International Trade Committee on Aug. 21st, 2006

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

And what you and the nearly 300 retail cooperatives you represent across the country favour is that the industry moves to loan guarantees--that's been very clear from a number of the presentations--and that we get over those last two legal hurdles so that we have that victory once and for all, namely, the tariffs taken off and the moneys reimbursed.

[William Van Bergeyk]

For any of those opponents to loan guarantees, I would simply say, if you don't want the loan guarantees, then get out of interfering in the marketplace. You've got to either offer the loan guarantees unequivocally or you've got to say you'll get out of the market interference altogether.

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

Thank you for that.

I'd like to come to the running rules, because you mentioned in your presentation from the Federated Co-operatives that “The proposed monthly system is unworkable and retroactive penalties deny producers rational business choices. Retroactive penalties for regional overshipment will be applied to all shippers under the surge mechanism.” And you asked the question, “Why should actions of competitors directly impact our operations?”

I'd like to ask each one of you, starting with Mr. Van Bergeyk, how you could put in place these running rules. Do you have an implementation strategy? These are monthly, retroactive, after the fact, as we know. I've certainly received from softwood producers right across the country concerns about the complete lack of commercial viability of these arrangements, and we have two supporters here.

So what arrangements would you put into place to cope with these running rules that the industry has virtually unanimously said are commercially non-viable?

We'll start with Mr. Van Bergeyk.

[William Van Bergeyk]

I think what you're going to see is a rush to the border under certain circumstances, and then when the cap has been hit, everyone will suffer. I don't think that's right.

I'm not so sure business is likely to want to make shipments into a market where they don't know whether they're going to pay 0%, 5%, 10%, 15%, or 22%, and just roll the dice. That's not what business is about. You need to know some of that information in advance.

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

Around the running rules, yes.

[Jim Shepherd]

Mr. Chair, the running rules can be interpreted with ominous signs, but the practicalities of day-to-day operating this business are that everybody is running and selling full. Limitations are railcar availability, transportation logistics, and infrastructure around getting the movement of goods. I believe the market share that Canadians will have access to will be adequate for this capacity to continue.

Lumber prices and the economics of running a mill will be a bigger influence on running or not running. I feel that the key for us to manage our business.... I look at the overwhelming realm of needs in an industry such as lumber, and this is just added to it. Information on a daily basis of volume going over the border is a very doable system that will be put in place, and companies will be able to monitor very quickly what's happening in terms of the volume going over and will manage their behaviour accordingly.

Again, I come back to the need for this solution here, but there are mechanisms, systems, and information strategies that can be put in place to deal with the running rules.

Nobody liked the retroactivity. I think it's clear to say this is difficult for us and it will put discipline into an industry that we just cannot afford to go into surge volumes. As the biggest lumber producer, I know this is a risk for us.

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

And how do you see that discipline being put into place?

[Jim Shepherd]

Through daily information on volume going over the border. If you know what you're dealing with, then you behave accordingly.

And again, it's not as if mills have huge capacity, that they surge out on a daily basis. The infrastructure of softwood is a very well-established balance right now on logistics, railcar availability, trucking capacity, and so forth. Unless you have a mill right on the U.S. border, most of what you're dealing with is an even flow of product out of your mill.

[Paul Perkins]

Mr. Chairman, I'd just like to respond to the honourable member's point with a couple of views.

One, we learned to live with the SLA and manage it as an industry. It was a complicated agreement too, put in place in order to meet U.S. demands. We've learned to deal with the vagaries of the legal decisions over the last four years that create opportunities with no duties and windows. That's certainly not security.

We view this as a planning horizon that has better opportunities than either of those, and in fact if we are able to build our structure around it and understand the rules, then we will learn how to play by them. We can't play by a system that changes with every legal decision.

In terms of what has been said, this is better than the alternative. Certainly we don't like retroactivity, but on the other hand, there was a debate within the industry as to whether retroactive was better than prospective, and there were companies in the east that supported retroactivity for option A. So I wouldn't put forward that it was a black and white case, even on that one.

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

Mr. Shepherd said it is difficult for us. Would you agree with that comment?

[Paul Perkins]

It's certainly difficult. It's not a world we've lived in in the past, but if that's the world of the future, we'll figure out how to live with it.

[The Chair, Conservative, Leon Benoit]

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

We'll go to a second round, starting with Mr. Boshcoff for five minutes.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

Thank you.

I have three quick questions.

Mr. Van Bergeyk, regarding the end of the legal victories, industry used to have a considerable share, as we won all of those court awards at various times, and now essentially the feds have said there's no future help and that you're on your own. I'll let you think of the fact that we are so close to actually doing it right and getting everything. I'll just leave that one with you.

Mr. Perkins, it was alluded to earlier on today that quotas are illegal in the WTO, international law, and those kinds of things. The corollary is that with the reduction to 30%, or whatever it may be, it will probably be less than what most people have now, so that no matter what happens, we'll be getting less.

Thirdly, Mr. Shepherd, you seem to be able to explain the mechanics of things. Much of this started when the dollar was at $1.54, and now it's at $1.12. What about the interest over this time, and all of those kinds of financial calculations? Will we get the interest? We will we get a dollar at $1.54, or will be get it at $1.12, what it is now?

Please, gentlemen.

[William Van Bergeyk]

Regarding the entry into force and what we really believe is the end to litigation, it still remains unclear to us when the agreement does come into force, because that effective date has not been determined. But when it does, it will require that all of the conditions precedent be met. We have no way of knowing whether in fact all of the eight conditions precedent will be met.

Most disconcerting to us is indeed the termination of litigation. We believe that one of the requirements for WTO notification of mutual agreement indeed spells out that we're caving in or capitulating. We believe that the benefits of any previous decisions will be forgone and of no use in the future. We think that we're at the cusp—I heard it said earlier—of coming to that final resolution. Contrary to what my counterparts in the industry are saying, we really believe that.

[Paul Perkins]

Mr. Chairman, if I understood the question of the honourable member, I think it went along the lines that quotas are illegal and that the WTO somehow has ruled that quotas are illegal. I guess I'd answer in two parts.

One, the softwood lumber agreement that we lived with for four years was a quota. I'm not sure that answers the question.

The second part is that, as I understand them, WTO decisions have not been ruled as binding on the U.S. So while we've had a number of WTO decisions, the U.S. has not necessarily followed those, so I don't find that too comforting.

[Jim Shepherd]

Mr. Chair, in responding to the honourable member's question about interest, as I understand it, certainly we will get the interest that has been accrued on the deposits of exporters of record. My understanding is that it will be calculated and valued at the current exchange rate. Over time, as the Canadian dollar has appreciated in value, it has certainly hurt the amount of money that will be recalculated in Canadian dollar terms.

Again, factoring all that in, I'm still very supportive of moving forward.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

When we talk comparatively about one deal versus another and where we're going and the fact that previous deals seemed to be on course and didn't surrender so quickly and dramatically, it's been stated very clearly through several sets of witnesses that we've come to the end of the legal wars and that the Americans virtually have nowhere else to turn. So if we sign now, then we have to pay them back; if we continue on the legal track, then we don't have to pay anything back.

I guess that in a nutshell is the whole course of all these hearings. So I'd be very keen to hear your analysis of that.

[The Chair, Conservative, Leon Benoit]

Mr. Shepherd.

[Jim Shepherd]

Mr. Chair, this is the crux of the decision companies must make. I hope I'm clear. The $1 billion we leave behind today and the termination of litigation of Lumber IV is a decision to be compared with continuing litigation, getting your $1 billion back, and facing even higher and more punitive duties going forward into the future. And as much as nobody in this room can predict the future accurately and with any assurance, I am convinced that with strong U.S. government and coalition support, Lumber V is something we want no part of.

[William Van Bergeyk]

Based on an administrative review, one of the arguments made was that you're going to be facing 14% countervail duties come December. In my opinion, 14% is a lot better than 15%. I don't know about your math, but that's still better. And every single preliminary administrative review has always come up with higher numbers and been reduced when it came to final administrative reviews, so I'm not convinced this 14% number is even going to be factual.

[The Chair, Conservative, Leon Benoit]

Mr. Perkins.

[Paul Perkins]

Mr. Chairman, the honourable member is characterizing this as the end of the lumber dispute. We're very much of the view that this would be the start of the next lumber dispute and that we would be back in four years with rates that were put forward without evidence, that we would be back in four years in a market that will be much worse than we were in four years ago, and that in fact the alternative would be higher rates. Yes, we would in fact, if we followed out today's litigation, be entitled to our deposits back. The question is, what did we buy with the $500 million? We bought the package, which includes all of the elements of it.

So our view is that we bought this period of peace in which we can develop something further and hopefully use it as a bridge to a North American market.

[The Chair, Conservative, Leon Benoit]

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

Now we go to Monsieur Vincent, for up to five minutes.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chairman.

Thank you for coming to Ottawa to meet with us. You have a very convincing brief, in my opinion. It says that we bought peace for $500 million. That is a little expensive, but a lot of other things run completely counter to that. In fact, over the course of the day, I have heard people say that the industry needs a shot in the arm and that tomorrow's agreement could be even more costly than this one.

People have referred to the high dollar, interest rates, the price of oil and the export percentage, namely 5, 10 or 15 per cent. I even heard someone say 22 per cent. How will the industry possible manage?

[Paul Perkins]

Mr. Chairman, the honourable member has made a very strong statement. I would argue that the interest rates, the strong Canadian dollar, and the high oil rates are all going to contribute to what is going to be a weaker forest industry in Canada over the next period of time. Regardless of whether this deal is put in place or not, we will face a very tough competitive market going forward. I don't think the deal should be blamed for those conditions.

Without this deal, we could argue that we will have significantly worse conditions because of the uncertainty and because of the ability to use those worse conditions to drive a more draconian solution upon the Canadian industry.

So yes, your economic points are well taken. This sector will face an uphill struggle for the next several years with the Canadian dollar where it is and with the housing starts declining.