Thank you, Chairman Merrifield, ladies and gentlemen.
I'm going to be speaking today on the TPP and Canada's offshore wood product exports.
Quickly, I just want to tell you about the Canada Wood Group. We are an association of associations and we represent 10 regional wood product associations in Canada based in the Maritimes, Quebec, Ontario, Alberta, and British Columbia.
Our members export lumber, panels, engineered and value-added wood products to world markets. The organization provides market access and promotional support in target countries.
We receive support for our activities from Natural Resources Canada, a number of provincial governments, and matching dollars from the forest industry. We have offices in Europe, Japan, Korea, and China. We'll soon be active in India. We work closely with DFAIT and Canadian posts in many countries.
I should emphasize that the Canada Wood Group does not have a mandate to work in the United States. I'm joined today on behalf of B.C. producers by Mr. Ric Slaco who represents the B.C. Lumber Trade Council, which handles U.S. trade issues. So, if questions arise during the question period, Ric will handle those.
Like Mr. Boon who made, I thought, some compelling comments on market diversification, diversification for the forest sector has been critically important in recent years, especially given the slowdown we saw in the U.S. We also have a similar situation, interestingly like beef, where we have complementarity of products and markets. So, it's important to spread your product across many markets and in so doing maximize value and sales return.
In terms of the current participants in the TPP discussions, the United States, Japan, New Zealand, and Australia are long-standing and valued customers for Canadian wood products. By value, year-to-date, November 2013, the United States represented 65% of softwood lumber exports from Canada, with Japan at 12%, and Oceania at three-quarters of a per cent.
Canadian industry has expectations that countries like Malaysia and Vietnam hold promise going forward as new markets for softwood lumber. Although current sales are negligible, shortages in traditional supplies of tropical hardwoods and a relocation of manufacturing facilities to these countries from places like China and other higher-cost locales suggest that Canadian exports will grow to those countries.
The remaining members of the TPP group at the present time represent small customers for our industry and we don't have great expectations for increased business. I should note that the U.S., Chile, and Oceania are competitive exporters with vibrant domestic force sectors selling into world markets competing against Canada. In fact, Japan has a growing domestic capacity driven by expanding homegrown log supplies and aggressive government incentives.
When we look at some of the potential future TPP participants, there are a number of countries that we would view, if they acceded to the TPP negotiations, as a very positive development. China, as has been mentioned, is a very significant new customer for the Canadian wood products industry at close to 19% of export value, November 2013 year-to-date.
We believe that Canada's trade with China in wood products will continue to expand and diversify product-wise. Taiwan and Korea both represent approximately 1% each of 2013 exports and there's definitely room for growth. India and Indonesia fall under the same category as Malaysia and Vietnam, little sales as yet, but circumstances like changing fibre flows suggest that opportunities will emerge.
When we look at specific issues that are going to be addressed under the TPP negotiations, I would echo Mr. Boon's comments on tariffs. Wood products are subject to fluctuating exchange rates and relatively thin profit margins. So the export potential for Canadian wood products are very dependent on import tariff levels.
Where level playing fields have existed for all international competitors, Canada has shown it can compete. However, differential tariffs such as those presently existing in South Korea, as a result of the passage of the 2012 U.S., 2011 European, and the 2011 Chilean free trade agreements, can place Canadian exporters at a disadvantage.
Therefore, tariffs need to be addressed in any negotiation, and especially in those circumstances where Canadian producers could be exposed to higher levels than their competitors.
We also are subject to and affected by a number of technical barriers to trade. These include things like phytosanitary barriers. These are ostensibly erected to prevent the movement of invasive pests and diseases and are often well justified, but frequently they are unnecessarily robust or used as a trade barrier by some nations.
Product standards and building codes are also potentially an issue. As a prerequisite to get Canadian products accepted for approval in structural building applications, it's usually necessary that our products be included in foreign standards, or ideally, that we get direct recognition of Canadian product standards by import countries or customer countries. However, some countries insist on foreign products meeting their own standards, regardless of whether or not the product has been demonstrably fit for the purpose.
Conformity assessment systems refer to third-party certification of product quality and conforming to the standards to which they're manufactured. Canada has sound and very well-regarded systems for quality certification of solid wood products. These systems are recognized in many markets and accepted in their own right as assurances of product performance. However, some countries impose their own conformity assessment requirements on imports, which are usually duplicative and ignore Canadian marks of conformance. Therefore, wherever possible, we should strive to have Canadian conformity assessment systems and standards directly recognized to minimize cost and maximize flexibility.
With respect to environmental reputation, many countries are sensitive to environmental concerns and strive to implement sustainable solutions and use green building materials. Canada has an excellent story to tell in this regard. However, not all countries ascribe a positive role to wood in building or as a material. Therefore, every opportunity should be taken to advance Canada's image as a credible, sustainable supplier of wood products and to support the case for wood as an integral element in green building solutions. These barriers exist to greater or lesser degrees in most TPP countries. If possible, efforts should be taken to minimize the effects of these barriers and achieve recognition of existing Canadian systems where possible.
Existing TPP countries account for at least 78% of Canada's softwood lumber exports to world markets. When you add aspirant nations, real and potential TPP states represent close to 98% of Canada's current exports of softwood lumber, which was valued in 2012 at $5.8 billion. Therefore, what happens in terms of TPP trade provisions that address tariffs and quotas, barriers to trade, procurement and competitive policies, and environmental requirements matter enormously to the wood industry.
Some suggestions that we would have for Canadian negotiators include provisions that limit the ability of countries like Japan to introduce preferential purchasing policies linked to incentives that favour the domestic industry. An example of that is the forestry agency's current wood-use points program, which represents a significant threat to Canadian market share. I've mentioned already acceptance and recognition of our conformity assessment schemes and product standards, and I've also mentioned environmental credentials and the potential for wood as a green material.
Again, we see some situations—Korea perhaps is the most outstanding—where our exporters are at a disadvantage, so negotiations within the TPP, but also within Canada's EPA with Korea, will be critical in levelling the playing field with other countries.
In closing, the Canadian forest industry greatly appreciates the work being done by our government to negotiate and put in place free trade agreements and trade deals. These agreements enable industry to perform commercially and bolster the export side of our business, which is a critical driver in the improving fortunes of the sector.
Thank you very much for the opportunity to appear before you today.
