Industry Committee on Sept. 10th, 2010

[Justine Hendricks]

Yes, it has to pay back the loan; it is a bank loan.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

Yes, I understand it has to repay the loan to the bank, but in order to receive a guarantee, does it have to pay a fee to your organization?

[Justine Hendricks]

Because this is done in partnership with a bank, if there are fees to structure the loan, those fees are payable to the financial institution.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

Are you talking about administrative fees?

[Justine Hendricks]

Yes, exactly.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

If the government decided to provide a loan guarantee to the forest industry, it seems to me the government would simply tell the bank it was guaranteeing the loan and there would be no fees to pay. The industry and the bank are not required to pay fees to the government. As I see it, a loan guarantee is a simple enough matter to provide, but it has to be arranged in accordance with the standards that apply to all commercial loan guarantees. I don't understand; it seems to me it's a fairly simple process. You provide a loan guarantee to the industry. In that case, Mr. Stephenson, could a loan guarantee under which no fees are payable by anyone be perceived as an anti-trade measure?

[Don Stephenson]

It is my understanding that loan guarantees are provided under commercial terms. That is to say, you do pay fees, both interest and administrative, for those services.

Ultimately the question of whether or not a loan or a loan guarantee is in conformity with the agreement would be the subject of a tribunal decision. In fact, we have a tribunal proceeding under way now that might resolve some of this question.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

I see.

Earlier we were talking about export markets for our forest products. The point was made that the North American market is in decline, that it is very difficult to sell to the United States and that there is a need to look to new markets, particularly in China. If I understood correctly, we are now trying to penetrate markets in China for our forest products, but on the other hand, China is also a competitor in terms of forest products, is it not?

[Yves Lachapelle]

There are different markets, of course. Let's take the example of furniture. I don't recall who alluded to this, but it was mentioned that logs are purchased in Canada, taken to China and that the products are then sold back to us more cheaply than what we can ask. That is the reality.

Let's talk about newsprint. In North America and Europe, it's on the decline. In emerging countries, such as Asia and China, newsprint consumption is rising considerably. So, there are opportunities, mainly in Western Canada, in terms of exports to these markets.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

So China is not as competitive when it comes to newsprint?

[Yves Lachapelle]

That's right. In fact, China is causing us some problems, because the Chinese have largely focused on recycled fiber. They have penetrated our traditional newsprint markets using recycled fiber, such as what we produced in Gatineau. They have created a demand for paper that is not necessarily of a high quality—in other words, for unsorted paper. I can't speak for the other provinces, but in Quebec we have seen all the municipalities move into paper recovery, along with metal. That's the reason why our businesses are having trouble finding high quality paper. The costs of high quality paper are huge and it often goes to Asia to meet their needs.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Lachappelle and Mr. Scarpaleggia.

Mr. Braid.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you, Mr. Chair.

Thank you very much to the witnesses for appearing this afternoon.

Madam Hendricks, I would like to start with a couple of questions for you. You indicated that in 2009 alone $16 billion in credit financing was provided to forestry companies across Canada. That's a significant amount. Do you know what proportion of that was dedicated to the province of Quebec?

[Justine Hendricks]

Yes, I do. Out of the $16 billion that we supported in 2009, $11.9 billion was for the province of Quebec, and that was given to 223 individual companies.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

You also spoke in your presentation about efforts under way to expand export markets, specifically in Chile, Russia, and China. Could you elaborate and update us on the short- to mid-term potential that exists in those three markets?

[Justine Hendricks]

I will talk perhaps in general terms for the three markets. As I mentioned in my presentation, we have been making efforts to bring some international buyers to Canada to expose them to some of our Canadian capabilities in the forestry sector. What we will do in this regard, and what we have done, is to source some key international buyers who would be interested in our forestry companies as a result of what we do and the efforts we're able to bring to the table. We see potential. The work we've done with Chile has been ongoing for quite a few years now. What happened with the reverse mission was just this past July. We plan on going to a key show in Chile next year.

In terms of China, as Monsieur Lachapelle commented a few minutes ago, a lot of concentration about the opportunity in China you tend to see out of British Columbia. It certainly does not mean that there are opportunities for the forestry sector in Quebec, but we would undertake this in a similar fashion. We would go to a trade show to seek out some key international buyers to come to Canada and do what we call a matchmaking so they would have an opportunity to be front and centre with some of our top Canadian forestry companies.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you very much for that additional information.

Mr. Stephenson, to your mind has the softwood lumber agreement been successful?

[Don Stephenson]

The best measure of that is the support it enjoys in the Canadian industry even in the face of the economic downturn, and that support, since I took the job two years ago, has been unanimous. All of the provinces that are captured by the agreement are in support, as are all of their industries.

I would comment that many representatives of the industry have indicated to me that whatever their position was when the agreement was signed, they support it today. I guess they would argue, therefore, that it has provided some stability in the face of a horrible market.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

That is based on feedback you have received from both provinces and the forestry companies within those provinces? Is that correct?

[Don Stephenson]

That's correct.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Can you be more specific concerning the feedback you've received either from provinces or from forestry companies on the lumber agreement?

[Don Stephenson]

Immediately upon taking the job and several times since then I have consulted.... We have permanent consultative mechanisms with both the provinces and the industry, and I have been given a consistent message in all of those discussions that I should take as my first objective, my highest objective in respect of the agreement, its protection and its maintenance above all other things, and so that's the objective we all put first in respect of the agreement.

I would even say with regard to the disputes we have had under the agreement that they are evidence of the agreement actually working, and that there is a mechanism under which to have disputes but still enjoy the stability of access to the U.S. market.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

I believe you explained earlier that under the terms of the agreement both direct and indirect subsidies are not allowed. Is that correct?

[Don Stephenson]

Yes.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Can you provide other examples of situations or initiatives that are not allowed under the agreement?