Thank you.
Good afternoon, and thank you for the opportunity to address you here.
On April 27, the B.C. Lumber Trade Council gave its conditional support to the draft term sheet we were shown. The conditional support was based on seeing the final details of the term sheet and of course seeing the final details of the final agreement.
Since that day, we've noticed the term sheet changed in the final analysis and we share Mr. Chevrette's concerns about much of the detailed agreement. We are now translating a two-and-a-half page term sheet into probably 50-plus pages of legal and commercial text.
Our first issue is that we must take the time to get this agreement right. This is a huge issue for the Canadian softwood lumber industry and indeed the whole forest industry, given its integrated nature. If we don't have a solid softwood lumber agreement that is commercially viable for the industry, then I fear for the whole forest industry itself in Canada, and the consequences.
In terms of the agreement itself, we have a number of concerns. First, as Mr. Milton pointed out, we have undertaken a massive overhaul of our forest policy framework in British Columbia. We were encouraged to do this by the U.S. government, and indeed different secretaries of commerce, different USTR representatives, different secretaries of commerce, and the Vice President of the United States have all encouraged our Premier to go down the road of forest policy reform, whereby we would be introducing market-based reforms in British Columbia.
We have seen tenure take-back; we have seen massive changes to timber processing clauses, and to tenure arrangements. This is not just a simple change, where we flipped a switch and went from one option to the next. This has been going on for a number of years, and indeed on July 1 we'll be completing the last major plank in this reform, in that we'll be introducing market-based timber pricing in the interior of British Columbia. This is paramount for the future of the industry, particularly with respect to the mountain pine beetle crisis we have in the interior of B.C. whereby the standing value of our mountain pine trees is declining and is expected to decline over time. The resulting impact will be lower lumber recovery factors, higher manufacturing costs, and a net decline in the value of the timber.
The agreement we've seen and the language we've seen in the term sheet around anti-circumvention, as somebody said earlier, basically represents a policy freeze for all of Canada. It will be impossible for any jurisdiction in Canada to amend its stumpage formulas, to introduce programs to rationalize industry—say, worker transition—to attack the mountain pine beetle crisis, for example, unless of course the net result is that your costs will go up. This whole agreement is designed around a framework that says that your costs are frozen in time today, and they can only go one way. They can go up, but they can't go down.
Therefore, our first concern is that the anti-circumvention clause must recognize that in jurisdictions with market-based policy reform underway or implemented or about to be implemented, that clause must recognize those reforms.
The second issue we have with the agreement concerns the cash deposits. The term sheets we saw said the U.S. would get the lesser of 20% or $1 billion. The final term sheet guarantees the U.S. $1 billion U.S. in deposits. I do not believe there is $5 billion on deposit right now, excluding interest; therefore, the Americans are likely to get more than 20%. I find this unacceptable, and we need a reconciliation of the final numbers around cash deposits.
The third issue we have is the running rules—option A or option B. A jurisdiction is going to have to pick which road it's going to go down, obviously: tax or quota. But the actual implementation of option A or option B, the actual rules by which we will be governed over time as to how the tax scheme or the quota scheme will work, need a lot of work.
We have been working diligently, cooperatively, constructively with our provincial government drafting original material on running rules, sharing it with people in Ontario, sharing it with other industry associations in B.C.
But I must say, as Mr. Chevrette said, sometimes I feel as though we're negotiating with our own federal government in terms of their concerns over “administrative simplicity” versus the reality that the industry must have a commercially viable set of rules. We feel that these option A, option B rules must be set on a prospective basis so that companies know what market conditions they're going to be facing going forward. It doesn't make sense to us to be retroactively penalizing behaviour from two or three months ago. So that issue must be resolved, and resolved to the point where the Canadian lumber industry, the shippers of lumber, must have some certainty as to what the business framework will be, going forward.
Last but not least, we are very aggressive and feel strongly that the litigation we are involved in right now must carry on. We've been asked from time to time whether we'd agree to the suspension of certain cases, and for the most part we are saying that the litigation must carry on.
In summary, we are still supportive of the agreement, subject to these details being worked out to our satisfaction. We are working aggressively, as I said earlier, and cooperatively with our government, with the federal government, in trying to get the details worked out, but at the end of the day, this agreement must make commercial sense for the Canadian lumber export industry.
Thank you.