Mr. Speaker, I am pleased to enter the debate on the softwood lumber dispute with the United States. The border harassment actions by the Americans have nothing to do with alleged subsidies and everything to do with market share. Whenever Canada's share of the U.S. softwood lumber market climbs over 30% the Americans launch another countervailing duty.
This year they launched an anti-dumping action at the same time. Each time they lose, and they have lost every softwood lumber action, they ignore the rulings by independent tribunals and change their trade rules to suit their own purpose.
The U.S. administration speaks of an integrated North American market. From a business perspective the energy and softwood lumber markets are integrated North American commodity markets. The main difference is that for softwood lumber the U.S. administration gives only lip service to the integrated North American market concept. If it were truly integrated the U.S. would use different approaches to the resolution of trade disputes. I will give three alternative approaches.
First, we could resolve Canada-U.S. softwood lumber trade disputes by looking at them through the prism of competition policy. This would mean the Americans would have to show that actions in Canada were anti-competitive in nature. Allegations of subsidies and dumping would be gone. If the Americans like competition why do they not look at trade disputes through the prism of competition policy?
Second, we could look at net subsidies. The U.S. countervail process does not allow Canada to attack U.S. subsidies to its own lumber producers. These subsidies are well entrenched, particularly at the state and local government levels. They include cheap industrial land, sales tax abatements, property tax holidays, cogeneration agreements and many more.
There is clear evidence that many U.S. forest service timber sales to loggers do not cover the agency's costs. Is Canada allowed to look at the U.S. system? No, it is not. We must defend our system by their trade rules. The net subsidy methodology would require the U.S. administration and agencies to show that subsidies in Canada were greater than those in the U.S.A., something they could not prove as things stand now.
Third, if we wanted to be creative we could use the concept of serious prejudice. However the net subsidy and competition policy approaches seem to offer the most potential. What we need is goodwill south of the border.
Another myth being generated in the United States is that forest management practices in Canada lag behind those of the U.S.A. This is not the case. While forest management practices in both Canada and the United States are evolving and in a state of continuous improvement, as they should be, Canada is an acknowledged world leader in forest stewardship. Our industry is second to none in silviculture, harvesting and reforestation practices.
American producers argue that Canadian producers pay too low a price in Canada. That is of course in relation to the price they pay. Maybe they are paying too much. That is a fair question. Has it ever been asked?
There is a lot of evidence to suggest the price U.S. producers pay is in many cases not economic. Lands taken out of active forestry production because of environmental pressures, particularly in U.S. states like Washington and Oregon, have resulted in an imbalance in supply and demand for timber. In other words there are too many loggers chasing too little timber.
Auction prices have been driven sky high and out of line with economic realities. When futures contracts mature loggers are often faced with prices for timber that could leave them devastated. The White House has intervened on a number of occasions to let logging companies off the hook. They say this is how the market works and that it is a market based auction system. I am sorry, but when we let people off the hook for auction prices we do not have an auction system.
Auction prices in the United States are in many cases uneconomic, particularly if we look at the state of some of their sawmills. They have not modernized their mills as we have in Canada. While I have a lot of respect for the power of the markets they are not in every case the proxy for economic value. All we need to do is look at the behaviour of Nasdaq in the last few years to see that the market sometimes gets it wrong.
When it comes to the pricing of timber the United States has it wrong. It should be looking at trying to improve its own system rather than coming across the border to Canada to look for a scapegoat.
What is at stake here is a matter of sovereignty; it is our ability to set our own forest policy, nationally and provincially.
The Americans basically argue that because their timber is on private lands and ours is principally on crown lands their system is right and ours is wrong. That is hogwash. It shows an amazing arrogance, if I may say so.
Let us look briefly at the economics of the forest products industry in Canada. If it is so subsidized, it must be doing very well. Sorry, but historically the returns on investment for the forest products industry in Canada have been in the range of 3% to 5%. Does that sound like a heavily subsidized industry, particularly when we acknowledge and understand that this is a very innovative and productive industry?
For the year 2002, the following Canadian forest products companies are projected to be in loss positions, and this is before the dumping duty: Canfor, Abitibi, Doman, Interfor, Nexfor, Tembec, Slocan and Riverside. These are some of the world's leading forest products companies. Does this sound like a heavily subsidized industry? They are all world leaders and they are all losing money, and that is before the dumping duties. They are losing a lot of money.
A forest industry analyst recently reported that Canfor Corporation, Canada's largest lumber producer, spends about $260 U.S. to produce one thousand board feet of lumber. That is against a benchmark price for western Canadian 2x4s of about $220 U.S. per thousand board feet. It is no surprise that they are losing money. That is $40 U.S. a board foot. That is on cash only, and forget depreciation and other non-cash items. Does this sound like a subsidized company? Canfor has some of the best mills in the world.
Let us take the discussion of the forest industry economics a step further. What do forest products companies in Canada pay for the right to cut down trees? It is called stumpage, or royalties in some cases. As I understand it, stumpage is currently in the range of about $50 to $70 per thousand board feet. That represents, as a per cent of selling price, about 14% to 21% of the benchmark selling price for 2x4s. That represents solely the right to extract the timber. It does not include logging costs, transportation costs, milling costs, processing costs, packaging, transportation, marketing, selling, and distribution. By any rule of thumb, that is not an unreasonable amount.
Who benefits and who loses? The lawyers win. The U.S. lumber producers benefit. The Canadian lumber producers and workers lose. At a combined rate of 32%, many mills have and will shut down and many workers are and will be unemployed. U.S. consumers lose. It costs an additional $1,000 U.S. per home by keeping out Canadian softwood lumber. The U.S. contracting community prefers Canadian softwood because it has less warp and wane and it nails better. Contractors like to use it. They prefer it to southern yellow pine.
Is it not ironic that in a country that says the market should decide everything the consumers and the home builders cannot even buy the products they want?
What do we do next? I think we must fight with tenacity against these duties at the WTO, which will take some time. In the meantime our industry will be really hard hit and the workforce will be hard hit. Perhaps we will have to help them, I do not know, but the Americans have lost every countervailing duty case that they have brought on softwood lumber and we will show once again that these charges are trumped up and this will be demonstrated by an impartial, objective panel.
The forest industry and governments at all levels need to stay united and work together. I must say that our trade minister and the Prime Minister have done a great job of keeping everyone together and united.
We need to fight this very hard. We need to never forget that the forest industry is so important for Canada. Communities across Canada depend on the forest industry. We need to fight for those people and their families.