International Trade Committee on July 31st, 2006

[Francis Schiller]

That's absolutely right. If you look at the distorting results of this dispute on the independent remanufacturers, particularly in eastern Canada—and you see it in their export volumes—they are precisely because of the entry value tax. Effectively, they've been priced out of the U.S. market, and their export levels reflect that today. That's why we've lost between 64% and 80% of our total exports.

[Bill Casey, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

I see that the Canada Revenue Agency is going to monitor this. Does that scare you?

[Francis Schiller]

No. Again, we believe that's a step in the right direction in that it's being administered by a body that is a tax collecting agent. It's one thing to cheat, and it's another thing to cheat the tax man. So we welcome that. We think a critical step towards ensuring the long-term viability of this is to make sure that circumvention is rooted out.

Again, to go to the maritime model, why they serve as such a great example is because they have aggressively pursued that. They haven't waited for government to bring their solutions; they've brought their own. This is relevant to a question Mr. Crête asked a few moments ago. In Quebec, for example, there are remanufacturers who process Maritimes-sourced wood, and that's generating employment in Quebec.

One of the other by-products of this agreement that are positive is that for the first time the certificate of origin will be recognized for maritime wood processed outside of the Maritimes. That's very important for my members in Quebec and Ontario who process a lot of wood. It's also confirmation that we can work effectively under the certificate of origin program.

These are steps. We didn't get everything we wanted, but we believe the embryo is here to take a step towards getting another group of Canadian producers out. Again, it's not perfect, but the reality is that we can't afford the status quo. If this deal doesn't go through, Canada's going to lose its independent remanufacturers. That's not an overstatement; that's happening right now. We've seen significant losses in Manitoba. Some of the largest operations in Alberta are in trouble. The guys in Ontario are in trouble, and the same thing is happening in Quebec.

We want to see a deal. We're hoping we can work with the government in fine-tuning some of the operational issues.

[The Chair, Conservative, Leon Benoit]

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

Now to the NDP, Mr. Julian, for seven minutes.

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

Thank you, Mr. Chair.

Thanks to all presenters.

I'd like to start with Mr. Cameron. Thank you very much for your presentation. It was excellent.

At one point in your presentation you referred to the different tax levels, the different quotas. We don't have a copy of that, so I'd appreciate it if you could come back to the issue of the various levels that are imposed and the complexity of this agreement.

Further to that, could you comment on the question of the lack of commercial viability of this deal, which many people have raised, that we have retroactive attribution of an export tax so that people who are shipping softwood don't actually know what they're going to get until well after the fact?

[Russ Cameron]

I don't remember all the permutations and combinations, but basically, the variables are the random length index, where it is, and levels of shipments being above or below the 110. What those variables are will determine the tax level or the quota level and whether there's any add-on penalty. The bottom line is that the tax can be 2.5%, 3%, 5%, 10%, 15%, 22.5% or 0%. I missed 7.5%, which is in there too.

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

How many variations are there?

[Russ Cameron]

Well, there are eight possible tax rates, depending upon the random length index and whether you're above or below the 110. Three of those are involved in the quota, that being the 2.5%, the 3%, and the 5%. On the quota, it can either be 34, 32, or 30. I guess there are actually four, because if you're over $355, there wouldn't be one. Oh, and the quota can be applied regionally, so that the quota applies to the entire region. You add up all the shipments, and once that region exceeds the shipments, then the border closes and you can't put your product in, no matter how much you are willing to pay. Under the last softwood lumber agreement, you could pay $50 and get in another 2.5%, or you could pay $100 and put in as much as you want. This is a hard cap.

The other possible way the quota could be administered is if it was individually allocated to companies. The agreement itself doesn't specify that, so I assume that would be up to the individual provinces or regions. But if it was given out to individual companies.... As we heard from the Government of Saskatchewan, they were disadvantaged for some reason. Their shipments were not up during the period that would be used to allocate it.

As we've just discussed, we've been subject to this ad valorem duty, where we've essentially been paying duty on our heat, light, taxes, and every other type of thing. We were already reduced from the prior softwood lumber agreement. So our shipments are down about 15% to 30%.

The period of time under which we'd be allocated quota.... It would basically institutionalize at probably a lower level...well, definitely now, because we would be 30/34ths of what we'd normally get. We wouldn't be able to operate at the levels at which we're currently operating, and obviously there would be no entrants or growth. We'd have to split our fixed costs over fewer units. The guys judge that they can't do it based on the quota they have.

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

So you don't believe this is commercially viable at all--

[Russ Cameron]

No.

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

--and as a result, we would see an impact on independent remanufacturers.

[Russ Cameron]

Yes, absolutely, for sure. We wish we were making 15% or 22.5% on the product so we could give it to the government, but we're not. Even under the $500 cap, we just don't have $75 to hand to the government, or $112.50 if we were under the retroactive penalty. We can't price our products. We cannot operate the plants at the level that would be permitted under the option B quota thing. It's judged by our members to be something they cannot stay in business with under any long period of time. If there was a clearer exit ramp, such as in our prior attempts to get an agreement, where we were discussing what the interim measures of border tax and quota would be while we took steps towards the exit ramp, they might be able to survive for a while, as we're kind of doing now. But this institutionalizes the interim measures and it just doesn't allow us to carry on business.

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

Thank you very much.

I have other questions for Mr. Rutenberg. You were very eloquent on the fact that we have these two hurdles to go over in litigation to win both on the ECC with the subsidy, which is non-appealable, as we know, and the Tembec case and injury that we won on July 21, which is subject to only one appeal, the U.S. Court of Appeals for the Federal Circuit.

I'd like you to comment on what we lose if we push forward with this proposed deal, both in terms of the $500 million that goes to the American softwood industry to attack the Canadian softwood industry again, with the impact on American home builders, and the fact that we lose all those four years of litigation, which makes absolutely no sense, to lose that four-year investment when we have only 12 months to go.

If we have time, I'd like Ms. Blenkhorn to specifically respond on the issue around the maritime exclusions, the one thing the government didn't give away, the exclusions based on companies not having shipments going above 2004-05 levels. Is that what you requested of the government, to cap it at 2004-05 levels?

Secondly, you mentioned ongoing litigation, a little like Mr. Emerson, but Mr. Emerson, when pressed this morning, was not able to give any sense of any appeals on the non-appealable ECC judgment and the non-appealable Court of Appeals for the Federal Circuit.

It's just to blow up this myth about ongoing litigation when we know very well there are only two hurdles to go.

But I'll start with Mr. Rutenberg.

[The Chair, Conservative, Leon Benoit]

Mr. Rutenberg, as short an answer as you can, please.

[Barry Rutenberg]

If you believe in “happily ever after”, then I think we're okay, but there's kind of like the optimistic and pessimistic scenarios. The optimistic scenario is that we have nine years of peace and we have steady prices. I think the U.S. builders assume that we're going to pay a higher per unit price for that, and therefore we're still going to have to look for some alternative materials to fill the gap and for our own economics. I think the negative one is that at 23 months somebody kicks out and says, you know, we don't have a deal anymore, that there's some kind of problem.

You now have the U.S. industry, which has gotten an extra $500 million cash infusion, and I don't know if they've set it aside or not, but they can come back and try to recruit people based upon that economic model and you have to start over on your case history.

We have one additional problem, which is that we have credibility. The home builders have been in our Congress for some number of years saying this really isn't fair and trying to argue for free trade. It gives us a little bit of a credibility problem going forward. It erodes that as well.

Is that short enough?

[The Chair, Conservative, Leon Benoit]

Thank you very much.

Ms. Blenkhorn, please.

[Diana Blenkhorn]

Mr. Julian, I'm not aware of any cap for Atlantic Canada either in article X, which provides our exemption from the previous articles. It doesn't talk about a cap. Then when you get to anti-circumvention, it talks about 100% of our production, and anything that exceeds our production will be at a penalty of $200. The answer to your question is yes, that is exactly what we asked for.

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

For 2004-05?

[Diana Blenkhorn]

Not for 2004-05. There is no cap in here.

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

No, but is the 2004-05 reference specifically what you asked the government for, or did you ask for an average that was broader than that?

[Diana Blenkhorn]

Can you quote to me where you're reading the 2004-05 reference?

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

That's from article X, the average monthly production volume established.

[Diana Blenkhorn]

That's not applying to the Maritimes. This is subparagraph 17(a), in (i) and (ii).

[The Chair, Conservative, Leon Benoit]

We will have to leave it at that. Thank you both.

Thank you all very much. I think you've given us a lot of information in a short time, and we all very much appreciate that. Thank you to the members of Parliament for their questions.

This meeting will be adjourned. The next meeting will start in three minutes.