Mr. Chairman, and members of the Standing Committee on International Trade, thank you for inviting me to appear before you.
Our secretary-treasurer, Mr. Gaétan Ménard, was originally supposed to make a presentation to you, but he has unfortunately been detained in Montreal on matters pertaining to the AbitibiBowater situation.
The Communications, Energy and Paperworkers Union represents 150,000 members and over 60,000 forest workers across Canada, 7,500 of whom are employees of AbitibiBowater. Issues related to the situation of the forest industry are a very great concern to us.
I'm going to talk to you briefly about two specific issues that affect trade relations between Canada and the United States in the forest industry, that is to say softwood lumber, but more particularly black liquor. With respect to softwood lumber, the Communications, Energy and Paperworkers Union of Canada supported the agreement, but somewhat reluctantly because we could already see the perverse effects of the agreement. Time unfortunately has proven us right. The industry has now lost its ability to compete with the U.S. industry.
For example, in the following charts, you can see that the prevailing monthly price of lumber since the agreement was signed has never exceeded the minimum amount that would permit a lower tax or higher quotas to apply. Consequently, since we signed the agreement, export taxes for options A and B have been at their maximum level, that is to say 15% and 5% respectively, and the quota to which those who selected option B have been subjected has always been at its lowest level, 30% of the U.S. market.
In that sense, the softwood lumber agreement has been satisfactory for the U.S. industry. The impact on exports has been major. Chart 3 on page 3 shows that, since the signing of the agreement, Canadian exports have fallen by half. This shows once again that the agreement has had an impact. However, it is not the only cause. The impact is also attributable to the major real estate crisis in the United States. The combination of these two factors has resulted in the very tough situation the Canadian industry is currently experiencing.
Rather than talk to you about softwood lumber, I'm now going to address an issue of great concern to us right now, but which you probably have not heard much about, and that is black liquor. Black liquor is a residue from the processing of wood chips into kraft pulp. This residue, which comes from forest production is considered to be renewable fuel. The mills themselves use it to meet their own energy needs and reduce their power consumption and consumption of other forms of energy from the outside.
In 2005, the United States adopted a tax credit on renewable fuels in order to support ethanol, among other fuels. The credit is the equivalent of a 50¢ per gallon subsidy for a renewable fuel mixed with a fossil fuel. However, last year, four years after the tax credit went into effect, the American forest industry realized that by adding 0.5% diesel fuel to the black liquor it already produced, it became eligible for this tax credit.
Ultimately, by adding a pollutant to a renewable fuel, the forest industry is taking major advantage of what could be characterized as a loophole. We estimate that, for 2009, this tax credit will result in subsidies for the U.S. pulp and paper industry that, based on estimates, will amount to between $5 billion and $10 billion. The impact is major as well because a number of American mills that were closed have reopened in order to enjoy the tax credit. The American industry is thus flooding the North American market with subsidized pulp and paper.
To give you an idea of the extent of the tax credit, I note that, at 50¢ a gallon, the advantage is approximately $200 or $250 per tonne of pulp produced. The current production cost is approximately $500 per tonne. In other words, the American tax credit currently subsidizes nearly half of pulp production costs in the United States.
International Paper, which is the biggest producer of corrugated cardboard in the United States, alone received approximately $1 billion for 2009. It has received $330 million to date. The impact in Canada is massive. There are already lost orders in Espanola, in northern Ontario. The Domtar mill there transferred its orders to American mills in order to take advantage of the tax credit. You probably heard about the Fraser mill in Thurso, which has unfortunately shut down for an indeterminate period. That closing is directly related to black liquor. The Edmundston mill, in New Brunswick, is in danger, and we can anticipate that other Canadian mills will be closing for the same reason.
What can we do in these situations? First, you have to understand that the forest industry has a future. It's often said that this industry is in decline, but that is not true. In Canada, the forest industry has a future. We have the resource and the expertise to develop it. This industry has made mistakes in the past—we won't conceal that fact—but it now has to react and start adjusting to new situations. It has to explore new niches, move away from basic products like newsprint and market pulp and start developing new products. That could be, in particular, biofuels derived from waste, that is secondary products that can be developed.
The forest industry is not a minor industry in Canada. It carries the same economic weight as the automotive industry. It also employs twice as many people as the automotive industry. And yet the automotive industry has received considerable support from the federal government. That is why we are asking that, in order to adjust to new market realities, the forest industry be granted the same type of support as has been enjoyed by the automotive industry to date.
We applaud the loan guarantees that Quebec has offered to AbitibiBowater. On the other hand, Mr. Blackburn and Mr. Lebel said it was impossible to grant those loan guarantees. What we hear from the government is that it may violate the Canada-U.S. softwood lumber agreement. However, we have two legal opinions. One was sent to us and the other was sent to the Conseil de l'industrie forestière du Québec. They demonstrate that loan guarantees do not contravene the softwood lumber agreement. It is therefore impossible to use that excuse to deny the industry the assistance it needs. It must also be understood that the softwood lumber agreement is used to facilitate management of the softwood lumber trade between Canada and the United States. It was never meant to be a suicide pact for the Canadian industry.
As for the black liquor issue, neither Congress nor the White House appears to want to move. Closing this loophole would have been the ideal solution, but the American lobby is currently very powerful. They're now saying that the tax credit should expire in December 2009, but, according to some rumours, it might be extended for a few more years, which would definitely sound the death knell for the Canadian industry. If we cannot convince the White House or Congress to close this loophole, the only recommendation we can make is that the Canadian government offer the same tax credit to the forest industry to guarantee it a level playing field.
You'll no doubt have a lot of questions to ask me on this subject, and I invite you to do so.