NRGO Committee Meeting

STANDING COMMITTEE ON NATURAL RESOURCES AND GOVERNMENT OPERATIONS

COMITÉ PERMANENT DES RESSOURCES NATURELLES ET DES OPÉRATIONS GOUVERNEMENTALES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, June 6, 2000

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[English]

The Vice-Chair (Mr. Julian Reed (Halton, Lib.)): I see a quorum, so we can call this meeting to order pursuant to Standing Order 108(2), a study of Canadian forest management practices as an international trade issue.

With us once again from the Department of Foreign Affairs and International Trade—this is a return visit, for which we are very grateful—is Richard Ballhorn, director general, international environmental affairs bureau, with Wallace Dowswell, director general, export and import control bureau, and Greg Graham, coordinator, international forestry partnership program, in the communications programs and outreach division. From the Department of Natural Resources, we have Dan Welsh, director of programs at the industry, economics, and programs branch.

Welcome, gentlemen.

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I know you don't have a statement to lead with, but there is a document in both official languages that has been circulated for the interest of the members.

I hope you all have a copy of it at this point.

This is a follow-up to the work we were doing in April. We'll go right into questions. We'll proceed in the usual manner, to the official opposition, then to the government side, and then over to the other opposition members.

Mr. Schmidt, would you like to lead off?

Mr. Werner Schmidt (Kelowna, Canadian Alliance): Thank you, Mr. Chairman.

Thank you very much, gentlemen, for appearing again. It's good to see all of you again. It's nice to see all that brainpower and all that readiness to answer all the questions we have.

There's a question that's gnawing away at me and really isn't covered by these statistics, though I'm very interested and want to ask some questions about them. Really, what I'd like to lead off with is this: where are we with regard to the softwood lumber agreement, and is there agreement among the various producers of forest products and the exporters of forest products on that particular issue?

The Vice-Chair (Mr. Julian Reed): Mr. Dowswell.

Mr. Wallace Dowswell (Director General, Export and Import Control Bureau, Department of Foreign Affairs and International Trade): Where are we in the softwood lumber agreement? As you'd learned previously, I think, we have been holding some consultations over the last several months with various stakeholders across the country, from the east coast to the west coast, and including the Yukon and Northwest Territories groups, so there have been many groups that we have met with.

I think the one essential consensus point among all those groups was that they did not wish to see the renewal of the current agreement. Apart from that, there were some differing views.

In effect, those consultations are continuing as we speak, in order to try to see where we are. That goes specifically to your main question, which dealt with the producers among the companies. The companies and their associations from the four provinces covered by the current softwood lumber agreement, British Columbia, Alberta, Ontario, and Quebec, as you may be aware, have been meeting periodically over the last several months in order to see if a common position could be arrived at.

They recently had a meeting in Toronto, a week or so ago, at which they indicated that they have reached a certain degree of consensus. They wish to see the federal government at least hear from the United States government as to how we might move forward on handling this issue in light of the forthcoming expiry of the current agreement. They will be elaborating on their views, I understand, in the next weeks or so. I have no further details, but they have been working very hard to see if they could reach a consensus among that group. We will hear from them more clearly in the weeks to come.

That of course does not refer to Atlantic Canada, which, as you know, is not under the federal softwood lumber agreement for the four provinces. There is a separate agreement under which the maritime provinces were not subject to quota restraints. This was accepted in the agreement between Canada and the United States: that they were not seen to have been undertaking alleged subsidies. I say “alleged” subsidies because that's what we view them as vis-à-vis the other allegations to the western provinces and to Quebec and Ontario as well.

In that agreement, they were not covered by quota. They continue to hold the view that they would wish to remain free from any restrictions and continue with the way they are at this time. That's where we stand at this moment.

Thank you.

Mr. Werner Schmidt: I'd like to follow up, if I may, Mr. Chairman.

I heard you say that they did not want to renew the softwood lumber agreement as it is now. Does that mean they would be supportive of a softwood lumber agreement that is amended or different from the one that exists now? Or are they moving into a full free trade relationship? I think that's pretty significant, whether they want an agreement. Some of the difficulties with the existing agreement are perhaps not so much philosophical as they are technical. Could you elaborate on that aspect of it?

• 1115

Mr. Wallace Dowswell: I don't want to try to speak always for the industry. They're adopting their view. I think at this point it would be fair to say they take the view that the current quota agreement is unworkable. They think the best long-term solution is towards free trade with the growing market for North American lumber. But I think at this point time, as I said earlier, people are not necessarily taking a hard and fast solution, to go this way or that way and forget everything else; people want to weigh their decisions and their options.

A first step in that is the industry saying to us that they would like to hear from the U.S. as to what they think would resolve the issue between us in a more amicable fashion, rather than entering into a countervailing duty trade dispute, and then they can weigh their options. I can't speak too much for them, but that's my sense of what they're asking at this point in time.

Mr. Werner Schmidt: Thank you.

Do I have more time, or is that it?

The Vice-Chair (Mr. Julian Reed): Sure. We're allowing ten minutes each.

Mr. Werner Schmidt: Okay.

My other question has to do with the proportion of exported wood products contained in the American market. Something like 96% of the lumber imported into the American market—in fact, it's more than that—comes from Canada. What percentage of the lumber they need there is actually imported and what percentage is from the United States itself?

Mr. Wallace Dowswell: I think we sent over to you earlier some statistical material attempting to answer the questions you raised, together with a quarterly statistical monitor that's produced by Natural Resources Canada. That type of information is in there, so I would refer you to that in particular.

But without referring to it—so don't hold me to the numbers without checking the actual statistics—of the U.S. market, Canadian exports account for somewhere in the range of 34% to 35% of their total consumption. Other offshore exports from other exporting countries are somewhere in the region of 1% and a bit, at this point in time. The remainder is provided by U.S. production.

Mr. Werner Schmidt: Thank you.

I apologize for taking the time of the committee, but I did not get this material in time to see that. Where does it appear here? I see all the exports identified here, but could you guide me to the page relating to the markets in the United States?

Mr. Wallace Dowswell: Look at the statistical monitor rather than the sheets we sent over. Do you have this document?

Mr. Werner Schmidt: Okay.

Mr. Wallace Dowswell: One of the charts will deal with the U.S. Table 1 is a Canadian-U.S. production table, and table 2 is about domestic exports.

Mr. Werner Schmidt: That's adequate. Thank you.

Mr. Wallace Dowswell: Okay, fine.

The Vice-Chair (Mr. Julian Reed): Mr. Bélair.

Mr. Réginald Bélair (Timmins—James Bay, Lib.): Thank you, Mr. Chairman.

On the same line of questioning, at last count a couple of months ago, there were some 100 congressmen and some senators involved in the movement in the United States to do away with the quota agreement that had been reached four years ago. Is that still the case today, or is it just because it's an election year?

Secondly, if that is the case, do you foresee some kind of a catch if there is no agreement? In other words, could they come back some time in the future and invoke the dispute settlement mechanism in the free trade agreement to say we are exporting lumber unfairly? Where are we?

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Mr. Wallace Dowswell: In terms of your first question, yes, there has been—I'm not sure of the technical name of it—a motion or a sense of Congress, a statement, that has been circulating and has gathered a number of signatures. I think it's over the 100 mark, as you say. That is being promoted by certain U.S. interest groups, such as the home builders' association. I think Affordable Homes of America is the group. They represent the consumers or users of lumber in the United States, and also the retail groups like a Home Depot type of group. They believe a quota agreement is not in their interests.

Mr. Réginald Bélair: They have become an important player in the negotiations that are occurring right now.

Mr. Wallace Dowswell: To correct one point, we're not in negotiations at this point, but—

Mr. Réginald Bélair: Preliminary—

Mr. Wallace Dowswell: —in terms of the United States, yes, they are making their views known to the administration and on the Hill to Congress. We think they have had some influence. So that is the case.

If the agreement expires, obviously it terminates and that's the end of that agreement. The quid pro quo, so to speak, within the existing softwood lumber agreement was that the United States would not accept to take any trade action against Canada during the life of that agreement.

Mr. Réginald Bélair: You are not expecting it?

Mr. Wallace Dowswell: If the agreement terminates, that obligation also terminates, and the U.S. industry, if it wished, could then file for a countervailing duty or some other trade action with their administration, as we've faced in the past. We would have a dispute settlement operate, if it's a countervailing duty, through that system, and eventually, if we were challenging it, in the NAFTA dispute settlement system or the WTO, depending on how we wished to proceed.

Mr. Réginald Bélair: But is it your feeling at this point in time that they will not invoke such procedures against our exports?

Mr. Wallace Dowswell: Clearly that's their decision to make. I would point to the fact that historically they have. They allege subsidies. In those circumstances, we have continually disputed that and used dispute settlement mechanisms.

So I would say, historically, they have tended to use their trade remedies as they wished to. I would not tend to think the opposite would be true.

Mr. Réginald Bélair: Yes.

At this point in time they have not mentioned any limits on our exports?

Mr. Wallace Dowswell: No, we have not had any—

Mr. Réginald Bélair: Not quotas, but limits?

Mr. Wallace Dowswell: No, we've not had any discussions or negotiations on that type of issue.

Mr. Réginald Bélair: You're not there.

Mr. Wallace Dowswell: No.

Mr. Réginald Bélair: When can we expect to start seeing something concrete? We're only a year away.

Mr. Wallace Dowswell: That's right. In one sense, it's a long time. In another sense, it's not, of course.

At this point in time, as I said earlier, the industry is beginning to come to a point of view in Canada that they would at least like to have some kind of informal hearing from the United States as to some way ahead of managing this issue. We're not there yet, so we haven't done that. I guess we would not know if there would be something concrete until we've had that type of discussion or if they were to make a proposal to us. Failing that, if no one does that, then obviously the agreement will expire at the end of March and you will have free trade applying until you have to deal with a countervailing duty case, if that arises.

Mr. Réginald Bélair: My last question is, have you made contact already with the group that has been set up by Frank Dottori?

Mr. Wallace Dowswell: The Free Trade Lumber Council?

Mr. Réginald Bélair: Yes.

Mr. Wallace Dowswell: Yes. During the course of our consultations, they were one of the groups with whom we met and had discussions.

Mr. Réginald Bélair: Is it privileged information at this point in time, or can you inform the committee of their initial vision? If you wish.

Mr. Wallace Dowswell: I think I'd rather leave it for them to speak for themselves, in a sense. I've tried to capture, in answering the first question, that the industry, from Ontario, to Quebec, Alberta, and British Columbia, in the meetings they've had recently, have included Frank Dottori and the Free Trade Lumber Council group. So they are trying to come to this common view. Their position is being stated and taken into account in this emerging consensus from the industry.

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The Vice-Chair (Mr. Julian Reed): Thank you very much, Mr. Bélair.

[Translation]

Mr. Cardin.

Mr. Serge Cardin (Sherbrooke, BQ): Good morning, gentlemen. You said earlier that the best solution, in the medium or the long term, would be free trade and that if we were not to come to an agreement by next March, it's free trade that would apply.

In a free trade environment, what kind of pressures would be exerted on trade? Would those pressures have a negative or positive effect on Canadian exports to the United States? And would it cause some pressures on environment in Canada, or on the way we manage our forests and our other resources?

[English]

Mr. Wallace Dowswell: I would say the absence of an agreement is because it's a trade agreement dealing with the export of lumber. The issues of the environmental practices and the amount of the cut that's allowed, etc., are matters of provincial jurisdiction. They have their regulations dealing with allowable cuts in place and the means and mechanisms for the companies to undertake those actions.

So the thought that if you had, say, free trade, for example, and therefore your volume would be astronomically increased and everybody would go out and cut down all the trees they could, I don't think is accurate, because there is a whole separate set of provincial regulations and laws dealing with the environmental effects of cutting, etc. That's what I'd answer to you on that.

[Translation]

Mr. Serge Cardin: So, you're saying that...

[English]

Mr. Richard D. Ballhorn (Director General, International Environmental Affairs Bureau, Department of Foreign Affairs and International Trade): I'd like to add a point.

The one thing we've noticed a bit on the environmental side is that some of the Canadian environmental groups have spoken in favour of retaining the softwood lumber agreement, or keeping tariff on wood products, in the important Canadian markets abroad on the basis that this will slow down the exploitation of the forests in Canada. It's something they've said; they really haven't acted on it too much yet.

The other thing that's happened is that there is a procedure under the NAFTA environmental side agreement where various citizens groups can make a complaint about a failure to effectively enforce your environmental laws. I think there is something in from one of the environmental groups, or group of environmental groups, regarding B.C.'s practices. I think it's been filed. I don't think anything has happened on it yet. But it's a process where they can get information that's requested from governments, and there's a process of basically doing a report on something.

So that might be linked as well. It's not clear that they're making strict linkages to softwood, but they have expressed these views that they're worried that the freer the trade in forest products the more exploitation of forest resources and this will be a bad thing.

[Translation]

Mr. Serge Cardin: Thank you.

[English]

The Vice-Chair (Mr. Julian Reed): Thank you very much.

[Translation]

Mr. St-Julien.

Mr. Guy St-Julien (Abitibi—Baie-James—Nunavik, Lib.): We got some material giving an overview of exports. I received it by mail, but since it had been initially faxed, the numbers are very small and hard to read. I would like it very much that you send to my office an original copy which would be easily legible, because the one I had is really not.

I have two questions, the first being about the allocation of quotas. We know that the Canada-United States agreement on lumber, which was concluded on April 2, 1996, will come to an end on April 2, 2001. Will it actually expire in 2001?

Mr. Wallace Dowswell: Yes.

Mr. Guy St-Julien: I would like to get some data on the allocation system for the year 1999, as well as some material about the Canadian wholesalers. We know that wholesalers normally don't hold quotas. What I find odd in all what concerns quotas is that our quota system allows Canadian companies which get quotas to take rational and long term decisions. As for wholesalers, some of them don't even have employees or plants currently and get quotas to the detriment of small enterprises, including in Abitibi-Temiscamingue, where we have some good examples of such unfair treatment.

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Since last January or February, there has been a surplus of quotas for one month or two. Do you reallocate them?

[English]

Mr. Wallace Dowswell: Of course not. If there are errors, we correct them, one way or the other, and we have done that in the last four years. There have been a few occasions, whether just by an entry error or some such thing. The company's quota was miscalculated, and when they've approached us we have reviewed it. If the case is justified, it's been corrected.

I know the question of wholesalers has been an issue under discussion since the beginning, and as you say, the decision was taken that wholesalers as such would not hold quota.

The agreed methodology at the time, at the initial allocation of the quota, of course includes that remanufacturers were eligible to receive quota. The criteria for that definition were laid out at the time. Under certain of those criteria, while some individuals in the industry term these individuals to be, say, a wholesaler rather than a remanufacturer, they did meet the agreed criteria. Some of those people have quota, that's correct, because they did meet the criteria set out at the time and as was discussed and agreed with the industry groups back in the initial allocation period.

Thank you.

[Translation]

Mr. Guy St-Julien: You are talking of criteria. Could we obtain a breakdown by province of the wholesalers who got quotas? We know that we cannot obtain the list of quota holders, but would it be possible to know the number of wholesalers who hold quotas in each province, how many quota shares were initially given to them and how many of those quotas were eventually eliminated? Were there any surpluses? There must surely exist a list somewhere.

[English]

Mr. Wallace Dowswell: As you know, we cannot release the quota allocations to individual companies. That was considered to be “company confidential information”, and those were the assurances that were given at the time. However, we have released from year one the list of all allocation quota holders. So we can provide you with that listing of all the companies that have received quota. We'll provide it to the clerk.

[Translation]

Mr. Guy St-Julien: Thank you.

I would like to ask another question on the same subject. How is it that small companies established in single industry towns like Barraute and Senneterre, which live on forests, mining or else and depend on railroad, have difficulties to get quotas?

In a town like Barraute, in my region, there are small companies, which we call re-man, which have difficulty in obtaining quotas so they can survive. We know that they export a large part of their products to the United States. I can give you the example of Précibois and Optibois, which really have difficulty in obtaining quotas from the federal government. What's the reason for that? Why don't they get some of the surplus quotas?

[English]

Mr. Wallace Dowswell: As you know, of course, all the quota has been fully allocated. There are not volumes of quota held back for distribution, generally speaking. However, particularly in the province of Quebec, as you know, there is provision in the softwood lumber agreement that if the price remains above a trigger price for each quarter, there is what's called “bonus quota” that we receive. We have received since last summer, up until recently, those bonus quotas. In discussions we had with the AMBSQ in Quebec, we reached an understanding that we would propose to the minister an allocation of that bonus quota in Quebec to companies that had very low quota-to-sales ratios, below 50%—in other words, companies who had less than 50% of quota to their total sales.

We worked with the AMBSQ on that in order to meet some of these concerns. The AMBSQ has remained very solid with the desire to provide that assistance to those companies, and therefore the companies above 50% have foregone this bonus quota and we have allocated it to these other companies since last summer. My understanding is that this was very well received in Quebec and has gone a long way to assisting these companies in improving their situation. Given that we're in the last year, these bonus quotas effectively will go through most of the year, if not to the end of the year, so that they are in a much better position.

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[Translation]

Mr. Guy St-Julien: What's the total value of the bonus quotas which were allocated in Quebec and how was that amount distributed among the various regions of that province?

[English]

Mr. Wallace Dowswell: We don't calculate it in that fashion. The quotas are allocated on a company-by-company basis, and so the total bonus is $92 million. So the companies in Quebec would receive their pro rata share. Then what we did do was take that pro rata share and distribute it solely to those companies that met the criteria of below 50% for sales-to-quota ratio. So there are no statistics. We don't allocate in that fashion, but they would have got their pro rata share, their fair share.

[Translation]

Mr. Guy St-Julien: How many companies have got bonus quotas?

[English]

Mr. Wallace Dowswell: I don't know.

[Translation]

Mr. Guy St-Julien: Could you give us an approximate number?

[English]

Mr. Wallace Dowswell: I don't know.

[Translation]

Mr. Guy St-Julien: Could you have that information forwarded to our chairman?

Mr. Wallace Dowswell: Yes.

Mr. Guy St-Julien: We should be able to get data concerning the total value of the bonus quotas which were allocated in each province, as well as the number of companies that got some of them.

[English]

Mr. Wallace Dowswell: The problem, as I explained to you, is that while in Quebec we did that specific arrangement in order to assist the companies with hardship, other provinces were distributed on a pro rata basis. For example, in Ontario, it's every company in Ontario. If they receive their share of the quota, there are no attempts to change it.

I can get you some information on the number of companies in Quebec, but I think for the rest of the provinces they were just distributed to their companies, so it's going to be everyone. You'll see that from the list of quota holders we'll also be providing you with.

[Translation]

Mr. Guy St-Julien: Thank you very much.

The Cree from James Bay invoke the James Bay and Northern Quebec Agreement and claim their right to sit at the table for the next negotiations. We heard Me Romeo Saganash and Grand Chief Ted Moses evidence on that. Do you intend to invite the Cree to participate in those meetings? We know that the government of Canada and the government of Quebec are both trustees of that Agreement. The Cree told us that they would like to take part in the discussions, or at least to meet you in order to try to get a place at the table when Canada and the United States will start negotiating in the coming months concerning the lumber trade.

Did you have any request from the Cree concerning their eventual participation at the negotiating table?

[English]

Mr. Wallace Dowswell: During the course of our consultations we met with somewhere between 35 and 40 groups, and we also put out a notice for consultations for all groups who were interested in providing us with comments or asking for a meeting. I do not believe the Cree at that point asked for a meeting. However, we did set up meetings with various first nations groups, including the first nations group handling the forestry issues here in Ottawa. We met with a broad spectrum of the groups there, as well as some out west who were not able to come to the meeting in Ottawa. I would not want to comment on the specifics of the Cree and the court case. That's not in my area, so I have no comments on that issue.

The Vice-Chair (Mr. Julian Reed): Monsieur St-Julien, could I ask you to go into the second round with your other questions?

Mr. Guy St-Julien: Yes.

The Vice-Chair (Mr. Julian Reed): Thank you very much.

[Translation]

Mr. Guy St-Julien: Thank you.

The Vice-Chair (Mr. Julian Reed): Mr. Godin.

Mr. Yvon Godin (Acadie—Bathurst, NDP): I want to thank our witnesses for being here and for appearing before our committee.

The term of the agreement which was concluded between British Columbia and the United States concerning quotas on lumber and which is going to expire next March was established at five years. We all recall that the negotiations had been very hard at that time.

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That agreement is in its fifth year of implementation and is going to expire pretty soon. Are we going to face such hard problems this time? Are we ready to accept a long term free trade agreement and to fight effectively for our rights? Have we started to prepare ourselves for those negotiations or are we going to wait for the situation to explode and then pick up the pieces? While the interests of companies are important, we must keep in mind that the actual victims of that whole war between Canada and the United States are the lumber industry workers. What options did we consider? Are we going to be prepared in advance so that we can present ourselves at the negotiating table with concrete proposals? How could the federal government play a leading role in those negotiations at the international level?

[English]

Mr. Wallace Dowswell: As I was mentioning earlier, I think, that is in fact what we're trying to arrive at—basically a consensus or at least as much of a consensus view as we can obtain as to the path we'll take with the termination or expiry of the current softwood lumber agreement. These are the consultations we've been having with the industry and provincial governments on this issue.

As you've mentioned, some views that have been mentioned to us, particularly by some of the industrial groups, are that they want to prepare for the termination of the agreement and not just be left with nothing or with some degree of uncertainty. That is the issue we're talking about: whether we should be having some discussions with the United States on what may or may not follow the softwood lumber agreement. That's what I mentioned earlier. The industry groups have been meeting and we're expecting, in the next few weeks, to hear from them more explicitly on their point of view.

But at the same time, if there is no decision taken to negotiate another agreement or to renew this agreement, this agreement will expire. It's at the end of its term. In those circumstances, you would be in a situation of what's called free trade, but obviously you would also be in the situation whereby you could potentially be engaged in a trade dispute settlement action in the United States if their industry decided to file a countervailing duty charge.

We have to look at it from that dimension as well and see what we can prepare ahead of time in order to ensure that if we do end up in that situation—and I'm not saying we would, but if we were to—we're as best prepared as we can be to defend our interest, which we would do as we usually do, with all vigour.

[Translation]

Mr. Yvon Godin: You talked about various agreements, including those with British Columbia, the Western provinces, Ontario, Quebec and the Atlantic provinces. Could you give us an outline of the agreement which was concluded with New Brunswick or with the Atlantic provinces?

[English]

Mr. Wallace Dowswell: No. I'm sorry, I must have.... There's some misunderstanding.

There are essentially two agreements. There is the main softwood lumber agreement, which covers Ontario, Quebec, Alberta, and British Columbia. It's a federal government agreement. It covers those four provinces and sets out the current quota arrangement for the volume, etc.

There was a separate agreement, an exchange-of-letters agreement, dealing with the Maritimes, the Atlantic provinces. In that arrangement, it was acknowledged that the Americans felt, as they termed it, that the forest policy measures adopted in the maritime provinces, in Atlantic Canada, were market oriented and were not providing a subsidy. As such, it was not attempted to have them brought under a quota agreement. They were excluded from that provision. They've been able to continue exporting freely in a normal, open, competitive market situation without any quota restraints.

So in fact there are two agreements. There are not individual agreements for each of the other provinces.

Mr. Yvon Godin: Yes. It's all part of the same agreement.

Mr. Wallace Dowswell: Yes.

Mr. Yvon Godin: Okay. Thank you.

The Vice-Chair (Mr. Julian Reed): Thank you very much, Mr. Godin.

Mr. St. Denis.

Mr. Brent St. Denis (Algoma—Manitoulin, Lib.): Thank you, Mr. Chair.

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Thank you, gentlemen, for being here. If someone has asked around this question before, please forgive me, but does the current agreement provide that on a certain date there shall be the question put as to whether they want to negotiate again, or is it up to Canada or the U.S. to say “let's talk about an agreement”? Absent somebody coming forward, does nothing happen?

Mr. Wallace Dowswell: Yes, that's correct.

Mr. Brent St. Denis: So the agreement does not provide for discussions.

Mr. Wallace Dowswell: No, not in that sense. There are provisions in there for consultation on issues arising under the agreement—

Mr. Brent St. Denis: Right.

Mr. Wallace Dowswell: —but not in the sense you're talking about.

Mr. Brent St. Denis: So absent one party saying “let's talk” and the other party saying “yes, we'll talk”, absent that, nothing happens.

For the record, how did it go last time? As I understand it, the industry consensus is reflected as the government's position. The government didn't tell the industry, “This is what your position should be.” The industry, by whatever fashion it was able to, came up with a consensus and then the government reflected that on behalf of the country to the Americans. In simple terms, is that what happened last time? Would that presumably be the case next time, that industry would indicate to the Government of Canada what it thought was reasonable?

Mr. Wallace Dowswell: Well, I think—

Mr. Brent St. Denis: Would it be A and then B and then...?

Mr. Wallace Dowswell: Exactly. It would be nice to be able to deal with it entirely in simple terms, but unfortunately it doesn't quite always work that way, in that I think you have, as is usual in these kinds of events, particularly one of this nature where you have fairly complicated relationships among federal-provincial jurisdictions, with forestry being a provincial jurisdiction, with federal power, of course, over international commerce and you have a very large industry of very great importance to the economy of this country and to numerous regions, particularly non-urban regions in the country.... You have three very distinct groups.

Last time, I think all three—the provinces, the industry, and the federal government—worked very closely together to try to fashion the best consensus we could to move forward. That proceeded during the course of the consultations, which then led into negotiations leading to this agreement.

In the final analysis, I think, in terms of this agreement, the federal government's view was that the proposal for a quantitative quota arrangement was heavily supported by industry. That was not necessarily the strong preference of the federal government as a policy, but taking into account all the considerations and the views of industry and other provinces, that is where we ended up.

So I would think that if we were to enter into any similar discussions or negotiations—I'm not saying we're there yet or would do that—I'm sure we would still, as we do normally, consult with the provinces, the industry, and the stakeholders who have an interest in this area to again try to fashion a strong pan-Canadian consensus.

Mr. Brent St. Denis: If you would allow me another short question, Mr. Chair...?

The Vice-Chair (Mr. Julian Reed): Yes.

Mr. Brent St. Denis: Thank you.

Mr. Dowswell, in your opening remarks you mentioned the consultations you and your team have had with the industry. You thought, if I remember correctly, that in the weeks ahead there would be an official request from the industry that Canada ask the U.S. what their view is. Was it something like that?

Mr. Wallace Dowswell: Yes.

Mr. Brent St. Denis: Have they or will they put that as a letter to the trade minister or...? How does the industry ask that question? Do they just do it through a meeting?

Mr. Wallace Dowswell: That's up to them.

Mr. Brent St. Denis: Will there be a piece of paper at some point that sort of officially kicks off—shall we say—the discussions? It has all been sort of quiet and consultative, and that's fair, but at some point does it start to get put on paper? Basically when does the rubber hit the road?

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Mr. Wallace Dowswell: I can't say whether they're going to put something on paper or not. That's up to them. As I said, they have been meeting. They have written the minister recently to update him on their points of view. Whether they will provide another letter or meet with the minister to let him know their views, I don't know. That's another possibility, as you say.

The question is, of course, that this is advice from the industry, which the minister then will consider. He'll also receive advice from other stakeholders and then take a decision on what the next step will be. I would foresee probably the end of June. I think they were going to meet again in early July, so I assume we will hear from them again after that meeting.

Mr. Brent St. Denis: Is that letter to the minister in the public domain? Was it reported? I didn't see any reports on it in the paper. Is it just a confidential correspondence between the industry and the minister? If it were in the public domain, I wonder if we could get it. If it's confidential, well, I'm not going to go there with it.

Mr. Wallace Dowswell: Yes. Essentially it's their letter. I don't think I'm free to handle their letter.

Mr. Brent St. Denis: That's all I was asking. So they haven't issued a press release.

Mr. Wallace Dowswell: Not that I'm aware of.

Mr. Brent St. Denis: Often that happens. You know, here's the letter and here's what we're saying to the minister. They haven't made that public.

Mr. Wallace Dowswell: Not that I'm aware of.

Mr. Brent St. Denis: Okay.

Thank you, Mr. Chairman.

The Vice-Chair (Mr. Julian Reed): Thank you.

Mr. Keddy.

Mr. Gerald Keddy (South Shore, PC): Thank you, Mr. Chairman.

I have a comment to Brent. The parliamentary secretary to the Minister of Natural Resources might have better access to that letter than some of the rest of us. You might be able to get a look at it.

Mr. Brent St. Denis: Yes, and a buck gets you a cup of coffee.

Voices: Oh, oh!

Mr. Gerald Keddy: There are a couple of things that kind of leap out at me in this conversation, gentlemen. The first thing is that the softwood lumber agreement expires at the end of March 2001, and we're sitting here talking about possible negotiations. Obviously industry has embarked upon negotiations already, and I would think they're expecting a countervail from the U.S. when this agreement expires. I don't see any plan. All I'm hearing is that we're here, and I think we're delinquent not to have a plan.

What's changed? I'd like to know what's changed since the last agreement. The demand from the U.S. sawmill companies is still there for round logs. They still haven't been able to get the number of round logs out of western Canada that they want. The sawmill associations are a powerful lobby in the U.S. lumber industry. They're still a powerful lobby. That hasn't changed. They still see every piece of wood that crosses the border as a threat to their industry. They have their own problems in the U.S., with endangered species laws and a number of regulations that make it difficult for them to access all the timber they have.

I think we're in a serious quandary here. We're a year away from the expiration of this agreement. To think that free trade would just come in and take over.... It didn't take over before. The lobby is still there. The demand for round logs is still there.

From the people I've talked to in the U.S., they're looking at New Brunswick, Nova Scotia, and Newfoundland. Well, not as much Newfoundland, but certainly Nova Scotia and New Brunswick, which have dramatically increased their exports to the U.S. Actually, they've more than doubled their exports to the U.S. The U.S. is saying they want those provinces under the agreement too, because they're slipping in there on the side.

Stumpage rates haven't changed exponentially in western Canada. They've gone up some, but they haven't gone up enough to satisfy U.S. interests, I don't think.

So where are we? Tell me where I'm wrong.

Mr. Wallace Dowswell: You've summed it up. Yes, the U.S. industry has that point of view, but I would make the comment that in point of fact they need our wood as well. They cannot do without Canadian exports. If you're supplying somewhere in the region of 34% to 35% of the market, you can imagine what would happen if you suddenly cut that off.

Mr. Gerald Keddy: Exactement, but—

Mr. Wallace Dowswell: So there is a two-way street on that.

The other element is that I don't think I or anyone I'm aware of, at least from the government side, has said the agreement expires and you have free trade with no problem. We have said that if the agreement expires and it's not replaced by something, the normal NAFTA trade rules would apply, which is free trade in that sense. But I'm sure we could expect that the U.S. industry, for exactly the reasons you're mentioning, would take advantage of their trade remedy laws to probably file a countervailing duty case, as they've done several times in the past. So you would be in that fight, so to speak.

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In the sense of where you are, you're trying to look ahead to see if that is an avenue. We don't know if that's what will happen, but you need to start preparing on that front to look at how you could manage a trade dispute case and defend your position on that.

The other element is that some in the industry are saying, “Rather than just going immediately down that road, we would like to hear from you, having some informal discussions with the U.S. administration as to what they think would make for more of a settlement here.” So there is activity on that track as well. That is, in a sense, underway at the moment. What I'm saying is that I don't know at this stage where you're going to end up at the end of next March.

Mr. Gerald Keddy: I guess my point is this. In listening to what you're saying, I just don't see, a year away from the end of a major trade agreement between Canada and the U.S., that we have a coherent plan, that we've entered into negotiations. We're telling industry to go ahead and get into these discussions, and they are.

I would disagree. They need our wood, absolutely, but they want round logs and they've always wanted round logs to feed their own mills. We're shipping green lumber, and there's a dramatic difference.

Quite frankly, the softwood lumber agreement has been a boon to eastern Canada. It's been a big help because we've lost European markets and we've substituted American markets for those. We can ship green wood into the U.S.

It's very problematic if all of a sudden eastern Canada comes under this agreement or the agreement expires without a plan. I've seen nothing from my point of view that changes the American position on round logs and the lobby effort in the mid-southern states and the southern states such as Mississippi and Louisiana. There are big lumber producers who feed the same markets in the northeastern United States and the mid-central United States that we do.

I think we're in a position where we should be actively pursuing these discussions and have some idea of where we're headed. My gut feeling is that we're back to square one. If we are, then we need to have some type of a plan that we can put into place before discussing countervail and trucks stopped at the border and complete chaos in the industry, which is unacceptable.

The Vice-Chair (Mr. Julian Reed): Thank you, Mr. Keddy, for your statement.

Mr. Gerald Keddy: Thank you, Mr. Chairman.

A voice: Good speech.

The Vice-Chair (Mr. Julian Reed): Mr. Comuzzi.

Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.): Thank you, Mr. Chairman.

I think the committee knows this, but let me just reiterate that at the outset of the free trade agreement, it was rather traumatic to find out that we were going into a quota system.

I want to compliment all of the gentlemen at the head of the table, those who were here. It's a very complicated issue throughout Canada in order to allocate the quotas. Obviously they did a remarkable job because nobody was happy with respect to the quotas they got, but they've managed to live with it, and they found out how to drill holes in studs to see if it would circumvent the.... But they really did, and I thank all of the gentlemen for really doing an excellent job, representing Canada well with respect to the trade agreement.

Let me just make a couple of observations with respect to countervail, because that's where we're headed if we don't get an agreement. I think that's pretty well it. There are horror stories that involve countervail. The money is taken at the border, whatever percentage, however they assess it, and eventually that finds its way back to the provincial treasury. Correct me if I'm wrong.

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Mr. Wallace Dowswell: If you have a normal countervailing duty case, it's under U.S. trade law. And assuming it's put in place and there's no challenge that revokes it, it's essentially like an import duty—x percent that goes to the U.S. treasury.

Mr. Joe Comuzzi: It goes to the U.S. treasury?

Mr. Wallace Dowswell: That's right.

Mr. Joe Comuzzi: So we lose it entirely in Canada?

Mr. Wallace Dowswell: That's correct, unless we win a case, obviously, and reverse it and get it back.

Mr. Joe Comuzzi: Okay. In the interim, it stays in a trust fund until the countervail action is decided?

Mr. Wallace Dowswell: Yes.

Mr. Joe Comuzzi: So it doesn't find its way into the U.S. treasury, nor does it find its way into a Canadian treasury, either in the province or...? So it stays in a trust until such time as the countervail is decided? Am I correct there?

Mr. Wallace Dowswell: More or less, yes.

Mr. Joe Comuzzi: Under the Carney deal, that money found its way back to—

Mr. Wallace Dowswell: At that point a countervailing duty investigation was underway, and then a negotiated arrangement was reached through a so-called memorandum of understanding, whereby we agreed in Canada to put on an export tax so that the United States didn't pursue its countervailing duty case to the end.

Mr. Joe Comuzzi: Right, 15%.

Mr. Wallace Dowswell: We put on the 15% export tax basically to do the job of a countervailing duty. Under that arrangement, the federal government agreed with the provincial governments to transfer the funds to the provinces.

Mr. Joe Comuzzi: Right.

Now I'll talk about before the softwood lumber agreement. Many of the sawmills in Canada are independently owned, or some of them are. The horror story is that they had to pay the countervail into the trust or whatever it was, and these cases don't get heard or decided for a period of over two or three years, or possibly four years. That depletes all of the working capital these companies have available for improving their productivity and improving their machinery, and perhaps sometimes a countervail even eats into their profitability.

I recall the last countervail. A particular company that is of great interest to me, because they are the single largest private employer in northwestern Ontario, were at a meeting where the bankers were calling in their...I mean, the keys were on the table. They were that close to closing down the complete operation because of the countervail.

I just don't think we can go down that road again. I have no idea what the solution is, but that's a horror story of what we face if and when the lumber agreement should expire, and then six months later the countervail actions begin. That's really the threat to the Canadian industry that we have to face. I'm sure you folks are aware of that as much as we are, and the importance of trying to come up with some settled, negotiated agreement.

We had occasion last week to meet with the 10 senators and the 104 congressmen—some of them anyway—and I asked them a particular question: If they endorsed a non-negotiated expiry of the present agreement, would they also endorse at the same time impressing upon their trade group not to start a countervail action and allow for free trade? I think they go hand in hand.

That's an area Mr. Keddy was saying we should be approaching, and I would be interested in your comments on that. Although they're in an election year and they're responding to all the lobbyists, if they want a free trade agreement, let's have a free trade agreement. We're all willing to live with that. But let's do whatever we can to stop the countervail that we've already won three times in the past.

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My concern through the whole process has always been that British Columbia has always tried to negotiate its own deal, because of their size. The amount of 60% to 70% leaves the other provinces at a certain disadvantage. Eventually the deal is negotiated, but even through the agreement process, British Columbia negotiated something else besides their agreement. We have it in our briefing notes, but I don't recall all the details of it.

It seems British Columbia is leading the charge. They try to do an end run around our negotiating process and eventually weaken our position in dealing with the United States, because we have one province dealing with the United States, and eventually we all come to the table. It seems that weakens us. We don't go to the negotiating process speaking for all of Canada. Somebody's been there already, who is a big player, talking on behalf of Canada. I'd like your comments on that.

Mr. Wallace Dowswell: Without specifically commenting on the particulars of one province, I would say the federal government's effort—and this is why we're undertaking these consultations broadly with the stakeholders across the country—is to secure as strong a pan-Canadian consensus as we can. Otherwise, as you say, you tend to be undermined or get picked off if you are in a negotiating process. It's a process that takes time, because divergent points of view and interests are involved, and we have to work at it.

So I don't want to take advantage of his absence, but it's not as though there is no plan. Consultations are underway. The minister has met with several of the groups. We in the bureaucracy have met with many of the groups. And as I said, there are some of these tracks on a CV, tracks where you can repair, look at other options, and try to see where you're going.

The effort that is underway is to position ourselves as strongly as we can in advance of the expiry of the agreement and to have a consensus that includes not only industry but the provincial governments, who also have jurisdiction over this resource, on how we wish to move ahead. Without going into the past, that is what we are attempting to do.

Mr. Joe Comuzzi: It seems to me it makes eminent sense that we negotiate from strength.

Mr. Wallace Dowswell: That's right.

The Vice-Chair (Mr. Julian Reed): Thank you very much, Mr. Comuzzi. I would ask, if you have some more questions, if you could do it in the second round.

Mr. Joe Comuzzi: Sure.

The Vice-Chair (Mr. Julian Reed): Thanks.

Monsieur Bélair. This is the second round, so we'll conduct ourselves accordingly.

Mr. Réginald Bélair: Well, Joe has just asked my question actually, but I want to reiterate that it is most important that we do have a united front, because as you'll recall—and there's no point in hiding it—the last time around, four years ago, B.C. had already negotiated its own deal, and it really undermined the process and didn't serve the country, Canada-wide, at all. If you were not from B.C., you got a raw deal. Let's face it. That was the case.

So is there anything in your powers this time around that you could invoke to prevent this, so that we do have a common front? You are the chief negotiator.

Mr. Wallace Dowswell: No.

Mr. Réginald Bélair: We have to know. I'm asking.

Mr. Wallace Dowswell: I'll be quick to clarify the record on that. No, I am not the chief negotiator. At the moment, the minister has asked Doug Waddell, who is our deputy head of mission in Washington, at the embassy there, who has been leading the consultations exercise. He has that enjoyable title, not I.

On the question of what you do, of course that's what we are doing. The federal government is leading these consultations and bringing everybody together and trying to arrive at consensus. We will continue to do that.

Mr. Réginald Bélair: Thank you, Mr. Chairman.

The Vice-Chair (Mr. Julian Reed): Thank you very much, Mr. Bélair.

We're in the second round. Monsieur Cardin, or anyone else...?

How about you, Mr. Comuzzi?

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Mr. Joe Comuzzi: I have just a couple of points, Mr. Chairman.

You know, it's really strange; when you take a tree, the softwood lumber that comes out of the tree is 25% of the tree. Everything else goes back to fibre and so on and so forth. Here we have a tree...and we're not arguing about who pays the stumpage or whether it's free stumpage or whether it's privately owned. We're only negotiating an agreement on 25% of the product of that tree. We send pulp, paper, craft, and every other product that we make across the border without any negotiated deal.

Why have we centred, and why have they centred, on just the 25% of the tree?

I see you're all smiling.

Mr. Wallace Dowswell: I don't want to go there.

Voices: Oh, oh!

Mr. Wallace Dowswell: But that's not on the record.

Mr. Joe Comuzzi: Well, let's just end up by talking about sawlogs.

Mr. Wallace Dowswell: Actually, I think the people from Natural Resources could talk to you. I'm not too sure 25% is the right figure.

Mr. Joe Comuzzi: It's pretty close.

Mr. Wallace Dowswell: I don't know. I mean, they could explain to you what the numbers are.

Mr. Joe Comuzzi: You don't have to.... It's just a question we talked about.

This question of sawlogs is important. I entertained some people from Ghana last week. They've exploited their forests considerably. It just so happens that we have sent a group of Canadian environmentalists over to Ghana. They report that about 10% of the sawlogs they have over there, especially in maple, come from Canada. I mean, we export sawlogs.

That comes to the really critical issue of the importance of value adding to this natural resource. If there's been one area in the softwood lumber agreement that has provided stability, it has been providing the companies with the ability to invest in value-added products. You don't get the value-added products, and I know that's a big concern in British Columbia, getting those sawlogs in their raw form, which we should never allow.

We've been able to get into the market of value added by the drill studs and the other stuff we do. We do the pretest lumber for the mobile home markets. We're even selling four-foot lumber now for special products in the United States, which falls outside the quota.

I think we've been able to get into that market because of the stability we've experienced in the market over the last four or five years, and the profitability of it. What are we doing to prevent the export of sawlogs from Canada to any country, particularly the United States?

Mr. Wallace Dowswell: The export of logs from Canada falls under the Export and Import Permits Act. Aside from in British Columbia, they are freely available to be exported.

The actual statistics show that we are a large net importer of logs, not the other way around. It's extremely important in some of the maritime provinces, where there are significant imports of logs from Maine, etc., and for the border mills in the Quebec area, for example.

So on a net basis, we're a net large importer, and it's therefore of significant economic benefit for those companies.

Mr. Joe Comuzzi: But we shouldn't be exporting our logs. I don't care if we import logs; that's part of the bartering process. There are logs that we cut, but for us to export, you know....

Mr. Wallace Dowswell: I'm not an expert on this, but from what I've been informed, the economics behind it is actually the real issue you want to look at rather than a passionate sense of saying “Well, I'm not going to let that log out.” The economics on this are quite significant in that you cannot take logs on road haulage for very large distances and still have an economic return.

So if you were looking into that, I think you'd want to look at that aspect—for you to have your own normal market regulator on the volumes that would be moving back and forth.

• 1215

Mr. Joe Comuzzi: I'll get back to that with you another day.

Thank you, Mr. Chairman.

The Vice-Chair (Mr. Julian Reed): Thank you very much, Mr. Comuzzi.

Mr. St. Denis, you had a very brief question.

Mr. Brent St. Denis: Well, I'll try to make it very brief.

I'd like to bring the committee back to the title of our study, “Canadian Forest Management Practices as an International Trade Issue”, in terms of the premise or the umbrella under which you're asking questions about the softwood lumber agreement. I had a disagreement with some other members of the committee on whether it was relevant or not relevant to our study.

The argument was made earlier that indeed the softwood lumber agreement—and this was the argument made by other people—does have an impact on international trade, beyond North America, in softwood lumber. Now, to me it was a tenuous connection, because maybe lumber is displaced from region A to region B because of, shall we say, the somewhat artificial nature of any agreement.

Is there an impact on Canada's trade outside of North America—for example, to Europe—because of the softwood lumber agreement? Is there a dislocation of lumber that...? We know if lumber goes to New Brunswick to replace the New Brunswick lumber going to the U.S., that's domestic, but is there an impact beyond that? Is there a way to tie the softwood lumber agreement to our study of the pressure on us internationally because of so-called forest management practices?

Mr. Wallace Dowswell: Oh, in that dimension, no, I don't think so, although Dick perhaps would follow up on that.

In terms of the softwood lumber agreement dealing with Canada-U.S. trade, there are no restrictions or restraints on industry exporting to anywhere else in the world.

Mr. Brent St. Denis: But beyond the rules of the agreement, have there been tangential or indirect impacts on international trade? No, I would take it.

Mr. Wallace Dowswell: I think on the trade aspect directly, nothing to do with environmental considerations, I don't see any relationship on that particularly, but I think the market prices that prevail are usually a driver on where the industry will export. I think you'll probably statistically see....

Exports, for example, of maritime lumber, as we know, have increased in the last five or six years to the United States. There is less going to Europe. I think that is due to a variety of factors, not just the softwood lumber agreement itself. You may even look at some of the statistics to see early on when that shift was taking place.

If I recall correctly, for example, there was a large hurricane, I think in the Carolinas or something, around that early period, which led to quite a significant increase in demand from the United States. Of course, the Maritimes is well positioned to service that market.

So it's very hard to isolate that, and to say the softwood lumber agreement did this or that. I think various factors are involved. As you know, other factors we have with Europe are affecting some of the exports from Canada to that market, which we've been dealing with.

So a variety of influences are at play there.

Mr. Brent St. Denis: Thank you.

The Vice-Chair (Mr. Julian Reed): Thank you, Mr. St. Denis.

I thank the witnesses who have come here today for enlightening us on an issue that reaches every riding in this country. Whether the members realize it or not, even the suburban and urban ridings are very much affected by what is taking place. We do have a continuing concern on what is one of the major economic issues we have to deal with.

So I thank you, and I appreciate the fact that you were able to come and give us your words of wisdom.

This meeting is adjourned to the call of the chair.