International Trade Committee on July 31st, 2006

[David Emerson, Conservative, Vancouver Kingsway, BC]

Let me provide a little bit of context.

As I think everybody in this room will certainly know, we've just come out of a WTO negotiation that hit the rocks a few weeks ago and doesn't appear to be going anywhere very quickly. As you know, when you look at trade agreements, the only truly international legal framework governing trade is the WTO. The WTO is international law and it's negotiated by 149 members. It creates a legal framework for dealing with trade and investment that belongs to no country, but belongs to all participating countries. The WTO was critical even to issues like softwood lumber, because through the WTO you can begin to get at issues like the definition of dumping margins or the definition of subsidy. So you can start to influence an agreement like NAFTA with a well-negotiated improvement in the various aspects of the World Trade Organization trading framework. That's now been put aside.

Let's look at NAFTA. People believe wrongly that NAFTA is an international set of laws or a trading framework in and of itself. NAFTA is not. NAFTA is a trading framework that is based on respect for the laws of the individual countries that are partners to NAFTA. So when you have a dispute under NAFTA, as we have with softwood lumber, you must have that dispute adjudicated on the basis of American law. It's not under international law, it's American law, and that is the requirement of the panels that adjudicate these disputes.

So when you believe that you're one legal victory away from ultimate free trade, what you are basically saying is that you're one legal victory away from American law giving you free trade. American law is made by Americans. It's made by the Congress, and they set the regulations; they set the definitions. They have a law that's already made it difficult for us to adjudicate disputes. Witness the fact that we've had spurious cases for the last five years, and many years before that, with allegations against softwood lumber. NAFTA, chapter 19, is there and it's in place, and we go through the litigation cycle. They're able, under American law and under the terms of NAFTA, to bring about these interim duties that destroy companies, destroy families, destroy communities, and it can take us years to get through it.

If you think that by winning all of the current cases that are before us somehow this little problem is going to go away, think again. There is absolutely nothing stopping American industry and the American government from launching new trade actions. There's nothing stopping the Government of the United States from tweaking its own laws to make it even more difficult for us to win chapter 19 cases going forward.

So you've got to be practical and realistic and realize that outside of the World Trade Organization, trade bilaterals and free trade areas that countries enter into are not the same thing. They do not provide for that international legal framework against which you can have disputes adjudicated. You're basically at the mercy of your trading partners.

[The Chair, Conservative, Leon Benoit]

You have two minutes, Ms. Guergis.

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

Good. I'll try to be as brief as I can here.

I'm just going to read for you Gordon Ritchie's testimony when he came before the committee, Minister, because I know you weren't here. He said:

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.

I read that to you leading into my next point. With regard to the dispute mechanism that is in this agreement, there are some people who have said to me that this dispute mechanism alone would be reason enough to sign the agreement. Could you please explain for us a little bit more about the benefits of this agreement?

[David Emerson, Conservative, Vancouver Kingsway, BC]

There is no doubt in my mind but that the dispute mechanism outlined in this agreement will provide, compared with chapter 19 of NAFTA, for a very timely, very definite, very predictable and objective mechanism for adjudicating disputes in this agreement or emanating from this agreement. I think that provision alone is going to be worth a tremendous amount, as will the establishment of binational mechanisms at both the government and industry levels.

The experience in Canada, and I think most members will know this, is that where we have binational sector arrangements, as we've had, for example, in the automotive sector since the 1960s—we had the Auto Pact, and that morphed into free trade in autos and an integrated North American auto industry—we don't have trade disputes.

You have trade disputes in the sectors where there hasn't been that cross-border dialogue and cross-border integration of the industry. The more we work together and the more mechanisms for cooperation, future planning, and decision-making we have, the less likely it is that we will have disputes, and the more readily will we be able to evolve the trading framework toward what we all hope for, which is the utopia of unmitigated, fair, predictable, and rigorous free trade.

[The Chair, Conservative, Leon Benoit]

Thank you, Minister Emerson.

Now for the last in the seven-minute round, we go to Mr. Julian, from the New Democratic Party.

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

Thank you, Mr. Chair.

Mr. Emerson, in your opening statements you talked about the risk of Lumber V. You said you thought the American industry would launch other actions against the Canadian industry, which is exactly the point, and why so many in the industry oppose this proposed agreement: essentially, it gives $500 million to the coalition to launch further actions against the Canadian industry, and it starts us back from square one, because it erases four years of legal victories.

We have heard from the industry in the past that 20% of Canadian mills might close as a result of this agreement. What we have is a very badly flawed agreement and botched negotiations. As one industry representative told me, Canada has capitulated on everything. Essentially, over the course of negotiations from April 27 to July 1, we saw continued concessions to the United States. It's no surprise that the industry feels betrayed. Earlier that week, prior to July 1, the industry was very clear that they saw this as fundamentally flawed. They raised very serious objections, and yet on July 1 you initialled the agreement just the same.

I have three questions.

The first is, why did you initial an agreement when you knew the vast majority of the industry was opposed?

Secondly, the Conservative Party in opposition, when you were with the Liberal Party, supported loan guarantees to the industry. Why is the government not moving to provide loan guarantees to the industry, and why the strong-arm tactics trying to force the industry to accept an agreement that is unacceptable?

Thirdly, you raised these issues around litigation and about there being potentially two or three years before funds come back. The Prime Minister spoke, I thought, very irresponsibly. He talked about seven years of litigation. We know that currently—on July 21, with the Tembec case—we won and won quite easily, and that the industry is now looking into providing remedies to the court. The court will address the issue of remedies. They will most assuredly be applying for a preliminary injunction, which would mean the tariffs would be taken off in that case. That case and the ECC judgment on subsidy, which Canada has suspended, are the two cases that are in their last throes.

My question is very simple. We're hearing seven years and three years. We know the Tembec case can only be appealed to the Court of Appeals for the Federal Circuit and that the ECC judgment is non-appealable. So very specifically, how do you come up with these figures—three years or, in the Prime Minister's case, seven years of litigation—when we know they're not the case?

[David Emerson, Conservative, Vancouver Kingsway, BC]

To begin with, the agreement on April 27 was shared with industry and with provincial governments. We took the issues and concerns that were conveyed to us over that period of time and we successfully negotiated further concessions by the United States on the issues that were important to them. Anti-circumvention was important. You spoke of loan guarantees. We have an element in this agreement that is far better than any loan guarantee program. You don't have to go to your bank or financial institution. All you have to do is assign your deposit. Export Development Canada will flow the cash to you very quickly. That is far superior, from a company point of view, to any loan guarantee program.

In terms of the legal victories, you cited Tembec. Tembec will have to make its own decisions on what the interests of Tembec are going forward. On critical matters relating to this agreement and some of the fundamental issues like the recovery of deposits, we have other cases we can use to pursue those legal points, but I should say, the advice I receive is that decisions relating to NAFTA disputes of this type are not precedential. In other words, they exist, they're part of the file, but they're not precedential in the same sense that common law court cases are legally precedential.

So I come back again and say to you, if the U.S. government and the U.S. coalition wanted to pursue a protectionist action against Canada, they can do that whether or not we win chapter 19 legal victories. They can modify the laws, they can come after us in various ways, but the reality is that if we have an agreement, it cannot be terminated by industry in the United States. It is an agreement with the Government of the United States. The Government of the United States is not going to terminate this agreement lightly, and I believe they will not terminate it, period.

I will state again that this is a seven- to nine-year agreement, with termination provisions because there were concerns and anxieties from industry. We have provided termination provisions that will be helpful in easing some of their anxieties.

[The Chair, Conservative, Leon Benoit]

Mr. Julian, you have about two minutes.

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

You didn't answer my question about where litigation could go. Essentially the decision on Tembec, which comes through the Court of International Trade, is appealable once. It's a 12-month appeal, and that appeal goes to the Court of Appeals for the Federal Circuit. That is the case with Tembec. In the case of the ECC judgment, we have suspended that judgment.

So I ask you again, specifically where do you come up with this two- to three-year figure, and where does the Prime Minister come up with the seven-year figure, when everybody in the industry certainly knows we're in the final stages of litigation and we're in the final stages of actually winning both on the issue of subsidy and on the issue of injury?

[David Emerson, Conservative, Vancouver Kingsway, BC]

I'm not quite sure what you're referring to. In my analysis of this agreement and the alternative to this agreement, which is litigation, I said let's accept 90% probability of success on key litigation cases. I believe, and the best legal advice I get and my experience in the industry tells me, that process will be drawn out for months, possibly years, and then you have to begin the whole process of unwinding the duty entries, which we know could take from two to three years under normal circumstances, because there are literally thousands of entries. Basically, under the litigation scenario, even if you're successful, you're looking at something like two, three, or four years, or maybe never, to actually get cash back. That's what I'm saying.

I'm saying the seven- to nine-year agreement is a seven- to nine-agreement. Yes, it has termination provisions, just as virtually all international agreements have. That doesn't mean those agreement are six-month or twelve-month agreements. They are permanent agreements, and in this case, permanent is seven to nine years.

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

Well, Mr. Emerson, I think you're undermining your own arguments.

[The Chair, Conservative, Leon Benoit]

Mr. Julian, I'm sorry; your time is up for this round. You will get another chance.

We'll go now to the five-minute round, starting with the official opposition and Mr. Eyking.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Thank you, Mr. Chairman.

Mr. Emerson, I'd also like to thank you for coming before our committee today. From my role last year as Parliamentary Secretary to the Minister of Trade, I know the complexities and the challenges of trying to reach a long-term agreement that could give our industry some stability.

Now, as mentioned before, rulings have been made and are still being made that the tariffs were illegally collected. In our negotiations a year ago, we were adamant that any final agreement should not have any money going into the hands of the U.S. lumber industry and its lawyers. One of the main reasons is that not only does it belong to our producers, but we've also been falling into that trap of the Byrd Amendment. You're very familiar with the Byrd Amendment. If we allow this money to go into the producers' hands, it legitimizes the Byrd Amendment, which could have far-reaching consequences on future trade disputes with the U.S. over any of our exports.

Another thing is that a year ago we had a bit of a draft agreement with the U.S. In that, all collected tariffs would be coming back to Canada. After we received those tariffs, we were going to then allocate a portion of that, probably similar to the billion dollars. Part of it was going to go to the Katrina disaster; the other part was going to be for promotions of softwood lumber products.

I have two questions. The first one, Mr. Minister, is why are we playing into the hands of that Byrd Amendment and giving the U.S. competition down there ammunition that will come back at us in two years' time, or whenever they come back at us again? That's my first question.

My second question is this. With all those international rulings in our favour, why aren't we now playing our cards a little harder and insisting that we receive the money, and of course allocating it in a way that the U.S. can accept, like helping with the Katrina disaster or promoting softwood lumber products?

[David Emerson, Conservative, Vancouver Kingsway, BC]

Thank you, Mr. Eyking.

The Byrd Amendment dies on, I think, November 1, 2007. If we enter into this agreement, it takes us right into the period in which the Byrd Amendment no longer applies. We've also won a court case, which I believe will be appealed by the Americans, on whether the Byrd Amendment should have applied to Canada in the first place. So we're winning there; the Byrd Amendment is history.

In terms of the 18% of the deposits that will not come back to Canadian producers, you have half of that being spent for good initiatives such as Katrina, low-income housing, and initiatives to help and support the industry. You have $50 million for a fund for a Canada-U.S. industry committee to develop the competitiveness of Canadian lumber and to promote lumber as an eco-friendly, vital building material against concrete and steel and plastics. You have opportunities to strengthen the competitiveness of the industry in both Canada and the United States--and I stress both Canada and the United States. Those determinations will be jointly made; they will not be unilaterally made. So we are basically out of the woods on the Byrd Amendment, and we are going to be party to making decisions on the other half of that money.

Remember, it's a negotiated settlement; you're asking the American industry and the Americans to give up something that they have. We have a greater return of deposits than we ever contemplated in the past; you will know that from your time with Minister Peterson. There was a time in Canada--I was there--when we were considering accepting a 15% export tax and giving up 50% of the duties.

Litigation has brought us to the point in the cycle where we are now. The risk we have--and I want to restate this once more--is that if we blow this opportunity for a very positive negotiated solution, I believe we're back into a litigation cycle, at the front end of the cycle, and that's where all hell breaks loose. To have that in a period of weakening markets would be devastating for the forest industry in Canada, and it's not something I could possibly accept, personally. The responsibility for that is not something I can accept.

[The Chair, Conservative, Leon Benoit]

Mr. Eyking, your time is up.

We go now to the Bloc Québécois.

Mr. Crête.

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

Thank you, Mr. Chairman.

Minister, if negotiations currently under way between representatives of the Canadian and U.S. industries result in a settlement that both deem to be acceptable and, for example, there is a move to extend the agreement by two years in order for it to make it a seven-year agreement—that seems to be of interest to both—would you be prepared to include such a proposal from the two industries in this agreement?

[David Emerson, Conservative, Vancouver Kingsway, BC]

Thank you for your persistence, honourable colleague.

I do not believe there are negotiations taking place between industries. Industries can talk to each other. The Government of Canada and the Government of the United States are not party to any such negotiation, and as far as we're concerned, negotiations are complete.

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

I'm asking whether you would be prepared to include a proposal from the two industries in this agreement, if they were able to reach agreement on one or more issues?

[David Emerson, Conservative, Vancouver Kingsway, BC]

This agreement is not a negotiation between the Canada and U.S. industries, it's a negotiation between the Government of Canada and the Government of the United States. I can assure you that negotiations have been concluded.

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. André.

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

Minister, since your answers to two questions you were asked did not satisfy me, I want to come back to them.

First of all, who proposed the 23-month termination clause? And why did you go along with that proposal, which was not part of the April 27 agreement?

Second, do you intend to table legislation on the softwood lumber agreement in the fall if the two pre-conditions for the agreement going forward are met—namely that 95% of the industry goes along with it and agrees to terminate all litigation currently under way?

[David Emerson, Conservative, Vancouver Kingsway, BC]

On the termination clause, that was an ask of the Canadian industry. We had a couple of iterations in terms of the Government of Canada to the Government of the United States. I don't want to reveal all the intricacies of where we started and where we ended, but the idea of the 23 months was really driven by the desire to have a 12-month standstill. In fact, my understanding was that the industry would rather have a standstill than the longer termination period. So the idea was to get a termination sufficiently long at the front of the agreement that we would have immunity from any trade actions guaranteed for three years. The way to do that was the 23-month, 30-day quick termination provision, and then the 12 months in the event that the Americans terminated.

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

On April 27, we had a seven-to-nine year agreement, and the current Canadian government asked for a 23-month termination clause.

[David Emerson, Conservative, Vancouver Kingsway, BC]

On April 27, we had an agreement that was silent on termination, which implies a 12-month termination provision under international law. What we asked for was what the industry in Canada asked for. We would have been quite content to leave it as it was in the original agreement. We were responding to a request from industry.

The answer to your question about a bill in the House in the fall would be yes.

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

Is the answer yes even if the two pre-conditions are not met?