the negotiations.
Two, extend the termination provision in article XX from 23 months to 48 months and extend the written notice from one month to six months.
Three, ensure that all legal precedents from NAFTA and the United States Court of International Trade are preserved in the agreement.
And lastly, ensure that the Government of Canada incorporate the CLTA settlement issues list into the agreement.
In conclusion, I wish to state emphatically that it is unreasonable for our government to expect the Canadian industry to accept an agreement that has such potential to cause a devastating long-term impact on our businesses and negative consequences for the economy as a whole. We cannot be asked to pay too high a price for too little certainty.
Thank you. I'll be pleased to answer questions.