International Trade Committee on Aug. 18th, 2016

[The Chair, Liberal, Mark Eyking]

Good morning, everyone. Before we move ahead today, if everyone agrees, we will have a minute of silence for the colleague we have lost, Mauril Bélanger.

[A moment of silence observed]

Thank you.

Mr. Hoback.

[Randy Hoback, Conservative, Prince Albert, SK]

I would like to say something in regards to that, Mr. Chairman.

To my colleagues in the Liberal Party and other members of the House of Commons staff who worked with Mauril, I had a chance to travel with him to Africa once, and I found him to be such an outstanding individual and such a great person.

I want to pass on our condolences to you. I know what it's like to lose a colleague. We had that happen to us and it's not fun; it's a sad event. I think we all can take pride in the work that Mauril has done, and his family should take pride in the person that he was. We want to extend our condolences to you, his family, and everybody affected by his death.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Hoback. I guess you're speaking on behalf of the opposition. We appreciate that.

Pursuant to Standing Order 106(4), I had a request from four members of the opposition to have a meeting for an update on the softwood lumber issue. Is everybody in favour of our moving ahead with this right now?

[Some hon. members]

Agreed.

[The Chair, Liberal, Mark Eyking]

That said, when I was notified of this, I took it upon myself to book this room and translators, and also to peg an hour for today's meeting. We also gave a heads to the officials at the department who are doing the negotiations. So if it's the will of everybody for them to come to the table and give us a briefing, we'll ask questions of them until 11 o'clock. Is that okay with everyone?

[Some hon. members]

Agreed.

[The Chair, Liberal, Mark Eyking]

I will suspend for just a few minutes for the officials to get seated here.

[The Chair, Liberal, Mark Eyking]

Thank you for coming here and being ready. You're both from Global Affairs. Approximately how much time do you want to take for your presentation?

[Martin Moen, Director, North America Commercial Affairs, Department of Foreign Affairs, Trade and Development]

I think about a maximum of 10 minutes.

[The Chair, Liberal, Mark Eyking]

Okay, 10 minutes is fine. However you want to split it, go ahead. The floor is yours, gentlemen. Tell us what you know and the latest date on the softwood lumber issue.

[Martin Moen]

Thank you very much.

Good morning, everyone. My name is Martin Moen. I am director general of the North America trade policy and investment bureau at Global Affairs Canada. I am also Canada's chief negotiator in the softwood lumber agreement negotiations. With me from Global Affairs Canada is Robert Brookfield, the is director general of the trade law bureau.

Mr. Chairman, I am very glad to be here today to provide an update to the committee on the ongoing softwood lumber negotiations between Canada and the United States. I will begin my presentation with a brief overview of key developments that have taken place since the expiry of the 2006 softwood lumber agreement in October of 2015. I will then turn to the state of play of the ongoing negotiations and close with a few words on our strategy going forward.

As you know, the 2006 Softwood Lumber Agreement expired on October 12, 2015, despite Canada's efforts to extend the agreement. Following the expiry of the agreement, we entered a 12-month standstill period, during which the U.S. has committed not to initiate any new trade remedy actions against imports of Canadian softwood lumber.

There is a high risk that, if a successor agreement is not concluded, U.S. industry will petition the U.S. Department of Commerce for relief from Canadian softwood imports in the form of high countervailing and anti-dumping duties. In such a case, we expect that U.S. industry would allege that it is facing injury or threat of injury from Canadian lumber producers who are allegedly subsidized in a number of ways, but particularly through how provincial governments set the prices for standing timber and stumpage. U.S. industry would also likely allege that Canadian exporters are dumping products at unfair prices.

Despite repeated investigations and litigation in this sector over the past 35 years, there has never been a countervailing subsidy finding or an adverse impact, injury or threat of injury determination by the U.S. government that has survived legal challenge. Nonetheless, the U.S. government has imposed high countervailing and anti-dumping duties on Canadian lumber in the past, and our successful legal challenges have taken years to yield results.

Against this backdrop, Canada was essentially faced with two options: either seek to negotiate some form of successor agreement with the United States or potentially face countervailing and anti-dumping duties on Canadian lumber exports to the U.S.

In the fall of 2015, at the request of the Minister of International Trade, federal government officials held extensive consultations to seek the views of provinces and territories and a wide range of stakeholders on the course of action that Canada should pursue. Officials met with all provincial governments, numerous industry associations, individual companies, first nations groups, and labour unions representing forestry workers.

These consultations revealed a clear message: Canadian provinces, territories and stakeholders were almost unanimously in favour of Canada negotiating a successor agreement with the United States that would impose export charges or export quotas on Canadian lumber in exchange for the certainty that Canadian exporters would avoid the risk of facing high countervailing and anti-dumping duties.

However, provinces and industry also made it clear that they are not prepared to accept a deal at any cost. Rather, stakeholders urged the federal government to prepare for U.S. trade remedy action and litigation in parallel with negotiations.

Consistent with the views expressed by Canadian stakeholders and by provincial and territorial governments, the Government of Canada made the negotiation of a new softwood lumber agreement a top priority. Softwood lumber featured prominently during Prime Minister Trudeau's visit to Washington on March 10, when both leaders acknowledged a mutual interest in a new long-term agreement on softwood lumber, and instructed their representatives to report back on key features that could address the issue.

Most recently, the Prime Minister and President Obama reiterated their commitment to achieving a durable and equitable softwood lumber agreement during President Obama's visit to Canada on June 29, and on the margins of the North American leaders' summit. The Minister of International Trade continues to play a leading role, and there is now a very high level of engagement between our two governments.

However, this negotiation is unlike other trade negotiations in one fundamental way, which many people are not necessarily aware of. We are seeking an agreement under which U.S. producers will forgo the rights they have under U.S. law to seek trade action against Canadian lumber and lumber products. In order for the United States government to enter into such an agreement, it needs the majority of its industry to formally support the agreement and formally agree to forgo these rights. Consequently, while goodwill between the governments of Canada and the United States is essential to concluding a new softwood agreement, it's not enough.

Let me now turn to the negotiations between Canada and the United States.

We have had 12 face-to-face meetings with the U.S. government, and numerous teleconferences. Although discussions have been constructive and have led to a better understanding of each party's position and concerns, Canada and the U.S., I have to be honest, remain far apart on several key issues. There are considerable gaps that will need to be bridged for a new agreement to be concluded.

Negotiations are continuing with the goal of reaching an agreement by the end of the standstill period. The main subjects under negotiation include an appropriate structure—for example, how to use some combination of export charges and export quotas. This structure should, as we've agreed, be designed to maintain Canadian exports at or below an agreed U.S. market share—to be negotiated—but with the stability, consistency, and flexibility necessary to achieve the confidence of both industries.

Another subject that's very important is a meaningful regional-exits provision. As well, we are discussing regional exclusions for the Atlantic provinces and the territories. We are discussing provisions for company exclusions—for example, for mills sourcing inputs from the United States or from private lands. We're discussing the treatment of high-value products, the treatment of remanufacturers, the treatment within the agreement of the anti-circumvention and transparency provisions, and joint market development.

We continue to maintain an intensive pace of engagement with the United States. Moreover, we continue to work very closely with provinces and territories and a wide range of stakeholders to ensure that the positions we take in the negotiations are commercially viable and will be in the best interest of Canada. Canadian stakeholders are in regular communication with U.S. industry as well, in support of reaching an agreement that will also be supported by U.S. industry.

Our next meeting with U.S. officials is scheduled for August 25 next week, and we expect that we will continue to meet with our U.S. counterparts on a regular basis.

That said, Canadians stakeholders continue to tell us very clearly that no deal is better than a bad deal, so we need to be prepared for the possibility that a new agreement may not be concluded and the risk that Canada will potentially be forced back into a trade remedy investigation—and then any litigation that we choose following that. In part, this is in the nature of any negotiation. It is sometimes difficult, but it is also because this negotiation is particularly complex given the role of the U.S. industry.

Nonetheless, as I said before, we are continuing to be intensely engaged in trying to see if a good deal is possible. However, we are preparing for all eventualities and are prepared to vigorously protect and defend the interests of softwood lumber producers if there is a return to trade action, that is, to litigation. Although reaching an agreement by the fall will be challenging, the Minister of International Trade and Global Affairs Canada remain committed to achieving a successful outcome. To this end, we continue to push strongly to maintain the intensity and momentum of the negotiations and are going to explore all possible avenues.

I'll leave it that. Thank you.

I am now glad to take any questions you have.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to go right into the questioning.

I want to start with the opposition, the Conservatives first.

We're going to start with Mr. Doherty.

Go ahead, sir. You have five minutes.

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

Thank you, Mr. Chair.

Mr. Moen, and Mr. Brookfield, thank you very much for being here today.

Thank you to our colleagues across the floor. Our thoughts and prayers are with you for your loss, our loss, and indeed, Canada's loss, yesterday.

Mr. Moen, we understand that meetings were held last week between the CEOs of the four largest producers in Canada and the USTR. Can you tell me what the outcomes of those meetings were?

[Martin Moen]

Those were meetings that the U.S. government had requested for an informational basis. They wanted to better understand the positions of some of the larger Canadian companies.

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

Those companies also have considerable interests south of the border, correct?

[Martin Moen]

Some of them do, but not all of them.

Some of the companies in question do have substantial investments in the United States—

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

Amounting to up to 80% of their operations?

[Martin Moen]

I don't know what the percentage is, but it's substantial.

However, one of the companies in question has no operations in the United States, so it was not just companies with U.S. investments.

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

Out of those four companies that met with the USTR, were they pushing one softwood lumber regime over another?

[Martin Moen]

The position taken in the negotiations, reflecting our consultations with these companies, and other companies, and with the provinces, is that there needs to be an agreement that has optionality. In the previous agreement we had the option to have either quotas or to have export—

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

I understand, Mr. Moen, the softwood lumber agreement of 2006. The opportunity for optionality is probably something that we need to look at moving forward, but were these four companies explaining their feelings or their preferred softwood lumber regime for the next agreement?

[Martin Moen]

I'll give a very broad answer, but I think it would be best for the companies to speak for themselves.

What I can say is that in our consultations with these companies, with many of the organizations in British Columbia, and with the British Columbia government, the position that we have heard from most, but not all, is that a quota-only system, that is, a system that provided for a strict cap, would be unacceptable to them. They have considerable concerns about the impact that kind of a system would have.

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

Thank you, Mr. Moen. I appreciate that.

Mr. Chair, in B.C. alone there are 150,000 jobs at stake. In Canada, it's 360,000. I can appreciate that there's been a considerable amount of work to this point done by both Global Affairs and the minister. I'm heartened to hear that she has committed to getting a deal done even though softwood lumber is not even mentioned in her mandate letter.

This represents jobs in my riding. Just to the south of us, we have two mills at stake. Mr. Chair, they represent upwards of 400 jobs and one quarter of the tax base of that community is at risk. With that, I would like to put forth a motion:

That the Committee recommend to the Minister of International Trade that a roundtable (to consist of the Minister of International Trade, officials from each province and industry representatives) be struck prior to August 31, 2016, for the development of a national position on a new Softwood Lumber Agreement to ensure the highest opportunity for a balanced agreement to protect Canadian jobs.

It's the right thing to do. It's not a one-size-fits-all approach. I think Mr. Moen has admitted that. We need to get industry and the provinces around the table, in a round table, in an open and transparent way so we can move forward with a national position.

[The Chair, Liberal, Mark Eyking]

You've moved a motion. Thank you for some of your information. I'm sure you're well aware of the study we presented to Parliament.

The motion has been heard. Do we want to bring it to a question, or does anybody else have any comment on the motion?

[Randy Hoback, Conservative, Prince Albert, SK]

I have a point of order.