International Trade Committee on Oct. 3rd, 2006

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

As you know, many people had no other choice but to sign the softwood lumber agreement, given the sizable economic consequences. Everything was decided in an arbitrary fashion, not by the tribunals, but by government agreement. In light of this, I, as a Quebecker, am wondering about the balance of power in these committees and the leverage that our Canadian and Quebec representatives will have.

It seems to me that the Americans are coming to these committees after having scored a significant political victory. We have given them $ 1 billion of our own money. They are giving us $ 50 million so that we can meet within the binational council. That is where our representatives are.

What is your view on this dynamic?

[Paul Robertson]

I think that goes back to my discussion earlier that these types of discussions will take place first with consultations with provinces, because as you've identified, each region has its own particular interests. There are some common shared interests within that mix, but there are also regional interests within the topics to be addressed by these working groups and by the council.

All of that will be taken into account in the consultations that we'll be having prior to the development of that type of representation, both in terms of work within the agreement and the consultations that give rise to the positions that are carried forward into those working groups. We are looking forward to sitting down with provinces to hear their views as to how that should function, and having heard their views and having heard the universe of options and justifications for that, decisions will have to be made. But in the first instance we want to consult with provinces on those types of issues that you've identified.

[The Chair, Conservative, Leon Benoit]

Just before we go to Ms. Guergis, there's a question that's been broached about three times, but it's never really been directly asked: will this binational industry council be given a chance to have input on improving the agreement? If industry people from both sides of the border see something that could be changed to improve the agreement, would they have any real way of doing that?

[Paul Robertson]

The focus of the binational industry council is, of course, as we've identified, which is primarily to promote the usage of wood in North America. However, if there are views as to how there can be a better operation of whatever the issue is that they think could be improved, we would of course be listening to views on the Canadian side to see how they can be addressed--either work carried forward with respect to their own industry council, or maybe in other bodies that have been set up, government to government, in the agreement.

I think we anticipate consultations with provinces, and both the federal and provincial governments will be consulting with their own industries with respect to positions that are taken forward into these groups. Through that process, I think those types of issues will be brought to the attention of provincial and federal governments, with consideration of how best they can be pursued under the framework of work that will be developed within the softwood lumber agreement.

[The Chair, Conservative, Leon Benoit]

Thank you.

We will go to Ms. Guergis for five minutes.

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

Thanks very much.

I'd like to start with the meritorious initiatives and the $450 million. I know there's been some suggestion that the money is going to the Bush administration, and I know that's not the case.

I'm hoping you can explain and clarify for us the timber endowment--that it's a non-profit organization, that laws govern non-profit organizations, and that federal governments just can't walk into a non-profit organization and tell them what to do with their money. Could you please clarify that for us? I know it to be true, but I think we need to hear it from you.

My understanding too--it's been explained to me very clearly--is that Canadians will be able to compete for much of the work that the meritorious initiatives and the committee come up with. Of course, it can be our softwood lumber that's used for these projects, so Canadians will benefit in that aspect.

With respect to the two Canadian reps, I've also been told they will be required to report to someone here. Will that be the committee, the binational committee? Will they be reporting to them on a regular basis? I understand that you said there would be an annual report, but I have been told they will have regular contact with us--that we will know what's going on on a regular basis, that they will be reporting to us frequently as to what's going on.

With respect to the binational industry council, I appreciate the question my colleague Mr. Julian had on where the money will be going. I look forward to the answer, but I'm very confident that it will not be going to the Bush administration. Could you get back to us on that as soon as possible, please?

You had explained to the committee--and yes, I will agree with you--that they're not going to be drafting any further agreements. They're not going to be preparing what any other softwood lumber agreement would look like, and I don't think anyone around the table would expect that they would. Many of them will be industry people, of course, and there will be government representatives on the committee. Over the next seven to nine years their role is clearly to look at what's been working and what hasn't been working and make some recommendations as to how they can improve the situation. Can we perhaps tweak the agreement that is in place now to improve it for the future? Should we extend the existing agreement?

Very clearly, it has been explained to me that those activities will be their role. No, they will not be drafting the next agreement, but they certainly will be working alongside industry and governments to ensure that we can continue the relationship that we'll have built over the next seven to nine years.

In taking a look at the dispute mechanism, I will just remind everyone around the table that the problem with NAFTA and chapter 19 in the softwood lumber industry in the United States was that the Americans, from the beginning, were clearly not interested in using NAFTA. In fact, a memorandum of understanding pulled softwood lumber out of NAFTA, and that's why we don't see this dispute mechanism through chapter 19 really working for us in softwood lumber. That's why we should really all be applauding the fact that there is a different dispute mechanism within this agreement to help us through this process if anything were to happen again.

On the technical working groups, do you have any idea of how many working groups there will be, and who will be making up these groups? Would you be able to walk us through the process a little bit? Maybe you could start with that technical working group, with a dispute mechanism going forward, and if it didn't make it past that stage, then going over to the mechanism that's been set up through international trade law rather than through U.S. trial law.

[The Chair, Conservative, Leon Benoit]

Mr. Robertson, before you start, there is very little time for an answer.

Would the members on the opposition side of the committee be willing to give a little more time? A lot of questions have been asked there. It'll require some time to get answers. Are you okay with that?

[Some hon. members]

Agreed.

[The Chair, Conservative, Leon Benoit]

Thanks very much.

Just go ahead, Mr. Robertson. There are a lot of questions there, but they're important questions.

[Paul Robertson]

Absolutely. I've been trying to jot them all down. If I'm missing a couple, I'd be more than happy to go back to them.

Your first question was with respect to the meritorious initiative foundation. It is indeed formed under the body of U.S. laws governing charitable organizations, which has within it elements of non-partisanship, etc., cited in the U.S. laws governing the status of charitable organizations.

With respect to the meritorious committee recommendations on use of funds, yes, Canadian lumber can be used. Given the amount of Canadian wood that is exported to the United States, we expect that some would be used in these initiatives, so there is a positive aspect there.

You also raised the reporting structure for the two non-voting members. I'll have to get back to you. I'm trying not to mislead the committee; I wasn't aware if the two non-voting members have any sort of formal reporting structure, so I'll have to get back to you on that.

With respect to the binational industry committee, the question there was with respect to industry recommendations about how things can be improved, as opposed to another agreement. And you're quite right, I tried to identify that the industry input into this process about improvements is continual through a number of ways.

My colleague Brice MacGregor has also identified, in the side letter that I mentioned earlier from Ambassador Schwab to Minister Emerson, the possibility of parallel industry discussions on how best to improve. I would add that to the mix, as well as the other types of mechanisms and consultations that would lead to industry input as to how things can be improved going forward with the agreement.

With respect to the dispute mechanism, I think your question there was relating to the effectiveness of this new mechanism that we've established. Would that be a fair assessment?

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

Yes, that would be part of it, but there is even the question, too, about the technical working groups. How many working groups would there be? Is there one specifically as a lead-in to a dispute mechanism process, and what is the membership of that?

[Paul Robertson]

With respect to the dispute mechanism, I think I went over the reasons for a dispute mechanism within the agreement. I think I've answered those, but I'm more than happy to elaborate on any points you may wish.

With respect to the technical working groups flowing from the binational softwood lumber committee, three have already been identified within the softwood lumber agreement. These are the regional exemptions, the customs issues, and the data issues that will arise and need to be looked at with respect to the operation of the agreement.

Other groups that could be created are with respect to those identified in the side letter from Ambassador Schwab to Minister Emerson. They include logs and lumber from private land and how to best treat those in the coming years with respect to the agreement, as well as running rules--this notion of how we ensure that the quota elements are running smoothly and have the discretion needed to work to the best advantage and to the most effective operation in Canada.

In all, right now, five working groups have been identified--three in the agreement itself, which will mean they will be activated, as well as two others that were identified in the side letters. We are sure they will also be formed to deal with those two issues. Right now, in terms of the number of working groups that we see established, there would be those five--in addition, of course, to the main overview steering group of the binational softwood lumber committee, as we've described to Mr. Cardin and Mr. André.

I've been listing your elements. Have I got them all, or have I missed something?

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

No, you've got them.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Robertson. It's very much appreciated.

Now, to Mr. Julian for five minutes.

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

Thank you, Mr. Chair.

I'd like to get back to the dispute settlement mechanism. As we know, upon the expiry of the previous softwood lumber agreement, softwood came under NAFTA, so there was a transition period. We've gone through a series of decisions that have been non-binding. We are now in the court system in the United States, and those decisions are binding. The recent Tembec decision, which I know you're aware of, should give us a remedy in the next few days that would require repayment of all of the illegally taken funds. That is the ultimate result of going through those binding courts.

We were at the stage where we were actually winning. Ambassador Wilson admitted in his testimony this summer that there were no appeals, either to the ECC judgment, which the present government suspended, or to the Tembec decision after the circuit court hears the ultimate appeal. So that's where we were, with binding mechanisms that would force the tariffs to be taken and all of the money to be returned.

Instead, now within the softwood agreement we essentially have a non-binding dispute settlement mechanism. You outlined the arbitration. But in going through the pages of the dispute settlement mechanism, we find that if the arbitration is not accepted--in other words, if the United States chooses, as it did through NAFTA and as it has even in court cases, to continue to appeal until the final stages, which we are now at, and to refuse arbitration--there is a second arbitration appeal. If they refuse the essential mechanism or remedy on that, there is a further arbitration appeal.

The final clause, the ultimate endgame in terms of dispute settlement, is paragraph 32. If the United States imposes compensatory measures pursuant to paragraph 27, or Canada imposes compensatory adjustments pursuant to paragraph 26, the other party may request consultations to discuss the status of the agreement. Such consultation must be held within 10 days from the date the request is received. Following the consultations, either party may terminate the agreement.

So the only binding aspect of dispute settlement contained within this agreement is the fact that ultimately either party could terminate the agreement, which is certainly as much in the Americans interest as it maybe to Canada.

Coming back to the issue of dispute settlement mechanism, given that the ultimate element here is that either party may terminate the agreement, my question really is, what do you consider binding about the dispute settlement clauses that are in this agreement?

[Paul Robertson]

Thank you very much, Mr. Julian. I think you have two basic questions there.

First of all, I'd like to introduce Michael Solursh, who has come to take notes but who is acquainted with the dispute settlement mechanism. That's what happens when you come to a committee to take notes; you might get drawn into the discussion.

I guess your first question is why we agreed to the softwood lumber agreement when we were winning in litigation. I think, if I understand, that was your--

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

Well, that wasn't a question; that was a comment.

[Paul Robertson]

Oh, that was a preamble. Okay.

Sorry, I'm not being facetious. I thought that you were questioning--

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

But as Ms. Guergis says, you are of course free to respond to that if you choose. You can make your own comment.

[Paul Robertson]

No. Okay. I'll move to your question about dispute settlement mechanism.

Perhaps Michael could take us through the dispute settlement mechanism and touch on the major points as they relate to the discussion. We can pick up from there so that everybody has a clear understanding of the process and what is involved with respect to those elements.

Would that be acceptable to the chair?

[The Chair, Conservative, Leon Benoit]

Mr. Solursh, go ahead please.

[Michael Solursh, Counsel, Trade Law Bureau, Department of International Trade]

Thank you, Chair.

To start at the end and move to the beginning, to say that the only binding thing is termination is not correct. There are a bunch of steps that were carefully negotiated to make sure the arbitration itself is binding.

The first step is consultations. You initiate a dispute and you have consultations.

If consultations don't settle that dispute, the second step is arbitration. A tribunal will issue a final and binding award. When it issues that award, a party doesn't have the automatic right to terminate. You're given a reasonable period of time in which to cure the breach.

The object here is for a party who's in breach to cure the breach. It's only at the end of that reasonable period of time that if you haven't cured the breach the award of the arbitral tribunal can then be implemented. At that point it is final and binding.

What will happen is that the export measures under the agreement will go up or down. If Canada is in breach, it can increase or decrease the export measure, depending on whether it's under a tax or the export allocation system. However--

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

Let me stop you right there. If the United States refuses the arbitration award, what is the recourse for Canada?

[Michael Solursh]

There are potential fundamental breaches of any agreement. In the dispute settlement system, you're anticipating the worst-case scenario. For the most part, it's meant to facilitate the natural commercial relations of the agreement.

If there's a point where something is not cured, at that point it's not automatic termination. Under the agreement, under the provision you read, the first step is consultation. Consultations are designed to facilitate a solution, and only after consultations if they couldn't facilitate a solution--meaning no agreement can be reached at that point--can a party choose to terminate. But termination is not automatic, and you're also missing the step of consultations before termination.

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

You've proved my point. Thank you.

I have no further questions.