International Trade Committee on May 29th, 2006

[The Vice-Chair, Bloc, Pierre Paquette]

Pursuant to Standing Order 108(2), the committee is undertaking its study of softwood lumber.

The witnesses are Carl Grenier, Executive Vice-President and CEO of the Free Trade Lumber Council; Jamie Lim, President and Director General of the Ontario Forest Industries Association; from the Alberta Softwood Lumber Trade Council we have Trevor Wakelin, Chair, Fibre Resources Millar Western Forest Products Limited, and Murray Summers, Vice-Chair, Chief Forester, West Fraser; Diana Blenkhorn, President and CEO of the Maritime Lumber Bureau.

The presentations will be made in the above order, and let us begin with Mr. Grenier.

[Carl Grenier, Executive Vice-President & CEO, Free Trade Lumber Council]

Thank you, Mr. Chairman. As my comments are written in English, I will read them out in English. Then I will be pleased to answer your questions in French or in English, as you prefer.

[Carl Grenier]

Good afternoon. Thank you for the invitation.

Like most of the other witnesses who will testify on the subject of softwood lumber and the proposed deal with the United States before this committee, this subject and this deal is my job.

The Free Trade Lumber Council, which I represent, was created by Canadian industry in late 1998, two years before the expiration of the Softwood Lumber Agreement of 1996, for the purpose of obtaining free trade in lumber sooner or later. With the deal that Canada plans to enter into, at least as we now know it, it will mean much later and perhaps never.

The deal, as we have seen it so far, guarantees that for the next seven to nine years there will not be free trade in lumber, and the restriction on Canadian access to the U.S. market--unless very complex details are worked out very carefully, deliberately, and well--will be very damaging to Canadian forest industries. In addition to being the only organization whose representatives will come before you dedicated expressly and specifically to achieving free trade sooner or later by litigation or negotiation, somehow or other we are the only organization representing interests from all affected Canada. I use the term “affected Canada”, because the Yukon, the Northwest Territories, and, most importantly, the Atlantic provinces are not affected.

The United States government has investigated in detail the forestry practices of all Canada except the Atlantic provinces over and over again. Those investigations have been tested before NAFTA panels. NAFTA panels have found over and over again that according to the prevailing law--and the Americans, as you know, keep changing the law, but we have responded to the changes--Canadian provinces do not subsidize the production or export of softwood lumber, and imports of Canadian softwood lumber into the United States neither injure nor threaten to injure any United States industry.

I thought, having the honour and privilege of being your first witness, that I might provide you with something of a balance sheet, examining the basic terms and what we know of subsequent drafts, to compare what the Americans want and what they are getting and what we want and need and what we are getting. And then I will leave it to you, because this deal will become before the House of Commons and it will be up to you to decide whether you will approve it, whether we are getting enough, and whether the deal is a fair deal.

Here's what for the last five years we've wanted and continue to want: we want a long-term durable settlement of the dispute over softwood lumber; and we want an end to legal battles and litigation, recognizing that Canadians have been sued, Canadians have been charged with unfair trade practices, and that the only reason there is litigation is because the United States industry, aided and abetted by the United States government, has brought Canadians into the legal dock, charged us with misconduct, and obliged us to defend ourselves. We would like to no longer be charged and we would like no longer to have to defend ourselves, and we would like free trade.

To achieve these goals, we have been willing to change our forestry practices, even when we did not think there was anything wrong with them. We have been willing to meet every charge with a legal answer. We have been willing to pay something, even though we honestly don't know exactly why we should. We have been willing to negotiate even if we heard no compromise of any kind from the other side.

And here is where we are. We have negotiated on and off since before this round of cases was filed by the U.S. coalition and we have never encountered any serious compromise from the U.S. side, including this time. Meanwhile, a NAFTA panel decided definitively that Canadian exports to the United States neither injure nor threaten any U.S. industry, and according to U.S. law that should have been the end of the matter, nearly two years ago.

The United States then accused an American panellist of misconduct and the whole unanimous five-member panel, with three Americans on it, of getting U.S. law wrong. A NAFTA extraordinary challenge committee, chaired by the former chief justice of the United States Court of International Trade, exonerated the American panellist in very strong terms and upheld unanimously the NAFTA panel. The U.S. answer last August was to refuse to implement the decisions.

We have now completed the briefing and hearing before a U.S. court to have those decisions implemented. We are waiting for a decision. We were in court on this matter just this past week because the judges are concerned that the April 27 agreement might mean that they should not bother to rule. They concluded that they should rule, and the decision is literally just weeks away.

Another NAFTA panel has decided definitively that Canadian softwood lumber is not subsidized. That decision should have been implemented on April 28, eliminating the countervailing duty that constitutes most of this case, including deposits of some $40 million every month still being collected at the border. But on April 27 the United States challenged that panel too, comprised of three Americans, including an American judge. The United States says that the unanimous panel got U.S. law wrong, including the American judge. We would proceed to go through that challenge, and by law it would be over on August 10 of this year, but Canada agreed with the United States to stop that proceeding so that we cannot get a final outcome from the NAFTA panel.

Two governments have agreed that we should not have the final decision, after four years of litigation proving that Canadian softwood lumber is not subsidized. Why? Why can we not have these legal outcomes? One has only to read the opening statement of the current draft of the agreement from the United States. We got that last Friday.

The second paragraph says that the agreement is “seeking to resolve disagreements with respect to shipments to the United States of Canadian softwood lumber that the United States has found to be dumped and subsidized and threatening material injury to the softwood lumber industry in the United States.” Now, Canada could hardly sign that statement if there were definitive legal decisions to the contrary. We cannot imagine how Canada could sign that statement under any circumstances. In fact, the legal process required the U.S. agencies, not just the NAFTA panels, to find the contrary. The United States International Trade Commission issued a determination that says there is no threat from Canadian imports. The United States Department of Commerce has issued a determination concluding that Canadian softwood lumber is not subsidized. But those determinations ultimately are in limbo as long as we do not have the decision of the Court of International Trade and the completion of the April 27 ECC.

Here then, we can see a basic U.S. objective of the agreement: to erase the last four years of litigation, to eliminate all Canadian legal victories and replace them with the same old legal assertions that the U.S. industry has been making for the last twenty-five years. They want to be ready for another trade war on this issue as soon as the current deal fails or expires, and they want to wipe out any advantage Canada might have gained from defending itself during the last four years.

In the opinion of the Free Trade Lumber Council, we cannot build a long-term durable peace on the foundation of a lie, in which Canada is guilty as charged even after it has proved its innocence. The basic terms with which you are familiar are not as bold as the U.S. version, but they come to the same conclusion by claiming that all the legal implications of the last four years are now suspended “without prejudice”. The Canadian victories are erased, and the U.S. view of Canada is restored as if nothing happened during the last four years.

Of course, a great deal has happened. Most importantly, Canadians have deposited into the U.S. Treasury over $5 billion in duty deposits that the law now clearly shows never should have been collected. Canadian companies have been bled dry. Many have been put on the verge of bankruptcy because of eroding credit and lack of cash.

And here's the second item on the balance sheet. The U.S. industry wants our money, and we want our money back. The deal gives us back 80¢ on the dollar, which in the net present value of money a year ago might not have been bad but is now so close to the legal result that would give us back 100¢ on the dollar we at least have to raise an eyebrow.

The U.S. coalition crippled our industry for four years, making us pay premiums to compete in the U.S. market, thereby giving themselves a huge competitive advantage. Then they wanted to keep the money, even though both the WTO and a U.S. court have said they are entitled to none of it.

Despite what the U.S. Court of International Trade said on April 7 in a case brought jointly by the Government of Canada and Canadian industry, the basic terms proposed to give the U.S. industry $500 million and have the U.S. government keep another $500 million. The lead counsel for the coalition told the three-judge panel in the Court of International Trade in New York just last week that the coalition was compromising because it was only getting $500 million when, according to the Byrd Amendment, they should be getting $5 billion. He did not mention that the legal cases before NAFTA have proved that he lost and he's entitled to nothing, and that he also lost the challenge to the Byrd Amendment--

[The Vice-Chair, Bloc, Pierre Paquette]

Mr. Grenier, excuse me for interrupting you, but we just noticed that there is no interpretation. We have sent for a technician.

I want everyone to understand what is involved in this issue.

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

Mr. Chairman, I find that the witness has very important things to say. If the presentations are delayed, I hope that today's session will be extended.

[The Vice-Chair, Bloc, Pierre Paquette]

We are trying to be expeditious. I am told that if you read less rapidly, the interpreters will probably be able to follow you. This is what I was told. So let us try to proceed in this way.

[Carl Grenier]

They wanted to keep the money, even though both the WTO and a U.S. court have said that they are entitled to none of it. Despite what the United States Court of International Trade said on April 7 in a case brought jointly by the Government of Canada and Canadian industry, the basic terms propose to give the U.S. industry $500 million and have the U.S. government keep another $500 million.

The lead counsel for the coalition told the three-judge panel in the Court of International Trade in New York, just last week, that the coalition was compromising because it was only getting $500 million, when according to the Byrd Amendment they should be getting $5 billion. He did not mention that the legal cases before NAFTA proved that he lost and is entitled to nothing, and that he also lost the challenge to the Byrd Amendment and through that vehicle also is entitled to nothing. Indeed, the only way he can get any money is through this deal.

So we wanted all our money back. The U.S. coalition wants all of it. We get back some, and the coalition gets some, and there is the compromise--only without the deal, we eventually would have got all our money back, guaranteed, and the coalition would get nothing, guaranteed. Exhaustion and bleeding have led our members and the rest of the industry to say that assuming everything else is right--it's a big assumption--they can live with giving away $1 billion; as you know, we've never given any money back in past episodes in which there has been a dispute.

Here is a minor digression: there have been a lot of comparisons in the last couple of weeks to the deal into which the United States recently entered with Mexico over cement; the Mexicans gave up $150 million. But let's be clear--the Mexicans had not won the legal case, and after two years they go to full free trade. We won, and after seven years we will be further from free trade than we are today. Guess who got the better deal.

Let us go back to the balance sheet. According to the legal decisions, we are entitled to free trade. NAFTA was supposed to spare us appeals and make the cases go quickly. NAFTA failed us as to speed, but not as to justice. We won. But the deal imposes restrictive managed trade. The U.S. wants managed trade in softwood lumber, and there's no doubt as to who will be the manager.

The nature of the managed trade is also important. A prime objective of the U.S. coalition has been to make Canada the marginal supplier in North America for softwood lumber. It has been to assure that in down or slow or soft markets, Canadians would be the shock absorbers of the system. When demand contracts, Canadian mills should close and Canadian workers should lose their jobs well before the same thing happens in the U.S.

The current design of the deal, as we understand it, does exactly what the coalition wants. We face absolute quotas or, alternatively, graduating export taxes. The tougher the market, the more we pay. The U.S. industry becomes completely insulated from competition in down markets. So we want free access, and they want protection in down markets. The deal imposes trade restrictions that get tougher on Canadians the more the market slows down.

There is a great deal more, of course, and much we do not know yet. We know that under current terms, provincial governments must present all changes to forest policies to the Americans for approval. We might be able to live with this American oversight and with limited access to the U.S. market, but that analysis must be very refined and exact. It is complex and cannot be worked out quickly. Different interests in different parts of Canada must be understood with great refinement and subtlety.

At this stage, there is a lot less known than there needs to be. We don't know whether the border measures will be fashioned so that Canadian industry can survive. All industry associations, including the Free Trade Lumber Council, are working hard to help the federal government get the legal text of the deal right. Some industry members still believe it is possible to improve the basic terms, but this, we are told, is not in the cards.

What we saw on April 27 is what we will get if Canada does the legal drafting right. If not, it could be significantly worse.

To summarize quickly, we want our legal victories; they want them erased. We want all our money; they want a lot of it. We want free trade; they want trade restricted and managed. We want to manage our forests according to our own rules and ways; they want significant oversight over our forest policies.

I have indicated how the deal appears to be reading at this stage. You must decide whether Canada can and should live with it.

Thank you.

[The Vice-Chair, Bloc, Pierre Paquette]

Thank you very much, Mr. Grenier.

Now let me invite Ms. Lim to take the floor. You have a maximum of ten minutes, as agreed. Please speak slowly. I listened to the interpretation and, as a matter of fact, I noticed that it was not easy to follow Mr. Grenier. I do not mean his reasoning, but he reads very fast.

[Jamie Lim, President, Director General, Ontario Forest Industries Association]

Good afternoon, everyone. I'm very honoured to be here today on behalf of the Ontario Forest Industries Association.

You have two very full days of hearings scheduled on softwood lumber, with many witnesses. As I am one of the first, I thought it might be helpful if I defined some of the terms that may be heard frequently during these hearings.

The first term, “perfection”, has been in the press, and I suspect will be invoked often by ardent supporters of the basic terms and a deal in the making. You will likely hear it often at the end of today and Wednesday, given the lineup as I understand it.

It has been suggested that industry leaders who express concerns or doubts about the deal in the making have a vested interest in continuing the battle. We don't. I'm the president of a trade association, and trust me, with the challenges facing the Canadian forest sector, and particularly in eastern Canada right now, I have enough issues on my plate that softwood lumber is just one of them. My day goes on with or without this file and whether it's finished or not.

But the theme for the last five years during this dispute has been that we would not take a bad deal. As we have suggested, perhaps that is where we are headed, at least commercially. We are being accused of naively looking for perfection. We are being told that we are unrealistic and uncompromising, and that any good deal requires compromises that are necessarily less than perfect.

According to my Webster's New Collegiate Dictionary, perfection means “the quality...of being perfect”, and perfect means “being entirely without fault or defect”. Ladies and gentlemen, I can tell you right now with absolute confidence that I don't have one member company that is seeking perfection. Dave Milton will be here on Wednesday speaking on behalf of the Ontario Lumber Manufacturers' Association, and I've been on enough conference calls that I can say with confidence that Mr. Milton doesn't have one member company that is seeking perfection. That is not what any of our members expect from this deal.

We are certainly prepared to accept something that may have a fault or a defect. The problem arises when we consider the antonym for perfect, which an online dictionary of antonyms says would be “uselessness” or “worthlessness”. Ladies and gentlemen, the question is, between perfection and worthlessness, where is this agreement? The closer it gets to the antonym of perfection, the less acceptable it is to us.

After reviewing both the Canadian and the United States' draft legal texts, it is apparent that what we have right now is a political agreement. As an industry—as businesses dealing with over $7 billion U.S. in annual sales from Canada to the Untied States—we need more than a political agreement. Again, we are not looking for a perfect agreement, but we must have a reliable commercial agreement that protects trade and investment for the Canadian forest industries in every region of this country for the next seven years.

As a CEO of one of my member companies suggested, the April 27th framework has potential, but we have to see how the actual deal is written before we can endorse it. So far, each draft has varied the crucial details further and further away into blank annexes.

Minister Emerson stated months ago—and we applauded him for this—that the devil is in the details. The devil is still in hiding, ladies and gentlemen, even as the government thinks there are only two weeks to go to completing the deal. My members and the 270,000 families that rely on the Ontario forest industry for their well-being and livelihood—and you could say the same for everyone sitting at this table right now and for the families they represent, who are relying on the outcome of this agreement—want everyone to understand that it is our future that is bedeviled by the details. It's our future that's on the line with this agreement.

During a conference call last week, a Canadian CEO—not one of my members—explained to the federal government representatives that the complexity of the commercial implications were huge, and that all Canadians needed to understand that it is the United States industry that would benefit from a deficient agreement. As he put it, “if we get the commercial detail wrong, it will be to the detriment of the Canadian industry”. The government may insist that we are dealing with a win/win deal, but so far it's the government, not the industry, that has confidence in making this claim.

Another term that might be useful to define is “agreement”. My dictionary says that it means “harmony of opinion, action, or character”, and that “compact” or “treaty” is “a contract duly executed and legally binding”. Our concern is that we need to be entering a commercial contract, one that protects us and advances our interests commercially. Its reflection of harmony must mean that both sides agree, which Webster's says comes “after resolving points of disagreement”.

So far, we are finding that the points of disagreement and indeed the driving purpose of the deal are political, but that the commercial disagreements are not resolved. The federal government is convening conference calls once a week, and industry leaders are expressing concerns on those calls. But let's be clear: we're not at the table. We are not always seeing drafts before the United States does or, for that matter, the U.S. industry. Maybe there are drafts with the requisite commercial detail. If so, we've not seen them.

Because we are not at the table and we are not always seeing the drafts—at least, before they are shown to our adversaries—I also looked for the definition of “settlement”, which means “an agreement composing differences”. We have noticed that the United States industry has been at pains to emphasize what it is settling—what it is giving up—at pains because it is not giving up anything, which means that this agreement, as written so far, is not a settlement at all. This problem takes us back to where we are, between perfection and worthlessness.

These dictionary definitions are helpful when we make their consequences concrete. Many in the industry have calculated since April 27 that this agreement, as currently drafted, will result in at least 20% of the Canadian sawmills being put out of business in the next 12 months—and this is apart from the forces that are rationalizing and consolidating the forest industries in our country.

Now, no one thinks that their mill will be part of that 20%; everyone thinks that they can survive and that it will be others who will fail. And I'll say that no one is talking about prospering, but just talking about surviving. We are confident that at least 20% will fail because of this agreement. Moreover, for a variety of reasons, we believe these failures will be disproportionately in eastern Canada, and because of the exclusion of the Atlantic provinces, eastern Canada means Ontario and Quebec.

We therefore expect to suffer, and to suffer a lot, under the terms as they are now written. Moreover, the deal that's written now has no exits, and no hope of exits. Policy reforms are subject to U.S. judgment and to U.S. veto, and there is no termination clause. The managed trade will be permanent, and the terms of the management may devastate employment in northern Ontario, where the Ontario industry is heavily concentrated—and I would expect the same to be seen in Quebec.

We must ask ourselves about the alternatives. The United States insists that we will never get litigated results because they will neither permit nor honour them. Canadians, beaten down after five years, seem to be prepared to accept that the United States controls the market and the law and that there is nothing we can do. Perhaps that is true; perhaps there are no alternatives.

[The Vice-Chair, Bloc, Pierre Paquette]

Madam, excuse me for interrupting you. I just want to notify you that you have one minute left.

[Jamie Lim]

Okay.

But then we must ask ourselves whether one alternative, at least, is not to give up or sign away our money and our rights.

We've said all along over the five years that we're prepared to leave $1 billion, but for a good deal, a commercial deal. We're not prepared to leave $1 billion for the privilege of surrendering the legal cases and memorializing that the United States, not Canada, really won.

Were our jobs and families in northern Ontario not so much at risk, we might not care so much or speak out so strongly, but they are. So we are not looking for perfection; we are not opposing on principle this deal or any other deal, but we want to be as far away from worthless agreements as possible. We need a deal that works for Ontario and all regions of Canada. We need more than a political agreement delivered by June 15. We need a solid, reliable commercial agreement that provides short-term gain by returning our illegally collected deposits, preserving our legal victories so that we are not starting at ground zero in Lumber V, and allowing the Canadian forest industries to remain viable in all regions across Canada for the next seven years.

We cannot afford short-term gain for long-term pain. We fear that we are certainly not looking at perfection, but we may well be looking at its antonym.

Thank you, ladies and gentlemen.

[The Vice-Chair, Bloc, Pierre Paquette]

Thank you very much.

Which representative of the Alberta Softwood Lumber Trade Council will take the floor first, Mr. Wakelin or Mr. Summers?

[Trevor Wakelin, Chair, Alberta Softwood Lumber Trade Council]

Thank you very much for the invitation to this committee. It's very timely. We're very prepared to provide the Alberta perspective.

The Alberta Softwood Lumber Trade Council represents the Alberta softwood lumber industry and is made up of primary and secondary manufacturers within the province. We have 50 forest-based communities and 54,000 jobs that are dependent on a healthy forest industry that has access to the U.S. market. We are the third-largest primary producer in Alberta. We produce some 3.3 billion feet of lumber, approximately half of which is exported to the United States. In terms of volumes, we are not that far behind Ontario.

Firstly, the Alberta industry agrees that a negotiated settlement is necessary and supports the government's efforts to bring about an end to the current trade dispute on softwood lumber. However, the agreement must lead to a long-term, durable solution that is sustainable throughout the seven-year term and ensures the long-term viability of our industry. Unfortunately, the proposed softwood lumber agreement neither reflects the litigation successes to date nor provides any certainty of economic viability for our industry into the future.

As stated by Prime Minister Harper on April 27, it is true that a quota or border tax would not be levied at that day's market price. However, you should understand that the market price has since fallen and today both a quota and border tax would be applicable.

Due to the unique circumstances that currently exist in Alberta, there are certain elements of this agreement that, if not clarified and addressed, will have a devastating effect on the Alberta industry. Our industry will be unable to determine whether the agreement will be a good deal that provides the necessary long-term viability until such time as the agreement has been finalized and reviewed. It is imperative that Alberta's concerns are listened to and addressed in the agreement. I can't understate that point.

We were extremely disappointed that Alberta was excluded from providing input during the final hours leading up to the announcement of the framework agreement. Our frantic efforts to contact the government with our industry's concerns and recommendations on April 27 were to no avail. Since that time, we have continually tried to have the Alberta industry concerns clarified by ongoing correspondence with the minister and the ambassador's office. To date, none of our correspondence has been acknowledged. And in our phone discussions with the ambassador's office, it appears clear that our concerns are not being listened to.

The current consultative process established for industry input and the accelerated timetable provides little opportunity for us to consult with our industry and provide the appropriate feedback that has fully considered the economic impact to the industry. This seems unreasonable and unacceptable since it is imperative that the agreement is economically viable.

We realize the difficulty of changing the framework agreement to address the Alberta industry's concerns. We are not requesting a renegotiation of the framework; rather, we require clarification of some of the elements and recognition of our concerns in the final agreement. As has been pointed out in our correspondence to Minister Emerson, we have considerable concern with respect to the surge mechanism, the determination of market share, and the anti-circumvention provisions due to the unique circumstances that currently exist in our province.

The Alberta industry has consistently indicated during the years since the expiry of the 1996-2001 Softwood Lumber Agreement that a quota solution is not acceptable as a fair and equitable solution for us, due largely to an unfair allocation of quota to Alberta companies in 1996. Therefore, we have strongly advocated a border tax solution that would be fair and equitable to all. Unfortunately, the proposed agreement provides for two options, both of which have elements of a border tax and a quota.

With respect to the surge mechanism under option A, the framework is unclear whether the 150% tax penalty applies to all of the volume shipped when the 110% trigger is exceeded or whether it is just on the overage.

If the penalty tax were to apply to all of the volume exported to the U.S. instead of to the overage, then the overall tax would have a profound and devastating impact on Alberta producers. Considering that option A, the export tax option, has a considerably higher tax than option B, then in our view the application of the penalty tax is unfair and overly punitive.

The basis for our concern is that the mountain pine beetle is now in Alberta, and aggressive forest management strategies are being contemplated to ensure that Alberta forests do not succumb to mortality from the onslaught of the mountain pine beetle, as has occurred in British Columbia.

It will be necessary to increase the harvesting of older-age pine stands to protect forest ecosystems and to ensure that the epidemic does not spread across Canada, let alone to the northwest states of the U.S. I'd just like to refer, for your information, to a story in today's Globe and Mail that reflected exactly that point; that if left unchecked in Alberta, the beetle will spread across Canada.

The effects of the mountain pine beetle outbreak in British Columbia have already resulted in significant increased harvesting and production levels in that province. Since the proposed market share allocation for each region and province, using the 2004-05 shipments, will take into account the increased volume in British Columbia, it should also be noted that Alberta's market share will decline. This is a major dilemma for the Alberta industry, considering the inevitable impact of the mountain pine beetle.

Additionally, the framework is also unclear on whether the tax penalty is prospective or retrospective. In order to effectively manage shipments to meet customer needs and prevent gaming, it is imperative that the penalty tax be prospective.

In spite of the framework and the draft softwood lumber agreement tabled with the U.S. on May 24 being unclear in these clauses, we have been advised by the federal negotiators that the penalty tax applies on all of the shipped volume and will be retrospective rather than prospective. This seems inappropriate, as it will be virtually impossible to determine the full impact of the tax when making business decisions on the sale of lumber to U.S. customers; furthermore, many of our businesses will be in jeopardy if these concerns are not addressed.

With respect to the market share determination, further clarification is required. The framework is unclear as to whether the historical market share is based upon the exporter of record or upon the province or region of origin. Given Alberta's geographic location in Canada, many of our exports are shipped through other provinces, such as Manitoba, Ontario, and to a lesser extent British Columbia. This is especially true for many of our small and medium-sized producers, who utilize lumber wholesalers and brokers for the sale of their products into the U.S.

In the event that the exporter of record is the chosen methodology for the determination of market share, then some of Alberta's shipments will be allocated to other provinces. For this reason, the Alberta industry would recommend that the market share allocation be determined by the province or region of origin.

With respect to the application of the anti-circumvention clause, it should be recognized that Alberta's stumpage system has historically been based upon a formula that considers both the revenue and cost inputs in the manufacture and sale of lumber products. Currently there is provision in Alberta legislation for periodic reviews to ensure that the stumpage calculation reflects inflationary factors. It is imperative that the appropriate language be written into the agreement to ensure that the province can implement the necessary changes as they occur.

Additionally, the Government of Alberta is currently undertaking a review of forest policy and regulation to ensure that the forest management system is appropriate and effective for Albertans. It will be important that the outcomes of this review be capable of implementation without fear of circumvention of the agreement.

Other provinces have had the opportunity to implement changes in forest policy prior to April 27, and currently British Columbia is negotiating for their anticipated stumpage changes to be incorporated into the agreement.

[The Vice-Chair, Bloc, Pierre Paquette]

Mr. Wakelin, you have one minute left.

[Trevor Wakelin]

Alberta requires the same consideration. The Alberta industry strongly advocates the continuation of all litigation, namely WTO, NAFTA, and the civil cases before the U.S. Court of International Trade, until such time as the entry into force of the agreement.

It has been suggested by the federal negotiators that Canada and the Canadian industry should suspend litigation while the details of the agreement are being negotiated. Giving up all of the significant legal victories at this stage would be foolhardy, risky, and not recommended.

Finally, our recommendations are as follows:

First, establish a collaborative consultation process that provides industries in Canada sufficient time to establish with the federal negotiators agreement terms and conditions that ensure the long-term viability of the softwood lumber industry.

Second, consider the unique circumstances of Alberta in negotiating the agreement details.

Third, ensure that the penalty tax on any surge volume in option A applies only to the overage volume, and that it is prospective.

Fourth, ensure that the methodology for regions or provincial market share is determined by the province of origin.

Fifth, ensure that there is a provision in the anti-circumvention clause to allow Alberta to implement the cost updates in the stumpage system.

And finally, ensure that litigation continues until such time as the entry into force of the agreement.

Thank you.

[The Vice-Chair, Bloc, Pierre Paquette]

Thank you very much for your presentation.

Now I invite the Maritime Lumber Bureau to give the final presentation. You have ten minutes.

[Diana Blenkhorn, President and CEO, Maritime Lumber Bureau]

Thank you.

On behalf of the industry in Atlantic Canada, I too would like to thank the committee and the chairman for the opportunity to be here.

The bureau was founded in 1938, and since that point in time we have had a very long history of presenting a unified position not just on behalf of the Atlantic industry, but certainly coordinating both the Atlantic industry and the governments on many issues. The most notable of this coordinated activity is the consistent position that has been maintained by the industry and the governments in the four Atlantic provinces over the last 21 years in the softwood lumber dispute between Canada and the United States--not simply the last five years, but the last 21.

Before providing comments on the framework agreement--or SLA II, as it's currently being referred to--it's important to reflect briefly on the history of softwood lumber wars that have existed between Canada and the United States for decades. While it's clearly the intent and the desire to move forward with a “long-term durable resolution”, an understanding of the history is particularly relevant to the position of the MLB, the four Atlantic provinces, and the softwood lumber industry in Atlantic Canada with regard to this agreement that you're now discussing.

Since the early 1980s, Canada has consistently been targeted by the softwood lumber industry in the United States in a series of attempts at “managed trade” or “trade remedies”. This existed prior to the FTA, or the free trade arrangement, and has continued despite both the FTA and the existence of NAFTA.

The much-cited root cause of these disputes is the difference in timber ownership, and associated allegations of provincial and federal subsidies to the Canadian softwood lumber industry.

In the U.S., 72% of all timber is owned privately and sold on the open market at competitive prices. In Canada, 93% of timber is owned principally by the provincial governments, which set stumpage rates using various administrative formulas, not suggesting they're market-based. Because of this difference, U.S. producers over the years have levied subsidy allegations at their Canadian counterparts, trying to impose a series of trade remedies that include quotas, countervailing duties, anti-dumping duties, provincial forestry reforms, any number of items to, in their words, “level the playing the playing field.”

It is the private ownership of timberlands in Atlantic Canada that have set us apart from the rest of Canada and how we've been treated in each of the trade disputes from 1986 to 2006--that is, in the past 20 years.

In the Maritimes, 80.2% of all softwood lumber production is generated from privately owned timberlands. In the Maritimes, the Crown is not the principal supplier of raw materials for the production of softwood lumber. But over the past 20 years, in the series of trade actions--which is litigation, followed by an “interim” arrangement, followed by more litigation--there's an obvious trend, and I'd like to go through it quickly for you. It's critical to what we're talking about.

You had, in 1984, a U.S. industry-initiated countervailing duty case; in 1986, an agreement, a memorandum of understanding; followed by, in 1991, a U.S. self-initiated countervailing duty case, when Canada unilaterally terminated the MOU without notice; followed again by an agreement, the 1996 Softwood Lumber Agreement, or SLA I, as we now refer to it; followed again by litigation, a U.S. industry-initiated CVD and anti-dumping case, which we're now talking about; and in 2006, the framework agreement, or SLA II.

At every stage of the dispute, except the 1984 case in which the Maritimes were fully investigated and found to have a de minimis rate--so we were investigated over one period of time--our region has been excluded from any subsidy allegations and related trade remedy.

In 2001, we were covered by the recent anti-dumping order as a result of a technicality in U.S. law whereby the order applies to all producers of the scope product in the country to which the order is directed.

The best way to illustrate the unique circumstances of the Maritimes, which in past U.S. determinations for these purposes included Newfoundland and Labrador in its definition of the “Maritimes”, is to quote from a U.S. ruling--not necessarily our words or our assertions but a U.S. ruling.

These are words contained in the July 27, 2001, notice from the U.S. Department of Commerce, International Trade Administration:

there are still unique circumstances, discussed in the amendment below, that warrant exempting the Maritime Provinces from this investigation. In fact, the circumstances behind the original exemption of the Maritimes from the 1986 Memorandum of Understanding (1986 MOU) have not changed for the last 15 years. Even though the exemption of the Maritimes from the 1991 countervailing duty investigation was based on a separate legal requirement...the circumstances associated with the Maritime Provinces are substantially the same as they were at the time of the 1986 MOU. Those circumstances remained the same at the time of the 1991 countervailing duty investigation, the 1996 Softwood Lumber Agreement, and at present with respect to the current investigation.

The notice goes on to say under the heading, “Exemption of Maritime Provinces”, and again, I'm quoting:The lumber dispute between Canada and the United States has a long history. Throughout much of the history of this dispute, the Maritime Provinces have been exempt from the various actions taken, including the 1986 Memorandum of Understanding on Softwood Lumber, the interim measures taken pursuant to Section 301 of the Trade Act of 1974, the 1991 countervailing duty investigation, and the recently expired Softwood Lumber Agreement. All parties have generally recognized that there are unique circumstances associated with the Maritime Provinces and have supported those exemptions. That is equally true in the case now before us.

Although there has been an absence of subsidy allegations against the Maritimes, and the Maritimes have been exempt from the present CVD case, the Maritime Lumber Bureau alone has spent more than $8 million in legal fees during the current case. The industry in Atlantic Canada has spent an additional $10 million. You've got to think about that, given the absence of subsidy allegations in other areas.

The industry in Atlantic Canada has made a conscious decision, based on the fundamental principle that this has been an ongoing subsidy case, to fund both the provincial and industry legal bills, without grants from government. We have accepted none of the more than $35 million in federal government assistance for legal fees that was provided to other associations in Canada. Now with the specified $500 million being paid to the U.S. coalition in the framework agreement, the Maritime Lumber Bureau and the Atlantic Canadian softwood lumber industry will be left as the single industry in North America to have funded 100% of its legal defence, totally without government support. Given the fact that there's an absence of subsidy allegations, perhaps you see the irony in the situation, as we do.

Let me explain further. The unique circumstances of the Maritimes are as evident today as they were in previous determinations.

I have a chart that was not distributed. It did go to the committee chairman. Am I permitted to pass it around?

Basically what this chart shows is the various stages of dispute. The vertical lines indicate each of the various stages, whether it's litigation or agreement. The little boxes at the top indicate where U.S. consumption has gone; it's compared to the Boston selling price of lumber. There's a couple of key points that I want you to gather from the chart.

First, Maritime stumpage rates have consistently increased, with no decreases, regardless of market conditions. This is in direct relationship to our dependence on private land supplies.

Secondly, although we're talking about this agreement in terms of five years, the truth is there have only been 19 months in the past 20 years, or since October 1986, when there was no trade remedy—when there's been total free trade. On that chart, it's the small grey area off to the right. By comparison, the Maritimes have maintained relatively free trade throughout the entire 20-year period.

Another unique position of Atlantic Canada is that we have willingly accepted undertakings and obligations to protect these exemptions. One of the most notable of these undertakings has been the implementation of an enforcement of the anti-circumvention mechanism, known as our certificate of origin program. The certificate of origin ensures that only lumber produced in the Atlantic region from logs originating in the region, or from the state of Maine, receives the intended exclusion.

I won't spend a lot of time on that program, but certainly the fact that it continues to be a required entry document—that it's referenced in the framework agreement—is evidence of the credibility it has gained.

What is our position on the framework agreement or SLA II?

The industry and the four governments of Atlantic Canada have been consistent in supporting a negotiated settlement that is focused on establishing a long-term, durable resolution. We do, however, insist that any negotiated settlement not damage our free trade status. This means the following: continued exemption of Atlantic Canada and recognition of its unique circumstances and market-based forest policies; continued requirement by both Canada and the United States of original MLB certificates of origin as entry documents, as these certificates have only been successful in preventing circumvention since becoming entry documents; and continued efforts to maximize the duty refunds owed to Atlantic Canadian importers of record.

The previous Canadian administration recognized the unique circumstances in Atlantic Canada, and committed to an exclusion should a negotiated settlement be possible. The current Canadian administration has also recognized the unique circumstances and has delivered a framework that incorporates just recognition of those prevailing circumstances.

Is the proposed agreement perfect? No, but no single party is 100% happy with the established framework: the U.S. industry is unhappy; and the Canadian industry, as you heard earlier today, is unhappy; and the Maritimes would have preferred 100% of their duty deposits. Are there important details to be worked out? Absolutely. Is the proposed agreement preferable to ongoing costly litigation, the outcome of which is uncertain, as demonstrated in the past? Yes.

I have more, but I will finish at this point.

[The Vice-Chair, Bloc, Pierre Paquette]

Let us start the round table. Mr. LeBlanc, you have seven minutes.

[Dominic LeBlanc, Liberal, Beauséjour, NB]

Thank you, Mr. Chairman.

I have a specific question for Ms. Blenkhorn. And then I will have a question for the other witnesses. If there is any time left, I know that my colleague Mark Eyking would like to put a specific question. So I will be brief.

Madame Blenkhorn, you touched briefly on the certificate of origin program. One of the allegations made by various people is that the certificate of origin program has in fact been misused, or that there have been examples of circumvention, for example.

I think I have a good understanding of the integrity and worth of the program. I'm wondering if you have any comments for those who say that the certificate of origin program can in fact be a back door for other softwood lumber regions to take advantage of the exemption, which would obviously put the integrity of the whole process at risk.

Then I have another question, Madame Blenkhorn. You hear a great deal of concern about the time it's going to take for your own members to receive any of the deposit moneys back. Leaving aside the perfection/imperfection argument and that we may disagree on the national picture, your own members are very concerned about the potential time it may take to see any of this money, whatever percentage ultimately comes back. Do you have any suggestions for the government, if they appear intent on proceeding with this deal, about getting money quickly in the hands of your members?

If there is time, to the other members of the panel, Madam Lim, and Mr. Grenier, in particular, I got the impression you're worried about the rush to have a deal put forward. Mr. Emerson had talked about 60 to 90 days. All of a sudden we're now told it has to be over a long weekend and that the provinces have to respond quickly. In Alberta you are clearly being left out as an industry in terms of consultations; you're not adequately involved. Why do you see the huge rush by the government, instead of their taking time to make sure they get right whatever deal they're intent on getting?

[Diana Blenkhorn]

Thank you. And thank you for the question. It is a critical question as we move forward.

Circumvention did not occur against the Maritime Lumber Bureau's certificate of origin program. I would make the assertion, and data would demonstrate, that circumvention occurred against the Canadian government export permit program. In the first four years of the SLA, before it became a required entry document, the data indicating the actual imports into the United States and what shows on the Maritime Lumber Bureau's certificate of origin program showed a 914 million board foot difference between our data and what actually entered the United States. That's about a 15% difference. We fought hard to have the certificate of origin become a required entry document when we were exempted from this case. I'm happy to tell you, from 2001 to 2004, there's not an 11 million variance out of seven billion board feet of shipments, which is less than two-tenths of 1%, demonstrating conclusively that certificate of origin must continue to be a required entry document to prohibit circumvention.

I won't go into it. Essentially, under the export permit program, the enforcement mechanism is through prosecution. We have a number of enforcement mechanisms, which basically means they don't ship if it's misused. And that takes place within 30 days, not 10 or 12 years.

That was the first part of your question. I think the next part, Mr. LeBlanc, was about the duty deposits. I do have a few suggestions, particularly to hurry this up.

We've had the experience with some duty deposits that have been liquidated from the administrative review 1. If you understand, each entry gets a cheque. There are about a million cheques destined for Canada, which is part of the delay. If we could get a statement of what was owed by the U.S. to Canada, and the Canadian government bought the receivable, with that money being fully repaid at whatever percentage it is, or failing that, if the Canadian government would like to advance the billion dollars they've committed to the U.S. industry, allow the cheques to come back and then tax those Canadian importers of record when they receive the money, we could get them more quickly.

Those are not detailed proposals; they're thoughts of what might happen. If we think out of the box, not to exacerbate subsidies, but to think about assisting the industry, there are a number of ways forward.

[The Vice-Chair, Bloc, Pierre Paquette]

Mr. Grenier, would you like to intervene regarding the other issues raised by Mr. LeBlanc?

[Carl Grenier]

You were asking why there is a rush. Frankly, we don't really know. The basic terms that were agreed to on April 27 are set. What's left is the final legal drafting. This is a more complex agreement than we had, for instance, in 1996, or certainly 1986. But simply take the 1996 case, where the structure was about the same but less complex than this one. It took us three months to go from an agreement in principle, such as the April 27 deal, and a final legal signed agreement. It was hard work. Even with the best will in the world, which is a strong assumption to make, it's very time-consuming.

The industry across Canada is not homogenous, as you know. Canada is a large country and industry is different from region to region; the circumstances are different. You've heard about some of these differences today. You need time. To want to do it very quickly, say for instance, by June 15, is really very risky, because we risk not getting it right. If we don't get it right, then the deal will be worse for us than what we see now.

[Jamie Lim]

Merci.

As I mentioned earlier in my testimony, we're concerned about the rush, because as Mr. Grenier has just said, a deficient agreement will work to the benefit of the U.S. industry and absolutely will be to the detriment of the Canadian industry. At the end of the day, I think all of us in this room--I mean, we're all Canadians, we're all working for the same objective, to keep our people employed, to keep communities healthy across Canada--want the same thing. So we have to recognize that we have one chance to get this right. If we rush that language through, and it's not a reliable commercial agreement, then it is Canadians who will pay the consequence.

We have fine negotiators. We have great trade lawyers. But they don't operate the mills. We have respected businessmen, such as Trevor Wakelin and Murray, who run the mills. They are asking to be at the table. They are asking to be a part of helping governments develop the complexity that's required in the language, so we can make sure it's right and make sure that we can continue to operate for seven years. That's why we're concerned--and it is a real concern.

On deposits, just to add to that--

[The Vice-Chair, Bloc, Pierre Paquette]

Please be brief.

[Jamie Lim]

Oh, but it's an important point on deposits. He asked the question.