Thank you, Mr. Chairman.
Thank you for inviting me to appear again before this committee. Although I represent a number of Canadian industry interests in the softwood lumber dispute, I'm not presenting any specific views of my clients.
After reviewing the testimony you heard on July 31, I decided to refocus my planned remarks. Several members emphasized on July 31 that industry ultimately controls the fate of this deal. In general, I've observed the government and members, even associations, trying to shift responsibility or distance themselves in some way from the deal.
Honourable members, responsibility for this deal ultimately resides with the government and with you, not the industry. It has been forced on the industry for political reasons. No one in the industry likes it, but many believe they have no choice, and therefore, many have already accepted it.
The negotiation of this agreement is a watershed, and passage in this House will be an historic moment, but neither for the reasons you may suppose. The agreement spells the end of NAFTA's chapter 19, and in many ways the end of NAFTA itself. I would be pleased to elaborate on these two critical points and had intended to address them directly in these opening remarks, but I'm refocusing. Please do ask me about them.
I want to talk for a few minutes about the genesis of this agreement, and one of its most important and least-discussed elements. There is a bit of Watergate in this story, and as in Watergate, it is essential to follow the money.
Back before Christmas, David Emerson, then minister in a Liberal government, and his ambassador in Washington, Frank McKenna, were asking what it would cost to buy peace in softwood lumber. They were adhering to all of the usual Canadian negotiating positions on this subject: protecting chapter 19 in NAFTA, fending off onerous anti-circumvention clauses, protecting Canadian prerogatives. But unlike any previous dispute, this one involved the accumulation of over $4 billion, now $5 billion, and there was the Byrd Amendment, which led the U.S. industry to believe that if it could just stall long enough to wear down the Canadians while claiming title to all of the money, they could settle for a lot of it. They knew the Canadians had brought a case in U.S. court that could prohibit them from claiming any of the money pursuant to the Byrd Amendment. They demanded a 60-40 split, back at Christmas.
Messrs. Emerson and McKenna negotiated to 50-50, and then asked industry. Industry calculated net present value against litigation prospects and said no, but in the process, Messrs. McKenna and Emerson asked what would be enough. At that time, under those circumstances, they were told 70%. Think, then, of how impressed Mr. Emerson was with himself when in April he could tell industry he got 80%, but there were at least four huge problems and he had neglected all of them.
First, on April 7, the United States Court of International Trade ruled that the U.S. industry was entitled legally to no money--none of it. It was not surprising, then, that 20 days later the U.S. coalition said it would take $500 million. It was hardly a negotiating triumph to persuade them to take $500 million when they had become legally entitled to not a penny.
Second, net present value at the end of April was not the same as it was at Christmas, especially as the pot kept growing. Canadian industry had in mind the fixed sum for the coalition, maybe as much as $150 million, not half a billion dollars.
Third, it was not quite as obvious in the two-and-a-half-page term sheet of April 27 that Canada would give away everything that the previous government had been defending in order to complete a deal, because political priorities had changed so radically.
Fourth, the term sheet promised a major joint initiative to improve North American competitiveness. The “remainder”--that was the word--the terms said would go to so-called meritorious initiatives in the United States.
Industry was troubled by this last development. It wondered why it was providing foreign aid to the United States, but it was also reassured that the sum would be small. More impressively, Minister Emerson told CEOs that as long as they were getting back 80% of their money, it was none of their business what would happen to the rest. He was, by all accounts, very blunt on this subject.
Meanwhile, we were advised by negotiators that the White House had taken a direct and active interest in this money but that Canadian industry ought to focus on other things; as the minister had said, it was not really their concern. The remainder, then, became $450 million out of $500 million. That, honourable members, is a colossal sum of money. It's certainly got the U.S. government, as well as the coalition, getting the other $500 million committed to the deal. It's astonishing how little--nothing, really--the government got in exchange for it.
And let's understand this money, the $500 million--not the coalition's money about which you heard on July 31, but the rest. To give some perspective, at the height of the Watergate scandal, focus was on an illegal slush fund available to the Committee to Re-elect the President, which was thought to be tipping the balance of American politics. The fund never exceeded $20 million.
One of the articles of impeachment against Richard Nixon stated that he received foreign campaign donations, perhaps as much as $50,000. Both by statute and by the United States Constitution, gifts of money to the United States must go to the Department of the Treasury and be appropriated by Congress. The lone abhorrent and still controversial exception--