Thank you very much, Mr. Chair, and honourable members. Thank you for the opportunity to participate in this discussion today and to provide you with an update on the softwood lumber file.
I am joined by Michael Owen, senior counsel and executive director in the trade law bureau; Colin Barker, director of the softwood lumber division at Global Affairs Canada; and Ronnie Hayes, senior business adviser at the trade sectors bureau at Global Affairs Canada.
Canada's forest sector supports over 211,000 jobs in 300 communities across the country. It contributed $25.8 billion to Canada's GDP in 2018. We are keenly aware that the forest sector has faced significant economic headwinds. This has serious impacts on the workers and communities that rely on it. The forest sector is currently facing challenging market conditions, including a reduction in the supply of harvestable timber, mostly in British Columbia, and increased competition in overseas markets.
Another challenge, of course, is the duties imposed by the United States on Canadian softwood lumber. Given Canada's geographic proximity and close commercial links with the United States, it is no surprise that the United States is our number one export market for softwood lumber. Today, the U.S. market accounts for nearly 80% of Canada's softwood lumber exports. For many decades, the United States has relied on Canadian softwood lumber to fill the gap between its domestic production capacity and its demand for lumber.
Despite this mutually beneficial relationship, the Canada-U.S. softwood lumber dispute has become one of the most enduring trade disputes between our two countries. Over the past few decades, the United States lumber industry has frequently petitioned the U.S. government to enact protectionist measures against Canadian softwood lumber imports, including through the application of import duties.
The basis for much of the American action against Canadian softwood lumber lies in the differences between how forests in Canada and the United States are managed. The United States has consistently alleged that public management versus private ownership results in unfair subsidies for Canadian lumber manufacturers. Time and time again, these arguments have been found to be without basis. Canada has brought challenges against the previous duty determinations under NAFTA chapter 19, and before the World Trade Organization dispute settlement system. The U.S. has repeatedly lost in those dispute processes, because Canada does not subsidize softwood lumber production.
Most recently, following the expiry of the 2006 softwood lumber agreement in 2015, and a subsequent one year standstill period, the United States began a new investigation into Canadian softwood lumber practices at the request of the U.S. domestic lumber industry. In January 2018, following anti-dumping and countervailing duty investigations by the U.S. Department of Commerce, the United States once again began imposing duties on softwood lumber imports from Canada.
These countervailing and anti-dumping duties are entirely unjustified. We firmly believe that these determinations are inconsistent with U.S. law and with the international trade obligations of the United States under the WTO. The Government of Canada is currently challenging the latest U.S. softwood lumber duties through five legal processes, three under NAFTA chapter 19, and two before the WTO dispute settlement system.
Under chapter 19, Canada is challenging the U.S. Department of Commerce's final countervailing and anti-dumping duty determinations, as well as the U.S. International Trade Commission's decision on material injury to U.S. industry. Panels established under chapter 19 review whether these determinations are consistent with U.S. law.
Let me add here that the Canada-United States-Mexico Agreement, or the new NAFTA, preserves the bi-national panel dispute resolution process for trade remedies that was in chapter 19 of the original NAFTA. This process protects Canadian companies and workers from the unfair application of U.S. or Mexican anti-dumping and countervailing duties with a transparent and independent dispute settlement system. This will continue to ensure that these measures are applied in accordance with each parties domestic laws. It is strategically important for preserving market access outcomes and defending Canada's interests.
Canada's success in maintaining the dispute settlement mechanism means that once the new NAFTA is in force, Canada's current chapter 19 challenges under U.S. law can continue in parallel with any new challenges under the new NAFTA's chapter 10 to unwarranted or unfair duties imposed in U.S. annual administrative reviews.
Amongst the NAFTA and the WTO cases, the most advanced is the injury challenge. On September 4, 2019, the NAFTA panel ruling on Canada's injury challenge issued its decision. It found that several key issues that are central to the U.S. International Trade Commission's determination of material injury were not based on substantial evidence, and were therefore inconsistent with U.S. law. It remanded the determination back to the commission.
This decision, while it did not immediately put an end to the U.S. duties, was an important step in the right direction. While the commission chose not to substantively alter its determination in this first instance, we will continue to pursue our claim and seek that the panel once again find this first redetermination to be inconsistent with U.S. law.
Our goal through this process is for the commission to reverse its initial determination and find that there was in fact no injury to U.S. industry, or be directed to do so by the NAFTA panel. This process may yet take some time and we will pursue it over the course of the coming year. If a finding of no injury is made, the basis for the imposition of duties disappears and the duties would be lifted.
Canada is pursuing two other NAFTA challenges against the United States Department of Commerce's final countervailing and anti-dumping duty determinations. We are still in the process of panel formation for those cases.
We are also pursuing challenges of two duty determinations through the WTO dispute settlement system. Panel hearings for these two WTO challenges have already taken place. The more complicated and perhaps more impactful of the two challenges is our challenge of the countervailing duty determination. The WTO panel has held two hearings on this challenge over the past year where Canada presented several days of arguments to the panel and numerous written submissions. We expect a panel decision to be issued sometime in the summer.
Under normal circumstances, WTO panel decisions can be appealed, as Canada has done in the case of our anti-dumping duty determination challenge. However, the current impasse at the WTO over the appointment of new appellate body members will delay any final resolution of these two challenges, which is why it is important that we continue to pursue the challenges under NAFTA's chapter 19.
While these legal processes unfold we are working closely with the provinces and industry. A legal counsel group exists that allows the Government of Canada counsel to work directly with counsel representing the provinces, industry associations and individual companies. This is truly a Team Canada approach that ensures that our legal arguments are as effective as possible.
Beyond the legal processes, important interactions continue with U.S. decision-makers to try to advance discussions toward a solution to the current dispute. The , and continue to be actively engaged on this file. Every opportunity is taken to raise the issue with U.S. counterparts, members of Congress and state-level officials.
The maintains a regular dialogue on softwood lumber with Secretary Ross at the Department of Commerce, and United States Trade Representative Lighthizer. Most recently, she and several premiers met with USTR Lighthizer in Washington where discussion on the softwood lumber file took place.
The also maintains a direct dialogue with Canadian industry stakeholders, union leaders and premiers to understand the various perspectives on this dispute across the country. Provincial governments and stakeholders have generally expressed strong support for the continued pursuit of litigation under NAFTA and at the WTO, recognizing that future legal decisions will strengthen Canada's position in the negotiation of a new softwood lumber agreement.
The Government of Canada therefore continues to pursue a vigorous set of legal challenges while also continuously looking for opportunities to engage with the U.S. government in discussions toward a new softwood lumber agreement. Canada continues to believe that a negotiated agreement with the United States is in both countries' best interests.
Unfortunately, the U.S. industry has blocked the U.S. administration from engaging meaningfully in negotiations, preferring the continued imposition of duties and the higher lumber prices caused by these tariffs to the detriment of U.S. consumers. In the meantime, we understand the harmful impact that U.S. duties have on workers and communities that rely on this important segment of Canada's forest sector.
In June 2017, the government announced the $867-million softwood lumber action plan over three years to support the needs of affected workers, communities and industry. An additional $251 million was allocated through budget 2019 to Natural Resources Canada's forest-sector innovation and diversification programs.
Global Affairs Canada sees continued trade diversification as critical to the future health of Canada's forest industries. This will help to sustain and grow Canadian forest sector jobs and support the communities that depend on these industries.
Global Affairs Canada supports forest product innovators in finding technology partners, foreign investors and new market opportunities for their next generation forest products, including bioproducts. Global Affairs Canada works closely with provinces and territories in promoting and advocating for Canada's environmental reputation in markets around the world.
Canada's bilateral and multilateral economic and trade agreements, either concluded or under negotiation, aim at increasing the international competitiveness of our natural resource industries, including the forest sector. For instance, the comprehensive economic and trade agreement with the European Union and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership have opened up new export opportunities for the Canadian forest sector in Europe and Asia.
The government's trade diversification strategy features an investment of $290 million over five years to help Canadian businesses export and grow by strengthening the trade commissioner service and enhancing the support it provides to Canadian exporters, including those in the forest sector.
In conclusion, we recognize that the United States will continue to be the most important market for Canadian lumber exporters. Analysis suggests that the gap between U.S. demand and U.S. supply of softwood lumber will actually increase over the next decade, so the United States will need more imports.
Naturally, because of geographic proximity and close commercial links, Canada is best placed to supply this demand. As a result, we are confident that a settlement that brings stability and predictability to the softwood lumber industry is the best option for both countries.
Throughout this entire process, we have worked closely with the provinces, territories and industry stakeholders to ensure a united Canadian approach to this dispute. We will continue to work closely as we move forward.
Thank you, again, for this invitation to appear today. My colleagues and I look forward to your questions.
Thank you, gentlemen, for your presentation.
Something struck me in your response to the question as to why softwood lumber was not part of the negotiations in the Canada–U.S.-Mexico Agreement, or CUSMA. I don't know if it came from the interpreters, you'll tell me. You seemed to be saying that we needed to focus on other priorities, and this is not the first time I've heard that. Wasn't there a turn of phrase that sounded like that?
The phrase “focusing on other priorities” is quite telling to me. I get the impression that the various softwood lumber crises we are experiencing are partly due to the fact that Canada has an economy that is fairly integrated with the United States in the auto sector and that it does not want to weaken that sector. This leaves me with the impression that softwood lumber is often the currency of trade.
I don't remember exactly, but I do know that we have been successful in many cases that we have taken to the World Trade Organization, or WTO. I know that in one of the settlements in those disputes, some of the money that was supposed to be paid to us by the United States was never paid out. I believe it is close to $1 billion.
I attended a presentation on this subject by representatives of a company in my region, Resolute Forest Products. This company, which is involved in forestry and the export of lumber, sees this as a form of ransom. It is still paying the surtax, between 15% and 20%, which has been in place since 2017.
Here's what worries me. If we get a settlement for the five ongoing cases you're talking about, we'll still be tempted, in order to maintain good relations with our American neighbours, to accept this ransom system where, ultimately, we don't receive our fair share of the compensation that would be offered to us as a result of a court decision.
I'd like to hear your thoughts on that.
I'd also like to thank all the committee members.
The forest sector is a key economic driver in Quebec's regions. In 2018, the forest sector generated $6.6 billion in output, accounting for 1.8% of Quebec's GDP, and it employed 58,000 workers, accounting for almost 1.4% of all employment. More than 160 communities in Quebec rely on this industry.
In past years, the forest sector has been hit hard. The commercial softwood lumber disputes, the collapse of the American housing market and the significant worldwide drop on demand in newsprint have had negative impacts.
At every step of the way, Canada Economic Development for Quebec Regions, or CED, was there with temporary and targeted initiatives to support economic activity in the affected areas. Here are some examples.
Between 2009 and 2011, as part of the community adjustment fund, we entered into seven agreements with the Government of Quebec to provide short-term relief for the impacts of the economic downturn through silviculture projects and the restoration of bridges and culverts on multi-use roads.
We invested $119 million in projects that helped and maintained 8,000 jobs, all while responding to the transition and adjustment challenges faced by communities. From 2010 to 2013, the temporary initiative for the strengthening of Quebec's forest economies, of the TISQFE, allowed us to support 210 diversification and growth projects with a total of $80.5 million in contributions.
Between 2014 and 2018, the strategic initiative to combat the spruce budworm outbreak in Quebec made it possible to implement intervention measures to control the spread of this parasite to maintain forest potential and protect jobs.
CED's mandate is to support the long-term economic development of businesses and regions. As such the value-added role that we play with the forest industry is tied to support for secondary and tertiary wood processing projects. This is at the heart of our interventions.
Our strategy is based on the approach set by key industry players in the province. It is centred on leveraging innovation, modernization and diversification for long-term sector development.
At CED, one of our focus areas is projects that promote innovation and green technologies, particularly those in the bioeconomy sector. We believe that this is a growth area because of the potential value of biomass—which is abundant in our forests—makes it possible to develop and offer, once processed, a wider range of products. This has significant economic potential on the global market. Let me give you a few examples.
We have supported college centres for technology transfer, or CCTT, that process biomass for commercial purposes and are very successful with their projects. These are great success stories for us. For example, CED has supported Agrinova, a CCTT in Mashteuiatsh in Lac St-Jean that is working to revalorize forest residues through the production of biochar.
We also supported the Damabois Group, a company specializing in the manufacturing of handling pallets that wanted and needed to diversify its activities. The Damabois Group now markets energy logs made from aspen bark, one of the wood by-products that the company generates during its operations. Our contribution helped the company acquire the technology needed to put the new product into production.
In conclusion, bioproduct transformation projects, such as those related to wood pellets, are still relatively few. However, CED is well positioned to support them in their initial marketing efforts on foreign markets. As a regional economic development agency, CED's role is to support the development and diversification of enterprises and regions. To do so, CED is committed to promoting innovation to create economic prosperity. That is what we want for the future of the forestry industry.
Thank you for allowing me to speak about the important work CED does to support the communities that depend on it.
Thank you very much, Mr. Chair, for the opportunity to speak to you here today.
My name is Gerry Salembier, and I am the assistant deputy minister for Western Economic Diversification in the province of British Columbia.
In French, it's called Diversification de l'économie de l'Ouest Canada, or DEO.
It is WD, for short, in English.
I'm going to be talking to you about the impacts that the current situation in the forest sector has, principally, on communities, what WD is doing to support those communities, and what else we think could be done.
I know you've heard from my colleagues at Natural Resources Canada about the challenges the industry and its workers are facing and that the situation is particularly acute in British Columbia. I'm not going to repeat the reasons for that; you've heard them several times. Suffice it to say that we do not see this situation as part of a normal industrial cycle.
You have heard about the impacts of all this on industry and on workers.
I will focus my remarks on the broader challenges the situation is imposing on the communities that rely on the forestry sector, which is where we see a role for WD.
The forest sector accounts for a smaller portion of overall economic activity than it once did in B.C., but it continues to be a primary economic driver for many rural and indigenous communities—and 98 communities in the province are considered economically dependent on forestry.
For those communities, it's hard to overstate the impact that the current situation is having on them. I've heard directly from many of those communities by way of a task force on mill closures, a collaboration between a group of community-based economic development organizations consisting of Community Futures organizations that receive their core operating funding from Western Diversification.
Their main point is that the impacts of the current situation extend well beyond the mill operators and the employees of those mill operators. The impacts include supply chain operators, other local businesses and community service providers. It's in addressing those broader impacts that the communities see a gap in the supports available to them.
I'd also like to note that some 10% of forest sector employees in B.C. identify as indigenous. That's considerably higher than the 6% of the provincial population that identify as indigenous. Indigenous peoples and their communities are disproportionately impacted by this situation.
What are we doing at WD?
The bulk of the supports WD provides to rural and forestry-dependent communities in B.C. is delivered by a network of community futures organizations, or CFs, that I mentioned.
There are 34 CFs serving rural communities throughout B.C., including four indigenous CFs.
WD provides them with over $10 million annually to deliver a variety of services to small business owners and entrepreneurs in rural communities.
We're working with that group on a targeted community resilience initiative, modelled on a very successful initiative that we funded and that the CFs—the community futures—delivered in response to the record severe wildfire seasons that we had in the province in 2017 and 2018. This community resilience initiative would focus on local priorities and support for communities. I can get into that in further detail if the committee is interested.
We're actively developing that project with them. We're seeking other partners to help with that, since the scale of the problem here exceeds the resources that we would have available within WD to deal with it.
I'd also like to briefly highlight our B.C. indigenous clean energy initiative. It's an initiative that provides support for indigenous communities that are working to develop clean energy options for their communities, including bioenergy projects that utilize forest biomass. That's an initiative that's funded jointly by us and the Province of B.C. It has been cited by first nations leaders involved as an example of what a nation-to-nation relationship could look like.
Beyond this, WD has also supported forestry-specific projects—often in promotion of indigenous participation in the sector.
We are also coordinating with other federal and provincial departments on the Intergovernmental Committee on Support for Forest Sector Workers and Communities that my colleague Beth MacNeil mentioned recently before your committee.
The work of that interdepartmental and federal-provincial group is quite consistent with what I'm hearing from the mill closures task force in British Columbia.
What more could we do?
We're hoping to help address some of the gap that has been identified through that community resilience initiative. As I said, the scale and the scope of the challenges are somewhat beyond what our current resourcing will allow us to do.
Outside of our core programming, from time to time in the past, we have delivered federal funding for community adjustment initiatives in the forest sector. If the committee is interested, I could get into that in more detail.
In closing, I would like to thank the committee for letting me provide my perspective on the issues at hand.
I will be glad to answer any questions that you have.
Mr. Chairman, committee members, good afternoon. Thank you for the invitation to appear today.
The forestry sector is an important employer and contributor to Atlantic Canada's economy. In 2019, the sector employed approximately 19,200 people. Exports from the region totalled about $2.7 billion in products last year. Nearly three-quarters, or 72%, of those products went to the United States.
The region's forestry sector is in a period of transition, as global demand for wood products shifts, environmental stewardship increases and local demand decreases.
Three major issues affected the sector in Atlantic Canada. They were the closure of the Northern Pulp mill in my home province of Nova Scotia, the impact of tariffs and fluctuating prices, and an increase of spruce budworm population levels, primarily in New Brunswick.
At the Atlantic Canada Opportunities Agency, or ACOA, our programs are helping to grow the economy, create jobs and diversify the economies of communities.
We have flexible programming to support businesses across many sectors and community development measures.
We work with companies to build export capacity, pursue added-value projects, and invest in automation and product innovation. And through research and development activities, we work with industry to support the sustainability sector.
During the past 10 years, ACOA has invested nearly $60 million in approximately 200 projects related to this sector. These projects focused on sustainable forest management, research and development, innovation and diversification related to value-added products, public awareness and skills development.
In closing, ACOA will continue to work with forestry stakeholders—including small and medium enterprises, provincial governments, Natural Resources Canada and community leaders in the region—to ensure the sector can take advantage of emerging opportunities and continue to remain vibrant, in order to create jobs and help grow our economy.
Thank you for your time today, Mr. Chair.
Thank you so much, Mr. Chair.
Good afternoon to our witnesses.
I'd like to welcome you to your House of Commons.
I'm an MP from Quebec. In my riding, there aren't, strictly speaking, any forest areas and forestry companies as vast and successful as the ones you mentioned earlier.
However, I'd still like to point out that this industry is very important to the Quebec economy. Earlier, Ms. Brassard gave us a good picture of the reality: the industry is much more than just producing planks, much more than lumberjack work, it's also high-tech.
Three years ago, I went to the Fjord region, in the riding of Chicoutimi—Le Fjord, and I discovered the scent of wood. I was very happy to discover that smell, a smell I like to breathe when I'm walking around. Moreover, wood is used in the composition of many by-products. As Ms. Brassard said earlier, the industry is modernizing, it gives rise to added value. It must change, improve, and that is exactly what's happening.
Ms. Brassard also reported on the investments that have been made and the steps taken by Canada Economic Development. During the years 2009 to 2013, when I was a member of the provincial government, there were fruitful and interesting collaborations that proved beneficial to Quebec workers in the forestry sector. I am also very pleased to point out that those years coincided with my time in government.
Thereafter, we cannot say that things have improved. By a strange coincidence, exactly four years ago today, March 11, do you know where our was? He was in the White House with his good friend, the president at the time, Barack Obama—it's nice to have good relationships like that—and it would have been an extraordinary opportunity to resolve the softwood lumber dispute between Canada and the United States.
What existed four years ago still exists today. Unfortunately, four years ago, when there was perfect harmony between the two heads of state, the Canadian head of state and the American head of state, our failed to resolve this problem which, unfortunately, is affecting the forestry sector, both in Quebec and across Canada, namely the issue of tariffs.
The issue of the tariff problem is a huge one; it is still a 20% tariff, and its application has repercussions. We won another victory last September. Once again, the arbitration tribunal ruled in our favour as Canadians. So what's the big deal? The problem is that this victory has yet to be proven and more needs to be done.
Ms. Brassard, can you explain to us what impact the U.S. anti-dumping tariff, which was challenged by the court, has had on the forestry industry in Quebec?
I want to talk about the fight against the spruce budworm. Some of the work was done in co-operation with Quebec to assess the issue. The amounts invested reflect the relative significance of the issue.
At the time, we worked with the Société de protection des forêts contre les insectes et les maladies, or SOPFIM. A spray was applied to 44,000 hectares of forest on public land. Many things were done in that area. SOPFIM was able to test and improve its strategies for dealing with the budworm. I don't want to give you the impression that the amount invested meant little.
I talked about previous initiatives and our current programs. I worked to establish CED as a regional economic development agency. Our efforts and approach are more focused on helping communities. We often need to vary our activities when a region is highly dependent on a single industry. However, we aren't particularly sectoral.
Over the past few years, our forest industry projects have totalled $14 million. We carried out projects with FPInnovations. We took these types of steps to maximize the scope of our actions. We're working with research centres and FPInnovations, which in turn will help companies even more.
What goes somewhat unnoticed is our work in the manufacturing sector to help the forest industry and all the equipment manufacturers in the sector. We want to help them continue their work and support the industry. I also mentioned our efforts in the biomass sector. Those efforts may not be enough, but we're continuing to work in this area.
We have partners and projects. This is new, and there's an element of risk. Part of our strategy is to provide the best possible conditions. When we work with not-for-profit organizations, or NPOs, our assistance is non-repayable. Our work with companies is repayable assistance. However, this requires patience, because the assistance is interest free. We may wait two or sometimes three years for repayment.
As you probably know, we have teams across the province that are familiar with the stakeholders and the small and medium-sized businesses. These teams are very responsive to their concerns. When a project is under way in the sector, we'll help them. Everyone has their own method, but our approach doesn't just involve calls for proposals. We operate on an ongoing basis. When good projects are presented to us, we listen.
We're continuing to work with representatives of the Government of Quebec and the industries in the areas that they represent to ensure that we maintain an ongoing and significant presence, which will have a positive impact.