International Trade Committee on July 31st, 2006

[John Maloney, Liberal, Welland, ON]

In effect, they have a veto on this agreement then.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Maloney. Your time is up.

To the Bloc Québécois, Monsieur André.

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

Mr. Chairman, thank you again for giving us this very valuable time.

Under Article XX of the agreement, either party can terminate the agreement with one month's written notice. Also, in order for there to be an agreement, both countries, Canada and the United States, must give their consent.

Why did you not provide for both parties to have to agree before the agreement can be terminated? At the present time, either one of the two can terminate the agreement after 23 months if it is unsatisfied with an anti-dumping provision, for example.

In these negotiations, did you ask for both parties to have to agree to termination before it can happen?

[David Emerson, Conservative, Vancouver Kingsway, BC]

Clearly, either country could agree to terminate, or both countries could agree to terminate. I don't see the point that's being made.

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

Well, it would have been possible to include a provision stating that the agreement could be terminated after 23 months only if both parties agreed. As it now stands, however, if only one party wants to terminate the agreement, then it can be terminated.

[David Emerson, Conservative, Vancouver Kingsway, BC]

We have tried, as much as we could, to stay within the conventions of international treaties. This is the convention: that the termination provision can be exercised by either party to the agreement. It would be very unusual, and odd, to put in a clause that both parties had to agree to terminate--very odd.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Wasn't that what the Canadian industry proposed? You said earlier that the industry had asked for a termination clause.

Did the industry not suggest that the agreement should be terminated only if both countries agree? It would have made the agreement much stronger.

[David Emerson, Conservative, Vancouver Kingsway, BC]

The answer is no. When you say “the industry”, I think you understand there are different views in the industry; there is no unanimous view. There was no consensus from the industry that we should have a double-triggered termination provision.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

You said “at this time”, when referring to negotiations. If the Canadian industry, which is currently involved in exploratory discussions, arrives at an attractive consensus and puts forward that proposal along with the U.S. industry, would it not be appropriate for both countries to incorporate it into the agreement, thereby correcting a problem that is the industry's main source of frustration?

[David Emerson, Conservative, Vancouver Kingsway, BC]

There is nothing preventing the Canadian and U.S. industries from getting together and making proposals that could be considered within the context of the mechanism that's built into the agreement to contemplate further changes. Nothing prevents that.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Would it be possible to do that before the agreement is voted on in the House? If you require the support of the majority of members in the House, you will have to present them with an agreement that they deem to be acceptable. To do otherwise would be irresponsible.

[David Emerson, Conservative, Vancouver Kingsway, BC]

Well, we're certainly doing our best to make it acceptable to everybody who's affected by the agreement.

[The Chair, Conservative, Leon Benoit]

Now we go to the governing Conservative Party and Monsieur Paradis, for five minutes.

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

Thank you, Mr. Chairman.

Minister, I have followed developments as regards this agreement from the standpoint of Quebec's interests and I see that the various Canadian realities have been taken into account. You also took into account the various court rulings in our favour in recent years, with a view to strengthening the Canadian position as part of interest-based negotiations. And with this agreement, you will also be able to avoid further litigation or, as you say, “Lumber V”. As well, Quebec will be entitled to its fair share of exports.

When you worked with Mr. Peterson, the expectation was that we would recover half of the money paid to the United States, whereas under this agreement, $4.3 billion will be repaid.

The fact is that the agreement has been improved. It includes an accelerated refund mechanism, which makes loan guarantees of little use, cumbersome in fact, since they would force people to go more into debt. Under this agreement, they will be getting back their own money. As a Member of Parliament, I represent a riding where there are a lot of border mills. And you did in fact take into account the historic exemption enjoyed not only by mills in the Maritimes, but our border mills as well.

For all these reasons, Minister, I want to commend you on an excellent job. This is a comprehensive agreement. However, I do have one question with respect to the termination clause. You said yourself that the clause is nothing more than a red herring; that it is a non-issue. And if you had kept the April 28 agreement as is, with no termination clause, under international law, there would have been a unilateral one-year termination clause under the Vienna Convention.

However, at the request of Canadian industry, you made improvements to that 23-month clause and also negotiated a one-year standstill provision. That is unusual and provides extraordinary protection for our Canadian industry. Indeed, the Chief Negotiator for Quebec, Pierre-Marc Johnson, who is an expert on international law, made that very point.

So, I would be interested in hearing your comments with a view to clarifying that point because, unfortunately, we hear far too often that Canada gave in to the U.S., when in actual fact, it made very significant gains.

Thank you.

[David Emerson, Conservative, Vancouver Kingsway, BC]

Thank you very much, Mr. Paradis.

There is no doubt that this agreement is shaped in a way that adapts to the realities of the industry in different parts of the country in a unique way. Clearly we have the Quebec border mills and have succeeded in achieving something very significant for them. The overall industry in Quebec has been closely involved in this through Pierre Marc Johnson, as you know, and he has been clear that he thinks this is basically a good agreement. The cash acceleration mechanism that we are putting in place is far superior to loan guarantees, so that will be extremely beneficial. The issue of termination really is a red herring. I believe this agreement will live on at least seven years. I believe that very strongly.

People have high anxieties. It has been a very difficult industry to work in because of the trade actions that have been taken with such intransigence by the U.S. side over the years, so you can understand people wanting some protection against premature termination. We've been very happy that the United States has responded to our request to make modifications to ease some of those concerns.

I do not believe termination provisions will be used. I don't believe the United States will use them; I don't believe Canada will use them. I think this agreement provides a framework in which the industry can develop, can work cooperatively to become more competitive internationally against the competition, which is increasingly non-North American competition. I think this agreement will herald a period of stability, improvement, growth, and renewal in the Canadian forest industry that is unprecedented. That's what I believe.

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Hill.

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

Thank you, Mr. Chair.

Mr. Minister, you didn't have time to get to all my questions earlier. In whatever time is left, could you touch on the issue of our colleague Randy Kamp in relation to the remanufacturers from British Columbia in particular, but from all Canadian remanufacturers?

[David Emerson, Conservative, Vancouver Kingsway, BC]

Some remanners like the deal; some remanners would like more. But fundamentally the agreement here is a significant improvement for remanners, because it does provide for independent remanners to pay only such duty as may apply on the low-grade product they acquire from other producers. In other words, there is a first-mill provision in this agreement that ensures the duty is levied on the cost of the raw material that they subsequently upgrade in their business. That's a very substantial improvement for remanners. There is also a provision in the agreement that caps at $500 any export tax payable, so if you're selling a $1,000 product, you will pay an export tax as though it were a $500 product. Those are significant improvements.

Again, we know there are areas in which remanners would like to see further improvements. There is a mechanism in this agreement for us to start examining those issues and see how we can morph this agreement into something that is better for the industry throughout North America.

[The Chair, Conservative, Leon Benoit]

Thank you, Minister Emerson.

We have about eight minutes left in the meeting. I know the minister has an appointment right after this meeting. We have one person left in this round and we'll go to him, after which time we'll go to lunch.

Mr. MInister, I'll give you a couple of minutes if you have any closing statements you'd like to make after Mr. Julian has his five-minute round.

Mr. Julian, go ahead with questions, please.

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

Thank you, Mr. Chair.

Minister Emerson, under the current benchmark price, the price last Friday, what would the export charge be under this proposed deal?

[David Emerson, Conservative, Vancouver Kingsway, BC]

I think I said in my opening statement that the market is, as we say in the business, heading south. It's not a good market right now, so you could be at a 15% export tax at current market prices. But I again come back and say to you, do not pretend that a litigation scenario would not impose serious problems for the industry going into a down market. We already know the administrative review has resulted in an increase in the cash duties that would apply later this year. We may win enough cases quickly enough to preclude that, but I can assure you that in a down market the risk of high interim duties that could last for four or five years again is very high.

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

My point is this, Mr. Emerson. Essentially, under the current benchmark price, we'll be paying more than we are under the illegal tariffs.

As we've discussed, and as has become clear through this committee hearing today, we're talking about two hurdles left, one of which was suspended by your government, which was the non-appealable ECC challenge. So we basically have two hurdles to go before we cross the finish line—not the three years, not the seven years of some of the more extravagant statements; we have two hurdles to go. What I think is surprising to the industry is why we don't go over those two hurdles, cross the finish line, and ensure that it is very clear that Canadian lumber is not subsidized.

This is the problem with the agreement: it erases the four years of legal victories; it has running rules that are not viable; it gives away $1 billion; it in a sense fuels Lumber V, because the American softwood industry actually has the cash to come back at us; and it eliminates jobs. So I'm not satisfied with any of the answers we've received today.

What I would like to do is put three more questions. My final question I'll put first, which is this. What is the alternative plan? This deal has received substantial opposition from the industry and from many others, and very clearly, members of this committee, which represents all four political parties, are concerned about the agreement, so what is the alternative plan?

The two other specific questions I'd like to ask concern your earlier comments that the EDC would be flowing money to companies—essentially, Canadians picking up the tab—prior to any moneys coming back to Canada. We know that in the agreement Canadians are guaranteeing $1 billion to the United States. My question is this. In the process with American Customs, what is the appeal for Canadian companies? And who is auditing the amount that will be coming back to these Canadian companies? In other words, if the Canadian companies are in disagreement with what Customs might be providing, who is auditing the amount and what's the appeal process?

And I would like you to answer the question, what is the alternative plan?

[David Emerson, Conservative, Vancouver Kingsway, BC]

Thank you very much, colleague.

I want to again come back, because while, under what is called option A, in a weak market we could be in a 15% export tax category right now, that is a choice that is to be made by the provincial government. They could choose option B, which is a combination of a supply restriction and a maximum tax of 5%. So don't create a scare story by automatically assuming we're into that kind of tax range. It's not so.

And I want to repeat one more time that all of the legal victories we have won have given us a position of strength to be able to negotiate what I think is a very good agreement. What the legal victories have not done is guarantee we will not have Lumber V, and I would personally say the probability of a Lumber V, if we do not conclude an agreement, is very high, very close to 100%. I can't imagine there not being aggressive trade actions launched immediately.

Concerning the alternative plan, our primary focus is on getting this agreement agreed to by provinces and by industry. In the unlikely event that it does not happen, we will have to talk with provinces and the industry about where they would like to go next. It's not something we intend as a federal government to unilaterally put in place at this time. The forest industry and forest resources are largely a provincial resource, and the industry is largely in collaboration with their provincial governments. There is not a place for the federal government to simply tell the industry and provinces what should be done with the industry in that unlikely scenario.

On the EDC and the mechanism for appealing, that's a technical question. I do not have the answer to that. It may be that Andrea Lyon could help you with it. I would presume the EDC would be very rigorous and disciplined in ensuring that the entries that have to be unwound to get at the money would be done correctly.

Andrea, do you want to add to that?

[The Chair, Conservative, Leon Benoit]

Ms. Lyon.

[Andrea Lyon, Director General, North America Trade Policy Bureau, Department of Foreign Affairs and International Trade (International Trade)]

I would just add that, yes, that is correct. There would be a process between the U.S. Treasury and the individual companies to ensure that the appropriate amounts were in fact being discharged.