International Trade Committee on Nov. 27th, 2024

[The Chair (Hon. Judy A. Sgro (Humber River—Black Creek, Lib.)), Liberal, Judy Sgro]

I call this meeting to order.

Welcome to meeting number 129 of the Standing Committee on International Trade.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Monday, September 23, 2024, the committee is resuming its study of recent developments concerning the Canada-United States lumber trade dispute.

We have with us today, from Groupe Lebel, by video conference, Louis-Frédéric Lebel, president and chief executive officer. From the Ontario Forest Industries Association, we have Ian Dunn, president and chief executive officer. From United Steelworkers, we have Jeff Bromley, chair of the wood council, by video conference.

Welcome to you all. Thank you for being with us today.

We will start with opening remarks and then proceed to rounds of questions. You have up to five minutes.

Mr. Lebel, I invite you to speak to the committee for up to five minutes, please.

[Louis-Frédéric Lebel, President and Chief Executive Officer, Groupe Lebel]

Good afternoon, everyone.

My name is Louis‑Frédéric Lebel and I am the president and chief executive officer of Groupe Lebel.

We are a family business that has been in the lumber industry for over 60 years, primarily in the lower St. Lawrence region in eastern Quebec. We also operate processing plants in Ontario, New Brunswick and Maine. We employ approximately 1,200 people in Canada and we are one of the 15 largest lumber producers in North America.

Our family of mills includes two located on the Quebec-United States border. The logs that supply those plants come mainly from the United States and reach us via forest roads created for that purpose. These two sawmills belong to a group known as the border mills. A number of sawmills of this type, located all along the border, have the same status and mainly supply the United States.

Historically, these sawmills had special status. Through all the disputes we have had with the Americans, that status meant that we did not suffer exactly the same damage as the other companies when we exported to the United States. In other words, we were not necessarily subject to the same tax rates, or our quotas may have been different. Since 2017, unfortunately, our status has not been renewed. We therefore have the same status as the other sawmills and we suffer the same damage as the entire Canadian industry.

Following that logic to its end, we can say that the Americans are taxing their own wood today. What we do is import logs from American forests and process them in Canada, and then when we have to export them to the United States, we have to pay tax. This means that American consumers are paying tax on products that originate in their own country.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We'll hear now from Mr. Dunn, please.

[Ian Dunn, President and Chief Executive Officer, Ontario Forest Industries Association]

Thank you, Madam Chair.

My name is Ian Dunn. I am the president and CEO of the Ontario Forest Industries Association. I'm also a registered professional forester. I represent over 50 member companies in the province, which manage mills that produce energy, electricity, engineered wood products, pulp, paper and, of course, lumber, and manage over 22 million hectares of public forest. Our industry contributes $5.5 billion in GDP; supports 137,000 direct, indirect and induced jobs; and represents a total tax revenue for all levels of government of $3.3 billion.

Since the last agreement ended, in 2017, Canadian lumber producers have approximately $10 billion on deposit in the United States—over $900 million from Ontario. This large amount of capital could be used to reinvest in local operations and communities, improving our competitiveness. The current iteration of the softwood lumber trade dispute is likely the largest global dispute since the end of the Second World War.

Like other Canadian jurisdictions, over the last 20 years Ontario's forest products sector has faced many challenges. We have seen industry consolidation and rationalization; investment dollars and capacity moving to lower-cost jurisdictions; volatile commodity prices and supply chain disruptions; and, of course, unfair and illegal trade action by the United States, our biggest and most important trading partner.

What has this meant for Ontario? What has this meant for the communities of Hornepayne, White River, Dryden or Dubreuilville? Well, it meant that the volume of trees sustainably harvested in the province was cut in half, from 28 million cubic metres to 13 million cubic metres most recently. Contribution to the GDP fell by approximately $2 billion.

Since the early 2000s, employment in the industry has fallen by half, from 80,000 direct jobs to around 40,000 today. Most recently, I've been hearing from some of our members, who will be reducing their operating schedule as a result of increased costs, weak pricing and anticipated duties for 2025, with others announcing further layoffs and closures. Many are small, family-run, independent companies operating in Ontario for generations. One gentleman I spoke with last week said that his family has held a licence to cut Crown timber in Ontario for 110 years, and he will likely be the last person to hold that licence.

At a recent convention, a representative of the U.S. industry stated, “From the US perspective, the softwood lumber trade case has been extremely effective, yielding results that one would expect.” Since 2016, Canadian mills have accounted for 60% of mill closures by capacity. U.S. mills account for 79% of expansions, while Canadian mills account for only 14%. U.S. mills accounted for 98% of new mill capacity, while Canadian mills accounted for only 3%.

This occurred in an environment of duties between 8% and 20%. The forecasted rate of 30% for August 2025 is a dramatic increase. It will likely threaten the profitability and viability of many Ontario sawmills already anxious about access to capital and liquidity.

Of course, it's not just the sawmilling industry that is impacted by lumber duties. Pulp and paper are typically made using the residuals generated as a by-product of making lumber. Without this valuable feedstock, the ability of Canadian pulp and paper mills to make this product becomes more challenging and expensive. In Ontario, over one year we have seen the idling of two pulp and paper mills and the permanent closure of a containerboard mill in Trenton. In 2006, there were 16 pulp and paper mills in Ontario; there are currently three operating.

Despite the challenges, Ontario is the only jurisdiction in Canada that has seen a substantial increase in lumber export rates to the United States.

New and exciting opportunities exist in biomaterials and bioenergy that could bring new investment and economic development opportunities to indigenous and non-indigenous communities across the province. Our forests are abundant, productive and sustainably managed. Ontario's forest industry is resilient, innovative and essential to our economy, communities and environment.

However, it is clear that the ongoing softwood lumber trade dispute, compounded by other economic challenges, continues to hamper our full potential. We call on all levels of government to focus on boosting the competitiveness of our sector, continue legal efforts while pursuing negotiations, and end this dispute.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Dunn.

We go to Mr. Bromley, please.

[Jeff Bromley, Chair, Wood Council, United Steelworkers]

Good afternoon, Madam Chair.

My name is Jeff Bromley. I am the chair of the United Steelworkers wood council. It's comprised of approximately 14,000 members across this country: from Quebec and Ontario, west through Manitoba, Saskatchewan and Alberta, and, of course, British Columbia, where I'm calling in from today.

I will not reiterate the numbers that my counterpart from Ontario just mentioned, but the impact of the eight-year softwood lumber dispute between the two countries on my membership, forestry workers as a whole and those largely rural communities where they work and live has been far-reaching, wide and, in fact, devastating.

In terms of the number of direct jobs for steelworkers, we believe that approximately 2,500 to 3,000 direct jobs have been impacted over the last eight years, largely due to the increasing costs that the lumber duties have put upon our industry, making those logging and harvesting operations uneconomical. Clearly, it's due to the long-standing dispute over the last eight years.

It is time that our government stands up for one of the pillars of our Canadian industry, and certainly a pillar of the province that I'm in, British Columbia, because it has been devastating.

I'll focus on a couple of recent announcements.

I've spent 30 years in this industry, 18 years in a manufacturing mill, a medium-sized operation in the southeast corner of British Columbia in Elko, and the last 12 years advocating on behalf of my membership, both locally in British Columbia and across the nation.

The latest announcements by Canfor were in two communities in British Columbia: Vanderhoof, with Plateau mill, and Fort St. John, with the Canfor Fort St. John mill. In approximately 30 days, both of those mills will close, and the impact will be far-reaching. Those communities have about 10,000 people each, and there are going to be 500 direct jobs lost. For the most part, those mills cannot operate due to, obviously, the ever-increasing duties, tariffs and lumber tariffs set by the U.S.

Of course, as my counterpart mentioned, next year at this time or in the summer of 2025, it's expected that those duties, currently sitting around 14% on average across the nation, will double, at least, to the 28% or possibly the 30% range, which will mean a devastating impact to the industry. I would be very surprised about any operation that will be able to continue to run under those circumstances.

Acute attention is needed to try to address this and to try to begin to find a solution, to have the Americans come to the table and try to find a reasonable trade solution to what is, in my opinion, illegal and unfair duties to our industry, which is unfairly accused by the powerful U.S. softwood lumber lobby of being subsidized. I think that attention needs to be focused by our Canadian government on trying to find a solution, as the devastation to the communities and jobs is going to get worse.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much to you all.

We will now open it up for the members.

Mr. Martel, please go ahead for six minutes.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

Thank you, Madam Chair.

The lumber industry is definitely very important to the economy, whether in Quebec or in the other regions of Canada. In addition, the Minister of Environment and Climate Change wants to make an order. So this industry is very heavily affected. The lumber industry is already facing tariffs imposed by the United States, and now Mr. Trump is threatening to impose an additional 25% tax. The picture is neither funny nor pretty right now.

Mr. Lebel, I have a question for you.

After nine years of negotiations between this government and three different presidents of the United States in a row, we still have no agreement. Are you still confident, right now, in the ability of this government to negotiate effectively in order to protect the lumber industry?

[Louis-Frédéric Lebel]

As I understand it, there have been no serious negotiations with our American counterparts.

As you know, it is up to the federal government, not the provinces, let alone the companies, to negotiate this kind of agreement. It must be pointed out that the government's position at the outset was to try to handle this issue through the courts. After the nine years we have just lived through, the unavoidable conclusion is that going to court will not work and we will end up losing money. There really is a lot of money that is being held in customs. It amounts to double what it was in the last dispute: $10 billion rather than $5 billion.

What I am asking is that the government return, or try to return, to the bargaining table.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

If the 25% tariffs are applied, is there even a chance that you will be able to survive?

[Louis-Frédéric Lebel]

Since this news about tariffs was announced at the beginning of the week, we have had several meetings in the company. Naturally, we have to prepare for it. Our first reaction is to see whether our American customer, which represents about 50% of our lumber sales, will be able to cover this tax: our first reaction will be to charge the additional duties back to it. If this does not work as a result of market forces, there will definitely be mill closings.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

Let's look at the situation in more concrete terms and assume that the 25% tariffs apply. Can you give me an estimate, off the top of your head, of the number of jobs that could be lost in your mills in Quebec?

[Louis-Frédéric Lebel]

We definitely have about 800 employees in Quebec and New Brunswick who work directly in the mills who could be affected, if tariffs were to be imposed on us that we could not agree to pay or that our customer decided not to pay.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

I'm going to ask my question the other way around.

If an agreement had been made nine years ago, what would the effect have been on the competitiveness of your products and on your expansion and acquisition plans? If the government of the day had reached a negotiated agreement in the beginning, what would have happened for your companies?

[Louis-Frédéric Lebel]

I don't want to rewrite history, but what I know is that our business, Groupe Lebel, has over $100 million Canadian in deposits, out of the $10 billion in deposits in Canada. If we had had access to that money, we would have reinvested it in our companies. As a result, we would be more competitive because our mills would be more modern.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

Do I have any time left, Madam Chair?

[The Chair, Liberal, Judy Sgro]

You have one minute and 12 seconds.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

My next question is for Mr. Samray. I don't know whether I will have enough time to hear his answer.

If the trade negotiations continue to be blocked, what will the long-term consequences be for rural communities? We know there are communities in danger. There will also be workers in remote communities who are unable to go somewhere else to look for work.

I'm sorry, I have just seen that Mr. Samray is one of the next panel of witnesses, so I will come back to that.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you.

Mr. Sidhu, please go ahead.

[Maninder Sidhu, Liberal, Brampton East, ON]

Thank you, Madam Chair, and thanks to our witnesses for being here today on this very important study.

Our government has been very mindful in its deliberations when it comes to any trade negotiations, and our priority has always been to secure a good deal for Canadian workers and Canadian industry. I know the opposition's approach is to get a deal regardless of what's at stake here.

I'd like to turn to Mr. Dunn first.

Would you agree that a good deal is better than a fast deal? In your opinion, what would constitute a good deal?

[Ian Dunn]

In order to get a deal, we think there will be three elements. First, there will be the border measures; second, there will likely be some return of duties to the Americans; and third, there will be the funding of meritorious initiatives to increase domestic consumption.

We would agree that we don't want a deal at any cost, but looking at all the compounding economic factors for lumber producers in Ontario, be it the closure of pulp and paper mills, the idling of pulp and paper mills, the lack of markets for residuals, weak pricing, etc., it's becoming very important that the government pursue negotiations and secure a settlement.

[Maninder Sidhu, Liberal, Brampton East, ON]

Thank you for that.

Maybe I can turn to Mr. Bromley online.

Here is my question: In your opinion, what would be a good deal to you with the U.S.?

[Jeff Bromley]

My philosophical opinion is that it should be free and fair trade. Obviously, that's pie in the sky and not achievable.

In terms of the deal that was negotiated from 2006, which finally expired on January 1, 2017, I think that managed the situation probably as best as could be expected. It was more of a sliding scale: If lumber prices were high, there were no duties and no monetary compensation paid; if lumber prices were low, then there was a certain amount of duties paid. It was a fairer system. I believe, ultimately, that's the goal we need to pursue.

However, my counterpart mentioned the position of the softwood lumber lobby from the U.S. The U.S. representative was speaking at a conference here in Vancouver, and the position he took, flat out, was that there will be no money coming back on those duties, that $10-billion amount, to the Canadian companies that it's owed to. That's obviously a position that we can never agree to. A portion of those monies obviously should be coming back to the companies that paid them. I believe that, if not all of it, something needs to come back for the Canadian government to manage, let's say, a fund that would produce innovation in our industry.

There are many opportunities in our industry to produce mass timber and things of that nature. With these punitive duties, as my counterpart also mentioned, they're not able to invest in new technologies that produce more value out of the timber we harvest here in Canada.

There are lots of ways we could certainly achieve a deal, but I think the pressure now is so great that we're not necessarily negotiating from a position of strength, because of the threat of those 25% or 30% duties next year or the existing duties and then having them double. Like I said in my opening, I can't see how any operation is going to be able to continuously run in that environment.

[Maninder Sidhu, Liberal, Brampton East, ON]

I will turn to Mr. Lebel with the same question.

In your opinion, what would constitute a good deal with the U.S. on softwood lumber?

[Louis-Frédéric Lebel]

The first thing we want is to recover the money that has been unfairly paid.

I am going to tell you about the situation in our border mills, which essentially process logs from American forests. We are the biggest buyer in Quebec from private softwood forests. We will recall that the first arguments made by the US Lumber Coalition and the government were that since public forests were managed by the provinces, they were subsidized. When mills are supplied from private forests, the tax should not have to be paid and there should be full reimbursement.

The second thing we want is to have fair trade.

While we are paying high taxes, the Europeans have developed their timber sector and taken a bit of our market share, mainly in the southern United States. In addition, they have no tax or other constraint. To our mind, this makes no sense.

As I explained earlier, we are a family business that has been in operation for over 60 years. We have been exporting to the United States for 50 years. We are on our American friends' doorstep. It makes no sense for us not to be able to export our products to the United States.

From the Americans' point of view, the fear clearly arises from this desire to protect their market share. As my colleague explained, the American producers have profited from the crisis they provoked in order to expand their industry, particularly in the southern United States. As we understand it, that expansion is winding down, since there are fewer logs and raw materials left to process.

In our opinion, we could think about a way to limit our exports, one way or another, using quotas or taxes, or maybe using a hybrid formula that incorporated both, to assure the Americans that we will not hurt the American market when demand is low.