International Trade Committee on Oct. 3rd, 2006

[The Chair, Conservative, Leon Benoit]

Good morning, everyone. We're all delighted to be here today.

This is a meeting with Department of International Trade officials Paul Robertson, director general of the North America Trade Policy Bureau, and Brice MacGregor.

Brice, I don't have your title. Maybe you could just mention it.

[Brice MacGregor, Senior Trade Policy Analyst, Softwood Lumber Division, Department of International Trade]

I'm a senior policy analyst with the softwood lumber division at the Department of Foreign Affairs and International Trade.

[The Chair, Conservative, Leon Benoit]

Very good. Thank you.

We're here to talk about the binational industry council, but I'm hoping you will be mentioning the other groups that were established as well.

I'll let you go ahead with that. Your presentation, if it is as printed here, looks quite short. The members will be ready for questions after the presentation.

Go ahead, please.

[Paul Robertson, Director General, North America Trade Policy Bureau, Department of International Trade]

Thank you very much, Chair.

I'm pleased to be with you this morning to go over the subject matter you've defined as well as to answer any questions relating to it. I'll start, as you've noted, with a brief statement from notes and then take questions.

As you know, Chair, I've been asked to provide you with information regarding the various institutional arrangements provided for under the softwood lumber agreement. Specifically, the agreement provides for: one, a government-to-government softwood lumber committee to oversee the orderly operation of the agreement; two, a private, non-profit foundation to fund meritorious initiatives promoting public interest goals related to the objectives of the agreement; and three, a binational industry council to promote the shared interests of the North American lumber industry. Finally, Chair, I should also mention the establishment of a dispute settlement mechanism as well.

The binational softwood committee is to be composed of representatives of both nations' governments. It will have the lead responsibility to oversee the implementation and operation of the agreement. This committee will ensure that the agreement functions as it was intended and elaborate on the agreement should the need arise.

In addition, the committee will establish and oversee working groups that will be established to provide advice in a number of areas. The working groups will include a regional exemptions working group to discuss policies that could eventually result in the elimination of export measures. Specifically, this working group will define the criteria and procedures to be used to determine whether regions have established market-based timber pricing and formed forest management policies.

It will be established within three months of the agreement's entry into force and will seek to provide its recommendations, which could be incorporated into an addendum to the agreement, within 18 months. Working groups on customs procedures and data issues will also be established to discuss technical issues related to the operation of export measures. These two working groups will meet on an “as needed” basis throughout the duration of the agreement.

I should note as well that in a side letter to Minister Emerson, United States Trade Representative Susan Schwab also proposed that other working groups could be formed to look specifically at, one, the treatment of Canadian softwood lumber producers relying on logs from private lands, and two, the rules governing the export measures in the agreement.

The first of these working groups was proposed in response to a request from certain companies in the British Columbia lumber industry that would like to see the elimination of log export restrictions that could currently apply to private lands in the province, in conjunction with an exemption from export measures for lumber produced from those logs.

The second working group was proposed to address concerns by others in the Canadian industry who wished to ensure that the agreement's export measures will offer sufficient flexibility for their operations and function in a commercially viable manner.

On September 6, 2006, the United States announced the incorporation of the United States Timber Endowment, a private, non-profit foundation to manage and oversee a $450 million U.S. fund for meritorious initiatives. The meritorious initiatives are to be identified by this foundation in consultation with Canada and are to be related to, one, educational and charitable causes in timber-reliant communities; two, low-income housing and disaster relief; and three, promotion of sustainable forest management practices, as set out in the agreement. Canada will nominate two non-voting members to the fund.

The binational industry council, to be funded with the remaining $40 million U.S. set aside for joint initiatives, will be comprised of industry executives from both Canada and the United States. The agreement sets out the objectives of the initiative, which will include strengthening the North American lumber industry by increasing the market for its products and building stronger cross-border partnerships and trust at all levels of the industry.

Specific activities that are proposed in the agreement include, one, the promotion of expanded use of wood products in new and existing applications; two, educating consumers on the sustainability of wood products to demonstrate their desirability as an environmentally preferable building and finishing material; and three, promoting the use of wood in green building standards.

Finally, Mr. Chair, I refer to the dispute settlement mechanism in my opening comments. The dispute settlement mechanism, which was designed to be neutral, transparent, and expeditious, will apply to any dispute arising under the agreement regarding softwood lumber products. The agreement sets aside $10 million U.S. to fund the operation of this mechanism. In the event that a dispute arises, parties would first be encouraged to resolve the issue through consultations. Should these fail to resolve the dispute, the matter could then be referred to an independent mediation and/or arbitration process. All arbitrations would be heard by a panel of arbitrators selected through the London Court of International Arbitration. The results of arbitration would be final and binding.

Mr. Chair, that concludes my overview of the mechanisms you've asked me to speak to you on. At this point I'd be pleased to answer any questions the committee may have.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Robertson.

We'll get right to the seven-minute round, then, starting with the official opposition Liberals.

Mr. Eyking, you have seven minutes.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Thank you, Mr. Chair, and thank you, Paul, for coming again to speak on the trade issues.

There are a couple of articles out this morning on U.S. lumber. People are very dissatisfied that our agreement is going to be delayed.

In your sense, under the agreement, why from the American side would they be so upset? Would they be getting a better deal? That would be my first question.

The other thing is on the whole mechanism. Can you explain a little more clearly to the committee how the lumber quotas work, when they reach a trigger mechanism to cause us to be penalized on our side?

Also, could you explain a little more how the moneys are going to be transferred back and forth—the $5 billion—and give a little more clarity?

[The Chair, Conservative, Leon Benoit]

Mr. Eyking, we are here today to deal with the binational industry council and then the other groups established to work with the agreement. Your questions aren't dealing with those issues.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Yes, Mr. Chair, but Mr. Robertson explained the softwood lumber agreement and some of the technicalities of it, so I figured that was pertaining to his statement.

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Robertson.

[Paul Robertson]

Thank you very much, Chair.

I'm not sure of the articles you're alluding to, but there has been in the press in the last number of days articles referring to the United States coalition's concerns that perhaps there are imports of Canadian lumber into the United States that are “flooding the market”, in their words. So I think, without seeing your articles, that's what has been occupying the American press with respect to the agreement recently.

I can say at this point that our statistics for the first eight months of this year show a drop in exports to the United States of approximately 9%. We don't have statistics for September to be able to comment on whether there has been an increase in Canadian exports of lumber to the United States. I haven't seen any statistical sources provided by the U.S. coalition, which is reacting to this apparent surge; therefore, I can only assume that's anecdotal information they're reacting to. With respect to your first question, I think that's what has been causing the press attention in the United States over the last few days.

I think your second question refers to what we refer to as option A and option B in the agreement in terms of the measures to be in place. As set out in the agreement, regions have a choice between following one of two options for the export measures to be imposed. Option A deals with an export charge, depending on the price of lumber, and as the price of lumber decreases, the export charge increases. Option B is a variation of that, which would lessen the export charge that would be paid under option A, but in return, there would be a restraint on the volume of exports to the United States as the compensation. That's basically the two different options that regions are being asked to choose between to give them the flexibility.

You've asked the question about how cash deposits will be refunded--I think that's what you're asking, and please correct me if I'm wrong. I think there are basically two mechanisms now that will bring the refunds that producers are entitled to. The first, as you know, is the process on the Export Development Corporation. A process has been established to expedite the refunds. In exchange, the Export Development Corporation, or EDC, has entered into contractual arrangements with importers of record by which they would take over the authority for the refunds in exchange for providing them with a portion of the refunds. Another portion of the refunds, as you know, is set aside to pay for the $1 billion obligation we have towards providing money to the United States side, both with respect to $500 million with respect to the U.S. coalition and then the other $500 million is divided up between the meritorious initiatives that I referred to in my opening statement, plus the North American lumber council, which is made up of business. That accounts for $490 million of the other $500 million. The other $10 million, as I've identified in the opening statement, is set aside for paying the cost of any arbitration proceedings that may take place under the agreement.

So that's basically the transfer to the United States.

For those who do not participate in the EDC process, the other way for importers of record to receive their money is directly from U.S. Customs. Of course, it's recognized, through past experience and through discussions with the United States, that this procedure could take up to two years. Therefore, that is the other process under which it is open to importers of record to receive their refunds when liquidation has been completed.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Robertson.

Mr. Eyking, your time is up for now.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Already?

[The Chair, Conservative, Leon Benoit]

Yes, it's just so fast.

Now to the Bloc, Mr. Cardin for seven minutes.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chairman.

Good day, gentlemen. Today's meeting is on the Binational Industry Council. I had the impression that this was one of the most important committees, given the use of the term “binational”. That was my perception. However, when you further examine the issue, you realize that there are four different groups: the Binational Industry Council, the Softwood Lumber Committee, Technical Working Groups and a Working Group Dealing with Regional Exemptions from Export Measures.

I would first like to know who is expected to make up the Binational Industry Council, and whether one of the committees will oversee the others. Could one of the four committees not control the three others, but follow their work and include representatives? I imagine, given that we are talking about a binational council, that the members would come from both countries and would represent not only industry, but also various departments and the political sector.

Is this how the council will be made up and will one of the committees oversee the others?

[Paul Robertson]

Thank you very much.

First of all, I'd just like to flag that my interpretation isn't working.

[The Chair, Conservative, Leon Benoit]

Did you understand the question?

Okay. It looks like it's on channel 2.

[Paul Robertson]

All right. That's my problem.

[The Chair, Conservative, Leon Benoit]

Did you understand the question okay, Mr. Robertson?

[Paul Robertson]

I'm just checking with my colleague to make sure that I have it.

Thank you very much, Chair. I'm just verifying that I have the question. I apologize for the delay and I hope that doesn't take up some of the seven minutes of his time.

First of all, you asked the question relating to the binational softwood lumber committee. That will be composed of six members from each side. While the composition has yet to be decided on, it is I think the working assumption that it will be led by senior officials from both governments.

With respect to the industry council that I referred to as well, there will be six members from each side. I think the Canadian members will soon be announced. They will be from key business leaders in the softwood lumber industry, and that should be announced in the coming days.

With respect to which of all these groups are the umbrella groups or the overall overseeing types of mechanisms, well, of course the binational softwood lumber committee would be the chapeau committee for the work within all the other working parties. That will be the committee to which the other parties will be reporting. Of course, with respect to industry initiatives, the North American industry council that I spoke about would be the overall lead relating to those areas that I identified in my opening statement.

I hope that answers your questions.

[Serge Cardin, Bloc, Sherbrooke, QC]

Correct me if I am wrong; I am afraid I did not quite understand. Did you say that the Binational Industry Council oversees the others?

[Paul Robertson]

No. Perhaps I wasn't clear.

[Serge Cardin, Bloc, Sherbrooke, QC]

It seems that we tend to confuse the various committees. The translation might be the cause here. Speaking of translation, we were unable to follow last week.

In short, that is not what you told me.

[Paul Robertson]

No.

For the overseeing of the operations of the working groups within the softwood lumber agreement, we have the technical working groups, the discussions on possible exit strategies for regions, etc. All those activities of government interaction will be governed by the binational softwood lumber committee. While the composition has yet to be agreed upon, it is expected that this committee will be led by senior government officials from both the United States and Canada. So when you think of government-to-government discussion in whatever areas as it relates to the softwood lumber agreement, it is the binational softwood lumber committee that will be the overseeing body for those activities. That is the body to which the working groups would report, etc.

With respect to the other binational industry council, that is a council composed only of industry leaders from both countries in the softwood lumber sector. As I noted, basically they have an overall mandate to discuss: the promotion of expanded use of wood products, educating consumers on sustainable wood products, and promoting the use of wood in green building standards. That is the industry-to-industry interaction, and this is done through that foundation.

I think that is the primary difference between the two. I hope I've made myself clear as to the different operations of the two lead bodies that are envisioned to be created through the softwood lumber agreement.

[Serge Cardin, Bloc, Sherbrooke, QC]

I thought that the Binational Industry Council was the main committee, the one with the most importance, but when we take a closer look at what the other committees will be doing, we see that the Softwood Lumber Committee has very important responsibilities, that is the supervision and implementation of the agreement, further elaboration of the agreement, supervision of the work of all working groups established under the agreement, and consideration of any other manner that may affect the operation of the agreement. This committee is responsible for the overall management of the agreement.

All the committees have very specific functions. I do not want to ask questions only about the Binational Council. I also have questions about the regional component. When you talked about regions, you seem to be including the provinces which can adhere to either plan A or plan B. Quebec will choose plan B and in so doing will become the most significant group in that category.

The composition of the committees is not known, and I was wondering whether there would be representatives from Quebec, given that it will account for the majority of people having chosen plan B.

[Paul Robertson]

Thank you very much.

First of all, your understanding of the overall coordination, as you explained it, is correct. And I should state that we speak of regions rather than provinces, because, for example, there are areas of coastal B.C. versus B.C. interior. That is why we speak of regions for the agreement. But you're quite right, it breaks down as well provincially, for the most part.

We are in consultations with the provinces as we go forward. We have told provinces that we have to discuss the participation, how they want to participate, how this is all going to roll out. So those discussions are yet to be conducted with provinces.

I know we have a regular heads of delegation call, as we refer to it, which is between the federal government and the provinces. We have told them that in the coming weeks we would like to be discussing with them their ideas on how best they can participate in the mechanism and structures. Certainly there is a role to be envisaged. We have yet, though, to sit down and discuss that role with provinces and make decisions based on those discussions.