Natural Resources Committee on June 22nd, 2006

[Roy Cullen, Liberal, Etobicoke North, ON]

Just on that point, then, the current agreement in the second paragraph, you're saying that particular statement is no longer in there?

[Paul Bailey]

I don't have the text with me, but I don't think that's in there anymore.

[Roy Cullen, Liberal, Etobicoke North, ON]

That's good. Okay. But that's where they're coming from and that's their premise, and the point still remains: how do we build a durable peace on the basis of a lie?

[Paul Bailey]

To address the more general point, the reality is that the U.S. still believes they're facing unfair competition from Canada in spite of the legal victories we've won. For Canada, the choice isn't between free trade and the agreement in principle we have, and frankly I wish it were, because I think we all know which we would choose. But the reality is, in spite of our legal victories, we still would face two years or more of continuing litigation before we got to the end of the litigation process. Then after that, nothing would prevent the U.S. industry from launching another round of litigation.

When we talk to stakeholders, both provincial governments and industry stakeholders, they've told us they want predictability and certainty so they can address some of the competitive challenges they're facing. These are the challenges FPAC alluded to earlier on, the strong Canadian dollar being one of the big ones, but also questions of fibre supply, energy costs, transportation costs, a whole series of challenges facing the industry. This agreement does deliver that stable, predictable environment that will allow the industry to tackle some of those challenges. One of the features that will help them significantly in addressing those challenges is the refund of 80% of the deposits--$4 billion U.S. flowing back to Canadian companies, which will then be invested into making their operations more productive, thereby helping their communities and their workers.

So we think it's a good deal.

[Roy Cullen, Liberal, Etobicoke North, ON]

Okay. I'm glad you think it's a good deal. I don't.

Where can one get a copy? I guess it's a rolling draft, as you call it, of the agreement, because I've tried through various channels to get the latest version and I can't get one. Is it just not available to parliamentarians?

[Paul Bailey]

It is, as you say, a rolling process. There's back and forth, and frankly a lot of it is in bits and pieces, where we exchange text on one provision or another. It will be provided to Parliament once we finalize the agreement.

[Roy Cullen, Liberal, Etobicoke North, ON]

So that's the problem. We don't really have a way of finding out what's going on in the meantime.

The concern I have, first of all, on a broad question is that the dispute resolution process was meant to deal with disputes. That was set up in the NAFTA process. If it doesn't work for something like softwood lumber, where the NAFTA panels, on appeal, even with U.S. panellists, still are challenged, we know what the problem is. It's this huge U.S. producer lobby that goes totally political. But if we can't win it on this, where the panel judgments have been totally clear, I think it says something really nasty about NAFTA and its future.

Mr. Emerson has said that the devil is in the details, and one detail that I think is still lurking is this anti-circumvention clause. I wonder if you could explain. When I talk to people about the anti-circumvention clause--in fact, I talked to Minister Emerson, and I was down in Washington, at the embassy--they talk about the anti-circumvention clause within the context of possible stumpage changes in British Columbia or other provinces. My understanding is--and you can correct me if I'm wrong--that in general terms, the anti-circumvention clause is there to say, look, we signed an agreement, and this is the spirit and the intent of the agreement, and if the provinces or the federal government move in certain directions that are basically seen as trying to get around the agreement....

I know there are many ways of trying to do that. So that's put in there to stop that.

We heard FPAC talking about the need for the federal government to play a role in terms of technology and innovation. The concern I have is, what's to stop these producers basically lobbying their government to say that if the federal government, or even provinces, acted in a certain way to help the industry or to encourage the industry in terms of innovation, in terms of value-added, a whole range of things, they would say that's circumventing? So they basically have a veto on forest policy in Canada at the federal and provincial levels.

Secondly, I'm a little puzzled on the stumpage issue. If a province is going to increase stumpage, I don't know how that could be a concern to the U.S. producers; and if they are moving to more of an auction system, that's what the Americans have asked for. They pray at the altar of an auction system for timber. So that's fine, but if we go to an auction system, you may know--I certainly know--the actual delivered wood costs could go down. Is that what they're saying? Are some provinces actually thinking about decreasing stumpage?

How is the anti-circumvention clause seen as an issue within the context of planned or possible stumpage moves by provinces, and isn't the issue broader than that?

Those are my questions.

[Paul Bailey]

Again, thank you, Mr. Cullen.

As to the anti-circumvention provisions in the agreement, this is very typical of trade agreements, whether they're bilateral or multilateral. Virtually all trade agreements have anti-circumvention provisions and dispute settlement provisions in them, although obviously, from the American side, they have in mind things like us or the provinces arbitrarily reducing stumpage fees or otherwise providing what they would consider to be an unfair advantage to Canadian producers. But the anti-circumvention provisions apply going both ways. So they're not just there for the U.S.; they're also there for Canada.

As far as the ability of provinces to make policy reforms is concerned, that is a key issue for us, and British Columbia in particular, because British Columbia has introduced a market-based pricing system for the coast. It has been in place for about three years now, and they've announced that they will be implementing a market-based pricing system for the interior starting July 1.

So we're very much aware of the importance of this policy reform to British Columbia, and also the need for all provinces to be able to make adjustments to their forest management practices over time as circumstances require.

So although the U.S. will certainly take an interest in any such changes and may even try to take us to dispute settlement if they think the changes circumvent the terms of the agreement, they don't have a veto over such changes, and we'll deal with these if and when they arise under the agreement. But in the negotiations themselves, we're paying a great deal of attention to these provisions to make sure we get them right, and we're consulting very closely with the provinces and the industry on this point.

[Roy Cullen, Liberal, Etobicoke North, ON]

If the British--

[The Chair, Conservative, Lee Richardson]

Roy, we're now at twelve minutes. We have an established policy, so in fairness to the rest of the committee, we'll pick it up in the next round.

Mr. Cardin.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chairman.

Ladies and Gentlemen, welcome to the Committee.

I have done some reading, I have listened to you and I have quite recently met with the association. I am finding more and more that forestry is a fascinating world. The challenges are immense. It is often said that our qualities are matched by our faults, or vice-versa, or that there are always two sides to every story.

On the one hand, forestry is an important component of the Quebec and Canadian economy. We are told that it is the largest industry. We have some statistics: 81 billion dollars in sales, 36.8 percent of our GDP and 34.4 percent of our trade balance. We therefore also trade a lot with other countries. We must, for forest operators and those in the forestry sector, make greater and greater competitiveness gains, in terms of technology and research and development, if we want acceptable performance levels.

On the other hand, forestry represents duties, tremendous responsibilities, because we must think in terms of the forestry ecosystems, of biodiversity. It is said that the forests are the lungs of the planet. They are also carbon sinks and, if we take into account the water table, they are also water.

From an economic standpoint, it is fascinating to see the gains that our forests can produce. From an ecological or environmental standpoint, there is a heavy responsibility.

I hear you talk about biological sequestration and forest management. I would like to know if everyone is in agreement that we are far from having done what we should be doing. We can obviously look at the issue from a strictly economic perspective, but we must also look at it from the environmental perspective.

As a matter of fact, this is what people talk to me about. In my riding, there may not be many forestry producers, but there are quite a few of them not very far away. People tell us, when they see the truckloads of wood on the roads, that it is difficult for them to believe that forest operators do manage to replace the resource.

I would like each one of you to tell me where we are at with regard to resource replacement and environmental protection.

[Jean-Pierre Martel, Senior Vice-President, Sustainability, Forest Products Association of Canada]

Thank you for your question, Mr. Cardin.

My name is Jean-Pierre Martel and I am Vice-President for Sustainability with the Forest Products Association of Canada. I have worked within the industry as a forestry engineer for 23 years now.

You bring up a very important issue. I believe that generally speaking, in Quebec and in Canada, one of the important things that must be recognized is the fact that the forest is a public good, which is very different from the situation of our neighbours to the south. Forestry is a science that is not always exact. Forestry has evolved as the values and needs of society have evolved.

When my ancestor came from France in 1668 as a lumber merchant, his values were very different from those of my children, in our world of today, and this evolution will continue in the future. People's expectations with regard to the forest have greatly changed, as have the various players. Our knowledge of the forest and of eco-science has evolved tremendously. In the context of my own knowledge of forestry, I believe that there has been a greater evolution over the last ten years than over the course of the 20 previous years. We must recognize that many things have changed. We have made many improvements, but there is still so much to learn.

Third party certification, through which there is a recognition of all of the different values that forests offer, commercially speaking as well as in areas such as the ecology and wildlife habitat, and which provides for reconciling all of these values within a sustainable and integrated forest management approach, is one of the major developments of the last few years.

My answer is perhaps long-winded, but if you are looking for a short answer, I would say that yes, we have changed, but we are not perfect. We will continue to change as the values of society and our knowledge of the forest environment change. I nevertheless believe that we have made good progress and that, if we compare ourselves to other countries throughout the world, we are one of the leaders in the field.

[Serge Cardin, Bloc, Sherbrooke, QC]

With regard to the protection of the resource, do those people who espouse another opinion remain optimistic?

[Mary Granskou]

I apologize for not being able to answer in French.

There's a third issue in our resources that I really encourage you to add to renewal and replacement, and it's the preservation side of the agenda. We're hopeful that interests are coming together to collaborate. It's great to see the presentation here today from our largest corporate private holder in Canada focus largely on carbon sequestration. That is a real advancement, so we celebrate that.

What we're really advocating is the need for a balance on the landscape in order to sustain our cultural, ecological, and economic futures. In terms of the ledger right now, when you look at the balance, there's not enough focus on the preservation, whether you call it natural capital preservation, or ecological, or biological. About 10% of the boreal region is under some form of preservation. All our leadership companies, our first nations, and our conservation groups collectively support a goal of 50%, so we're far from a model that we can celebrate to the world.

The reason we need to balance this equation is that you need large interconnected areas in order for your full complement of biological diversity and wildlife to be sustained over the long term. We need to incentivize what can be done within our forest operations, and not starve that side of the agenda. A great deal of innovation can be done there that helps support the triple bottom line of the social capital, the economic, and the natural.

The other thing I'd add is that live planning for the future is now going on in about 60% of at least the boreal landscape. It's that planning that will help us reconcile all the uses. We really are supporting that; it's way up there in terms of our agenda. It also is recognizing the government-to-government relationship between aboriginal peoples and government, because that's a long-standing.... It's a patchwork across the country in terms of how those rights are recognized and respected.

I hope that's helpful.

[Serge Cardin, Bloc, Sherbrooke, QC]

Let us now talk about the competitiveness which is attributable to the development of certain species, given that we know that it takes decades for some of them to reproduce. Does research and development work on new species, capable of producing quality products and that are easier to reproduce, allow you to be competitive? There are countries that are involved in this kind of research and are giving you stiff competition in this area. Is the development of these types of species allowing you to improve your competitiveness?

[Jean-Pierre Martel]

That is a very good question. In fact, each species has its own very different life cycle. We can attempt to change this cycle through genetic improvement. The idea is not to change the genetics of trees, but simply to choose specimens that grow more quickly and then to produce seedlings, young plants to improve growth performance and therefore produce a tree that presents better characteristics, not only physically, but also growth-wise. This is being done throughout Canada for major species such as black spruce, white spruce, Douglas fir, alpine fir, etc.

There are certain species that we call high-end, like the hardwood in your region. In this area, maple and oak come to mind. These are species that have a very long life span; in some cases, these trees can live for a 150 to 200 years. There are however very rapid growth species, what we call light-demanding species, that often grow after a cut, such as birch and, especially, poplar. A lot of work has been done in Canada to improve poplar growth. In developing countries and in countries with major plantation projects, there is eucalyptus. For us, poplar is a species that grows very quickly. Some work will have to be done with the provinces as well as with the Canadian Forest Service, but this is a very fast growing species with a great future. Markets for products produced from this tree are being developed. I am thinking, for example, of oriented-strand or OSB board, a product that has replaced veneered panels.

[The Chair, Conservative, Lee Richardson]

Mr. Bettle, did you want to have a brief comment?

[Mark Bettle]

Yes, thank you.

To follow up on what you were saying, you had mentioned earlier seeing trucks go by with cut wood. We've beaten our own drum a bit about being the tree-growing company. The fact of the matter is that we cut trees as well; we harvest trees. There's no denying that. At the end of the day, based on projections of our growth curves and our harvesting projections, we are net growers of trees. We grow more trees than we cut. So that's why, on a net basis, our sequestration of carbon dioxide is greater than if we didn't do anything.

In terms of biological diversity, there's kind of a myth that by reforestation, you get a monocultural type of wood stand. The fact is that our plantations are more genetically diverse than natural stands. We plant more than one species. In terms of wildlife, our studies have also shown that there's more diversity of wildlife in areas that we have reforested as well.

To follow up on what you were saying, we've done a lot of things, and we can do a lot more. Most of our decisions are based on an economic model. We grow and cut for economic reasons. We and other companies can do a lot more, if properly motivated, in terms of a climate change or biological sequestration model. If rules are put in place that incentivize the types of things we've been talking about here, then there's tremendous potential in our natural resources.

[The Chair, Conservative, Lee Richardson]

Thank you.

Ms. Bell.

[Catherine Bell, NDP, Vancouver Island North, BC]

Thank you all for your excellent presentations. It's always very interesting.

To preface some of the questions I'm going to ask, I grew up in a managed forest. My father was a tree cutter, a logger. So I grew up in that atmosphere on Vancouver Island. Of course, you probably know that the British Columbia forest sector is a very large player. So the impacts of what's happening with the softwood lumber dispute are going to affect us and are affecting us.

Also, I wanted to touch on one little issue with that, about the value-added industry that is also being charged a tariff, and about the impacts on the small industry that is very concerned about this deal that's going to see the large corporations get a return of some money eventually, if this deal goes through. I'm wondering about the support for the value-added small industry that's being charged a tariff. I understand that they are being dealt with through an independent arbitrator, and I wondered how that's moving along. Could you add anything to that?

Because of the softwood lumber tariffs, we're seeing more and more raw logs exported from lands in B.C., and we have big concerns about that and about what impacts this has on the fibre supply for our pulp and kraft mills, and also on jobs and communities. I don't know if you can touch on that.

I've met with operators in mills and in kraft pulp mills. I understand the perfect storm that you're talking about. I understand the impact of the dollar. They need to diversity. They've done so much with research and development, but they're still at this crisis point and are wondering if they can survive, because of the lack of fibre supply. For one thing, they have to buy it on the open market because we don't have it in British Columbia, which is quite bizarre.

We're also seeing extremes. I think somebody talked about balance, and yet we're seeing these extremes of more and more raw log exports and the exploration of oil and gas, and destruction and development in the boreal forest with the oil and gas industry. All that's taking place there. I'm wondering what a federal government policy would look like in your eyes. Maybe you can expand on some of the things. I think with the Forest Products Association of Canada, you have in your document some points you would like to see from the government, but I didn't really hear much from other folks.

I'd love to get into the minutia of the research and development, because I have a whole lot of questions there, but I don't have a lot of time. Maybe you could comment on some of those points.

Thank you.

[Paul Bailey]

Thank you very much for your comments and your questions.

Let me begin with the points specifically related to the lumber agreement. First of all, we've spent a great deal of time with the value-added producers and we're working very closely with them to make sure their interests are reflected in the final terms of the agreement.

With regard to the point about an independent arbitrator, there are provisions in the agreement for independent arbitration if an issue goes to dispute settlement once the agreement is in force; that's in the future. What we have done, though, is hire some consultants specifically to help us address the issues of relevance to the value-added remanufacturing sector. We've brought extra expertise to bear on that issue.

One of the provisions in the agreement that will be very helpful to them is a provision whereby, when border measures do apply--that is to say, when the price is below $355 per thousand board feet--the remanufacturers will be charged on a first mill basis. That way they don't get charged on their value-added production, the value that they add to the final product that they ship to the U.S. These remanufacturers, to the extent that they've been shipping to the U.S. and paying these duties along with everyone else, will also get 80% of that money back; that will help them going forward.

As for raw log exports, there's no provision in the agreement relating to log exports, so I'll leave it to others to comment on that.

In terms of the link to the pulp and paper industry and fibre supply, the agreement should also be helpful from that perspective. I know it's a concern, particularly in coastal British Columbia. Again, the producers will receive this influx of cash as a result of the refunds. This should help them to be more competitive and maintain their operations, and thereby maintain the fibre supply--basically the chips--that go to the pulp and paper producers on the coast. I think it should be helpful all around.

[Jim Farrell]

Maybe I could just add one thing, as well.

Outside of the agreement itself, our department has been working for the last four or five years with almost every province in the country; with a number of other federal departments; with three or four universities across the country, from UBC in the west to UNB in the east; and with Forintek, the forest products research organization, essentially to provide on-site industry advice in terms of industrial advisers. We have a network of 35 of them across the country who go into small and medium-size manufacturers of secondary wood products. It is essentially designed to improve their productivity and their competitiveness.

We've just gone through a fairly rigorous evaluation of that in terms of return on investment, measured in terms of their own improvements in productivity, whether that's measured in sales or costs around technology or labour cost per value produced. At this point we're assessing that it's somewhere between 8:1 and 10:1 in terms of return on investment. It's been very effective. There's been a strong demand for this kind of expertise. As I say, it's a parallel program initiative, parallel to the trade policy discussions going on right now.

[The Chair, Conservative, Lee Richardson]

Ms. Morgan.

[Marta Morgan]

Thank you for your questions.

On the issues of raw log exports and the availability of fibre, the key issue from our perspective is sustaining a robust and competitive domestic industry. That's why we are really pushing for an improved tax regime on capital investment, for example. To the extent that our own domestic industry is strong, to the extent that we are investing in capital and can use the fibre domestically, then the jobs will stay here in our communities.

In terms of what a federal policy would look like, I did go over a few suggestions. There are three areas, when you think about it.

One is a competitiveness strategy. It's our view that we, as an industry, have developed a vision of our own future, where we see the industry going and where we want to be. We think, given the strong role of government in many aspects of our industry, we want to work with government to develop a shared strategy to help move us forward with a common sense of vision and purpose.

The second category of things I talked about fairly at length is really business climate, including R and D, but also business climate issues that aren't directly reliant on government expenditure, but more on making sure the climate is there, and the regulatory structure and framework allows the industry to change.

The third area is market development. This is something Natural Resources Canada does a lot of work on as well, particularly looking at market development abroad. We've also been saying that one of the key opportunities for market development is within North America, to try to expand the use of lumber in non-residential construction, in small commercial buildings, schools, clinics and that sort of thing, where wood is not generally used. There is a huge opportunity, even within existing building codes, to expand the use of wood. If we can grow the pie within North America, we can ease some of the pressure on the market, and I hope that could be one contributor to even some of these trade tensions over the long run.

[The Chair, Conservative, Lee Richardson]

Thank you.

Mr. Paradis.