International Trade Committee on July 31st, 2006

[Trevor Wakelin]

It's each company's decision as to whether they are going to sign the deposits. Obviously there's a lot of discontent; we're deeply disappointed that some of our concerns have not been addressed and that the minister and the Prime Minister seem adamant that they're not going to open this up for issues that we feel are fundamental to ensuring a commercially viable agreement. Seeing that, our members have indicated to us that if we don't see these changes, it would be highly unlikely that they would sign the deposits.

But I can't speak for each individual company, only to what they've indicated at this point.

[John Maloney, Liberal, Welland, ON]

So in effect, the industry has some significant influence on whether this agreement goes forward. I think everyone would agree that an agreement is certainly better than continuing and constant litigation.

The minister indicated this morning that perhaps there was a window to continue negotiations on the agreement. If that were to be the case--and I'll put it to all panellists, and, Mr. Wakelin, you've already started on this--what do you say are the three or four top doable changes you would like to see implemented in this agreement, so that you would have the confidence to support it? You've started, Mr. Wakelin, with your four points.

[Trevor Wakelin]

Clearly, from our perspective, it's interesting that the minister has said that there might be an opening. On the other hand, he says the agreement is done, is negotiated, is complete.

[John Maloney, Liberal, Welland, ON]

But the agreement can't be done if you people don't go ahead with the 95% threshold or don't withdraw those 32 actions--so you have some influence. We all want an agreement, but you people--

[Trevor Wakelin]

That's correct, but we are concerned that if in fact we make a statement that doesn't result in the 95% threshold, then the government will not pursue those changes we think are necessary to make this agreement viable. I think it's critically important for the Alberta industry to ensure that we get the market share that is necessary.

We're certainly disadvantaged by the change in the base period, in the initial discussion, under the basic terms. In fact, the day before the basic terms were announced by the Prime Minister, we understood that the base period was going to be 2001 to 2005. However, B.C. stood up and said that they could not agree to that and got it changed. That had a profound effect on Alberta. We were not consulted during those final hours in spite of the fact that we had made valiant attempts to make our concerns known to the government. That is probably our top issue.

Our next issue is termination. Unlike the minister, who commented that this deal will probably be a seven-year deal, we don't believe that's the case at all. Seeing as there is a termination provision, it will be used. We have had 25 years of ugly negotiations with the U.S. We've just now armed them with half a billion dollars to get their war chest ready for the next round, which we believe will be in three years, and to us, that is absolutely unacceptable. So clearly, that's the next issue.

If I can thus characterize it, the legal precedent is absolutely critical. We cannot sign over our deposits knowing that all we've fought so hard for in the last four years will be down the drain and that we will be faced with a Lumber V. Interestingly enough, we have come to the conclusion that we will get a Lumber V. It's guaranteed. It's just a matter of when, and we believe it's going to come at the same time, whether we sign off on the agreement or have continued litigation. It will be three years from now, because they can't launch a new trade case against us until the litigation is over. So as long as they drag out the litigation, there will be no Lumber V. But as soon as it's over and we get the win that we anticipate, they will launch the next case--that's true--but we also believe that if we sign off on the agreement and it enters into force in October, let's say, we will get a Lumber V three years after that. Only time will tell, but that's what we believe.

[John Maloney, Liberal, Welland, ON]

Ms. Lim, Mr. Grenier, do you--

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Wakelin.

Mr. Maloney, your time is more than up.

Monsieur André, you have seven minutes.

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

Good afternoon. First, I thank you to be here on this fine July 31. I know that it is not easy for everyone to travel, but we know that you care about this agreement. So your presence is very valuable.

Since July 1, we saw in the media that several industries are unsatisfied with the present proposed agreement between Canada and the united States. Faced with this situation, it seems that the government threatens industries by implying that if they don't accept the agreement, it won't commit to defend them. It considers that he has done his job and that the agreement is final. It will be this agreement or nothing at all. It seems therefore to suggest to the industry representatives to go back home.

This puts pressure on industries. I imagine that, in the field, among the companies, this situation also exists. The government, which had committed itself to put in place loan guarantees and other means to support the industry, disengaged itself since last election. This creates therefore a very difficult situation.

Coupled with that, we heard that some Canadian and U.S. industries are still discussing among themselves now. They would perhaps be still prepared to make some concessions to improve the agreement, namely on the cancellation clause and the matter of the surge mechanism. This morning, the minister told us that he wasn't willing to share information on this with us. He seems to disengage himself to support you, the industries, and to improve this agreement.

My question is first for Mr. Grenier, then for Ms. Lim and Mr. Reedy and Mr. Wakelin.

Mr. Grenier, what is your reaction in regard with this situation and what actions do you expect from this government in the future?

[Carl Grenier]

Some members of our industry and some members of the coalition had informal contacts a few weeks ago. The purpose was to see whether, in spite of the fact that the agreement was initialled on July 1, it was still possible to improve it and make it commercially viable. This would also be in the interest of the United States because, if the agreement is not commercially viable for Canadian businesses, it will not last very long.

My colleague, Mr. Wakelin, confirmed that an effort is made from sea to sea to get to a list of issues on which we would like some improvement. However, as I mentioned in my remarks, the U.S. coalition issued a very short but very clear press release twice over the last two weeks, stipulating that even if its members were not entirely satisfied with the agreement, it was out of question to reopen it, since they support their government and the Canadian government. It is interesting to see that the Canadian government is now serving the interests of our U.S. opponents by supporting the agreement in the way you described.

Will there really be an informal reopening of the negotiations? I don't know. However, it should be reminded that it would be very risky to reopen informally the negotiations in the absence of both governments, essentially because of competition laws which are in force both in the U.S. and in Canada. The U.S. law is very strict in this regard. Criminal charges could be laid against people who would take part in such discussions without the support of the governments. I was therefore a little surprised to hear Minister Emerson tell us this morning that he would encourage industries to talk to each other even if, for both governments, the deal was done.

On the other hand, your questions led the Minister to say that there was a possibility to amend the agreement if both governments agreed. Thus I imagine that there is a theoretical possibility, but it was rather clear that the Minister didn't want to do it.

[Bill Reedy]

In terms of what the government should do, or what I expect them to do or would like them to do, I'd like them to acknowledge that the negotiations are not over, that in fact industry is not satisfied with what they've done, and that we want them to go back to the table to negotiate something better and, during that process, to continue with litigation to build a stronger legal position from which to negotiate with the United States.

I have to agree with Mr. Grenier that the chance of getting the coalition to make any changes now is very difficult, because we've given them what they wanted. Why would they go back to the negotiation table, unless that were in the face of going back to litigation--which they knew they were losing?

[Jamie Lim]

As I mentioned earlier, what we expect from the government is certainly a loan guarantee program to keep your industry healthy while you still can. Why would you want to see more shuttered mills, more unemployment? It doesn't make any sense.

Initiate the loan guarantee program. We've been talking to the government about it for two years at least now. Mr. Grenier says four years. Get it done; initiate the program tomorrow, and allow your industry some strength so that they can go to banks and take out a loan. It's not a bailout and it's not at the expense of the Canadian taxpayer; it's just a guarantee so that a company can go to a bank and access money to replace the money that's been stolen from them over the last five years.

The other thing I would like to mention is that the whole idea of an agreement is that it's supposed to bring certainty and stability. We were told it was supposed to bring growth and prosperity. That's how it was sold back on April 27--growth and prosperity. Well, ladies and gentlemen, at $302 at a 30% market share under option B in Ontario--and if there are MPs here from Ontario, you'd think they'd be concerned about this--we don't have enough quota to operate our mills even near capacity. That represents over a 10% reduction for us in the board feet that we can export--that's bigger than one of our larger mills. That's a considerable chunk of board feet to take out of your province--and then you turn around and tell the citizens not to worry, because the agreement's going to bring growth and prosperity?

Well, I'm sorry, ladies and gentlemen, I can't do that. When I go home to the north, I have to tell them exactly what this agreement will deliver unless we listen to the changes from the businessmen who operate these mills every day, who employ Canadians, who sustain their families. Why would we not listen to business people who have been running our economy for years?

The other thing is that we have to be careful because financial analysts--and I have all the newspaper stories here--have made it quite clear that the agreement as it's written right now will certainly favour the largest companies. What happens to the ma-and-pa companies? I have members in my association who have been operating the same sustainable licence in the same family, into the fifth generation, for 150 years; what happens to them? Analyst after analyst has said this agreement favours the largest of the large.

[The Chair, Conservative, Leon Benoit]

Ms. Lim, I have to cut you off there; we're out of time, and then some.

We'll go to Ms. Guergis, from the government party.

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

I'm going to share my time with my colleague Mr. Hill.

I have a number of questions and comments, so I'm hoping I can get them all in to provide you an opportunity to respond.

First, my honourable colleague across the way, Mr. Maloney, said that the minister said there was an opportunity to open up negotiations. In fact, he did not say that. You were here this morning, and he did not say there was an opportunity to open up negotiations again. The deal is done, and there will be no more negotiating at this point. It is finished. At some point negotiations do have to end.

Taking a look at the section he was referring to, the meritorious initiative and the binational council, he did refer to that in his comments. I'll remind you that it does provide an opportunity for industry from both Canada and the United States to come together to work to make improvements and strengthen the North American lumber industry.

In addition to this comment, Ms. Lim talked about business people making these decisions and why we wouldn't listen to them. Minister Emerson is someone who comes from the industry, and I would say he's an expert and knows it inside out. I saw you here this morning, and we talked about the fact that he knows not only the business side of it, but the human impact we've having here. You've alluded to that many times in the past in your comments and suggested that if six months were to pass without companies getting the money they needed they would be “facing bankruptcy, issuing lay-off notices, and closing operations outright”.

I just want to say to all of you at this point that all of the predictions you've given me here are things that will happen without the deal.

The previous Liberal government was not able to negotiate a deal after years. You were highly critical of anything they brought to the table at that time. This government and this minister are very dedicated to not only the industry but the people who've been affected. The minister has seen the devastation and the job losses over the years. Our main focus here is to ensure that we not only get the duties back, but that we have an industry that's viable and survives.

Let's always remember that we're not out here to do a bad thing. It's not our focus to have a bad deal or to try to hurt anybody. That's not where we're headed. We want to do the best thing we possibly can, especially for the little people. They are the ones who need it most.

Did you know we had the idea in there or had changed the mechanism to get the duties back instead of having loan guarantees, that we had developed a process that would get the money back in six to eight weeks...and the Export Development Corporation and the return of the money? I think this is better than a loan guarantee. The Canadian government has stepped up and decided that we're going to actually give them the money back and not have them wait for two years. It's my understanding that if we have to wait for the Americans to return the money to Canadians, that's how long it will take. So I applaud the government for stepping in and ensuring the duties are returned immediately. I think that's a positive move.

Now I want to talk a little bit about NAFTA. A lot of people have criticized NAFTA in the past, but now we're being told that we should focus on it and continue to use the NAFTA process that's in place, completely ignoring the fact that the dispute mechanism that is set up within this agreement is going to be focusing on international law rather than U.S. trial law. So why would we not be considering that? I'm interested to hear some of your comments about that process.

This is something the United States almost refused to do. They conceded and gave in on this because Canada really pressured them to have this dispute mechanism in the agreement. In addition, when Gordon Ritchie, one of the originators of free trade, gave his testimony, he was very clear that the United States did not want softwood lumber to be included in NAFTA. You've acknowledged that. So why would we not think that this dispute mechanism in the new agreement would be an excellent opportunity to go forward?

I think I'll leave it at that.

Jay, do you have some comments?

[The Chair, Conservative, Leon Benoit]

Mr. Hill, please go ahead.

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

Mr. Chairman, I'd like to point out, because there seems to be a bit of misinformation here, that the only alternative to this deal is continued litigation. We should all be very clear on that. The minister was extremely clear on it this morning.

I think quite rightly the companies you people represent are going to have to make a tough choice. They're going to have to look at this agreement and make that decision, because as has been pointed out by colleagues across the way quite rightly, the companies themselves, if they so choose, can scuttle this deal.

But let's be very clear, because the minister was clear this morning, that if this is no deal.... It's fine to sit here and theorize that maybe we can reopen negotiations and get a few of these things fixed that we don't want, but both sides have to be willing to come back to the table, ladies and gentlemen. I don't believe for a minute, if you look at the record, that the Americans are going to be coming back to the table in the near future. So what we have is this deal or continued litigation for any number of years into the future. That's what I would submit.

Furthermore, just so that we're very clear about the termination, because this keeps coming up over and over again, only the Government of Canada or the Government of the United States can terminate this agreement after the 23 months plus the one-year freeze on litigation and trade action. So I don't think we need to continually raise this, that somehow the U.S. industry is going to suddenly get nervous and trigger the cancellation. It's only the government that can do this, and I would submit it's highly unlikely that either will, certainly within the three years.

[Jamie Lim]

In response to the comments, I'd like to point out that we are all quite familiar with Minister Emerson's background. Having said that, his is one voice, and you've heard voices today from industry leaders who have said quite the opposite.

Also, according to a financial analyst, Mr. Mason, “If the deal goes ahead, large producers such as leading exporter Canfor Corp. are better equipped to cope”—not even thrive, let's make that clear—“with the deal's complexities, compared with smaller operators...”, and it goes on.

I think it's important for us to recognize that the second largest company, West Fraser, has released a statement saying they need changes in this agreement. They know the industry, they know the people, and they've made it clear.

Also, Ms. Guergis said they are looking after—and this is what she said—“little people”, and that's important to this government. Well, I can tell you that had you implemented the loan guarantee program—because in opposition you fought for it, you thought it had to be implemented ASAP—

[The Chair, Conservative, Leon Benoit]

Time is up. Could you finish in short order, please?

[Jamie Lim]

—then the people who are without their jobs today might still be employed.

[The Chair, Conservative, Leon Benoit]

Thank you.

We'll go now to the second round.

No, pardon me. To complete the first round, how could I forget—wishful thinking—Mr. Julian?

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

Mr. Chair, I appreciate that. I don't want to be forgotten.

[The Chair, Conservative, Leon Benoit]

Mr. Julian, seven minutes, please.

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

Thank you very much.

Thank you, particularly Ms. Lim, Mr. Wakelin, and Mr. Grenier, for coming again today. You've been canaries in the coal mine, I think. You flagged concerns as this process started, and unfortunately, many of the concerns you raised the last time you came to the committee have come true, as we see the botched negotiation and this badly flawed agreement that was initialled on July 1.

I have a general question, which you can choose to answer or not, and then I have specific questions for each of you. I'll get those out and let you come back to them.

It is inconceivable to me that a government would refuse loan guarantees--especially a political party that promised them prior to being elected--and that this same government would suspend an ECC judgment that's non-appealable and would lead to an end of the illegal tariffs. So I'd like each, or all, of you to comment on what the government strategy seems to be, because it seems to be holding the softwood industry by the neck over a cliff and saying, you are not going to get any support unless you do our bidding.

Regarding the specific questions, Mr. Grenier, you mentioned the cost of the four years of litigation to date--we're in the final lap--where there are only two judgments, two hurdles, to get across. How much has this litigation cost, and how much would it cost if we started over with these various panel processes that we've gone through?

Mr. Reedy, you used the words “total capitulation”. I've certainly heard that from other industry sources. I've also heard from the industry, from smaller companies, how impractical this is and how it is commercially absurd. I'd love for you, as a manager in the business, to comment on how this could even be commercially implemented.

Ms. Lim, when you appeared before us, you flagged concerns about the direction the government was taking and that you thought 20% of mills could close if the government continued along those lines. I'd like to know whether you still feel that way about the job losses from this badly botched negotiation.

Mr. Wakelin, you raised concerns about consultation when you appeared before us the last time. I'm interested in knowing if the industry in Alberta was consulted at all in the days leading up to the infamous agreement that was initialled on July 1, when the industry in other parts of the country was flagging the fact that this was a bad deal and should not go forward.

I'm also interested if you're equally concerned about the termination clause in article XX, which specifically states that the United States has the right to terminate the agreement if Canada is not applying export measures under articles VII and VIII. In other words, all they have to do is allege a circumvention and they can terminate the agreement, take the billion dollars, and run.

Thank you.

[Carl Grenier]

Thank you, Mr. Julian.

It is obvious that the fact that the government did not accept what they had proposed themselves - the loan guarantees we have been asking for four years - makes the alternative almost impossible. In many cases, people are, financially speaking, at the end of the tether. If they don't have some financial support which would enable them to get across the river, they are obviously going to be forced to accept the deal.

The suspension of the NAFTA Extraordinary Challenge Committee is, in my view, an accident. According to me, the U.S. government pulled a trick to the Canadian government in this matter, since in all the other cases, nothing has been suspended. Everything rolls as foreseen since it is the cautious way to go. There is no way to know whether the agreement will be approved or not in the end.

I think that this particular case is absolutely deplorable. It is linked to the original complaint of the United States, which claimed that we were subsidizing our industry, which is not the case, as recognized by NAFTA authorities.

On the cost of litigation, I testified here some time ago, along with some of my colleagues from the industry associations, about that. It's hard to pin down, but it was estimated that it was easily in the order of $100 million. Of course it's been some time since then.

The cost of going on for another year or so would obviously be quite small compared to that. The cost of doing it over again under the conditions of the deal would be greater because indeed some of the mechanisms that we have now solidified through these victories would simply be gone. So it would be more expensive the next time. This is another reason why it's such a tragedy under this deal to let all these results go.

[The Chair, Conservative, Leon Benoit]

Just for your information, there is less than two minutes left for all of you to answer. I will cut you off after seven minutes, so go ahead and use that time.

Mr. Julian, because you've asked so many questions of so many witnesses, I'll allow you to direct traffic here for the next minute and a half.

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

I'm a temporary chair, Mr. Chair.