International Trade Committee on May 15th, 2006

[Lui Temelkovski, Liberal, Oak Ridges—Markham, ON]

You're comparing it to perfection and something else, which is unattainable perhaps. Would you say this is now placing us on a slippery slope?

[David Emerson, Conservative, Vancouver Kingsway, BC]

Not at all. I would say that it is looking at our NAFTA relationship, which has been strained in recent years. It has been strained because some disputes, the most high profile of which is softwood lumber, are creating negative attitudes on both sides of the border about NAFTA. To me, NAFTA is a critically important element of Canada's competitive success going forward.

Over the last 15 years we've been able to sell Canada as a location of choice to foreign direct investors, for example: invest in Canada and you can have access to the North American market. The problem is that all the disputes we've had and the uncertainties that have been created are causing investor anxiety. If we don't get rid of the anxiety around NAFTA and the collaborative relationship with our largest trading partner, we're going to start losing increasing amounts of foreign direct investment. They're going to go to the United States. Why wouldn't they? Why come to Canada if you might find yourself on the wrong end of a trade dispute or a border issue?

This is part of putting us on a positive trajectory to re-establish and re-energize NAFTA in a way that will benefit our competitive position and our industries--not just our forestry industries, but industries across the board.

We have to do that, and in fact if we do not do that, we're going to get hammered by the Chinese, the Indians, the Koreans--and the list goes on and on. We just have to put ourselves in a position where North American supply chains can be integrated and efficient so that we can take on the real competitive threats that are out there.

[The Chair, Conservative, Leon Benoit]

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

We'll go now to the Bloc, to Monsieur André.

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

Minister, thank you for agreeing to meet with us and for agreeing to let this meeting be open to the public, since we are discussing very important issues. Of course, there are those in Quebec who are very happy with this agreement. Others are concerned because the costs incurred in connection with this dispute by the Coalition for Fair Lumber Imports will be reimbursed with our money. That outcome is somewhat unsatisfactory to us, but it has alleviated the crisis, at least for the time being. Nevertheless, some people are concerned.

First of all, with respect to quotas that have been set, is there room for the independents that have not exported any softwood lumber to the United States in the last five years? Moreover, I read that the Free Trade Lumber Council was worried that proposed taxation measures would hamper business opportunities for the Canadian industry when the industry flourished, but conversely, would marginalize the industry when the market was in a decline. As you know, there are no taxes above $355 whereas below that threshold, export taxes payable hinder Quebec and Canadian companies somewhat.

You mentioned draft legislation on export taxes. When can we expect a bill to be tabled?

[David Emerson, Conservative, Vancouver Kingsway, BC]

Starting with your last question first, it's my expectation that we will require a ways and means motion some time, hopefully before the spring session of Parliament is complete. I can't tell you with precision when that will be ready, but we're certainly working to get it done for spring.

In terms of quotas, there is no quota if you don't want a quota. We have provided an option so that a province--and this largely came from Quebec and Ontario, which wanted this option--in weak markets could pay a lower export tax but subject itself to a quota. So we did it, really, in the interests of Quebec and Ontario. It's unlikely that the quota option would be the choice of most western provinces, although they could choose that. The quota will be based, already, on an average of 34% of the U.S. market, and then prorate the share, in your case, of Quebec for the years 2001 through 2005. That gives them the basis on which they will calculate their quota.

I believe that's a pretty decent compromise, and that was what Quebec had asked for. We've had good support from the Government of Quebec. The vast majority of companies in Quebec have been supportive. I realize that the Free Trade Lumber Council, and Mr. Grenier in particular.... I was one of the founding members of that organization, so I know that their whole raison d'être is to fight for full free trade. And it's a good fight to have, but at some point we have to choose between the balance of interests in the country and the national interest. I believe that now is the time to move on, and the Free Trade Lumber Council, I'm sure, will carry on the good fight for perfection in free trade, but I think I'll be dead and buried when they arrive at their destination.

[The Chair, Conservative, Leon Benoit]

You have about one minute.

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

I would have liked to hear more about the repercussions of a higher Canadian dollar and the whole issue of export taxes, both above and below the $355 US threshold. What impact will this new industry standard have?

[David Emerson, Conservative, Vancouver Kingsway, BC]

In the negotiations, consideration was given to whether there should be some kind of exchange rate adjustment mechanism that would affect the triggers and the duties, but if we were to do that, it would have been a mechanism that would go both ways. It would help you when the dollar was appreciating, but it would hurt you when the dollar was depreciating. It was decided, at the end of the day, that it was just a gamble that was a complicating factor that would not help.

In general, I would say this: the higher value of the Canadian dollar will probably contribute to keeping lumber prices higher rather than lower over the next few years, simply because it keeps the cost base of Canadian production up, which is a huge part of the U.S. market, and probably keeps prices up. But predicting prices, as you know, is a mug's game.

[The Chair, Conservative, Leon Benoit]

Merci, Monsieur André.

We'll go now to the government side, starting with the parliamentary secretary to the Minister of International Cooperation. Then you may split your time if you wish; I understand you might.

Go ahead, Mr. Menzies.

[Ted Menzies, Conservative, Macleod, AB]

I will be doing that. Thank you, Mr. Chair. I would like to give my colleague Mr. Lemieux an opportunity to ask a question.

I know, Minister, that you need to run quickly, but thank you once again for attending this shortly planned meeting.

I'd like to ask a question about the dispute settlement mechanism. This has far broader implications than just softwood lumber. It's been a pet peeve of mine for a long time, dealing with many commodities. In relation to the frivolous challenges that get launched against countries--and we've been the whipping boy of many of those challenges--is there a chance here, an opportunity through recognition of the protectionist support in the U.S. that has created this Lumber 4--and if we hadn't fixed it, Lumber 5 close on its heels--for us to get some solid foundation behind support dispute settlement mechanisms that we can use to promote these disputes we have in NAFTA?

[David Emerson, Conservative, Vancouver Kingsway, BC]

That's a good question. I look at dispute settlement as not being just chapter 19, but also as being influenced by domestic courts in the U.S. Some of our chapter 19 cases have migrated into domestic courts in the U.S. The WTO dispute settlement has a bearing on it. As I think most people around this table will know, the WTO mechanism--which is based on an internationally agreed to legal framework--is far from perfect. We have many of the same problems with the WTO, and more, as we do with chapter 19. Under the WTO, you do not get your duties back if a country has been proven to be wrong in levying those duties. The only relief you have is prospective, meaning that those duties have to be eliminated within an appropriate period of time, but you may have the right to retaliate.

Well, I have to tell you, Canada is the most trade-dependent country among all the industrial countries in the world. Retaliation for us is a no-win. We have trouble finding a few million dollars when we start to launch a consultation on retaliation, simply because we depend so much on imports to use as inputs in production that we end up hurting ourselves from retaliation more than helping ourselves. My hope is that we will get some improvements through a successful WTO round around such issues as we are touching on over here--the definition of dumping, a discussion of zeroing. A number of issues around definitions, trade remedies, and so on will be very important; if we can get them into the WTO, we can have a better shot of migrating them into NAFTA, either through legal decisions or perhaps through some discussion and negotiation.

It's going to be an incremental process, in my view, to gradually upgrade dispute settlement. Today dispute settlement is...I don't want to say it's laughable, but it's not a recipe for a healthy industry. If you're a small operator, any time you can be lambasted with 27% duties and have to pay out that cash for four or five years, you'll be very fortunate if your company hasn't gone bankrupt by the time you finally get relief under chapter 19. The same would apply in the WTO world.

Dispute settlement has to be a huge priority for countries, but in the current political environment in the United States, I would not argue that now is a great time to be reopening NAFTA. It may not even be a good time to reopen NAFTA in Canada, so let's work with what is practical and incremental, try to make further progress, and put a stake in the ground each step we make.

[The Chair, Conservative, Leon Benoit]

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

Mr. Minister, I know you don't have any more time today.

I would like to thank all the members for their good questions and I'd like to thank you, Mr. Minister, for your answers.

We will end this part of the meeting. We'll just close things down for about three minutes as the minister and his officials clear, and then we do have one motion regarding the membership of the subcommittee on agenda to deal with. Then we'll end the meeting at that time.

We will just suspend for three minutes.

[The Chair, Conservative, Leon Benoit]

Could we have the members back at the table, please. We have one motion to deal with here.

This motion by Mr. Cannan has been given the appropriate 48 hours' notice.

Mr. Cannan, you can just read the motion--it's very short--and then explain briefly why you propose this makeup for the subcommittee on agenda and procedure. If there is discussion, we'll entertain that and get to a vote, and then our meeting will be over for today.

Mr. Cannan.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chairman. I think it's straightforward housekeeping. The motion you should have in front of you is that the subcommittee on agenda and procedure be composed of the chair, the two vice-chairs, a government member, and a member of the New Democratic Party. The reason for this is to help set the agenda and direction for the committee.

[The Chair, Conservative, Leon Benoit]

Okay. The one thing that did come up is that as chair of the committee, I'm on the subcommittee on agenda and procedure. I mentioned this last time, I believe, but if I'm the only member for the Conservative Party, then it's hard for me to carry out my responsibilities as chair--in other words, just running the meeting--because then I'd have to lobby for the government position on issues as well. So this would have another member for government and also have a member from the New Democratic Party on the committee.

Is there any discussion on this before we put it to the question?

Mr. Julian.

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

The New Democratic Party is already on the subcommittee on agenda and procedure as the other party representative. So currently there are four: the chair, the two vice-chairs, and the representative of the other party, which is me.

[The Chair, Conservative, Leon Benoit]

Okay, yes.

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

And that's an appropriate structure for this committee.

[The Chair, Conservative, Leon Benoit]

This motion recommends that there be another government member besides the chair. So what are you saying, Mr. Julian?

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

I'm saying I'm opposed.

[The Chair, Conservative, Leon Benoit]

Mr. Paquette.

[Pierre Paquette, Bloc, Joliette, QC]

After listening to the motion, Mr. Chairman, I checked with the Whip's office. To our knowledge, no committee works this way. I wouldn't want us to set a precedent.

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

That's not true.

[Pierre Paquette, Bloc, Joliette, QC]

We had agreed that each party would be represented on the steering committee. By expanding the committee, we would be making it more unwieldy for no good reason.

[The Chair, Conservative, Leon Benoit]

Actually, Mr. Paquette, the industry committee has this structure. They've recently accepted it, and I believe it's for exactly the reason I mentioned. The committee does operate by consensus anyway. It's not like a vote is going to make a lot of difference, because if we can't reach consensus, then we go to the whole committee. But if the subcommittee on agenda and procedure doesn't reach consensus often, we'll just end up setting the agenda for the committee at the whole committee. That's what happens in practice. This is just intended to take the chair out of the position of having to chair the meeting and also put forth the government's desires on issues. That's the sole purpose of this. So it's not like one more vote is going to make any difference, because we operate by consensus.

Is there more discussion?

Ms. Guergis.