Thank you, Mr. Chairman.
This morning I'm going to be giving some forest industry considerations regarding the economic partnership initiative with Japan.
The Canada Wood Group represents the Canadian forest industry overseas. We are, as an industry, the largest forest products exporter in the world. Canada Wood has offices in Japan, China, Korea, and Europe. We've been active in Japan since 1973, with an on-the-ground presence there for 40 years now.
I will give a very brief overview of the business history for forest products in Japan. In the 1980s, Japan became an increasingly important lumber customer for the Canadian industry. Our sales hit a high point in 2000, at two billion board feet, which was worth approximately $1.5 billion Canadian. Since 2006, we have seen some softening in demand from Japan, and it's been fluctuating between 1.1 billion and 1.5 billion board feet per year. A very positive situation has been that the volumes have been steady during the economic downturn we've seen since 2009. The Japanese market is very valued by the Canadian forest industry. It has the highest sales realization of all customer groups we deal with around the world.
Some of the trends that are occurring in business in Japan relate to increased foreign and domestic competition. We see changing preferences going on for forest products, and it's well known that Japan has an aging population and demographics are a key issue.
Canada was involved in Japan in pioneering the two-by-four, or North American, if you will, housing method in that country. Up until this point in time, we've seen a cumulative two million starts in construction. However, related to demographics, the single family side has been falling off, and we've now seen increasing use in apartments and other applications.
In terms of the trading relationship with Japan when it comes to tariffs, the impact of tariffs is fairly muted on the trading situation for Canadian forest products. For example, tariffs for SPF lumber, our major export, currently sit at 4.8%, oriented strand board at 6%. We've estimated that the elimination of tariffs would result in savings of approximately $30 million to $40 million annually. Having said that the impact is relatively muted, I would agree with the previous speaker that there is a danger to Canada if Japan negotiates free trade agreements with other nations and Canadian forest products face unfavourable tariff differentials versus its competitors.
In the area of non-tariff measures, it has to be acknowledged that Japan has made positive strides in advancing the use of wood in construction in recent years. Examples of some policies include building code amendments, which have enabled performance-based approaches for building codes, and relaxation in their fire requirements. Japan also introduced a couple of acts in recent years. One is the long-life quality housing act to improve the quality of their housing. Another one is the act to promote wooden construction in public buildings, which we might call the “wood first act”, because it's very similar to legislation here in British Columbia. However, Canadian industry does have concerns with both of these acts.
The issue of greatest concern to us is the extensive promotion efforts that are being made by the Japanese government to increase the market share of domestic timber. The driver for the Japanese government is the Kyoto protocol, where they pledged to reduce their carbon emissions by 6% below 1990 levels. In promoting greater usage of their forests, Japan is hoping to recognize 3.8% of the 6% from carbon sequestration through their domestic forests.
Japan has been using the long-life and promotion of wooden housing acts to displace imports via preferential purchasing policies and subsidies to the domestic industry.
I'll give you some examples of that. For the domestic forest industry, there is a law under the act called the thinning promotion law, where approximately 13% of Japan's forests are being thinned, and in the process, creating a vast new source of wood fibre. The Canadian equivalent of $13.6 billion has been allocated to that particular activity. A further $1.5 billion has been provided or appropriated by the Japanese government for a green industry renewal activity, and this subsidizes the construction of forestry roads. It will cover up to 50% of the cost of new machinery and wood product production facilities, and it also offsets transportation costs.
For consumers, there is a policy instrument that will reduce housing loan interest rates if they utilize domestic wood products in the construction of their homes. For local governments, there are subsidies provided to builders of institutional and public structures to subsidize construction costs and offset the purchase of domestic wood products.
In many cases, this preferential purchasing is occurring at the prefectural and municipal level, which makes it difficult to counter. Also, the messaging is deliberately ambiguous. It indicates that domestic wood is required, but it doesn't completely shut the door to imported wood either.
In conclusion, having stated those significant challenges, we do think the potential for Canadian wood products remains positive in Japan. We have an excellent reputation in that country, and wood construction is well regarded. There is considerable and growing rebuilding occurring in Japan following the 2011 tsunami and earthquake disasters. We see new segments in non-residential and institutional building going on, which is helping us to diversify from the single-family segment.
Our recommendations, Mr. Chairman, with regard to this initiative would be to pursue an EPA and free trade with Japan. We would suggest that we seek tariff reductions in forest products. We would suggest that we establish bilateral mechanisms to enable technical barrier trade issues with Japan to be tabled and addressed. We also suggest that attention be drawn to Japan's preferential purchasing policies and subsidy programs.
Thank you very much for the opportunity to comment.