International Trade Committee on June 19th, 2006

[Luc Dufour, President, Scierie Landrienne inc.]

From 1996 to 2001, some companies had very little quota. It did happen that companies holding a lot of quota were bought out by people wanting to take advantage of this quota.

[Pierre Paquette, Bloc, Joliette, QC]

I am pleased to see major players have such a concern. Is the Conseil de l'industrie forestière du Québec open to the possibility that independents or companies with newly opened sawmills might benefit from a more flexible quota distribution system than that which existed in the past?

[Luc Dufour]

I do not wish to speak on behalf of the Conseil de l'industrie forestière du Québec, which recently outlined its position on this matter. There are diverging opinions amongst the various companies. We have not reached a consensus, but we do agree on the principle.

[Pierre Paquette, Bloc, Joliette, QC]

Mr. Ritchie, you were a negotiator for the previous government in the softwood lumber dispute. Are you in any way employed by the present government with regard to this issue?

Several people have asked us to find a way of preserving Canada's legal victories. Would it be possible to do so in the context of these negotiations with the Americans?

[Gordon Ritchie]

That would be extremely difficult, for the simple reason that that is precisely what the Americans are opposed to.

I view litigation as an instrument aimed at improving our negotiating position rather than as a means to achieve a final result, because this litigation is dragging on. However, our victories reinforce our negotiation position. Without these victories, I very much doubt that the American coalition would have come to the table to negotiate.

We cannot envisage an agreement that would not put an end to this dispute. It is somewhat like waiting for a bus: the longer you wait, the more you have invested, and the less you are prepared to walk. In the end, the bus does not come and you have to find some other solution.

I was very disappointed to hear the Americans indicate that with regard to this sector, and only this sector, they were not at all prepared to respect their legal commitments nor their own legislation. I do not approve of the Americans' approach. It is frankly despicable, but it is a reality that we must deal with.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Ritchie and Mr. Paquette.

Time is up. Again, I appreciate the focused answers.

Now we'll go to the government side and Ms. Guergis.

[Helena Guergis, Conservative, Simcoe—Grey, ON]

Thank you very much, Mr. Chair.

I would like to thank all the witnesses for being here. We appreciate your testimony today.

My first question is for Mr. Ritchie. I understand that you were one of the principal architects for NAFTA.

[Gordon Ritchie]

It was for the original Canada-U.S. Free Trade Agreement on which NAFTA was based.

[Helena Guergis, Conservative, Simcoe—Grey, ON]

It really is a pleasure to meet you. Thank you for being here today.

Mr. Paquette had a question for Mr. Rutenberg about free trade within the softwood lumber industry. Would you care to comment on that question?

[Gordon Ritchie]

From the historical record, it is very clear that the Americans, whether Democrats or Republicans, on the Hill or in the administration, are simply not prepared to agree to free trade in lumber, period. It is their view, and was their view from the outset, that it had no part in the free trade agreement. Under President Reagan it was carved out under a separate memorandum of understanding, and the agreement I negotiated necessarily permitted that understanding to continue to govern that sector.

When Canada terminated that agreement because of precisely the sort of micro-management they're trying to do again, a new administration was in power and took the same position. They violated the GATT, in those days, and the free trade agreement in order to come after Canada in a totally unwarranted fashion.

When they lost their cases before the panels—exactly the same scenario we have here, including an extraordinary challenge, which they lost--although they had the decency to stop collecting the duties, they refused to pay anything back unless and until a managed trade agreement was reached, which was the Softwood Lumber Agreement.

When that expired, again it was the same thing. They immediately came in with trumped-up countervailing duty and anti-dumping charges. When they lost before the panels I was shocked, and I'm not easy to shock, because at that point we were in intense negotiations with the Americans on the basis of an agreement not dissimilar from this. When the special trade representative of the United States, a cabinet-level officer, basically said that the United States was not going to respect its obligations under the free trade agreement, it was a disgraceful day in U.S. trade policy.

When the Commerce Department went on to make clear that they were under no circumstances prepared to return the deposits, indeed they claimed they could not return the deposits except under a special separate managed trade agreement, I regretted that. But I'm a realist, and my answer to Mr. Rutenberg is that I wish he were more successful back home in Washington in persuading the folks on Capitol Hill and in the administration to realize the kind of economic impact this sort of protectionist nonsense has on U.S. home builders and the purchasers of those homes. It's very bad public policy. However, he hasn't been successful, and the current administration has taken a posture that is even more opposed to any form of free trade than the previous one.

One can always live in hope. It is possible that there could be a dramatic sea change in U.S. politics, and for the first time in 25 years you could have a Congress and an administration that were prepared to play by the rules. But I see no evidence of that.

[Helena Guergis, Conservative, Simcoe—Grey, ON]

Thank you.

My next question is for Mr. Monahan.

In your remarks you explained that your mill was only a couple of years old, and you talked about flexibility under option B. Can you explain a little bit more what you mean about flexibility?

I think you also mentioned something about a tax credit for investment. Can you explain how you would see that working for us?

You talked about reserving quota volume for new entrants. Have you got some ideas on how that would work?

[Pierre Monahan]

On the first issue, the tax credit, what I have in mind is that with all those proceeds that eventually will come back to us, and taking into account that the industry is going through a major crisis and needs big reinvestment big time, the government could convert this to a big opportunity for us. Anybody could use part of the proceeds—because I'm pretty sure most of the proceeds will go against debt payment, but there will be some used for reinvestment because we need to reinvest to be more productive. I refer to productivity, lowering our costs, and not to volume. A good incentive could be that if we do invest, we'll have access to tax credits to help support investment. I think it's a great opportunity for the government and it would certainly be appreciated by the industry.

That takes care of tax incentives, because we need tax incentives. The American industry has tax incentives and the Brazilians have tax incentives to invest, so why not Canadian producers?

The second point is this. In terms of flexibility, Mr. Rolland explained very well what I had in mind. We deal with customers with whom we have long-term contracts; for example, Home Depot. Once a year we sit down with a client and agree to a volume for the year and then ship through the year. To live up to the contract we need some flexibility. In other words, if the day comes when you hit the wall with the quota, then what do you do with your contracts? We should take care of that issue in the mechanism to account for the quota amount. It's possible by a carry-forward or a carry-back within a period of time; if it's not quarterly, it could be annually. But we need flexibility to take care of those contracts we have with major customers in the States.

We are a good example of a quota for new entrants. We invested over $90 million four years ago to build a new sawmill in northwestern Ontario. In our case, the only market that mill can access is the United States. We can't think about shipping to Toronto; we're too far away. If we don't get the proper quota, we jeopardize the existence of that mill. So of course I'm in favour. I'm speaking for myself, but I have to be in favour for other people too, and I think this problem is being taken care of. We all realize it's going to end up in the provinces' hands, but we'd like you to convey the message to the provinces somehow that they have to take care of new entrants.

[The Chair, Conservative, Leon Benoit]

Just a very short question.

[Helena Guergis, Conservative, Simcoe—Grey, ON]

Just quickly, do you have any idea what your capacity would be now or what kind of quota you would have?

[Pierre Monahan]

Yes, it's well known. In our case, that mill has been in ramp-up mode for the last three years. We're now at capacity. Historically, to avoid anti-dumping measures, we've been shipping 90% and not 100% because of the low grades we have. We couldn't ship to the States and sell under our costs, so we've kept it in the market. But based on 90%, in our case we need 265 million board feet, and the Ontario government knows this as well.

[The Chair, Conservative, Leon Benoit]

Thank you, Ms. Guergis.

Now to the New Democratic Party, Mr. Julian, for seven minutes.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you, Mr. Chair.

Thank you to each of the witnesses.

We've had uniformly excellent presentations through each of our hearings, and that excellence continues today. We thank you very much for coming.

I have four specific questions that I'll put out there, and if I have any time, then I'll come back to supplementaries.

First, to Mr. Schiller or Mr. Béland, you talked about how devastating this agreement is right now to lumber remanufacturers. We've certainly heard from some of your colleagues in previous sessions. Now Jamie Lim from the Ontario Forestry Industries Association said that she believes with this deal we'd lose 20% of mills across the country. Do you have any studies as to the job loss with the deal as is? We're not talking about a potential deal that somehow might be magically negotiated, but the deal as is. What might be the job loss for lumber remanufacturers?

Secondly, Mr. Rutenberg, thank you very much for your presentation. You've reminded us that we are extremely close to a final victory under the ECC, and that's important for this committee to take note of. You also mentioned the $500 million--half a billion dollars--that would go to continued confrontation, to actually fuel continued confrontation if this deal were to go through.

I have received a lot of information from softwood manufacturers from British Columbia. One that I received a couple of days ago referred to the fact that duties will change monthly under this deal, and that actual duty rates will be calculated after the fact. The point that this person from Campbell River, British Columbia, makes is that trying to manage their business with a duty cost that changes monthly and is only truly determined after the fact will be disastrous.

So I'd be interested in the impact on your side of this very convoluted formula, basically running rules that are not commercially sustainable.

Thirdly, Mr. Falconer, thank you very much for your reference to raw logs. That's a real concern in British Columbia, as I know it is elsewhere in the country. Your belief is, I believe, that this will stimulate raw log exports. Do you have any figures in terms of job loss under this agreement that you could share with us?

Then finally, Mr. Ritchie, I enjoyed your presentation. I must say you were damning this agreement with faint praise. You did say it was the best agreement that we can see at this time, but you also talked about the flagrant violation of NAFTA and domestic law by the Americans, that the Americans had no legal or moral right to the money. You called it a ransom, the billion dollars that would be sent south. We call it the proceeds of trade crime. You said that the anti-circumvention clause is completely unacceptable.

So the question to you is this. We do have, as noted by Dr. Elliot Feldman, who is one of the real experts in trade law in North America, an ECC final appeal that is presently suspended by our government. If we continued with that ECC decision, it's non-appealable.

So I'm wondering why you don't favour that approach of the ECC final appeal using the chapter 19 provisions for non-compliance that we have, as you well know. And what provisions around the fact that this deal has to see all the lawsuits withdrawn...and we've basically seen companies over the last few weeks voting with their feet. As of last Thursday, there were 112 filings of lawsuits by Canadian companies, and each one of those would have to be withdrawn for this deal to become operable.

I'm wondering how that influences the overall landscape of this deal, when companies are basically saying, “No, and we're going to put a lawsuit in to make sure we have a veto over this.”

Thanks for answering those questions.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Julian.

You have about three and a half minutes for everyone to answer, so perhaps you could go ahead, Mr. Schiller.

[Francis Schiller]

To be clear, our group does not oppose this deal. We believe that the status quo is the surest way of ending value-added remanufacturing in the country and all of those jobs associated with that.

In terms of a response to your specific question, as to whether we have detailed analysis, no, we do not have a detailed analysis on job losses. Anecdotally, though, it's safe to say that around 60% of employment in independent remanufacturing operations across the country is down right now from the current status quo. So we need a deal to get back on a level playing field.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

But you said that not recognizing that it's within the agreement--and you said that the lumber remanufacturers are not recognized in the agreement--would mean that remanufacturers will die. What could be the potential job loss?

[Francis Schiller]

Just to be clear, independent remanufacturers are in fact recognized in this agreement and--this is notable--it's the first time independent operations have ever been recognized in the context of a formal agreement. That is a positive step; although it's not perfect, it is positive. So we are recognized in the agreement for the first time.

From our perspective, we don't have the luxury of obtaining legal opinions and we don't have the benefit of seeking legal recourse. From our perspective, that's a “let them eat cake” approach, because the reality is that this group of distinct producers in Canada doesn't require any legal victories. They're technically entitled to free access right now, and what we want is the government's will to say, look, we're going to get this group of producers out right away; we'll address their concerns and move forward and allow the debate to continue on those areas where there's a lot to discuss. But from our perspective, the issues of disagreement are not associated with independent remanufacturers.

[The Chair, Conservative, Leon Benoit]

Thank you.

Mr. Rutenberg is next.

[Barry Rutenberg]

In the SLA we had quarterly quotas, and you knew ahead of time what they would be. This one, as I understand it, will have monthly quotas, and you won't know until afterwards. That can't do anything, I would assume, but increase volatility in the market price. Everybody here has seen the graphs of the volatility, and it's very significant.

Here is what happens if you're a consumer in the States, a builder, and you face volatility. Often I have to sell a house nine months ahead of the time I need the framing material, so it makes me more interested in alternative materials such as steel or concrete block, or it makes me more interested in wood from other markets. I would prefer to stay in North America.

The third thing that puzzles me is that in the States, even in Florida, we're losing remanufacturing jobs to what we thought were Canada and China. Maybe we're only losing them to China. I know that in DC, Canadian trust companies are competitive in the DC market from Canada, and there are other things. There are stories I hear on my side on this, and parts of this are confusing and not clear, but I think that the shorter term, and knowing it retroactively, will increase the volatility, and that can't do anything for a stable market.

[The Chair, Conservative, Leon Benoit]

Thank you.

Mr. Falconer.

[Roger Falconer]

I don't have any specific numbers. I can tell you that the raw log export problem is primarily a western Canadian problem. It's situated mostly in the province of British Columbia. Thousands of workers have lost their jobs over the last few years because the federal and the provincial governments are guilty in allowing these raw logs to be exported without being processed in the communities in which they're harvested.

Our position is that too many communities are being closed down. Local sawmills need the work, need to be processing these trees in Canada so as to support the communities, so that the communities can survive. That's our position--that those raw logs simply should not be exported. That's our position.