Thank you very much for the opportunity to address this committee.
My name is Andy Rielly. I am the president and owner of Rielly Lumber. We're located in West Vancouver, B.C. Our manufacturing plant is in Chilliwack, B.C. In the interest of contributing to an informed discussion about the USMCA, I will give you a quick overview of our company and the nature of our company's business, the effects of the current trade dispute with the United States over softwood lumber, and why the USMCA is important to our company and the future of our sector.
First, Rielly Lumber was founded in 1995 as a manufacturer of western red cedar components and finished products. Our early mission was to make the products that the big sawmills did not want to make or could not make. We do not harvest logs, we do not cut logs and we do not hold Crown tenure. We buy western red cedar lumber and then manufacture finished products.
The U.S. is the biggest market, by far, for our products. In 1996 until 2001, the U.S. and Canada entered a softwood lumber agreement that was based on a quota system, which meant that Canadian companies were awarded quota to ship to the U.S. market based on their previous five-year shipping volumes. Having started just one year earlier, Rielly Lumber did not get any quota to ship into the United States, so we did not have access to our main market. Over the next five years, we figured out how to get quota so that we could ship to the U.S. We continued to grow our business, all the time dedicated to manufacturing and to employing people in British Columbia.
From 2001 to 2006, like all Canadian companies we paid punitive duties on our finished products shipping into the U.S. in the next lumber dispute, which we called “Lumber IV”. That lumber dispute was solved only after many WTO, and particularly many NAFTA, legal victories by Canada. In late 2006 the new softwood lumber agreement brought a 10-year period that was pretty much duty-free for high-value products. There was no major prohibition to shipping into the United States. As well, in that agreement every Canadian company had a return of over 90% of the duty deposits they'd made for the previous five years. At that time, Rielly Lumber decided to invest the duty deposits returned to us into manufacturing facilities, equipment and creating jobs in British Columbia.
The next 10 years were pretty good. We grew our business. Things were going along well until the current trade dispute, which we called “Lumber V”, occurred in April 2007. Again, punitive 27% duties were levied on the selling price of our products. There was the threat of retroactive duties against products that we had shipped previously to when the actual duties came in, with an increased scope of the products. We all thought to ourselves, “Here we go again.” This time, however, the lumber dispute was different, as in worse than Lumber IV. Adding 27% duty to an all-time high price of cedar products resulted in our customers substituting with other products and other species at an astounding rate. New bonding requirements, which were required by U.S. Customs, required large cash deposits by small and medium-sized companies. This was in addition to remitting, every Friday, the duties they had incurred the previous week. Most small and medium-sized companies in Canada cannot continue to post both the deposits on a regular basis and the bond cash requirement.
Another aspect of this dispute is that many major companies in Canada have made huge investments in the United States, transplanting a lot of Canadian investments and jobs to the U.S. side of the duty wall. As Ken Kalesnikoff just said, in order to get behind the duty wall, many value-added companies are relocating to the U.S. side of the border to do their manufacturing. I'll give you an idea of the effect on our company. Rielly Lumber sales in 2019 were roughly 62% of what they were in 2016. Employment in our plant went from 41 to 23. This is an alarming trend for secondary value-added companies across British Columbia and Canada.
I'll turn now to why the USMCA is important to our company. As you know, most softwood lumber in the first NAFTA agreement was not covered by that. It is not covered in the new USMCA. The most important part of the new USMCA, which is vital to us, is the dispute resolution mechanism, previously known as chapter 19.
In this more challenging diplomatic environment, small independent companies need enforceable rules to protect their interests. Short of reciprocal duties on goods entering our country, which are not likely, Canada will only get negotiating leverage in Lumber V from continued [Technical difficulty--Editor] NAFTA and USMCA legal victories. We have to remember that large companies have made huge investments in the United States, and they're not in any hurry to pressure our provincial governments to solve the current dispute. Hundreds of small and medium-sized Canadian companies are in danger of failing unless we have this dispute resolution system and can manage to make it work faster.
New jobs in the forest industry are not going to come from the primary sector. They're only going to come from doing more work in it and adding more value to the resources that we have here.
I can state that my main reason for supporting the USMCA is that Rielly Lumber is a Canadian company. We want to continue to manufacture in Canada, and we have no intention of relocating to the far side of the border [Technical difficulty--Editor]. The dispute resolution system is vital to our company, but if we can get another softwood lumber agreement going forward, that would protect the independent companies.
In closing, I would say that the value-added sector is something that I've been involved in and where I've worked for the last 35 years. It's been good to me and it's been good to our family. I think it's worth fighting for and I hope you agree.
Thank you for listening.