International Trade Committee on June 19th, 2006

[The Chair, Conservative, Leon Benoit]

Good afternoon, everyone.

We're here today, pursuant to Standing Order 108(2), to carry on with the study on softwood lumber.

We have as witnesses today, from Hill and Knowlton Canada, Gordon Ritchie, chair of public affairs. From Bowater Incorporated, the Canadian forest products division, we have Pierre Monahan, senior vice-president and president. From the National Association of Home Builders, we have Barry Rutenberg, member of the executive committee and board of directors, and president of Barry Rutenberg Homes. From the Canadian Lumber Remanufacturers Alliance, we have Francis Schiller, executive director, and he will be introducing someone else. From the United Steelworkers, we have Roger Falconer, director of strategic campaigns. Then we have from Max Meilleur et fils ltée, John Rolland, director general. and from Scierie Landrienne inc., we have Luc Dufour, president. There will be one presentation from that group.

We'll start with Gordon Ritchie.

[Gordon Ritchie, Chair, Public Affairs, Hill and Knowlton Canada]

Thank you, Mr. Chairman.

My name is Gordon Ritchie. I chair the public affairs practice at Hill and Knowlton Canada, which includes the B.C. lumber industry among its clients. But I should underscore the fact that I'm speaking today strictly in a personal capacity, based on my involvement in this file over--I hate to admit it--a quarter of a century and counting.

My comments will be based on the term sheet of the agreement announced in the House of Commons by the Prime Minister. I stress that because in these matters the devil always lies in the details in finalizing the agreement, and the Canadian negotiators will always have a tough time standing their ground against never-ending American demands. It seems the Americans regard an agreement as the basis for beginning negotiations instead of as a conclusion.

I would infinitely prefer to see free trade in this sector, or at least have the Americans abide by their free trade obligations. Regrettably, they've consistently refused to do so in the past. I'm referring to the Reagan administration, the George W. Bush administration, the George H.W. Bush administration, and the Clinton administration. They show no willingness to abide by their obligations today. The Department of Commerce and the international trade commissions have acted as the lackeys of the protectionists.

From the outset of the free trade negotiations, the Americans insisted on carving lumber out and managing this trade under the infamous memorandum of understanding of 1986. When that was terminated and the Americans lost their case before the free trade panels in the 1990s, they refused to pay back the duties until the softwood lumber agreement was concluded. This time around, the administration's refusal to stop collecting duties, let alone pay back the duties already collected, is a flagrant violation of their NAFTA obligations and the provisions of their domestic law.

Those concerned about setting a precedent are unfortunately closing the barn door long after the horse has galloped away. It's highly distasteful that a great power should behave like this and allow its national interest--as I'm sure Mr. Rutenberg will be explaining--to be subordinated to the greed of a handful of producers. But it would be even more objectionable for Canadian producers to continue to be penalized in order to make a theoretical point.

Some have argued before you that the litigation route is about to bring a favourable end to the lumber dispute. I respect their view, but everything in my knowledge and experience suggests that this is untrue. Litigation will only breed more litigation and uncertainty. In my view, it's in our interest to bring the litigation to an end and establish a stable framework for future lumber trade.

I am satisfied that this agreement, as laid out in the term sheet, is the best one that can be negotiated at this time. It is far from perfect, but it is acceptable. It ensures a reasonably stable market environment for Canadian exporters for the next seven years, and possibly longer, under a wide range of market circumstances, in return for measured restrictions in times of depressed prices, and expanding Canadian market shares.

I understand that two points are particularly contentious. The first is that the agreement leaves $1 billion in the U.S., of which half is to go to the coalition. As I said to their faces across the negotiating table last year when I was representing a previous government, I do not believe they have the legal or moral right to one penny of these deposits. Nonetheless, we have for some time accepted the principle that we were prepared to hold our noses and pay it as ransom to free our industry to continue to supply American lumber requirements without future harassment.

The second contentious point arose when the agreement was reached and the coalition lawyers immediately announced they would remain very active scrutinizing every aspect of provincial forest management policies, including the B.C. market pricing reforms, to ensure that those cunning Canucks did not circumvent the agreement.

This is completely unacceptable. It was this sort of extraterritorial micromanagement and bullying that blew up the original memorandum of understanding in 1991. It would represent an intolerable sacrifice of Canadian sovereignty, both federal and provincial. This demand should be dismissed as overreaching by the most bloody minded of the coalition, and should not become the basis for breaking apart the deal.

So on that basis, I would urge you to support the agreement on the softwood lumber trade with the United States, as announced on April 27.

Thank you, Mr. Chair.

I am perfectly prepared to answer your questions, either in English or in French.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Ritchie. Thank you for keeping your presentation within the five minutes.

Now, from Bowater Incorporated, we have Pierre Monahan.

[Pierre Monahan, Senior Vice-President and President, Canadian Forest Products Division, Bowater Incorporated]

Mr. Chairman, Honourable Members, good afternoon. I would like to begin by thanking you for the invitation to appear before the House Standing Committee on International Trade. Needless to say, the topic on your agenda at this time is of critical importance to Bowater, the company I represent.

I would like to begin by saying a few words about our company. The head office of Bowater is located in Greenville, South Carolina. Bowater is a North American leader in both the pulp and paper and the lumber sectors. With the exception of our Korean facilities, half our assets are located in Canada and half in the United States. Our sales exceed 3 billion dollars and we have 8 000 employees, half of whom are in Canada. Our Canadian mills are mainly located in Eastern Canada, namely in Ontario, Quebec, New Brunswick and Nova Scotia. Although we export our products world-wide, the U.S. market is by far our most important and largest outlet.

Our industry is undergoing a major structural crisis and we are operating in a very difficult climate. In addition to the ongoing trade conflict with our southern neighbours, we must contend with a dollar that has reached record values, steadily increasing energy and fibre costs, as well as rising interest rates. Despite extremely difficult years, we have nonetheless invested more than 200 million dollars U.S. in our Canadian mills since 2001. We believe that investments of this magnitude were needed to maintain our competitive position.

Having said that, I submit that success in business requires more than investments. We need a sound business environment that is more predictable that it has been over the past few years. The Canada-U.S. softwood lumber dispute has lasted long enough. We are convinced that an agreement represents the best solution to a dispute that has not only cost a lot of money, but also required significant expenditures of non-productive energy.

We are in favour of an agreement, but not at any cost. The Framework Agreement now in place, as well as the draft copies of agreement documents we have examined, appear to be a good starting point. Things are not perfect, but we believe that this Agreement will allow Canadian industry to do what we do best, that is develop our companies.

We still have problems with certain parts of the Agreement's draft text. One of the most important issues deals with the flexibility associated with Option B. Regions that choose this option, that is a quota combined with an export charge that is lower than the export charge associated with Option A, will require a minimum level of flexibility to prevent undue disruption of their trade relations.

We do not wish to shy away from any obligations under this Agreement, but for Option B to be viable and practical, it must allow companies to adequately meet their customers' requirements, an obligation that is sometimes written into long-term contracts. We have made several suggestions to the government in this regard, but we have not yet heard whether they have been adopted by the government and accepted by the Americans.

Earlier in my presentation, I referred to Bowater's investments in Canada over the past few years. In 2002, we built a sawmill incorporating state-of-the-art technology in Thunder Bay. This is probably one of the most advanced sawmills in Eastern Canada. Given that this is a brand new mill and that we are only beginning to maximize its operations, its export history is quite limited. I am sure that you can appreciate that if Ontario were to choose Option B, an export quota allocation based on export history would present a major problem.

We are therefore asking the government of Canada to insist that the government of Ontario establish a reserve for new entrants in order to account for the new mills that were built in recent years. Such a provision would strengthen our support for this Agreement.

Another solution the government might consider in order to foster greater investments by companies would be to grant an investment credit to those that apply their refund of illegally-collected duties by the Americans to investments in their operations.

In short, the Agreement is far from being perfect, but neither is the world in which we operate. The time has come for Canadian industry to show solidarity in order to finalize the Agreement in such a way that it will enhance its viability to the greatest extent.

We have scored many points before international and U.S. tribunals and we believe that this Agreement incorporates them as well as can be expected. We must now seize the opportunity. If we do not, we may have to wait a long time before a comparable one presents itself.

I thank the Committee once again for its invitation to appear and I will be happy to answer any questions.

[The Chair, Conservative, Leon Benoit]

Merci, monsieur Monahan.

We now have, from the National Association of Home Builders, Barry Rutenberg, for five minutes.

[Barry Rutenberg, Member, Executive Committee and Board of Directors, President of Barry Rutenberg Homes, National Association of Home Builders]

Thank you, Mr. Chairman.

My name is Barry Rutenberg. I'm a home builder in Gainesville, Florida, and a member of the executive board of the National Association of Home Builders of the United States--which we'll call NAHB.

I appreciate the opportunity to appear before the committee on behalf of the 225,000 corporate member firms and their eight million employees. The companies represented by NAHB account for more than two-thirds of all the softwood lumber used in the U.S., and lumber accounts for a larger share of the cost of home building than any other material.

Our views regarding the lumber trade issues are shared by other lumber-dependent industries in the U.S., such as manufacturers of furniture and pallets and lumber dealers, who have worked together under the umbrella of the American Consumers for Affordable Homes. Employment in lumber-dependent industries in the U.S. exceeds employment in the lumber-producing industries by more than 25 to 1.

The legal victories achieved by Canada in the NAFTA process, at the WTO, and in the U.S. Court of International Trade were close to eliminating the current duties. There would be complete refunds, with interest, of the duties already paid. Finishing the litigation would establish important precedents and make it much more difficult for the U.S. lumber coalition to successfully petition for new duties. We are very disappointed by the willingness of the Canadian government to sacrifice those gains, jeopardize Canada's share of the U.S. market, and effectively provide a handful of U.S. companies with veto power over provincial forest policies.

The adverse impact of the proposed agreement will fall largely on Canadian companies and workers, but it will also affect U.S. home builders and home buyers. It would mean less affordable homes, use of less suitable building products, and business risk for builders facing less-certain supplies and prices.

When the agreement was announced, attention was focused on the fact that there would be no trade barriers in effect when prices were above the $355 per thousand board feet. At that time, the price measure to be used in the agreement was about $370, but it has already fallen to $326. Prices in April and in the previous two years were inflated by record levels of home building. Home building is already slowing down, and over the next seven to nine years NAHB expects the average number of housing starts per year to be about 200,000 units lower than in 2005. Other economic forecasts expect even larger declines. In other words, the outlook is for construction at rates similar to 2002-03, when the average lumber price was $308, despite duties of 27%.

In addition to the slowdown in home building, lumber prices will be under downward pressure from continuing improvements in lumber mill efficiency, increased imports from Europe, and wider use of engineered wood products such as wood I-joists and oriented strand lumber. Indeed, faced with the prospect of new barriers to imports from Canada, NAHB feels obligated to facilitate additional imports from Europe and the use of alternative materials.

Under the proposed agreement, lumber prices would probably be higher than they would be under a free market, but below the $315 threshold where the most stringent fees and quotas would apply. That would mean a reduction in Canada's share of the U.S. market.

Provinces operating under option B, with a combination of quotas and fees, will face quotas based on a 30% Canadian market share. Since 1993, Canada's share of the U.S. market has never fallen below 33.4%. Provinces operating under option A would face high fees that will erode their ability to compete.

Some have argued that this agreement would provide stability and predictability. Agreements in 1986 and 1996 didn't do so, and this won't either. There would be quotas for some provinces under option B and for all covered provinces under the surge mechanism. The penalties for exceeding those quotas would be far more severe than under the SLA. The option B quotas would be tied to total U.S. consumption, which is constantly changing and inaccurately measured. Mills won't know whether they will be able to meet supply contracts without exceeding the quotas.

There are reportedly efforts to make the quotas less rigid--for example, by allowing a portion of the quota to be carried forward or back, but disruptions will still undoubtedly occur. Instability and uncertainty will be especially likely if there's a rush to complete a deal before the implications of the complex provisions are fully analyzed and if the agreement drafts are not open to public scrutiny.

It is also wishful thinking to expect the agreement to end conflicts and litigation. Because this framework would wipe out many of Canada's legal victories and dispense half a billion dollars to the U.S. lumber coalition, it will actually encourage future trade disputes during and after the agreement. There are no exit ramps and little reasonable expectation that a transition to free trade will be permitted.

We have worked hard to convince policy-makers in the U.S. that Canadian lumber is not unfairly traded and that barriers to lumber imports hurt U.S. consumers. Nearly every major newspaper in the U.S. has published editorials reflecting that view, and over 100 members of Congress have gone on record in support of the consumer perspective.

Whether or not the language of the agreement says so, this deal sends the message that the U.S. lumber coalition's claims are legitimate and that Canada has been at fault. We don't believe that to be true, and we don't understand why Canada would want to create that impression.

Thank you very much.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Rutenberg.

Now. from the Canadian Lumber Remanufacturers Alliance. we have Francis Schiller, executive director.

[Francis Schiller, Executive Director, Canadian Lumber Remanufacturers Alliance]

Thank you very much for this opportunity to appear here today. I'm here serving in my capacity as the executive director for the Canadian Lumber Remanufacturers Alliance. I'm accompanied by Monsieur Martin Béland, who is our Quebec representative.

Our group represents leading independent remanufacturers with operations in Ontario, Quebec, Manitoba, Alberta, and the Maritimes. In 2001, leading producers came together from across the country to create the CLRA. The objective was to give voice to the issues and unique circumstances confronting Canada's independent producers.

All too often, the “reman” perspective has been lost in forums dominated by tenure holders and large primary sawmill operations. To help you appreciate the role independent producers play in Canada's value chain, here's a little bit on what they do and what they don't do.

As a byproduct of manufacturing lumber, about 15% ends up as low-grade sawn lumber. This byproduct has very little value without further processing. For remanufacturers, this is the starting point. They take this low-grade lumber and further manufacturer it; hence they “reman” it. This is the key to remember: remanufacturing begins with sawn lumber, not logs. They buy this sawn lumber at arm's length and they subject it to further processing, be it a change in thickness, width, length, profile, texture, grade, or otherwise.

The output from this remanufacturing process is softwood lumber products that cut across all product codes, from basic 2x4s to window and door frame components and more. If it's a lumber product, remanners make it. This is what remanners bring to Canada's value chain: they maximize the extraction of the value of our wood resource. They do it by investing here in communities, and they employ Canadians.

All low-grade lumber needs to get remanufactured. The key question for policy-makers is, do you want to keep this in Canada moving forward, or do you want to export these value-added jobs to the U.S. along with the low-grade lumber?

The second important concept to appreciate about remanners is why they are independent. As a group, remanners do not hold Crown tenure, and they are not owned, controlled, or affiliated with tenure holders. Simply put, they do not cut down trees or process logs and they are not affiliated with those who do. This is what makes remanners independent. Remanners buy the lumber at arm's length from the primary producers; hence they're both producers and consumers of lumber in Canada.

As producers, Canada's remanufacturers have no allegations of subsidy against them in the current trade dispute. They're widely regarded as collateral damage or innocent victims in a trade war aimed at and being fought over tenure in logs.

We are not here today to complain about the process or the swift pace of negotiations. We support Canada's negotiators and we support ongoing negotiations. We want officials back to the table. We want and we need a deal as soon as possible.

When Minister Emerson appeared before you, he stated that Canada's independent remanufacturers have experienced disproportionate negative economic injury over the dispute period. This is very true. Since the dispute began in 2001, our members, depending on the region, have lost between 65% and 80% of their exports to the United States. In terms of Canada's total exports, to put this in perspective, when the dispute began remanufacturers accounted for between 7% and 10% of Canada's total exports to the U.S.; now we stand at less than 3%.

This is why Minister Emerson said we also have to make sure that remanufacturers benefit disproportionately moving forward. The deal needs to make provisions to address this reman or quota gap. If the status quo prevails, independent remanufacturing in Canada will die. These are not empty words; it's a fact.

We need the government to deliver on the April framework. It recognizes independence and makes provisions for a first mill tax rate for all remanufactured products. Although not perfect, it's a start.

I'd like to turn it over for a few moments to my colleague Monsieur Béland.

[Martin Béland, Senior Trader, Les Bois d'Oeuvre Beaudoin & Gauthier Inc, Canadian Lumber Remanufacturers Alliance]

Mr. Chairman, Committee Members, I represent Les Bois d'Oeuvre Beaudoin & Gauthier Inc. We manufacture products that we then export to the United States.

In 2001, we tried to have our rights recognized through the government of Quebec. We wanted to take advantage of the expedited review process offered by the Americans. Under this process, which usually takes six months to a year, we were in principle to have the opportunity of being exempted. That was also to be the case for the other manufacturers involved in the same field.

However, five years later, the Americans have not yet concluded this expedited review. A WTO report published in 2004 stated that the Americans had told the WTO representatives that they were going to conclude the expedited review in order for us to have the opportunity to defend our rights. In 2006, we are still waiting. Furthermore, Canada has not followed up on the WTO's recommendation. The question is why.

Under the present Agreement, Les Bois d'Oeuvre Beaudoin & Gauthier Inc. and the other manufacturers in the same position are not exempted. Our rights are not recognized. It is possible that an agreement be reached and that we choose Option B. In such a case, given the facts I have outlined, it is clear that we are entitled to our fair share of the allocation and that the unique situation of remanufacturers must be recognized.

[Francis Schiller]

No independent lumber remanufacturers appear under the current framework and its list of exempted companies. This is a needless loss for Canada, and we hope it can never happen again. Canada's wins on lumber have always been incremental--the maritime exemption, the exclusion of the border mills. On this continuum, independent remanufacturers from across all provinces are the next to get out. We are Canada's next big win.

In conclusion, your committee can help us right now. In your study on softwood lumber, support Canada's independent remanufacturers and say yes to keeping these value-added jobs in your communities and constituencies.

Conclude that Canada's independent remanufacturers should receive fair treatment in negotiations, including delivering on the first mill tax rate for all products covered in the dispute and a clear exit strategy like that available to the Maritimes and the border mills.

Conclude that Canada must make up for the quota deficit experienced by remanufacturers over the dispute period, and establish a special quota set-aside.

Recommend that independent remanufacturers receive a proportionate and fair share allocation of all federal resources and funding going forward, on this dispute and any future disputes.

Finally, we would request that you write a formal letter to the minister confirming that the deal must include a level playing field for Canada's secondary manufacturers and must contain no unfair advantage for U.S. remanufacturers.

Thank you very much for your time. We'd be happy to take any questions you may have.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Schiller and Mr. Béland.

Now, from the United Steel Workers, Roger Falconer, director of strategic campaigns, up to five minutes, please.

[Roger Falconer, Director, Strategic Campaigns, United Steelworkers]

Thank you very much, Mr. Chairman. I'll do my best.

On behalf of the steelworkers, I want to thank you for this opportunity to appear before this committee.

The United Steelworkers is the largest industrial union in North America and the largest private sector union in Canada. We're also the largest union that represents forest workers in Canada.

We strongly oppose the current proposed softwood lumber agreement. We firmly believe there's ample evidence to suggest that the federal minister and the government are rushing the agreement on this issue for political purposes and strong-arming industry to move quickly to support a flawed deal. That is why we welcome news that there is a reprieve in the negotiations that will allow industry, governments, and other stakeholders time to fully examine the agreement.

There has been an appalling lack of consultation with key stakeholders in the lead-up to the framework settlement. First and foremost, it is our understanding that the prairie provinces and industry were scarcely consulted at all. Further, as the largest union representing forest workers in the country, we say that we were not consulted. In fact, despite efforts on our part, the minister has not met with us or responded to a request for meetings since his appointment as trade minister.

Finally, we do not believe there has been any meaningful consultation by any level of government with forestry resource communities across the country. It is these communities and the workers that have largely borne the brunt of the softwood dispute, and their voices should be heard in the context of any settlement or proposed settlement. We strongly urge that the system of consultation with all stakeholders beyond the provinces and companies be established before any further softwood negotiations take place.

We believe that the only reason to sign off on this agreement is this prospect of getting back a portion of the illegally held money currently held by the U.S. Commerce Department. We respectfully submit that this is just not a good enough reason to lock Canada into what really is a short-term fix that not long from now will permit a renewal of U.S. protectionist measures.

While the softwood lumber dispute has had severe impacts for workers, communities, and small businesses, some firms have successfully beaten the tariffs and duties by massively ramping up production at most of their efficient mills. The softwood dispute has also left many otherwise profitable mills idle and left other firms grasping for investment capital since they have had millions of dollars tied up in duty payments. Remanufacturers and value-added operations have been especially and severely impacted by increased prices and by the upfront collection of duties at the border before they have the opportunity to sell their products.

This dispute has also encouraged Canadian firms to hedge their bets by investing in production facilities in the U.S. rather than investing in Canada, or by exporting logs to American mills. Ironically, these logs enter the U.S. duty free, while lumber from the same stands of timber are regarded as subsidized.

We submit that the elements of the softwood agreement with the United States that have been discussed do not form the basis of a good deal for Canada. First, the Canadian forest firms and the federal government, supported, of course, by hundreds of millions of taxpayers' dollars, are clearly already very close to winning the legal battle once and for all. The Americans were reduced to their last round of extraordinary appeals, which they have very little prospect of winning.

Secondly, the already significantly reduced levels of tariffs were not in themselves problematic for Canadian producers. By and large, the biggest source of the current difficulties in the industry today is a result of other factors, such as the rise of the Canadian dollar vis-à-vis the American dollar, rising energy costs, slumping prices, transportation costs, etc.

Thirdly, with this deal we are volunteering for a 5% tax whenever prices fall below $355 per thousand board fee. Looking at 2004's record prices, this seems like a good deal, but this is a price level that was only achieved in six weeks of 2003. Further, many analysts do not predict prices to exceed this level again for quite some time in the future, essentially predicting that we will be in a permanent duty position for the foreseeable future, with no way out.

Fourthly, the deal includes a surge mechanism that serves to cap Canada's lumber exports to the U.S. market, placing a penalty for all the producers of a region, even if only a few producers push up regional exports.

Fifthly, Canadian producers will only get 80% of the illegally collected duties at $1.10 for every U.S. dollar when the duties were paid at as high as $1.60 U.S. The remaining 20% will go to the U.S., with half directly going to the producers, who initiated the unfair and unreasonable dispute in the first place, even though the WTO struck down legislation that rewarded U.S. firms for launching the protectionist actions.

Sixth, there is an unacceptable intrusion into Canadian sovereignty over our forest policy contained in the deal. It is absolutely unacceptable for the federal government to give the United States control over future forest policy decisions in a trade agreement, regardless of whether the provinces are prepared to accept such a deal.

Finally, with all this, there is nothing in it for the workers, communities, and taxpayers who have borne the brunt of this dispute.

We recognize that negotiations will not yield a perfect deal. However, we reiterate that the deal as it is presently constituted is not a good deal for Canada. The steelworkers believe that in return for the taxpayers' help in the legal fight to recoup these funds, firms should commit to investments in the areas of capital equipment to keep the industry efficient and competitive, including investment and moving up the value chain; people and skills to ensure that the industry continues to have a productive, well-trained, and highly skilled workforce; communities and infrastructure to provide strategic investment in the forest-dependent communities to ensure that forest-dependent communities can retain and attract workers, business, and investment, and where necessary, that families and the local economies are able to adjust in the face of industry restructuring.

Without these requirements, firms will continue to invest huge amounts of the profits they generate in assets in the U.S. or abroad, or in mergers and other acquisitions outside the industry. Recently, many Canadian forest companies have purchased assets in the U.S. and other countries at the same time as mills and plants are closing in Canada for lack of investment capital.

We reiterate that companies and industry should retain an obligation toward the people and communities where their operations are based. It is up to government to enforce this obligation.

In summary, the steelworkers want to thank this committee again for the opportunity to appear before you. We do not support the current agreement as it is being discussed. We do not believe it is a good deal for Canada. We further submit that there needs to be a system of more fulsome consultation with stakeholders beyond the provinces and companies in any future negotiations.

Finally, we strongly urge the governments to take steps to ensure that included in any softwood deal with the United States are measures to ensure that there is ongoing and continued investment in the industry by corporations, to sustain future employment and security for the workers in forest-dependent communities in Canada.

Thank you very much, Mr. Chairman.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Falconer.

For the last presentation, John Rolland, director general of Max Meilleur et fils ltée. You can introduce Luc Dufour as well. He won't make a presentation, but perhaps you could introduce him.

[John Rolland, Director General, Max Meilleur et fils ltée]

Merci, monsieur le président.

My name is John Rolland. I represent Max Meilleur et fils, which is an independent sawmill. It's a bit of a tongue-twister in English. Luc Dufour, who's at my side, and who will be open for questions in French or English, represents his own sawmill group in the Abitibi. We're both here today as representatives of a group of independent sawmills in Quebec.

The group we represent accounts for about 20% of the total volume of sawn softwood lumber produced in the province of Quebec. This same group represents about 30% of the actual fiscal operations of sawmills of the province of Quebec. I think we're a clear picture of rural Quebec. Our mills are in every area from the Gaspé to the Abitibi to the upper Laurentians.

To continue with my presentation, one thing is clear. We are not here to talk about the deal as a whole. Our group supports the efforts by the federal government to come to a negotiated settlement, but we have some internal concerns, and our concerns lie in history.

Before they grouped together, the independent mills were some of the people who were worst hit by the SLA settlement of 1996. Some of the people no longer exist because of it, and others were financially hit in a very bad way. The reason we are here is to seek federal government support for being treated in an equitable and fair fashion. That is the reason for our presence here today.

We initially came forward about three years ago with a position that, if there was a quota system established—we were not sure whether there would be—each primary producing mill in Quebec have 35% of its production volume as a guaranteed quota. This position has not been supported completely by the provincial government. The Quebec government has come up with a hybrid program, which all of our members support wholeheartedly. It is not a perfect situation; it's a compromise. But it's one we want you to be aware of and would like you to support.

The first point is that we're looking for federal support of the Quebec hybrid system. We feel it is one that will get general support from our industry as a whole. The other point that's important in this hybrid system is that it's equitable and has flexibility. It allows for concerns Mr. Monahan mentioned earlier about flexibility, allowing new entrants access to the U.S. market.

What is it? What we are looking for is that 30% of the quota in the province of Quebec be on a first-come, first-served basis. The other 70% would be based on historical shipments. The 70% based on historical shipments should take care of any concerns firms may have with regard to their contractual obligations with U.S. customers.

When this system is in place, we think that over a seven- to nine-year period markets will change. We would like to see a revision of the historical figures of each firm on a yearly basis. This could be based on the prior year's shipments or on an average of the prior two or three years' shipments.

The other thing that is important to us is that this system have safeguards. There are two key safeguards we're looking for. The first is that if a firm has historical shipments and is not going to be using these historical shipments, they put them back in the pool or lose them.

The second point, which again was generated by the Quebec government, and we support them on this, is that the first in, first out system is really going to be permits. If my firm applies for a permit and I do not use the permit, there would be a financial penalty for its non-use.

What we're trying to do is to make sure we have a level playing field, so that no one can take advantage of the system. We have made Mr. Emerson's office aware of our position, and I think they have a full understanding of the system that the Quebec government is promoting. These points are key to preventing abuse of the system.

The last point is that, like all systems, we don't think it will be perfect, and the Quebec government has indicated it would be looking for an advisory board with regard to the day-to-day mechanics of this system, possibly revising it on a yearly or bi-yearly basis. And we would expect that our SUNITEQ group will have representation on this board.

Gentlemen, thank you very much for your time and for letting us bring our position forward. If there are any questions, we will be glad to answer them in French or in English, and you can address them to Mr. Dufour or me.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you very much for your presentation, Mr. Rolland, and to all of you. You know the importance of the issue, and I do appreciate your being here today.

We'll now get to the questions. I know there will be a lot of questions for all of you.

The questioning starts with the official opposition, the Liberal Party, Mr. LeBlanc.

[Dominic LeBlanc, Liberal, Beauséjour, NB]

Thank you, Mr. Chairman.

Thank you, gentlemen, for your presentations. They were interesting. As we've seen in many different panels before this committee, there certainly isn't unanimity on what might be the next steps, but every presentation certainly enlightens me and all of us on the committee.

Mr. Chairman, I had a series of questions, particularly directed to Mr. Schiller and the remanufacturers that he represents. It's been a concern of mine since the beginning of the whole softwood lumber dispute years ago. In my constituency there are a number of remanufacturers. I think I have some understanding of the rather unique circumstances in which they find themselves.

So I'd like to direct a number of questions to Mr. Schiller or to Monsieur Béland, alors c'est à vous de décider. And if there is time left on this round, Mr. Temelkovski has a question. If not, he'll do it after.

Mr. Schiller, my impression is that over whatever period of time one looks at, as a general concept exports to the United States have been at a record high in recent years, yet remanufacturers are telling me that their exports have diminished considerably. I'm wondering if that's accurate and, if so, why might remanufacturers have suffered a disproportionate effect, as Mr. Emerson admitted before this committee, although honestly trying to find a solution.

Why, in your view, is the injury disproportionate to other sectors of the industry? I'm interested if, in your view, remanufacturers are getting a fair share of the resources and of the consultation that the government is offering other industry sectors or provinces.

I know it's a complicated question, but do you feel included and adequately informed as the negotiations are proceeding? I'd be curious to hear what your views are on that.

Also, I've always thought there was some difference between remanufacturers that are tenure holders and remanufacturers who don't have tenure and simply buy low-grade lumber on the open market. I'm wondering if that distinction is real and can mean something for the government going forward.

My final question, Mr. Schiller, is what specifically can the government do to meet your association's concerns? What is the simple solution, if there is one, or what precisely would you propose to Mr. Emerson to solve some of the concerns you've outlined?

Thank you.

[The Chair, Conservative, Leon Benoit]

Mr. Schiller, you have about four minutes for the response. I'm simply letting you know.

[Francis Schiller]

I'll do my best.

Thank you very much for your questions, Mr. LeBlanc.

In terms of the current state of affairs in the remanufacturers, the member is correct. Over the dispute period, generally Canadian exports to the United States have been setting record highs and taking record-high prices as well. Unfortunately for the Canadian independent remanufacturers, it's been the exact opposite.

There are three factors that really give rise to the situation.

One, the tax right now, or the duties, are being collected on entry value as opposed to on a first mill value. What this means is that if a remanufacturer buys a $10 piece of 2x4 and further processes it and adds labour and transportation, by the time it gets to the border it's $15, let's say, and he's taxed at the $15 rate.

The second problem that's giving rise to this imbalance is duty pricing and practices. What's happening is that, for example, a producer in Toronto would be paying roughly the same price and sends duty in to remanufacturers in Buffalo. So what that means is the competitors on the Buffalo side have an innate advantage--just straight-out pricing.

The third factor that's giving rise to this imbalance is the fact that, over the dispute period, primaries have attempted to bolster their exports and ordered to make a bigger claim on the quota, so this has negatively impacted the availability of supply here in Canada.

So those three factors--the entry value, the duty and pricing practices, and the incentive for primaries to export as much as possible--have given rise to the large imbalance. That's reflected in the statistics, again. At the start of the dispute, remanufacturers accounted for between 7% and 10% of Canada's total exports, and now they're down to less than 3%.

In terms of the fair share of resources, we think that the government's funding levels speak for themselves. The government has provided well over $30 million in industry assistance. Our group has received very little of that. We don't have any legal representation. We have one lawyer in Washington who works part-time on our affairs. As Mr. Béland mentioned, it's resulted in the fact that some of our legal points have been lost in the shuffle, and therefore some of our legal rights have been forfeited in the process.

In terms of remanufacturers' differences between non-independent or tenure-holding remanufacturers...the bottom line is, if you have tenure, you're not an independent remanufacturer; you're effectively a primary processor. So we believe that the government has to hold that line. To hold tenure is a choice that companies make. If they want the independent status, we believe that all companies can take the business decision to turn that tenure back over.

Finally, in terms of what we would like to see, in fact, our sector does have a solution, and it's unanimously supported across our operations across the country. We want to implement a pilot project, based on the maritime model. We'd like to implement a certificate of origin program to assist U.S. Customs process exports from independent remanufacturers here in Canada. We believe this will help weed out circumvention, and in addressing American concerns on circumvention, I think it is the first step to having this group of producers' exports enter the U.S. without issue.

It's important to note that you've heard many different comments about legalities. The reality is that no legal victory will help this group of producers in Canada. No legal victories are really required, as technically they have no formal allegations against them. They don't participate in the programs at the core of the dispute. This has been certified by the provinces and the federal government. Effectively, they're just trapped in this, and until there's a will to move forward and move this group out, we're victims. The reality is that we can't afford to stay in this dispute any longer. That's why we strongly encourage the government to get a deal and deliver it for the industry.

I hope I've addressed some of your issues.

Perhaps Mr. Béland has something to add.

[Martin Béland]

We're a small company with no money for legal expenses. We went the route that was proposed to us. In 2004 we had a chance to get recognized and to be exempt, if the U.S. had complied with WTO. Canada just had to follow through on it; Canada did not do it. I tried to find out why, and I don't know why. Now, in 2006, we're still there and we're not exempt at all in the deal, so I'm trying to get some answers. It's hard.

[The Chair, Conservative, Leon Benoit]

I'd like to thank you both for being so well prepared and so concise in your answers. It makes it easier for me and for everyone at the committee.

Now we'll go to the second round of questions. To the Bloc Québécois, Mr. Paquette.

[Pierre Paquette, Bloc, Joliette, QC]

Thank you, Mr. Chairman.

I too would like to take this opportunity to thank you for your presentations. They were most precise.

I will put my question to Mr. Rutenberg, given that we do not often have the opportunity to hear witnesses from the United States.

Even though a lot of people in the softwood lumber industry would have preferred the negotiation route via the framework agreement, they told themselves that, despite the legal victories that had been won, they would never be able to come to an agreement with the Americans.

In your opinion, would it be possible to establish between Canada and the United States free trade conditions for softwood lumber? Free trade exists for virtually all other trading sectors.

[Barry Rutenberg]

Yes, if I understand the question correctly, it's can we have free trade in softwood lumber like we have in other sectors? It's a very interesting question.

I think it's possible. I thought Canada was getting very close in the legal system. I know that the United States government has taken postures and, in some people's opinions, has gone to duties that were higher for negotiating position. I know there's a lot of money and pressure on cashflows. However, you're so close that I hope you can see the course.

I'm quite concerned about two factors. I'm quite concerned that in the future you might have to start over. Canada might have to start over from the very beginning, and you would lose the trail of victories you have with NAFTA and the WTO in international courts.

The second factor I'm concerned with is that my personal experience—and I've been on this file for 13 years now—has not been wonderful with the coalition, as far as trying to come to a conclusion is concerned. I think that if you settle at this point with the agreement, as I understand it's proposed, you will have continued confrontation. I do not believe you're going to have the trade peace, which some people envision. I think they're going to have $500 million, and they're going to use those funds to police you.

During the memo of understanding, I think they contested when the rail rates changed. You're not going to be in the period of trade peace that might be envisioned. I think you might be better off achieving that final goal of free trade by staying the course and staying with the legal action that you're currently pursuing.

[Pierre Paquette, Bloc, Joliette, QC]

In your presentation, you talked about the way in which the price of wood is evolving in the United States. Are you convinced that the price will go down over the next few years? If not, will it remain relatively high? I had understood that it had gone from approximately $365 to $325 per thousand board feet in the course of a few weeks.

I would like to know what your analysis is of the American price for lumber over the next few years.

[Barry Rutenberg]

The random lengths composite index, which by the way also includes the price of U.S. producers.... It's just not Canada. Canada will be hitching their wagon, so to speak; they will be dependent upon the price the Americans sell for. If the Americans go lower, then Canada will have increased export taxes and export quotas.

Home building in the United States is getting softer, it's getting slower, and it's differing by region. In parts of Florida, where I'm from, major producers of housing are now offering $50,000 to $70,000 incentives to move completed inventory. Some markets are very good. Texas and the State of Washington are excellent. But if you look at the published reports of our national public firms, some are now reporting orders 20% to 30% less than a year ago.

We don't think this is short term; we think it's a gentle trend. We don't think it's a crash, but we don't think you can depend upon the prices you've had over the last couple of years. We think the prices will be lower over the next three-year period.

It's difficult. How good have the economists really been? I'm an economics major, but I wish we were that good. It's our real, honest belief—it's my personal belief—that the American housing market is going to slow, and therefore the demand's going to come down. Since we account for two-thirds or better of the consumption of softwood lumber—commercial is more steel—I think you're going to see softness in your lumber prices. It's logical to me.

[Pierre Paquette, Bloc, Joliette, QC]

Mr. Dufour, I am happy to see that even Bowater's representatives are sensitive to this reality. I had not thought of that aspect of the situation. It nevertheless is interesting to see that newly established plants are not able to fulfill the historical requirements. In the same way, an independent businessman who was unable, due to a lack of funds, to export to the United States during the dispute has no history either.

We sometimes hear people say that quotas can be bought. Was it meant by that?