SINT Committee Meeting

SUB-COMMITTEE ON INTERNATIONAL TRADE, TRADE DISPUTES AND INVESTMENT OF THE STANDING COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE

SOUS-COMITÉ DU COMMERCE, DES DIFFÉRENDS COMMERCIAUX ET DES INVESTISSEMENTS INTERNATIONAUX DU COMITÉ PERMANENT DES AFFAIRES ÉTRANGÈRES ET DU COMMERCE INTERNATIONAL

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, March 19, 2001

• 1528

[English]

The Chair (Mr. Mac Harb (Ottawa Centre, Lib.)): We only have this room for one hour, and we have to leave no later than 4:30.

With your permission, I just want to make a public announcement before we start with the minister's presentation. We are going to have the Wednesday meeting in the West Block in room 308 at 3:30.

Minister Pettigrew, let me welcome you on behalf of our colleagues on the committee.

The issue of softwood lumber is one of the most important issues facing us. It is a valuable Canadian export to the United States, and an important issue, as the vast majority of our trade is done with the U.S.A. We thought that with an issue such as this it would be important for us as committee members to receive you and to hear your brief. Also, at the end of the presentation, perhaps we will have an opportunity to pose a few questions to you.

I just want to repeat, Mr. Minister, that we only have one hour and we have to vacate this room by 4:30, so hopefully we will have a chance to hear from you as well as to pose some questions within that time.

So if my colleagues agree, I will give the floor to you, Mr. Minister, and we thank you very much.

[Translation]

Hon. Pierre Pettigrew (Minister of International Trade, Lib.): Thank you very much, Mr. Chairman. I am very pleased to be here today. We were able to hold a debate in the House of Commons last Thursday and to work in parliamentary committee as well.

• 1530

I am very pleased to appear before the Sub-Committee to address one of the most important issues facing the government and indeed, the entire country - our trade with the United States in softwood lumber. I welcome this opportunity to discuss with you the Government's approach on this critical issue.

Before I begin, I would like to introduce Doug Waddell, my Assistant Deputy Minister for Trade Policy. Until recently, Mr. Waddell served at our embassy in Washington and for over a year now, he has acted as our lead facilitator on consultations with Canadian stakeholders on the softwood lumber matter.

We all know, of course, that the softwood lumber issue is heating up once again because the Canada-United States Softwood Lumber Agreement is scheduled to expire on March 31. That long-respected Agreement has now run its course. There is strong consensus in Canada that it is time to put managed trade in this sector behind us and to move towards what is now overdue: free trade in softwood lumber.

That is certainly what Canadians want and deserve. Unfortunately, it is also what the U.S. softwood lumber industry fears the most. The U.S. industry is once again calling for new restrictions on our exports and has said that it will file another countervailing duty petition, and perhaps an anti-dumping petition as well, as soon as the Softwood Lumber Agreement expires. Furthermore, members of Congress have introduced resolution after resolution also proposing further restrictions on our trade.

[English]

Mr. Chairman, any mistakes will be costly. We are all aware of the importance of the softwood lumber sector right across the country. Let me just briefly recap the familiar numbers. Softwood lumber is our largest export to the United States. Our shipments to the United States are worth over $10 billion and account for 34% of the United States market. We have 20% of the world market. We can be proud of our industry's performance in this vital sector.

The lumber industry is one of the biggest generators of jobs in this country, and one in every 16 Canadian jobs relies directly or indirectly on this sector. Over 330 communities in Canada from British Columbia to Newfoundland depend on it for their livelihood.

Our lumber industry not only provides jobs, it provides housing for millions of people around the world.

Perhaps most importantly in terms of our dispute with the United States, Canadian lumber mills are among the most modern and efficient in the world. We are not only competitive, we are fair traders in lumber markets. This, Mr. Chairman, is what United States producers do not want to face. The bottom line for the United States industry seems to be that it is easier to seek protection from competition than to rise to the challenge by modernizing and becoming more efficient, as Canadian producers have done.

Mr. Chairman, the persistent calls for protection, cloaked in false claims of subsidies, have long distorted the debate on our trade in lumber. I want to take the opportunity today, therefore, to put the issue into perspective by briefly setting out what the five core facts of the matter actually are. These facts, which we all need to keep clearly in sight, form the foundation of the Canadian position on softwood lumber.

Mr. Chairman, I stated these facts in the House last week, and I will repeat them here. The United States industry's position on softwood lumber is not based on any legitimate claim of unfair practices by Canada. It is based on protectionism, pure and simple. Canada has rights under our trade agreements, including a right of access to the United States softwood lumber market, the United States must recognize. Third, Canadian forestry programs do not constitute subsidies to the Canadian industry.

• 1535

Fourth, Canada is a leader in sustainable forest management practices.

Finally, Mr. Chairman, the government's role is to safeguard Canadian interests in the face of protectionism and work towards free trade in this vital sector.

[Translation]

Mr. Chairman, on the first point, I will emphasize again that this is good old protectionism that has always driven the U.S. industry position on softwood lumber. For nearly a century, U.S. lumber producers have wanted to restrict Canadian exports; they have wanted protection from Canadian competition. What has always been behind their demands is a desire to preserve market share and keep prices as high as possible. This desire is strongest when the industry is in a cyclical downturn, which is the situation we are in today on both sides of the border.

However, restricting imports to protect a domestic industry is the way of days gone by. Protectionism is no longer the answer, for us or for the United States. Our hard-won trade agreements are based on the conviction that open markets are in our greater economic interest.

This leads me to the second essential fact, Mr. Chairman, which is that the protectionist threats being made by the U.S. fly in the face of those very agreements - namely NAFTA and the WTO.

Under NAFTA and the WTO, the U.S. is prohibited from imposing quantitative restrictions or duties on Canadian softwood lumber exports, unless and until they demonstrate, through a fair application of the internationally agreed trade rules, that those exports are unfairly traded, whether that might be through injurious subsidization, dumping or whatever. The U.S. has always failed to make any such case. Unless and until it does, Canada has a right of access to the U.S. softwood lumber market and the U.S. has an obligation to provide that access.

The Government intends to ensure that our rights in the WTO and under NAFTA are respected and we have already taken action in this regard. We have launched two important dispute settlement proceedings against the U.S. in the WTO that have a direct bearing on the softwood lumber issue.

First, we are challenging the stated U.S. intention to treat our export controls on logs as countervailable subsidies in future CVD investigations.

Second, we have requested consultations with the U.S. concerning a new provision in U.S. law that would prevent the refunding of countervailing and anti-dumping duties when those duties have been successfully challenged and must be terminated.

Mr. Chairman, the bottom line here is that no country, not even the United States, has the right to make up its own version of the rules that have been agreed internationally or to pick and choose which of its obligations it is prepared to honour.

Now, Mr. Chairman, for the most central truth in the softwood lumber matter, notwithstanding persistent U.S. allegations to the contrary, the Canadian softwood lumber industry is not subsidized through provincial stumpage rates or any other program. This was the conclusion reached by the U.S. Department of Commerce itself in the first countervailing duty case brought against us back in 1983. When Commerce eventually bowed to political pressure and reversed itself in a subsequent case, we challenged its subsidy finding before an FTA dispute settlement panel and won. Allegations of subsidies are just as unfounded today as they were then.

[English]

Sometimes, Mr. Chairman, those allegations have included the suggestion that inadequate environmental standards constitute a subsidy for our industry. Here we come to another of these essential facts in the softwood lumber matter. Canada is a world leader in sustainable forest management. Canada, with 94% of forest land under public ownership, controls harvest levels. To ensure that forests are not depleted, Canada in fact grows twice as much wood as is harvested annually.

• 1540

Less than one-half of 1% of our commercial forests are harvested each year, which is well below sustainable harvest levels. Canada, with more commercial forest land, cuts less than half of what is harvested in the United States each year. Mr. Chairman, we can take pride in our environmental record in the forestry sector.

My final point, Mr. Chairman, is on the government's role and objectives as we move on. As I said earlier, our role and responsibility are clear, namely, to safeguard overall Canadian interests while taking into account the interests of all stakeholders and all regions. During the past year I have consulted closely with Canadian industry across the country and invited all Canadians to make their views known. I have also consulted extensively with the provinces. I recently met in Ottawa with representatives of all provincial and territorial governments to discuss their concerns and to determine together how we should proceed. A clear consensus has emerged. Canada should allow the Softwood Lumber Agreement to end and should move towards free trade.

When I met with United States trade representative Robert Zoellick in Washington three weeks ago today, I made Canada's position clear. I also reiterated our proposal that two special envoys be appointed to recommend constructive solutions to this dispute. I stand ready to work with the United States government to pursue a collaborative approach to the challenges facing the North American industry.

[Translation]

So, Mr. Chairman, where do we go from here? To advance our goal of moving towards free trade in softwood lumber, the Government will continue to advocate the appointment of special envoys to take a fresh look at the situation and recommend constructive new approaches.

The Government will assert Canada's rights under our trade agreements and defend strongly against any countervailing duty or anti-dumping petitions filed by the U.S. industry.

Finally, the Government will continue to consult closely with all stakeholders in Canada and to ensure that the interests of all regions are taken into account.

We would welcome the views of the Committee and would be pleased to respond to any questions you might have.

[English]

Thank you very much, Mr. Chair.

[Translation]

The Chair: Thank you very much, Minister, for your presentation.

Each member will have five minutes, starting with Mr. Lunn. We'll make the round of opposition members and finish with government members.

[English]

Mr. Lunn.

Mr. Gary Lunn (Saanich—Gulf Islands, CA): Thank you, Mr. Chairman. I'd like to welcome Mr. Pettigrew to our subcommittee.

That was an interesting historical overview of what has happened and where we are going. I do find it troubling, Mr. Minister, and I would like to get your viewpoint. When you referred to where we were going, you talked about having to defend our rights under trade agreements against any countervail and anti-dumping petitions from the U.S. industry.

Over the last 20 years we've spent $100 million fighting the U.S. industry. The lawyers have been doing very well. It is costing approximately $1 million a month. But as you pointed out, Minister, there are 330 communities, including hundreds of thousands of workers and their families, who rely on this industry across Canada.

I know you are going to tell us that we have lobby groups we're working with in the U.S.A. and that we're talking to the industry. But we have known this date is coming for five years, and April 1 is now only a few weeks away. I'll use the word “win” because we're told clearly by the trade representative, Robert Zoellick—and I believe you are aware also that the U.S. industry is prepared to launch his petition about the countervail duty and the anti-dumping—to jump through all the legal hoops at the WTO and at the NAFTA panel. If you look at the process, Minister, we're looking at the year 2005. Our industry is going to have to start paying hundreds of millions of dollars in countervail duties while this jumps through the hoops. It could break our industry and the hundreds of thousands of workers and their families.

• 1545

I want to know on April 2 how the government is going to protect these families. Exactly what are they going to do? I appreciate that we want to go to the WTO and we want to defend our rights. We've been to the GATT. We've been to bilateral panels three times before and Canada has won. But as you pointed out, the United States are protectionists with respect to softwood lumber and that's not going to help our industry. I'm not convinced they'll survive until 2005.

They need our government to go to the wall. The United States, Robert Zoellick, has made it very clear that they intend to defend their industry to the very last letter. They're going to go to the wall, I believe, are his words.

What is our government prepared to do for our industry when they start facing a countervail duty and anti-dumping petitions, have to start posting bonds, and putting up anywhere from $1.5 billion to $2 billion a year in countervail duties as early as next year?

Mr. Pierre Pettigrew: You are right that it is a very heavy process and a very expensive one for our industry. This is why I find it very frustrating that every time the American industry has this opportunity, they resurrect old myths and propagate them. But we have not waited until the end of this agreement to begin our work.

We have gone to the WTO on two pre-emptive strikes to weaken the Americans' ability to reach us. We've already begun to go to the WTO precisely as pre-emptive strikes. We have been working with allies we have in the United States. There is now a new voice that was not heard from too much up until 1996. It is the view of the consumers.

Having been closely in touch with these new voices on the consumer front, we now have allies in Washington who have a louder voice and are expressing themselves in a very articulate way, demonstrating to the American public that American protectionism costs them up to $1,000 per home when these people want to own or to build. It is a great detriment.

This government is going to continue to do everything we can to explain that point of view. Hopefully, we will get more realism from the United States, knowing they will lose in the end. We will continue to go to the WTO on some pre-emptive strikes, as we have already done, and we will work very closely with our industry from coast to coast.

Mr. Gary Lunn: Thank you.

Mr. Minister, the fact remains that the United States is still putting allegations against us that we subsidize our stumpage here, which is absolutely not true. Our government has not been successful in demonstrating to the Americans that it is absolutely false.

In fact, our leader was in Washington only a few weeks ago, and the Vice-President conveyed to him that the problem is with our stumpage system, which is absolutely ridiculous.

I don't believe we can rely on our people in Washington or allies we've made to solve this problem for us. We have to start talking very tough with the Americans in our negotiating.

Mr. Pierre Pettigrew: Absolutely.

Mr. Gary Lunn: I want to ask the government, again, what are you going to do for our industry? You've outlined the problems very well. But to date we have no solutions other than a five-year legal process. Again, the lawyers are going to do very well, but our forestry workers are going to be going home with empty lunch buckets and their families are going to have a very difficult time.

Let me just finish one last point. Your Prime Minister—

The Chair: You're over your time.

Mr. Gary Lunn: —has raised other issues. Is the Government of Canada going to raise other issues with the Americans? How far are they going to do that in their discussions with the softwood lumber?

Mr. Pierre Pettigrew: The envoy issue is something we put forward. Indeed, I have raised it with Bob Zoellick and so far we have not had a final reaction from the United States. They have expressed some skepticism. In my view, it would be very good to have binational envoys who would be able to help us through this turbulent time. I hope very much Americans will accept this proposal we put on the table.

• 1550

[Translation]

The Chair: You have five minutes, Mr. Sauvageau.

Mr. Benoît Sauvageau (Repentigny, BQ): Thank you, Mr. Pettigrew, for agreeing to appear before the Sub-Committee on International Trade.

I have three brief questions for you and I hope that five minutes will suffice.

My first question concerns the government's position on the April 1 deadline. We are not too clear on this date. In the responses you gave around February 1, you stated that you supported full free trade, much like what was in place five years ago prior to the agreement. You changed your tune on February 22 when you stated that there would be a transition period and that arrangements needed to be made. You later stated that trade peace would be threatened if free trade came to pass.

Now, as this deadline approaches, I'd like to know where the Canadian government stands on this issue. Does it support free trade, does it want a long transition period, or does it fear free trade will threaten trade peace? Where do you stand on this issue?

My second question concerns compliance with NAFTA panel determinations. On a number of occasions, Canada has won cases brought before various dispute settlement panels. The process is a bilateral one and while the determinations have been in Canada's favour, the U.S. has not shown itself to be compliant. How do you plan to ensure that panel determinations on NAFTA are upheld in the future?

My third and final question came to mind as I listened to your presentation. You stated that you met with your counterpart in Washington three weeks ago and that you requested at the time that two envoys be appointed. That was three weeks ago. That's just about the time it takes the Prime Minister to reflect upon something, as I stated earlier to you in the House. Since the deadline is fast approaching, has anyone been in touch with you to let you know whether these two envoys can be appointed before April 1? I think that would be a good idea.

Mr. Pierre Pettigrew: I will start with your third question.

I appreciate your support for my proposal calling for the appointment of two special envoys. I'm pleased to see that you think it would be a positive step.

As far as Washington is concerned, discussions are continuing but no final decision has been made by U.S. officials. Will they come to a decision before March 31? I cannot take the proposal off the table. Even if one was not forthcoming until April 3, it still would be a positive approach. As they say, the sooner the better. However, I do appreciate your views on the subject.

When we talked about free trade, we were referring to the government's position on free trade. I'm talking about the transition to free trade. Free trade will take effect on April 1, but when I talk about the transition to free trade... The U.S. may very well agree to free trade and to having NAFTA apply to softwood lumber, while calling at the same time for a transition period during which they may not abide by free trade provisions and file countervailing duty or anti-dumping petitions against us. When I say that we are moving toward free trade and that we want this transition to proceed as smoothly as possible, I'm saying that hopefully, the U.S. won't challenge the fact that NAFTA applies to this product just as it does to all the others. That is all I meant.

Now then, how can we ensure compliance with decisions? There are certain legal processes that the government cannot control. What can you do about it? The U.S. industry, armed with the support of its government, may unfortunately once again take a protectionist approach and resort to quibbling. The U.S. government and its industry have the right to do so under NAFTA.

• 1555

All I can say is that we will vigorously defend ourselves against these assaults by the U.S. on free trade, mindful all the while, of course, of the legal recourses available to us.

[English]

The Chair: Mr. Robinson, five minutes.

Mr. Svend Robinson (Burnaby—Douglas, NDP): Thank you, Mr. Chairman. I want to thank the minister for appearing.

I've listened with care to the minister's statement, and we've heard a lot of huffing and puffing. But unfortunately, we haven't heard anything concrete. It's pretty obvious that as far as the United States is concerned, free trade is a one-way street.

I want to ask the minister how he responds to those who have suggested that maybe it's time we stood up to this bullying by the United States and told them they can't continue to treat free trade as a one-way street. When we're talking about resources, for example, they now have, under NAFTA, basically unfettered access to some of the most precious resources that Canada possesses, our energy resources. Basically, they've got national treatment. They can have as much as they want at the same prices Canadians pay.

Maybe, Mr. Minister, it's time we told them this is a two-way street. If they're going to continue to bully us in this way and to show total contempt for the principles of trade they say they espouse, maybe it's time we did play hard ball with them and said, look, if you're going to slap countervail and dumping on our forest products, maybe we're going to do the same thing with the natural gas that goes down to the United States. When they complain and whine, when they squeal about that, maybe we'll tell them we're going to pass a law. Even if it's found that is not acceptable under the provisions of NAFTA, tough luck—we're going to keep the money. Because that's what they've told us as Canadians, as you know, under their U.S. law.

So I want to ask whether the minister is prepared to really get tough with the United States, not just roll over and say, well, we're going to have consultations, and so on. That's question number one.

Question number two is a follow-up to a question I asked the minister in the House during the debate late Thursday, and that's on raw log exports. The minister knows—I'm from British Columbia, and this is of particular concern to those of us in British Columbia—in 1997 a little over 100,000 cubic meters of raw logs were shipped to the United States. Last year it was over 2 million cubic meters, and now the big forest companies are saying they want to be able to export even more raw logs from private lands.

I want to ask the minister what his position on that issue is. Is he prepared to say no to those forest companies? Is he prepared to say we want fewer raw logs exported, because that's the export of jobs, good quality jobs, from British Columbia. I'm not asking whether he's going to respond to U.S. pressure—that's what he answered in the House. What's his position on raw log exports, particularly the demand for an increase?

And the final question is to flag a concern. We say there isn't a problem with stumpage, no problem with environmental standards, and so on, and those of us who live in British Columbia know there have been concerns in that area. But one particular concern is the totally unethical cheating of the public treasury and conning of the forest ministry through this so-called practice of grade setting—and the minister is very familiar with grade setting. You go in and you harvest the low-grade lumber, and that establishes the price you pay to the treasury, to the people of British Columbia, who own the forests. And then in fact you turn around, cream the top-grade lumber, and pay the same price for it. That's unethical, it's cheating—I don't know whether it's illegal or not. Unfortunately, all that does is give the United States an opportunity to say, hey look, your stumpage fees aren't based on a fair assessment of the value of the wood.

Is the minister prepared to send a very clear message to those companies—and, I must say, to my own province of British Columbia—that this is unethical and it's got to stop? Because it doesn't help us in our fight with the United States.

Mr. Pierre Pettigrew: You are asking me to step into provincial jurisdiction and advise B.C. on how they should be managing their resource. You know natural resource management is a provincial jurisdiction, and I am sure the British Columbia government knows well your view, and they have heard it again today. It is a provincial jurisdiction, and I don't think it's up to me to advise the Quebec government, the B.C. government, or individual provinces on how to manage their individual resources.

Mr. Svend Robinson: It affects our argument with the United States on the issue of stumpage.

Mr. Pierre Pettigrew: A lot of things affect our arguments with the United States. You know that very well. It's a very complex file, and it is certainly no more simple because of the fact that we live in a federation where the provinces have a very important responsibility in the management of resources.

• 1600

On your other question, you say, are you going to get tough with these Americans, who practise free trade only as a one-way street? We have right now a $95 billion annual trade surplus with the United States. I don't find it much of a one-way street. I am very frustrated by the attitude over softwood lumber, but I would certainly recognize that the United States buys a lot of our goods and a lot of our services. We have a record trade surplus of $95 billion a year. So I don't think you can just say, you guys are not respecting any of what you said.

As for the softwood lumber, you have a lobby, which I think is absolutely not respecting the international obligation of the United States, and I regret it very much. But we cannot say it's a one-way street, it's only when they want... We are doing very well on the American market on lots of issues. So are we going to link them and say, if you don't buy our wood, we will not buy your energy? It is not the approach of our government.

Mr. Svend Robinson: I'm not saying buy their energy, but we won't give them our energy at the same price as we give it to Canadians.

Mr. Pierre Pettigrew: Yes, we won't sell the energy.

I don't think it is appropriate to hold one industry hostage against another, or in favour of another. It is not the way we approach the files.

Mr. Svend Robinson: And raw log exports? There was a question on raw log exports—very briefly, Mr. Chairman.

Mr. Pierre Pettigrew: I'll ask Mr.—

The Chair: Very briefly, Mr. Waddell.

Mr. Doug Waddell (Assistant Deputy Minister, Trade, Economic and Environmental Policy, Department of Foreign Affairs and International Trade): As the minister indicated in his opening statement, Canada, as a pre-emptive challenge, has initiated dispute settlement proceedings in the WTO with a view to confirming our opinion that log export restrictions are not a countervailable subsidy. As you know, in the last investigation the Americans based their subsidy determination in large part on the existence of log export restrictions in British Columbia. We've challenged that. We do not accept that, and we're pursuing a WTO challenge on that issue, with an expectation of an early decision.

The Chair: Mr. Casey.

Mr. Bill Casey (Cumberland—Colchester, PC): Thank you very much.

Thank you very much for coming to the meeting. Mr. Waddell, we go back about 10 or 11 years on this same issue.

I was talking this morning to a United States consumer group that's lobbying for free trade in lumber, and they indicated to me something I had heard here too, that there are Canadian interests lobbying in favour of an export tax instead of anti-dumping or countervail. Are there any efforts in Canada that you know of to impose an export tax? Is there any effort, any discussion, any lobbying?

Mr. Pierre Pettigrew: I will be meeting tomorrow with the B.C. Lumber Trade Council. I understand that it may be part of the discussion, but I've only heard it, like you, through the vine grapes—is that it?

Mr. Bill Casey: The grapevine.

Mr. Pierre Pettigrew: The grapevine.

What I can tell you is that I see no consensus in the country right now to move in that direction. This government is going to try to reflect as well as possible the Canadian consensus. But this is a new idea that I began to hear when I was in Washington, first from Bob Zoellick, and if it finds an echo now in Canada, I'll hear it. But I can tell you that there is no consensus in this country to go in that direction.

Mr. Bill Casey: Under the memorandum of understanding on lumber too, if I remember correctly, there was an export tax. What's really going on here is that the American industry wants to raise the prices of its lumber. They're using this crown land story as an excuse—that's their lever. But in the four Atlantic provinces, under the maritime accord, they use exactly the same lumbering practices as they do in the U.S. In 1986, when the export tax was imposed, Atlantic Canada was exempted. Would that be the same rule this time, if there were an export tax imposed? This is a little premature, but...

Mr. Pierre Pettigrew: We are not envisaging an export tax for the time being.

Mr. Bill Casey: When Mr. Zoellick first started talking about this, he was in favour. He seemed to be sending messages that he wanted to meet with Canadians and work out a deal, either an extension of the SLA or some other... That was the impression I got, and then all of a sudden he backed off on that, and he wants to let it go to free trade, and then let the cards fall where they may.

• 1605

Mr. Pierre Pettigrew: No, I don't think there was any moment where Mr. Zoellick gave me any indication that the United States administration, led by President Bush, or himself as USTR, would envisage a prolongation or a renegotiation of the SLA.

Mr. Bill Casey: Lastly, when we won the trade tribunal on the countervail, the Americans collected a lot of tax, a lot of money from the Canadian industry, and at the time they refused to give it back, if I remember correctly. Did we ever get that money back?

Mr. Pierre Pettigrew: Yes, it went back to the companies.

Mr. Bill Casey: How much was that?

Mr. Pierre Pettigrew: It was $800 million.

Mr. Bill Casey: Thank you.

The Chair: Thank you, Mr. Casey.

Mr. Speller, five minutes.

Mr. Bob Speller (Haldimand—Norfolk—Brant, Lib.): Thank you, Mr. Chairman.

And thank you, Mr. Minister, for coming to our committee today and outlining what you've been doing on this issue.

I've been following this issue for a little bit, and in regard to the public consultations you've done I know that a while back, when I was talking to a number of the industry... there really wasn't one Canadian position that could be ferreted out. There were a number of different positions by different companies, and obviously different positions depending on which province you come from.

My first question is, how will you be putting this forward in a unified position taken to the Americans? Secondly, has anything changed in the international trade rules that would make them think they could win a case against us on this? They've already lost a number of different cases. What is there out there that's changed that makes them seem to think they would have any leverage in trying to bring another case forward?

Mr. Pierre Pettigrew: There are two things, Mr. Speller. First, on the consensus that we have in Canada, you're right, it's a very complex file and it's very difficult to maintain consensus in our country. There are different provincial management practices from one region to the other, and often Americans have tried to play one against the other. This is why I have insisted so much in the last few months, and in the last year and a half that I've been addressing this issue as trade minister, that we should work closely together.

I've told the industries from British Columbia, Alberta, Quebec, and the Maritimes, even if they're not part of the old agreement, the old SLA, given the fact that they have their exemption, that I think it's very important that Canadian industry drums to the same beat and stays united at this particular time. And our government is going to do everything it can to make sure our industry understands one another's situation, understands that what we do do in Canada is our way of doing things, that we are, all of Canada, trading fairly and we should not, by our statements or our approach to this, give any handle to the Americans to try to play one region off against the other.

On your second question, and it's a very pertinent question, indeed Americans have changed some of their own legislation. They believe the way they've changed their legislation gives them more chances to win a countervailing duty case against us because they've changed some of their legislation.

Mr. Bob Speller: Understanding how important this issue is to many of us here in this committee, do you foresee any role this committee could play in helping in this issue?

Mr. Pierre Pettigrew: I think what we're doing today, and what we did in the House last Thursday, following the motion of the member from Joliette, having that dialogue between us, exchanging and working together, is the best way for this committee to be helpful and to really contribute, and to be constructive but united in our fight against American protectionism.

Mr. Bob Speller: Thank you, Mr. Minister.

The Chair: Second round, Mr. Lunn and then Mr. Robinson.

• 1610

Mr. Gary Lunn: Mr. Minister, there's a lot of confusion out there on the position of the government, on exactly where we're going.

We're hearing from you, and we all acknowledge there's a problem, that the Americans are going to launch a countervail and anti-dumping case, and that it's unfair, they're not following trade rules. So we're fighting with a government that, I'd say, thinks it probably can win at process. And I think you're fully aware that if we start that process, it's January, 2005 before we get to a WTO process, and during that time our industry will have to start paying the countervail duties, if that's what the Department of Commerce in the U.S. demands.

You haven't answered my question. What are you going to do in the interim? We watched you on the aerospace industry. When the Canadian government felt the Brazilian government was treating us unfairly, you matched it. You put $1.7 billion on the table for the aerospace industry.

We heard my colleague from the NDP raise the question about linkage, which I asked you about. We heard the Prime Minister last week briefly touch on this. He said he actually raised these issues. But now you're saying that's not the position of the government. In fact, the Prime Minister, I believe it was last Wednesday in the House, raised the issue of linkage. Again, we're getting conflicting messages from you.

We should be very clear that on Monday, April 2, after this agreement expires, the U.S. industry is going to launch a countervail duty and possibly anti-dumping—I think that will come with it. Other than a five-year process and hundreds of millions of dollars in lawyers and everybody else, which I don't believe our industry is going to survive at today's prices, what is our Canadian government going to do? How are you going to combat the Americans?

Mr. Pierre Pettigrew: Are you suggesting that we should cut a deal with the Americans?

Mr. Gary Lunn: First of all, we get to ask the questions. I'm asking you what your position is. I'd love to have been the minister, Mr. Minister, and been in the government, where you get to ask the questions.

What I am suggesting is that right now we've known this day was coming for five years and there seems to have been very little done up until this point. We had five years to get our position very clear with the Americans on what we're prepared to do, to tell them that our forestry practices are very sound and there are not subsidies. Our stumpage in British Columbia has doubled since the beginning of the Softwood Lumber Agreement. Your government has failed in delivering that message to Washington, because if you had been successful they would not be launching more. Now they've even introduced more laws. How are you going to ensure that we have free trade on softwood lumber?

You're telling us that's what you want, but you're not telling us how you're going to get there, other than through a five-year process of lawyers.

Mr. Pierre Pettigrew: We have to be coherent here. If we all agree that we should let the Softwood Lumber Agreement die on March 31, if we agree with that, it means we're going to the NAFTA rules. The NAFTA rules, what I call free trade, means that every government, every partner—and this means both us and the Americans—have a certain number of tools in their tool box.

Mr. Gary Lunn: I understand that, yes.

Mr. Pierre Pettigrew: That tool box means countervailing and anti-dumping. So if you're asking me about free trade, you have to be realistic and realize that the Americans will have some recourse to it.

The position of the government cannot be more clear. We have been saying that when the agreement terminates on March 31, NAFTA rules apply to softwood lumber. We no longer want it to be a managed trade, but we want it to be free trade.

If Americans decide to use the legal tools they have in their kit, it is part of the free trade element.

The Chair: Mr. Robinson.

Mr. Svend Robinson: I have a couple of questions to follow up, Mr. Chairman.

The minister said that if we allow the SLA to expire on March 31, that means we go to the NAFTA rules, and he's right. As the minister will recall, on behalf of my party during the debate last Thursday, I voiced some concern about that. I pointed out that in fact, as the minister is well aware, we do not support some of the most fundamental elements of that agreement, particularly the investor-state provisions. The minister himself has expressed some concern about that. There's no provision whatsoever, for example, for us to deal with the issue of environmental concerns within the framework of NAFTA.

• 1615

I want to ask the minister if he's prepared to just throw it open to the great god of the market and assume that NAFTA will be sufficient to ensure the best possible standards on both sides of the border. What protection is there for the environment under that great regime he's now promoting?

I also want to come back to the question I asked about raw log exports. The minister didn't answer the question, and Mr. Waddell didn't either. The question is very specific: what is the minister's response to the forest companies' request to harvest and export more raw logs from private lands in British Columbia?

Mr. Pierre Pettigrew: For the time being, they have to apply for a permit from us. As far as I know, we have not changed the numbers.

Mr. Svend Robinson: And the minister won't allow them to export more raw logs than they already are.

Mr. Pierre Pettigrew: That's what you're suggesting.

Mr. Svend Robinson: I'm asking if the minister would make—

Mr. Pierre Pettigrew: When I have the next request, I'll look at it—as I do all the time. But we have not changed our policy; we have not changed our numbers. There is not much demand these days anyway, with the situation in the economy.

Mr. Svend Robinson: Okay.

I asked about environmental standards. I'd like to follow up on Mr. Lunn's question, which I think Mr. Casey asked as well, on a national export tax. I want to ask the minister, during his meeting with Mr. Zoellick, the U.S. trade representative, did Zoellick specifically ask Canada to impose a national export tax? Did he suggest this as an option?

We recall what happened when Canada was put in that position in 1986. Gordon Ritchie, our trade negotiator, described it as a sellout, the most obscenely craven trade deal ever signed by Canada. Did Zoellick ask for an export tax?

Mr. Pierre Pettigrew: No, no. He did not ask for it. He asked me if it was something we were considering, and I said no.

Mr. Svend Robinson: Okay.

Mr. Pierre Pettigrew: He was not asking for it. He said, “Is this something you are envisaging?” There's a nuance there.

Mr. Svend Robinson: I'm sure.

Mr. Pierre Pettigrew: I'm sure you see it. What I mean is, he did not say, “You should”. He said, “Is the Government of Canada envisaging that possibility?” I said, “There is no consensus in Canada to go that route.” Do you see the difference?

Mr. Svend Robinson: Yes.

Mr. Pierre Pettigrew: I have to tell you that I appreciate your remarks on the god of the market. But it's unfortunate that you have not read my book, The New Politics of Confidence”, because if there's one person who's been very critical of leaving too much room to the market, it is me. In the book, I say how absolutely important it is to reinvent politics and government, to make sure the market does not make all the decisions. The market could not serve the human purpose of existence.

Mr. Svend Robinson: So how do you protect the environment under NAFTA?

Mr. Pierre Pettigrew: Well, it's very good. I will leave the book for the time being, but I speak a great deal about the environment.

Some hon. members: Oh, oh!

Mr. Pierre Pettigrew: I'm not doing that on behalf of my publisher.

On the environmental standards, the position you support is that we should establish these standards within the trade agreements. The same thing with labour standards. I understand that position. At the WTO meeting in Seattle last year, I was chairman of the working group on implementation. I'm used to having to look from the perspective of developing countries. It's very difficult for a lot of them to accept that we should relate trade to practices in a number of other fields.

Mr. Svend Robinson: This is the U.S. That wasn't a developing country the last time I looked.

Mr. Pierre Pettigrew: No, the U.S. supported your line. Clinton made speeches that contributed, as I said at the time, to hardening the position of the developing countries. They said this was protectionism by the back door—the Clinton administration was imposing those standards precisely to prevent them from developing. That was very much the argument, and it's something Canada is very sensitive to.

• 1620

So our view is that we should have more coherence between the international institutions—the ILO, the International Monetary Fund, and the WTO. Our government agencies should support more coherence, and some capacity-building in the developing countries as well.

We should be moving forward on all fronts: the environment, labour standards, trade. But it's very important that we leave some work for the other ministers and not ask the trade minister to solve all the problems.

[Translation]

The Chair: Mr. Paquette.

Mr. Pierre Paquette (Joliette, BQ): First of all, I want to thank you for supporting the Bloc Québécois's motion on softwood lumber. My impression, one that seems to have been confirmed by what I'm hearing, is that it isn't really the government's official position at this time, one that appears to make sense, that will matter, but rather everything that's happening behind the scenes and that we don't know about.

Prior to the 1998 Softwood Lumber Agreement, there was a consensus on free trade. On a national level, however, this consensus has eroded. That's what concerns Quebec softwood lumber producers, among others. They want assurances not only that the federal government will formally defend common sense, that is a return to free trade, but also that it will take a proactive approach where the industry and its somewhat weaker sectors are concerned. If pressured and harassed by the U.S., these sectors may be tempted to say that while free trade would be good, an agreement of some kind - like an export tax - that would resolve the problem either permanently or temporarily would be better. That is cause for concern.

It's not so much the government's official position as it is the events taking place which could prompt the federal government to reverse its position on a particular sector, namely the softwood lumber industry. Precedents have been set. For example, the dispute over magazines resulted in a semi-victory, or sem-defeat, depending on your perspective. I gave the example of 1996. This is really where the problem lies.

I note on page 12 that you call again for two special envoys to be appointed to recommend constructive ways of settling this dispute. It's clear that the U.S. government lacks the will - not the will to bring about a transition, a term that we will no longer use to avoid confusion - but the will to revert to a normal situation. As I understand it, the U.S. government has told its domestic industry to bring this matter before the courts because the important thing in their minds is the fast track procedure for negotiating the free trade area.

Therefore, I fail to see the point in pursuing this suggestion to appoint two envoys, unless of course to help the U.S. government save face, since the latter has no desire whatsoever to find a solution which would make the U.S. industry realize that free trade is the solution for both countries.

What proactive steps does the minister intend to take to ensure that the current consensus - because all industry stakeholders are in almost total agreement - is maintained in the aftermath of the April 2 fallout? This will be the major challenge in the coming weeks, namely the government's attitude in the face of this consensus. There must be no ambiguity whatsoever as to the government's will to maintain the situation that will prevail on April 2, namely free trade.

Mr. Pierre Pettigrew: Therefore, you oppose the idea of appointing envoys. Earlier, Mr. Sauvageau said he was in favour of the idea.

Mr. Pierre Paquette: No, that's not what I'm saying. I'm not saying that I'm against the idea. At this point in time...

Mr. Pierre Pettigrew: You do not think it would be useful.

Mr. Pierre Paquette: No. Knowing that there is no opening, we're left with the impression that we could have something other than free trade on April 2 and that we would be prepared to accept transitional measures. I know that's not the government's position. Therefore, knowing what we know, what could these two envoys possibly accomplish under the circumstances?

As I see it, the government's job is to consolidate this consensus throughout the Canadian industry and to help the industry weather the storm in any way it can. Since there have been no openings from the Americans, any such action on Canada's part will be perceived as a sign of weakness.

Mr. Pierre Pettigrew: You talk about providing assistance to businesses to shore up their support for free trade, which you claim may be weakened by the expiration of the agreement. Are you talking about financial assistance, or possibly the threat of subsidies?

• 1625

Mr. Pierre Paquette: No. I'm talking about other forms of assistance that may be available to the industry. I realize full well that strategy is not always formulated publicly, but I would like to know if the Canadian government intends to work toward consolidating and maintaining this consensus which, last time around, crumbled and led to the Quebec industry being penalized by the imposition of quotas.

Mr. Pierre Pettigrew: I was advised of this consensus by the industry. As a government minister, I have a duty to show leadership, respecting all the while the consensus that has emerged among industry stakeholders. I was approached a year and a half ago by industry representatives. We've been working on this issue as long as I have held the International Trade portfolio and the industry approached me with a fragile, albeit genuine consensus. On that basis, the government came to a decision, namely to allow this agreement to expire.

If you're asking me what people will be thinking on April 2, then I cannot give you an answer, because I don't know. I don't know what the industry in British Columbia will be thinking. There has been some talk about maybe bringing in an export tax. You claim that this could ultimately affect our domestic producers and that because they feel threatened, I have a duty to encourage them to maintain their faith in free trade. In my view, that is certainly the best position. However, you must understand that our government has a responsibility to remain receptive to the industry's concerns and to help it weather the situation that will prevail on April 2.

I am confident that our industry is better prepared and better organized than ever to move toward free trade. It has already made arrangements to set funds aside, mindful that there will eventually be legal costs, taxes and countervailing duties with which to contend. All of this has been done.

Our government vigorously supports the industry, as it has over the past year and a half, in its quest to confront the situation that will prevail on April 2. I have to say that I am rather impressed with how prepared our industry actually is compared to past situations.

[English]

The Chair: Thank you. We have two and a half minutes left and we have two more speakers on the list, Mr. Casey and Mr. Eyking.

Mr. Bill Casey: I'll try to be very quick.

Actually, I think we're hearing a lot about an export tax. If you keep track, Mr. Zoellick brought it up with you when you were in Washington. I've heard us all mention it here, and you mentioned that perhaps the B.C. Lumber Trade Council might be bringing it up tomorrow in the discussions.

When Mr. Zoellick brought it up, did you gather or interpret that he would favour Canada putting on an export tax, as opposed to anything else? Did the discussion just end, then, with that question: Do you envisage an export tax?

Mr. Pierre Pettigrew: I referred to the conversation; it was a conversation. I know he did refer to it publicly. That's why I referred to it publicly myself. He asked me whether our government would envisage it. I didn't read his body language. It was my first four-hour meeting with him. I don't know him well enough yet to know what's behind it. In the words he said to me, he asked whether our government would envisage that possibility.

Mr. Bill Casey: Why would the B.C. Lumber Trade Council want to...

Mr. Pierre Pettigrew: I don't know; you asked me the question. I said I have not heard it from anyone yet, but through the grapevine, a possibility I hear is that some B.C. people have heard it. I want to be very clear with everyone; I have not heard it yet from anyone. But the rumour is that soon—

Mr. Bill Casey: So they just said it?

Mr. Pierre Pettigrew: No, officially, I said. I heard it; I've been hearing it for months, but nobody has told me we're leaving the consensus we've had in this country for a year and a half to support that. Until I hear it from the horse's mouth, for me, it doesn't exist.

Mr. Bill Casey: I have one last question, then.

Mr. Pierre Pettigrew: I can prepare psychologically for it, though.

Mr. Bill Casey: I know you haven't heard it from the horse's mouth and I know you haven't envisioned it, but if you did envision it, in the last MOU where there was an export tax imposed, Atlantic Canada was exempted. Has anything changed that would prevent Atlantic Canada from being exempted again?

• 1630

Mr. Pierre Pettigrew: Everyone who has been supporting it so far is telling me they don't mind the concept too much as long as they don't have to pay it.

Mr. Bill Casey: So that's a yes, is it?

Mr. Pierre Pettigrew: Everyone will want to be exempted from it. You're asking me a bizarre question. I'm telling you there's no consensus to support an export tax, and you say, if there were one, would Atlantic Canada be out?

Funnily enough, the word I'm hearing from Quebec is, well, we don't mind for B.C. or whoever brought up this idea of an export tax, as long as we're not in. It's all very nice to support the concept of an export tax if you don't have to pay it.

Mr. Bill Casey: I didn't ask if they'd be exempt; I asked if anything had changed in Atlantic Canada from the circumstances under which they were exempt before.

Mr. Pierre Pettigrew: As you know, there is a long history and track record of the Americans exempting Atlantic provinces from countervailing duties and investigations. The Americans base it on the fact that there are more private lands in Atlantic Canada, and all that, and they go through that process—and thank God, the Atlantic provinces have not been targeted. I'm trying to widen that regime to other provinces because I believe our practices respect our international trade obligations. We're fair traders.

Mr. Bill Casey: Okay, thank you.

The Chair: The last questioner is Mr. Eyking, for one and a half minutes.

Mr. Mark Eyking (Sydney—Victoria, Lib.): Mr. Minister, you made an interesting comment that a new home might cost $1,000 more to build in the United States with these countervailing duties.

Maybe our government, in cooperation with our forestry industry, can get the message across to homeowners and the building trade of what's going to happen if this countervailing duty comes in place—maybe ads in the New York Times or the Washington Post stating our case. If we can get the consumer on our side, it might bring pressure to bear on the government.

Mr. Pierre Pettigrew: That's a very good suggestion.

I can tell you that we've been working closely with the provinces and with industry, and many of these people are ready to speak loud and clear. I've been impressed with the support we got in Congress, which has been saying it very clearly. In the job we've been doing as a government, directly and through our embassy... Mr. Doug Waddell did much of that work in the past year in Washington.

We have been stating our message loud and clear, about improvement of our practices and the fact that we are fair traders. We will continue to do that with our allies, and hopefully it will register with the U.S. administration.

The Chair: Thank you very much.

Mr. Minister, I have a small question for you. I heard that there has been talk about some in the U.S. blaming Canada for subsidizing the railways for transportation. Have we given them some sort of updated list to state that in fact the railways aren't owned publicly any more in Canada but are private corporations now?

Mr. Pierre Pettigrew: We have done that. They shoot at anything that moves these days.

The Chair: On behalf of everyone, thank you very much.

Mr. Pierre Pettigrew: Thank you.

The Chair: The next meeting will be on Wednesday at 3:30 in room 308, West Block, on softwood lumber. A number of good witnesses will be appearing before us.

The meeting is adjourned.