Evidence of meeting #5 for Natural Resources in the 43rd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was industry.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Arun Alexander  Director General, North America Trade Policy Bureau, Department of Foreign Affairs, Trade and Development
Colin Barker  Director, Softwood Lumber Division, Department of Foreign Affairs, Trade and Development
Michael Owen  General Counsel and Executive Director, Softwood Lumber Litigation Division, Department of Foreign Affairs, Trade and Development
Ronnie Hayes  Senior Business Advisor, Industrial Biotech and Forestry Innovation, Multi-Sectors Practices Division, Department of Foreign Affairs, Trade and Development
Manon Brassard  Deputy Minister and President , Economic Development Agency of Canada for the Regions of Quebec
Gerry Salembier  Assistant Deputy Minister, British Columbia Region , Department of Western Economic Diversification
Chuck Maillet  Vice-President, Nova Scotia, Atlantic Canada Opportunities Agency

3:35 p.m.

Liberal

The Chair Liberal James Maloney

Good afternoon everybody. Thank you for joining us.

Without any further delay, because we're already in a bit of a condensed time frame, I will dispense with formal introductions and explanations of the process and just turn the floor over to you Mr. Alexander.

3:35 p.m.

Arun Alexander Director General, North America Trade Policy Bureau, Department of Foreign Affairs, Trade and Development

Thank you very much, Mr. Chair, and honourable members. Thank you for the opportunity to participate in this discussion today and to provide you with an update on the softwood lumber file.

I am joined by Michael Owen, senior counsel and executive director in the trade law bureau; Colin Barker, director of the softwood lumber division at Global Affairs Canada; and Ronnie Hayes, senior business adviser at the trade sectors bureau at Global Affairs Canada.

Canada's forest sector supports over 211,000 jobs in 300 communities across the country. It contributed $25.8 billion to Canada's GDP in 2018. We are keenly aware that the forest sector has faced significant economic headwinds. This has serious impacts on the workers and communities that rely on it. The forest sector is currently facing challenging market conditions, including a reduction in the supply of harvestable timber, mostly in British Columbia, and increased competition in overseas markets.

Another challenge, of course, is the duties imposed by the United States on Canadian softwood lumber. Given Canada's geographic proximity and close commercial links with the United States, it is no surprise that the United States is our number one export market for softwood lumber. Today, the U.S. market accounts for nearly 80% of Canada's softwood lumber exports. For many decades, the United States has relied on Canadian softwood lumber to fill the gap between its domestic production capacity and its demand for lumber.

Despite this mutually beneficial relationship, the Canada-U.S. softwood lumber dispute has become one of the most enduring trade disputes between our two countries. Over the past few decades, the United States lumber industry has frequently petitioned the U.S. government to enact protectionist measures against Canadian softwood lumber imports, including through the application of import duties.

The basis for much of the American action against Canadian softwood lumber lies in the differences between how forests in Canada and the United States are managed. The United States has consistently alleged that public management versus private ownership results in unfair subsidies for Canadian lumber manufacturers. Time and time again, these arguments have been found to be without basis. Canada has brought challenges against the previous duty determinations under NAFTA chapter 19, and before the World Trade Organization dispute settlement system. The U.S. has repeatedly lost in those dispute processes, because Canada does not subsidize softwood lumber production.

Most recently, following the expiry of the 2006 softwood lumber agreement in 2015, and a subsequent one year standstill period, the United States began a new investigation into Canadian softwood lumber practices at the request of the U.S. domestic lumber industry. In January 2018, following anti-dumping and countervailing duty investigations by the U.S. Department of Commerce, the United States once again began imposing duties on softwood lumber imports from Canada.

These countervailing and anti-dumping duties are entirely unjustified. We firmly believe that these determinations are inconsistent with U.S. law and with the international trade obligations of the United States under the WTO. The Government of Canada is currently challenging the latest U.S. softwood lumber duties through five legal processes, three under NAFTA chapter 19, and two before the WTO dispute settlement system.

Under chapter 19, Canada is challenging the U.S. Department of Commerce's final countervailing and anti-dumping duty determinations, as well as the U.S. International Trade Commission's decision on material injury to U.S. industry. Panels established under chapter 19 review whether these determinations are consistent with U.S. law.

Let me add here that the Canada-United States-Mexico Agreement, or the new NAFTA, preserves the bi-national panel dispute resolution process for trade remedies that was in chapter 19 of the original NAFTA. This process protects Canadian companies and workers from the unfair application of U.S. or Mexican anti-dumping and countervailing duties with a transparent and independent dispute settlement system. This will continue to ensure that these measures are applied in accordance with each parties domestic laws. It is strategically important for preserving market access outcomes and defending Canada's interests.

Canada's success in maintaining the dispute settlement mechanism means that once the new NAFTA is in force, Canada's current chapter 19 challenges under U.S. law can continue in parallel with any new challenges under the new NAFTA's chapter 10 to unwarranted or unfair duties imposed in U.S. annual administrative reviews.

Amongst the NAFTA and the WTO cases, the most advanced is the injury challenge. On September 4, 2019, the NAFTA panel ruling on Canada's injury challenge issued its decision. It found that several key issues that are central to the U.S. International Trade Commission's determination of material injury were not based on substantial evidence, and were therefore inconsistent with U.S. law. It remanded the determination back to the commission.

This decision, while it did not immediately put an end to the U.S. duties, was an important step in the right direction. While the commission chose not to substantively alter its determination in this first instance, we will continue to pursue our claim and seek that the panel once again find this first redetermination to be inconsistent with U.S. law.

Our goal through this process is for the commission to reverse its initial determination and find that there was in fact no injury to U.S. industry, or be directed to do so by the NAFTA panel. This process may yet take some time and we will pursue it over the course of the coming year. If a finding of no injury is made, the basis for the imposition of duties disappears and the duties would be lifted.

Canada is pursuing two other NAFTA challenges against the United States Department of Commerce's final countervailing and anti-dumping duty determinations. We are still in the process of panel formation for those cases.

We are also pursuing challenges of two duty determinations through the WTO dispute settlement system. Panel hearings for these two WTO challenges have already taken place. The more complicated and perhaps more impactful of the two challenges is our challenge of the countervailing duty determination. The WTO panel has held two hearings on this challenge over the past year where Canada presented several days of arguments to the panel and numerous written submissions. We expect a panel decision to be issued sometime in the summer.

Under normal circumstances, WTO panel decisions can be appealed, as Canada has done in the case of our anti-dumping duty determination challenge. However, the current impasse at the WTO over the appointment of new appellate body members will delay any final resolution of these two challenges, which is why it is important that we continue to pursue the challenges under NAFTA's chapter 19.

While these legal processes unfold we are working closely with the provinces and industry. A legal counsel group exists that allows the Government of Canada counsel to work directly with counsel representing the provinces, industry associations and individual companies. This is truly a Team Canada approach that ensures that our legal arguments are as effective as possible.

Beyond the legal processes, important interactions continue with U.S. decision-makers to try to advance discussions toward a solution to the current dispute. The Prime Minister, Deputy Prime Minister and Minister of International Trade continue to be actively engaged on this file. Every opportunity is taken to raise the issue with U.S. counterparts, members of Congress and state-level officials.

The Deputy Prime Minister maintains a regular dialogue on softwood lumber with Secretary Ross at the Department of Commerce, and United States Trade Representative Lighthizer. Most recently, she and several premiers met with USTR Lighthizer in Washington where discussion on the softwood lumber file took place.

The Deputy Prime Minister also maintains a direct dialogue with Canadian industry stakeholders, union leaders and premiers to understand the various perspectives on this dispute across the country. Provincial governments and stakeholders have generally expressed strong support for the continued pursuit of litigation under NAFTA and at the WTO, recognizing that future legal decisions will strengthen Canada's position in the negotiation of a new softwood lumber agreement.

The Government of Canada therefore continues to pursue a vigorous set of legal challenges while also continuously looking for opportunities to engage with the U.S. government in discussions toward a new softwood lumber agreement. Canada continues to believe that a negotiated agreement with the United States is in both countries' best interests.

Unfortunately, the U.S. industry has blocked the U.S. administration from engaging meaningfully in negotiations, preferring the continued imposition of duties and the higher lumber prices caused by these tariffs to the detriment of U.S. consumers. In the meantime, we understand the harmful impact that U.S. duties have on workers and communities that rely on this important segment of Canada's forest sector.

In June 2017, the government announced the $867-million softwood lumber action plan over three years to support the needs of affected workers, communities and industry. An additional $251 million was allocated through budget 2019 to Natural Resources Canada's forest-sector innovation and diversification programs.

Global Affairs Canada sees continued trade diversification as critical to the future health of Canada's forest industries. This will help to sustain and grow Canadian forest sector jobs and support the communities that depend on these industries.

Global Affairs Canada supports forest product innovators in finding technology partners, foreign investors and new market opportunities for their next generation forest products, including bioproducts. Global Affairs Canada works closely with provinces and territories in promoting and advocating for Canada's environmental reputation in markets around the world.

Canada's bilateral and multilateral economic and trade agreements, either concluded or under negotiation, aim at increasing the international competitiveness of our natural resource industries, including the forest sector. For instance, the comprehensive economic and trade agreement with the European Union and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership have opened up new export opportunities for the Canadian forest sector in Europe and Asia.

The government's trade diversification strategy features an investment of $290 million over five years to help Canadian businesses export and grow by strengthening the trade commissioner service and enhancing the support it provides to Canadian exporters, including those in the forest sector.

In conclusion, we recognize that the United States will continue to be the most important market for Canadian lumber exporters. Analysis suggests that the gap between U.S. demand and U.S. supply of softwood lumber will actually increase over the next decade, so the United States will need more imports.

Naturally, because of geographic proximity and close commercial links, Canada is best placed to supply this demand. As a result, we are confident that a settlement that brings stability and predictability to the softwood lumber industry is the best option for both countries.

Throughout this entire process, we have worked closely with the provinces, territories and industry stakeholders to ensure a united Canadian approach to this dispute. We will continue to work closely as we move forward.

Thank you, again, for this invitation to appear today. My colleagues and I look forward to your questions.

3:45 p.m.

Liberal

The Chair Liberal James Maloney

Thank you very much, Mr. Alexander.

Mrs. McLeod.

3:45 p.m.

Conservative

Cathy McLeod Conservative Kamloops—Thompson—Cariboo, BC

Thank you to the panellists.

As you might imagine, this is a critical issue in many of our ridings. Certainly, I feel I'm representing ground zero of part of the crisis.

As you indicated, there are many causes. Of course, there's certainly an impact, with a 20% effect on the prices.

I understand that in 2017 there was almost a negotiated settlement. Of course, it's not clear what happened there. However, since that time, although you talk about a negotiated settlement being the preferred option, I notice that the government did not put it as a priority in the new NAFTA negotiations, nor is it in the minister's mandate letter.

Therefore, would it be reasonable to say that you believe the solution is going to be coming through this series of court challenges? Clearly, we would have anticipated seeing it as a priority for the government, either as a NAFTA priority or in the minister's mandate letter.

3:45 p.m.

Director General, North America Trade Policy Bureau, Department of Foreign Affairs, Trade and Development

Arun Alexander

I understand that during the NAFTA negotiations it was a priority to raise the softwood lumber issues with the U.S. negotiators. However, the U.S. negotiators were unwilling to engage meaningfully on settling the softwood lumber dispute during NAFTA negotiations.

3:45 p.m.

Conservative

Cathy McLeod Conservative Kamloops—Thompson—Cariboo, BC

Thank you.

I know we put forward other priorities, including supply management. When it was a stated priority, it seemed to have the desired effect, whereas if it was part of the conversation, it was excluded a little bit more.

I'm going to move on, though.

Have you done a look five years out? I know that some of the larger industry players, both on the north and the south sides of the border, have a little bit more protection and a little bit better buffering from what's happening. However, with regard to the independent producers, let's say it takes five years, which quite frankly, at the rate we're going would not surprise me. What do you project for some of our smaller producers five years from now? Have you done any analysis of what that collapse is going to look like?

3:45 p.m.

Colin Barker Director, Softwood Lumber Division, Department of Foreign Affairs, Trade and Development

Certainly we continue to work through what we call our “business advisory committee”, in which we consult regularly with stakeholders from across the country, including small and independent businesses and the remanufacturing sector.

We definitely want to understand how the dispute is impacting each segment of the industry, because, as you rightly point out, the industry is varied. There are very large producers that have mills all over North America and that, as you point out, can weather the storm perhaps a little more easily than smaller producers that are much more export-dependent. We are definitely working with them to understand their concerns, and we'll continue to do that as this process unfolds.

3:50 p.m.

Conservative

Cathy McLeod Conservative Kamloops—Thompson—Cariboo, BC

Thank you.

I know that our value-added producers—I guess there are lots of terms that you use for them—should be a priority, as these companies have been captured in a way that they weren't captured previously.

I know from the trade committee's hearings that there was a letter sent by the Conservatives to the minister. Also, I understand that the Bloc had hoped to introduce a motion dealing with the people who have been captured in an unanticipated way in this dispute over the softwood lumber agreement, meaning some of our secondary manufacturers. Is there a way to solve their issues right now in a positive way?

3:50 p.m.

Director General, North America Trade Policy Bureau, Department of Foreign Affairs, Trade and Development

Arun Alexander

Thank you for the question.

Mr. Chair, I think the member's referring to remanufacturers.

3:50 p.m.

Conservative

Cathy McLeod Conservative Kamloops—Thompson—Cariboo, BC

That's the word.

3:50 p.m.

Director General, North America Trade Policy Bureau, Department of Foreign Affairs, Trade and Development

Arun Alexander

They buy softwood lumber from softwood lumber producers and then add value to that product to, perhaps, make bed-frames or wood pallets, which are then exported to the United States. The situation, as I understand it, is that the duty applied to the remanufacturers is on the softwood lumber product itself as well as on the value added and the profit, so they end up with the same 20.23% tariff. It's higher for them because of the value added to their product.

This has been a difficult issue. The Department of Commerce has had different views on this and has applied or not applied tariffs to the value-added portion of remanufacturers for some time. Unfortunately, in the latest dispute, they are applying that to remanufacturers, which is very harmful to the remanufacturers.

One way we can move this forward is through the litigation that we're doing, which we hope will remove the duties at the anti-dumping and the countervailing duties. There are also processes under the United States Court of International Trade, which can reduce the scope of the application of the duties. For example, the Shake and Shingle Alliance has had some success in going to the U.S. Court of International Trade to reduce the scope, to remove shakes and shingles. Also, the remanufacturers themselves can bring such an action.

3:50 p.m.

Conservative

Cathy McLeod Conservative Kamloops—Thompson—Cariboo, BC

As you might appreciate, if you were a small remanufacturing company, going through that court process would be prohibitive, and what we're seeing is simply the decisions to relocate in the U.S. Of course, doing that is harmful to Canada. It's harmful to our jobs.

I guess I'm looking for solutions that are reasonable. Again, I can't think of a small manufacturer having the pockets to tackle that kind of process.

3:50 p.m.

Michael Owen General Counsel and Executive Director, Softwood Lumber Litigation Division, Department of Foreign Affairs, Trade and Development

Thank you for that question; I think it's a good question.

I can speak to you about what happened in the cedar shakes and shingles dispute. In that dispute, not only did the Shake and Shingle Alliance hire counsel, but we also ensured that we had our own private sector U.S. counsel there to assist them, to help them, to, essentially, back them up in that court case. We were successful in getting Commerce to reverse itself and find that cedar shakes and shingles were outside of the scope of the dispute.

In terms of remanufactured products more generally, the practice has varied and, unfortunately, the decision regarding what is in the scope and what is out of the scope is the U.S. Department of Commerce's alone. I will add, though, that under the 2006 softwood lumber agreement, we were able to successfully negotiate a carve-out for remanufacturers such that the duties that they paid on their remanufactured products were based on the lumber inputs they originally had. Certainly, if there are negotiations going forward, that's something that we can look at.

3:50 p.m.

Liberal

The Chair Liberal James Maloney

Thank you. I'm going to have to stop you there.

Mr. Sidhu.

3:50 p.m.

Liberal

Maninder Sidhu Liberal Brampton East, ON

I'd like to thank Mr. Alexander, Mr. Owen, Mr. Barker and Mr. Hayes for their time here today.

Mr. Alexander, you mentioned that 80% of our trade in this industry is with the U.S. Can you elaborate on efforts being made to diversify markets and reduce our dependence on the U.S. market for Canadian forestry products?

3:50 p.m.

Director General, North America Trade Policy Bureau, Department of Foreign Affairs, Trade and Development

Arun Alexander

Thank you very much for your question, Member.

Mr. Chair, I will begin to answer and then I'll turn it over to my colleague, Ronnie Hayes, who's in the trade commissioner service.

Diversification is very important to seek out new markets. The government has been making a concerted effort with respect to both finding new markets and developing new products that we can sell in these markets, new value-added products. I was posted to our embassy in Japan, and we focused very much on selling new value-added products in the Japanese market, especially with respect to high-rise buildings, in which Canada has great expertise.

The diversification of new markets and the diversification of the products we produce are very, very important and a high priority for the government and the department.

With that, I'll turn it over to Ronnie.

3:55 p.m.

Ronnie Hayes Senior Business Advisor, Industrial Biotech and Forestry Innovation, Multi-Sectors Practices Division, Department of Foreign Affairs, Trade and Development

In that regard, as Mr. Alexander mentioned, there are tremendous efforts being made through the trade commissioner service in our embassies, consulates and trade offices around the world in key export markets, be they in Asia, Europe or South America, to diversify our market base for traditional and innovative Canadian forest products. I'm including the whole suite of novel biomaterials that have been developed as we are moving toward a low-carbon, bio-based economy.

Efforts are devoted in the marketplace by the network of trade commissioners. As it stands right now, we have the equivalent of 20 full-time employees dedicated to this sector across a network of 45 embassies, consulates and trade offices worldwide working on the file, helping Canadian companies develop new markets and new distribution channels for traditional and innovative forest products.

Also, the second component, which is a major one as we're moving toward more value-added wood-based products, is the identification of innovation partners to help adapt those novel products and bioproducts to commercial applications outside traditional distribution channels. We're talking about wood components being used in polymers, in biochemicals, in biomaterials for use in the automotive industry and cosmetics and also covering a wide range of applications in consumer products, painting coatings. This is where we bring a really incremental contribution.

The third component is identifying and attracting foreign investors to partner with Canadian companies in developing new business entities in newer streams to help diversify our SMEs in Canada.

3:55 p.m.

Liberal

Maninder Sidhu Liberal Brampton East, ON

Thank you for that.

Can you share with this committee what efforts the Government of Canada is making to resolve outstanding disputes with the United States and how often officials are raising the matter with their American counterparts?

3:55 p.m.

Director General, North America Trade Policy Bureau, Department of Foreign Affairs, Trade and Development

Arun Alexander

Mr. Chair, I can say that we have five cases currently going on against the United States. Three are before NAFTA chapter 19 panels on injury, on anti-dumping duties and on countervailing duties. We also have two cases before the WTO, which are at the panel stage or beyond the panel stage, on anti-dumping duties and countervailing duties. We are pursuing these claims very vigorously because we think these duties are unjustified and unwarranted.

I'm sorry, what was the second part of your question?

3:55 p.m.

Liberal

Maninder Sidhu Liberal Brampton East, ON

How often are you...?

3:55 p.m.

Director General, North America Trade Policy Bureau, Department of Foreign Affairs, Trade and Development

Arun Alexander

Oh, sorry, it was on the consultations with the U.S.

We take every opportunity, from the Prime Minister to the Deputy Prime Minister to the Minister of International Trade to senior officials. Anytime we meet with the Department of Commerce officials, the USTR officials or state-level officials, we raise the softwood lumber dispute and softwood lumber issues. I think the last time this was done was when Deputy Prime Minister Freeland was in the United States in Washington, D.C. two or three weeks ago with several premiers. She had a meeting with United States Trade Representative Lighthizer, where she did raise the softwood lumber issue and Canada's concerns with respect to these unfair and unwarranted duties on Canadian products.

March 11th, 2020 / 3:55 p.m.

Liberal

Maninder Sidhu Liberal Brampton East, ON

Thank you for that.

It's clear that Canada is using multiple tools within its tool box to fight against unwarranted, unfair and punitive measures against our softwood lumber. This illustrates the importance of the dispute resolution mechanism featured in NAFTA and preserved in CUSMA. Can you share with the committee the importance of maintaining these mechanisms, and if they were not to exist, what tools would Canada have to defend itself against these measures?

3:55 p.m.

General Counsel and Executive Director, Softwood Lumber Litigation Division, Department of Foreign Affairs, Trade and Development

Michael Owen

NAFTA chapter 19, and now its successor in CUSMA, chapter 10, is fundamental to our ability to deal with punitive or unfair U.S. or Mexican trade measures. Broadly speaking, what NAFTA chapter 19 and CUSMA, its successor, do is take judicial review under U.S. law away from the U.S. Court of International Trade and put it before a panel of five trade experts from both countries, who adjudicate the dispute on countervailing measures and anti-dumping measures. We've had a lot of success with that dispute settlement system, which actually originated as far back as the Canada-U.S. Free Trade Agreement. It helped lead to a successful conclusion of Lumber III and also the successful outcome in Lumber IV. We're now on Lumber V. It's a little bit like a bad movie.

4 p.m.

Liberal

The Chair Liberal James Maloney

Mr. Simard.

4 p.m.

Bloc

Mario Simard Bloc Jonquière, QC

Thank you, gentlemen, for your presentation.

Something struck me in your response to the question as to why softwood lumber was not part of the negotiations in the Canada–U.S.-Mexico Agreement, or CUSMA. I don't know if it came from the interpreters, you'll tell me. You seemed to be saying that we needed to focus on other priorities, and this is not the first time I've heard that. Wasn't there a turn of phrase that sounded like that?

The phrase “focusing on other priorities” is quite telling to me. I get the impression that the various softwood lumber crises we are experiencing are partly due to the fact that Canada has an economy that is fairly integrated with the United States in the auto sector and that it does not want to weaken that sector. This leaves me with the impression that softwood lumber is often the currency of trade.

I don't remember exactly, but I do know that we have been successful in many cases that we have taken to the World Trade Organization, or WTO. I know that in one of the settlements in those disputes, some of the money that was supposed to be paid to us by the United States was never paid out. I believe it is close to $1 billion.

I attended a presentation on this subject by representatives of a company in my region, Resolute Forest Products. This company, which is involved in forestry and the export of lumber, sees this as a form of ransom. It is still paying the surtax, between 15% and 20%, which has been in place since 2017.

Here's what worries me. If we get a settlement for the five ongoing cases you're talking about, we'll still be tempted, in order to maintain good relations with our American neighbours, to accept this ransom system where, ultimately, we don't receive our fair share of the compensation that would be offered to us as a result of a court decision.

I'd like to hear your thoughts on that.