FOPO Committee Meeting

STANDING COMMITTEE ON FISHERIES AND OCEANS

COMITÉ PERMANENT DES PÊCHES ET DES OCÉANS

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, December 6, 2001

• 0909

[English]

The Chair (Mr. Wayne Easter (Malpeque, Lib.)): We'll call the meeting to order.

Welcome, Glenn and Len. I'll let you introduce yourselves.

• 0910

The purpose of this morning's meeting is, under Standing Order 108(2), to look at the dumping of aquaculture products and the effects on Canadian producers. A number of us from the committee met with some people from the aquaculture industry in private a little less than a week ago, and we decided at that time that it would be useful for the aquaculture industry itself to come forward and make a formal presentation so we could have the facts on the table to try to deal with it as a committee as effectively as we could.

This morning we have Glenn Cooke, who is the president of the New Brunswick Salmon Growers Association, and Len Stewart, who is the president of Aquaculture Strategies Incorporated. Welcome, gentlemen. The floor is yours. What we usually try to do is go through a submission and then turn to questions. So welcome.

Mr. Glenn Cooke (Chief Executive Director, New Brunswick Salmon Growers Association): Thank you for giving us your valuable time to meet with us today.

My name is Glenn Cooke, and I'm the president of the New Brunswick Salmon Growers Association. I'm here with my colleague Len Stewart, president of Aquaculture Strategies Incorporated. Len is a chartered accountant who served for many years—

The Chair: Glenn, you might want to slow down a little. The translators in there will be firing a salmon at me if you go too fast.

Mr. Glenn Cooke: They're cheap.

Len is a chartered accountant who has served for many years as director of finance for a large, international aquaculture company with operations in Chile, eastern Canada, the eastern United States, and western Canada. He has also developed considerable expertise on the trade issues we are here to discuss today and will answer any questions that may arise out of this presentation.

We are here today as representatives of the Atlantic Canadian finfish aquaculture industry. There are 4,000 people who work on salmon and steelhead farms in rural and coastal communities in Newfoundland, Nova Scotia, and New Brunswick. These jobs are being threatened by ongoing dumping by Chilean producers into our main market, the United States.

To counter this threat, the salmon and steelhead farming industries of New Brunswick, Nova Scotia, and Newfoundland are petitioning the Government of Canada to intervene on their behalf with the Government of Chile, either through the Canada-Chile Free Trade Agreement or under the rules of the World Trade Organization. The intent is to prevent Chile from dumping Atlantic salmon and steelhead trout below cost in Atlantic Canada's principal market, the United States. If strong, bilateral representations have no obvious effect, then the Government of Canada should pursue all mechanisms available through the World Trade Organization, notably an article 14 action under the WTO anti-dumping agreement.

Let me begin by describing the Atlantic Canadians we represent. The Aquaculture Association of Nova Scotia represents a growing finfish sector and operates 25 grow-out sites, eight nursery sites, and eight hatcheries with a total annual production of just under 10,000 metric tonnes, which has a value of $40 million. This sector provides employment for approximately 300 people in rural and coastal communities.

The Newfoundland Aquaculture Industry Association represents the entire aquaculture industry in that province. The salmonid sector comprises six salmon and steelhead enterprises with a total production in 2000 of 895 metric tonnes of Atlantic salmon and 1,700 metric tonnes of steelhead, valued at $6 million and $11 million respectively. The salmonid industry generates 133 direct jobs. The industry exports 90% of all products in the form of primary fillets to the United States market.

I am president of the New Brunswick Salmon Growers Association, which works on behalf of salmon farmers in New Brunswick. Our industry operates 94 sites, 13 hatcheries, and 10 processing plants. We produce over 35,000 metric tonnes of salmon annually with a value in excess of $200 million. It provides over 3,000 full-time jobs in New Brunswick, constituting one quarter of the Charlotte County workforce.

Our employees cover a wide range of skills, including researchers, scientists, veterinarians, high-tech workers, and business managers. Most of these jobs are filled by young people. A recent economic analysis indicated that 75% of employees are under the age of 40. The industry has invested substantial dollars in new technologies and management techniques over the past five years so we can compete in the global marketplace.

• 0915

With our focus on sound fish health and environmental management practices and our proximity to the United States market, we can provide a premium product to the consumer and be competitive, provided our products are sold against fairly traded salmon. Our businesses have been profitable in the past and have had strong balance sheets. However, this stability can be quickly eroded if the current market situation persists.

Traditionally, 70% of the province's farm-raised salmon products have been sold in the United States. Prices in the North American market have fallen drastically due to Chilean imports—a dollar U.S. per pound or a 30% decrease over the last 12 months. Prices have continued to decline significantly since June 2001.

Prices for fresh salmon and steelhead fluctuate with season and supply, but this year the downturn trend has been dramatic. Chile has reduced its price in the U.S. market by 45% in the past 17 months, and supply to the U.S. market is up substantially. Chilean supply of farm salmon to the U.S. market has increased by 50% this year alone. That's up from 40,000 tonnes to over 60,000 tonnes of fillets, or, converted to the whole fish, it would be 67,000 tonnes increased to 100,000 tonnes.

Chile is selling well below cost in the U.S. As a result, it is difficult for us to compete in that market. Chilean dumping is a major concern to our competitors as well—Norway, the Alaskan commercial fishery, and American salmon farmers.

Following press releases by the Atlantic Canadian industry on the issue, we have received expressions of support from Ontario and Saskatchewan and from as far away as Scotland and Australia. We also understand that a minister of the Irish Parliament recently met with officials in Chile to express his concerns for the Irish industry.

The September 11 terrorist attack in New York has made a very difficult situation worse. There have been transport delays from Canada. Salmon goes primarily to the food service industry, and Americans are staying at home. Key markets such as New York were down by as much as 80%. Consumption is starting to recover, but this recent reduction in demand resulted in a further price reduction of 16% to 20%.

Almost 4,000 current jobs in Atlantic Canada are at stake. If today's prices of $1.50 U.S. per pound for salmon continue, the industry in Atlantic Canada stands to lose $50 million over the next year. We also stand to lose the tremendous potential this industry holds for Atlantic Canada's rural and coastal communities.

The U.S. market for farmed salmon has been growing by 20% per year. As the wild fisheries decline and world population increases, the opportunity for the aquaculture sector to supply a healthy, safe source of protein will increase.

Atlantic Canada can benefit from this global trend, provided Chile does not engage in unfair trade practices. The Atlantic Canada salmon and steelhead industry is close to U.S. markets and benefits from low freight costs. We can readily supply a consistent, high-quality product at a competitive cost.

A U.S. anti-dumping action recently reactivated relates to an investigation started in 1997. L.R. Enterprises, based in Maine, filed a request on July 31, 2001, to review 86 Chilean suppliers of Atlantic salmon. Atlantic Canadians supported this action and are hopeful that it will be successful in stopping Chile's dumping activities.

It is obviously best to pursue an action directly in the United States, where Chile has been selling at well below cost. However, there are two significant weaknesses in the L.R. Enterprises action. First, this investigation considers the prices in the period July 2000 to June 2001 and will not include the low prices in the period from July 1 to November 30, 2001.

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Our second concern is that one of the worst offenders in Chile is currently outside the anti-dumping investigation. This brings us to possible solutions to the crisis brought about by Chilean dumping of salmon into the U.S. market and our request for help from you and from the Government of Canada.

During the past months we have collaborated as industry associations with government officials in Newfoundland, Nova Scotia, and New Brunswick to prepare a briefing document for Minister Pettigrew, which was sent by the three industry associations early in November. The governments of Newfoundland, Nova Scotia, and New Brunswick have also sent letters of support. An industry delegation travelled to Ottawa last week and met with officials from Minister Pettigrew's office, Minister Dhaliwal, Minister Thibault, officials from Minister Bradshaw's office, Minister Tobin's office, members of the standing committee, and members of Parliament from Atlantic Canada.

Minister Dhaliwal undertook to send letters to Minister Manley and Minister Pettigrew on our behalf, as did individual members of this committee.

We ask that this committee also bring our concerns to the House of Commons and to Fisheries and Oceans. We need your support for whatever trade actions or pressure can be brought to bear on the Chilean government to stop the dumping of product into the United States and Canadian markets.

It was suggested we should instigate an action to try to control the dumping of Chilean salmon into Canada, our home market. We will be submitting evidence of this action to Foreign Affairs. While we are hopeful something substantive will come from our action in Canada, we understand Canada's recent free trade agreement with Chile does not allow for dumping duties, even if we are able to prove conclusively that they are dumping here.

We are working closely with government officials at a national and provincial level to develop interim assistance packages to help farmers deal with the considerable potential hardship over the next 18 months brought on by Chilean dumping. We ask for your support when proposed solutions are brought forward.

In closing, I want to thank you once again for your time. We appreciate your interest and support for this vital Atlantic Canadian industry and offer the services of our three industry associations as we find immediate and long-term solutions.

Both Len Stewart and I would be pleased to answer any questions you may have this morning.

The Chair: Thanks, Glenn.

Do you have anything you want to add, Len, before we start?

Mr. Len Stewart (President, Aquaculture Strategies Incorporated): No.

The Chair: Before I turn to Andy, is there anybody who can give us an overview of the Chilean industry, how it operates?

I ask that question because I was talking to people in the feed industry this morning and I was told that in Chile, constitutionally, they can't regulate business, which complicates matters even further. I understand there is an agreement proposed among the biggest growers in the industry, who represent about 60% of their production, whereby they would sign a contract that they wouldn't increase production for, I believe, something like the next 28 months. They would sign that agreement in the United States, and the Chilean government would act in a way to see the agreement was abided by. But the Chilean government, I'm told, can't specifically regulate the industry.

So that is something that's in the works. It still won't effectively deal with the problem. It seems kind of complicated to me, but that's what I was told in some calls that were made to me this morning.

Len or Glenn.

Mr. Glenn Cooke: They may not be able to control it that way, but there are 1,200 applications for new cage sites in the system in Chile today. It's our understanding the government is actually working vigorously to try to speed the approval of those 1,200 cage sites. They're actually allowing the increase. I'm sure they have control of issuing the actual cage sites themselves, which is where the fish are grown, and it's a mystery why they couldn't slow that process down.

Len, do you have any other comments?

The Chair: Len.

• 0925

Mr. Len Stewart: I guess the only other comment I would make is during the proceedings of the U.S. investigation into Chilean salmon, the Chilean industry purported it was growing at a rate of 15%, and during the investigation they were chastised about that statement. Today we see that they grew at a rate of 50%, and I'm just not sure that all parties would necessarily abide by some sort of agreement.

The Chair: Okay, we'll turn to Andy for questions first.

Mr. Burton.

Mr. Andy Burton (Skeena, Canadian Alliance): Thank you, Mr. Chairman. I have to admit, I'm not very knowledgeable about this whole thing. It certainly sounds like there are some real difficulties in the industry.

First of all, being from the west coast, I'd like to know, since there's no representation here from the B.C. industry, are they in a similar position, or do they have other markets that are perhaps not as severely threatened?

Mr. Glenn Cooke: There's no question the B.C. industry is hurting. We have been in some dialogue with the west coast, and we'll continue that dialogue to coordinate some kind of response.

Mr. Andy Burton: Is the Chilean industry cranking it up to such a high level just for cashflow—U.S. dollar cashflow—or is it actually profitable for them? What's their position on this thing? Obviously, they're really cranking it out. Are they making money at it?

Mr. Glenn Cooke: No, they're not. In some of the briefings we got, some analysts have actually said they're losing up to 85¢ U.S. per pound, or $284 million U.S. this year as an industry.

Prices were very strong in 1999 and early 2000, and a lot of the multinationals in Chile—they are very large multinationals, unlike in the Bay of Fundy, where there are only really two large multinationals and the rest are very small, family-owned operations—expanded very heavily without putting any marketing dollars into the U.S. market. Even though the consumption of salmon has been increasing by 26% or 25% in the U.S. market per year, they outgrew the expansion of the marketplace without putting any marketing dollars in. I think what happened was the government was issuing new approvals there very vigorously. A lot of companies didn't know what other companies were doing, and it just overexpanded.

Mr. Andy Burton: Actually, Mr. Chairman, at this point in time, I'll turn it over to somebody else.

The Chair: Who wants to be on the question list?

Loyola.

Mr. Loyola Hearn (St. John's West, PC/DR): Thank you, Mr. Chairman. Actually, we were at the original briefing, and I think there's very little we could ask about the industry that we didn't ask at our briefing last week.

However, looking at another side of the equation, the people in the States—the industry—who are very appreciative of cheap Canadian lumber are our strong allies in trying to get the tariffs lifted from our lumber into the States.

Are you going to find, if the price of salmon suddenly escalates, you're going to see a backlash from the consumer in the States, who is now undoubtedly getting a pretty good deal in the price of the product? And how long can Chile last? You can sell at less than your production costs for only so long before somebody suffers, or is government going to continue to subsidize?

How do they look upon the Canadian industry? To some degree, our Newfoundland industry has been relatively heavily subsidized also. So where does all of this fit in the mix?

Mr. Glenn Cooke: New Brunswick, as you know, is made up of family farm operations, similar to Nova Scotia and probably Newfoundland, and a lot of those are not heavily subsidized. A lot of the normal funding, like ACOA, is also available in the U.S. and Chile.

Len, I don't know if you want to comment on some of the trade parameters.

Mr. Len Stewart: I'm not sure the price to the actual consumer in the U.S. has changed that much over this period of time. Salmon prices are still at the retail and the restaurant level the same as they were before.

Mr. Loyola Hearn: Who's making the money?

• 0930

Mr. Len Stewart: I can tell you, it's not salmon farmers today.

Mr. Loyola Hearn: No, but somebody must be.

Mr. Glenn Cooke: I think it's the wholesalers and distributors who probably benefit the most out of this.

The thing is that the Chilean companies are very large multinationals. These are multinationals out of Norway, out of Holland, and they can last a long time. They have other parts to their company. They're into agriculture, feed production, the whole thing, unlike in the Bay of Fundy, and in Nova Scotia and Newfoundland, where we have small family-owned clusters of operations.

These guys are losing money. They can probably afford to lose money; these are public companies. They can probably lose money for 18 months, or two years, and still be okay. The problem is the industry in Atlantic Canada cannot lose money for 18 months. We can't take $50 million out of the Atlantic Canada industry and expect it to survive. That would be like saying a national grocery chain can lose money but your little corner store can't; that's the comparable.

The Chair: Mr. Matthews.

Mr. Bill Matthews (Burin—St. George's, Lib.): Thank you, Chairman. I would like to welcome the gentlemen this morning.

In order for me to better understand the situation, you've done an assessment on the Chilean situation, so can you tell me, is it heavy government subsidization? Feed cost is very high in Canada, and in Atlantic Canada for sure. Wouldn't it be the same in Chile, or do they have cheaper food sources?

It ties in to Mr. Hearn's question. How can they dump it into the U.S. at such a cheap cost unless the government is outright subsidizing it and then they don't care what the end result is in the marketplace?

Mr. Glenn Cooke: I don't believe they are. Our dressed, head-on product, landed to the U.S. market, is just as cheap to produce as it is from Chile. It's not that they're producing fish cheaper. They have to air freight everything into the U.S. market, which adds a substantial amount of cost to their production. We really feel these companies are losing it off their bottom lines, but, again, they're very large multinationals with very large bases over the world. They can bear a loss on aquaculture and make it up on the agri side, or make it up on the fisheries side, or whatever.

Mr. Bill Matthews: What's their objective then? Is it to get everyone else out? That's difficult to understand, if they can absorb losses because they're multinational, big, or whatever, but they're not going to go on doing that forever, I would think. Can you tell me what's the rationale so I can understand it, because I really don't?

Mr. Len Stewart: We're certainly mystified by the rationale because it's clear that companies cannot lose money on an ongoing basis, unless in fact their objective might be to drive out all the other people in the business and have the market for themselves. Then they can let prices go where they desire them to be.

Mr. Bill Matthews: Have you people determined the level of government involvement in Chile? For us as parliamentarians, and the standing committee and government departments, I think that's key. Have you determined that?

Mr. Len Stewart: There's dumping and there's actually subsidy, and in the original anti-dumping investigation carried out by the U.S. Department of Commerce, in 1997 or 1998, they found the actual subsidy to be de minimis, to be below a rate whereby they would apply a duty based on it.

That process carried on by the International Trade Commission would have probably five man-years of work. I'm not clear as to the current level of subsidy in Chile.

The Chair: Len, do you have any idea where we would turn to find that information? Would that be listed in the U.S. documentation?

Mr. Len Stewart: Yes, it would be. There are current portions that would be on the public record, which would be the information that I have read. But certain parts of it are proprietary so they don't release them to the public.

The Chair: Bill, is that it?

Mr. Bill Matthews: I'm thinking out loud here.

If you're after International Trade or Foreign Affairs, or whatever, to launch some kind of initiative, or whatever, through WTO, don't we have to determine the...? It seems to me right now they're dumping this fish into the U.S. very cheaply, but I don't think we fully understand how they can do that.

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Mr. Glenn Cooke: We do know their production costs.

Mr. Bill Matthews: I see.

Mr. Glenn Cooke: So we do know that they're not producing the fish for as cheaply as they're selling it into the U.S. market. We do have documentation of that.

The Chair: Mr. Farrah.

Mr. Georges Farrah (Bonaventure—Gaspé—Îles-de-la-Madeleine—Pabok, Lib.): You met with Mr. Pettigrew, or his officers, I suppose. I want to know what were their comments, because the minister is concerned with that kind of problem, and they deal with lots of problems like this that affect industries. I want to know what they told you, what their comments were about your situation, and if we have a good case. The problem I think is how long it would take on the other side. But I want to know what the comments of the officers and Mr. Pettigrew were.

The Chair: Mr. Stewart.

Mr. Len Stewart: We met with senior people in the international trade department, and there are a number of possible avenues. There's an action under the WTO, but these actions are relatively new and very complex. The problem with the WTO is there is the potential that it has come before the WTO for acceptance by the group to carry forward. But it has to be a unanimous acceptance. Chile is a member of the WTO, so it's unlikely there will be unanimous acceptance.

The other issue that the officials felt we should pursue was an action in Canada because Chilean salmon is currently being sold in Canada at similar prices to the U.S. and it would be in fact below cost. The trouble with this is that under the Canada-Chile Free Trade Agreement you could find dumping but there's actually no remedy. Canada could not, as we understand it, impose a duty on Chilean salmon, even though it is being sold into Canada at less than cost. But it does open up other avenues for diplomatic pressure that could be brought to bear on Chile by Canadian officials and so on.

So I think there's work and assistance that International Trade can provide to the industry to help to try to continue to pressure the Chilean government and the Chilean industry. There are some companies in Chile that have taken action to reduce their supply. Some of the companies have killed off the smaller fish to reduce their production level. Currently in Chile the losses on a per pound basis could be anywhere from 50¢ to $1 U.S. a pound.

The Chair: First of all, there's no question, Glenn and Len, on the importance of the industry. As you know, the committee itself has been doing a study on the aquaculture industry because we see it as a growth industry and an industry with a tremendous amount of potential.

In starting off my line of questioning, I wonder if you have any idea of the comparative prices of salmon in the U.S. over the last three years. What were they three years ago, two years ago, and now? Can you provide us with that information as well as information on the exports from Chile? Do you have the database to show us that it's increasing, and that's the reason prices have been driven down, to make an argument on dumping?

Mr. Len Stewart: Yes, sir, I can respond to that. To put it in perspective—and I'll pick certain points in time—in July 1999 the price of Chilean fillets into the U.S. market was $3.34 per pound.

The Chair: Is that U.S. dollars?

Mr. Len Stewart: Yes. And at that time they were importing approximately, in that month, 2.6 million kilos. In July 2000, the price was $3.08 per pound, and at that time they were importing 4.5 million kilos. In July 2001, the price was $1.99, and at that time it was 5.5 million kilos.

• 0940

The actual import statistics for October and November are not yet available through the U.S. Department of Commerce, but the price in October 2001 was $1.86, and the price in November 2001 was $1.81.

So over the last 17 months, the price of Chilean salmon has gone down by 45%. I can assure you that Chile has not reduced their costs by 45% in that period of time. The freight rates into the U.S., because of the oil situation, have gone up. Labour rates in Chile may very well go up because there have been some protests in Chile about the low labour rates. So costs are increasing, and companies clearly cannot reduce their prices by 45% in a 17-month period and make money.

The Chair: So this price is landed in the U.S.

Mr. Len Stewart: This is landed in Miami.

The Chair: Glenn, I think you said earlier you have an idea what the Chilean cost of production is. What is that, and do you have that over a comparative number of years as well?

Mr. Glenn Cooke: I think I'll pass that over to Len.

Mr. Len Stewart: In terms of the Chilean production costs, I have done considerable work on that during my career. Some of it was from a past lifetime, so because I'm a chartered accountant I don't talk about that because it's proprietary to that company.

However, since I have been out on my own I've done further work on this and reviewed documents in the public domain, and so on. The price of Chilean salmon for fillets is somewhere in the range of $2.50 U.S., landed in Miami. In the years when they were selling product at $3.34 and $3.08, there were good profits to be had by the Chilean industry, but at $1.81 and $1.80, Chile is not making money. They're putting the livelihood of 4,000 Atlantic Canadians at risk, and in fact the future of some of those rural and coastal communities.

In recent work that was done, we found that of the people employed in the industry, 75% were below the age of 40 years. Unfortunately, I'm not still in that group.

The Chair: Most people around here aren't either.

It's easy to prove dumping into Canada, but the difficulty is there may actually be no remedy for dumping because of Canada's free trade agreement with Chile. I hope that's not the case. If it is, it damn well shouldn't be the case. But we'll have to check that out with Foreign Affairs and International Trade, because part of the purpose of a free trade agreement is to have trade law in such a way that you have fair trade and you can take aggressive action against people who are not abiding by the rules. The difficulty here is we're dealing with a third nation, and we're both exporters into that market.

Do you have the figures on the Canadian movement into the United States as well?

Mr. Len Stewart: Canadian production from 1998 through 1999 increased by 10%; from 1999 through 2000 it increased a further 10%; and this year it's up somewhat higher than that, in the 25% range.

• 0945

But in 2000, the product that normally would have been marketed in 2000 was held back from the market because the prices were very low. The thought was that maybe the prices would go up, so we'd hold back. Probably, in reality, the increase should have been in the 18% range. It would have been 18% so far this year, which is very similar to the rate of growth in the U.S. market. So we would have had supply and demand in balance.

The Chair: How is price established in the American market?

Mr. Len Stewart: Basically, Chile is the price-setter in the U.S. market. Canada has traditionally been a price follower, so the problem is that when Chile is reducing prices significantly, if you want to sell your product you have to follow suit. Prices for product produced in both the United States and Canada are generally somewhat higher than Chilean prices, and that's because of freshness, quality, and time to market.

The Chair: If we're increasing production into the U.S. and we're also selling at lower prices, we need to be able to concretely argue that we're just following the market, somebody else is establishing those marketing trends, and it's Chile. Can you make that point for me?

Mr. Len Stewart: I have some involvement with the U.S. company that has filed an action against Chile. In consultations with the U.S. lawyer who is arguing the case on behalf of the U.S. company, he has made the point very clear that Canada is a price follower. It's somewhat of a complex legal argument that you are a price follower, and because Chilean product is under a duty, under U.S. trade law a Canadian product would be deemed to be fairly traded because we are a price follower.

Turning back to the increases in production, there have been increases in production in Canadian operations, but those increases have been more in line with the increase in demand in the marketplace. The volume increases by Chile have been in excess of 50%, which is substantially above the growth in the market, which has caused concerns for both Canadian and U.S. producers.

The Chair: Mr. Hearn.

Mr. Loyola Hearn: Thank you, Mr. Chairman.

One of my questions has just been answered on the aspect of how our quality compares to theirs. I can understand that.

The other point is, Mr. Chairman, you mentioned the fact that we're dealing with a third country, which certainly complicates it. If they were dumping into Canada, that would be one thing. But if the companies, owners, or conglomerates are taking the loss and there is no direct subsidy coming from government, that's going to complicate matters probably even further.

Is the Chilean government helping out here in any way, where they will be looked upon as subsidizing? If the private sector is willingly taking a loss, how does that factor into the dumping aspect? It's not as easy to deal with perhaps as dealing with a government that's subsidizing the industry.

Mr. Len Stewart: Mr. Hearn, we're not clear on the level of current Chilean government involvement in the industry. I think that might be an area that Foreign Affairs could pursue and better understand what the current level of involvement is.

• 0950

I'm embarrassed to mention this, but I'm probably more familiar with U.S. trade law than I am with Canadian, because that's where most of my experience has been. Within the U.S. system there are both countervailing duties for subsidy and anti-dumping duties, when you sell below cost or below the prices at which you sell into other markets.

Mr. Loyola Hearn: Regardless of subsidies.

Mr. Len Stewart: Regardless. There may be an increased level of subsidy in Chile currently and there may not be. I'm not clear. But when you go back to the cost issue, with a 45% price decrease over the last 17 months, I know it is very clear that Chile has not reduced their production costs by 45%. When you look at the air freight costs by themselves, they've gone from 60¢ a kilo to $1.20 a kilo. So when you have other costs doubling....

Mr. Glenn Cooke: The other thing is that they are dumping in the Canadian market as well. So it's not just the U.S. market; it is Canada as well.

The Chair: Yes. That's true.

Mr. Len Stewart: If I might—

The Chair: Go ahead, Len.

Mr. Len Stewart: Because the fish business crosses borders, essentially the price really ends up very similar in the Canadian marketplace. So since Chile is setting the prices in the U.S., they're also setting the prices in Canada.

The Chair: Mr. Matthews.

Mr. Bill Matthews: I have a quick question on exchange rates. How does the Chilean currency compare with the U.S.? We know how Canada's compares to the U.S.

Mr. Len Stewart: The peso has also been falling. You would argue then that this explains the situation, as this would make Chile more competitive. But a great many of the costs in Chile are fixed in U.S. dollars. You have the feed fixed in U.S. dollars. Generally the smolt is fixed in U.S. dollars. The processing contracts are in U.S. dollars. The international freight cost is in U.S. dollars. So it's really only labour and incidentals that are denominated in Chilean pesos.

The Chair: Mr. Cuzner.

Mr. Rodger Cuzner (Bras d'Or—Cape Breton, Lib.): The brief identifies an appendix from the action file by L.R. Enterprises of Maine, and I don't have that particular documentation. Could you just outline what the response has been since that has been filed, since July?

Mr. Len Stewart: Yes. The U.S. trade system is a very complex system. Once there's a trade order in place, then any one of three parties can ask for a review of the trade action—a U.S. original petitioner, any company involved in the domestic industry in the U.S., or any company that is currently paying the duty. The action was initiated before the anniversary date, which is July 31, 2000. The request is made to the Department of Commerce to initiate an action. Then they publish in the federal register—and they did this in August 2001—that they are going to proceed with an action. Then the Department of Commerce prepares these extremely detailed questionnaires, which are exhaustive, and they are sent to the Chilean industry, and they have to respond to them.

That process is currently under way now. It's a very long, arduous, and complex process, and the actual results of that—the preliminary determination of the updated duties—will probably not be released until April-May 2001.

One of the issues associated with this action is that some of the most significant dumping has occurred since the end of the period of review. This process looks at an annual basis, and that period would go from July 1, 2000 to June 30, 2001. At that time—I think at the end of June 2000—the price was about $2.24. It's gone down from $2.24 to $1.81 since then.

• 0955

The process is ongoing. The U.S. attorney representing L.R. Enterprises has filed many below-cost allegations. There are two parts to the process. There are all these different questionnaires, and depending on the level of dumping they will ask for further questionnaires. The part Ds are the sections on below-cost selling.

Mr. Rodger Cuzner: There are no interim actions that the U.S. government can take pending....

Mr. Len Stewart: No. There doesn't seem to be “a fast-track system” that would address this current situation.

The Chair: Is that it, Rodger?

Mr. Rodger Cuzner: Yes.

The Chair: Mr. Burton.

Mr. Andy Burton: Thank you Mr. Chair.

Perhaps you can help me out a bit here. With regard to the U.S. industry, I'm not familiar with how much of a fish farm industry, aquaculture industry, they have in the U.S. Could we hear about that and what their position is? If they're raising similar product, obviously they must have some concern.

Mr. Len Stewart: The U.S. industry is based in Maine and Washington state. In Maine the industry produces in the range of 20,000 tonnes and employs over 1,200 people in Washington County, which is a rural and coastal community much like Charlotte County in New Brunswick.

The investigators from the U.S. Department of Commerce came up to Eastport, Maine, interviewed workers and the town manager, and asked them for the impact of this action on their community. Basically the mayor of Eastport indicated that there were really only three industries in his area. They have a port, tourism, and salmon farming. If salmon farming goes, they will be significantly impacted by it.

I'm not as familiar with the Washington industry, but there's at least one very large company operating there. They would be suffering from extremely low prices as well right now.

The price of farmed salmon in the U.S. is to the point where it's difficult for the wild fishermen, both in Alaska and B.C., to sell their product at a profit. It's very clear that when the price of a farm-priced product has dropped to the level where you can't compete when you're going out and harvesting a wild resource, there's some very discriminatory pricing going on.

Mr. Andy Burton: Has the industry, though, made any approaches to government? Obviously there has been some initial investigation. But have they actually initiated an action of any sort?

Mr. Len Stewart: They have. L.R. Enterprises is a Maine company.

The Chair: Just on prices, Len, how does the price structure in Europe compare, where you have Norway, Scotland, etc., marketing into other markets? When you get off the North American and South American continents, do you have any comparison in terms of prices as...?

Mr. Len Stewart: I don't have that at ready access. I can't read from a list and give you the prices. I can tell you that there's a salmon world trade meeting that's held each year. It's called Aqua Nor. At that event, various officials from both the Norwegian government and the Norwegian department of fisheries were very critical of the increases in production in Chile, because what was happening was more frozen Chilean product was coming into European markets and depressing the prices in those markets.

I apologize, Wayne, I don't have ready access to a three-year price comparison in the European market.

The Chair: We could probably get that.

Just to go on to page 4 in your submission, you list halfway down the page—you're talking about the U.S. anti-dumping action—actions that both Canada and the U.S. can take. You say the worst offender in Chile is currently outside the anti-dumping investigation. Can you explain that further, expand on that?

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Mr. Len Stewart: In the original investigation one company got a zero rate. That company was part of a diversified fishing enterprise, and there's considerable speculation on how they were able to do this. When you have a multi-faceted company doing many different fisheries products, if you're an accountant, you can allocate costs on a basis that best suits your circumstances.

The Chair: Are you saying, Len, that accountants do some fancy accounting?

Some hon. members: Oh, oh!

Mr. Len Stewart: Well, accounting allocations are a matter of professional judgment. If you were an accountant and you wanted to avoid something such as this and it was legitimate, then costs could be allocated differently.

In the end this company, whose products comprise about 15% of the Chilean exports into the U.S., escaped the original duty orders, and because of that they are not subject to annual reviews. Their prices can be whatever they wish them to be.

This year, in the investigation in the U.S., there are six additional companies that are up for revocation of orders. This means that if they are found not to be subject to duty this year, they will no longer be investigated. This is why the U.S. industry and the U.S. government are vigorously pursuing this action in the U.S.

The Chair: So there's no question as to whether they're pursuing action. Do you have anything in terms of timeframe, and how long can our industries survive this kind of unfair competition? Those are two questions. First, what's the timeframe in the United States before some decisions could potentially be made? Second, as each day goes by—and I farm myself, so if I'm selling a beef animal and I'm losing $250 a head with every head I sell, I'm that much closer to being in serious financial difficulty. So how long will it be before our industry finds itself practically beyond the point of no return?

Mr. Len Stewart: First, I'll address the period of time it will take to actually have the final results in the U.S., and then, Glenn, perhaps you can talk about the industry.

The actions are long and time-consuming processes. The preliminary results of the investigation are scheduled to be released in April. Then, normally, the final results would come out in July, but there is the possibility that people will ask for extensions. The final determination could be as late as August 2002.

Glenn, do you want to speak to the industry?

Mr. Glenn Cooke: The farmers today in Atlantic Canada—we're been in this really bad pricing now, really seriously, for three months; the new, low pricing.

I would say our industry has—if we have to go until next October or November before there is any kind of repercussion against Chile, I don't think there will be an industry in Atlantic Canada. There's just no way our industry can survive $50 million in losses.

The Chair: Again, you're dealing with another country, but is there anything you guys know under trade law where there's compensation for damage done in these kinds of situations?

Mr. Glenn Cooke: The only thing I can compare it to is under some of the agriculture programs, when there is an overharvest in certain other countries, farmers are subsidized; there's some price stabilization that goes on in Canada as well in some of those programs.

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The Chair: In the agriculture sector we do have a safety net program, which many in the industry, including myself, will argue is not good enough. But at least there is some kind of safety net, and there's nothing like that in the fish farming industry.

You might want some time to think about this. Now, you've outlined your points in the submission, where you're basically asking us to pursue an action directly in the United States; I think you're asking us to be an intervener. Could you list for us what you expect or what you want the Government of Canada to do to try to bring this issue to a resolution?

Mr. Len Stewart: I'll respond to that, and Glenn, you can supplement it.

First of all, we have been assisted by, and we would like the continued assistance of, the international trade group to further pursue, if there is anything under WTO...and the fact that a company would have veto power.... You would then question why a group of such intelligent people would put something together with a veto in it, because then why would anyone ever bring an action under the WTO? It does not seem to make sense, so we would ask you to pursue that to its fullest.

The Chair: Just so we're clear, because I'm going back to the discussion we had last week in which you explained that...but I don't think you explained it to other committee members here. You're saying that any of the signatory countries in the WTO has the right of veto over whether an action is to be taken.

Mr. Len Stewart: That's my understanding, and that would be number one, to fully pursue whether there is an opportunity there. Number two would be to pursue a review of Chilean action in Canada and determine if there is any remedy available under the Canada-Chile Free Trade Agreement. Number three would be to undertake whatever diplomatic pressure could be put on Chile to act in a more commercially responsible manner. And number four would be to contact the International Trade Commission in the U.S. to express the concerns of the Canadian industry as well and give moral support to their action.

Mr. Glenn Cooke: I'll add two things. I believe that today the U.S. is in the process of negotiating a free trade agreement with Chile. We would ask the federal government in Canada here to talk to their U.S. counterparts about our concerns about the Chilean salmon coming into the U.S. market. Maybe it could be negotiated away in the free trade agreement.

The other thing is that if all fails, if there is no way to stop Chile from dumping into the U.S. market, and if there's nothing we can do to stop them in the Canadian market, then our industry in the end may need some kind of financial safety net. We are producing fish as cheaply as they are, and we're putting it in the marketplace. It's not our fault as an industry if they are dumping into our marketplace.

The Chair: There's one last question from me. When you compare the industry in Chile to the one in Canada, you look at the regulatory regime in terms of feeding, drugs, using antibiotics, etc., and you look at their environmental conditions.... I know in New Brunswick, Glenn, you get a freeze in terms of salmon expansion in B.C., which is up in the air right at the moment.... Of all the sites that were proposed in New Brunswick, a lot of them were rejected because of our very severe regulations and environmental conditions. How do we compare in that area?

Mr. Glenn Cooke: We have very strict environmental guidelines. We have the CEAA process here in Canada, which is still being refined when it comes to these site approvals.

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In Chile there is a lack of environmental standards and protocols. They're raising fish cheaper because they're raising smolts in lakes, which we're not allowed to do in Atlantic Canada. Their cage sites are very much larger. I'm not really up to date on their antibiotic use and drug residues, but we certainly have much stronger environmental regulations than they do, there's no question.

The Chair: Are there any other questions or points, anything you want to lay on the table, Glenn or Len?

Mr. Glenn Cooke: One point is that there is an urgent need. The industry is suffering every day, so it is very urgent. That's what I want to express, the urgency of this. It's something we can't wait on.

The Chair: I think we have that message. We will have to talk about this a bit as a committee next week. We probably should have a briefing from International Trade as well in terms of what actions they may be able to pursue. I know I have a number of questions I'd like to raise with them.

We'll make every attempt to deal with this early next week and at least draft a letter to the various ministers involved to express the urgency of the situation. I don't think anyone on the committee will disagree with you that it is a case of fairly intense urgency.

With that, thank you, Mr. Cooke and Mr. Stewart.

For committee members, we will move on to completing our work on small craft harbours and shrimp.

Mr. Glenn Cooke: Thank you very much.

The Chair: We'll now move to an in camera session.

(Proceedings continue in camera)