International Trade Committee on Oct. 26th, 2006

[The Chair, Conservative, Leon Benoit]

Good morning once again, gentlemen.

At today's meeting we're continuing the review of Bill C-24, Softwood Lumber Products Export Charge Act , with the officials from the department.

We have with us again today, from the Department of Foreign Affairs and International Trade, Paul Robertson, director general, North America trade policy; Brice MacGregor, senior trade policy analyst, softwood lumber; Dennis Seebach, director, administration and technology services; and John Clifford, counsel, trade law bureau.

From the Canada Revenue Agency, we have two people today: Ron Hagmann, manager, softwood lumber; and Cindy Negus, manager, legislative policy directorate.

I thank you all very much for coming here once again.

We will start directly with questions. Of course, as usual, at least one or some of you will be here when we actually go through clause-by-clause next Thursday, and we're looking forward to having you here again.

I do appreciate your taking the time. I know you have a lot to do with your time. Some members of the committee did feel that we wanted you back, so we appreciate your coming.

We'll go directly to questioning.

Mr. Temelkovski. Go ahead, Lui.

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

Thank you very much, Mr. Chair.

Gentlemen, thank you once again. It's nice to see you again.

I was a little unclear about the 32 companies that were mentioned that are not part of the agreement. Is there a deadline by which they have to sign on to the agreement?

[Paul Robertson, Director General, North America Trade Policy, Department of Foreign Affairs and International Trade]

Thank you very much for the question.

There are a number of companies that are excluded from many of the terms of the agreement because they were excluded from the trade remedy cases themselves under softwood. These are predominantly mills that either use logs imported from the United States and therefore do not come under the ambit of the dispute, or use logs from private lands. There are a number of mills that were excluded from the scope of the softwood lumber cases because of their usage of logs either from private land or from America, particularly from Maine. So you'll find they're predominantly border mills.

The agreement just reflects the decisions that were taken during the case itself to exclude these companies because they're outside of the scope.

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

So these companies are not companies that are still pursuing their own lawsuits with the Americans?

[Paul Robertson]

No.

And they're not completely excluded. They have, of course, some parameters to their actions so that their status cannot be used to go around the regulations that have been put in place. There are requirements to show production levels and these types of things in the agreement, but they do not fall under the specific measures, because they've been excluded from the case.

There's no relationship between that exclusion and--as I noted on Tuesday--the continuing legal proceedings that have been precipitated by the mooting of the cases when the softwood lumber agreement was put into force.

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

It seems to me that when we look at the overall shipping of softwood lumber to the Americans, it appears to be in a similar fashion to the way we are treating our doctors, having so much money for health care. There's so much footage that can go down there. We have our companies that already exist signing on to the agreement, and they will ship to the States.

Is there a mechanism for other companies coming into the agreement? Can any company come into the agreement at any time? How do they work with the agreement?

[Paul Robertson]

Thank you very much.

I'm not aware of our policies towards doctors, so I can't make a comparison of that. However, any company that is exporting softwood lumber products to the United States would fall under the terms of the agreement unless they are within a specific exclusion. There are, as you know, a number of exclusions--you've mentioned the 32 companies. You have other exclusions for the territories; you have Maritimes exclusions as well. If the company does not fall under any of those exclusions, then they fall under the terms of the SLA.

So there's no question of a company opting in or out of the agreement. It's automatic--if you're exporting softwood lumber products to the United States, you are required to meet the conditions established for those exports.

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

The final question on this scenario would be this. Will those companies that have continued with their litigation be in any way hindered in their business with the Americans in the future?

[Paul Robertson]

Not at all. The Softwood Lumber Agreement has terms and conditions that are neutral for any residual litigation elements that are continuing beyond the effective date.

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

Thank you very much.

[The Chair, Conservative, Leon Benoit]

Is there a member from the Bloc who would like...?

Monsieur André, do you have questions now, or do you want to come in later?

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

We'll come in later.

[The Chair, Conservative, Leon Benoit]

Mr. Harris.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Mr. Chairman, I want to clarify what Mr. Temelkovski was asking. I think he was asking about the opportunity for new companies to get into the market.

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

Yes.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

As I understand, this agreement is based on historical export of softwood lumber into the U.S. Historical amounts have been calculated into this 43% market share, and the regional shares are based on historical shipments, as are the penalties or extra charges for overshipping the set quotas during times of quota. New companies that are starting up—and there are very few of them these days starting up in the softwood lumber business—are not yet a part of this agreement, because they haven't established any historical shipping amounts into America. Is that what...?

[Paul Robertson]

Thank you very much, Mr. Harris.

Mr. Temelkovski, I apologize if I misunderstood your question in my response.

I would ask my colleague, Dennis Seebach, to speak a bit about what is referred to as “new entrants” coming into the market and what their conditions are under the Softwood Lumber Agreement.

I misunderstood your question.

[The Chair, Conservative, Leon Benoit]

Mr. Seebach, go ahead.

[Dennis Seebach, Director, Administration and Technology Services, Department of Foreign Affairs and International Trade]

Thank you, Paul.

Under the terms of the agreement, there are a number of opportunities for new entrants to ship to the U.S. The historical exports determined the regional shares, as outlined in the agreement. Then provinces were allowed to select under two options: option A which, was a straight tax and a no-volume restraint; or option B, which is a lower export tax and a quota-volume restraint.

B.C. coast, B.C. interior, and Alberta selected option A, which meant that any company in those regions or any company outside of those regions shipping that lumber is allowed to ship the lumber and pay the tax. That would allow new entrants to come into the program.

For our option B companies, we are in a transition period up until January 1, and the option A rules still apply for option B regions: for Saskatchewan, Manitoba, Ontario, and Quebec. We are in consultations with the provinces right now on quota allocation methodologies. We haven't made any recommendations to the minister at this point; we're still in consultations.

There's one other opportunity for new entrants—for anyone in Canada—to ship to the U.S., and that is when prices are high. The agreement allows, when prices exceed $355, for total free trade between Canada and the U.S. of softwood lumber, with no volume restraints and no taxes paid.

[Paul Robertson]

Does that answer your question, Mr. Harris?

[Dick Harris, Conservative, Cariboo—Prince George, BC]

I certainly am aware of that, yes. That pobably clarified it.

I want to ask whether we can clear up the confusion that exists among remanufacturers. There are in Canada a number of remanufacturers, particularly in my province, I know. Some—or most of them—have signed on in support of the Softwood Lumber Agreement, and some haven't. There's a distinction of category in how they're viewed: those that are viewed on a first-mill status, and those that aren't. There's a different rate for them to pay, if we're into the trigger mechanism.

Could someone clarify that for the panel, please?

[The Chair, Conservative, Leon Benoit]

Mr. Seebach, go ahead.

[Dennis Seebach]

Thank you, Chair.

The agreement does provide for a price advantage for independent remanufacturers, and the key to that definition is the independence. There are two determining factors of this independence, which are the certification by the province that you do not hold tenure, which makes you separate from a primary mill—

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Just for clarification, “tenure” means that you have the right to a timber licence and to cut your own timber, as opposed to a remanufacturer who simply bought processed lumber from another mill and is going to turn it into a value-added, right?

[Dennis Seebach]

That's correct. We talk about tenure all the time, and I apologize for not explaining it.

The second component of independence is that you are independent of tenure-holders--i.e., you have no affiliation or relation to a tenure-holder in a financial or a control way.