Natural Resources Committee on March 11th, 2020

[Arun Alexander]

First, I don't believe I said that softwood lumber was not a priority. It was a key priority in the CUSMA negotiations. However, the United States was not willing to meaningfully engage with Canada during the CUSMA negotiations on softwood lumber, and we were unwilling to agree to an agreement that did not protect the Canadian industry and Canadian jobs. I want to be very clear that it was a priority, but unless the Americans were willing to engage, we weren't willing to agree to something that was not in the best interests of Canada.

Additionally, the preservation of chapter 19, as was the case with chapter 10, is a very important provision, as was stated by my colleague, Mr. Owen. It is to preserve Canada's ability to challenge these unfair, unwarranted and punitive duties.

With respect to the refund of duties, I'll ask Mr. Owen to speak to that. This is from Lumber IV, so he has the history.

[Michael Owen]

Sadly, I've been working on this since Lumber IV.

With respect to the duties, it's true there were approximately—if my memory serves me correctly—$5.2 billion in duties collected at the end of Lumber IV. There was a negotiated settlement, which resulted in the repayment of $4.2 billion U.S. to the Canadian industry, a return of $500 million to the U.S. lumber coalition, and $500 million went to a meritorious initiatives committee that sort of did projects throughout North America.

That settlement agreement was to bring to a close an additional protracted litigation before the U.S. courts over the return of the duties, and was supported by over 95% of the industry at the time, including AbitibiBowater Inc., the predecessor of Resolute Forest Products. I know there were some companies that did object, but Abitibi was not one at the time.

Just to add one thing—and I am not a U.S. lawyer, but it's important to understand this from the perspective of settlement negotiations—namely, that you must have the U.S. industry at the table. In previous negotiations, the U.S. industry had a legal right under U.S. law to essentially bring these trade remedy actions. To settle them, one of the things we've had to do is to seek “no injury letters” from the U.S. industry. The U.S. industry has a seat at the table by virtue of the way U.S. law is set up, so to a certain extent, if the U.S. industry isn't interested, then it's very difficult to get the U.S. government to move on this.

I hope that helps to give some context.

[Mario Simard, Bloc, Jonquière, QC]

I understand your answer very well, but there is a rather pernicious logic. These softwood lumber wars are causing many producers to run out of steam. They will not have the strength to continue their operations, which is why they are inclined to accept agreements that may not be advantageous. Between two evils, one chooses the lesser one. There is that aspect to consider.

As you probably know, Quebec has changed its forestry regime to put in place a new system, which allows for the auctioning of public land. This system is much the same as the one in place in many U.S. states.

With this change, do you think there will be positive rulings from the courts, particularly the WTO, or perhaps through the CUSMA?

[The Chair, Liberal, James Maloney]

I'm going to stop you there, Mr. Simard.

[Mario Simard, Bloc, Jonquière, QC]

Okay. I'm sorry.

[The Chair, Liberal, James Maloney]

If we can cut the question, maybe we can get a quick answer.

[Michael Owen]

I think Quebec has an excellent system, and we've made that point repeatedly. We're hoping to have a public version of the WTO decision in the early fall, just as an initial marker.

[The Chair, Liberal, James Maloney]

Great. Thank you.

Ms. McPherson.

[Heather McPherson, NDP, Edmonton Strathcona, AB]

Thank you, gentlemen, for your comments and for sharing this information with us.

I just have a couple questions that I will ask for a little more clarity. You spoke about the three challenges that were going through NAFTA and the two that were going through the WTO. Why are we proceeding with both NAFTA and WTO challenges? Could you talk about that a little bit?

[Michael Owen]

That's an excellent question.

Essentially, we have two systems of law in these two different fora. Under the WTO, the law is an international treaty. For the WTO agreements in particular—the subsidies and countervailing measures agreement, and the WTO anti-dumping agreement—treaty text is interpreted under international law.

Under NAFTA, chapter 19, or CUSMA, chapter 10, what you're looking at is the application of U.S. law. Often, the two systems are very similar. For example, on the subsidy side, the main provision under the WTO is article 14(d) of the SCM agreement. It's United States code 1677 under U.S. law. They're the same, almost word for word.

Obviously, there is different case law that's come out of the two systems. Under U.S. law, there is jurisprudence that's developed by the court system, and the WTO has its own jurisprudence that has been developed. In some cases, it might be better to go before the WTO on an issue. For example, on dumping, there's something called “zeroing”, which the WTO has found to be inconsistent, whereas the U.S. courts have traditionally found to be consistent with U.S. law.

[Heather McPherson, NDP, Edmonton Strathcona, AB]

Moving forward, knowing that we do have these five challenges, what will happen once we have a new agreement in place? Those that have been started under the old system and now will be.... What will that look like?

[Michael Owen]

I had a close colleague of mine who worked on that for the last agreement, and essentially all of this litigation had to be settled as part of the agreement. Part of the last softwood lumber agreement is a gigantic annex with all of the cases that were settled as a result of the agreement.

[Heather McPherson, NDP, Edmonton Strathcona, AB]

Okay. Thank you.

That's all for me.

[The Chair, Liberal, James Maloney]

Okay.

We're going to move into the five-minute round with Mr. Melillo.

[Eric Melillo, Conservative, Kenora, ON]

Thank you, Chair, and thank you all for being here today to take our questions on this important topic.

I guess I'll pick up on something that was mentioned a few different times, and that's the priorities of the government. As I understand it, going into the CUSMA negotiations, the government set out five priorities, and if I recall correctly, softwood lumber was not a priority among them.

Also, after the last election, at the beginning of this Parliament, again if I recall correctly, I believe none of the mandate letters of the Deputy Prime Minister, the Minister of Foreign Affairs, the Minister of Natural Resources or the Minister of International Trade actually mentioned softwood lumber and this dispute.

I put that out there because there was a sort of indication and a feeling in 2017 that we were getting close to a deal. I suppose the crux of the question is to know what happened and whether you feel there has been a shift in priorities by this government away from softwood lumber.

[Arun Alexander]

Thank you for the question. It's a good question.

Mr. Chair, I don't feel there's been a shift by this government away from softwood lumber. It's been made very clear to me that softwood lumber is a very high priority for the government and that we should pursue these cases vigorously in both the WTO and before the NAFTA panels to bring the United States back to the negotiating table. This strategy was agreed to by provinces, territories and industry. It's a strategy that worked during Lumber IV. After successive victories and remands under both the WTO and NAFTA panels, the United States agreed to the softwood lumber agreement in 2006.

So it's an effective strategy. It's one that takes some time, unfortunately, but I think it is the best path forward. It is a very high priority for the government.

[Eric Melillo, Conservative, Kenora, ON]

Obviously, it's good to know that it is a priority, but perhaps you could help all the committee members here better understand its impact. Do you have any information that you can provide us in terms of employment or GDP on how this dispute has impacted the sector?

[Colin Barker]

I believe when our colleagues from Natural Resources Canada were here on Monday, they outlined some of the impacts that they've been tracking very closely across the country. From what we're seeing, it's very difficult to attribute any mill closures, to this point, directly to this dispute. I think what we're seeing out in British Columbia is obviously much more related to the fibre supply issues that unfortunately the industry is going through in British Columbia. There have been other curtailments and slowdowns across the country and in British Columbia. Some of that is certainly due to poor market conditions. The duties are certainly a part of that, but as far as I understand, no mill closure across the country is directly attributable to the dispute, at this point.

We fortunately had a prolonged period of quite high prices last year, which helped the industry. Prices have come down to a more normal level the last six months or so. But those prices, and of course exchange rates and things, have allowed the industry for the most part to be able to keep operating—again, close to the line and in difficult circumstances, we realize, but at least able to keep operating.

[Eric Melillo, Conservative, Kenora, ON]

Thank you, but I may have to respectfully disagree with some aspects of that. Kenora Forest Products, a mill in my riding, has recently closed. They indicated that the softwood lumber dispute was the primary reason; that dragged them down. It definitely is having an effect for sure, I would say.

I'll change gears slightly towards CUSMA. Hopefully, it will soon be coming into force. What sort of impact will that have in terms of continuing the negotiations of the softwood agreement?

[Arun Alexander]

I don't think CUSMA and the softwood lumber agreement are directly related in that respect. However, I think the goodwill we've achieved with the United States—the co-operation and the relationships that the Deputy Prime Minister especially has developed with Secretary Ross and USTR Lighthizer—can only be positive for moving forward in the softwood lumber discussions.

[Eric Melillo, Conservative, Kenora, ON]

Obviously, this is something that impacts us greatly in Canada, and in the States maybe not to as great a degree. I suppose the direct question is this: Has there been any interest from the States in settling this dispute?

[Colin Barker]

Again, as we noted, we continue to use every opportunity to explore with our counterparts, as do our ministers and the Deputy Prime Minister and Prime Minister, to see if there is some positive momentum that can be gained from the conclusion of the CUSMA negotiations to try to deal with this remaining irritant in the trading relationship. Again, I think there is interest on the part of the U.S. to do that, but they need their industry to be onside. As my colleague pointed out, the industry has what is essentially a veto over the negotiations. We need them to agree to any final deal. So until their own industry is willing, the U.S. administration has been reluctant to engage.

[Eric Melillo, Conservative, Kenora, ON]

Why do you feel that their industry maybe isn't willing? Is there not any incentive, at this point, in the industry? What would be their incentive for coming on board?

[Colin Barker]

Certainly I think they view the higher prices that the duties cause to be to their benefit. Higher prices in the States means they benefit as companies selling softwood lumber. As was mentioned in our opening statement, the loser in this in the U.S., in any event, is the U.S. consumer who is trying to buy a house, build a house, or do renovations. They are the ones who are going to indirectly pay this 20% premium being placed on these building products.

That's why the National Association of Home Builders in the U.S. has repeatedly made representations to the U.S. administration on this point, indicating that the tariffs are increasing the price of homes in the U.S., pricing hundreds of thousands of people out of the housing market. That's the unfortunate side effect of this, but of course, the lumber industry there is interested in having those higher prices, having that disruption.

It's only, again, through the success of litigation, where through the litigation we were able to curtail the ability of the U.S. Department of Commerce to impose those duties, that we are eventually able to convince the U.S. industry that it's in their interest to return to the table.

[The Chair, Liberal, James Maloney]

Thank you.

Mr. May, I can give you about two minutes.