International Trade Committee on July 31st, 2006

[David Emerson, Conservative, Vancouver Kingsway, BC]

Assuming this agreement comes together, the answer to your question is oui.

[Guy André, Bloc, Berthier—Maskinongé, QC]

Yes, but those two conditions will have to be met.

[The Chair, Conservative, Leon Benoit]

Thank you.

We'll now go to the governing Conservative Party.

Mr. Hill, you have five minutes.

[Jay Hill, Conservative, Prince George—Peace River, BC]

Thank you, Mr. Chair.

Thank you, Mr. Minister, for appearing today. I think all the parties are in agreement at least on that much, that we appreciate your appearance here today and your trying to clarify this agreement.

I have a number of things I want to get through and a few questions, and perhaps you could just jot them down. On the first one, perhaps you'd just want to comment. I find it more than a little bit puzzling and contradictory for the opposition to be so focused on the termination clause and so upset about the agreement. You'd think they'd be asking for an even shorter termination clause, given their opposition to the agreement and the fact that if it's that bad, wouldn't the Government of Canada perhaps somewhere down the road want to try to get out of it--if we were to buy into their arguments, which of course I don't and we don't?

I want to express, on behalf of the lumber companies in northern and central British Columbia, specifically in the riding of Prince George--Peace River, which I represent, that certainly they're very pleased with that part of the agreement that would see an accelerated repayment of the deposit. Some of these companies of course are hurting, and if the projected problems arise in the future with the market, that money is going to be incredibly important not only to those companies but to the workers they employ and the communities they reside in.

I want to ask a question specifically about the mountain pine beetle, which has devastated the pine forests of central and northern British Columbia and is now encroaching into northern Alberta. Is the anti-circumvention clause sufficient to allow for the increased harvesting of the mountain pine beetle-killed wood? That's a big concern to the companies and the people in central and northern British Columbia.

My last question, Mr. Minister--and I apologize for trying to cram so much into my five-minute slot here--is in particular for one of my colleagues, Randy Kamp, the MP for Pitt Meadows--Maple Ridge--Mission, who has a large number of lumber remanufacturers, or remanners, as they're sometimes called, in his riding. My understanding is that this agreement is certainly superior to what is in place currently for those remanufacturers. Could you comment, perhaps, on that issue? That, in addition to the other issues you have mentioned, was of concern to British Columbia in particular.

Also, could you potentially clarify the future litigation, as much as possible at least? We seem to get the concerns that the opposition are raising, that somehow this might go on for another three years; the Prime Minister said potentially seven years. I would actually submit, Mr. Minister, that we have no idea how long litigation could go on. It's a best guess type of scenario, because we have no control over what the Americans may or may not do. We have no crystal ball--you don't and I don't--as to what laws the Americans might pass if this agreement doesn't go ahead and tie their hands to some extent. Could you comment on that as well?

Thank you.

[David Emerson, Conservative, Vancouver Kingsway, BC]

Thank you, colleague.

The accelerated deposit mechanism was not part of our framework agreement on April 27; it was a later add-on. It was the result of the government recognizing the need for companies to quickly receive as much cash as they could. A lot of companies are facing serious problems with their creditors. Some of them are at risk of shutting down in a negative market. Cash is king, they need cash, and that mechanism is a very efficient way to get cash to them. It will be a godsend to an awful lot of companies that are facing the prospect of going into a negative market and need cash in order to invest and secure their future.

The anti-circumvention clause on the pine beetle was a very important part of the negotiation over the last couple of months, in combination with the proposed market pricing system in northern B.C. With the pine beetle trees, as you know, the longer they are on the stump the less valuable they become. If you do not have a market pricing mechanism that takes into account that wood quality is deteriorating, that exchange rates may be moving, and the whole constellation of factors that affect the value of timber in the eyes of the people who process it, then you are creating untold problems.

I believe that this anti-circumvention mechanism for the first time will allow Canada to have a market-based pricing system that will truly reflect market reality. If the timber is more valuable, stumpage will go up. If the timber is less valuable, under competitive market conditions stumpage will go down. That will be a very critical aspect for anybody who is trying to manage and deal with beetle-infected timber and all manner of other economic perturbations that can affect the value of timber.

In the old softwood lumber agreement you were basically required to keep stumpage up. The coalition has been constantly attempting to get what's called an “effects test” put into the anti-circumvention clause. It is a provision whereby you would always test a stumpage or policy change against the effect it would have on stumpage and timber prices. If the effect were to reduce it, you'd be punished and essentially in violation of the agreement. We don't have that; it's history. I've got to tell you, the market-based pricing system is going to be a critically important shock absorber for the industry.

I commend the Province of British Columbia. I was one of the few CEOs five years ago calling for market-based timber pricing in British Columbia. It's very reassuring to me that we now have that system in place. I think the industry and communities are going to be better for it.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Minister.

Next is the final questioner in this five-minute round, Mr. Julian.

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

Thank you, Mr. Chair.

I want to be very clear, Mr. Emerson, that I'm asking you why you initialled a deal that the vast majority of the industry opposed. I would still like an answer to that question.

I also want to mention that you are undermining your own argument. You talk about Lumber V, and we know the consequences of accepting a deal that erases four years of legal victories and gives half a billion dollars to the coalition for their war fund to attack our softwood industry again. Yet you have not specifically mentioned anything to contradict what we all know to be true: that with the suspension of the ECC judgment, which is non-appealable, and with the recent Tembec judgment, we're basically 90 days away from a suspension of the illegal tariffs, through a preliminary injunction, and 12 months away from repayment.

So you have said nothing specific to contradict this. There is no crystal ball that somehow indicates that there are any other mechanisms the United States can use. I want to be very clear about this.

I have two specific questions. The first concerns the clause within this deal that essentially revokes the duties retroactively. In a very real sense, this allows for the elimination of four years of legal victories. Why would you initial a deal that eliminates four years of legal victories?

Secondly, when we talk about termination, in article XX, paragraph 34, it says very clearly that the United States reserves the right to terminate the agreement, if Canada is not applying the export measures under article VII and article VIII, without resort to dispute settlement or any other precondition for termination. Essentially this is a loophole that allows the United States to terminate the agreement on a simple allegation of circumvention. So why would you give that loophole to the United States?

[David Emerson, Conservative, Vancouver Kingsway, BC]

Let me go back. Why did I initial this agreement? I initialled the agreement because I felt it was in the best interests of the industry and the country. It was a substantial improvement on the framework agreement, which received relatively broad-based support after April 27. I believe, and continue to believe, that this agreement is in Canada's best interests, and it's in the industry's best interests—and I would do the same again.

In terms of eliminating four years of legal victories, I would submit to you that the legal processes that we—whether under the Liberal or the new Conservative government—have been engaged in for the last four or five years have always been fundamentally focused on strengthening our position so that we could achieve a negotiated settlement. At some point, you cash in the legal victories and what you buy is security.

When you talk about leaving loopholes for industry to come back and attack us, this agreement is the best assurance that on a whim the U.S. industry cannot launch any more legal or trade actions against Canada. That is what this agreement is all about. I will stand on that to the bitter end; there is no loophole. There is a provision in the agreement whereby, if Canada did not complete the provisions in the agreement for an export tax/quota framework, then in effect we didn't implement the agreement, and therefore they could terminate because we didn't do it. That's what that is all about; it is not a loophole.

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

Mr. Emerson, I'd like to move on to the running rules. I would submit that as a CEO, you would have opposed the running rules in this draft agreement. It's retroactive, and these are monthly penalties. Essentially, companies that write to us as members of the international trade committee won't know whether they're earning or losing money on a given product in a given month. So my question is, do you understand why companies are so upset by running rules that make this draft agreement non-commercially viable?

My final question is, if this deal is rejected, which certainly seems to be the case, by the industry and almost certainly by Parliament, will you reverse the suspension of the ECC action and move within cabinet to provide loan guarantees to the industry?

[David Emerson, Conservative, Vancouver Kingsway, BC]

Let me start at the back end of your questions.

This agreement provides a mechanism far superior to loan guarantees, and I challenge you on that, if you don't believe it to be the case. It is far superior. It gets cash much more quickly and efficiently into the hands of companies. If you want loan guarantees, this is the framework that gets them.

On the running rules, we would have preferred to have prospective versus retrospective calculation of some of these duties. We worked with the industry. We recognize, and have committed to, the need for a framework of measurement, of tracking of flows, so that we can ensure companies are always relatively well informed as to what their position is and what potential liability they will face in terms of a potential export tax measure.

Frankly, if I were a CEO, I would recognize that you can estimate with great clarity exactly what your position is, within 1% or 2%. Generally speaking, there is no reason why this arrangement should not work very well from a commercial point of view. To the degree that there are any administrative hiccups in ensuring it, we will be working with them. We have a committee; both Canada and the United States have an industry committee that will be focusing on how we can ensure that this agreement works in a commercially viable way.

[The Chair, Conservative, Leon Benoit]

Thank you, Minister.

We will go to the final round of five minutes each. We have the official opposition and Mr. Maloney.

[John Maloney, Liberal, Welland, ON]

Thank you, Mr. Chair.

Mr. Minister, I'd like to talk about the steps the Canadian industry must take in order for this agreement to come into force.

Article II states that before this agreement can enter into force, Canada must submit a letter to the Americans that, among other things, must confirm that “importers of record that collectively account for not less than 95% of total refunds of cash deposits with accrued interest have complied with all of the requirements in paragraph 1 of Annex 2A”. If companies accounting for 95% of the outstanding duties paid to the U.S. don't take these steps, as I read it--and it's clear--the agreement cannot come into force. Effectively, the industry then has a veto.

I was advised that on July 13 you made a statement in discussions with the press: “The 95% does not represent a hard and fast deal. We do not intend to hand out a veto of that kind. This agreement will have to be decided on by Parliament.”

To me it's rather obvious that these positions are contradictory. I appreciate your expertise in the field and your understanding of the agreement, but I can only draw two conclusions: either your statement was inaccurate--perhaps it was a misleading statement--or you believe that the final text in fact can be amended.

[David Emerson, Conservative, Vancouver Kingsway, BC]

Well, I think if you read the final text you'll note that it can be amended by the agreement of both parties. That's a clause in the text. I believe that when companies examine this agreement and reflect on its consequences for them, their employees, their shareholders, and the communities in which they operate, they will be there; they will want to be part of this.

The accelerated deposit mechanism is very favourable for companies. I cannot, in my wildest dreams, imagine companies just holding up the agreement as a spiteful act to somehow bring the agreement down.

[John Maloney, Liberal, Welland, ON]

You're suggesting that with the agreement of two parties--the Canadian government and the American government--this agreement can be amended.

[David Emerson, Conservative, Vancouver Kingsway, BC]

Yes. It says so in the agreement.

[John Maloney, Liberal, Welland, ON]

Well, if it can be amended here, can it not be amended in other areas as well--areas that are certainly of concern, that are under discussion?

[David Emerson, Conservative, Vancouver Kingsway, BC]

What I said was that negotiations have ended. There is a provision for further work to be done on a number of issues. It's noted in the agreement. We have an 18-month timeframe particularly for some issues relating to the coastal industry in British Columbia. In the event that work was coming out of it that both parties to the agreement agreed should be done, then it is legally possible to make such amendments.

[John Maloney, Liberal, Welland, ON]

So in one step we're saying the agreement is final, and in another step we're saying we can perhaps renegotiate.

[David Emerson, Conservative, Vancouver Kingsway, BC]

I said it's final at this time.

The agreement itself contemplates that there will be further work. That was an important part of the agreement--that it would provide for further analysis and further potential opportunities to improve on the agreement. That was a fundamental piece of the agreement.

[John Maloney, Liberal, Welland, ON]

It's recognized that further negotiations can in fact take place.

[David Emerson, Conservative, Vancouver Kingsway, BC]

The amendments I am referring to would come out of a technical process that involves the parties to the agreement examining some of the issues that remain unresolved.

[John Maloney, Liberal, Welland, ON]

I'll just move on to another part that involves the industry.

Another part of the agreement is a requirement that industry give an effective veto when there is a lot of private litigation going on--not necessarily between Canada and the U.S. under NAFTA; there is private litigation between Canadian companies, Canadian forest associations, and the U.S. government. As I understand it, unless these cases are withdrawn, the agreement cannot go forward. How is the Canadian government going to force private industry, private associations, to withdraw their litigation actions?

[David Emerson, Conservative, Vancouver Kingsway, BC]

The agreement calls for the ending of litigation. That's what a negotiated settlement is: instead of litigating, we negotiate, and we live with a negotiated settlement. Obviously, litigation has to be brought to an end.

[John Maloney, Liberal, Welland, ON]

How is the Canadian government going to force private companies to end their litigation?

[David Emerson, Conservative, Vancouver Kingsway, BC]

The Government of Canada is not in the business of forcing companies to do anything. What we have done is create a very attractive alternative to litigation for the Canadian lumber industry. The Canadian lumber industry will have to make a decision as to whether they want to pursue more litigation or to take advantage of a negotiated settlement.