International Trade Committee on May 29th, 2006

[The Vice-Chair, Bloc, Pierre Paquette]

Quick.

[Jamie Lim]

Okay.

It's important to recognize that before the new border measures from this agreement are put in place--for example, we'd be paying a tax today because of the price of lumber--we should have our deposits back. We shouldn't be hit with a double whammy. We're going to be struck with a quota and will have to pay taxes, and we're still waiting for our deposits. I don't think so. Like Diana, we have concerns as well about the timely return of our deposits.

[The Vice-Chair, Bloc, Pierre Paquette]

Thank you.

Now, with your permission, I will put some questions for the Bloc Québécois. I can assure you that I will respect the regular seven-minute time limit.

Ted, you can sit with me and watch the clock.

The thing that we find very complicated and difficult to understand, is the fact that on April 27, we were told that a large part of the industry, although it is not enthusiastic about the agreement, felt that it was better than continuing the proceedings, given the situation, and specifically in Quebec.

Now, we feel that there is some haste. That is what I heard from the Ontario and Quebec councils. I would like to know if the same thing is happening in Alberta. As the minister said in the House the other day, this haste is due to the fact that we want to get the fees back. In a sense, if we got the fees back immediately, as proposed by the representative of the Ontario council, we might have more time to negotiate a proper agreement. The Americans probably want to hold on to the fees as a trump card.

At this time, should the Canadian government not give loan guarantees to the industry so that it can negotiate in a favourable climate? We are being presented with a fait accompli. Mr. Emerson mentioned this several times, and I do not think that you have much sway over the negotiations at this time.

Finally, I would like an answer to this question. Would it not be better to give loan guarantees to the industries in the form of letters that would allow them to use the fees that they expect to receive as collateral, so that they can have the possibility of waiting perhaps until September or October when they could conclude a proper agreement, rather than to hastily conclude a poor agreement that we will have to live with for the coming seven or nine years?

Mr. Grenier. If the representatives of the Alberta council want to intervene, they are also welcome.

[Carl Grenier]

More than four years ago, the Free Trade Lumber Council had proposed the very same thing to the government of the day. We had proposed that loan guarantees be offered because we believed, in fact, that at some time or other, we would find ourselves in the situation which has now been prevailing for quite a while, whereby financial pressure on companies would be so severe that they would be forced to accept a bad settlement, one that would not be good for either party. This is what is happening now, more or less.

The industry minister in the previous government, Mr. Emerson himself, had implemented and announced, late last November, just before the elections, a program of guaranteed loans that fell far short of the industry's needs. In fact, only $800 million were mentioned at the time, whereas we already had given some $5 billion to the United States. Nonetheless, this was a first step in the right direction. Of course, this program was never implemented, for reasons that you understand, and the current government has not revived this program or any similar program, even though in its election campaign, it had promised something similar.

So, the agreement in principle was negotiated without that element, and now, as you say, we are faced with a fait accompli, even if we do not yet have the final text of the agreement.

Let me follow up on the question put by Mr. LeBlanc. Our best estimates of the time it will take to get back 80 per cent of our money under the terms of this agreement, is between six months to a year. We have no definitive answer at this time.

So, I think that we still need these loan guarantees so that, during this interlude, before we reach a final agreement and even afterwards, before we get our money back, we can prevent companies from going bankrupt. It would be a scandal if companies went bankrupt when the issue has been settled, according to the government.

[The Vice-Chair, Bloc, Pierre Paquette]

Would Ms. Lim or the people from the Alberta Softwood Lumber Trade Council like to intervene?

Mr. Wakelin.

[Trevor Wakelin]

First of all, I would like the opportunity to answer the previous question, but I will provide you a perspective on this particular question.

The Alberta industry has not been a strong supporter of the loan guarantee program, although we do not object to it either. It is clear that during the course of this dispute many companies in Canada have undergone significant economic hardship. While we don't advocate the loan guarantee program, we would not stand in the way of such a program that ensures that Canada is kept whole throughout this tough period of time.

I'd like to go back to the previous question on the rush of the finalization of the deal. Without repeating what my colleagues have indicated, I just want to say this is the most complex deal we've ever had. We're dealing with two separate options and whether or not you have market share with each option. There are two different periods to determine the actual market share. We're dealing with a lot of complexities, whether it's retrospective or prospective.

All of these things need considerable time to determine their economic impact on our industry. The issue we have, ladies and gentlemen, is that we are not being given any time. We cannot get back to our industry. The conference calls that have been organized...basically we're being told this is the way it is. That is not consultation.

What I have suggested over and over again for a long period of time now, long before this framework was agreed upon, is that we need to get the industry across Canada together and work with the federal government in putting these details together. It's absolutely important.

We are the ones who are impacted by the details of this deal. We're not opposed to the deal. We want to have our concerns addressed in a meaningful way, and we need to be at the table. If that means we're on an accelerated timetable, as we have been told, then so be it. We'll take the necessary week or two, go down to Washington, sit down with our federal counterparts, and negotiate the best deal for the Canadian industry, not just some segments of the Canadian industry. I have to make that point, because currently we are not being involved in that consultation process adequately.

Thank you.

[The Vice-Chair, Bloc, Pierre Paquette]

Thank you.

Ms. Guergis.

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

Thank you very much, Chair.

I'd like to thank the witnesses for being here with us today. We appreciate the time you've taken.

My questions are for Mr. Grenier, but they are open, of course, to any of the witnesses if they choose to respond.

I'd like to talk about the importance of investment for the lumber industry, and how crucial it is that our Canadian mills have continuous investment, not only to keep up with the technological developments but to remain competitive.

I hear a lot of talk about the bankruptcies. We talk about the support we need to give to those who are on the verge of bankruptcy, in terms of loan guarantees, but I'm wondering why you don't support this deal and the return of the duties so we can help prevent bankruptcies, reinvest in our lumber facilities, help make ourselves more competitive, and hold onto the jobs we have, at the very least.

I'd also like some comments...and perhaps you have some numbers as to how many jobs may have been lost by your members in the last five to six years.

[Carl Grenier]

Merci beaucoup, madame.

Of course everybody agrees about the importance of investing to become more competitive. There's no problem there. But if we do become the marginal suppliers to North American consumers of softwood lumber, as this deal is structured for us to become, then we will have to close our mills before any of the U.S. mills close. And how much confidence do you think that will generate within the investment community? I would think less than it would generate in the U.S. And this is one of the purposes of this deal.

Indeed, we fully support the return of the duties that are contained in this deal. We would like to have 100%, obviously, but the deal as it stands says 80%. What we don't see in the deal, and what will probably not be in the deal, is how long it will take to get the money back. I said a few minutes ago that the best estimates we have from people knowledgeable about the customs service in the U.S. range from six to twelve months. This is a long time for companies that are hurting financially, some of which are on the verge of bankruptcy. There's no doubt about that. And this is why we suggested a long time ago that we needed some support. We're not asking for subsidies, obviously, but clearly, if this is money in the bank, which it is, then we should be able to finance the return of that money. That's what we're asking for.

As for the number of jobs lost over the past five or six years, I think that's a very large question. You know that our industry is a cyclical industry, so there are other factors impacting the loss of jobs. You've probably seen the same estimates I've seen. Certainly tens of thousands of jobs across Canada have been lost.

[Jamie Lim]

Thank you. That's a great question.

I would love the opportunity to take you, as an Ontario MP, up.... Actually we don't even have to go up north. We have perfect examples close to where you live of sawmills that are quite modern and very technologically advanced. As one example, two years ago Bowater in Thunder Bay opened a brand new sawmill. It's absolutely stunning. The technology in there is so advanced that for those who have been in older, traditional mills, it really is quite an eye opener. They invested $250 million. It's a first nations project, a partnership.

I will tell you that we don't have one sawmill that will be considered safe. It's not a question that it will be the old and antiquated mills and that the new modern mills might be safe. I think we have to realize that when we say that this agreement could have a 20% negative impact on the industry, no one wants to think that this means their own mill. But if you don't get the right quota, if you can't adjust to the tax because of the price of lumber this month, this year.... There are a lot of other complex business issues. Suggesting that if we just get our deposits back it'll all be okay.... That's not the case.

As was mentioned earlier, there are over a million cheques, and we keep hearing from everybody that customs just doesn't have the staff to put them through in a timely way. When we say we'll get our money back in 90 days, people are telling us that we're dreaming if we think we're going to get our money back even in a year. There has to be a bridge. Even if you were to put this agreement forward in a month's time, there needs to be a bridge, a mechanism, that allows these companies to last until they get the return of those deposits. It's critical.

[Trevor Wakelin]

I'll take a crack at that.

First of all, there's been significant investment in the mills during the last five years of this dispute. In order for us to survive, we have had to invest to become more efficient, so the sawmill technology that we see today is significantly more advanced than it was prior to the expiry of the SLA. But one should remember that we are in a “perfect storm” situation. We have increased energy costs and fuel costs at unprecedented levels. The Canadian dollar has appreciated from 63¢ to 90¢, creating a huge burden on our industry as we move forward.

We've been able to limp through this dispute, go through the litigation to date, because we're all faced with paying a duty that was declining, and eventually we would become de minimis. But going forward, this is not the case. The concern we have now is that even with the return of the deposits, which may appear attractive--and I won't repeat the fact that we're probably dreaming in Technicolor if we think we're going to get those deposits back quickly; it will take a long period of time--our industry, at least in Alberta, is going to suffer considerably more than when we were faced with the border measures that were put on us by the Americans. This deal will make us suffer more, so the investment we've already put into our mills would be all for naught in this case, and some of our mills may not survive.

[The Vice-Chair, Bloc, Pierre Paquette]

We have time for one quick question and answer.

[Diana Blenkhorn]

Yes, thank you.

I think because there's a view that we're exempted, there is also a view that we're not harmed by this agreement or that we haven't been harmed by the ongoing litigation. My answer is directly to your question about investment.

Absolutely, we've been harmed in a number of ways. The chart I gave you showed where our fibre costs have gone over that period of time. Our competitive position is eroded, and at the same time we've been enforced to make dramatic investments in those facilities so that we're able to get the best value, the best return, on that resource.

So we've been faced with the challenges of investment. We've lost our home market to lower-cost producers that came into our market. We supply less than 5% of our own market. The investment is there in the mills, and we have the higher costs.

I just want to make sure there isn't a view that we weren't harmed by this even though we've had the exemptions.

[The Vice-Chair, Bloc, Pierre Paquette]

Mr. Julian.

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

Thank you very much for your testimony. It's very eye opening, even chilling, to think what the consequences could be and how dangerous it would be if we rammed this deal through without taking the appropriate time to consult. I think that's something each of you has highlighted and each member of this committee will certainly take back. We can't be irresponsible about this.

I have three questions I'd like to ask, so I'll get them off quickly and allow you time to respond.

My first question is to Mr. Grenier. Talking about the litigation that is in course over the next few weeks or the next two or three months, what are the consequences of Canada's folding, essentially, and not proceeding with that litigation? And what are the consequences, particularly for chapter 19, dispute settlement, generally?

The other question is, do you see anything in the proposed agreement that would actually protect Canada's rights with a binding dispute settlement mechanism? Further to that, does the folding of our tent in some way validate the Byrd Amendment?

And finally, in terms of the issue of the no-injury letters from American producers, do you believe that actually has some weight?

To Ms. Lim, you mentioned some estimates showing that 20% of sawmills would close, particularly in northern Ontario and in Quebec. Have the provinces of Ontario and Quebec expressed concerns about what the possible impact would be with a rushed deal that might indeed lead to those consequences?

My third question is to Mr. Wakelin. I'm very surprised that Alberta and the Alberta industry have not been consulted in this process at all--although the consultation process has much to be desired even for those who have been consulted. You mentioned that Alberta's market share would actually decline. Is there any estimate on job losses in Alberta if this agreement were to go through as we've seen it to date?

Thank you.

[The Vice-Chair, Bloc, Pierre Paquette]

Mr. Grenier.

[Carl Grenier]

Merci, monsieur le président.

Your first question was on the consequences for chapter 19 if the litigation is not pursued. Of course it is a condition of the basic terms that were agreed to on April 27 that on the entry into force this litigation would have to be terminated--all litigation, not only litigation involving governments, but also litigation involving private parties. As you know, there is litigation involving private parties as well.

The consequences are that even after Canada conclusively wins in the courts, for instance, with NAFTA, the WTO, and now with U.S. courts, if we sit down and do a deal that's basically predicated on being guilty of what we proved we were not guilty of, it can only fuel this belief on the part of the U.S., and in some cases on the part of Canadians, as to whether or not we were really not guilty.

Of course this is the case for the U.S. coalition. Some people believe the rules are wrong and the reason we're winning is that the rules are wrong and the rules have to be changed. They've made a great case for this over the years, and as we speak, they're also challenging the constitutionality of chapter 19 itself in the U.S. courts. It's a great consequence. I think that it will not only affect only softwood lumber, but it will affect any future disputes with the U.S. involving subsidy allegations or dumping allegations, which is the object of chapter 19, as you know.

As far as the binding dispute settlement mechanism that is contained in the agreement or that is being developed, it is based on a concept of arbitration by non-North American arbitrators through an organization based in London, the language of which should be English. It's only a detail that I mention in passing, because I found it amusing that the language of the arbitration process was stipulated in the U.S. draft at least. We still have to basically see how this would work, because this is a new proposal.

Would the present deal validate the Byrd Amendment? It does to a point because, as you know, both the industry and the Canadian government won in court on April 7 before the U.S. Court of International Trade a judgment basically saying that no U.S. parties were entitled to any Byrd money; no Byrd money, not only the softwood money but no money from Canadian exporters under the Byrd Amendment, should have been distributed to U.S. parties, essentially because we're protected by NAFTA. There's that judgment.

We also had earlier judgments, of course, by the WTO saying the Byrd Amendment was contrary to U.S. obligations under the WTO. The U.S. Congress has indeed rescinded the legislation, but only as of October 2007. Giving up $1 billion, $500 million of which goes straight to our U.S. competitors, is indeed something that looks like Byrd redux.

What is the value of the no-injury letters? As you know, this was the mechanism that was used under the SLA, the Softwood Lumber Agreement of 1996. It worked fairly well during the agreement. Then right after the agreement ended, the main counsel for the U.S. coalition said that these letters never had any value, in his view. We're now proposing to have the same type of vehicle in this deal to ensure there will be no new investigations.

[The Vice-Chair, Bloc, Pierre Paquette]

We have a few seconds left. Would anyone like to add something?

Please answer quickly, Ms. Lim, because the seven minutes are almost up.

[Jamie Lim]

Thank you.

I only want to say that we've been working really closely with our provincial government, as I know the industry has been doing in Quebec. Having said that, if the framework says that you have a hard cap quota in option B of 34% and it declines to date, for example, at 330, instead of a 34% market share, we'd be at 32%.

These are the issues we talk about when we say that we don't have the details. We need the details so that we can make good, sound business decisions to ensure that we have a good, solid commercial agreement going forward that we all agree to sign.

It's difficult right now for both industry and our provincial government to know with any degree of certainty, because we have a lot of assumptions when analyzing the technical aspects that were given to us from the framework. There are a lot of assumptions that are made. Does it mean this or that, as Mr. Wakelin referred to earlier? Is it retrospective? Is it prospective? Is it carry-forward? All the technical aspects of actually running the business are left with question marks. You're making assumptions, and you're then asked to decide, as a province, whether you're going to go with option A or option B based on assumptions.

To make it short, we need more detail to clearly ensure that all of the companies operating right now know what it is they're committing to.

[The Vice-Chair, Bloc, Pierre Paquette]

We would ask you to give a short answer, Mr. Wakelin, because the time is up. Mr. Julian had asked you a question about the Alberta consultation procedure.

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

I asked if there were any job losses.

[Trevor Wakelin]

First of all, I should point out with respect to consultation that it's not as if Alberta has been totally shut out. My reference to being shut out was to the final hours of the agreement, when we had legitimate concerns that weren't being addressed at that time. But other than that, we have been on phone calls, which I claim is not real consultation.

With respect to the market share, one has to realize that Alberta has a very small market share compared with British Columbia, for instance, which has a very large market share. Any small changes can impact whether or not we go from a non-surge situation to a surge. For instance, our market share would allow us to ship 1.48 billion feet of lumber. Currently we are shipping close to 1.6 billion feet of lumber, so we're on the verge of being into a surtax right now, without the mountain pine beetle.

[The Vice-Chair, Bloc, Pierre Paquette]

I would ask you to wind up, because we have really gone over the seven minutes.

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

How many jobs would that be?

[Trevor Wakelin]

We have not determined what the impact in terms of job loss will be, because at this point in time we're unsure as to what the total impact of this agreement will be. We haven't had the opportunity to really evaluate that.