Evidence of meeting #20 for International Trade in the 39th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was quota.
Liberal
Lui Temelkovski Liberal Oak Ridges—Markham, ON
Thank you.
Mr. Potter, you mentioned that the quota system needs to be clarified further. You made your point that fluctuations in a monthly quota would not only be difficult to track, they would be more volatile. Also, if I could go a little bit further, our deliveries might be returned at the border because of a quota that had not been tracked very closely.
Partner, McCarthy Tétrault LLP, As an Individual
There's no doubt that even though a seasonality is built into annex 5's calculation of what the monthly quota will be, the volatility of the market, clients' changing demands at the border, and returns of stock will make the tracking and management of quota extremely difficult and burdensome for both the government and every individual exporting company.
Liberal
Managing Director, Paper and Forest Products Research, BMO Capital Markets, As an Individual
Thank you for the opportunity.
As an analyst, you're looking at trying to forecast how much companies make. Let's say a company ends its quota and they're not sure whether there's a 10%, 15%, or 22% duty coming, because they haven't received the numbers. They're all going to have to put in some sort of allocation or contingency for that. So you're going to have companies reporting, okay, this is what I think I'm making. But depending on when the final numbers come out--let's say there's a snowstorm or whatever in the U.S. and demand goes down--I may be wrong, so I'm going to have to lower my estimates. Of course, that does create a lot of instability when you're trying to forecast for a company. Needless to say, you have to take the most conservative forecast.
Liberal
Lui Temelkovski Liberal Oak Ridges—Markham, ON
Mr. Duncanson, you mentioned that you're hoping the text will be massaged so it will be more palatable for our Canadian companies.
Analyst, Forest Products, Jennings Capital Inc., As an Individual
That's my wish. I did learn something today as well. There was a lot of conversation that the minister enlightened me on, just small details. I'm now sort of being convinced more and more that with the deal as is, if we can get this working group to work properly between the two countries, after the deal is signed there will be a chance to do some further massaging. It may be with annex 5, if it's not too late.
I tend to disagree with my colleague here, but we are in a competitive business. You have to remember that quarterly earnings are unaudited. I think the minister himself said--and he was a fairly senior executive at one time in the industry--you can pretty well guess to about 98% what your past earnings were.
Liberal
Analyst, Forest Products, Jennings Capital Inc., As an Individual
I didn't quantify the amount. I was vice-president of lumber sales, and I knew exactly what our shipments were on a day-to-day basis. That was before we had a lot of the sophisticated computer systems we have now. So I don't think it's as big a problem, but it's a good point.
Managing Director, Paper and Forest Products Research, BMO Capital Markets, As an Individual
From the perspective of the companies I spoke to, they say it's going to be a big problem.
Conservative
Bloc
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Thank you, Mr. Chairman .
Mr. Potter, you talked about option B. You explained its complexity. You have also explained quite clearly the impact of a monthly administration of quotas.
However, I would like you to tell us what it means for businesses. What will be their situation if that change is implemented as provided in the agreement that has been signed at the end of June? It will have major consequences for companies in Quebec because this might be the option that will be chosen.
Partner, McCarthy Tétrault LLP, As an Individual
Thank you very much, Mr. Crête, because you give me the opportunity to add some more details.
There are essentially three problems. The proposal I am making today deals only with two of them.
I shall not deal with the fact that quotas will probably be administrated on a monthly basis rather than a quarterly basis. This will largely increase the risk that part of a quota won't be used, that there will be orphan quotas, if I may say so, month after month. This is an issue.
However, the two other problems...
Bloc
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Does it mean that this quota will be hidden, artificial or supplementary?
Partner, McCarthy Tétrault LLP, As an Individual
Canada's market share is 34%. Quebec, for instance, would have its share of that 34%. However, this is rather tenuous. In practice, as the quota will be administrated on a monthly rather than a yearly basis, this 34% share will diminish month after month. It is a problem but let us put it aside for now.
To a certain extent, I am trying to solve this issue with the flexibility provided in Annex 5 which offers a carry-forward and a carry-back up to 12%. It means that a carry-forward or a carry-back could change the quota for a month up to 112% of its normal value. However, the real volatility would be much higher than 12%.
For example, if I do not use entirely a quota of 80 million board-feet in June and if I can only carry forward 60 million board-feet in July what will happen with the 20 million board-feet left over? If we interpret Schedule 5 so that the 60 million bf quota can be carried forward to July and the 20 million can be carried forward to August, those 20 million board-feet will not be lost. Otherwise, the quota would shrink to a large extent.
Bloc
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
To your knowledge, is it possible to do it without changing the agreement as such, simply through letters of understanding or by adding some clarifications to the annexes?
The government seems to be very reluctant to reopen the agreement even if it is bad. Do we have any leeway on this?
Partner, McCarthy Tétrault LLP, As an Individual
As I said in the document I gave you, Mr. Crête, I think that we do. We could obtain from the United States the assurance that the Government of Canada could allow a carry-back or carry-forward over three months instead of one month without it being considered a circumvention. It should be possible to get that assurance without reopening the whole debate.
Bloc
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Then, this could be done in the next few months, before the Bill is tabled in the House of Commons and before it becomes official.
Partner, McCarthy Tétrault LLP, As an Individual
I am convinced that people of good faith should be able to do so in the next coming days. With all the respect I have for the Government of Canada, one of the problems is that the US industry and US government are not talking to anyone because Ottawa is sending them the message that everything is completed.
This could be easily corrected. It should be encouraged and we should find an easy way to correct the situation.
Bloc
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
You have identified other aspects that could be modified very simply through technical means. However, it is obvious that the Government of Canada must have the political will to tell its American counterpart that, without reopening the agreement, it wants to study the interpretation of certain provisions.
Partner, McCarthy Tétrault LLP, As an Individual
It is the case, for instance, of anti-circumvention provisions. The definition of “circumvention” is so vague that it is almost impossible to change in any way the forestry policy of a province. It even requires the province to ask the permission of the Americans to adopt a change.
It would be very easy for the Americans to give the assurance that a change towards free markets will never be considered as circumvention. It would be reassuring for everyone.
Bloc
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Mr. Atkinson, you referred to the insecurity concerning capital investments. The forest industry is in a rather peculiar situation. For a number of years, we have not know exactly where this will lead us. Even if an agreement is not really good, at least we know where we stand.
Would there be another option? For instance, instead of guaranteeing the repayment of $4 billion in the weeks following the ratification of the agreement, if the government was giving large loan guarantees--not loans but loan guarantees--to the Canadian industry would not the result be the same as concerns markets security?
Managing Director, Paper and Forest Products Research, BMO Capital Markets, As an Individual
I'm not in favour of loans, for what it's worth. I mean, we do have a structural problem--
Bloc
Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Loan guarantees and not loans. It is not the same thing.
Managing Director, Paper and Forest Products Research, BMO Capital Markets, As an Individual
Sorry, my apologies.
So what you're suggesting is loan guarantees instead of...?
