Thank you for inviting me here today.
You're about to hear from a group that wants you to forget this deal and finish the litigation. I represent the Independent Lumber Remanufacturers Association in B.C., called the ILRA, but more accurately, I represent the non-tenured companies in B.C.
It's not well understood that our forest industry consists of two very distinct sectors. The first sector consists of tenured companies that have an assured supply of wood fibre, with stumpage priced administratively in various ways. The second sector consists of the non-tenured companies that buy their wood fibre on the open market, and I represent that second sector.
The ILRA consists of about 100 non-tenured companies, and when not curtailed—which we have been for the last few years—we have over 4,000 employees and $2.5 billion in annual sales on 4 billion board feet. We sawmill, we remanufacture, and we wholesale. Our markets are all over the world, but our primary market is the U.S.A.
Today I am going to put three hats on. I'm first going to speak for Canadians, then for general forest industry people, and then for non-tenured forest industry people.
As a Canadian, or as Canadians, if we do this deal we're going to lose NAFTA chapter 19—and it won't just be lost to us, it will be lost to all Canadian industry. We believe we almost had this dispute wrapped up. We had won on the Byrd amendment at NAFTA; we had won on injury at countervailing duty and anti-dumping; and we were basically in the middle of doing what seems to be necessary these days to force U.S. compliance.
Even the B.C. government can see that in the worst case, it would have taken only 18 to 24 months to finish up, which seems relatively short after the length of time we've been at this. There are many things that could have ended earlier, and we think you should finish it to preserve chapter 19 and make the U.S. live up to its treaty obligations. We think it's unwise to do a new deal with someone who doesn't respect the one we already have, and unless we finish it, we think we're doomed to repeat all of this in seven years without the aid of chapter 19.
We don't believe that the coalition will be successful in another case. We're not too sure that the political will is even there. We think that the United States doesn't like the WTO, because they are just another nameplate there and they want to be the big guy in FTAs, which they're negotiating all over the world, as you know. Those other countries are watching the relationship with us and they're telling the U.S.A., if you do that to them, what are you going to do to us?
We have a growing lobby in the U.S. I think the U.S. press is finally beginning to get it, as we're seeing articles in some substantial magazines and papers down there, such as The Wall Street Journal, etc. As someone said, we had the National Association of Home Builders and Home Depot onside, which now feel betrayed and are furious with us. The NAHB has even recommended that their members get their wood from overseas.
As for the coalition, if we do this deal, we're paying their legal costs, we're providing a return on investment, we're ensuring them future membership, we're ensuring that they've got future funds, we're ensuring that we get a future case, and we're ensuring that we fight that case without the aid of chapter 19. If we win the litigation, we don't think the coalition will be able to get another case together, and even if they can, with the precedents established by finishing the litigation and with Canadian forest policy change, we don't think they could get levels of duty that we would even care about, or find punitive.
As Canadians, we think that doing this deal was very short-sighted and that it will affect all Canadian industry.
Now, speaking as members of the forest industry in general, we used to speak of this deal as consisting of the policy changes leading to free trade, and the quotas and border taxes were called the interim measures. I don't know what happened, but now the interim measures are the deal, and there is no exit to free trade. There is a vague clause that we will talk about it, and the U.S. says that any policy exits we find during the deal are going to be moot at the end of the deal.
The coalition wanted a quota, so we gave them a border tax and a quota, and then, as our competitors, we also gave them $1 billion to put in their jeans and pay the costs they've incurred in beating us up. We avoid Canada's legal victories at NAFTA and WTO; we terminate the cases we're winning; we agree that the return of part of our money is not a precedent for the next case; and we suspend the rights of Canadian companies under NAFTA chapter 11.
Why would we want to trade a 10% duty that the U.S. is having trouble maintaining, where we can ship as much as we want, where we can get all our money back in six to 24 months, where we can preserve chapter 19, where we can set legal precedents, and where we can discourage future cases for a 10%-or-higher tax, with a quota, where we give up a billion, have no chance to get back what we pay for the next seven years, lose chapter 19, lose all the legal precedents, and almost guarantee a future case? And what industry comments do you hear about all these problems in the newspapers? To borrow an Enigma title, “silence must be heard”.
Speaking as a non-tenured forest industry representative, what's this dispute about? It isn't about companies that purchase their fibre at arm's length. This isn't about companies that buy fibre on the open market, in competition with American companies. This dispute is about renewable tenures and administratively priced stumpage. It could be solved in a heartbeat if all the tenures were handed in and everyone just bought the wood on the open market, as we do. To quote the coalition from their last proposal:
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.
Given that we're no longer discussing interim measures, it seems the tenured companies have decided to keep their tenures. We have no problem with that. If we had renewable tenures, we would likely make the same decision. If the financial benefit of having renewalable tenure and administratively set stumpage is greater than what you have to pay to keep it, then pay it, and we would do the same.
The ILRA only begins to have a problem when our government forces us to pay part of the cost of keeping what we don't have. The business conditions and costs that you wish to impose on us right now are too much for us to bear. The Government of Canada thinks we'll be fine if it folds over a couple of the nails on our bed of nails. They think that simply reducing the costs we bear will make us healthy. They offer exclusive right to pay tax on a first-mill price, and then the U.S. tries to negotiate it all away. There are just too many problems.
And on that first mill, according to the U.S.A. you don't get first mill if you have a close supplier arrangement. You have to have an existing secondary manufacturing facility, no new entrants, you have to be continuously engaged, and have been, in producing and exporting. First mill is not really the first mill of the lumber, according to them; it's the total input volume divided by output volume. You pay tax on the freight. Remanufacture, the lumber definition, eliminates almost all the products, certainly everything on this side of the Rockies. And tenure would include, in their minds, the sealed cash bids under our new B.C. timber sales, the data from which is used, or is going to be used, to set the prices on the tenured stumpage, and on and on. All this stuff essentially negates our use of our first mill, which is the only thing that we had in this agreement. It wasn't enough anyway.
As of this writing, we're right in the middle of a 10% tax bracket, or 15% for a region that exceeds the quota, assuming we're under A. The tax looks like it will change every month. There's a good possibility that we're going to be paying the 50% retroactively.
In the remanufacturing industry we serve niche markets. Drawing and remanufacturing takes time, and we're not going to be able to price our products. When you look at all the permutations and combinations, there are eight different possible tax rates, ranging from 0% to 22.5%, three different values for calculating an entered value of $500 U.S. in first mill—