moved:
That, in the opinion of this House, the government, in the context of the softwood lumber dispute with the United States, should: (a) negotiate an end to the United States' countervailing duty process by replacing this United States trade remedy with one which either focuses on net subsidies--taking into account tax-free bonds, sales tax abatements, property tax reductions, investment tax credits and energy co-generation agreements--which are available in the United States at the state and local government levels, or that focuses exclusively on whether or not policies in Canada and elsewhere are anti-competitive in nature; and (b) that, in addition to the foregoing, the government should launch negotiations with the United States' government with a view to eliminating tax competition, in particular manufacturing subsidies, which is ongoing between Canada and the United States.
Mr. Speaker, I apologize for the long, rambling motion, but the rules of the House say it has to be in one sentence, so I tried to be as creative as I could be.
I am very pleased to speak to my motion today. Motion No. 397 is motivated by an extreme frustration with the U.S. countervailing duty process, particularly in the context of the continuing softwood lumber dispute. The motion also arises from my conviction that there is a certain hypocrisy and irrationality associated with the current U.S. countervailing duty process and my conviction that there must be a better way.
The sad irony is that the current softwood lumber tariff of 27% has caused sawmills in Canada to increase their production in an effort to lower unit costs. This has resulted in an oversupply situation and lower prices for everyone.
For almost 25 years softwood lumber producers in the United States have sought action by the U.S. government to restrict trade in softwood lumber from Canada. It seems to me that this dispute has less to do with subsidies and more to do with market share. I do not accept the notion that Canada's softwood lumber industry is subsidized.
Lumber I, as it is now affectionately referred to, was launched in 1982 and ended in 1983 with the U.S. Department of Commerce concluding that stumpage did not confer a countervailable subsidy. Lumber II began in 1986 and ended with a memorandum of understanding between Canada and the United States which provided for the levy of a 15% lumber export tax by Canada. This charge was eliminated for British Columbia and reduced in stages for Quebec from 15% to 3.1%. In 1991 Lumber III began, leading to a ruling by the U.S. Department of Commerce in 1992 that stumpage and log export restrictions were not countervailable subsidies.
In 1996, in the search for trade peace, Canada and the United States finalized an agreement on softwood lumber covering the five year period to March 31, 2001.
Essentially, this agreement called for managed trade in softwood lumber, limiting exports from Canada through quotas.
Here we are again in lumber IV, to which has been added an anti-dumping duty petition.
The reality is that should Canada succeed in its arguments, a new countervailing duty process could be launched the very next day producing lumber V and an unlimited number beyond that.
Naturally, elected officials on both sides of the border are concerned about forest industry competitiveness and jobs in their respective communities, and so we should be. I remember talking to a U.S. senator who said that there would be ways in which the U.S. government or state governments could help forest workers in the United States who had to change from logging and sawmilling to other types of industries. That has happened in Canada and in the United States. It happened in Pittsburgh, Pennsylvania, when it changed from commodity steel mills to information technology.
However we know who the big winners are in a continuing softwood lumber dispute; none other than the trade lawyers and lobbyists in Washington, D.C., in Vancouver and in Ottawa. Who are the losers? First time homebuyers in the United States lose out because the cost of a typical new home increases by some $1,000 U.S. to $1,500 U.S. Sawmilling communities in Canada suffer as a result of layoffs, mill closures and the uncertainty that surrounds these disputes. In addition, many jobs in urban Canada that are there because of jobs in the resource economy across Canada.
The most negative impact of these softwood lumber disputes, however, is, in my judgment, on Canada-U.S. relations. We consider ourselves good friends and neighbours with the U.S.A., but most Canadians view the softwood lumber process as unfair and biased in favour of the United States. How many times do we have to win the argument in front of an objective panel that we do not subsidize our lumber before the issue goes away? We want a fair process and we do not have one now.
Trade in lumber as well as other major trade irritants in areas such as agriculture, cloud our otherwise very positive relationship. As Canada's former ambassador to the U.S.A., Allan Gotlieb, noted recently:
While trade between [Canada and the United States] has now more than doubled thanks to the Free Trade Agreement and most of it is non-contentious, the number and seriousness of trade disputes has nevertheless remained high, the mode of settling them relatively primitive and the cost to the relationship substantial.
At the heart of this misunderstanding between Canada and the United States on softwood lumber are four major factors: First, the structural differences between the forestry industry in Canada and that in the U.S.A.; second, a certain hypocrisy perhaps on both sides on the role and nature of subsidies; three, different perspectives on the efficiency of markets; and four, flaws in the countervailing duty process, certainly from a Canadian perspective.
First, let us briefly look at the structural differences.
The U.S. forest industry derives the majority of its raw log material from private lands. In Canada the reverse is true in that most timber is held and managed on public lands.
Could more timber be auctioned under our system? Of course it could. What would the impact on timber prices be? We might very well find that timber prices will decrease for reasons I would be pleased to elaborate on. How would U.S. producers react if that happens? They will have achieved the exact opposite result from that which was intended. Another countervailing duty process will undoubtedly follow.
Let me turn now to the hypocrisy of subsidies. First, earlier I mentioned agricultural subsidies. Canada's grain and oilseed farmers are currently getting mauled as a result of escalating agricultural subsidies in the U.S.A. and Europe which amount to some $350 billion U.S. each year. It would appear that there are some subsidies in the U.S.A. that our American friends believe are a good thing.
Second, a forest products company in Canada today can build a sawmill, a panel board mill or a pulp mill in the U.S.A. at a 20% to 30% discount when compared with the capital costs of a similar mill in Canada, even after taking into account our current exchange rate.
How can this be, one might well ask. The answer is very simple. It boils down to a whole array of incentives that are available at the state and local government level in the United States that are not available in Canada. These are incentives, or subsidies, like sales tax abatements, property tax reductions, tax free bonds, investment tax credits, cheap industrial land, favourable energy cogeneration agreements, and the list goes on.
I know from experience, having worked in the forest sector and having travelled to states like Tennessee, Mississippi and Georgia, that they will offer the kitchen sink for someone to set up their plant there.
These packages are not limited to the forest products sector. A recently announced greenfield automotive plant in the state of Georgia attracted $320 million in government assistance out of a total plant investment of $750 million. This represents over 42% of the total plant investment in subsidies.
A December 2002 Industry Canada report highlights many other such examples: in 2002, a Ford plant in Ohio, 48% of its capital costs were subsidized at the state and local government level; in 2002 a Ford plant in Michigan, 20% of the plant investment was subsidized at the state and local government level; in 2002, a Hyundai plant in Alabama, 25% subsidized; in 2002, a Honda plant in Alabama, 21% subsidized. In 2001, a Toyota plant in Alabama was 13% subsidized; in 2000, a Ford plant in Michigan, 11% subsidized; in 2000, a GM plant in Michigan, 28% subsidized. The list goes on with over 20 other examples going back to 1980, with subsidies reaching, in one case in Alabama, 67% of the total plant investment. These are the people who are talking about our alleged subsidies in softwood lumber.
This harmful tax competition creates a rush to the bottom and should be the subject of a discussion between Canada and the United States. These practices should be phased out because government revenues are being eroded as different jurisdictions try to give away more than the other in the hope of attracting investment and jobs. This negotiation is what part (b) of Motion No. 397 calls for.
Under U.S. countervailing duty law, all that we can do in Canada is defend our system. The way the countervailing duty law is structured, we are not permitted the opportunity to highlight subsidies in the U.S.A. Besides, the U.S. administration in Washington argues that it has no control over states and local governments. Is that not convenient?
Now to the issue of the power of markets. We are told in Canada that our pricing system is artificial. We should let the markets decide by moving to a system under which a much greater volume of timber is subject to auction. On this point, let me be the devil's advocate for a moment.
While I am a great believer in the markets, was it not these very same markets that caused the high tech NASDAQ bubble to build and then burst not too long ago, primarily because stock prices in many cases bore no relationship to economic reality? Now we are being told that the market is going to determine the perfect price for softwood lumber or for logs in Canada.
Could it be that the prices bid for timber in states like Washington and Oregon are higher than they should be from the perspective of sound economics as a result of speculative pricing induced by environmental pressures, for example, large tracts of land being set aside to create habitat areas for endangered species like the spotted owl?
Could it be that Canada has a comparative advantage in softwood lumber? Heaven forbid. We have some of the most productive and efficient mills in the world, a resource of logs and energy second to none and a worldclass workforce. Would it be too much to ask our American neighbours, that while we may not be able to beat them in sectors like defence systems and IT, we might have an advantage over them in products like softwood lumber? Would that be too hard for them to grasp?
I would like to turn my attention briefly to the countervailing duty process. U.S. trade laws are skewed in favour of U.S. interests. This perhaps should not be surprising. Following the losses by the U.S. lumber producers in 1983 and again in 1992, I was told, on very good authority, that U.S. trade laws were tweaked to achieve a better result the next time around. So they are going to keep trying and trying.
As I said before, the countervailing duty process, as it relates to softwood lumber, is flawed in that only alleged subsidies in Canada come under the microscope, and do they ever come under the microscope. Boxloads are sent to the U.S. department of commerce. What about U.S. subsidies at the state and local government level, like the ones I spoke of earlier? Why should we only be permitted to defend our system and not take into account practices in the U.S.A., like the low cost sales by the U.S. forest service, by auction sales in the United States where the buyers have been let off the hook when they realize the price is not economic?
Are there alternatives to the current countervailing duty process? Yes, there are, but it will take political will, particularly from U.S. congressmen and women and U.S. senators.
Part (a) of Motion No. 397 calls upon our government to negotiate an end to the U.S. countervailing duty process. Members in the House and in the other place could assist with such an initiative.
For starters, the process could be changed such that a countervailing duty process could not be re-launched repeatedly. The principle of “three strikes and you're out” should become the norm.
More far-reaching solutions offer the greatest potential however.
First, concepts, like net subsidy, would allow a countervailing duty process to be launched if it was reasonably alleged that there was a net subsidy difference that exceeded a prescribed de minimis . With this approach, any applicable U.S. industry subsidies would be scrutinized also.
Second, the countervailing duty process could be scrapped altogether and all trade disputes examined from the sole perspective of competition policy. In other words, if price collusion, price fixing or cartel-like behaviour was involved they could launch their countervailing duty process.
A third approach would be to have all Canada-U.S.A. trade disputes automatically fast-tracked through an independent and objective agency, an organization like the International Joint Commission.
I believe that Canada and the United States need to work together along the lines suggested by former Ambassador Gotlieb, one that reflects today's realities and that respects our differences as well as our common interests and cultures, a bargain that covers important bilateral public policies like defence, border security, energy and trade.
I am confident we can leave behind many of the irritants and move forward positively with our neighbours to the south.