[Recorded by Electronic Apparatus]

Wednesday, October 23, 1996

.1530

[English]

The Co-Chairman (Mr. Dupuy): This meeting will come to order. I see that we have a quorum.

The bell for a vote will ring at about 5:30 p.m., which gives us just two hours. Under these circumstances, I invite our witnesses to keep their remarks to no more than ten minutes so that we have time to address the remarks and ask questions.

Before we invite our witnesses to take the floor, I have a routine duty to carry out. As you know, we are having joint meetings of two subcommittees. It may well be that in the next few weeks members will have to attend their standing committee and therefore will be unable to be present at these joint meetings. Our procedures do not cover this kind of situation. I expect it to be the case that one of the two co-chairmen will have to absent himself. I know that I will have to. It would be appropriate if we had a motion to take this into account.

.1535

The motion has been circulated, so I will read it. Is that agreeable?

[Translation]

Mr. Sauvageau (Terrebonne): Yes.

[English]

The Co-Chairman (Mr. Dupuy): I will read part of it in French and part in English to reflect the composition of this subcommittee.

[Translation]

That, in regard to the Review of the Special Import Measures Act and pursuant to their respective Order of reference; - that either the Sub-Committee of the Standing Committee on Finance on the Review of the Special Import Measures Act, or the Sub-Committee of the Standing Committee on Foreign Affairs and International Trade be allowed to hear witnesses and collect evidence on the review of the Special Import Measures Act, in case of an unavoidable absence of one of the two sub-committees or one of the co-chairs.

[English]

The second part of the motion is that the quorum be set at three members in the above mentioned situations, provided that the opposition is represented.

Do I have a mover for the motion?

Mr. Sauvageau: I so move.

Motion agreed to

The Co-Chairman (Mr. Duhamel): We have unanimous agreement.

[Translation]

Mr. Sauvageau, do you agree? It is unanimous is it not?

[English]

The Co-Chairman (Mr. Dupuy): We have unanimous agreement.

Mr. Sauvageau: Yes.

[Translation]

The Co-Chairman (Mr. Duhamel): I like to work with you.

Mr. Sauvageau: It means that if we go, you will not have a quorum and then...

[English]

The Co-Chairman (Mr. Dupuy): I should first of all thank our witnesses for feeding us with information and perceptions about SIMA. Since we have two co-chairmen, I will pass the pleasure of calling them and giving them the floor to my friend Ron Duhamel.

The Co-Chairman (Mr. Duhamel): Gentlemen, thank you for being here. I will go around the table and ask you to identify yourselves and the organization you represent, and to keep your remarks brief so that we have time for questions and answers and exchange.

Mr. Michael Kronick (Executive Director, Canadian Carpet Institute): Thank you,Mr. Chairman. My name is Michael Kronick and I am executive director of the Canadian Carpet Institute. I have some others with me I'd like to introduce. Mr. David Arditi is president and CEO of Peerless Carpet; Mr. Yvon Hébert is president of Venture Carpets; Mr. Gordon Laing is vice-president of finance for Crosley Carpet Mills; and Mr. Pat McPherson is our counsel in these matters.

Mr. Chairman, the Canadian Carpet Institute is pleased to have this opportunity to present its views to the joint subcommittee. Our industry has nearly five years of direct experience with anti-dumping measures granted under the Special Import Measures Act. Based on this experience, we strongly believe that SIMA is an effective and necessary piece of legislation.

Our industry unquestionably suffered injury from imports over the period 1988 to 1991. The major proportion of those imports were dumped. SIMA was the only remedy available to us. As detailed in our brief, SIMA enabled the industry to stop a disastrous decline and to make a substantial recovery. It did so without causing any major disruption of trade, and it did so without denying Canadian consumers access to a wide choice of fairly priced carpet products.

.1540

I will briefly review the recent history of the Canadian carpet market, as detailed in our brief.

Tufted carpet imports into Canada from the United States have rarely exceeded 5 million square metres prior to 1988, the year in which aggressive price competition by U.S. mills commenced. Between 1988 and 1991, these imports grew from 5.1 million square metres to 28 million square metres, which is from 8% to 41% of the total Canadian market.

The average selling price dropped by nearly 10%, from $10.41 per square metre in 1989 to $9.47 per square metre in 1991. A number of Canadian manufacturers ceased operation. Most of the survivors were losing money at an unsustainable rate.

SIMA measures were imposed provisionally by Revenue Canada in December 1991. These were confirmed by the CITT's finding of material injury in April 1992. Domestic manufacturers began to achieve almost immediate improvements in sales and production, and import penetration began to decline within a few months of the tribunal's finding. The Canadian market share has recovered from a low of 53% in 1991 to 64.3% in 1995.

The anti-dumping regime has clearly had a remedial effect for Canadian producers. The dumping-induced injury that the Canadian industry had suffered was redressed. This redress, however, has not disadvantaged Canadian consumers. Prices have risen only 4.5% between 1991 and 1995. Even in that period of general recuperation, the rate of increase was well below that of the consumer price index.

SIMA measures have not resulted in the disappearance of imported carpet from Canada. Imports from the U.S. continue to enjoy a healthy share of this market.

The growth of free trade does not, from the Canadian Carpet Institute's perspective, obviate the need for anti-dumping measures, such as those contained in SIMA. Our members are aggressively pursuing global opportunities. They also act as importers, both of raw materials used for further processing in Canada and of finished carpet, which they distribute.

We have adapted to free trade, overcoming most of its challenges and doing what we can with its benefits. We cannot, however, compete against U.S. exporters selling their products into Canada at prices significantly lower than those offered in their home market.

As illustrated, during the period 1988 to 1991, Canada is a convenient and tempting target for U.S. manufacturers with significant excess capacity and the incentive to dump. Had we not had access to SIMA, there is no doubt that Canadian producers would have suffered further damage and that some would have been destroyed.

We do have some concerns about enforcement, which we would be pleased to expand upon. In addressing the major issue you are considering, however, we submit our experience as a case study of why SIMA continues to be needed and how it is functioning effectively for all Canadian stakeholders.

Thank you.

The Co-Chairman (Mr. Duhamel): Thank you very much. Mr. Gottlieb.

Mr. Richard S. Gottlieb (Lawyer, Gottlieb & Pearson): Thank you, Mr. Chairman and members.

I'm Richard Gottlieb. I'm an attorney here on behalf of Gottlieb & Pearson. I'm with Paul Moen, a member of our office.

Our firm has represented, since 1969, a large number of Canadian importers, foreign exporters to Canada and Canadian producers, vis-à-vis both National Revenue and the Canadian International Trade Tribunal and its predecessors. We are here on behalf of the wide contingent of clients we represent. Therefore, we are advocating for the present legislation, save for certain fine tuning, to be retained. It is in the interests of Canada, which is a major exporter relying very heavily on foreign markets, to set an example for our trading partners.

.1545

We're not saying that we should reduce protection. Indeed, it's our view that present legislation, enforced as it is very vigorously by National Revenue, adequately protects Canadian industry.

We understand that certain producer groups are calling for stronger legislation to reflect U.S. legislation and administrative practices. I'm certainly mindful of the fact that the U.S. does not play fair when it comes to Canadian exports. Whether under trade legislation or otherwise, the Americans have a tendency to not only exploit the legislation, but to disregard the results even when they lose cases.

However, beefing up our legislation to retaliate does not seem to us to be a reasonable approach. First of all, that would affect all imports, which means not only finished products, but also inputs. It should be kept in mind that Canadian producers are highly dependent on foreign inputs. To the extent that they do not have access to foreign inputs, they become less competitive with exporters to Canada of products that use those inputs.

We also submit that this would discourage Canadian potential production by making the importation of imports more problematic. We already have a problem in terms of the limitation of duty drawback that discourages Canadian production when it is dependent on third country, non-NAFTA inputs.

Therefore, we're suggesting that the thrust of the present legislation be retained, but we would like to see a few changes.

First, as for the settlement process, we would like to see more transparency at the stage of pre-initiation of the investigation. We believe that parties who have an interest should be given notice and be involved in the process by which the deputy minister decides whether to initiate an investigation. We think this could lead to settlements, refinements of complaints, or limiting complaints to products or product categories that are really injurious. Very often investigation is initiated and somewhere down the road certain product categories are excluded. Sometimes they're initiated on the basis of no evidence of injury, but the deputy minister is unaware of this. We would favour a process that would lead to more dispute resolution. We think this transparency would help.

Second, we would like to see the public interest section of the statute improved on. Under GATT's anti-dumping and countervailing duty codes, it is provided that anti-dumping or countervailing duty should only be imposed to the extent that the Canadian industry requires protection. Under the present law there is no way the tribunal can reduce anti-dumping or countervailing duty on that basis. It has to go through a process of public-interest review.

We would like to see a broader public interest provision in the law so that parties affected by anti-dumping countervailing duties can come forward and advocate in their interests. We tend to forget that the victim, if we can call them that, of anti-dumping, countervailing duty legislation is the user. Again, it's an input importer. If it's a consumer product it's a retailer.

.1550

There ought to be more of a balance between the interests of the primary producer and the interests of those who use the product, especially when it is an input. If you're looking at jobs, I suggest that there are many more jobs with the sectors of the economy using the inputs than there are with the producers of the input itself. We're talking about sugar, steel and a number of other products. If we want the legislation to work in Canada's favour, we should broaden the public interest provision.

I would also like to see a more vigorous reference - and this is not in the statute itself - to the WTO against countries like the U.S. and the E.U. whenever their legislation victimizes our exports. I think a number of trading partners out there would support Canada. This would be a more salutary approach than setting another bad example to give the Americans and the E.U. a point of reference. We know that those countries often piggyback onto some of the draconian measures we employ and then apply them themselves to our exports to those countries.

The Co-Chairman (Mr. Duhamel): Thank you, sir.

Mr. Donald McArthur (President, Canadian Importers Association): Co-chairmen and members of the subcommittees for foreign trade and finance, I would like to introduce Don Goodwin, the president of Tracon Consultants, who is a long-time member of the association and has helped the association to prepare this brief.

I would like first of all to profile the membership of the Canadian Importers Association; I think it will provide insight into our perspective and how we view a dispute resolution under SIMA. Then I will explain some of our recommendations or suggestions.

First of all, the Canadian Importers Association is a national non-profit association that has been in business since 1932 with a mandate to promote Canada's international trade and to provide services to its membership. We currently have 600 members, all corporations. They tend to be medium to large corporations, all involved in international trade. They include manufacturers that import components for further processing. They include national retail chains, almost all of them, and traditional importer distributors that buy on their own account and then resell to either manufacturers or retailers as the case may be.

We've had some involvement in the SIMA process. Because this is an area of great importance to our members, in the last couple of years we have held three full-day conferences at which we've had all of the SIMA issues on the agenda, we've had senior government officials, we've had the top practitioners in anti-dumping and countervailing, and we've had industry spokesmen speak on the issues. We got a balanced presentation in order to keep our members informed, and the conferences have been well attended.

We've also had lots of other discussions on SIMA, including the review not long ago of the Attorney General's office. We've participated directly in some of the SIMA processes, one in particular being the dumping investigations on ladies' footwear from China.

.1555

I'd like to deal first with an issue Mr. Gottlieb has mentioned and which has been publicly presented by the Canadian Steel Producers Association. That is that consideration be given to the adoption of the U.S. system. We understand they have requested that the Canadian system be changed in five key areas to bring it in line with the U.S. system.

The reason cited publicly for the changes was to force the U.S. steel producers to agree not to apply anti-dumping laws to intra-NAFTA trade. Our association agrees with that objective, but we don't agree with the method being used to try to achieve this goal. It's our view that neither the U.S. nor the Canadian anti-dumping and countervailing regimes are suitable vehicles for the resolution of trade disputes among NAFTA partners. Serious consideration should be given to the use of national competition laws to deal with predatory pricing that may arise among NAFTA trading partners.

In spite of our preference for the use of national competition laws within the NAFTA context, we believe that the Canadian approach to dumping is superior in every respect to the U.S. system. Our system is prospective, theirs is retrospective, thus creating greater business uncertainty. Our system sets a normal value or minimum export price to Canada, which must be reflected in any pricing in Canada, whereas the U.S. system of applying duty rates does not guarantee that dumping duty will form part of the resale price in the U.S.

Therefore, the association recommends that Canada maintain its normal value system and amend its annual review practices to eliminate the changes that have been made very recently and incorporated into the system in this year. We also recommend several new changes to SIMA that we believe will help maintain and enhance the superiority of Canada's normal value and anti-dumping system. These are changes that will reduce costs for all parties and provide Canadian manufacturers with prompt and easy access to low-cost inputs, which we believe will enhance their competitiveness in the global market. This will help maintain Canada's positive balance of trade.

I have a list of six of those recommendations, which I'll go through rather quickly, but which are more fully explained. Mr. Chairman, I think I still have some time.

The Co-Chairman (Mr. Duhamel): You have time for them quickly.

Mr. McArthur: The first recommendation is that SIMA be amended to require a separate decision. Therefore, there should be separate considerations for injury, for each exporter and country in multi-exporter country inquiries.

Second, we recommend that dumping duties only be applicable to future purchases following the tribunal's decision of injury.

We recommend that SIMA be amended to require Revenue Canada to seek input from importers and exporters when first presented with a complaint by Canadian producers.

We recommend that SIMA be amended to require that price undertakings be reviewed within a specific time period and that in any event they be in place no longer than five years.

We recommend that SIMA be amended to provide for progression to sales of similar goods in circumstances where there are sales of like goods to only one customer. I realize that's a very technical issue. This would be rather than using the constructed value approach.

We recommend that SIMA be amended to provide that a distributor's cost of goods be determined from the purchase price in arm's-length transactions. That's rather important, because very often the distributor doesn't know the manufacturer's cost.

The final one is extremely difficult. We say this in full recognition that it won't be easy. We really think that Canada should try in some way to renegotiate article 303 of NAFTA to provide for anti-dumping duty drawback on inputs to Canadian manufactured goods that are exported to the United States or Mexico.

Thank you.

The Co-Chairman (Mr. Duhamel): Thank you. Can we continue?

.1600

Mr. Jack Wilkinson (President, Canadian Federation of Agriculture): Thank you. I'll just be doing the introduction. Don Knoerr, who is here with us, has been involved in trade issues on our behalf for some time, both as the past-president of the CFA and over the last number of years on a trade committee.

Briefly, the CFA is the general farm organization in Canada, by far the largest. We represent around 200,000 farmers, as well as a number of provincial and national commodity organizations, and also general farm organizations at the provincial level. We have taken a great deal of time and effort on behalf of our members in the CUSTA negotiations, NAFTA, and every round of the WTO to develop a broad-based policy point of view that respects both their export interests from a Canadian point of view as well as to design a balanced approach in relation to dealing with unfair imports and in those areas of sensitivity in the Canadian production side, whether it would be horticultural or other commodities.

With that introduction, I would like Don Knoerr to go into the details of our presentation.Mr. Chair, I have to leave at around 4:30, so I'll be sneaking out the back door. Don has all the brains and I have the good looks, so the right people will be staying behind. Thank you.

Mr. Don Knoerr (Trade Representative, Canadian Federation of Agriculture): Thank you.

The Canadian Federation of Agriculture, to the degree it felt it could make useful comments, has endeavoured, although not in that format, to answer the questions raised initially and also to respond to some of the issues raised in the background paper put out by the Department of Finance.

I would note that some member organizations associated with us will be appearing later at the Canadian Horticultural Council, and I believe some horticultural groups from B.C. will also be there. They've been closer to specific SIMA actions than we have and probably will be able to deal with maybe some of the more technical questions. Our comments relate more to general principles and where we see SIMA fitting in.

Starting from the larger to the smaller, we first talk about the global trading environment, which certainly has changed dramatically over the years. It's becoming a more competitive, integrated market internationally. We've gotten new disciplines on not only the use of trade remedy measures but a number of agricultural practices through the last GATT round and agreement. But it's still far from a nice clean place to do business in. It's not a level playing field.

Canadian agricultural producers, despite the recent agricultural agreement, find they are competing with other farmers in countries where they still have export subsidy rights, which we have given up in Canada; they have a higher level of domestic support, and they have a much more substantial level of border protection than Canada. That has led us to the conclusion that SIMA is still relevant and very needed in the increasing globalized world trading community. But we have both export and domestic interests in agriculture, and we believe that both countervail and anti-dump must be governed by effective WTO rules, and Canada as well as all other WTO members must be obliged to follow those rules. You can't have your cake and eat it too.

Shrinking down to the smaller unit, Canada as a government is taking a position that traditional trade remedies have no place in the free trade area. We've heard some observations on that. Our basic observation is that this may have its theoretical merits but it has very little to do with current realities.

First of all, the NAFTA agreement did restrain the use of safeguard measures somewhat significantly. That's not part of your legislation. Your legislation covers both countervail and anti-dumping. Canada, as a matter of government policy, has abandoned trying to resolve problems with countervail within the NAFTA environment. They've focused. So it's become a preoccupation with getting rid of anti-dumping.

In our judgment, this current preoccupation could actually interfere with us focusing on the things that could realistically happen in the short to medium term, because there's no likelihood the U.S. is going to give up its ability to do it. Moreover, to some degree this has interfered with the recognition that anti-dumping action on the part of Canada has proven very important and necessary for Canadian agricultural producers. With the exception of one countervail case in recent times, it has really been the only trade remedy measure that's been available and effective for Canadian agricultural producers to deal with some very unfair trade problems.

.1605

To some degree it's a question of timing. As was said today, all the theory on replacing anti-dumping in a free trade area has the caveat that it will be replaced with the application of competition policy.

If you look at NAFTA on competition policy, there's an agreement that all the parties will have competition laws and that they'll cooperate on them. There are no standards set for those laws, and there are no provisions relating how it shall apply towards products that are exported to the other country. The last paragraph in the article dealing with competition policy in NAFTA says that parties shall not have recourse to a dispute settlement process for matters arising in this area.

So you have the theory, which may well be true some day, that in an integrated market we're beyond the stage of anti-dumping and we should use a competition law. But you currently have a vacuum; you're jumping from the frying pan into the fire and giving up what is a very important tool for Canadian agriculture if you go ahead with anti-dumping without making sure you have the other things in place.

Basically what CFA says is that SIMA is still relevant and needed in the NAFTA trading environment at the current time. We recognize the need to have better discipline on the use of trade remedy measures in NAFTA, and we think that's the starting point. We get hurt by them. There are more likely countervail or safeguard actions on the part of the U.S.

First of all, make sure all that all NAFTA parties adhere to WTO rules governing the application of anti-dumping and countervail measures. Seek agreements with the U.S. governing the application of both countervail and anti-dumping within NAFTA that will bring more discipline to it and we'll accept that. If the U.S. is going to do anything now, that's the limit to what you can do.

In the longer run perhaps we could explore the possibility of having a joint administration, a bi-national or tri-national commission or however large NAFTA gets, that would run anti-dumping and countervail for every country. That would make sure it was actually very fair and then we could really decide collectively when we have matured to the point where we can get rid of it.

Also, in the international environment we're just in the infancy of sorting out the issues related to competition law. Let's explore the possibility of developing rules in competition policy that will prevent the use of it in disguising trade barriers. Claims of anti-competition are a possibility, and that's been threatened in the United States. How it's used will effectively control unfair trade practices and predatory pricing across borders as well as within a country.

We would also note that Canadian competition law has some very specific provisions related to agriculture marketing structures. From our point of view, certainly any agreements are going to make sure that in an international scene our interests in competition law relating to what we can do with agricultural marketing structures are respected. We have both legislative provisions and court precedents relating to that.

We would suggest that once we've made significant progress in this area, which is going to take some time, believe me, then maybe we can sit down and intelligently discuss the reality of getting rid of anti-dumping in a NAFTA environment.

Very briefly, I think we're going to find out very quickly some of the hazards associated with this. We're currently negotiating a trade agreement with Chile. Our organization isn't at the bargaining table, but obviously this is the general direction. It's quite possible that our government may try to negotiate a provision where we will not have anti-dumping with Chile. From our point of view this is very bad news; it's a very foolish move.

We hope we have no problems with Chile, but we don't know; it's a new experiment. From an agricultural perspective, you take away the one tool that's been effective for us and you leave the tool that's caused us the most problem in the United States, which is countervail. We don't know what happened in Chile. We'll have the same agreement with Chile that we have in NAFTA and with Israel on competition law, which says we'll do some things but there's no guarantee on how it's done and there's no recourse to dispute settlement. If we do have problems, agricultural producers will have no resource.

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Our experience with safeguard measures is that they just don't work in agriculture. Very simply put, we say any Canada-Chile trade agreement must ensure that all SIMA provisions apply to Canada trade with Chile. It's not a question of long-term goals, but because we're concerned about problems we have and we have our eyes on a long-term goal, we may make some very foolish short-term mistakes because we aren't ready to do it.

On this question of comparability between ours and the U.S. system, we polled our members. There was a gut reaction that was very clear and loud: those who have had experience figure there's an ability to be politically manipulated, causing problems for the people affected. The U.S. system is a lot more effective doing damage than ours is. The gut reaction was that unless the U.S. is responsible and is willing to move down, and we can move down, and accept collective rules, then if we have any option we should be as aggressive as they are.

I appreciate some of the comments. Our producers have found normal value very useful. I think the important point in this comment is that we've never figured out that turning the other cheek has had much influence on the Americans. It takes something much more dramatic to do business with them. We certainly should not be softening up just because we want the Americans to change. We had better make sure ours is effective, from our point of view.

In our brief we make a couple of comments about why anti-dumping has been most important in agriculture. We talk about sugar, we talk about horticultural trade. Our time is limited, so I won't go into that, but I do want to talk about several specific aspects of our industry that cause certain problems.

The Co-Chairman (Mr. Duhamel): To be fair to our other colleagues who have already spoken and who have limited their comments, I wonder if that could perhaps be brought forward during the questioning - unless it can be done within one or two minutes at the very most.

Mr. Knoerr: Okay.

We're an industry of small units. We're very unique as a primary industry. Our producers have a lot of trouble accessing this system. I think that should be taken into consideration, what could facilitate that.

Second, we have very highly perishable products. It's different from almost any other sector. If it isn't marketed in four days, it's gone. Your season is short. GATT rules say right now you can't make a preliminary determination for 60 days and SIMA tends to run 90. In critical circumstances, such as perishable products, it should be done in no more than 60 days, and Canada should pursue an agricultural agreement in WTO for critical circumstances that would permit faster action.

Third, as a primary sector our relationship to processed products is different from everybody else's. A lot of our agriculture products are only marketed in the processed form, be it sugar beets through refined sugar, beef cattle through carcasses, and processed peas through frozen packages. We have no standing in an action on a processed product, even though a problem with a processed product can wipe us out. Injury to us because of a problem with a processed product is not a legitimate basis for action. You can't change that without changing the WTO rules on the domestic industry, but we think Canada should pursue that, at least for agriculture, because this is a unique relationship.

In the meantime, any consideration of the public interest in SIMA under the SIMA processes have to give high priority to the upstream problems, unlike the background paper, which only talked about the downstream problems. Because in certain parts of agriculture, if I lose my processing sector, I'm destroyed.

Thank you.

The Co-Chairman (Mr. Duhamel): Thank you very much.

Thank you all. We're now at the point where members will want to raise some questions. There may be more than one person who wants to answer. Again, I'm sorry to be dwelling on this, but we must be as brief as possible in our responses. If we have more time we can always answer more questions closer to the end.

I will go with my colleague, Mr. Sauvageau.

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[Translation]

Mr. Sauvageau: I will try to be brief. I have listened carefully to the presentations of the business representatives and I understand that they do not really object to the present legislation and that they are only proposing minor changes. They would even be satisfied with the status quo except maybe for Mr. McArthur who seems to want a law with less restrictions. May I ask him to send us in writing the changes he would like to see so that our committee might include them in the law?

My second question is to Mr. Knoerr and deals with our free trade agreement with Chili. I understand that farmers or even the majority of our producers trading with Chili do not have easily access to a tribunal or another authority to get a trade remedy. If this is the case, could the same situation arise within our trade agreement with Israel as an injury might be caused to businesses trading with Israel where it is possible to buy luxury fabrics in Europe duty free and trade on a rather unfair basis with Canada? Do Canadian businesses have a place where they can lodge a complaint?

[English]

The Co-Chairman (Mr. Duhamel): Mr. McArthur, would you like to lead off. Clearly, everyone will get an opportunity.

Mr. McArthur: With regard to your question on an elaboration of our recommendations, we'd be very happy to do that. Our brief does contain some elaboration of what I mentioned in my opening remarks, but we certainly could add more.

For example, we've stated that there were some administrative changes made this year, but we didn't specify in our brief what those were. We'd be happy to do that, because we think it's important, particularly when considering third-country - that is, non-NAFTA - transactions; these are most important for those trading partners.

We could be more specific. We'd be happy to do that if it would help the committee in its deliberations.

The Co-Chairman (Mr. Duhamel): Thank you. Mr. Gottlieb.

[Translation]

Mr. Gottlieb: You raised a very good point, Mr. Sauvageau. You have received a large number of briefs that we did not get. In order to facilitate the work of your sub-committee, you might let us have access to that documentation. The information in it is not confidential and it might be useful if we could deal not only with the issues we raise in our own brief, but also those raised by other individuals or associations.

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This is a very important legislation for Canadian industries and I think that you should have the largest possible exchange of ideas. As far as we are concerned, we shall send you in writing some specific recommendations. Most of them are already in our brief.

Mr. Sauvageau: Thank you. I must say that we have just received those briefs. This is why I did not read them. If they already deal with some issues I am raising here, I shall ask you to forgive me.

The Co-Chairman (Mr. Duhamel): Can we go on, Mr. Sauvageau?

[English]

Are there other responses to that question? Just to refresh your memories, Mr. Sauvageau asked about the specifics with regard to the changes you would like. If they're not already contained in documentation you've sent us, are you able to in fact put them in writing so that we can concentrate on those, focus upon them? Mr. Kronick, did you want to...?

Mr. Kronick: We do point to one area in which we do have considerable concern in the enforcement area, Mr. Chairman. Would you like me to just -

The Co-Chairman (Mr. Duhamel): Just very quickly, I suppose there are two things. First of all, you're prepared to follow up with a written statement. I guess that was Mr. Sauvageau's prime interest with regard to that one and any others you might have. Is that correct?

Mr. Kronick: Yes.

The Co-Chairman (Mr. Duhamel): Okay, and very briefly now, you wanted to tell us what the concern was with respect to enforcement.

Mr. Kronick: We would like to see Revenue Canada given broader enforcement powers in an area that is of a particular concern to us.

With carpet, you have literally thousands of carpet styles coming into the country. We believe there is an avenue of circumvention available to the exporters by changing the names of particular styles or what we call branded and unbranded fibre products. Just interchanging them is a way of circumventing the normal values. These are complex matters, and we appreciate the difficulty Revenue Canada has with them, but we would like to see some tightening up in that area.

The Co-Chairman (Mr. Duhamel): I suspect that's an issue that in fact affects other people in other sectors as well, and we'll probably hear some more.

Mr. Wilkinson or Mr. Knoerr, did you want to respond to that?

Mr. Knoerr: I'm going to clearly underline what I said: Canada clearly has two free trade agreements, one with Israel and NAFTA, neither of which has any provision relating to anti-dump or countervail, so WTO rules apply.

I can't tell you what's happening in the Chilean negotiations right now. Given Canada's position, however, if Chile is willing, I suspect they could agree to the elimination of anti-dumping duties between Canada and Chile. If that happens, a Canadian producer who is affected by dumped Chilean products - let's hope it never happens - or predatory pricing would have no recourse through its trade remedy measure. The only recourse would be to ask the government to go down to ask the anti-competition law authority in Chile to take action against that company for what it is doing in its exports to Canada. I may be wrong, but I just have no knowledge whether that would work or would not.

You also would then have the situation in which you could have the anomaly of the U.S. possibly taking a trade action against Chilean exports to the U.S., and as we've seen at other times with agriculture, they could then get diverted into Canada. So even though increased trade works well, those kinds of diversions create disasters.

The Co-Chairman (Mr. Duhamel): Thank you.

Just to follow up, would you be prepared to give us some written documentation on that?

Mr. Knoerr: Yes.

The Co-Chairman (Mr. Duhamel): Thank you.

Mr. MacDonald.

Mr. MacDonald (Dartmouth): Thank you very much, Mr. Chairman.

As all of our participants know, this is an area of law that is extremely important to the efficient functioning of our economies and our different sectors, particularly in an era of freer trade. There are different opinions that we hear from different people about the utility of our actions and where the priority should be with respect to the axis of our government.

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I've heard two different things here today, one from Mr. McArthur, the other fromMr. Wilkinson and Mr. Knoerr. I'm surprised we haven't had a little more debate on them.

In one respect, we have one of our participants indicating - and this is the position of the government - that in a free trade area such as the NAFTA, it is inconsistent to have any anti-dumping regime in these types of pieces of legislation, that what you ideally have to do is work towards the elimination of that and towards the harmonization of competition law between those states within the free market. But when we deal with the Canadian Federation of Agriculture, I hear quite clearly that they believe these types of measures are necessary to protect certain industries - and they mentioned the agriculture industry.

I'm going to throw out a case in point. It is one that has been around for the last couple of months, and I guess it's one that some of us in Parliament have to grapple with because it impacts on our ridings. There is a dispute between the sugar industry in Canada and the one in the U.S. We have what's called a sugar caucus - and I think everybody at the table here would be aware of what I'm speaking about. Under the NAFTA, a challenge was made against the actions the Canadian government had taken. We have been successful. However, the NAFTA decision asked for additional information from Revenue Canada and from the Canadian government on how we assess the value.

That was all done and I thought most people would be happy with it. Perhaps not to my surprise, though, a few of us got letters from industries in our ridings - in mine there is a Moirs Chocolates plant - that produce a product for the Canadian-U.S. market. They're telling us that even though we won the dispute under the NAFTA, and indeed because we have not been able to get into an era where these disputes are settled in other manners without using these types of measures, the existence of over a thousand jobs is now at stake.

So what I would like to hear from both people here, one from the agricultural sector and one representing the importers, is their views on that particular case. On the one hand, we have the refined sugar manufacturers in Canada who seem to be happy with the decision from the NAFTA panel on the measures the Canadian government took to protect that side of the industry. But because of that victory, we now have another side of the industry - the industrial side that produces product - saying that it may have to move some of its production to the United States.

Mr. McArthur: You've brought up a very key issue. It's one we have to balance all of the time within our membership, because we have pure importers whose interest is importing and importers who are manufacturers that are using the product as an input. That's one of the great problems and dilemmas we face. So I think one then has to look at which decision will produce the greater good. Is it better to have protection from low-cost countries for the domestic industry of that product, or is it better for downstream manufacturers to have lower-cost inputs so that they can be more competitive globally and also produce lower-cost goods for Canadian consumers? I'm not sure we have an answer, but I think our membership would tend to favour the latter; that is, consider downstream manufacturing first, that being the greater good and of greatest value to the country.

Mr. MacDonald: But would it be your opinion that before measures are taken in response to the lower-cost imports coming into Canada, the Canadian government should do a review to see where the greatest potential positive or negative impact is beforehand? Do you think that should be the primary consideration?

Mr. McArthur: I would think that would be prudent, yes. And then there is also this whole matter of predatory pricing if competition law were to be used. It would then be determined if that low cost is in fact designed to be predatory pricing. That is, is it aimed at eliminating the domestic competition? Is the purpose of the low price not necessarily simply to sell?

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Mr. Knoerr: Mr. Chair, if this committee wants to understand what we're saying about the current reality, the gentleman picked the right commodity.

Prior to 1988, the U.S. had restrictions that covered Canada in terms of the import of sugar. We had very little access to the refined sugar market in the U.S. They did not relinquish that right; they still have it, obviously. But after the free trade agreement, they removed the restrictions.

We increased two-way trade in refined sugar between Canada and the United States. The U.S., however, runs a protected market, not a free-world market. They have very high border tariffs, restrictions on imports, and a higher domestic price for sugar, but they export out of it with the duty drawback program. Agriculture opposed any extension on that, but for some reason our negotiators exempted the elimination of duty drawback in NAFTA, so it's there permanently.

We had increased imports and exports of sugar, but the imports increased much more rapidly. In 1995 the U.S. again placed export restrictions on Canada's sugar. As U.S.-dumped sugar and EEC export subsidy sugar came into Canada, there was displacement of Canadian sugar beet producers - their basic market is the domestic market - in the marketplace. They moved it in the safety valve of exports to the United States. If we had not had anti-dumping action taken and our primary producers had no standing, they would have seen their industry wiped out permanently - once those plants are gone, they'll never be re-established - by unfair, predatory pricing.

We talk about value-added production, which is where you take a primary product and value-add it. If you had wiped out the domestic sugar beet industry, you would have replaced the domestic sugar with imported sugar, and you would have created a value-reduced process. And once the domestic refinery industry was in bad shape and had lost out, what would happen to the price of imported sugar? They wouldn't be dumping any more, they'd start raising the price.

On a fair trading field with good competition, we understand how the laws work and we know how competition policy applies, so we can move towards it. But in the real world today, if we had not had the availability of SIMA measures, some of the world's most efficient sugar beet growers - they are a group without this border protection that everybody else has - would have been wiped out because of predatory, unfair practices used by the United States while they kept all the protection for their own domestic market.

Those are the current realities.

The Co-Chairman (Mr. Duhamel): Thank you.

Do any other guests want to add to the particular question raised by Mr. MacDonald? Go ahead, Mr. Kronick.

Mr. Kronick: Thank you, Mr. Chairman.

On the issue of imports and downstream industries, from our industry's point of view, imported carpet is not used for further downstream processing. There is, of course, no problem in that regard. Had we not had access to SIMA protection in 1991, however, there is a good possibility that 3,000 to 5,000 jobs that exist in carpet manufacturing today would not be around. So I'd just like to emphasize that part of it.

The Co-Chairman (Mr. Duhamel): Mr. Gottlieb.

Mr. Gottlieb: I think it would be helpful, Mr. MacDonald, to make a couple of points. Firstly, in terms of competition law, predatory pricing doesn't work. You would never have an injury determination because I've never seen a predatory pricing situation in a dumping case - and I'm not speaking as a trade lawyer whose livelihood depends on dumping cases, because we do competition. It would be almost impossible, and I don't think we've ever had a Competition Act conviction in Canada for unfair pricing. You need anti-dumping and countervailing duty protection.

The issue that you raised about the conflict between the producers of primary or semi-manufactured goods and finished goods is a terrible one. It's very difficult to resolve, which is why we paid considerable attention to it in our brief. We think the public interest ought to be addressed much more fully in the legislation than it is at present.

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I know Moirs was one of the users of American sugar. You also have to understand that currently, when American sugar is imported into Canada, it may be subject to anti-dumping duty, but when the product, the chocolate bar or whatever, is re-exported to the United States there is a duty refund. The injury finding does not completely preclude imports from the U.S., only with respect to goods destined to be sold in Canada.

The Co-Chairman (Mr. Duhamel): Mr. MacDonald, is this satisfactory for the time being, or did you want to add to that before I go to Mr. Speller?

Mr. MacDonald: No, it's fine. I simply raised it to show that outside of those who are practitioners or who have a particular interest, the issues at hand are extremely complex. And the positions on both sides are very meritorious if you do it on a case-by-case basis. I just tried to encourage some debate, Mr. Chairman.

The Co-Chairman (Mr. Duhamel): I appreciate the question. Obviously it does point out the complexity.

Mr. Speller, it's your turn.

Mr. Speller (Haldimand - Norfolk): That's why I hate going after Mr. MacDonald - he generally ends up asking the questions I was about to ask. But I'd like to get into a debate too.

Mr. Gottlieb and Mr. Knoerr both talked about the whole question of the public good, having public access and making sure the public has some say in these decisions. To both of you, how would you define that public good and how would it be reflected in government policy?

The Co-Chairman (Mr. Duhamel): I think everyone will want to answer to the definition of public good. I will go around the table and give you an opportunity to do so.

Mr. Knoerr.

Mr. Knoerr: My answers can be somewhat parochial, but I will make two observations. I think one is fairly pertinent. It relates to a study done by the old Tariff Board, the predecessor to CITT, before seasonal tariffs were negotiated for Canadian horticulture. When they did an investigation they found evidence that when domestic product was available, imports were sold at a lower price than when domestic product wasn't available.

If you want the maximum economic benefits in the food industry, you want a healthy process from beginning to end. The primary producer is not just a provider of cheap inputs for the processing industry, because you won't survive that way and you will lose that benefit. The one thing you really have to keep in mind is that short-term benefits from cheaper products may eliminate the security of domestic supply and the competitiveness of domestic supply, which may well mean in the long run that the consumer pays the consequences through higher prices.

Certainly in the food sector in Canada, part of the public interest is having a stable, reasonably priced domestic supply of food - even though we're going to access food from all over the world - and to get the maximum benefits from the whole agrifood sector. To accomplish that, you cannot ignore the other sectors, but you can't look downstream to the detriment of the primary sector without giving due consideration. The primary sector is the starting point of the process and it's important.

The Co-Chairman (Mr. Duhamel): Thank you. Mr. McArthur.

By the way, you're not compelled to answer the question. I want you to know that I was teasing a bit.

Mr. McArthur: I would like to respond.

In response to Mr. MacDonald's question, I did use whichever was the greater good, which was probably not a really good way to respond. But there is certainly a public interest, which Mr. Gottlieb has explained in much more detail.

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It's a matter of balance. How do you determine whether it's better to protect a primary industry or whether it's better to protect the subsequent or the downstream industry? I don't know how to do that.

As we were preparing our brief, there's one thing that occurred to us should be done. That is, when there is a determination of dumping and then a judgment that there is injury, the margin of dumping or the dumping duty should only be enough to alleviate the industry and not be an amount that is punitive or arbitrary or an amount that would severely damage or prohibit the importation of a particular product. That's one area, and that's covered as part of our brief. When the final decision is made, it should be made sufficient only to cover injury.

The Co-Chairman (Mr. Duhamel): Thank you. Mr. Gottlieb.

Mr. Gottlieb: I won't repeat what has been said but just add a couple of precisions.

The object of SIMA is to protect Canadian producers who are being injured by dumping or subsidization. We have no question about that. Public interest is not defined, obviously. Otherwise life would be very merry and you wouldn't need lawyers.

Essentially, when the tribunal conducts a public interests hearing, it attempts to balance the need to protect the Canadian industry, which is a given, with those situations where the users, either input users or consumers, are adversely affected. It's this balancing process, and it's case by case, that is the so-called public interest.

What we say is that the legislation has to be broadened so the tribunal can also consider the lesser duty approach Don spoke about. Now, there's another element we're suggesting here. That is, I think since 1984 there's been only one case where the tribunal has recommended a reduction of anti-dumping or countervailing duty. This was in the case of corn from the United States, on the request of the Canadian Industrial Corn Users Group.

Under the present legislation the tribunal only makes a recommendation. It is then left to the minister to decide whether to implement it or not. There's a political process there. On occasion the minister has refused. We're suggesting that, with respect, this should no longer be a political decision. The tribunal should be sole master of the public interest. Now, you could have a debate about that as well. But as we read the GATT codes, we don't see any provision or requirement for political control.

The Co-Chairman (Mr. Duhamel): Thank you. Mr. Kronick.

Mr. Kronick: Thank you, Mr. Chairman.

I can only talk about the public interest as we understand it in our particular case. As I've stated and as we've argued in our brief, we believe the public in the form of the consumer continues to be very well served under the anti-dumping measures that are in place for machine-tufted carpet. I'll emphasize why we say that.

Consumers continue to have access to a considerable variety of imported carpet. They continue to have access to carpet that is very fairly and reasonably priced and a good value. We would take that a step further in saying that surely the public interest does not give anyone in Canada the right to purchase carpet from U.S. exporters at prices lower than those the companies would be selling them at in their home market. Indeed, this is the very definition of what the anti-dumping system is about and why we have it.

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Just to underline this with a definitive statement from our brief, what moral authority would anyone have to demand the sacrifice of Canadian producers in the hope of enjoying lower than home market prices from manufacturers in other countries?

The Co-Chairman (Mr. Duhamel): Thank you.

I want to follow up on something before we finish up and go to our colleague, Mr. Dupuy.

It would appear there are common denominator elements here, but from where I sit - assuming I've interpreted it correctly - the definition of public interest and or public good might vary from one sector to another. It may be a fairly elusive concept. If one could conceptualize it as a block, one half of the block may have some commonality but the other may shift a bit. Have I perhaps not seen clearly here? You may want to think about that and respond later.

I want to make sure Mr. Speller gets a chance to finish off his point.

Mr. Speller: Mr. Chairman, we are in baseball season and that was my set-up question.

Now my real question is I'm wondering, Mr. Gottlieb and Mr. McArthur, about what you said earlier when you said it's hard for a government to put one set of jobs up against another set of jobs. Mr. Gottlieb, in your point five you say there are many more jobs at stake in respect of input users and that's the case for the producers of inputs.

I'm wondering if you feel it is in the public interest - for instance, in your point one, you say retaliation against the United States does not make much sense in view of the smallness of Canada - not to retaliate in any way against the Americans because they're so big. What would that do to any small business that would want to have access into the States?

I find it surprising that this would be somehow in the public good not to retaliate against a foreign government that stops our inputs going into the country. I find it surprising too that you would ask that governments should be weighing numbers of jobs in defining what the public interest is.

Mr. Gottlieb: Mr. Speller, I've been taking batting practice, so -

Mr. Speller: Finally, just one more point to Mr. McArthur while I'm there. I'm surprised it would be in the public interest that dumping duties only be applicable to future purchases. Wouldn't that set up a case where somebody would sit offshore with steel, dump it all into Canada, say okay, we can get a good deal here, and then take off? I can't see that being in the public interest though. I would like your comments on this.

Mr. Gottlieb: In the anti-dumping context, which is the point of reference, the retaliation we're addressing here is the call for more stringent legislation. We don't think it works because it subjects all goods from all countries to this more stringent legislation.

Secondly, it's our experience that Canadian producers often do not attack American exports even when they are dumping and causing injury because they are afraid of retaliation in the States. We have a lot of experience in that. Even this more stringent legislation won't work, in my experience.

We certainly don't think Canadians should sit back and do nothing. Outside of the dumping regime, I certainly believe in retaliation, in terms of safeguards and other injurious actions that are being caused by the U.S. where they are restricting our exports into the States.

I think Canada should be a lot more vigorous in protecting Canadian exporters in the U.S. and taking the U.S. to the WTO much more than has been the case at present.

That addresses the issue of retaliation. I've forgotten the second part.

The Co-Chairman (Mr. Duhamel): Jobs, sir, as a measure to determine public interest or good.

Mr. Gottlieb: That's already in the legislation and it's already in the practice. From a practical point of view, you can't look at the law in a vacuum. Jobs and revenue are the name of the game. I favour a less litigious and a more sensible approach to this whole issue of trade disputes and trying to seek common ground. I'm not talking about price-fixing. There is a provision for undertakings, but it seems to me that the dispute mechanism...the arguments between importers, exporters, and producers enrich the lawyers and consultants and may not always address the issues that are of concern to people like you and to the businessmen out there. I think most of them would rather avoid the anti-dumping mechanism entirely. They have asked many times whether we can do it a different way.

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The Co-Chairman (Mr. Duhamel): Finally, before we proceed to Mr. Dupuy, who has been waiting patiently, there was a third point. That was the example of someone offshore dumping a whole lot of steel and running off with the profits, particularly if there was a clause indicating that you could not pursue them except for future sales. In other words, they've already done the evil deed and they've gone. So what now? How do you respond to that, sir?

Mr. Gottlieb: I think anyone who causes material injury due to dumping or illegal subsidization should suffer the consequences - past, present, or future. I, myself, would not limit an injury finding to future imports.

The Co-Chairman (Mr. Duhamel): I see. Thank you.

Mr. McArthur.

Mr. McArthur: That was my point. I did have a set of circumstances in mind. If the dumping duty is applied during the preliminary stage or early in the process, this creates a high level of business uncertainty. The case in point I was thinking of would be a footwear importer who's under contract to a major department store that must commit for those goods months in advance. The store's price is locked in because of a catalogue, and the store therefore has no idea during that time if in fact the price quoted initially will be the price it must pay and whether or not it will be selling those goods for a normal profit or at a loss. Alternatively, if you can increase the price it would be unfair to the consumer, but I'm thinking particularly of the case in which there is no recourse for the seller because of a locked-in agreement with the buyer.

The Co-Chairman (Mr. Duhamel): I'd like to move on now to my colleague Mr. Dupuy, who has been waiting with some great patience.

The Co-Chairman (Mr. Dupuy): I've been listening too.

I suppose my question should be addressed to Mr. Gottlieb, because some of his comments anticipated what I have on my mind.

At the present time our legislation contains no reference to lesser duty. Would you go as far as to suggest that the lesser duty concept be inscribed into the legislation? Obviously, it would have a lot of significance. It would recognize that anti-dumping duties should be based not necessarily on bridging the dumping margin but on injury. It's of course a different way of balancing the interest between the users and the producers. I gather that lesser duty is to be found in the legislation of some other countries. What is your position on this?

Mr. Gottlieb: Lesser duty, in our understanding, arises in the following situation. Let's say the margin of dumping is 100%, but the Canadian producer's product is only 30% more expensive. Lesser duty would say that the margin of dumping should be reduced to 35% or to some number that would still protect Canadian producers but would not exaggerate the penalty. The reason for that is.... Let's say U.S. sugar is excluded from the market. European or Jamaican or other sugar might come in and replace it.

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Lesser duty is also designed to avoid a situation in which the users would be at the mercy of Canadian producers who might want to take advantage of this 100% margin and boost the price enormously, even though to earn reasonable profits a 35% or 40% margin would afford them adequate protection and a reasonable return on their investment.

The Co-Chairman (Mr. Dupuy): I understand how the system works and why lesser duty can be applied. Under our present legislation it's rather an exception. It is the minister who has to decide. The tribunal, I gather, very seldom has used its authority to put in a lesser duty. Would it be useful to have the notion put into the revision of the legislation, into the amendments to the legislation?

Mr. Gottlieb: In our proposal we suggest that the tribunal explore in each case whether lesser duty would protect Canadian production without penalizing users.

The Co-Chairman (Mr. Duhamel): Just so that I understand this, you would then concur that it would be wise to have that within the current or new legislative framework, if there is to be one.

Are there additional comments to be made on this same point before I proceed toMr. Sauvageau? I will also permit other colleagues, such as Mr. Campbell and Mr. Graham, to raise questions subsequent to my colleague to the left.

My colleague to the left, Mr. Sauvageau.

[Translation]

Mr. Sauvageau: Mr. Kronick, I understand that your business had many difficulties when it made a request to a tribunal, that it always had to indicate the precise type of carpet and that the designation could be changed without changing the product. You have to fill out a form for each product. Among your recommendations, could you suggest a solution to that problem facing businesses in your industry as well as in others?

I shall put my second question to Mr. McArthur. You suggested that businesses do not get anything before the final decision of the tribunal. If they have to wait several months for that decision, those businesses will find themselves in an economic and legal vacuum. Do they have, at this time, to wait until the end of the process before they are recognized certain rights or is it a major change that you would recommend? Could you be a little more specific?

Mr. David Arditi (President, Peerless Carpet Corporation, Canadian Carpet Institute): My name is David Arditi and I am the President of Peerless Carpet Corporation. I shall answer the question you put to Mr. Kronick. The problem facing our industry is not due to the fact that we have to fill out a form for each product but rather to the large diversity of products.

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For instance, an American exporter might have a normal value for a 30 ounces carpet made of Dupont nylon rather than an unbranded nylon. But he will sell a nylon product; he will sell the same product made of a more expensive type of nylon but with a normal value based on a product made with a cheaper nylon. This is the problem we have.

Mr. Sauvageau: Okay.

Mr. Arditi: The products are so similar that it is almost impossible for Revenue Canada to see a difference when they arrive in the country.

Mr. Sauvageau: Are there any solution to that problem that might also exist in other industries such as textile? How could we change the law?

Mr. Arditi: I think that the only solution would be to test each product from time to time to make sure that the product imported in Canada is exactly as described on the invoice.

Mr. Sauvageau: Okay, but is it doable?

Mr. Arditi: Yes, it is.

Mr. Sauvageau: Very well. Thank you.

[English]

Mr. Kronick: Excuse me, may we give that some thought and perhaps submit it in writing to the subcommittee?

The Co-Chairman (Mr. Duhamel): Certainly.

Are there additional comments to...?

Mr. McArthur: When I mentioned that dumping duties should be applicable to future purchases, I was really trying to find a method of avoiding the situation in which business had contracted for goods prior to the initiation of the dumping process, the SIMA process, so that this duty would not apply to shipments that were committed to during that initial process, particularly where those goods were contracted to a buyer at a fixed price. That fixed price would have been determined before the provisional duty was applied. I'm trying to avoid that situation, because an importer in those circumstances would be operating under great uncertainty. Very likely, if there was a high level of dumping, in that event, it would be greater than his normal trading margin.

[Translation]

The Co-Chairman (Mr. Duhamel): Is it okay, Mr. Sauvageau?

[English]

Are there no additional comments on that particular point? All right.

I would now go to my colleagues, either Mr. Campbell or Mr. Graham, to see whether or not they had questions to raise.

Would you like to proceed, Mr. Graham?

Mr. Graham (Rosedale): I apologize, Mr. Chairman, I wasn't here for the evidence. However, I had a quick look at the agriculture brief.

I was interested to note that you're of the view that in the proposals for a Canada-Chile free trade agreement, there would be a total absence of dumping duties of any kind. Is that correct?

The Co-Chairman (Mr. Duhamel): There is no mechanism for retaliation if there had been dumping. I believe that was the point that was made. Perhaps -

Mr. Graham: Where would that come from?

Mr. Knoerr: Well, no, the Canadian Federation of Agriculture is not proposing it. What I'm suggesting is that given the policy of our government, there's a reasonable likelihood that they may be trying to negotiate a provision with Chile that will eliminate anti-dumping duties between Canada and Chile.

Our view is that would be unwise at this time and should not happen. It could in fact be very problematic.

Mr. Graham: But you're not informing us that you're aware this is a negotiating stand. It's just a potential concern you have.

Mr. Knoerr: Yes, I have no way of knowing.

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The Co-Chairman (Mr. Duhamel): You obviously heard something. You just didn't come in here today and say I'm going to try to upset some people; I'm going to say that and see if I can get their attention.

Mr. Knoerr: No, I didn't, but read your background paper. If you talk to people in international trade, a very clear goal of Canada is to eliminate the use of trade remedy. Now it is defined as anti-dumping because they've abandoned - which makes it more lopsided - in free trade areas. They obviously can't do it with the United States. The United States will not agree with it. They are now negotiating a separate treaty with Chile. We have expressed our views. We have had no assurances it's not on the table. That's all I can tell you.

The point is, if I wait until somebody we have negotiated this with makes a public announcement, then we are in the awkward spot of having opposed a whole treaty rather than trying to prevent it from happening.

You provide a useful forum at a time when we're negotiating it. It relates very much to this, because SIMA is irrelevant to Chile if we can't apply the action. I think it's very relevant to the question. It relates to the fundamental issue raised in the background paper whether at this time it's appropriate to take away anti-dumping in a free trade environment. We're very clearly saying that some day it may be useful, but it's foolhardy to do at this time, and very dangerous.

The Co-Chairman (Mr. Duhamel): Are there any additional comments on that point?

Mr. Graham: I have no further comment. I did want to raise one other question, unless there are some comments on that issue.

The Co-Chairman (Mr. Duhamel): All right.

Mr. Donald J. Goodwin (President, Tracon Consultants Ltd.): Mr. Chairman, this business about the lack of an anti-dumping or a non-dumping pact with Chile has been in the press. It's a likelihood that Canada's going forward with this idea, trying to convince the U.S. that yes, it can be done; we can have a non-dumping pact, even within NAFTA. So I think Mr. Knoerr's fears are founded.

The Co-Chairman (Mr. Duhamel): Thank you. Mr. Graham.

Mr. Graham: I'll restrain any comments about the veracity of things in the press. That's an aside.

I apologize again for not being here when Mr. McArthur gave his evidence. Obviously a concern we all have is achieving the right balance between the consumers of imported products and protecting our own producers against unfair trade practices outside. To what extent does your association represent Canadian manufacturers who use inputs in the manufacturing process and then end up re-exporting those finished end-products? The question of dumping duties becomes one of affecting our competitiveness in export markets.

This is, as you're probably aware, a big problem in Europe. It's one reason they had to get rid of dumping duties between European countries. When you get an integrated market, at some points it becomes crazy, because nothing is really made all in one place. So the effective price of an end-run product is very much affected by inputs, some of which are imported, some of which are exported.

I just wondered to what extent your association had looked at that aspect of things and whether you'd addressed that in your testimony to the committee.

Mr. McArthur: The answer is that we have looked at it fairly extensively. Most of our manufacturing members, which make up almost one third of our organization, would be those who are importing components for further processing. If they're not importing components for further processing, they're companies that would have a global mandate, where some products are made in Canada and where they import finished products to round out their line in Canada. They are then exporting the products made in Canada.

This becomes a key issue for us. If you look at it on balance, because of the make-up of our association our views would be clearly to the processors - that is, not necessarily the prime manufacturers, but those manufacturing the goods, downstream producers. This is where we see a great number of Canadians employed in the secondary processing industry.

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Mr. Graham: Are you then able to generalize, for the benefit of the committee, on how those members view anti-dumping? Are they in favour of the present regime? Would they like to see it strengthened? Would they rather see it go away? Where do they fall in terms of getting that right balance we want to try to find?

Mr. McArthur: I think it depends. If their trade is with the United States.... As you're well aware, about 80% of our total international trade is with the United States. Our members have a great deal of concern about whether the present SIMA process is the proper one to settle disputes between the NAFTA trading partners. Earlier, as you'll see in the testimony, we had a rather longer discussion on that. So we have a great concern there, and this has been alluded to by a number of speakers.

If we're looking at the SIMA process itself, particularly in respect of transactions involving third countries, then I would say we're in favour of the Canadian process. We definitely don't like the U.S. process, and that's contained in our brief.

We see there are benefits of the SIMA process, the Canadian system, in third country transactions. We have recommended six or seven points that we think would help to improve it and would help to lower the costs for all parties. This would also give our manufacturers the benefit of the lowest possible cost of manufacturing input so that they can indeed be competitive globally.

Mr. Graham: As a quick follow-up, it would be fair to say that everyone would be quite happy to give up anti-dumping if the Americans would give up theirs. For example, the steel industry is in favour of strengthening the system. I think everybody's convinced that's not likely to happen, in the short term anyway.

So in respect of the Canada-U.S. trade system, from your point of view, it would just stay the way it is, subject to these fine-tuning recommendations you've put in your brief.

Mr. McArthur: Yes. We qualify our recommendations. We certainly are of the view, after considering the alternatives, that the Canadian government should be seriously looking at this, if not pressing for it.

Mr. Graham: Thank you, Mr. Chairman.

The Co-Chairman (Mr. Duhamel): I would like to proceed as follows. I would likeMr. Campbell to raise some questions. Subsequent to that, I would like to go around the table and give people an opportunity to make a final statement. There again, it's not an obligation. I'm a little sensitive to the fact that we will have to go in roughly 15 minutes from now.

Mr. Campbell.

Mr. Campbell (St. Paul's): Thank you, Mr. Chairman.

I have a couple of questions. One picks up on Mr. Graham's comments. Obviously the struggle for us in this review is to resolve the question, among other questions, of whether or not we strike the right balance in our legislation currently.

Mr. McArthur, I note that in your brief you state on numerous occasions that the Canadian system, in your association's view, is superior in all respects to the American system. That leaves me wondering whether or not you are suggesting they don't strike the right balance and we do. Do they strike a different kind of balance? Would you elaborate on what leads you to draw that conclusion?

Mr. McArthur: There are a couple of reasons. I may call on Mr. Goodwin to assist me on that. I'm not intimately familiar with the U.S. system, because the nature of our association is on the Canadian side.

Mr. Campbell: Of course you understand that in our work we want to look at what other countries do. If there's something to learn, something to mimic, or something perhaps not to follow, we want to know about it.

Mr. McArthur: One of our concerns even about our own system is the timing of when the duty is applied. Ours is prospective, it looks forward, whereas the U.S. system is retrospective and creates even more business uncertainly. I think in that case, it's not as balanced as is ours.

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Mr. Campbell: But is it fair to ask - and I don't know if your colleague or one of the others wants to comment on this - whether the United States strikes the balance more in favour of one segment of U.S. business as opposed to another, or they strike -

Mr. Graham: I'll answer that question.

Mr. Campbell: No, but I think we need that kind of evidence on the record. Mr. Graham and I worked in this area from time to time over the years and we obviously have our own opinion, but I'd be interested in your opinion, and why that may be, if they do strike the balance in a different way, or tip in one direction or another, and whether there are any lessons in that for us. I'm sorry the question is a little vague, but....

Mr. Goodwin: Are you asking if there is a different treatment between complaining industries in the U.S.? Is that the basis of your question?

Mr. Campbell: Well, the battle lines here are clearly drawn at this table in this room when we meet the people on this issue. There are those who would toughen up because they are producers in this country, rather than users of input from the United States. Presumably the same debate goes on south of the border.

That's the critical tension that exists, between those who use imported input and those who compete with foreigners for production of input. Is there a different balance that is struck south of the border, as opposed to here?

Mr. Goodwin: I don't know if there's a different balance. It's a completely different system that perhaps - we've heard the words before - levels the playing field. Perhaps the U.S. system does not create that level playing field that the Canadian normal value system does. That's one of our main concerns.

Mr. McArthur: It suddenly dawned on me, and maybe Mr. Goodwin has just reminded me - if you're referring to the effectiveness, we believe our system is quite effective because of the system of normal value, whereas in the United States, where dumping duties apply that may or may not be included in the final selling price in the United States, that can be absorbed by the foreign supplier.

Mr. Campbell: I may not have been as fair as I'd like to be in this. Presumably the goal of this legislation is to act in the interests of Canada. We have to strike a balance, bearing in mind that some Canadian businesses are producers, and some Canadian businesses rely on input from abroad to make whatever they make to export, or for consumption here.

The struggle around this table always is between various elements of Canadian business, some of whom produce, some of whom import input, and you try to strike a balance. I'm just getting at whether because we are a major trading nation there's a different kind of balance we strike here from what the United States strikes when they look at their law.

Let me leave that alone, because I had another question I wanted to ask about something much simpler, which is the question of public interest. I apologize for missing some of the testimony earlier.

One of the things I've always felt is that if we can accomplish one thing in the United Sates, even though this is a review of our laws, it would be to get a public interest section in their statute, and bring consumers into the piece in the States.

But coming back to our own practices here, is there a feeling - and anybody can comment on this - that our legislation should be amended to provide greater guidance to the CITT, providing specific criteria, specific definitions? Would witnesses here today want to be that specific in our legislation? I don't know if Mr. Gottlieb wants to comment.

Mr. McArthur: In respect of this matter of lesser duty that has been referred to, which does in fact help keep the balance where the amount of dumping duty only equals the amount of injury and is not arbitrary or doesn't exceed that level of industry, I think that would help a great deal to strike that balance we're all looking for. I maybe should defer to Mr. Gottlieb, who elaborated on this issue to a much greater extent than I am able to do.

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The Co-Chairman (Mr. Duhamel): Mr. Gottlieb, do you want to add...?

Mr. Gottlieb: It's a good question, Mr. Campbell. I don't think you can tie the hands of a tribunal in setting guidelines. The tribunal develops its own guidelines based on the experience it has in setting out the criteria of injury that litigants have to address. So I think I would give the tribunal more latitude in the types of recommendations and decisions they can make on the question of public interest.

There is an element of public interest that hasn't been mentioned. Aside from the users, whether producers or consumers, there is the overall public interest of the country.

A good 75% to 80% of our producers are controlled by U.S. companies. We've had the experience over the years in a number of cases in which Canada has been the battleground in the instance of ostensibly Canadian companies that are acting at the behest of their U.S. parents to try to keep out third-country products. This therefore has tended to limit the amount of competition in the Canadian marketplace, not only with respect to consumer goods, but also with respect to manufacturing inputs.

That is an area that has not yet been addressed in public interest hearings, but it's certainly one, I would suggest, that is of concern to a government where you have that situation. I said earlier that politicians should not control the public interest process, but I think that in retrospect, and thinking now about those cases, there may be a role for government to play in those areas.

The Co-Chairman (Mr. Duhamel): I believe that Mr. Dupuy wanted to follow up with a clarification or a question.

The Co-Chairman (Mr. Dupuy): A clarification. You suggested that the tribunal should take more responsibility vis-à-vis the public interest approach, but it has no power to initiate, as I understand it, public interest proceedings. So would you suggest that there should be an amendment to the legislation in order to ensure that the tribunal would have such an ability?

Mr. Gottlieb: I wouldn't be averse to that. There are cases in which parties are unaware of the implications of the proceedings before the tribunal, or of its decision, or it may not have the funds necessary - that happens often - to advocate their interests.

I think the tribunal should have a self-initiating role to play when it identifies a potential public interest. It has happened that parties appeared before the tribunal unassisted by counsel. It could invite parties to come forward and express their views on the issue. That's a very good point,Mr. Dupuy.

The Co-Chairman (Mr. Duhamel): Thank you, Mr. Dupuy and Mr. Gottlieb.

On that same point, before I go to Mr. Campbell, who promised me that it was to be a very short question so we could then go to our guests, who may want to make a final statement before we soon complete, is there any other input on that point that was being discussed? Mr. Campbell, your brief point.

Mr. Campbell: Very quickly, Mr. Chairman.

This goes back to Mr. McArthur. As for your comments about the CSPA and the changes that were made to Revenue Canada's administrative practices, has your association seen any evidence - I apologize if you presented any before I arrived - about the results of that change in administrative procedures?

Mr. McArthur: That also is a very interesting question, because we have seen some results of that. In our brief, we didn't elaborate on those, but I've already undertaken that we would do so if that was the wish of the committee. I would like to ask Mr. Goodwin, who is very familiar with the five issues that are referred to in our brief, to elaborate on those now, if you wish.

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Mr. Goodwin : I won't go over the five issues, but I will maybe answer your question directly. Yes, we have seen an effect of the change in Revenue Canada's practice of normal value reviews, if I can call them that. They're annual reviews. We have seen a dramatic decline - maybe this is what is wanted - in participation by foreign exporters in the review process. They have said that it's too much work.

Mr. Campbell: The result for Canadian businesses and Canadians is what?

Mr. Goodwin: They lose that manufacturing input, period.

Mr. Campbell: Thank you.

The Co-Chairman (Mr. Duhamel): Thank you, Mr. Campbell. Thank you, Mr. Goodwin.

I'm going to go to our guests now. I'll start with Mr. Knoerr. I'll permit you, if you wish, to make a final comment before we wrap up.

Mr Knoerr: I'll try to be very brief. SIMA measures are necessary in all trading environments, including Chile and NAFTA under current realities. It doesn't mean we shouldn't do something different in the long run, but we'd better do our homework first.

In the agricultural food sector, if you don't recognize the fundamental role of the primary sector you are going to ignore a major part of the long-term public interest, and the consumers may pay the price - literally - in the long run.

Third, the two changes to current procedures that would require help from WTO rule changes to be really effective are to give primary producers standing in cases where they are the primary content of a process product and it's the only way their product is being sold, and creating a situation whereby, under critical circumstances in which there is good evidence of a problem with a highly perishable horticultural product, temporary action could be taken very promptly, and you still would go to the final determination.

The Co-Chairman (Mr. Duhamel): Thank you. Mr. McArthur.

Mr. McArthur: In conclusion, I would like to repeat that it's our belief that our system, in every respect, is preferable to the U.S. one.

Having said that, we think there are some changes, not major ones, that can be made to the system to make the Canadian system better.

Third, we feel rather strongly that in intra-NAFTA transactions, serious consideration be given to some other method of dispute settlement. We're asking you to look at competition law to do that.

The Co-Chairman (Mr. Duhamel): Thank you. Mr. Gottlieb.

Mr. Gottlieb: Just two brief points. One, I reiterate my request for public disclosure of the briefs so they can be addressed meaningfully.

Second, picking up on Mr. Campbell's comment earlier, I don't see why U.S. legislation shouldn't have a public interest element. It's in the GATT, and we certainly would want to explore the possibility of raising that matter at the WTO.

The Co-Chairman (Mr. Duhamel): Thank you, Mr. Gottlieb.

I wanted to simply indicate that whatever documentation we get is in fact available. What was provided today will be here on your way out if you would like it. Thank you.

Mr. Kronick.

Mr. Kronick: Thank you, Mr. Chairman.

I would just like to emphasize the Canadian Carpet Institute's position that SIMA, from our experience, does work. We say that as an industry that did suffer injury from dumped imports. This invoked SIMA, and we found it effective in a way that did not disadvantage consumers or downstream industries.

We do have some concerns about enforcement that we have pointed out. I just would likeMr. Arditi, in conclusion, to say something about the issue that I think Mr. Speller brought up - this didn't get a whole lot of discussion - regarding the argument that SIMA has no place in a free trade zone and that competition law should be harmonized as an alternative.

Mr. Arditi: Thank you, Mr. Kronick. I'd like to put it in the perspective of what would have happened if we hadn't had SIMA.

Interestingly, I probably have a unique position compared to that of other people around the table. When the dumping issue came up with carpets, I was in the position of being a dumper and a dumpee, because we owned an American company. I do want to underline that we were below the average level of dumping, but we were a dumper at the time.

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Having spent five years in the industry in the United States, I've come to learn and see first-hand the industry mentality down there. Dalton, Georgia, is where 85% of the carpet in North America is manufactured. We were also American exporters of carpet both to Canada and to other countries around the world.

The Americans in this particular industry have an incremental volume mentality. As Americans, we dumped all over the world. One carpet manufacturer in that country today has the capacity to produce all the carpet necessary in this country to meet the current demand and the demand at the highest levels we ever had in this country.

I can assure you from first-hand knowledge, not only because they have said it publicly to some of our customers, but having seen the way they do operate, that after they wipe out the Canadian industry the prices would move up to the same levels as those in the United States, which are basically the normal-value levels that are imposed on them by the SIMA process.

Thank you.

[Translation]

The Co-Chairman (Mr. Duhamel): I thank all participants. Your evidence has been highly appreciated. I shall only remind you the invitation from Mr. Sauvageau to suggest, in writing, the changes you would like to see.

Furthermore, if you wish to add something to that public debate, do not hesitate to participate. I also thank the members.

[English]

The meeting is adjourned.

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