International Trade Committee on May 10th, 2012

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

Expanding on that—and I appreciate the fact that Mr. Hiebert is from British Columbia as well—our government is focused on creating jobs and growing the economy and long-term prosperity, not just in British Columbia. Maybe you can expand on how this is going to benefit Ontario, Quebec, and other sectors of our country, creating jobs, well-paying jobs as well, and helping families.

[Andrew Casey]

Absolutely. As I said in my opening remarks, we're an export based industry, and so we're shipping well over $25 billion of our product outside the country every year. The big export producers are right across the country, from B.C. right out to the east coast.

As I said, this is a global marketplace and there's only so much supply out there, and certainly we're seeing a constriction of supply as a result of things like the pine beetle in British Columbia and Alberta.

When supply does shift and go to different marketplaces when new markets open up, that opens up other parts of the country to move into those vacancies and fill the voids. Anything that moves from British Columbia to Japan, China, and India, because those markets are easier for the B.C. producers to get to, opens up opportunity for the east coast as well, because they'll just move in and fill the vacuum.

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

Our thoughts and prayers are still with the Japanese families after the devastating earthquake a little over a year ago. Debris is showing up on the west coast of British Columbia today. What role is the forest sector playing to help rebuild the Japanese economy and help the families in Japan?

I know you've been very philanthropic, and maybe you can share with the committee on that.

[Andrew Casey]

Absolutely.

A number of the companies have helped by sending lumber, and there's certainly been a partnership with the Canadian government as well. It has helped significantly with some money to help them rebuild.

A lot of it is relationship building. We've had a relationship, as I've said, for the more than 40 years we've been in the country, and so there are some significant commercial relationships and partnerships there already. The industry has been able to make good on those friendships in a time of crisis for them, and hopefully that does help them at this time.

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

Relationships are a big component of doing business with Asia, and I refer to your opening comments about bilateral trade and its importance to the Trans-Pacific Partnership.

[Andrew Casey]

I think the Trans-Pacific Partnership is a very important initiative, and obviously the Canadian government has signalled it would like to be at that table, as has the Japanese government. There is some pushback, obviously, and some are trying to prevent us from being at the table. I think strategically this presents a very important initiative in terms of putting some pressure on those who are trying to keep us from the table, by our saying that if they don't let us come to the table, we'll just do it bilaterally.

The Japanese market, as important as it is for our industry, is extremely important for the U.S. industry as well, and so that puts a lot of pressure on the U.S. to understand that having us at the table might be to their benefit. If we're at the TPP table, the Japanese market is obviously part of that, as well as some of the other key marketplaces in Vietnam and other Asian countries. Certainly it gives us a leg up on some of the competition we're facing now from Australia and New Zealand.

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

May I have just a quick response from Mr. Kirke? Would you share similar sentiments, from your perspective?

[Bob Kirke]

We have no opposition to being involved in TPP. Our only problem is that U.S. policy is still driven by, as the economists once called it, the world's oldest infant industry, that being the textile industry. Their rules are so absurd in this century that there's no basis for trade.

We support going ahead with TPP. We support going ahead with Japan, because within a bilateral deal with Japan, you can set rules that actually make sense. And I think the Japanese government would support—

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

Thank you very much.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

For a minute there, I thought I was going to have to call you out of order on the oldest profession.

[Voices]

Oh, oh!

[The Chair, Conservative, Rob Merrifield]

Go ahead.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr. Chair, and thank you, folks, for your presentations.

First, to the forestry industry, I think you said that our major competitors in the forestry industry in Japan were the United States and the Scandinavian countries. Do they face the same or similar tariffs as we do? I know where the U.S. is at in terms of negotiations with Japan. What about the Scandinavian countries?

[Andrew Casey]

Yes, they do. The MFN, or most favoured nations, are all in that zero to 7.5% range. It's pretty much equal for all of us across the board. What this will do is drop it down to zero for us and obviously put us at a competitive advantage compared to those who still have their tariffs in place.

[Wayne Easter, Liberal, Malpeque, PE]

In terms of some of the other countries, do they do anything else within their industry to make their industries more competitive in the Japanese and other markets?

I know the agriculture industry best. It's really interesting. The United States claims to be pure, but they find many, many ways to subsidize, whether it's through their transportation system or other means.

What's happening in the forestry area?

[Andrew Casey]

I'm very wary of talking about subsidies in the forest products industry when the U.S. is involved. I can't speak to that. I don't know what the other industries are doing.

I certainly know what our industry is doing to make itself more competitive in that marketplace. We're building on the long history of already being there. There's clearly an appetite for our wood. They like the J-grade lumber. They're buying a lot of it. It constitutes about one-third of what they're bringing in, in total. They certainly like other key products, such as cedar, and the more visible types of woods they're bringing in.

I think, for us, it's just continuing to grow the marketplace, grow the tradition of building with our wood, and proving that our quality is superior to that other countries that might be sending their product there.

[Wayne Easter, Liberal, Malpeque, PE]

You may or may not be able to answer this question.

In terms of a comparison to the U.S. market, one thing we find, certainly in all kinds of discussions, is that in some of their markets, we're actually falling down. In our secure, long-term markets, we're going backwards while new deals are negotiated.

I'm wondering where the forestry industry is at. Are we expanding substantially in the United States market? Are we back to where we once were? What is happening there at the moment?

[Andrew Casey]

Two things are happening in the U.S. market. They've stopped building houses. That's the biggest problem for us. The problem when they stop building houses hits you on the wood side, because that's what they build the houses out of. But that's also usually the first indicator of a downturn in their economy more broadly. When that happens, what you tend to see is that they advertise less, and that impacts our paper side. A newspaper is essentially always the same size, from a news standpoint. It only grows in size when people start to advertise more. So that part of the market gets hit. You get a double whack from that.

We know that the U.S. market is going to come back. We've seen a slight uptick in their building. They have significant inventory to get rid of, but they will start to build homes again. Will they reach the $1.5 million levels again? Probably not, but even if they get up to $1 million or $1.1 million, that will be massively helpful. It would represent about a $400,000 or $500,000 increase over what we're at now.

That said, I think one of the important strategies for the industry is to diversify away from its dependence on the U.S. market. If you become very dependent on one particular marketplace, as we have over our history—we've traditionally sent about 70% of our products there—we're very vulnerable to whatever happens in their economy. So we're very encouraged by the aggressive trade agenda being pursued right now, because it's opening up all sorts of new markets.

We're also re-establishing ourselves in existing markets, such as Japan, where we have been for a long time. Equally, when you look at India, China, and all those very important marketplaces where we hope to grow, we can get ourselves away from our dependence on the U.S. marketplace and its vagaries.

[Wayne Easter, Liberal, Malpeque, PE]

Okay.

Turning to the garment industry, you talked a fair bit about the original rules of origin that basically still exist. What's the reason behind that?

[Bob Kirke]

NAFTA was created when there were high or restrictive import quotas against countries like India and China. There was a goal, especially voiced by the U.S. textile industry, that they wanted to have the entire garment from North American raw materials.

The fact of the matter is that with liberalized trade, you recognize that there are certain places in the world that can product textiles and apparel very well, and they are not all in North America, despite a number of incentives here, which you've mentioned. I think the most heavily subsidized product in the world is U.S. cotton.

Despite all of that, North American industry is not competitive in all categories of textiles and apparel. Essentially what you're doing is you're forcing the use of U.S. yarn. To trade freely between Canada and the U.S., you have to use U.S. yarn. Well, there's no yarn production left in Canada, and the stuff in the United States is highly commoditized. So it's just a few different items, and nothing fancy or appealing to the consumer.

As long as you want to all dress in burlap, you're doing well. That's really the result of that trade policy.

[Voices]

Oh, oh!

[Wayne Easter, Liberal, Malpeque, PE]

That suited the chair.

[Bob Kirke]

The reason I want to mention this is that we've used that as the template for our trade agreements with every other country we've signed an FTA with. In the first instance, we went to Costa Rica and said, “NAFTA rules: done”. Colombia, Peru.... We don't make fabric here. They don't make fabric. Yet we're requiring this onerous rule of origin.

[Wayne Easter, Liberal, Malpeque, PE]

Are there ongoing discussions with the government, from their industry perspective, to move away from that? And are they moving in the right direction?

[Bob Kirke]

Yes. Look, with a country like Japan, you go to single transformation—cut and sew the garment, and then trade it. With some of the other developing countries, you might want to do a fabric-forward, because they will have a fabric capacity. India has tons of fabric capacity. They have no problem meeting that rule. That's what we'll say when we come before you on that agreement. But for god's sake, don't do NAFTA.

As an illustration, NAFTA has been in 18 years. We went up and down. We were exporting $3 billion of apparel at the height, and it's closer to $1 billion now. When U.S. customs comes to verify a NAFTA certificate of origin today, they disqualify 90% of them in textiles and apparel for a very simple reason. No one figures out where the yarn is from. They don't have a paper trail or anything like that.

The U.S. customs can walk in and ask you, where you did you buy the fabric? Oh, I bought it from him. Okay, so where did he get it from? From this mill: go there. So they go and ask the mill, where is the yarn from? I got it from here. Then can you show us the invoice for that yarn? And this could be a small producer in Toronto who's been asked to meet that kind of scrutiny regarding a piece of denim.

It's unworkable. It's unworkable in the U.S., it's unworkable in trade agreements, and it's unworkable, frankly, within the LDC tariff, which is another plank of our trade policy.

So without belabouring it: don't do it.