International Trade Committee on May 15th, 2006

[The Chair, Conservative, Leon Benoit]

This meeting has now become a public meeting. We're no longer in camera.

I apologize for the interruption, Mr. Minister. Go ahead, please.

[David Emerson, Conservative, Minister of International Trade]

Thank you.

As I was saying, as you are aware, on April 27 the Prime Minister addressed the House to announce that Canada and the United States had reached an agreement in principle that will provide the basis for ending the long-standing softwood lumber dispute. The result of discussions with the United States is a seven-year agreement in principle designed to ensure U.S. market access, to protect Canadian market share, and to bring stability to an industry impaired by over 20 years of relentless trade action by U.S. protectionists.

The agreement in principle will provide immediate economic benefit and security to Canada. Provinces have indicated their support. The agreement in principle will see not only the revocation of duties but also the return to Canadian lumber producers of some 80% of the collected deposits--that is, $4 billion U.S. back into the hands of Canadian exporters. This money will significantly benefit these exporters and will help their workers and the communities in which they are located.

The agreement in principle takes account of different operating conditions in Canada by providing provinces and industry with flexibility to respond to their specific circumstances, including the exempting of certain regions of Canada and certain products entirely. For the next seven to nine years, when lumber prices are high, as in our current market situation, no border measure will be imposed--that is, no tax and no quota. When prices are lower, a province can choose the export measure that works best for its industry.

The agreement also includes an innovative mechanism that responds to Canadian industry concerns about the possibility of other lumber-producing countries increasing their exports to the United States at the expense of Canada. The agreement will provide refunds to Canadian exporters in this situation. This is a first in Canada-U.S. lumber talks.

Once the final agreement enters into force, duties will no longer be collected, and the U.S. government will begin the process of refunding duty deposits to importers of record.

The next step involves the detailed work of drafting the legal text and finalizing the agreement. We are working to complete this in the coming weeks. This detailed work involves designing the mechanics of the agreement's key features, such as the disposition of deposits, border measures, the surge mechanism, and other matters. It will also involve passing legislation to implement the border measures, design a quota system, and draft legal text. This work is now under way. We will consult regularly with the provinces and with industry.

From the outset our government has been committed to the best interests of Canada--the provinces, the industry, forest workers, and the families and communities whose livelihoods depend on the forest sector. We have given our lumber companies, their workers, and the communities in which they live a more secure and brighter future because of this agreement.

The agreement in principle will pave the way for a stronger bilateral trade relationship, a relationship upon which so many Canadians depend for their jobs and prosperity. Furthermore, it will set a more positive tone as our countries move forward in collaborating to make North America more competitive and prosperous on a global scale.

Thank you, Mr. Chairman.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Minister.

Just before we get into questioning, I do want to mention a couple of things.

First, this meeting was originally scheduled as an in camera meeting. That's why we were prepared to start the meeting like that. At the last meeting, a member had asked this meeting to be opened up, and we're fine with that.

On the agenda, I notice that the meeting time is scheduled for 3:30 to 5:30, and I understand, Minister Emerson, that you have a cabinet committee meeting to attend at 4:30.

[David Emerson, Conservative, Vancouver Kingsway, BC]

That's correct.

[The Chair, Conservative, Leon Benoit]

Okay, we have one hour with the minister today. We'll get directly to it so that we get as many questions as possible.

For the first questioner in the seven-minute round, we'll go to the official opposition Liberals.

Monsieur LeBlanc.

[Dominic LeBlanc, Liberal, Beauséjour, NB]

Thank you, Mr. Chairman.

Welcome, Minister Emerson, to the committee.

First, Minister, I think as a member of Parliament from Atlantic Canada, in all fairness, if the government were going to sign an agreement that was essential, one thing is that the historic circumstances of the Atlantic be protected. The industry in my part of the country feels that your government, like the previous government, respected this historic exemption. I think that's worth outlining by way of introduction.

The one thing, Minister—through you, Mr. Chairman—that I hear a lot about is a concern about the amount of time it may take for companies to see any benefit from the return of the deposits with the U.S. Treasury. If you as Minister of Industry participated in an announcement last November recognizing the urgency of the softwood situation and the threat many companies were under—risk of layoffs, financial balance sheets in very bad shape—and companies are now being told that it's going to take perhaps up to a year after a final agreement is reached before they see the money, I was hoping the government might either buy the receivables these companies will have or guarantee them, since the $1.5 billion aid package last fall is off the table. In the interim, until they can see some of this deposit money returned, there will be more job losses and mills operating in very difficult circumstances.

I'm wondering if the government has plans to expedite the return of that money.

[David Emerson, Conservative, Vancouver Kingsway, BC]

Thank you very much, Dominic.

I was happy to be able to ensure the Atlantic provinces' exemption was retained. I think that's a very important part of the agreement going forward.

The return of deposits is going to be a complex process whether you carry on the fight through litigation to the bitter end or whether you have a negotiated agreement. It is an issue that involves, basically, unwinding deposits that number in excess of 8,000 individual entries and involves the U.S. Department of Commerce and Treasury.

While we will be influential, I would hope, in ensuring that there's an expeditious process in place to unwind those entries, that is something over which we have only limited control.

We are, however, looking at how we can ensure that Canadian softwood lumber producers who have deposits to be returned to them can take advantage of that fact more quickly. We're looking at a couple of options right now. These are pretty early stages to make any further comment.

[Dominic LeBlanc, Liberal, Beauséjour, NB]

Thank you.

Minister, through the chair, another issue we have heard a lot about is concern from Canada's independent lumber remanufacturers. As you well know, these are small and medium-sized businesses that buy low-grade lumber. Perhaps up to 15% of what has been traditionally shipped to the United States within the 34% of the U.S. market has been processed by these independent remanufacturers. They employ people in Canada and have a considerable impact in the economy of many small places across the Canada, in almost every region. They have seen huge job losses over the last five or six years.

They are having considerable difficulty getting access to the low-grade lumber, because many companies—probably suspecting an eventual quota system—in order to drive up volumes, have sent low-grade lumber to the United States to be included in the volume and have thereby deprived Canadian industry of value-added jobs here in Canada.

There's nothing more detrimental to the economy, in my view, than sending low-grade lumber to the United States, so that the remanufacturing is necessarily done there as opposed to being done by these small and medium-sized businesses in Canada. They're advocating that there be a carve-out; that if there is a quota system, there be a carve-out so that they're not competing with provinces for quota. As you know, they buy lumber on the open Canadian market. We worry that there'll be considerable disruption and job losses if they don't have access to some carve-out or some guaranteed mechanism to get access to wood. I'm wondering what provisions the government is looking at to help them as the framework discussions continue.

[David Emerson, Conservative, Vancouver Kingsway, BC]

Again, thank you for that.

I met with the independent lumber remanufacturers this morning, as a matter of fact. You're quite correct in your statements that the independent remanufacturers have been very seriously hit by the softwood lumber dispute, for the reasons you've already indicated. Their livelihood is basically driven off of getting low-grade product from the integrated operators and remanufacturing it to a higher-value product, which makes them also the fundamental building block of the value-added part of the industry. So they're critically important to the industry. They've been disproportionately hurt.

What we have to focus on is how to ensure they benefit disproportionately going forward. In International Trade, we will be retaining an expert who will work specifically and solely with the independent remanufacturers to assess ways we can ensure, going forward, that their business is built on the economics of their business, not on some artificial behavioural reaction to what may or may not happen five or ten years down the road--which has happened, as you've indicated. A number of big producers, the integrateds, have in fact done a lot of their own remanufacturing or sent the low grade to the United States, because they want to build up a shipment history that would be advantageous in the event that we eventually go back to a quota.

I recognize that, so we're going to be working with them to see if we can find a solution that gives them a secure and prosperous future.

[The Chair, Conservative, Leon Benoit]

Mr. LeBlanc, your time is up.

Now to the Bloc, then over to the Conservatives.

Monsieur Paquette, seven minutes.

[Pierre Paquette, Bloc, Joliette, QC]

Thank you, Mr. Chairman.

I'd like to thank Minister Emerson for accepting our invitation. I have several questions for him, one of which is of great concern to industry officials.

In the text of the agreement in principle posted on the department's website, there is no reference to the duties that will be repaid with interest. Can you give us your assurance that the duties will be repaid, with interest, to Canadian companies? Will the interest be calculated on the approximately $4 billion that will be repaid, or on $5.3 billion?

[David Emerson, Conservative, Vancouver Kingsway, BC]

Thank you very much, honourable colleague.

In fact, they will be repaid with interest. We will know what the final numbers are only, obviously, at such time as the duties are actually repatriated. Then we'll have a better handle on exactly what the sum of money is. But it is to be with interest.

[Pierre Paquette, Bloc, Joliette, QC]

Will the interest on these entries or deposits be calculated on the $5.3 billion or on the amount at the time the agreement was signed, or simply on that portion of the deposits that will be repaid to Canadian and Quebec companies?

[David Emerson, Conservative, Vancouver Kingsway, BC]

The interest would be calculated on each individual entry, so it would be based on a recovery of the entries that they actually paid. We believe our producers will actually get more than the $4 billion we've indicated in our announcements.

But again, it's something that will be known with accuracy only once we get closer to the actual....

[Pierre Paquette, Bloc, Joliette, QC]

If I understand correctly, each producer-exporter will receive interest on the entries paid, even though he may not be refunded the full amount of the deposit made.

[David Emerson, Conservative, Vancouver Kingsway, BC]

That's correct.

[Pierre Paquette, Bloc, Joliette, QC]

We haven't found the 80 per cent figure mentioned in your proposal. The only talk now is of $1 billion. Is it more advantageous then for the Canadian industry to limit this to $1 billion, rather than talk about $1 billion, or 80 per cent, which could mean the final amount could exceed $1 billion if the agreement is not signed before next December? Why is there no mention of reimbursing 80 per cent of the entries in the version of the agreement posted on the department's website?

[David Emerson, Conservative, Vancouver Kingsway, BC]

It would be our hope that at the end of the day we could possibly get more than 80% back, and we thought it was advantageous to structure it in this way.

[Pierre Paquette, Bloc, Joliette, QC]

We're quite concerned about the dispute resolution mechanism that will apply under this agreement. The Americans have in fact succeeded in skirting the rules under Article 19 of NAFTA which had been in place for 20 years. How can we be certain that the agreement in principle will not give rise to a new dispute?

[David Emerson, Conservative, Vancouver Kingsway, BC]

This is the debate that Mr. Julian and others have been engaging in around the whole question of anti-circumvention and the American side's commitment to not launching further trade actions over the life of this agreement. This agreement, I believe, gives us much greater protection against further trade actions being launched.

Today, even if we go forward and win legal cases, there will be appeal after appeal. When we finally exhaust all of the appeals, we may win the case, but that will not preclude or prevent the U.S. industry from launching yet more cases, armed with the information that they garnered in the process of the legal cases that had gone before the various panels to date.

So we could expect to see in very short order, without disagreement, another case that would allege injury, calculated in a little different way. We could possibly see some expansion of this case. So basically this agreement builds in commitments that the Americans--neither industry nor commerce--will not launch new cases.

For our side, we commit that the stumpage practices we have in place are the fundamental building block of this agreement. If we're going to make changes in stumpage systems that might be construed as a subsidy, then we're going to have to consult, as we have in the past. Provinces have always consulted with the U.S. Department of Commerce on policy changes they were making, simply because they wanted to avoid the ability under NAFTA for cases to be launched very quickly and very easily. They proved to be largely spurious cases, but the history of the file is to launch a case that is usually flimsy. It creates interim duties...when we started out, the combined anti-dumping and countervailing duties, as you'll recall, were 27%; after five years of litigation we're down to 10% plus--10.8%, I think it is now--so this agreement should protect us from that.

In terms of the policy latitude that provinces have, that is something that will be worked out. There is a clause in the agreement that provides for us to examine potential exit ramps, based on provincial policy change. That does not imply that every province should have exactly the same stumpage system or forest management system. There are different models that could achieve the same result.

[Pierre Paquette, Bloc, Joliette, QC]

As you probably know, Quebec has reduced the volume of timber cut by 20 per cent. Communities and the industry are therefore in need of some assistance. This assistance could very well be viewed by the Americans as a form of subsidy.

Alberta could also be affected by the disease affecting trees in British Columbia. The Americans could use this situation as a pretext for resurrecting the dispute. This time around, we'll need to have an effective dispute resolution mechanism in place.

If I have any time remaining, perhaps I could ask the minister to answer another question.

[The Chair, Conservative, Leon Benoit]

I am sorry, Mr. Paquette, you're over time already. We have to give everybody a chance.

[Pierre Paquette, Bloc, Joliette, QC]

I'd simply like a list of Quebec sawmills that have been excluded from the agreement.

[The Chair, Conservative, Leon Benoit]

Response, Mr. Minister.

[David Emerson, Conservative, Vancouver Kingsway, BC]

We'll be happy to provide the list of mills that are excluded. The whole purpose of the agreement is to ensure that policies that have been announced, that are in place, are protected. If Quebec has made policy changes--I know their annual allowable cut is down, and I don't know what they've done with their stumpage system--the agreement is designed to protect those policies that were in place at the time of the entering into this agreement.