[Recorded by Electronic Apparatus]
Tuesday, June 20, 1995
.1049 
[English]
The Chairman: I'd like to call the meeting to order.
For this next hour and fifteen minutes, we have with us Mr. John Gero, who is the director of the trade remedies division of the Department of Foreign Affairs and International Trade; and Mr. Rudy Verspoor, chief of trade remedies and general economic relations, from the Department of Finance.
The purpose of this meeting is to examine with the two witnesses the progress of the NAFTA joint working group on countervailing duties and anti-dumping duties. In that respect
[Translation]
I would like to draw the attention of the Committee members on the fact that the Canadian Steel Producers Association has circulated a file containing, from what Mr. Schmitz has told me, lots of very useful information. So I would advise you to read this information from the Canadian Steel Producers Association.
.1050
[English]
Mr. Gero, I understand you were going to start with a short introductory statement. Then we can have questions from members.
Mr. John Gero (Director, Trade Remedies Division, Department of Foreign Affairs and International Trade): Thank you, Mr. Chairman.
I will attempt to be relatively brief, which will allow you to have the maximum amount of time for questioning. I will not dwell at length on the origins of these working groups. As you know, they date back to 1993, when the Prime Minister announced the ratification of NAFTA and the desire of this government to have further negotiations in the areas of the trade remedies of anti-dumping and subsidies countervail, because the government felt that NAFTA was lacking in disciplines in this area.
I think it's well known that we've had a slow launch, largely because one of our partners, the United States, was going through a great deal of internal difficulties during the course of last year in implementing their commitments in the Uruguay Round. That legislative process turned out to be far more cumbersome and far more resource-intensive than the U.S. administration had intended or thought was likely.
With the passing of that legislation in December, we have engaged meaningfully in these negotiations. We've had several sessions at the chief negotiator level to map out the territory to be discussed and to figure out a plan of work on how to make progress in this area.
Let me just put these negotiations into context. I think it's fair to say that Canada's very much the demandeur in this area. We're the ones who would like to have more stringent rules. We're the ones who certainly would like to have more secure access into the markets.
Furthermore, I think it's fair to say that from our perspective, as you head down the road of creating an integrated market in North America, the whole question of having laws such as anti-dumping really is put into question.
To us, the whole rationale disappears as the goods move freely back and forth across the border through various processes of production. Certainly from our perspective, there doesn't seem to be a need to have different rules whether one is selling from Buffalo to Chicago or from Buffalo to Toronto or whether one's selling from Toronto to Regina or from Toronto to Buffalo. Firms tend to behave in the same way when they're dealing with a single integrated market.
From a Mexican perspective, I think it's certainly fair to say that Mexico fully supports the Canadian objectives in this regard. They understand the rationale, and certainly in the context of the meetings of the working groups we've had, I think it would be fair to say the Mexicans share entirely the goals and objectives of the Canadian government.
The Americans are working in a different context. Clearly if you follow the implementation of the Uruguay Round implementing bill in the United States, the issue of trade remedies is a highly politically charged issue in Washington.
It's a debate that's going on full bore in the United States between those who feel that trade remedy laws are absolutely vital to the domestic interests of the United States and really are the most sacrosanct things next to motherhood and apple pie, and those who believe that these laws to some extent are now outmoded and that certainly in a North American context as one moves to free trade they're not really necessary. This latter group is also worried about the effects on the competitiveness of U.S. industries in North America and in the world, both for those that depend on exports because they would face anti-dumping regimes in other countries, and for those that require inputs that are facing anti-dumping duties in the United States.
It's a debate that's well-engaged. It's a very difficult political process in the United States. As a result, not surprisingly, the U.S. administration is extremely cautious given this atmosphere.
.1055
Having said that, I think it's fair to say that the United States has come to the table in these meetings expressing the view that it's there to solve the problems that may exist in the North American context. They have been fully engaged in the negotiations in this regard. I think it needs to be very clear that all three participants in these negotiations are fully participating in line with the commitments their governments made in 1993.
I'll stop there because I'm not sure which aspects of the negotiations or the issues you and your members are most interested in. Let me try to answer questions you may have.
The Chairman: Sure, by all means.
[Translation]
Mr. Bergeron.
Mr. Bergeron (Verchères): Mr. Gero, in response to your question, all aspects of the present negotiations are of interest to us, because they are being conducted in a rather hush hush and somewhat secretive fashion, if I can put it that way. Few details of these negotiations are coming to light. In fact, according to our information - and I'm not sure how exact it is because it does not seem to corroborate what you are telling us - the three partners have only met twice. These meetings seem to have led to nothing more than the establishment of the terms of bargaining and the setting of the table, as they say, and the real negotiations have apparently not yet got underway, although they are set to end on December 31 of this year.
Let's remember that Canada set some conditions to its membership in NAFTA: the establishment of working groups and negotiations dealing wiht anti-dumping measures and countervailing duties. The negotiations were to conclude on December 31, 1995. We have almost reached that deadline, and, up to now, we have seen hardly any results from the current negotiations.
As I said earlier, negotiations to date, according to the information we have, have simply served to establish the terms of the negotiations.
In some ways we could say that, since NAFTA's implementation, some aspects of trade between Canada and the United States have become even more difficult. It may be due to a lack of clear definitions of anti-dumping measures, countervailing duties, subsidies, and so forth.
This said, we must come up with a definition and a conclusion to these negotiations very quickly. You were asking earlier what aspects of the negotiations interested us specifically. In fact they all do.
Are negotiations going on? If they are not and we have to admit failure, which seems quite likely at the moment, will Canada consider establishing a number of countervail measures to protect its industry against the measures imposed at the American border? In the end, to some extent we are returning to the debate we had concerning Bill C-57.
[English]
Mr. Gero: I believe there's a number of questions contained therein. About the pace of the negotiations, I think we have to bear in mind that this is not a new subject. In fact, we have been engaged in negotiating on this issue with the United States for at least a decade.
As you know, we went a certain way in the context of the FTA. We went even further in the context of negotiations in the Uruguay Round in achieving a number of Canadian goals. These negotiations, in essence, are a continuation of all those negotiations. So while in fact there may have been only two meetings of the chief negotiators so far this year, I think it's fair to say that an awful lot of thinking has gone on about these issues in that context.
I think one also needs to give credit where credit is due, particularly in the context of subsidies. The Uruguay Round agreement at the end of 1993, which was obviously after the agreement to establish the NAFTA working groups, has made significant progress in coming to just the kind of questions you were raising. What is the definition of subsidy? How do you define what are called green subsidies, permissible subsidies that are non-actionable? Those are now put into law in the United States, Canada, and of course Mexico.
.1100
This is an issue that's been around for quite a while. I think it's fair to say that vis-à-vis the Canadian objective of trying to make significant progress in this area by the end of December, I think that's possible. There is a likelihood that these things will be done, but I don't think you should take the fact that there have been only two meetings at chief negotiator level to mean that these negotiations aren't engaged in a serious fashion.
[Translation]
Mr. Bergeron: Permit me to say that I am somewhat confused by your response, because I am no wiser than I was before. Are we seeing any openness, in whatever form, on the part of our American partners or, on the contrary, are they not taking some advantage of this lack of clarity?
You mentioned that the Uruguay Round Agreements defined a subsidy and which subsidies are permissible and which are not permissible. It is true but there is still a fairly sizeable grey area in the context of dumping and anti-dumping measures, and this sort of grey area is of considerable advantage to the Americans, who are using it to impose duties on exporting Canadian businesses.
We are on the eve of a new round of measures against Canadian steal products, for example. Accordingly, aside from setting the table and establishing the terms of the negotiations, has there been any openness on the part of our American partners in the negotiations and has there been any progress in the negotiations that might give us hope for a positive conclusion to negotiations by year end? My impression is that this has not been the case up to now and your response confirms it. Can we assume that we will reach a satisfactory solution? Are our Americans partners open at all, or, on the contrary, are they not playing for time in order to ensure failure at the end of the year and put these negotiations off indefinitely?
[English]
Mr. Gero: All I can tell you is that there have been positive developments in the negotiations. I don't think one can say the Americans are stalling for time; I think they've become fully engaged. If you're asking me what the results will be at the end of December, obviously I have as good a crystal ball as anybody else. It's very difficult to predict what in the end will be negotiated in that context. I can't provide to you the outline of the agreement at the end of December at this point in time.
The Chairman: Can I follow up on Mr. Bergeron's question? Do you expect there will be an agreement at the end of it? That's the thrust of his question. There are two things: will we get an agreement and will it be satisfactory? Those are always two different things, but the first one is whether there will be an agreement at all. Could you help the committee by telling us what your -
Mr. Gero: I think the answer to that question is yes, there will be an agreement.
[Translation]
Mr. Bergeron: Of course, Mr. Gero, your crystal ball is as good as mine, although yours is doubtless more efficient than mine, because you can see a bit how the negotiations are going. We asked for this meeting today specifically to find out how the negotiations were going.
You tell me that the Americans are open somewhat. So be it. I am truly delighted, but how open are they? What are they open to? How do they indicate they are open? Do we have any idea where the Americans are prepared to be open? What have we done, in the end, apart from setting the table for negotiations which have not yet really taken place?
[English]
Mr. Gero: I think what we're trying to do is identify what the problems are and how to solve them. If you're asking me what the Americans will do at the end of December in the context of -
.1105
Mr. Bergeron: At this point -
The Chairman: But at this point what we're talking about is what is feasible in the context of all three of our parameters in achieving concrete results. If you're asking me what that agreement will contain, I find it very difficult to say, because we're in the middle of a negotiation. Are there openings on behalf of the United States? The answer to that is yes, because they're sitting there, seriously negotiating about this issue. Have they said tomorrow they will eliminate all their anti-dumping laws and all their countervail laws? They haven't said that.
Mr. Penson.
Mr. Penson (Peace River): Welcome, gentlemen. I understand you probably are very busy people, with the nature of your job and the nature of trade these days.
I was just wondering, though, given that we do have some irritants with the United States in particular, if we shouldn't be looking at these irritants as also an opportunity to negotiate to our benefit. I'm thinking specifically of the supply-managed farm sector, where it's been moved to the discussion stage, and there are high subsidies in the United States in addition to what we put up here with our prohibitive tariffs. Isn't this area an opportunity to negotiate a new deal for farmers who are involved in supply-managed industry, to our advantage?
Second, I would ask if the same thing doesn't pertain to the steel industry, where we have a lot of countervail. Isn't this an opportunity to try to move to some type of freer trade zone in specific sectors? I'm not sure if we can use the auto sector as an example, but we do know special deals can be made bilaterally. I'd like your comments on that.
As well, I would ask the question about the World Trade Organization itself and if you are aware of any specific cases that Canada is going to advance to the World Trade Organization for a ruling in order to clear the air on some of these issues. I'm wondering about steel, for example. Would that be a good place to try to resolve the long-standing problems we have?
Mr. Gero: On your first question, agriculture as it relates to supply management certainly isn't part of these negotiations. These negotiations are focusing strictly on the questions of anti-dumping and countervail and have not addressed questions such as supply management in agriculture.
Without a doubt, one of the possibilities is to proceed sectorally rather than generically to make progress. It may be possible to make progress in some sectors faster than others, because the level of integration is obviously different in various sectors.
Without a doubt, the steel industry is one we have been focusing on. Certainly we've been in detailed discussions with our steel industry. The steel industry and ourselves have had discussions in a trilateral manner. In fact, in April there was a meeting of the representatives of the three steel industries and the three chief negotiators to discuss what problems are specific to the steel industry and how they could be alleviated.
So a sectoral approach is very much possible. As we're trying to be creative in making progress in this area, I wouldn't rule that out at all.
The WTO at this stage is not the forum. A number of cases are outstanding from the old GATT on past U.S. practices, particularly in the steel industry. They don't have Canada as a complainant. It's largely European cases that are being heard. But of course the WTO is always there as a possibility for disputes to resolve differences between the United States and Canada.
Of course what the WTO looks at is whether the United States is living up to its international obligations in implementing particular cases. Of course we have a more unique dispute settlement mechanism as well, chapter 19 of the NAFTA, which allows us to review the administrative decisions of U.S. agencies with a view to seeing whether they're implementing the U.S. law correctly. That is a different issue altogether. So we have two different ways of looking at possible future U.S. cases.
Mr. Penson: I understand here you're not specifically talking about supply management today, but that has been moved to the discussion stage by the United States. My understanding is that they requested that be put on the discussion level, which starts the process in gear in terms of NAFTA. Is that not correct?
.1110
Mr. Gero: Yes, but that's a totally different process. The United States has requested a panel in that regard to see whether Canadian practices are consistent with NAFTA, but that's totally outside the scope of these negotiations.
Mr. Penson: Are you here today to specifically talk about these negotiations, or do you have any -
Mr. Gero: My understanding is that I'm here to talk strictly about -
Mr. Penson: Okay, we'll deal with that more specifically. I'll talk to somebody else in the department about the other matter.
I understand the softwood lumber debate is starting to warm up again in the United States, and as you know, we've had a lot of actions against us and we won in those cases. But wouldn't that be one that the World Trade Organization could hear if we are continuing to get, if you like, non-tariff harassment? How do you see that playing out?
Mr. Gero: As you know, on the softwood lumber countervailing duty that the United States implemented, we took the chapter 19 cooperative effort among the Canadian industry, the provinces, and the federal government, and we won that case, which resulted in the refund of approximately $800 million to the Canadian industry.
Subsequent to that, to avoid further cases, we've created a consultative mechanism of both the government and industry to discuss the problems so that people will hopefully resolve their disputes through dialogue rather than through litigation.
Mr. Penson: My question specifically is, if they continue to use that practice - and my understanding is it's starting all over again or there's some potential for that happening - is the World Trade Organization an avenue for us to go to get a final settlement and say Canadian softwood lumber exporters are not subsidizing, not breaking the law?
Mr. Gero: The World Trade Organization is a forum to go to in order to decide whether whatever action the United States may have taken is consistent or inconsistent with their international obligations. So the WTO will decide whether an action is or is not consistent with the United States' obligations to the WTO, but nothing more than that.
Mr. Penson: You don't see this softwood lumber industry as fitting into that category?
Mr. Gero: It could very well. It will depend. At the moment there are no U.S. actions against the softwood lumber industry.
As you know, in the old case we did take them to the WTO and won. So it's possible to take them to WTO as well. It depends on what it is they implement and how they implement it as to whether they are acting consistently with their obligations under the WTO. So I wouldn't rule out the possibility of a WTO case if there is another countervail, for example, depending on how the U.S. has implemented those measures.
Mr. Penson: Now I can understand, Mr. Chairman, how you spent so many years on trade law practice. This is a complicated area. I'm having trouble pinning this gentleman down for an answer.
Mr. Gero: There are various issues. First of all, you need to have a U.S. action, which at the moment on softwood we do not have. Second, the question then becomes whether that U.S. action is consistent with their own domestic law. If we feel that it is not consistent with their own domestic law, we have the dispute settlement mechanisms of NAFTA to allow us to take that to a binational panel to get a ruling on whether what the United States did is or is not consistent with their own domestic law. We did that on the previous case, and it was found not to be consistent with their domestic law, and that's why we had the refunds and won the case.
The other question is whether the action, totally aside from whether it is or is not consistent with the domestic law, is consistent with the obligations United States has internationally in the context of the obligations they entered into in the WTO, and that is a different set of issues. If they do something that is not consistent with WTO, then you can take a WTO challenge in that regard.
The Chairman: You would have learned all if you'd taken my course, Mr. Penson.
Next is Mr. Speller.
Mr. Speller (Haldimand - Norfolk): Welcome. If you're thinking you're going to get an easier ride from the government side than these two gave you, I don't think you're going to, because there is amongst all members of the House, especially those from steel-producing areas, a real concern over these negotiations.
.1115
There is a real concern over these negotiations, because we face a situation in which our steel industry is much more competitive than that of the Americans. The Americans are using trade laws to limit our access to their markets. At the same time, the Canadian government has seen fit to negotiate this issue. Certainly that's where you should start, but at the same time we see imports of steel from the Americans increasing dramatically over the years.
I want to point out to you a chart on tonnes of steel per month that shows an increase in January 1987 from just below 40,000 tonnes per month to now over 240,000 tonnes per month, which is a dramatic increase that is having a direct impact on the viability of the Canadian steel industry.
I'm wondering if in these negotiations Canada is prepared to change its own rules to match those of the Americans.
First, I wonder if the Americans are unwilling to change, which seems to be the case.
Second, I'm wondering if the Americans understand the importance of this issue to Canadian legislators and to the Canadian government.
Third, I'm wondering if you have approached the Americans about having a truce while these negotiations are going on. Certainly we did that in other areas. In the wheat dispute, while we negotiated and found out more information on the issue, we agreed not to take further action and the Americans agreed not to take further action on us.
Fourth, I'm wondering whether or not there's any multilateral response to this. Obviously we're not the only ones who are upset with the Americans on this issue. Are we talking with other countries about putting pressure from other sources on this issue?
Finally, do you believe, given the integration of our industries, that the Americans are prepared to negotiate a steel pact, whether or not that might be part of a deal when you're talking about anti-dumping?
Mr. Gero: Let me try to handle those one at a time. I wasn't expecting an easier ride on your side.
What are we willing to do? We, not the Americans, invented anti-dumping. Certainly, as far as the rest of the world is concerned, we're pretty effective in using it. In fact, in the last five years we've had more cases against the United States than the United States has had against us. I think it's fair to say that the American system and our system are different, but I would maintain that ours is just as effective as the American one.
Sure, there's always the possibility of making changes to Canadian law, but as the recent steel cases have demonstrated, we gave as good as we got.
What that doesn't answer, of course, is the economic impact, which is clearly a case brought by the United States against Canadian exporters, who have a larger export in proportion to their total production. It has a bigger impact than a Canadian case brought against the U.S. exports, which are less of a factor in their total production. But the economic impact shouldn't be confused with the effectiveness of the mechanism itself.
I think the Americans fully understand the importance of this issue, which is why they are engaged in a serious manner. Certainly I can tell you that at the political level, both at the prime ministerial level and at the ministerial level, whenever there's a bilateral discussion among them, that issue continues to be emphasized. There was a NAFTA commission meeting in Toronto just recently, and obviously the issue of NAFTA trade remedy working groups featured very prominently on the agenda for ministers to discuss.
Is it possible to have a truce? Why don't I take that together with the matter of being prepared to negotiate on a steel pact.
As I said in answer to your earlier question, I think we're trying to be very creative and inventive in coming up with ways of resolving problems. A sectoral approach is certainly a possibility. We have been, and continue to be, in very close contact with the Canadian steel industry to discuss the developments in the working groups, to discuss their own dialogue at an industry level in this regard. Certainly I wouldn't rule it out.
.1120
As you know, in a multilateral context, particularly in the steel industry, there's been an effort over the past five years to negotiate a multilateral steel agreement. It has run into a problem of a difference of views between the Europeans and the Americans. As a result, it has not materialized.
That having been said, on a more generic basis my guess is that at the multilateral level we most likely reached the level of disciplines and obligations that countries were willing to take on at the end of 1993, in the Uruguay Round, which we have now implemented. The point we're trying to make to the United States and Mexico at the moment is that NAFTA is different. When you create a regional free trade agreement, the reason for maintaining trade remedy laws, from our perspective, falls away. If you can have a response in a private sector to dump imports, which is basically a dump-back, and there's nothing stopping you from doing that, then frankly having laws on both sides of the border, to our way of thinking, is not an efficient way of dealing with that. That's the debate going on in the United States at the moment, and that's what we're trying to play into.
Mr. Speller: The multilateral issues: are you saying there isn't a concerted effort with other countries to attack those? It's a problem for other countries around the world, obviously.
Mr. Gero: Absolutely; and that was why the issue of trade remedies featured so prominently in the context of the Uruguay Round negotiations, which have only come into force this January. Is it possible that one will go further in that context? My guess is the NAFTA process would be faster.
The Chairman: I'd like to follow up on Mr. Speller's question. It would seem to me it would be extremely logical for us, for the reasons you just set out in your answer, that the NAFTA is sui generis in a specific arrangement, and using the European model of other economic integration we should try to cut ourselves as far away as we possibly can from everybody else and say you can treat Mexico and the United States and Canada differently. Otherwise, if we get ourselves mixed up with the European problems, we'll get sideswiped by their issues.
Is that not an appropriate...?
Mr. Gero: I think that's right, and I think to some extent the Americans recognize that themselves. For example, they recognized that vis-à-vis Canada and the United States with the issue of subsidies.
Let's take the steel sector as an example. It's not a problem. When they had the whole slew of cases the last time around, although they had countervailing duty cases on a number of countries, they didn't have any countervailing duty cases on Canadian exports.
So I think there's a recognition that the North American market is different. We need to develop that further to add North American disciplines in that regard.
Mr. Speller: Your response to me suggested that my question about anti-dumping rule...because we've had more cases here in Canada, it was probably just as easy on Canadian companies as it was on American companies. But certainly you recognize how hard it is for Canadian companies when they're defending themselves against these down in the States. The timing and the bulk of information required to process are certainly much easier here in Canada for American companies than the Americans give to Canadian companies in the U.S.
Mr. Gero: That would seem to depend on the point of view. There is no doubt the trade remedy laws - and that is one of the reasons why we wish to change them - create a great deal of costs and disruption for companies on both sides of the border.
Is it more costly in the United States? I think that's a possibility, given the legal fees one has to pay in Washington as opposed to what one has to pay in Ottawa. Is the system as effective? I would say it is.
.1125
Mr. Speller: Yes, but the question is, it's effective at what cost? It's a real cost to some of these Canadian steel industries to do that.
Mr. Gero: Oh, there is no doubt about that. To defend yourself in a trade remedy case is very costly, absolutely. This is one of the reasons why we want to change the system.
The Chairman: We're going to go for a second round.
I wonder if I could just jump in with a couple of thematic questions for the last 35 minutes.
I think we have to clearly distinguish between countervailing and anti-dumping duties. They represent very different problems, and they must be approached differently. I assume you're doing that in your negotiations. There are two separate negotiating teams, and it's quite a different, distinct approach.
I'll deal with Canadian countervailing first. My understanding is that when we were negotiating the free trade agreement with the United States, at the last hour, it was said the Americans looked at us and said that we had all of these subsidies up here in Canada and that we had to just get rid of them. They wanted something firm in this agreement to deal with that.
Our negotiators had a book about as large as the Toronto telephone directory of U.S. subsidy practices. They passed it across the table and said that if they got rid of theirs, then we would get rid of ours. At that point the Americans said they didn't even know they had those, and that's when the whole thing collapsed.
That may be anecdotal, but I think it's true. The United States is riddled with subsidies, as you know, at municipal, state and and federal levels. It seems to me that the problem you have as negotiators is that - this follows Mr. Bergeron's point - you may not have put Americans' minds around their own problem of the degree of subsidization they have in their own system. That's because they have a sort of mental block. They don't think they do it, therefore it doesn't happen. But in fact, when one looks at the record, they are doing it, and they have to come to grips with that.
As for the countervail area, we'll be lucky if we just get anything marginally beyond what we got out of the Uruguay Round. I just maybe wonder if you could speculate on that. We'll be basically tinkering with the Uruguay Round agreement, won't we? That's what we'll be doing. We'll be adding belts and suspenders to the Uruguay Round agreement. So on countervail, that would be my assumption. I would like your reaction to that.
On anti-dumping, you're right, in an integrated market the need for an anti-dumping duty falls away. But the anti-dumping duty is an international mirror of competition law and protection against predatory pricing. One therefore assumes that it will be replaced in an integrated market with competition law. That assumes a model of both a uniform law and a uniform system of applying that law, such as that which exists in Europe.
We're light-years away - this is my personal estimate, and I would be interested in your reaction to this - from anything like that in our relationship with the United States, unless we were to say to the U.S. that we would buy into their system and they could enforce it.
If we did that, I'm sure they would take us on. But if we want a truly international agreement, what's the chance of getting to that, given particularly the fact that U.S. business uses anti-dumping as a normal, legal weapon? It's just a part of their arsenal of doing business. Listen to anybody you talk to down there. It's just like franchise laws or anything else they use down there. It's just part of the structure of the thing.
That brings me to the third question. This was raised by Mr. Speller and the steel caucus. If you look at the U.S. implementation bill of the Uruguay Round, in fact, it strengthens their anti-dumping.
They did this in 1974 as well in the trade and tariff act of 1974. They took the international agreement and said they were implementing them. In so doing, they actually ratcheted themselves up in the process, and they've done that in this again.
So the steel caucus has come to us and said that the only way to deal with this, since that's what the American practice is, is to do the same thing to them. We'll have mirror legislation, which is what New Brunswick did with Quebec when they had this argument.
Is that mirror legislation a realistic alternative? You can't fight swords with icicles. Should be be doing the same thing?
That is my series of questions.
Mr. Gero: As for countervailing, yes, there's no doubt that countervailing and anti-dumping are two totally different things. One has to deal with the pricing behaviour of firms; the other has to deal with contributions by governments. So they are two totally different issues, and they need to be addressed in different manners.
I think it's fair to say that the Uruguay Round achieved more progress on the subsidy/countervail side than it did on the anti-dumping side. For the first time, we now have definitions of subsidies and what is permissible.
.1130
Just to add to your anecdotal evidence about the United States, of course, it was very interesting that having pushed very hard for fairly tight subsidy disciplines in the Uruguay Round, at the end of the day it was the United States that had to come and say, gee, we need the green box to expand a little bit, because we have a couple of programs that don't fit in it and therefore we need to have a bigger escape clause. So I think that's correct.
I think it's fair to say that to get further disciplines on countervail one is going to have to look at further disciplines on subsidy practices. You're absolutely right that, certainly in a NAFTA context, one is looking at various levels of government, because as we all know, particularly in the United States, most of the subsidy practices occur at municipal and state levels rather than at the federal level. But I think one can be relatively inventive in getting at that, and that's an issue that's under discussion at the moment.
On anti-dumping, you're right, it started out as a predatory pricing mechanism, but of course over the last 50 years it has evolved greatly, and in the methodologies that exist in both of our administrative agencies in fighting dumping, there's little resemblance to the kinds of things that a competition authority would look at. Our view is that the competition principles obviously are more appropriate in the North American context.
Does that mean we have to go all the way to the European example, which is the creation of a common competition authority that looks at and implements European-wide competition law?
Not necessarily. An example is Australia and New Zealand, which have a free trade agreement and which decided to eliminate anti-dumping between the two countries without necessarily going to a supranational competition authority. They did go to the application of competition law, but you don't necessarily have to go even as far as that.
If you establish what is an appropriate business practice and can have the industries agree, for example in a particular sector, on what is an appropriate business practice, then it may be that you will be able to judge behaviour of firms along those rules rather than even having to go to your anti-trust laws in that regard.
I want to go back to the fact that we're trying to be relatively creative and inventive and to recognize that NAFTA may be in fact unique and that, although there are various examples out there, there may be a sort of made-in-NAFTA solution to all of this.
On the question of mirror legislation - do we have to do exactly as the United States has done? - it seems to me that one has to recognize that we're working in two different systems, that our anti-dumping system is different from that of the United States and we need to make sure that they're equally effective, and that doesn't necessarily mean that for every quid there needs to be a quid. For every quid you can have a pro and still be as effective.
So whether the only way to combat the U.S. use of anti-dumping law is by having exactly the same law apply is open to debate.
As an example, we have different means of implementing an anti-dumping finding. The United States has a preliminary duty and a final duty, and subsequently reviews it every year, and depending on what you did you get a refund or have to pay more.
We have a normal-value system, which is that the anti-dumping finds what the normal value is and if you ship above that you're charged with duty but if you maintain that level you're not assessed duties. It obviously establishes what the normal value in Canada should be.
So we have to bear in mind that legally and in various procedures we are operating two separate systems, and that the real measure is whether they're equally effective. The question becomes, if an industry wishes to have an anti-dumping duty apply in Canada, in a situation where it feels aggrieved by exports coming in, can it, as effectively as in the United States, have those duties applied?
My answer is that the chances are that it can, and therefore our system is just as effective as the American one. That doesn't mean that they are identical.
.1135
The Chairman: Would you agree that the Americans are presently gaining market share in the Canadian steel business in Canada?
Mr. Gero: I have to admit I haven't looked at the statistics in the past week or so, so I don't know what the numbers show.
The Chairman: Okay.
[Translation]
Mr. Bergeron: There are a couple of points I'd like to raise. First of all, allow me to express my surprise - and my delight - at seeing my colleagues from the government side come to the realization today that the Uruguay Round agreements and the adoption of legislation to implement the Uruguay Round Agreements in both the U.S. and Canada have allowed the former to tighten its anti-dumping measures - an option that we proposed for Canada during the debate on Bill C-57. We did indeed move an amendment intended to ensure that we too would be in a position to tighten our own anti-dumping measures here in Canada, and this amendment was defeated by the government party. So I must admit I'm quite surprised and delighted to note that the value of the work accomplished at that time is finally being recognized.
Having said that, I want you to know I'm also delighted to have heard Mr. Gero say that we will have an agreement before the end of December. I must say that before getting here, I was rather pessimistic, but you have said there will be an agreement, and I am delighted to hear that.
However, I still do not know why I should believe that an agreement will materialize. When I got here today, I didn't know whether or not there would an agreement, but you say there will be. However, I still don't know why that agreement is now almost a certainty, because you've always been very vague in discussing any overtures made by the United States in the context of the negotiations by the two working groups.
There is quite a difference between defining the parameters of the negotiation and providing us with the exact content of the overall agreement to be reached by the three countries. I'm not asking you to reveal the details of the comprehensive agreement to be concluded by the three countries. That is not at all the purpose of my question. My question is this: What are your reasons for believing at this stage that an agreement will in fact materialize? What kind of overtures have there been from the U.S. thus far?
That brings me to my second question. You said: ``I can't tell you because the United States has not undertaken to completely lift its duties in such and such a sector...'' You referred to a sectoral approach as being a possible solution to the problem. It may well be an acceptable and desirable solution, but I'm sure you will understand that I have some reservations as to the effectiveness of this approach.
As far as the sectoral approach goes, we already know that the United States has often tried to bargain in a number of different areas. We saw this recently, when the U.S. tried to negotiate access to the Canadian supply managed agricultural products market in exchange for access for Canadian refined sugar products to the American market. If we adopt a sectoral approach, is there not a danger that the U.S. will attempt to bargain using different sectors of our economy and its own?
I would have liked to come back to the matter very appropriately raised by the Chairman, namely that we should perhaps be considering - this is a position we've been defending for some time now, and in that connection I am pleased to note the recent conversion of our friends from the government side - should the negotiations fail - something you do not seem to consider at all, but that I consider possible since I still have no reason to believe that there will in fact be an agreement - passing a legislative measure in Canada similar to the one in the U.S.? You seem to say that it's just as easy for Canadian firms as it is for American companies to take action or initiate proceedings in cases of dumping. That is quite true.
.1140
The problem is that if the U.S. takes anti-dumping action against Canadian businesses, a whole series of non-tariff barriers are put in place that prevent or slow down the entry of Canadian products into the American market. These kinds of non-tariff barriers simply do not exist in Canada, so that even when proceedings and an investigation are initiated with respect to dumping, American goods enter the Canadian market just as easily as they have before. There is absolutely no difference. That is the crux of the problem, as I see it.
We've even been given some examples. The steel industry did a very good job in that respect, telling us that when an anti-dumping order is issued, Canadian firms have to make a deposit of several million dollars without knowing whether they will ever be reimbursed and without knowing when, if ever, they will actually receive this money. They are subject to a very cumbersome process of review and audit when it comes to recovering anti-dumping duties. The process involves a great deal of paperwork and red tape, including 10 copies of 331 page submissions, whereas Canadian authorities require only 2 copies of a 78 page submission. So, there is a huge difference in terms of the kinds of administrative measures that come into play when an anti-dumping order is issued. As I say, that is really the crux of the problem.
Let me put my question to you again: should the negotiations fail, do you not think Canada should consider passing similar legislation?
[English]
Mr. Gero: Let me answer your sectoral question first and then let me turn the microphone over to my colleague from the Department of Finance, who after all is responsible for our own anti-dumping legislation, to answer your questions on the Canadian legislation and the comparison with the American one.
On the sectoral one, I think what one is thinking about again in sectoral approaches is not that it's the be-all and end-all, but that it's a possible step forward. If the crucial thing is that one wants to alleviate the risk of trade remedy actions and one finds it more difficult to do so at a general level across the board, and possibly there may be more sympathetic ears in a particular sector, then I think it would be of benefit to the Canadian industry, at least in that particular sector, to at least make some faster steps in one particular sector than one can do on a general basis.
One is looking at it in the context of a sectoral agreement, which in essence is allowing one sector that may have reached a higher level of integration to proceed faster than some of the others. So I don't think there's a danger of trade-offs there. I think it's a question of which sectors lend themselves more to that kind of an approach that could in fact go faster than the general level of change to trade remedy law in general.
I think that's the aspect of the sectoral approach that one is attempting to pursue. It may be that the steel sector, having had lots of experience, etc., and having a certain amount of fatigue with litigation, may be willing to look at something other than the use of trade remedy laws, and it may be possible to do so on a sectoral basis in steel where it's not possible to make general changes to a certain aspect of U.S. trade remedy law.
Having said that, I don't think that's the end point. I think that's a temporary stopping-off spot that buys for a Canadian sector an alleviation of the problem while one solves the rest of the problem.
[Translation]
Mr. Bergeron: At this stage, is there any reason to believe that a sector in particular or a number of sectors are moving more rapidly towards an agreement or that their negotiations are proceeding more quickly, compared with other sectors?
[English]
Mr. Gero: No, but I think we're exploring with a number of sectors what's possible in that regard. I can't tell you there's an agreement among the three countries that there will be a NAFTA steel accord, for example. I don't think we're at that stage in the negotiations.
[Translation]
Mr. Bergeron: Perhaps not, but are there any sectors where the negotiations seem to be proceeding more easily than in other sectors?
[English]
Mr. Gero: We're at the stage of trying to decide which sectors would lead to that more likely than not.
Why don't I turn the question of the mirror legislation over to Rudy, and then we can go on from there.
The Chairman: We have Mr. Mills, Mr. Penson, and Ms Brown to ask questions, so we should keep moving for the last fifteen minutes here.
Mr. Rudy Verspoor (Chief, Trade Remedies and General Economic Relations, Department of Finance): Let me just address the question of the mirror legislation, because it was raised by a number of speakers.
.1145
I would have to agree, at least on the surface, that it might sound like a rather simple solution to say if there are differences between Canada and the United States in trade remedy laws, why don't we just do what the United States does? I guess the question you have to ask yourself is simply this.
The Government of Canada, at the time it introduces trade remedy legislation, does so for a number of different reasons and objectives, and we have to bear in mind that the trade remedy legislation has an economic impact. At the time when the existing legislation was introduced, in 1984, the Parliament of Canada decided it was in the interests of Canada to have a reasonable balance between producer interests and user interests, so the imposition of anti-dumping and countervailing duties would not pose an undue burden on the Canadian economy; so it would not affect our competitiveness with respect to the rest of the world; so we would provide due protection against what were deemed to be unacceptable trade practices on the dumping side, or the countervail side, but at the same time we would not shoot ourselves in the foot, if I could put it colloquially.
The problem with the mirror legislation is simply that, yes, we could do it, but the economic impacts could be quite significant. If we are going to address a question like that, the question has to be addressed in the broader context of the whole legislation and whether this is in Canada's interest.
Yes, there are problems with the fact that perhaps the burden of filling out questionnaires.... I have seen the steel industry statistics about how many pages they have to submit, how many hours...the legal costs; certainly. I suppose we could ask our lawyers here to charge more. I suppose we could demand more pages of questionnaires. The question is whether that really solves our problem, which is greater access to the U.S. market - better access, more secure access, to the U.S. market. We are trying to address that in the context of these working group negotiations.
Mirror legislation itself I personally don't think would really solve the problem. The Americans don't have the same reliance on access to our market as we have on access to their market. The Canadian market for many products tends to be a residual market. Therefore even if they're locked out of the market, the effects are not going to be the same as an action where we are blocked out of their market.
The other aspect I could comment on is the chairman's question about the increase in imports of steel. We live in a world where we depend on trade; therefore an increase in trade is not necessarily bad. If the steel industry or any Canadian industry feels those imports, however, are injurious and are being dumped, then they have access to our trade remedy system. The fact that imports are increasing in and of itself is not necessarily bad.
As Mr. Gero has pointed out, and it's quite true, our trade remedy system can find margins of dumping that often exceed the margins found in the United States. In the case of the steel industry, for example, the cases that were brought against the United States, our steel industry was much more effective in getting rulings against American steel imports than the American industry was in getting rulings against our exports to their market. That unfortunately still hasn't changed the situation with the attitude of the American steel industry, in many respects.
The Chairman: Perhaps, Mr. Verspoor, the problem is that intellectually we're all free-traders, but emotionally we're still all mercantilists.
Mr. Verspoor: That is probably true to some degree.
[Translation]
The Chairman: Before I recognize Mr. Mills, I would just like to respond to Mr. Bergeron's comment earlier. He says that the government party has finally seen the light when it comes to Bill C-57. In fact, that is the very problem we have just been discussing.
Everyone knows that the Americans took advantage of the Uruguay Round to tighten their own laws. The question is just what the best response would be on Canada's part.
We certainly were not convinced at the time - and having heard the answer that was just given, I am even less convinced now - that the best way to respond would be to pass a mirror legislation, particularly since this legislation would affect the entire Canadian economy, and not just the steel industry.
That was pretty well what the debate revolved around. It's not over yet, but we should have a close look at the issue.
.1150
Mr. Bergeron: I think we should point out for the record that you were not chairman at the time.
The Chairman: Yes, that's right.
Mr. Bergeron: And that you were able to take a much more partisan position back then.
The Chairman: Yes, much more partisan.
[English]
Mr. Mills.
Mr. Mills (Red Deer): This follows up on what we've heard, I guess just putting it into what I'd like to hear you say.
First of all, I think the sectoral approach you've been talking about would be an example. Take the Auto Pact and expand it into this area, this area and this area. It would seem to me that should be a building block kind of process. I think we all agree that's worked well. So then why can't we just use it as a building block?
At this time last year we were sitting here saying we needed to put on more restrictions. The reason was so that when we sat down to negotiate, we would then take away one of ours, you'd take away of yours, and ultimately in the process of negotiation we'd end up with a settlement that's acceptable to both parties and doesn't keep leading to disputes.
I guess I still don't quite understand. At the time I was prepared to go along with the concept that we're different and we do have dispute settlement mechanisms in place that don't require us to have this trade-off process. But now we're a year down the track and I think we've heard a number of questions relating to that same thing. A year down the track we still seem to not have been able to settle those things to the satisfaction of a lot of our industries.
Looking back at it, maybe we should have put up those barriers so we could pull them down. I wonder if you could comment on that as to the tools of negotiation.
Mr. Gero: I think one needs to think about trade remedies a little differently from tariff negotiations.
In essence what we're trying to achieve in the trade remedy negotiations is almost a mental change in attitudes, as opposed to ``We will trade you 5% on this tariff versus you giving us 2% on that one because our volumes in trade work out approximately the same''.
Where we're coming from in the trade remedy negotiations is not so much to agree to change a phrase in our anti-dumping legislation for a phrase in your anti-dumping legislation. It's far more basic than that. It's attempting to get the United States to accept that really in the NAFTA context, in a regional free trade agreement context, the concepts of trade remedy laws as they stand are no longer valid. We really need to rethink, from the basic starting point, what is appropriate. How do you define an appropriate commercial behaviour as far as pricing is concerned, if you talk about dumping? If you define that, how does one deal with it in a North American regional context?
We've taken the position that if you look at that question in a meaningful fashion, the answer is not anti-dumping duties at the border. Other mechanisms could be used.
The idea of a sectoral approach is again trying to be innovative in how you solve the problem. Maybe it's possible to reach that perception difference quicker in one sector than in another. If that is possible, then maybe we shouldn't necessarily hold up progress in all sectors until we globally get that understood, but maybe it's possible to take several steps ahead faster in one sector than in the other.
It's not the final solution by any means, but it's a means of in essence changing the mind-set. If you can achieve the changing of the mind-set in one context, then you may be able to do it in different contexts.
Mr. Verspoor: Maybe I can add to that point, because the question of negotiating leverage has been mentioned by a number of people.
Even when we go into a tariff negotiation, such as the multilateral trade negotiations, we do not jack up our tariff rates to match those of our major trading partners. You negotiate with the rates you have, because the rates you've set are the rates that make sense for your economy. You go into a negotiation with the idea of lowering trade barriers all around.
.1155
I don't really see that in the case of trade remedies, even less so because it's a kind of contingent protection as opposed to a tariff rate, which you can more easily raise and lower. You can't as easily raise and lower the law, which is a longer process and doesn't always match the negotiating process.
I don't see that you would have any more of a logic in increasing the severity of your trade remedy laws in order to negotiate them down. We don't do that in other areas, so I don't see why we would do it in the trade remedy area.
Ms Brown (Oakville - Milton): Sitting here listening to this, I actually had more faith before I came to this meeting than I do now in what's happening. Now I get the sense I'm watching a movie that could be called ``The Boy Scout and the Bully''. I find out that instead of thinking of ways of how to outwit the bully, we're trying to teach the bully a new set of attitudes and values. I can't understand how we can expect to have this figured out by December and claim any measure of success.
Mr. Bergeron raised the idea of the possibility of failure. Based on what you're saying, I don't even know by what measure you would decide whether this set of negotiations had been a failure. It seems to me the trade department never has failures; things just go on longer and longer and then we're told it was a success, even though by any measure that, say, a steel producer might have, it wasn't a success.
Do we have a set of parameters under which we enter these negotiations to decide how long we will put effort into this, whether this person can ever be taught to think the way we'd like him to think, and when we pull out? Is it even possible to pull out? Is it possible to say this is a failure, or do we just go on and on into the sunset?
The Chairman: You'll have to forgive Mrs. Brown. She's not a regular member of this committee and doesn't understand the way in which the world works.
Some hon. members: Oh, oh!
Ms Brown: People ask us questions and we're supposed to give answers.
Mr. Gero: I think the best way to answer that is to look at our objective, which is to alleviate the concerns of the Canadian industry in providing them with more secure access to the United States. That's our goal. If we achieve that goal, then you can say it's finished.
I doubt you'd ever want to say ``No, there really isn't anything we can do about it. We apologize to the Canadian industry. We've failed, and therefore you're just going to have to make do on your own, because there's nothing more the government can do about it.'' I don't think that's a real option for the government.
I think it's fair to ask how we measure success or failure. The measure of success or failure will be whether the Canadians who have some interest figure their situation has been improved or not. That's the way we measure success or failure. If they think it has, they will say there's been an improvement. If they think it hasn't, they will say there hasn't been an improvement.
Is it likely the improvements will reach a situation at which point the industry will say ``We have everything we wanted, thank you very much. There isn't anything better that can be done. We've reached nirvana''? My suspicion is not.
Ms Brown: I don't think anybody expects to reach nirvana, but this is sort of disconcerting. It seems to me the representatives of the trade department are always saying things like ``Our system is different but just as effective''.
It may be as effective when one of these trade disputes gets to the resolution stage and we win as many cases as we lose. But that's sort of the tip of a large iceberg. In the meantime, while these little dispute negotiations or resolution actions are going on, the Americans are penetrating our markets even more.
Certain people think we're doing quite well because we win the odd case or we win more cases than we lose. But the action of trade is not improving in our favour if they're exporting more to our markets. Our major goal was to get more access to their markets, and they have all sorts of administrative burdens and legalistic tangles that we get drawn into.
.1200
We may be winning a little legal battle but losing the war, which is to get into their market and sell.
Mr. Gero: I have two points. One is, according to recent statistics at any rate, we're still running a trade surplus with the United States rather than a trade deficit, which means we're in fact selling more.
Ms Brown: But what are the trends?
Mr. Gero: The trends presumably are to some extent cyclical and will go up and down on a continuous basis, but my understanding is we have fairly large surpluses at the moment. I don't have the figures in front of me to tell you whether they're larger than they've ever been or what have you, but they are significant. Trade has improved on both sides of the border significantly as a result of the trade agreements. That's question one.
Second, I think we have to put this in perspective. At last look, the exports that were faced with trade remedy actions were approximately in the order of 3% to 5% of total export, so you have to look at that in the context of the overall economic picture.
By giving that statistic, I don't want to belittle at all the very significant impact these remedies have on the particular industries that get hit with them, because I think that's a very important aspect of it. Whenever there's a trade remedy action in the United States in a particular sector, it has very significant effects on those industries. But you have to put that into context.
What we're trying to do in essence is to ensure that those industries that are faced with these kinds of actions aren't faced with them any more. If you're asking me whether we'll achieve that goal and how quickly we'll achieve that goal, I don't know the answer to that.
The Chairman: We appreciate very much the frankness of your opinions and your helpful testimony. Just looking at it from a political point of view, when you look at the Canadian Agreement on Internal Trade and the amount of effort that went into negotiating that, it's very clear these issues are achieved in incremental stages.
We wish you well with your negotiations. We hope that some of the pessimism you might have felt around the table will not, at the end of the year, prove to be true and that you will achieve a negotiating breakthrough to the benefit of us.
Thank you very much for coming and sharing with us.
The minister has told us Mr. Weekes was not able to be with us today. The minister has told us he will be coming in the fall and we can revisit some of these issues with him. At that time the picture might be a little bit clearer.
We're adjourned until 3:30 tomorrow afternoon, which will be a very short meeting.