Thank you very much for the invitation to this committee. It's very timely. We're very prepared to provide the Alberta perspective.
The Alberta Softwood Lumber Trade Council represents the Alberta softwood lumber industry and is made up of primary and secondary manufacturers within the province. We have 50 forest-based communities and 54,000 jobs that are dependent on a healthy forest industry that has access to the U.S. market. We are the third-largest primary producer in Alberta. We produce some 3.3 billion feet of lumber, approximately half of which is exported to the United States. In terms of volumes, we are not that far behind Ontario.
Firstly, the Alberta industry agrees that a negotiated settlement is necessary and supports the government's efforts to bring about an end to the current trade dispute on softwood lumber. However, the agreement must lead to a long-term, durable solution that is sustainable throughout the seven-year term and ensures the long-term viability of our industry. Unfortunately, the proposed softwood lumber agreement neither reflects the litigation successes to date nor provides any certainty of economic viability for our industry into the future.
As stated by Prime Minister Harper on April 27, it is true that a quota or border tax would not be levied at that day's market price. However, you should understand that the market price has since fallen and today both a quota and border tax would be applicable.
Due to the unique circumstances that currently exist in Alberta, there are certain elements of this agreement that, if not clarified and addressed, will have a devastating effect on the Alberta industry. Our industry will be unable to determine whether the agreement will be a good deal that provides the necessary long-term viability until such time as the agreement has been finalized and reviewed. It is imperative that Alberta's concerns are listened to and addressed in the agreement. I can't understate that point.
We were extremely disappointed that Alberta was excluded from providing input during the final hours leading up to the announcement of the framework agreement. Our frantic efforts to contact the government with our industry's concerns and recommendations on April 27 were to no avail. Since that time, we have continually tried to have the Alberta industry concerns clarified by ongoing correspondence with the minister and the ambassador's office. To date, none of our correspondence has been acknowledged. And in our phone discussions with the ambassador's office, it appears clear that our concerns are not being listened to.
The current consultative process established for industry input and the accelerated timetable provides little opportunity for us to consult with our industry and provide the appropriate feedback that has fully considered the economic impact to the industry. This seems unreasonable and unacceptable since it is imperative that the agreement is economically viable.
We realize the difficulty of changing the framework agreement to address the Alberta industry's concerns. We are not requesting a renegotiation of the framework; rather, we require clarification of some of the elements and recognition of our concerns in the final agreement. As has been pointed out in our correspondence to Minister Emerson, we have considerable concern with respect to the surge mechanism, the determination of market share, and the anti-circumvention provisions due to the unique circumstances that currently exist in our province.
The Alberta industry has consistently indicated during the years since the expiry of the 1996-2001 Softwood Lumber Agreement that a quota solution is not acceptable as a fair and equitable solution for us, due largely to an unfair allocation of quota to Alberta companies in 1996. Therefore, we have strongly advocated a border tax solution that would be fair and equitable to all. Unfortunately, the proposed agreement provides for two options, both of which have elements of a border tax and a quota.
With respect to the surge mechanism under option A, the framework is unclear whether the 150% tax penalty applies to all of the volume shipped when the 110% trigger is exceeded or whether it is just on the overage.
If the penalty tax were to apply to all of the volume exported to the U.S. instead of to the overage, then the overall tax would have a profound and devastating impact on Alberta producers. Considering that option A, the export tax option, has a considerably higher tax than option B, then in our view the application of the penalty tax is unfair and overly punitive.
The basis for our concern is that the mountain pine beetle is now in Alberta, and aggressive forest management strategies are being contemplated to ensure that Alberta forests do not succumb to mortality from the onslaught of the mountain pine beetle, as has occurred in British Columbia.
It will be necessary to increase the harvesting of older-age pine stands to protect forest ecosystems and to ensure that the epidemic does not spread across Canada, let alone to the northwest states of the U.S. I'd just like to refer, for your information, to a story in today's Globe and Mail that reflected exactly that point; that if left unchecked in Alberta, the beetle will spread across Canada.
The effects of the mountain pine beetle outbreak in British Columbia have already resulted in significant increased harvesting and production levels in that province. Since the proposed market share allocation for each region and province, using the 2004-05 shipments, will take into account the increased volume in British Columbia, it should also be noted that Alberta's market share will decline. This is a major dilemma for the Alberta industry, considering the inevitable impact of the mountain pine beetle.
Additionally, the framework is also unclear on whether the tax penalty is prospective or retrospective. In order to effectively manage shipments to meet customer needs and prevent gaming, it is imperative that the penalty tax be prospective.
In spite of the framework and the draft softwood lumber agreement tabled with the U.S. on May 24 being unclear in these clauses, we have been advised by the federal negotiators that the penalty tax applies on all of the shipped volume and will be retrospective rather than prospective. This seems inappropriate, as it will be virtually impossible to determine the full impact of the tax when making business decisions on the sale of lumber to U.S. customers; furthermore, many of our businesses will be in jeopardy if these concerns are not addressed.
With respect to the market share determination, further clarification is required. The framework is unclear as to whether the historical market share is based upon the exporter of record or upon the province or region of origin. Given Alberta's geographic location in Canada, many of our exports are shipped through other provinces, such as Manitoba, Ontario, and to a lesser extent British Columbia. This is especially true for many of our small and medium-sized producers, who utilize lumber wholesalers and brokers for the sale of their products into the U.S.
In the event that the exporter of record is the chosen methodology for the determination of market share, then some of Alberta's shipments will be allocated to other provinces. For this reason, the Alberta industry would recommend that the market share allocation be determined by the province or region of origin.
With respect to the application of the anti-circumvention clause, it should be recognized that Alberta's stumpage system has historically been based upon a formula that considers both the revenue and cost inputs in the manufacture and sale of lumber products. Currently there is provision in Alberta legislation for periodic reviews to ensure that the stumpage calculation reflects inflationary factors. It is imperative that the appropriate language be written into the agreement to ensure that the province can implement the necessary changes as they occur.
Additionally, the Government of Alberta is currently undertaking a review of forest policy and regulation to ensure that the forest management system is appropriate and effective for Albertans. It will be important that the outcomes of this review be capable of implementation without fear of circumvention of the agreement.
Other provinces have had the opportunity to implement changes in forest policy prior to April 27, and currently British Columbia is negotiating for their anticipated stumpage changes to be incorporated into the agreement.