International Trade Committee on May 15th, 2006

[The Chair, Conservative, Leon Benoit]

Thank you very much.

Now to the government side, to the parliamentary secretary to the trade minister, Ms. Guergis, seven minutes. You can share your time if you choose.

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

Thank you, Mr. Chair, and I will in fact be sharing some of my time with the honourable member from Kelowna---Lake Country, since he has a number of constituents who have asked a number of questions about this new deal.

First, Minister, I'd like to tell you it's good to see you here today. I do want to give my appreciation to you. I know we requested you come before committee at the first meeting of this committee, and almost immediately you responded with yes, so we very much appreciate your respect for this committee and the work we do here.

We also appreciate the good work you've done on this file. I know in your previous position you worked lengthy hours, and continue to do so, and you were able to secure a deal for Canada. We very much appreciate this.

Thousands of our forestry workers, of course, have been affected, and their families have been hurt over the last few years because we haven't been able to negotiate a deal, and you were successful, so we appreciate that.

The $4 billion--it's my understanding it's the highest return that has ever been achieved in negotiations to date. Perhaps you can expand on how you were able to improve upon some of the rumours and what we had heard prior to your reaching this agreement.

[David Emerson, Conservative, Vancouver Kingsway, BC]

What we have seen in the last few months are two factors at play at the same time. One is the much more positive, constructive tone of the Canada-U.S. relationship. I really believe the Prime Minister and the President have struck a much more positive, cooperative tone, and I think there's a recognition on the part of our two leaders that the Canada-U.S. relationship is a fundamental building block of our competitive success going forward.

For too long, NAFTA has been defined in terms of disputes, rather than in terms of building on the opportunities inherent in NAFTA and the different ways we can build on NAFTA to strengthen our economy.

The second factor that I think has been in our favour has been litigation. I am a great believer, always have been, that litigation is a tool. It's a tool to get you leverage in your negotiations, because fundamentally I believe you have to negotiate a resolution to most disputes. Certainly this one is big enough and has dominated the relationship to such an extent that, other than a negotiated agreement, I don't think there is a solution. So we've had the leverage of some litigation wins, and we've had the leverage from a more positive relationship. I think those two coming together when they did have allowed us to make a move that gives us the opportunity to start building NAFTA beyond where we've been for the last 10 years, and build our competitive position against some of the real threats out there that are largely non-North American in nature.

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

I would agree with you on that, because it appears to me that mainly American lawyers and a lot of lobbyists seem to be opposing this deal with a lot of scare- and fear-mongering. I guess they will be the ones who no longer will have the opportunity to earn dollars because of litigation.

[David Emerson, Conservative, Vancouver Kingsway, BC]

There's no doubt about it. Hundreds of millions of dollars have been spent on lawyers and association staff, and untold millions are spent by Canadian companies that have to comply. People don't realize that this dispute, unlike all the previous disputes, is not just a countervailing duty dispute. In other words, they are alleging more than just subsidization in Canada; they're alleging dumping, which they have never done before. When you allege dumping, once you get into a dumping case, you can be in it for a decade or more and never really get out because administrative reviews go on and on. The basis for calculating dumping margins is very, very elastic, and we could be in this for a very, very long time. So, to me, it's really an opportunity to get this mess out of the way and begin to think larger about the future of the industry and the North American economy.

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

I just have one further comment and then I'll pass to my colleague.

The bigger part of the industry, the big companies, could probably afford to go on in litigation for a very long time, but small and the medium-sized businesses can no longer afford to continue with litigation. I think this deal is really looking out for the small and medium-sized businesses.

[David Emerson, Conservative, Vancouver Kingsway, BC]

There's absolutely no doubt: the bigger you are and the more cash you have on your balance sheet, the more likely you are to want to ride this thing out because you have the financial capacity to ride it out. There are all sorts of small companies out there that become pretty cheap acquisition targets. So I think it really is a world where the bigger you are and the more efficient you are, perhaps the less likely you are to like a negotiated solution.

But even at that, a lot of the big companies have come aboard, and they are saying it's time to get on with creating some stability and building the industry and the business going forward. They want to invest, and some of these companies have hundreds of millions tied up in deposits in the U.S. That money could be redeployed at some fairly hefty returns in terms of new technology, new mills, and new opportunities, often not even in softwood lumber but in other parts of the business, such as pulp and paper, OSB, and value-added products.

[The Chair, Conservative, Leon Benoit]

Mr. Cannan, you have time for one short question.

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

Thank you, Mr. Chairman, and thank you to the honourable member and the parliamentary secretary to Minister Emerson. You're doing a great job, and thank you for your questioning. Coming from British Columbia, as does Mr. Julian from the NDP, as well as the Honourable Minister Emerson, I can say that we have a serious issue.

First of all, about 55% of our lumber exports are to the U.S. So this is a serious and significant issue, and obviously one that provides some certainty and stability to the industry. The majority of British Columbians are very thankful, as are all Canadians for that matter.

Also, the issue that is of concern in B.C. as compared to the rest of Canada is something called the pine beetle. I'm sure everybody's heard about it. If you haven't seen any pictures you can go online and look at it. It's destroying our British Columbian forests. Minister Emerson, maybe you could just allude to that a little bit.

I also wanted to thank you. As a member of the government, I had an opportunity to be in the room for some of the negotiations. I don't know the position each of you takes with respect to coming to the government side, but I want to say that your wisdom, expertise, and knowledge have been invaluable to all British Columbians and Canadians, and I want to thank you for putting your own personal reputation on the line to help all Canadians with this deal.

As a British Columbian, I would like to know--and time is not on our side because of the pine beetle--what would happen if we didn't sign this deal, and what the implications would be for our industry and specifically for B.C.

[The Chair, Conservative, Leon Benoit]

Mr. Minister, I'm going to have to ask you to give a short answer. We're over time already on the Conservatives' side.

[David Emerson, Conservative, Vancouver Kingsway, BC]

Let me just quickly say that the pine beetle is creating a massive disaster in British Columbia, and it's spreading to Alberta. Nobody in Canada should feel that they will be exempt from this kind of pestilence going forward. It is the result of climate change and other factors. It has created a serious problem, because the industry in the United States is absolutely paranoid that the timber that's been affected by the pine beetle, which is being harvested on an accelerated basis, will flood the market. So it's been very important to get this framework agreement put in place and to get the kind of surge mechanism we have in place that will give a reasonable amount of headroom to us to deal with the pine beetle and other related problems.

Ultimately, pine beetle wood is going to decline in value. We're going to have to develop other products in other markets, but there is a crisis. What will happen after the pine beetle is that the rest of the forest base will not be as healthy. We will not have, 10 years from now, the same allowable cut that we have today. There will be dramatic reductions, and we have to pay an awful lot of attention to ensuring that communities that are dependent on mills processing pine beetle timber have an alternative source of either timber or other economic opportunities.

[The Chair, Conservative, Leon Benoit]

Thank you.

Mr. Julian, you have seven minutes.

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

Thank you very much, Mr. Chair.

Thank you, Mr. Emerson, for being here today. As you know, I am not a fan of this deal. I think it's a sellout of Canadian interests.

I'd like to start with the chapter 19 provisions. At this committee last year, prior to our win on August 10, it was very clear that chapter 19 needed to be used in order to be effective. We know as well from testimony from members of the forestry sector from across the country that the Americans' objective was to destroy chapter 19, that they did not like it, and that they felt it provided for Canadian rights that they did not want to see under NAFTA. Effectively, as this deal indicates and as observers have indicated, this deal kills the possibility of using chapter 19 in the dispute settlement mechanism.

So my first question is very simple. Why did you not use chapter 19, and why did you effectively give it up?

[David Emerson, Conservative, Vancouver Kingsway, BC]

That's a fair comment. The reality is that the many chapters and incarnations of the softwood lumber disputes over 20-plus years have tended to be, since NAFTA, all through chapter 19. We've been contesting countervailing duties throughout this whole time, using chapter 19. There are over 20 legal cases out there, as you know, that are either chapter 19-related or WTO-related.

The reality is that chapter 19 is imperfect. Chapter 19 is the one that allows spurious cases that are not well substantiated to be launched, which is what we have today. You can make allegations about dumping, you can make allegations about subsidy, and you can put in place 27% duties, all under chapter 19. So chapter 19 is being used, and at the end of the day I think we all recognize--and Mexico has come to recognize--that it's a pretty expensive proposition to take these battles right down to the final legal victory. Indeed, there may never be a final legal victory if some of the protectionists have their way in the U.S.

So this framework says that if we can't fix chapter 19 and get a more rigorous test for when a countervailing duty can be brought, or a more rigorous test for when an anti-dumping duty can be brought, or a more timely resolution of the dispute, then let's have an agreement that precludes these disputes and gets back to a basis of stability for the industry.

That's the trade-off we've made. We've decided that we're far better off to have stability, to have the Americans swear off taking actions, and to get on with a more stable and predictable environment to build the industry.

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

But you realize that this means it becomes inoperable for us, and the provisions of chapter 19 allow us to withdraw all NAFTA benefits when there is non-compliance. Effectively we've had non-compliance. So I come back to my question. Why did you choose not to use rights that we already have and that would have been effective?

[David Emerson, Conservative, Vancouver Kingsway, BC]

We have not given up any legal rights at this stage. We're continuing to hold all our legal options open. If and when this deal is tidied up and put into an acceptable legal format, we'll cross the bridge as to how to deal with chapter 19 and the legal precedents that have been set through this case.

But there is no doubt about it that chapter 19 requires goodwill on both sides. We have not had goodwill from the U.S. side on chapter 19 for some time now. We believe that if we rebuild goodwill and begin to look at ways in which NAFTA can be fine-tuned and improved, that will be better for us. That will improve the likelihood that chapter 19 can be worked on and fixed, but in a collaborative, constructive way, because if you don't have your biggest trading partner willing to work with you on it, you're not going to get anywhere. You can throw all the lawyers you want at it, but it's just not going to work.

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

Well, you used to believe in chapter 19 and linkage. Your comment from a few years ago, which I know you'll remember, was that when we go head to head with the Americans in one sector, including forestry alone, we're going to be whacked, and we'll be whacked down one at a time. In this case we've clearly been whacked.

Mr. Chair, how much additional time do I have?

[The Chair, Conservative, Leon Benoit]

You have three minutes. I'm allowing you an extra minute because the Bloc and the Conservatives both took an extra minute.

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

I'd like to go on to the issue of consultation with the forestry sector and the provinces, because concerns have been expressed by the Premier of British Columbia about the anti-circumvention clause--the fact that the version he saw when he gave conditional approval did not contain that clause.

Many people in the forestry sector have said they felt threatened and that the government was saying, “You sign on this deal and support this deal or you're not going to have support for litigation, or any continuance of fighting for Canadian rights”.

Can you tell the committee today that assurances have been given to the forestry sector that if this deal is rejected by the forestry sector they will continue to be supported by the Government of Canada for litigation?

[David Emerson, Conservative, Vancouver Kingsway, BC]

Well, what we have told the industry is to examine carefully the choices here, the choices between continuing litigation and a world in which government support may well be forthcoming but will almost certainly be countervailed. There's almost no chance that the Americans will not countervail any program to provide long-term support for the industry. So everybody just has to understand what the options are--litigation, possibly government support, but a long, extended period of uncertainty, with new measures that they can target in terms of countervailing duties, because you're going to put in some new measures of support.

On anti-circumvention and the B.C. forest policy changes, I've had extensive discussions with Premier Campbell and Minister Coleman in B.C. We are working with the embassy, with International Trade Canada, with U.S. Commerce, and with the U.S. trade representative's office on the changes that B.C. wanted to put in place for implementation in September. We believe those policy changes will be found acceptable as part of this agreement and therefore not a problem.

As Minister Coleman said, this is really the final installment of the major changes they began to put in place four or five years ago, partly in response to trade actions in the past, but also in response to the need to have a much more market-based way of valuing crown timber.

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

The draft agreement has been sent around. There was initially a 24-hour deadline sent to selected parties for folks to provide feedback on that. I understand that's now been extended to Wednesday. This is wholly unreasonable. It's outrageous, in fact, that an agreement that would have such huge implications is something the government, your ministry, is providing only a few days to provide feedback on.

Has that deadline been changed, and what's the rush about ramming this through?

[David Emerson, Conservative, Vancouver Kingsway, BC]

I think members around the table will realize this is a very complicated business. That said, there's not much here that people haven't seen before, because they've been digging around in this dispute for four or five years, many of them much longer than that. I've been involved in it myself for eight years. So I suspect the amount of new information that has to be digested is not as great as you might think.

However, if people need a little more time to assess some of the issues that are in play here, we'll give them more time. We have to get going, though, because it will require Parliament to execute this agreement. We're going to have to have a framework that will allow and enable provinces to put in place an export tax, which could come into play at the low end of the market, and return the revenues to that province for their use. That's going to require some legislative acts on the part of Parliament. I don't want to wait until fall on that.

We're going to have to deal with the issue of quota, because some provinces in bad markets will opt to have lower duties but subject themselves to a quota arrangement at the bottom of the market. That will require some legislative and regulatory clarity as well. And we have all the complexities around this, as members have said--dispute resolution, unwinding of deposits, who's in and who's out, remanufacturers. It's a very complex agreement.

I can tell you, if we do not put people's feet to the fire, if we don't push them very hard, we could be talking like this at this time next year. Because I just know that this is an issue you could spend your whole career on, and we think it's time to press on. We'll be reasonable, but we're not going to wait forever.

[The Chair, Conservative, Leon Benoit]

Thank you, Minister Emerson.

Now, to the second round, starting with the official opposition, Mr.Temelkovski, I believe.

You get six minutes, to make up for the extra minutes the others got. Go ahead, please.

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

You are most humble, Mr. Chair.

Thank you very much, Mr. Minister, for showing up and making this session out of camera.

I'd like to read a quote from someone:

I would seek a clear commitment of the United States to comply with the NAFTA ruling. If the Canada-U.S. trade relationship is to remain a fair, stable, rules-based system, then the United States has a moral obligation to return those duties to Canadian lumber companies.

There can be no question of Canada returning to a conventional bargaining table, as the U.S. Ambassador has suggested.

You don't negotiate after you've won.

The issue is compliance.

And achieving full compliance should be the objective of the Prime Minister.

I would also not hesitate to point out that Canada possesses the right to retaliate in the case of non-compliance.

That was quoted from the Prime Minister in September 2005.

Mr. Minister, I have two questions. In your view, is half compliance like being half pregnant under the NAFTA deal? Secondly, what sort of a precedent does this establish for future NAFTA agreements? Is it for Canada to recover less now and in the future?

These are the types of questions that are being asked in my riding. These are the types of questions I'm hearing from Canadians who are calling in from all over and from people I'm meeting with as well. Maybe you can shed some light on this.

[David Emerson, Conservative, Vancouver Kingsway, BC]

I really hope you'll tell the people in your riding that softwood lumber and the trade actions involved in softwood lumber have been going on for a very long time. We're not in a world where we can choose between perfection and what we have today. Perfection is just not out there. What is out there, if we don't have some kind of a negotiated settlement, is more litigation, more uncertainty, and possibly a broadening of this dispute.

Remember, the timber that is used to produce softwood lumber is also used to produce pulp and OSB; it is used in a range of products. If anybody thinks there is no scope for a broadening of the lumber dispute, they're just dead wrong--it's the same timber. If they can make the allegation about lumber, they can make it about OSB or about plywood.

That's the reality we face. And against that reality we've negotiated an agreement that under current market circumstances has no quota and no tax. It gets us over 80% of our money back, and of the roughly 20% that stays south of the border, half of that will go to initiatives that will be of benefit to the industry in North America, including the Canadian industry.

Is it a perfect deal? No. Do I think there's a perfect deal out there? No, I do not. I've been in this business long enough, and I think this is one of those deals that you might wish perfection was the alternative, but it isn't.