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]

Wednesday, March 28, 2001

• 1529

[English]

The Chair (Mr. Mac Harb (Ottawa Centre, Lib.)): We have a quorum for the purpose of our hearing.

I'd like to welcome, from the Department of Foreign Affairs and International Trade, Ms. Susan Cartwright, acting assistant deputy minister, Europe, Middle East and North Africa; Mr. John Curtis, senior policy adviser and coordinator, trade and economic analysis division; Serge Marcoux, director, Baltic, Central European and EFTA countries division; Brian Oak, director, policy and strategic planning division; Claudio Valle, director, technical barriers and regulations; and Ross Miller, assistant director of the European Union division.

We also have, from the Department of Industry, Alan Virtue, the director general for campaigns and services.

• 1530

We will have one hour and a half. The floor is yours for half an hour, and then for the balance of the time we will have questions to you by the committee members, as well as some wrap-up comments if you wish.

So with your permission, we will proceed, Ms. Cartwright. Thank you for coming.

Ms. Susan M.W. Cartwright (Acting Assistant Deputy Minister, Europe, Middle East and North Africa, Department of Foreign Affairs and International Trade): Thank you very much, Mr. Chairman, and thank you for this opportunity.

[Translation]

We are pleased to be here today. Thank you for offering us the opportunity to tell you about our Canadian priorities in trade and investment in Europe.

[English]

You've identified my colleagues from the Department of Foreign Affairs and from Industry Canada who are here also. They will be available, along with me, to answer any of your questions following the presentation.

I understand that the subcommittee will be taking into account the testimony given to it last year, but we'd be very grateful for the opportunity to provide you with an update on some key activities and issues.

Since our presentations to the subcommittee nearly a year ago, there have been a number of developments in our trade and investment relations with Europe. We have had intensive discussions with our European Union counterparts, leading to the launch of a new trade round of the WTO; we've engaged our EU counterparts in an examination of the EU-Canada trade initiative to ensure that we are making progress in resolving our bilateral trade disputes; and we have begun to assess the potential impact of transatlantic trade liberalization.

If I may offer you an update on the trade and investment flows between Canada and Europe, Europe is the most important market after the United States for Canadian exporters, but it is clear to us and to our European neighbours across the Atlantic that the potential of the relationship has not been fully exploited. The EU alone gives Canadian companies access to a population of 375 million, with a GDP of U.S. $8.9 trillion. To put that into context, the GDP of the U.S. is $10 trillion, and Canada $689 billion.

Enlargement of the European Union will mean an increase of the European Union's population to between 481 million and 545 million people, depending on which countries eventually become members.

Two-way trade with Europe reached $65.7 billion in 2000, up 63% since 1991. Our exports to Europe have grown from $14 billion to $21 billion in that period, a 34% increase, and as you would have seen from the previous slide, there is a current account deficit with the European Union that clearly merits our attention.

What's encouraging is that the numbers for high value-added exports are holding their own in the trade relationship. The United Kingdom, for example, is our second destination for exports of manufactured products, placing it ahead of Japan. Of Canada's top ten export markets, five are in Europe. They are the U.K., ranked third; Germany, fifth; Belgium, eighth; France, ninth; and Italy, tenth.

After the United States, Europe is Canada's strongest investment partner. Europe accounts for over two thirds of Canada's non-U.S. foreign direct investment, and Europe took 20.4% of the total stock of Canadian outward investment in 1999.

Seven of our top ten investment source countries are European. They are the United Kingdom, ranked second; the Netherlands, ranked third; France, fourth; Germany, sixth; Switzerland, seventh; Belgium and Luxembourg, ninth; and Sweden, tenth. In 1999, foreign direct investment in Canada from the United States was $173 billion, and from Europe, $49.8 billion.

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[Translation]

According to preliminary figures recently published by Statistics Canada, Canada had an exceptionally successful year 2000 in attracting direct investment from abroad and from Europe. Whereas these investments amounted, on the average, to $4 billion per year from 1995 to 1999, they rose to $29 billion in 2000. New investments from France and the United Kingdom took the lion's share of this increase.

[English]

Of the world's top 100 large firms, 46 are European. Canadian direct investment in Europe totalled $52.6 billion in 1999, up from $25.1 billion in 1991, a growth of 110%.

I'll give you a couple examples of major recent investments by European firms, including one from a country you would probably quite likely think of as an investor in Canada, and that's Germany. We have a new investment in St. Thomas, Ontario, that will initially create 80 jobs, with sales of $40 million in automotive steering mechanisms. It's a company from Germany called ZF Lenksysteme.

The second example is from a country that I suspect not many of us think of as a major source of foreign investment, and that is Spain. In 1999, Spain was ranked the sixth-largest foreign investor in the world.

[Translation]

The Spanish group CEPSA recently launched a second major investment of its chemical products branch in Quebec, Interquisa, for building a new plant in Montreal. The project will create more than 150 new jobs.

[English]

Spain also has major investments in Ontario and New Brunswick in the toll highway business, including the world's first electronic toll road, Highway 407 in Ontario.

The resources that we have in Europe, and the human resources devoted to trade and investment promotion in our 30-European mission, have increased from 137 to 175 over the past 10 years. The complement of Canada-based trade commissioners has declined from 65 to 50, and that decrease was largely to enable the department to meet its program review commitments and the need to reallocate resources.

We have 125 locally engaged staff who, along with their Canadian colleagues, deliver business development services at our post. Of those, 88 are commercial officers and 37 are commercial assistants.

Financial resources of the program for international business development have declined from $5.4 million in 1994-95 to $1.6 million in 2000-01. However, the number of projects undertaken by our staff at missions has increased to a point where some 400 trade and investment activities are now conducted annually.

Utilization of the program for export market development—known as PEMD by Canadian firms and associations pursuing European business opportunities—has declined fairly steadily over the past three-year period.

[Translation]

Our 30 missions in Europe have an international trade development plan that shows the projects and trade and investment promotion activities that they wish to undertake during the coming year, all this is chiefly funded by the department's international trade development program.

[English]

In no other area of the world is corporate and national presence at international trade fairs as important as it is in Europe, which is host to most of the largest trade fairs in the world. Some of these names will be well known to you: the food fair ANUGA, CeBIT, ITU Telecom, the Farnborough and Paris air shows, and the International Hardware Show. Many of the European companies present at these events have gateway access to third-country markets. Europe is often where the world shops and where many international buyers participate, providing additional market opportunities for Canadians.

The kinds of campaigns that we deliver at national and international trade shows enhance awareness of Canada—not not just of the Canadian companies participating—among all of the participating European companies, which are largely seeking manufactured products and services of sophisticated technology. The campaigns also give us an opportunity to underline that Canada competes effectively in the global marketplace.

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New high-value-added exports in our priority sectors have contributed to the government's objectives of increasing employment and prosperity. During the 1990s our advance technology exports to Europe increased by almost 12% per year. Knowledge-based commercial and business services now constitute the largest component in Canadian services trade.

In order to optimize the use of our resources and provide a consistent level of service to Canadian and other client business communities, the trade commissioner service has adopted its new approach, which focuses on the services that Canadian companies have said they require most, in developing international markets for their products and services.

We have surveyed our clients. The latest survey confirms an overall level of satisfaction that is fairly high. We are investing in training, not only for Canadians, but also for our locally engaged staff to enhance their effectiveness in the field.

An interesting phenomenon about our exports to Europe that is perhaps not evident is the penetration of new-to-export firms. I think we all have assumed traditionally that companies that are new to exports go first to the United States. But in fact about 55% of the companies doing business in Europe are new to exporting. Many of our promotional activities are now designed to cater to the needs of new exporters and small and medium-sized enterprises.

Other innovations in the kinds of products and services we offer involve harnessing technology. One new program, for example, which we will launch this year, will match capabilities and interests of Canadian exporters with firms in Europe through a website gateway. It's going to be known as the Global Markets Accelerator.

We have a number of other website products, including Canada Export Online, which help bring export market opportunities to the attention of Canadian companies.

I'd like to turn from trade promotion to investment. Attraction of foreign direct investment continues to be a top business development priority for our posts in Europe.

[Translation]

Three thousand five hundred European companies have already decided to invest in Canada. Unfortunately, this is still a low figure when compared to the United States.

In an attempt to attract more European multi-nationals to Canada, our offices have a corporate liaison program, or CLP. With this program, our mission chiefs and our program managers are committed to visit more than 350 targeted companies each year in Europe.

[English]

We work very closely with Investment Partnerships Canada, which is located within Industry Canada, to support the deputy minister's investment champions. We work well with other parts of Industry Canada, Heritage Canada, Agriculture and Agri-Food Canada, and Natural Resources Canada to assist our investment efforts in Europe.

Our posts organize investment seminars and road shows aimed at introducing European firms to sector-specific investment opportunities in Canada. Enhanced awareness building is a very important part of attracting investment. We have a range of tailored publications and website tools, which are important to present to potential investors—general and very specific material on opportunities in Canada.

Our Canadian executive speakers program constitutes a direct link to the European business community as we use willing high-profile Canadians to make the economic and business case to European decision-makers.

As to promoting Canada's image in Europe, Canada has a wonderful brand, a wonderful image in Europe. It's often perceived as a land of vast and pristine spaces and landscapes. This is an image that has been very important to our tourism industry.

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The challenge, I think, for us lies in maintaining this image while also incorporating the dimension of a modern, technologically advanced, sophisticated, and innovative society. In order to add to our trade and investment promotion activities, we use our other programs in Europe to continue to raise Canada's profile—and I'm talking there about communications, cultural, and public affairs activities.

The kinds of activities that we engage in include support by our missions for cultural activities such as films and theatre and academic events as well, which, as I said, play an important role in our branding efforts. We use them to further develop our contacts with private sector decision-makers. We produce a range of publications, which have a broad distribution in Europe, and we are, like the rest of government, harnessing technology—using websites—to deliver information to an even broader range of clients. Twenty of our 42 missions in Europe are online, more being added each month. And what are known—around the department anyway—as e-zine, which are electronic magazines, are increasingly being used by our missions.

[Translation]

Further, we have an awareness program that regularly invites European journalists and parliamentarians to visit Canada to gain better knowledge of our country.

This year we are also celebrating the 25th anniversary of cooperation between Canada and the European Union both in Europe and in Canada, with various activities in trade, culture and university education that are focussed on raising awareness about our relations.

The vast majority of our goods have no difficulty in entering into European Union countries. However, there are a few contentious points in our trade relations, some of which have existed for a long time.

[English]

You'll see them listed in your copy. They are the common agricultural policy and agricultural subsidies, hormone-treated beef, genetically modified canola, the use of the precautionary principle, pinewood nematode, and wines and spirits, for example. There are people around the table at this end who would be more than happy to answer questions, if you have them, following the presentation.

We are making steady progress under the ECTI, the EU-Canada trade initiative, which is the mechanism that we use for dealing with both irritants and progress and innovation in our trade relationship. Our competition agreement has been signed, the Canada-EU round table has been launched, and the mutual recognition agreement implementation continues.

We review the progress made under ECTI at each of the summits, and as I'm sure you're all aware, we have a summit at the head-of-government level in each of the six monthly EU presidencies. We focus very much on setting achievable short-term objectives, and in our view this is paying dividends. Notwithstanding the progress made, the degree of liberalization that we can achieve under ECTI will remain limited by our MFN obligations.

Minister Pettigrew and Commissioner Lamy both met with Canadian and European executive directors of the Canada-EU round table in December in Ottawa. CERT is a key institutional link in the Canada-EU relationship, and we'd very much like to see CERT succeed in establishing itself as an influential transatlantic player. Despite our interest, however, CERT's future rests in the hands of the private sector, and the extent to which the private sector is prepared to demonstrate its support.

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The EU is now the world's largest single market, having surpassed the United States in population and in exports and almost equalling the United States in GDP.

Canada remains one of only eight countries, or markets, that do not have a preferential trading relationship with the European Union. We are in company with Australia, Hong Kong, China, Japan, the Republic of Korea, New Zealand, Singapore, and the U.S. Conditions of access are affected by the EU's numerous preferential trade agreements and arrangements, which make exclusive MFN, most favoured nation, treatment applicable only to imports from the eight WTO members I listed above. There are some who regard this perhaps not as most favoured nation, but as least favoured nation status.

We recognize that the situation is unsustainable over the long term and that we will need either a multilateral or regional solution to this. The European Union has never demonstrated great enthusiasm for a transatlantic free trade arrangement. But Commissioner Lamy has indicated that the commission is willing to consider a business case.

[Translation]

The European Union is reluctant because it is afraid to change its common agricultural policy in any major way which might leave its fragile agricultural open to Canadian or American competition, because it feels that this would generate little trade given that customs tariffs between Canada and the European Union are quite low as compared to higher tariffs with developing countries, and because it is afraid that this might weaken the multilateral system.

[English]

Our department is currently undertaking a macro-economic study of the effects tariff elimination might have on Canada-EU trade, which is expected to be completed in early May. However, tariff-free trade is only an initial and very basic consideration. We expect it to show positive results overall, but a more thorough examination will need to look at other important factors, such as non-tariff barriers, investment, trade and services, and rules of origin. We hope to survey Canadian exporters later this year to get a better sense of their perception of the barriers they face in gaining access to the EU market and how we can best work to overcome these barriers.

In the absence of a bilateral, trilateral, or regional initiative, Canada will continue to work to improve access to the EU market via the WTO, including the ongoing agricultural and services negotiations and working with the European Union on the launch of a new round of WTO negotiations.

Let me say a word or two about Europe beyond the European Union.

[Translation]

Our trade relations with several other European countries that do not belong to the European Union hinge on the European Union. These countries are potential members of the European Union or they are intimately connected to it, like the four countries that signed onto the European Free Trade Association, or EFTA.

[English]

the European Free Trade Association, EFTA,

[Translation]

That are part of the European economic system or that have their own special arrangements with the European Union, as is the case with Switzerland.

[English]

The European Union is also engaged in a process of enlarging its membership, and it is in active negotiation with 12 countries. While the timetable remains somewhat uncertain, the first new members are not expected to join the European Union much before 2004. This enlargement will change the face of Europe and will affect all the community institutions and areas of policy. Possible economic impact on Canada is a matter we are following closely. The candidates are already being gradually integrated into the European Union. They enjoy some preferential trade access, and many of them have already adopted EU standards and regulations. The European Union has a large aid program to help the applicant countries absorb the acquis communautaires.

The economic impact on Canada may prove to be modest, given the relatively small volumes of trade with these countries. Increased trade between the EU 15 and the candidate countries would mean increased competition for third countries such as Canada. On the other hand, greater economic growth and a reduction of tariffs to EU levels should also provide export opportunities for Canadian companies.

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Canada enjoys rights under the WTO to seek compensation from the European Union for damage to its trade interests, but it will be more difficult for Canada to argue for compensation this time around—this enlargement—because the integration of the applicants into the single market prior to accession is making the accession process more gradual and complex than before.

With respect to the EFTA countries, following extensive consultation with a broad range of Canadians, Canada launched free trade negotiations with EFTA in October 1998. The last negotiating session was held almost a year ago. It was a productive round, and tentative agreement was reached on most issues, except for the treatment of ships and industrial marine products, an extremely sensitive issue for Canada. This agreement is expected to focus primarily on industrial tariff elimination, with some liberalization for agriculture and new cooperation in trade facilitation and competition policy. The agreement will not include new commitments in the areas of services, investment, or intellectual property.

I'd like to conclude there, Mr. Chairman, and leave time for you and members of the committee to ask questions or seek clarification.

The Chair: Thank you very much for your excellent presentation. I have one question before we open it to the floor.

Your foreign direct investment chart reflects the years from 1991 to 1999. Do you have the year 2000, or are you in the process of compiling those figures? Is it possible to give them to the committee when they are available?

Mr. Alan Virtue (Director General, Campaigns and Services, Department of Industry): Mr. Chairman, we do have some figures made available from Statistics Canada yesterday.

The Chair: Okay.

Mr. Alan Virtue: I'm prepared to give them to you, but we are a little concerned, because there seems to be a leap in there we can't totally account for. So we've gone back asking for some clarification.

The Chair: Okay. Once you verify it and you're satisfied, perhaps you can give it to our secretariat.

Mr. Alan Virtue: I will do so.

The Chair: That will be great.

We open the floor to questions and answers, and each member will have five minutes.

We'll start with Mr. Casson, followed by Mr. O'Brien.

Mr. Rick Casson (Lethbridge, CA): Thank you, Mr. Chairman.

Thank you for your presentation. I'd like to go in two separate directions here.

The idea that Canada is looked on as an unspoiled wilderness, I suppose, is not all bad. You listed a number of things we're doing for promotion in Europe, trade shows, getting information out. What are we not doing right, if they still view us as a country that's a little bit behind at times and less dynamic than we actually are? What can we do to change that?

Ms. Susan Cartwright: The issue of branding is one that's had a lot of discussion. We're not the only ones, there are many players in the private sector, there are many other governments dealing with this issue of branding. Changing a brand is very difficult. It requires an enormous investment, and even for some who have made that investment I think the results are debatable.

What we are doing is consistently reinforcing a message about a new Canada through all our programs in Europe, not just trade and investment, as I mentioned, but through our cultural, our public affairs, our academic relations programs, our relations with parliamentarians. We're trying to exploit every opportunity we have. As I say, the challenge is not to lose the brand we have, because it's a very positive one and it's very important to certain sectors of the Canadian economy, but how we add to that brand. How do we add that new dimension?

What are we not doing right? This is a question we ask ourselves on a regular basis, and we are continually looking for new ways to reinforce that image of Canada.

Mr. Rick Casson: Is there quite a bit of effort being put towards that, resources? Is that a priority of the department?

Ms. Susan Cartwright: Yes, it's a priority for us, and I know it's a priority for Industry Canada, not just on the investment front, but overall, and for most departments that are engaged in the trade partnership we have. Yes, it is a priority for all of us.

• 1600

Mr. Rick Casson: I want to talk a bit about the expanded European Union and the countries that are looking to come in.

I believe we already have a problem with the agricultural subsidies that the European Union has in their agriculture policy, which we feel distort production and distort markets. Some of the countries that are coming in have the potential to be huge agricultural producers. Maybe we just want an opinion or a feeling, with all this expanded agricultural production capability that's potentially coming in, is the European Union going to be able to continue to subsidize at the level it does?

Ms. Susan Cartwright: I think that debate is already underway in the European Union, and there have been many European voices raised to the effect that the CAP, the common agricultural policy, will have to be reformed prior to, or at the latest at the time of, entry of the candidate countries.

Mr. Rick Casson: I certainly hope so. With what's going on now with the foot and mouth disease going through Europe, destroying the animals, I think there's going to be a glut of grain on the world market that's going to further cripple what we're trying to do here in Canada. But that will pale in comparison if that disease does come here.

On the idea of a free trade zone—and when Tony Blair was here he talked a bit about that—there's no will there at the government level. You say an industry-driven program would be better or has more chance. Is that what you were saying?

Ms. Susan Cartwright: You're talking about interest on the European side? No, I wasn't talking about an industry-driven program, although I did mention the Canada-Europe round table, which we believe should be an integral part of our relationship with Europe.

What Commissioner Lamy spoke about when he was here last December for the summit was developing a business case, in other words, a business justification or a business impetus, for a free trade agreement. As I say, we have begun a study that will look at the tariff issue only, which is a small part of the bigger puzzle, but that is as far as Commissioner Lamy has gone at the moment.

Mr. Rick Casson: Thank you, Mr. Chair.

The Chair: Thank you very much.

Mr. O'Brien.

Mr. Pat O'Brien (London—Fanshawe, Lib.): Thank you, Mr. Chairman.

First of all, I want to compliment the department on what it is doing in trade promotion—and this goes to Mr. Casson's question.

I had an opportunity last week to represent the minister in London, and then in Manchester. I went by train to Manchester with Michel Têtu, one of our foreign service officers. The whole point of that was to explain the opportunities in Canada to these business people, to try to debunk the myth that we're exporting only wheat and lumber, and so on, although those are very important and remain so. I found that very interesting to participate in. So my compliments to you, Ms. Cartwright, and everybody who was involved in that.

That leads to a question, though, following Mr. Casson's. How often do we do that? How do we decide where in the EU? Can you help us understand the judgment call on why you picked Manchester, and so on?

Ms. Susan Cartwright: We rely very much on the expertise in our missions in Europe, among our Canada-based officers but also amongst our locally engaged commercial staff. They have a planning process, a priority-setting exercise, and they will identify centres or locations, as well as events, where we feel it's important that Canada has a presence and where we feel that we will reach a large enough audience, an important audience for either a very specific market sector, for example, or a broader audience, to tell them what Canada is.

It's a process that happens every year. It's fine-tuned throughout the year, and as I say, we rely very much on the expertise we have in our missions abroad to determine what activities and what cities we target.

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Mr. Pat O'Brien: I can tie that to something I mentioned in our own caucus—there are two members of the opposition here, but I can share this—what the department does in Canada to hold one-day export trade seminars.

I had the minister in London, Ontario. Some 100 companies from London and around the area came and spent the day. The minister persisted through bad weather to get there. There were a number of trade officials specially flown in for this day, and it was well covered by the media. The point is, they had a hands-on opportunity to see how they could either grow their export business or get into the export business.

I wonder, Ms. Cartwright, if you or some of your officials could link those two. Is there a linkage between those two, what's done on each side of the pond, as we say here?

Ms. Susan Cartwright: Absolutely.

I'm going to ask Brian Oak to say a few words about that, but driven by necessity, as we often are, we've had a very serious look at the kinds of services we offer, and we've consulted extensively with our clients about what we do that's most important to them.

Could I ask Brian to say a few words about the new approach?

Mr. Brian Oak (Director, Policy and Strategic Planning Division, Department of Foreign Affairs and International Trade): Ms. Cartwright mentioned the new approach, which is into its third year of operation, the renewal of the trade commissioner service abroad to better service our business clients directly.

We know how to service them through this new technique, directly surveying them, which has never been done before. We think we have a better handle on what their needs actually are, and it helps us define and actually eliminate certain kinds of services that we used to deliver in the past, which are now considered by our clients to be lower value-added. They're telling us not to do that but rather things that are of more value to them.

But if I could answer the question on the linkage with the domestic outreach that the minister participated in, Team Canada Inc.—which is not to be confused with Team Canada missions—is the federal government's virtual trade promotion agency, made up of 23 federal government departments and agencies. We have established what we call a border-in, border-out relationship for our clients. The border-in has to do with exporter training, getting them ready to export. The outreach that our minister does, as well as other ministers, is a component of the border-in servicing to our business clients, getting them geared up, informed, and prepared to do exporting abroad.

Our trade commissioner service—we're talking about the European side right now—is the delivery end of Team Canada Inc. Once the exporter is prepared to export and gets out of Canada, we are prepared as trade commissioners to assist them in the best possible way.

Mr. Pat O'Brien: I have one last question.

I won't say who, but I recently had a chance to meet for a while with the minister of foreign affairs of a European country. He expressed the view that the common agricultural policy probably can't survive much longer with the EU expansion when it comes. I wonder if you would share that view. I think Canadian farmers would like to think that's correct.

Ms. Susan Cartwright: As I mentioned earlier, I think we would share the view expressed openly by some Europeans that the common agricultural policy will have to be reformed prior to, or at the time of, enlargement. I guess the question remains, which I'm certainly not capable of telling you at this stage, whether it's going to be reformed enough for us. But that will clearly be an issue as we move, we hope, into a new round of the WTO as well.

Claudio, do you want to add anything on the CAP?

Mr. Claudio Valle (Director, Technical Barriers and Regulations, Department of Foreign Affairs and International Trade): Yes. This is a question that is posed every time the EU enlarges. It was posed when there were six, when there were nine, when there were twelve, and now fifteen.

Clearly, it comes to a point now that the Europeans have a hard time dealing with surpluses, the competition for third markets is fierce, and so on. There is a broader distaste for the misallocation of money within their society.

• 1610

So I would expect some management of the issue, but I don't think you can expect a wholesale reworking of the CAP. I don't think it's there. Europe is a lot more rural, more farm community than North America and other, broader markets. Therefore, some levels of farm support will continue to remain fairly high.

The Chair: Thank you very much.

Mr. Valeri.

Mr. Tony Valeri (Stoney Creek, Lib.): Thank you, Mr. Chairman. I've got a number of questions.

The Chair: You've got five minutes.

Mr. Tony Valeri: With respect to the branding issue—I know the importance of branding was brought up a couple of times—I'm always interested in understanding what is it that we're attempting to do. What is the ultimate brand or profile that we want Europeans to think of when they think of Canada? For the longest time, it was “Canada, great country, great people, really friendly, all this other bit, travel a little bit, don't travel a lot...”. But what's wrong with developing “They're the Canadians. Hungry for business, aggressive, outcome-oriented, very productive, efficient, want your business.”

I am tired of hearing that we're really nice. But you don't come and see us enough. It's easy for people to say no to Canadians, because we say we're sorry. They say no, and we say we're sorry. If we're branding or re-branding Canada, let's re-brand Canada as the new Canada, the new kid on the block. We have great opportunities.

Everyone would like to do business with Canada. We've got phenomenal companies here that have great opportunities outside the country. But I find we are perceived, and we've been perceived, in such a way for far too long, and now we're talking about a re-branding or the importance of branding. I really would like to hear from you whether that is what we're pursuing, or is it a bit more of the same?

I've got another question after that.

The Chair: Do it now, not after.

Mr. Tony Valeri: The other question that I ask is essentially a shorter question. It's about the EU trade deal with Mexico. Essentially the deal with Mexico was a lot about gaining access to NAFTA and the United States. How does that now impact us? If there was an attraction to get into NAFTA, that attraction's now somewhat less because of the agreement with Mexico. So I'd like to know a bit about that, how it's impacting us in terms of trade investment relations, and in fact whether that's going to deter any possibility of a Canada-EU free trade deal.

The last question I have has to do with ice wine. Was that a blip, or are we actually seeing some movement in Europe's positioning on wines and spirits? Is that an isolated incident, or are we able to build on that now to gain greater access to their markets?

I have one more, but I won't abuse my—

The Chair: Okay, it's fine.

Ms. Susan Cartwright: First of all, on the brand, yes, we are trying to do something new. But you have to remember—in my view—if we are branding ourselves as gruff, open to do business, that's not something the government can do alone. The private sector, the business community, has to be there with us to give voice to that.

Mr. Tony Valeri: I think they're there already.

Ms. Susan Cartwright: You may be right.

But we can't abandon the brand we have because there are some sectors of the economy that rely on or derive benefit from that brand. So what we are committed to doing is portraying Canada in Europe as not only a pleasant place to visit, with many natural attributes, but a great place to do business.

We have branded ourselves as a partner for the 21st century. We've branded ourselves as a very successful, new economy and that we are not well understood. It's a long process. It's a process that requires commitment on everybody's part to join in this changing the image. But yes, we are trying to do something new, not more of the same.

• 1615

On EU and Mexico and the impacts, I think it's early to say what the impact will be. I don't know if John Curtis would like to add anything. But the EU and Mexico free trade agreement—you're right—had NAFTA access, I'm sure, as a major attraction. But one of the other attractions is that Mexico still had very high tariffs. So the EU-Mexico agreement was an opportunity to deal with tariffs, the kinds of tariffs not present in Canada.

So what effect it will have? As I say, I think it's early days to say.

On ice wine, I sincerely hope that wasn't a blip. It's part of a bigger issue. We have a commitment on both sides to continue to address the remaining access issues on both sides in the wines and spirits area.

Mr. Tony Valeri: So it's a positive sign, and you're building on it.

Ms. Susan Cartwright: Absolutely.

Mr. Tony Valeri: Great. Thank you.

The Chair: Mr. Eyking, five minutes.

Mr. Mark Eyking (Sydney—Victoria, Lib.): My parents are from Europe and I travel there quite a bit, so I know a little bit about the place. What I find—

The Chair: Excuse me, Mr. Eyking. My apologies, it was actually Mr. Casey first, and then yourself.

Mr. Bill Casey (Cumberland—Colchester, PC): We're both from Nova Scotia, so we'll share. Thanks very much.

I was looking at the graph here about the deficits in the Canadian exports, and imports increases. The trade deficit appears to be increasing substantially. I notice on another chart, the international business development program, investments in that are declining. Is there a connection between the increase in deficit and the declining investment?

Ms. Susan Cartwright: I don't think there's a direct link. Obviously we could do more with more resources. I think that's pretty self-evident. But I think what we have done over the years is we have learned to work smarter, we've become more effective and efficient. I think I mentioned that we actually have a larger number of activities in Europe this year and in the last couple of years than we have had in the past.

I think that the deficit is related to a more complex and a larger range of issues.

Mr. Bill Casey: What are they?

Ms. Susan Cartwright: Competitiveness, increasing competition from other exporters also keen to gain access to the largest unified market in the world.

Mr. Bill Casey: It just looks like—

A voice: Slow growth in Europe.

Ms. Susan Cartwright: Slow growth in Europe, too.

Mr. Bill Casey: It looks like investment in that program gives a good return. A lack of investment in the program, you pay a price. The thing is, the investment has gone down dramatically, and so the deficit has increased.

Ms. Susan Cartwright: John was right in saying that there are sort of local factors in Europe that have contributed to this. Ross Miller also points out an important element, which is the blips which perhaps don't show up very well on a graph like that, of major exports.

For example, in one year we might sell a substantial number of aircraft to Europe, which distorts very much the trade. That's not an annual event, so there is some distortion of figures by major export sales like that.

But you'll have to draw your own conclusions from the statistics before you. But we are learning to use the funds at our disposal more creatively.

Mr. Bill Casey: We're all kind of consumed with softwood lumber these days. I see that one of the issues with Europe is the pinewood nematode. Can you outline that? I thought that was over five or six years ago.

Ms. Susan Cartwright: Or ten.

Mr. Bill Casey: Yes.

Mr. Claudio Valle: It's an issue that occurred about thirteen or fourteen years ago. It came to the fore in 1993, coincidentally with the entry of the Scandinavians into the European Union, when they all of a sudden indicated that Canadian lumber carries a nematode that they don't want to spread to their forests.

We've had substantive engagement. We pointed out that we've had the longest trial period—the 350 years of trade—with little effect or anything to show in European forests. That should be clear evidence that this little bug doesn't move unless carried substantially into a perfect environment where you require high heat conditions and so on. It has been a war of scientists up until now.

• 1620

Mr. Bill Casey: Do they still restrict our shipments?

Mr. Claudio Valle: Green lumber is restricted, yes.

All of our lumber sent to Europe has to be kiln-dried and have a phytosanitary certificate to go with it. We used to ship close to $700 million a year of lumber to Europe, from the east coast and west coast principally. The trade now is down to about $125 million to $150 million per year. All kinds of things have been caught in it. We can't do log homes without kiln-drying the logs and so on.

It has hampered us. We're currently studying a potential challenge to this European measure. We have put the Europeans on warning that we would like to resolve it amicably. But if we can't come to an understanding, we feel science is on our side. We feel 350 years' worth of trade should be clear evidence that this kind of measure is one that cannot be propagated. If it finds the right climatic condition to propagate, it can easily be mitigated. Therefore, those measures need not be.

We're talking to each other across the bow, but nothing seems to sink in. We might have to go to the WTO to basically get a resolution of this issue.

Mr. Bill Casey: We might be looking for a new market on Monday, that's the thing.

Mr. Claudio Valle: The market is open to kiln-drying, but kiln-drying adds a cost. If you include shipping across the ocean, it then makes green lumber uncompetitive to the stuff that comes in—not as much from Scandinavia, because they are high-cost producers, but from the Baltic states and Russia in particular, who have displaced Canadian production.

The Chair: Time is up. It's the second round.

Mr. Bill Casey: I'm at your disposal.

The Chair: Mr. Eyking, five minutes and then Mr. Casey.

Mr. Mark Eyking: We have a $20 billion deficit with Europe. I see this as very similar to what's happening with Japan, where they like to trade one way. A lot of the time they don't really want our products. If they're producing any product, they don't want it brought in.

I did some trade with Europe. Many times you could only bring it in when they were out of their product or when they were finished growing their product.

You see the investments starting to increase there. For instance, with McCain french fries, instead of buying french fries, they want us to put a french fry plant there. It's the kind of business they like to see done over there.

Time and time again, it seems to be that we are soft traders here when they say you can't bring this product in—you can't trade that product, but we can sell this product to you.

Should we be playing a little more hardball with these countries, like Japan and Europe, if we're going to be buying that many products and they're giving us a hard time?

The image is good. We have a better image. Maybe we have to fine-tune some of our products. Maybe we should be cutting some deals with them, similar to what we did in the auto pact, where it has to go both ways.

Ms. Susan Cartwright: Ross, why don't you go ahead.

Mr. Ross Miller (Assistant Director, European Union Division, Department of Foreign Affairs and International Trade): First of all, in our trade policy overall we don't necessarily seek to have balances with markets. We realize that comparative advantages can differ, and we will have deficits with some areas and surpluses with others. This will change over time.

On the question as to the restrictions we face, we've highlighted some of the problems and the irritants we have. I think generally our access to the European Union is pretty good. We have areas, particularly on the agricultural side, where it is not good and it's unacceptably restrictive. There are broader fields there, very broad fields, where Canadian exporters have good opportunities.

• 1625

Mr. Mark Eyking: Like Airbus compared to Bombardier. If we were going to bid with an airline in Europe, do we get the same kick at the can?

Mr. Ross Miller: We do very well in terms of the sales of aircraft. For example, the launch customer for the regional jet, which has done extremely well, was Germany with Lufthansa. So we do well in many product areas.

If you look at the investment flows and the stock of investment, the growth is very impressive and can lead one to ask, “Well, perhaps this represents a distortion. Perhaps Canadian companies are locating there to get around tariff barriers and non-tariff barriers.” No doubt that is true in some cases. But I think it's probably more accurate to look at the Canadian economy, its growth, its maturity, and its need to get out and establish itself internationally and to be close to markets. We would tend to see that as being the greater factor, rather than having to get behind a tariff wall or a non-tariff wall.

In terms of playing hardball, I think we pursue our interests quite vigorously with the European Union.

Mr. Mark Eyking: Well, it doesn't show too well on the graph. I'm following the green line that's going down pretty—

Mr. John Curtis (Senior Policy Adviser and Coordinator, Trade and Economic Analysis Division, Department of Foreign Affairs and International Trade): I might, Chairman, just very quickly add to the comments that my colleague has raised, and it goes back to some of the earlier questions.

I think it's important for the committee to remember that imports aren't necessarily bad. In fact, many of the imports coming into Canada, especially in recent years, from EU, Japan, and the United States are in fact to strengthen our machinery and medical equipment and are in a wide range of goods and services that are increasing the productive capacity of the Canadian economy. Over time, this will translate into the capacity of Canadians both to live better at home and also to export. It's an ongoing process.

Secondly, the point I think Ross has stressed very clearly is that it's very unwise to look at bilateral deficits. If we did that as Canadians and the Americans took notice of the Canadian merchandise surplus, we'd be in big-time trouble. So I would urge the committee to remember it's Canada's overall exports and imports and investment performance in and out that ultimately give Canadians at home the maximum prosperity. That's why we're involved in the world economy to the extent we are.

The Chair: Thank you very much.

Thank you, Mr. Eyking.

Mr. Casey, one question.

Mr. Bill Casey: I have just one short question for the assistant deputy minister. I noticed on the description of your position that the Middle East is included. I wanted to ask you—we had the Palestinians and Israelis into our caucus one day and they said we could triple the trade with that region with a little effort. Is that accurate, do you think?

Ms. Susan Cartwright: I must say I have not come here today at all prepared to talk to you about our trade with the Middle East. There are others better qualified in the department to do that if the committee would like to have somebody. I'm really not in a position to comment.

Mr. Bill Casey: Thank you.

The Chair: Thank you very much, Ms. Cartwright, as well as your team. You have done a marvellous job in trying to brief us. We thank you very much.

I, like Mr. Casey, also have a question about the level of investment in particular, when it comes to business development investment in Europe. We are a bit alarmed by the decline in terms of the amount of money the department is putting into the division. It's my hope that when we do the report, my colleague will join in recommending a substantial investment in Europe to reflect the importance of the European market for Canada.

So I want to thank you. We hope to hear from you with the updated information from Statistics Canada once you have a chance to review it.

Mr. Valeri.

Mr. Tony Valeri: Since you're reporting back to the committee, I would be very interested in getting from you your actual branding strategy.

The Chair: With this final comment, we thank you very much.

Now we are going to suspend for about a minute or so.

• 1629

• 1634

The Chair: Order. Let's move on to the second part of our hearings, which will look at the softwood lumber issue.

• 1635

Our witnesses today include Mr. Richard Bélanger, co-chair, with Mr. Jean Lebel, of the International Trade Committee of AMBSQ; Mr. Jacques Côté, Quebec representative on the CLRA advisory board; and Mr. Rick Ekstein, Ontario representative on the CLRA advisory board.

Because we have votes in an hour or so, and I know you have briefs with you, we will take those briefs as submissions. So the briefer the time taken for your presentations, the longer the time our colleagues will have for questions.

[Translation]

If that could be done, we could have more questions and answers.

On behalf of the committee, I welcome you.

Mr. Richard Bélanger (Co-Chair, International Trade Committee, Association des manufacturiers de bois de sciage du Québec): Thank you, Mr. Chair, for having invited us here today.

I think that it is important for Quebec to have an opportunity to speak out about matters concerning lumber.

We are here to represent the Association des manufacturiers de bois de sciage du Québec which represents 171 mills in Quebec that account for more than 90% of the province's total lumber production. Besides, people who do not belong to the AMBSQ, but who are members of the CLA, or Canadian Lumbermen's Association, also mandated us to represent their international trade interests. Thus, I think that we can make a fairly strong representation today. My committee's co-chair, Jean Lebel, from Produits forestiers Alliance, is with me and we also have representatives from Domtar and Abitibi Consolidated Inc. with us today.

The sawmill industry in Quebec accounts for more than 40,000 jobs. Two hundred and fifty Quebec municipalities depend on this industry. In fact, 135 towns and villages depend exclusively on this industry. This accounts for a production of about 7.2 billion board feet and a 4.2-billion dollar annual business figure. This is about 25% of Canada's entire production.

The AMBSQ, during two special general assemblies, unanimously voted to return to free access to the American market. The first meeting was held in November 1999 and the second in January 2001. We unanimously declared our readiness to defend our position against a potential subsidy investigation by our American partner.

Clearly, we do not in any way wish to renew the Softwood Lumber Agreement which will expire this Saturday. The Softwood Lumber Agreement damaged our industry, slowed our development and also created much unfairness within the industry. Now as regards unfairness, I would rather speak to you about fairness. Today, we mainly want to speak to you about fairness.

In 1992, when Lumber III was signed, Quebec had shown to the American Department of Commerce that it had a subsidy rate of 0.01% which is considered as de minimis. Quebec had thus demonstrated that there was no subsidization of timber royalties at the time.

I will show you some tables, of which you have a copy, to give you an idea of what cutting rights have done since then.

Without further ado, to make our presentation as brief as possible, I would like you to take the tables that come with the document and I would like to draw your attention to some points of information in these tables.

First, on the first page, we find production figures. Between 1995 and 2000, production went from 5.8 billion to 7.2 billion board feet. During that time, the Quebec government granted Timber Supply and Forest Management Agreements (CAAF) to the growing industry.

• 1640

Likewise, during the same time, there was massive investment, as other tables, will show, in technology and equipment. Thus, our mills performed better which allowed us to optimize fibre by producing less shavings and more unmanufactured timber. I will discuss this later on. At the bottom, there is a more accurate figure showing the economic impact on job creation. It shows 39,338 jobs.

On the next page, let me draw your attention to the bottom table, which shows that fixed capital expenditure went down very significantly during the past two years in the case of sawmills. This shows the obvious damage done by quotas.

On the next page, let me draw your attention to the last table. At the bottom, you have Quebec exports of softwood lumber to the United States. Please note that since the current quota system was implemented, or since 1996, there was almost no change in shipments to the United States, whereas our production grows from 5.8 to 7.2 billion board feet. Further on, we will see what happened with that wood.

On the following page, there is a table showing the development of timber royalties in Quebec from 1986 to 2000. I would like to draw your attention to the data for December 1992, when timber royalties in Quebec were $5.42 per cubic meter; they reached almost $11 at their peak, in 1997, and today they sit at $9.26, that is almost double what they were in 1992. I would remind you that in 1992, the subsidy rate for Quebec was zero.

I should add to this that on-site costs have increased substantially with the implementation of the logging rules and standards set out in the Forestry Act.

On the following page, in the chart at the bottom, you will see Canadian production of softwood saw timber. You will notice that in Quebec, production increased by 23.9% whereas it decreased in British Columbia; Ontario and Alberta also saw increases. What must also be pointed out, is the almost 52% increase in the case of the other provinces. When we refer to the other provinces, we mean those who are not presently subject to the softwood agreement.

I am turning the page to bring you to the next table. Here we see softwood timber exports to the United States, this time by province. I remind you of the previous table. In British Columbia, Alberta, Ontario and also Quebec, it is almost at zero, but the other provinces saw growth of 755%. Insofar as other countries are concerned, that is to say European and South American countries, the amounts sent to the United States increased by 187% during that period. We will see the effect of this phenomenon a little later on.

On the following page, in the table at the bottom, we see Canadian softwood timber sales. In the preceding table, we saw that regarding our exports to the United States, we were all stable except for the provinces who had substantial increases, but when we look at the volumes sold in Canada, we see that all of the provinces substantially increased their volumes, particularly Quebec which had a 79% increase in Canadian sales, while the other provinces had a 121% decrease.

All of this seems well and good, and we tell ourselves that one thing takes the place of another, but what we have to examine... If I may I would like to go to the last page before coming back to the two preceding pages. Look at the table at the bottom, where there is a curve, the straight line indicates a market where there is no difference between the sales price in Canada and the United States of an identical product. You will see that during the short period where we had a free market, the price difference was minimal, that is to say between 10 and $20 at the most, but after the quota system was put into place, there were price differences up to $140 per 1,000 feet between Canada and the United States. Remember the preceding table: we significantly increased our sales in Canada, but at $140 less. If you ask me if there are mills making a profit with $140 less per 1,000 feet, I would tell you the answer is no: we are definitely losing money and today we are losing even more.

• 1645

Going back to the page that I skipped, you will see a table showing softwood market share in the United States. Once again, you can see that Quebec's market share diminished by approximately 1%, whereas the market share of the other provinces increased by 4.7% and that of other countries by 1.3%.

The last table that I will show you is on the second last page. This table shows once again the considerable increase in percentage of wood coming from other countries and which is entering the United States without quota and without barriers.

We see Quebec's message as clear and firm, and it is the following: Quebec is asking for the return of a free market. We would like to see fairness between our provincial manufacturers, of course, but also between manufactures across the country. Obviously, when we refer to fairness, within the context of an inquiry into countervailing duties, we are referring to a specific rate for Quebec. We believe that if Quebec can once again show that it does not subsidize its industry, it should be completely exempted from all accords, agreements, and taxes. We clearly need the federal government's support to do this. The same thing can be said for any other province that can make the same claims. We are not asking for favourable treatment, but for province specific treatment, depending, of course, on the result of an American inquiry. Any other agreement, in any case, should respect this specificity.

That is the end of my presentation.

The Chair: Thank you very much, Mr. Bélanger. Do the others have a brief presentation?

Mr. Ekstein.

[English]

Mr. Rick Ekstein (Ontario Representative, CLRA Advisory Board, Canadian Lumber Remanufacturers' Alliance): Mr. Chairman, members of subcommittee, Madam Clerk, it's our pleasure to have this opportunity to appear before you today. We will try to be as brief as possible, so that we can get to the question part.

We have prepared a statement that I believe has been circulated, and we would like it to be read into the record, please. We also brought with us what we would like to call our exhibit A.

As you've heard from previous witnesses, this is a very complex and longstanding issue. We're here on behalf of the Canadian Lumber Remanufacturers Alliance, or the CLRA for short, and the message we want to deliver today to your committee is a positive one and a unifying one.

My name is Rick Ekstein. I'm the president of Weston Forest Corporation, an Ontario remanufacturer. I'm also the co-chair of the Ontario remanufacturing group and a member of the CLRA. My colleague, Jacques Côté, is the sales manager of Bohemia, which is a large Quebec remanufacturer. Jacques also heads up the Quebec remanufacturing group. Of course, we're both members of the CLRA board, and we're here today to represent our group, so we'll just spend a moment telling you about ourselves.

A little over a year ago, business leaders from across our secondary lumber sector—also referred to as remanufacturers or the value-added sector—came together to form an alliance to protect and promote the distinct interests of our sector. Our coalition has pan-Canadian representation from associations in B.C., Alberta, Manitoba, Ontario, and Quebec. We remain united today, and I think this is a notable fact in light of what is going on today.

Based on our estimates, in total, our group represents over 250 value-added facilities across the country. We employ over 40,000 Canadians, we generate over $4 billion in sales, and we account for approximately 10% of Canada's total exports to the United States under the current softwood lumber agreement.

What's very important for you to recognize is that our member facilities are distinct from those types of facilities represented by the other gentleman here, Mr. Bélanger. We are not multinational primary producers with timber licences. We are not directly involved in timber harvesting. We are not involved in stumpage systems. We do not do pulp or paper. Those issues are not our issues. They do not pertain to our operations, and we want to be careful not to get caught in the crossfire.

On average, we are small and medium-sized enterprises that are often family run businesses. We're the little guys of the industry. Many of our members would have liked to have been here today, but they're at home pushing lumber through saws or loading lumber onto trucks on their forklifts.

When you put all the little guys together, though, we're significant and important not only to the hundreds of communities within which we operate across the country, but because we're also very large consumers of lumber from the primaries. We are their customers. We buy at arm's-length from them at market prices—and this is an important point that we'll get into in more detail.

Monsieur Côté has a few points.

• 1650

[Translation]

Mr. Jacques Côté (Quebec Representative, CLRA Advisory Board, Canadian Lumber Remanufacturers' Alliance): A key message we want to deliver to your committee today is that Canada's lumber industry is not homogeneous. This is a critical point for your committee to consider as you prepare to write your report including recommendations on the softwood lumber dispute.

There are not only regional or provincial cleavages across Canada's lumber industry. There are also sector variations within the industry, including the primary sector, as well as our sector, the secondary or value-added sector. Between and within the sectors, there are also notable differences. It is important to remember that for many years, in an effort to encourage the diversification of Canada's lumber industry, the mantra out of governments was: "Add value and export."

These calls were echoed by some members of Parliament recently in the House of Commons during the debate on the opposition motion on softwood. Several members of Parliament made encouraging references to the importance of value-added processing in Canada and for the long-term viability of our lumber industry. When you talk about the value-added sector, you are talking about us, the CLRA, its member associations and our members.

We accepted the value-added challenge without government subsidy, and made it a reality. We are competitive, and reports confirm that per-board foot, the value-added sector now generates two and a half times more jobs than do primary producers.

This is obvious for anyone who has ever had occasion to tour a secondary facility. This is something we encourage all members of the committee to do. Canada's remanufacturing facilities are labour intensive operations geared towards increasing the value of the lumber or wood-fibre we process. Our members make every kind of value-added lumber product imaginable, from finger-jointing operations, to window and door components, to pallets, and more.

That being said, we extend an open invitation to all members of Parliament to take a tour of any of our facilities. It is a worthwhile experience, and chances are we have a remanufacturing operation located in your riding.

Although there are variations in the processing techniques and types of value-added products remanufactured, all remanners have one thing in common, and this difference holds across regional and provincial variations: CLRA members buy lumber or wood fibre through arm's length transactions at market rates. This is a key point for committee members.

Effectively, as a group we are at arm's length customers of Canada's primely producers, and consumers and value-added processors of primely products and by-products for domestic and export markets. Some suggest as a group, we consume more than 10 to 12% of Canada's domestic lumber production. This critical distinction is what makes us different. The one thing we all share in common is we are Canadian companies, who buy our lumber through arm's length transactions at market rates, and we add value through diverse processing activities.

This is a central point to the value-added sector, and we encourage the committee this critical distinction in mind as you deliberate on this complex issue.

Rick.

[English]

Mr. Rick Ekstein: By staying focused on what we all have in common as a basic premise, the CLRA developed what we consider to be a convincing, factual, and legally supported claim for our group. The CLRA is seeking formal exclusion for our sector from any form of restrictions on the export of Canadian lumber products to the U.S.

Whatever the case may be, whether it be negotiated settlement or trade actions—including CVDs or anti-dumping—we want exclusion for our members. We believe our claim for exclusion is reasonable and legal, and it's based on consideration of our unique operations and circumstances. We want these special circumstances to be considered.

We have the same high-priced lawyers everybody else has—and we can't afford them—and they tell us our argument is based on what's known as a “subsidy-extinguished precedent” that we can legitimately claim and can use to prove our members are subsidy-free and therefore should be excluded. It is important to understand their reasoning, and it goes like this: any subsidies alleged by the Americans are not applicable to our sector, as any alleged subsidy is to the sawmill and is extinguished as it travels downstream toward us. In other words, even if someone were to give the sawmills a thousand truckloads of free logs, they would not pass that saving on to us. Naturally, they would sell to us at market-level prices.

• 1655

I want to make it very clear here. We're not saying the primaries are subsidized; we don't believe that at all. But if there is an alleged subsidy, or anyone perceives there to be, it clearly and legally stops with them and it's not passed on to us. This is the subsidy-extinguished argument, which cuts across all regions and provinces. The main objective of our group is to secure exclusion for our group, whatever the case may be. If it's a negotiated settlement, we want to be negotiated out. In the case of a countervailing duty case, or anti-dumping, we want to be excluded, and we need and seek the Canadian government's full and active support for our position.

We understand that not every stakeholder in Canada supports an exclusion like this. They want a cookie-cutter approach, but we can't support that. That's almost like the “nobody gets out alive, we're all in this together” approach. The Canadian way has always been to recognize distinctiveness in society, and that's what we're looking for here. We cannot afford a protracted settlement process. We cannot afford scorched earth; it will kill us. The lawyer bills alone will. I had a lawyer tell me in Washington this week that they're calling this trade dispute the Lawyers Relief Act of 2001 because there are so many lawyers making money on it.

When we started five years ago, our sector was left out in the cold. We woke up one morning and read in the newspaper that there was an agreement in place restricting our ability to sell our products into the United States. Various groups who said they would represent us abandoned us, and we were left with five years of hell as we had to keep reinventing our business on a regular basis. We vowed and resolved that this would never happen again, and that's why we're asking that we be part of any activity at all that happens between now and some sort of a resolution. We realize that if we want to protect ourselves, we're going to have to protect ourselves, and that's why we're here today.

The Chair: Jacques.

[Translation]

Mr. Jacques Côté: Last week, Trade Minister Pettigrew called for a "Team Canada" on softwood lumber. We welcome and support this much needed approach, because a Canadian solution is one which treats all stakeholders equally yet is flexible enough to recognize and accommodate differences and diversity.

Canada is not a melting pot and neither is our lumber industry; it is diversified, with different unique sectors with different circumstances. From our perspective, this is the starting point for a Team Canada Softwood lumber solution.

A cookie-cutter approach—one that treats everybody the same regardless of circumstance—did not work in the past, and it will not work now or in the future for our softwood trade. A Canadian solution to softwood trade has to begin with the basic and equal recognition of distinct circumstances within the sectors. This is the Canadian way.

Rick.

The Chair: We do not have a lot of time left. If you would like to hear questions from the members of the committee, you should probably wrap up now. We will add your report as an appendix to the minutes of this committee meeting. Consequently, if you could wrap up now, that would be good for everybody here.

[English]

Would that be okay? So we can stop here and consider your report as—

Mr. Rick Ekstein: Give me 60 seconds and I think we can wrap it up. Would that be okay?

The Chair: Okay.

Mr. Rick Ekstein: As part of our efforts, just so you know, we did go down and talk to the Americans to see if they would recognize our distinctiveness, and they said yes. They also recognized that we should not be part of this. They effectively told us that we are like the victims of a drive-by shooting: we're not the target, but we got caught up in the crossfire anyway. So if they can recognize us, we hope the Canadian side can.

Very quickly, to wrap up, Mr. Chairman, we're pan-Canadian, we're united, we have a solution, and we're free and fair traders. We all share the same subsidy-free lumber, and it's a fact supported by the U.S. Department of Commerce. Because of this, we believe we should be excluded from any countervailing duties or any other actions. Our argument is simple, clear, and legal. We buy our wood fibre at arm's length, we're not subsidized, and we're exploring all options. We'd love to have a stakeholders' meeting to try to build consensus in the industry, and we seek the government's recognition of our unique circumstances. We hope we can count on your support for our conclusions.

The Chair: Thank you, Mr. Ekstein, Mr. Côté, and Mr. Bélanger. Now we open it to questions. Mr. Casey.

Mr. Bill Casey: Thank you very much. Thank you for your presentations. There is a common thread through this. If I understand the Lumber Remanufacturers' brief correctly, you're saying we understand that some stakeholders do not support excluding any lumber group in Canada this time around, and we don't support that. You're looking for the right to negotiate from your point of view. If I'm correct, the Quebec branch of the Lumber Remanufacturers Alliance is asking for a province-specific treatment. Is that correct?

• 1700

The American coalition announced today that they're excluding Atlantic Canada from countervail charges in the countervail they're preparing right now, I think as we speak. How do you feel about that? Do you support that? Is that what you want, both of you?

Mr. Richard Bélanger: If I may answer your question, we're saying every province should be evaluated on its own merit. So if New Brunswick and Nova Scotia can prove there is no subsidy, I have no problem with that. Quebec is also ready to prove there is no subsidy in Quebec, so I think it would be fair to treat all provinces on their own merits.

Mr. Rick Ekstein: We agree on the same thing. We believe that each individual group or organization, or province or sector, should be looked at as being unique and they should be judged on their own merits.

Mr. Bill Casey: For the Quebec lumber group, what's your strategy to try to negotiate that arrangement for exclusion from countervail or hopefully anti-dumping? Do you have a strategy to do that?

Mr. Richard Bélanger: I think the first step is to make sure the federal government will support this. If the federal government is supportive of this approach, I think the Department of Commerce or the U.S. law would allow them to do that. The Maritimes are a very good example. If they excluded the Maritimes in the past, I think they can do the same with Quebec or any province that will prove the same thing.

Mr. Bill Casey: My understanding is that it's based on stumpage costs.

Mr. Richard Bélanger: That's right.

Mr. Bill Casey: That's the Americans' concern. A lot of mills in Quebec buy their timber in Maine, don't they, or in the United States? Don't they buy a lot along the border especially?

Mr. Richard Bélanger: Yes, in fact I'm president of a border mill myself, and the owner too, so I could speak for them.

Yes, the definition of a border mill is a mill that is supplied by at least 50% from logs coming from the United States. In the past the border mill had been excluded or totally exempt from any CVD. In the actual SLA, we received, I would say, special treatment. So the allocation of quota has been different for the border mills than the other mills in Canada. But I still think the border mills should not be included because we're supplied with U.S. logs, and the rest of the supply of border mills is mostly from private lands. So we're not concerned.

Mr. Bill Casey: Should the Quebec mills be divided into two groups? The problem that concerns the Americans applies to some mills in Quebec and doesn't apply to the border mills, the way I understand it. Is there a chance you could divide the two types of mills and negotiate a different deal there, or would you do that?

Mr. Richard Bélanger: I think the Quebec and the Canadian governments are supportive of a border mill exclusion. During the consultation period I'm certain they will, I hope positively, try to solve this issue with their American counterparts at the beginning of the process. The Quebec group is unified, so the other mills we're talking to are supporting the border mills and the border mills are supporting... We're really a unified group. As I said, we're looking for fairness. People understand that mills supplied with U.S. logs and from private lands should not be involved in any CVD or anti-dumping case.

Mr. Bill Casey: I just did a quick inquiry myself about your case in Quebec, and the feedback I got was that the border mills could be exempted if they had a certificate of origin program.

Mr. Richard Bélanger: That's right.

Mr. Bill Casey: But the Americans were not prepared to go further than that unless they were absolutely assured there was no subsidy in the other mills. But they almost seemed to take it as two classes of mills.

• 1705

Mr. Richard Bélanger: In a certain way, yes. When we're talking about exclusion of the primary mill in Quebec, there's a specific questionnaire for the mills. You have to provide a certificate of origin to show that in fact you are... It's easy to say, but you have to prove it. The group is ready to present proof and to answer the questionnaire. The only problem is time. It's very short.

The Chair: You're out of time.

Mr. Bill Casey: Am I finished? Can I have one more?

The Chair: No.

Mr. Bill Casey: Okay, thank you.

The Chair: Mr. Casson, and then Mr. Paquette.

Mr. Rick Casson: Thank you, Mr. Chairman.

Mr. Bélanger, I would like to ask you a question. You indicated that you support free trade, but in the next paragraph you want province-specific treatment. Are you suggesting that we should not look at the industry in Canada as a whole, but that we look at each province separately for the amount of subsidy?

Mr. Richard Bélanger: That's a very good question. I'm quite certain that all industries in Canada are united in saying we should have free trade between the countries. The problem is not within the industry. I think the problem is the fact that the provinces own the land that comprises the public lands. Each province is responsible for the management of its own regime, and the regimes are very different. For some provinces, it can be a big challenge to prove they have the market-based system.

Those provinces maybe need more time than Quebec to prove that, or to change the rules. So I think it's maybe more a matter of timing that creates a problem for the little guy, a confusion between industries. But in fact, it's more a matter of the regime of any province than anything else. Everybody wants to go to the sky. At the end of the day, it's a matter of regime.

Mr. Rick Casson: Mr. Ekstein, I suppose that's basically what you're saying as well—it's your portion of the industry.

Mr. Rick Ekstein: Very simply, we're saying that we do not support a cookie-cutter approach to our entire industry. Just as Canada is multicultural, we are multidimensional, and just as Canada supports the distinctiveness of certain parts of the country, we support the distinctiveness of certain parts of our industry. It's the Canadian way.

The Chair: Mr. Paquette.

[Translation]

Mr. Pierre Paquette (Joliette, BQ): First of all, I would like to thank you for coming today and to apologize for having to leave the room for a couple of minutes. I would like to come back to the issue of the forest system.

I'm under the impression that, in the eyes of the Americans, the fact that a major part of Quebec forests are Crown owned—and I believe that the same is true of British Columbia—is as good as a subsidy, because market mechanisms aren't able to provide the type of price to match free enterprise ones. Could you explain to us how the market value of lumber and stumpage fees are set in Quebec, and how that reflects market value?

Mr. Richard Bélanger: I don't claim to be a specialist in this field, but it is quite obvious that the Quebec government, on a very regular basis undertakes what is called a private forest audit, based on very specific rules. The Quebec government uses consultants to audit all transactions carried out on privately-owned forests in Quebec, so as to assess the situation of the free market.

Based on these figures, a whole system is in place, which factors in considerations such as the region, gas and the distance of the forest from a plant in the setting of timer royalties. These royalties were originally based on actual transactions on privately-owned forests in Quebec. Indeed, the Quebec government used this procedure in 1992, to prove that our forests were not subsidized.

Mr. Pierre Paquette: Perhaps Mr. Casey has already asked this question but I know that in Quebec, lumber is a very integrated industry. Pulp and paper plants and sawmills are integrated. Could this have an impact on cost structure and cause us a problem when investigations are undertaken under American legislation? Should we be worried about the fact that our industry is integrated, perhaps even more integrated than in other countries? Are there any specificities of the Quebec industry that both Canadians and Americans should be informed of?

• 1710

Mr. Richard Bélanger: Obviously, you are alluding to anti-dumping, particularly when you mention this element.

With regard to the make-up of the industry in Quebec, most of the volume is produced by five or six companies. However, we must bear in mind that about 130 to 135 independent members, which are not integrated companies, generate the rest. So our industry is not fully integrated.

That said, in a case of anti-dumping—as far as I understand—the main aspect, which could be a strength more than weakeness, depending on the way the U.S. government deals with it, is consideration of the product we call chips. Will they consider chips to be a by-product or a joint product? That is a fundamental distinction.

A by-product involves reduction or recovery of processing costs, while the costs of a joint product are fully attributed. As far as I understand—and everything I tell you is theorical—integrated companies can more easily demonstrate that chips are a joint product, since they continue the transformation process, turning chips into pulp, newsprint or specialty papers, among other things. Non-integrated companies do not do that; they sell chips directly to a paper mill.

Obviously, this becomes a major threat for non-integrated companies. It is already a threat for integrated companies, but constitutes an even greater threat for non-integrated companies.

Mr. Pierre Paquette: You talked about a Team Canada mission. The committee supports the idea of sending someone who would have the status to enable the industry to speak with a single voice, and also to explain the circumstances properly. In your view, what would be the mandate of that Team Canada mission?

Mr. Jacques Côté: The person delegated by Team Canada would have to be thoroughly familiar with a huge diversity found in this industry, be it by province, region or sector. We were talking about the Maritimes. We had a good case and succeeded in obtaining an exemption. We talked about transborder regions, which in our view have a very good case for obtaining an exemption. We, the re-manufacturers, believe that we also have an excellent case.

The person in charge of the Team Canada mission and his staff should ensure sufficiently broad representation to include the various regional and sectoral interests, and also to have the capacity to defend the industry as a whole, in all its diversity, as well as the unique aspects of each sector.

That was our message to Mr. Pettigrew. We think this would be a very useful course to take, and a course which in the interest of fairness should be taken.

[English]

The Chair: Mr. O'Brien, briefly.

Mr. Pat O'Brien: I'll defer. I had a question on border mills, but it was—

The Chair: Very briefly, Mr. Valeri.

Mr. Tony Valeri: I'll be very brief. It's to the remanufacturers. Your comment was that the U.S. has essentially endorsed or supported your position to be exempt from this subsidy-extinguished claim. They support you unconditionally.

Mr. Rick Ekstein: Unconditionally, I suppose, is a very difficult word.

Mr. Tony Valeri: It's a pretty strong word.

Mr. Rick Ekstein: It's a very strong word. They have said to us that they believe we should not be in it. In the context of serious negotiations they said, first of all, that they would recognize our distinctiveness and uniqueness and they would look upon our sector very favourably.

What we have asked the government to do, and what they have even told us to ask our government to do, is to indicate to them in this next filing period, immediately after filing, that the Canadian government wants us to be out. They claim they will look very favourably upon that.

Do we have that in writing? Absolutely not. But all indications are that it would be to their advantage to get us out, because we're not clean in that sense. We muddy up their case from a legal point of view.

Mr. Jacques Côté: If I may add—

The Chair: Very briefly.

Mr. Jacques Côté: From the coalition's point of view, they recognize the principle—they have no problem with that. But they ask us to be transparent on who we are and what we're doing, and to have an enforcement mechanism, to be sure there'll be no game-playing.

The Chair: Thank you very much. We'll have to move to in camera now, because we have two very important timely items we have to deal with.

So on behalf of all my colleagues, I want to thank you very much for taking the time to appear before us. As I indicated earlier, your presentations will be part of the minutes of the meeting. Even though some of you haven't had a chance to go through them verbally, they will be part of the minutes.

• 1715

With that, we'll just recess for a couple of seconds, and then we will go in camera, with your permission.

[Editor's Note: Proceedings continue in camera]

APPENDIX “SINT-5”

[Translation]

[Quebec Lumber Manufacturers' Association]

PRESENTATION BY THE A.M.B.S.Q.

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

made by RICHARD BÉLANGER Co-Chair of the AMBSQ Committee on International Trade

March 28, 2001

INTRODUCTION

Acknowledgements

1. Ladies and gentlemen of the Sub-Committee on International Trade, Trade Disputes and Investment. On behalf of the manufacturers' association that I represent, I want to thank you for the opportunity you have given us of putting our position before you.

2. The Association des manufacturiers de bois de sciage du Québec [Quebec Lumber Manufacturers' Association, or AMBSQ] speaks for the Quebec industry on Canadian-American trade issues. As of March 7, 2001, 171 sawmills and board mills were full members of the Association. The mills it represents are responsible for more than 90% of the lumber produced in Quebec. In addition, the AMBSQ has some 243 associate members, who supply industrial and forest-related goods and services.

3. The AMBSQ is the largest lumber-grading agency in Canada and is also the biggest lumber association in eastern Canada.

Dimensions of the industry

4. Quebec's lumber industry generates some 40,000 direct jobs (in the field and in factories). More than 250 Quebec municipalities are built around lumbering. It provides 100% of the manufacturing jobs in no fewer than 135 towns and villages.

5. In the year 2000, Quebec's lumber production reached 7.2 billion board feet, for a volume of business of $4.2 billion. Its volume of production thus represents about 25% of total lumber production in Canada.

Impacts of trade restrictions

6. The quota system, like all restrictions on our exports, has caused and is still causing a great deal of damage to the North American softwood lumber industry, particularly in the Canadian provinces that are subject to quotas and most particularly in Quebec.

7. Some of the economic impacts listed below and in the enclosed document illustrate vividly the disadvantages of these restrictions:

. restrictions prevent the manufacturers subject to them from profiting from the expanding demand in United States;

. they accelerate the penetration of substitute products on the American market (steel, concrete, plastic, etc.) by keeping the price of lumber artificially high;

. they disadvantage the provinces subject to them vis-à-vis overseas competitors and exempt Canadian provinces;

. they add pointless administrative costs for the producers affected by them;

. they create uncertainty about whether value-added products are worth developing;

. they create inequities among Canadian provinces and producers;

. they discourage investment and job creation.

8. In short, any restriction on trade hampers improvements to the competitiveness of the softwood lumber industry.

The AMBSQ's position

9. The AMBSQ speaks for the Quebec lumber industry, including those members of the Canadian Lumbermens' Association located in Quebec, on Canadian-American trade issues.

10. At two special meetings, the members of the AMBSQ have unanimously affirmed their objective: free trade.

11. The AMBSQ is demanding special treatment for Quebec's unique forest management system. In 1992, the American Department of Commerce found that this system generated a de minimis subsidy of 0.01%, but nonetheless included Quebec in an average involving four provinces.

12. The AMBSQ is opposed to the renewal or extension of the Softwood Lumber Agreement (SLA), which put a ceiling on Quebec exports even though they were not subsidized.

QUEBEC'S PLACE IN THE CANADIAN-AMERICAN DISPUTE

13. The softwood lumber dispute between Canada and United States goes back several years now. The recent history of the dispute shows, however, an evolution in the dynamic between the various parties and in particular in the roles they are playing and Quebec's place in this dynamic.

14. The (official or public) core of the problem has remained the same over the years, i.e., the United States continues to allege that the timber-fee systems in certain Canadian provinces are not market-based and confer subsidies on lumber producers in those provinces.

15. While the core of the problem may have remained the same, the solutions introduced to resolve it do not always reflect this, despite Canada's successes before the binational panel.

16. A number of legal battles have already been fought between Canada and the United States. In 1994, the binational panel on the Free Trade Agreement ruled in Canada's favour. The best method of gaining open access to the American market is to demonstrate once again that our industry is not subsidized. This is the time to act, so that the erosion of our competitiveness can be limited.

17. With Canada's unilateral withdrawal from the Memorandum of Understanding in 1991, our country found itself in another legal struggle with the United States, which led to a victory for Canada in 1994.

18. Even before this victory, the American inquiry into countervailing duties in 1991 had concluded that Quebec's subsidy rate was 0.01%, or less than the compensable minimum (de minimis). Quebec proved to the American Department of Commerce that its softwood lumber producers are not subsidized and that Quebec's timber royalties system is a genuine market-based system. Since then, the system has been improved still further, and Quebec is ready to prove this once again.

19. However, a majority of Quebec's producers ended up paying the Canadian rate of 6.51%, even though 60% of Canadian provinces were exempted (Newfoundland, Prince Edward Island, Nova Scotia, New Brunswick, Manitoba and Saskatchewan).

20. The 1996 Softwood Lumber Agreement perpetuated this injustice to Quebec manufacturers despite all the improvements made to our timber-fee system, the increases in the stumpage rate, and Quebec's fierce opposition to the Agreement.

I - THE 1996 SOFTWOOD LUMBER AGREEMENT

21. In 1995, Canada and United States agreed to establish a bilateral consultative mechanism, intended to enable them both to gain a better mutual understanding of the softwood lumber issue, to resolve difficulties and to avoid new disputes. Each province had the opportunity to explain its timber-fee system.

22. On February 16, 1996, Canada and United States reached an agreement in principle under which each of the four Canadian provinces proposed modifications to its forestry and/or trade practices. In return, the United States made a commitment not to initiate any new trade remedy for five years. Quebec manufacturers were in addition forced to shoulder $100 million in further stumpage increases. Unfortunately, the chosen solution entailed imposing quotas on the four Canadian provinces.

II. QUEBEC'S TIMBER-FEE SYSTEM

23. Although the situation had been explained at length in 1995 during the Canadian-American consultations that preceded the current Agreement, and although an unequivocal victory had been won in 1992, certain myths are still being spread to denigrate Quebec's timber-fee system.

24. The timber-fee system in Quebec's public forests is based on the free market in the province's private forests. The value of standing timber in private forests is transposed to public forests, with appropriate adjustments to take into account different realities in the field. The initial value is then indexed as a function of the prices of finished products on the market. Contrary to what the detractors of this system claim, governments' forest policies have no influence at all on the value of the timber.

25. Stumpage in Quebec is not a tax but represents the market value of standing timber on provincial land based on the free market prevailing in Quebec's private forests. Since the last inquiry into countervailing duties in 1991, Quebec's timber royalties have gone up by more than 100%. Since the coming into force of the Canadian-American Softwood Lumber Agreement, they have jumped by more than 50%.

III. CONCLUSION

26. After analysing all aspects of the trade issue with the United States, the Quebec lumber manufacturers who belong to the AMBSQ (primary and secondary processors) unanimously came out in favour, on October 26, 1999, of a return to a free market for their products. This position is shared and supported by the Quebec government. A second special general meeting was held on November 28, 2000, at which the members reiterated their preference for open access to the American market. A third special general meeting on the same subject is scheduled for March 30.

27. The AMBSQ is demanding special treatment for Quebec's unique forest management system. In 1992, the American Department of Commerce found that this system generated a de minimis subsidy of 0.01%, but nonetheless included Quebec in an average involving four provinces.

28. The AMBSQ is opposed to the renewal or extension of the Softwood Lumber Agreement (SLA), which put a ceiling on Quebec exports even though they were not subsidized.

29. The AMBSQ's position was reached democratically.

30. Thank you.

[English]

CLRA Canadian Lumber Remanufacturers' Alliance

Presentation to the Sub-Committee on International Trade, Trade Disputes and Investment of the Standing Committee on Foreign Affairs and International Trade

by

Mr. Jacques Côté, Sales Manager, Bohemia Lumber General Manager, AENOEVAQ Quebec Representative on the CLRA Advisory Board

Mr. Rick Ekstein, President, Weston Forest Corporation; Co-Chair, Association of Lumber Remanufacturers of Ontario, Ontario Representative on the CLRA Advisory Board

Presentation made on behalf

The Canadian Lumber Remanufacturers' Alliance

Date: March 28, 2001

-Check against delivery-

CLRA http://www.remanners.org

Introduction

Mr. Chairman, members of the subcommittee, Madame Clerk, it is a pleasure to have this opportunity to appear before you during your important deliberations on the softwood lumber dispute.

As you have heard from previous witnesses, and as reflected in the recent debate and the numerous questions in the House, the issues surrounding this Canada—US lumber dispute are complex and longstanding.

For Canada, our lumber industry and our politics, the debate is often heated, polarized, and sometimes needlessly divisive, pitting region against region, province against province. And even sector against sector. The intensity of recent debate is reflective of the tremendous anxiety in the industry. People are frustrated, our employees are concerned. To many, this suggests that the traditional approach to this file is not working.

We are here on behalf of the Canadian Lumber Remanufacturers' Alliance, the `CLRA' for short, and the message we want to deliver to your committee is a positive one, and a unifying one.

We are Jacques Côté, Sales Manager from Bohemia Lumber, General Manager, AENOEVAQ, and Rick Ekstein, President, Weston Forest Corp., Co-Chair, Association of Lumber Remanufacturers of Ontario. We are both members of the CLRA Advisory Board, and we are here today as representatives of the group.

Background on the CLRA

First, some background on our group.

A little over one year ago, business leaders from across Canada's secondary lumber sector—also referred to as the `remanufacturing' or `value-added' lumber sector—came together to form an alliance to protect and promote the distinct interests of our sector.

Our coalition has pan-Canadian representation from member associations in BC, Alberta, Manitoba, Ontario and Quebec. And we remain united. This is notable. As you no doubt appreciate, a pan-Canadian lumber group that remains united is a rare thing these days, that is if you believe the news headlines, anyway.

Our member associations include the Association des Entreprises de Nouvelle Ouvraison et des Entreprises de Valeur Ajoutée du Québec, the Association of Lumber Remanufacturers of Ontario, the Manitoba Lumber Remanufacturers Association, the Alberta Secondary Lumber Manufacturers, and the British Columbia Council of Value Added Wood Processors.

Based on our estimates, in total our group represents over 250 value-added facilities, employing 40,000 Canadians, generating approximately $4 billion in annual sales, and accounting for over 10% of Canada's total exports to the United States under the Softwood Lumber Agreement.

It is important to recognize that our member facilities are not the large, often multinational, primary producers with timber licenses. We are not directly involved in timber harvesting. We are not involved in stumpage systems. Those issues are not our issues. They don't pertain to our operations, and we don't want to get caught in the crossfire.

On average, we are small and medium size enterprises, often family run businesses. Individually, we are the little guys of the industry. Taken together, however, our members form a very significant and unique niche sector of the Canadian lumber industry.

We are significant and important not only to the hundreds of communities within which we operate from Quebec to BC, and not only to the 40,000 Canadians who we employ, but also because as a group, we are a large consumer of Canadian lumber and wood fibre supply. That is right, we are lumber consumers and we buy at North American market rates.

This is a critical point; we are arms length customers of primary producers.

Before we can get into this in more detail, it is important for the committee to appreciate the dynamics of our industry.

Canada's Lumber Industry is not Homogenous

A key message we want to deliver to your committee today is that Canada's lumber industry is not homogenous. This is a critical point for your committee to consider as you prepare to write your report including recommendations on the softwood lumber dispute.

There are not only regional or provincial cleavages across Canada's lumber industry. There are also sectoral variations within the industry, including the primary sector, as well as our sector, the secondary or value-added sector. Between and within the sectors, there are also notable differences.

It is important to remember that for many years, in an effort to encourage the diversification of Canada's lumber industry, the mantra out of governments was “add value and export”.

These calls were echoed by some members of parliament recently in the House of Commons during the debate on the opposition motion on softwood. Several members of parliament made encouraging references to the importance of value-added processing in Canada for the long-term and responsible viability of our lumber industry...when you talk about the value-added sector, you are talking about us, the CLRA, its member associations and our members.

We accepted the value-added challenge without government subsidy, and made it a reality. We are competitive, we are sustainable, and reports confirm that per board foot, the value-added sector now generates two and half times more jobs than do primary producers.

This is obvious for anyone who has ever had occasion to tour a secondary facility. This is something we encourage all members of the committee to do. Canada's remanufacturing facilities are labour intensive operations geared towards increasing the value of the lumber or wood fibre we process.

Our members make every kind of value-added lumber product imaginable, from finger-jointing operations, to window and door components, to pallets, and more. There are even duck-head exporters.

That being said, we extend an open invitation to all members of parliament to take a tour of any of our facilities. It is a worthwhile experience, and chances are we have a reman operation located in your riding.

What Remanners have in Common

Although there are variations in the processing techniques and types of value-added products remanufactured, all remanners have one thing in common, and this difference holds across regional and provincial variations: CLRA members buy lumber or wood fibre through arm's length transactions at market rates.

This is a key point for committee members.

Effectively, as a group we are at arms-length customers of Canada's primary producers, and consumers and value-added processors of primary products and by-products for domestic and export markets. Some suggest as a group, we consume more than 10 to 12% of Canada's domestic lumber production.

This critical distinction is what makes us different. The one thing we all share in common is we are Canadian companies, who buy our lumber and or wood fibre through arm's length transactions at market rates, and we add value through diverse processing activities.

This is a central point to the value-added sector, and we encourage the committee to keep this critical distinction in mind as you deliberate on this complex issue.

What the lawyers tell us—secondary exclusion based on `subsidy extinguish' claim

By staying focused on what we all had in common, as a basic premise, the CLRA developed what we consider to be a convincing, factual and legally supported claim for our group.

As the committee can imagine, it has taken a lot of effort, time and resources to keep such a diverse group of pan-Canadian secondary sector lumber executives to stay focused on a common ground, and this is across provincial and regional considerations.

We think the efforts have been worth while, and we are pleased with our common solution, and we are here to seek your active support for our claim.

The CLRA is seeking formal exclusion for our sector from any form of restrictions on the export of Canadian lumber products to the US. Whatever the case, be it a negotiated settlement, trade actions including countervailing duties or dumping actions, we want exclusion for our members.

Our claim for exclusion is reasonable, and it is based on a consideration of our unique operations and circumstances. This is what we want. We want our special circumstances to be considered.

Some of your previous witnesses have referred to opinions from their high-priced lawyers. So, for what it is worth, our lawyers tell us that based on something called a `subsidy-extinguished' precedent, we can legitimately claim and prove that our members are subsidy free and therefore, we should be excluded from any and all settlements or trade actions.

This is important, and the reasoning goes like this. Any subsidies alleged by the American's are not applicable to our distinct sector, as any alleged subsidy is `extinguished' through the arm's length, market price transaction.

We want to be clear here - we are not saying Canada's primaries are subsidized, only that any alleged subsidy, should it exist, stops with them and is not passed on to us. This is the “subsidy extinguish” argument. It cuts across all provinces and regions.

To appreciate this position it takes a new perspective...it requires a horizontal approach to Canada's lumber industry, recognizing different sectors with unique circumstances across province or region.

This is the main objective of the CLRA - secure exclusion for our members, whatever the case, be it proposed settlements or trade actions.

If there is a negotiated settlement, we want to be negotiated out. In the case of countervailing duties or dumping actions, we want to be excluded, and the CLRA seeks the Governement of Canada's full and active support in the defense of our position at this critical stage.

We understand that some stakeholders do not support excluding any lumber group in Canada this time around. We understand this perspective, but we don't support it. This approach gives rise to “nobody gets out alive” approach.

Such approaches are indicative of an old style, and they reflect an absolutist logic that if applied blindly, is divisive for Canadian industry in general, and destructive for our value-added sector in particular.

As a small yet significant stakeholder, we cannot afford the costs of a protracted settlement processes. Further, we cannot afford the uncertainty. For the CLRA and some of its members, the issue is not just a CVD or other trade actions. It is also about availability of supply. Together, this contributes to an environment of uncertainty, and reconsideration of investment and expansion.

This is an important point. We cannot afford the scorched earth, free-trade-at-all costs scenarios being advocated by some groups. The legal bills alone can and will put some of our members out of business.

As an aside, a Washington lawyer told me this week that they are calling this trade dispute the `Lawyers Relief Act 2001'.

At the same time, the proposed inclusion under any first mill, flat national export tax system is and would be highly unfair. Those who advocate for a bridge agreement based on a flat national export tax, regardless of unique circumstances, also subscribe to an absolutist logic that can be unfair and damaging for our sector.

We Organized Out of Fear—then and now

It is important to appreciate that in many ways, the CLRA came together out of fear...that is, we wanted to avoid a repeat of the problems that contributed to uncertainty for our sector under the current Canada-US Softwood Lumber Agreement (SLA).

Five years ago, when the SLA was ushered in, our sector was left out in the cold in Canada. We had no say on the agreement coming into effect, and little during its implementation.

Certain groups who claimed to represent us abandoned the defense of our sector as soon as the settlement served their primary interests, and not our interest.

Over the course of the agreement, some value-added facilities were left scrambling with ongoing quota shortages, while our sector as a whole faced endless tariff reclassifications on our products, bringing more and more of our products under the scope of the SLA.

We resolved that this would not happen again. That is why we organized and created the CLRA. Our objectives include ensuring that our sector is fully consulted, considered and provided equal opportunity by the Government of Canada in discussions, negotiations or proposed settlements to the softwood trade dispute post March 31st, 2001, and the lapse of the SLA.

We realized if we want to protect and promote our sector, we were going to have to do it ourselves. And that is what we have been doing. The CLRA is proposing our own solution for our unique sector based on our own distinct circumstances.

We are different and we want this to count.

Canada is not a melting pot, and neither is our lumber industry

Last week, Trade Minister Pettigrew called for a “Team Canada” on softwood lumber. We welcome and support this much needed approach, because a Canadian solution is one which treats all stakeholders equally yet is flexible enough to recognize and accomodate differences and diversity.

Canada is not a melting pot and neither is our lumber industry; it is diverse, with different unique sectors with different circumstances. From our perspective, this is the starting point for a Team Canada Softwood Lumber solution.

A cookie-cutter approach—one that treats everybody the same regardless of circumstance—it did not work in the past, and it will not work now or in the future for our softwood trade.

A Canadian solution to softwood trade has to begin with the basic and equal recognition of distinct circumstances between the sectors. This is the Canadian way.

The Americans Recognize Canadian Remanners as Distinct

As part of our efforts to develop factual, convincing and legally supported solutions for our distinct sector, we have met several times with representatives of the US lumber industry.

We were pleased to learn that in principle, US lumber representatives recognized our sector as unique, and provided the mechanism was transparent and enforceable, they are willing to consider our exclusion based on the subsidy extinguished argument.

Effectively, the American coalition admitted to us that remanufacturers are like the innocent victims of a drive by shooting. We are not the target, but we get caught in the cross fire anyway.

We continue to actively seek the same recognition of our unique circumstances from the Government of Canada.

With recognition in principle from US producer groups, we took up the challenge of developing an acceptable mechanism for our exclusion, including a system that is transparent and enforceable.

Free, Fair and Responsible Trade—this is what the CLRA wants

If the committee only gets one message from our presentation today, it is that the CLRA's claim for exclusion is based not only on the principles of free trade, but it is also based on the principles of fair and responsible trade.

The CLRA is pushing for responsible exclusion meaning, we want the process to be transparent and enforceable. We do not want loop-holes. We do not want cheaters. Our members are willing to prove our claims via audits or what ever else is necessary. Our books are open.

We have several ideas for the actual mechanism, and we are working on this now. It is a 2 step process: a survey of our members, and the development of a viable mechanism for our exclusion.

Expedited Reviews—Canada to insist we are `practical'

The first part of our due diligence includes a comprehensive survey of our membership. From this, we hope to be in a position to develop like categories of remanufacturers.

The CLRA survey results can then be used to push for expedited reviews of like-companies unfortunate enough to be listed in petitions filled in US trade actions.

In 1992, the US Department of Commerce acknowledged our Canadian remanufacturers were unique. Unfortunately, however, DOC denied Canadian lumber remanufacturers at the time the right to exclusion investigations citing `impracticality'.

We have taken the steps to ensure this time, our sector is `practical'. The CLRA is seeking the Government of Canada's support here. We hope that the appropriate Canadian officials will formally advise the US governement in writing, prior to March 31, 2001, that Canada fully expects expedited reviews for all CLRA member companies included in the investigation phase of CVD cases. It is critical that this point be made now, and in writing.

Mechanism for Exclusion—The maritime Model

On top of our survey, the CLRA is seeking to develop transparent and enforceable exclusion mechanisms.

Generally, we are considering establishing some form of a stamping system, supported by “chain of custody” certificate system, and a possible permanent bureau to govern the allocation of the stamp and certificates.

The Maritime exemption and its supporting mechanisms offer a positive model. In fact, some members of the CLRA wonder if the Maritime accord can be extended, can it be amended to include the pan-Canadian CLRA members within it. Effectively, this kind of approach would make the maritime exemption a pan-Canadian exemption.

The CLRA understands the regionally divisive potential of this file. However, we believe that pushing for the exclusion of Canada's secondary lumber sector is a step towards Canadian unity.

That is, all provinces win with the exclusion of Canadian lumber remanufacturers, as our members cut across all regions, provinces and most all communities, from Quebec to British Columbia. If you included the Maritimes with us, we have the makings for a pan-Canadian accord.

With the political will and leadership, the options currently being explored by the CLRA on behalf of our members are viable, realistic and doable. The government has had four years, eleven months, and 28 days to resolve these issues. The time for leadership is now.

Industry Stakeholder Consultations Key to Consensus and Necessary Step to “Special Envoy” or “Eminent Person” Approach

From the CLRA perspective, it is important that the government show leadership and forge ahead with industry stakeholder consultations.

Such government-led forums ensure equal and meaningful participation for all industry groups, including the CLRA, in the formulation of a better Canadian position.

This is key to the emergence of consensus from Canadian industry.

As well, we caution the committee on calls for the appointment of a “single voice” for Canada's lumber industry. That is, unless the terms of reference for such an “eminent person” approach include specific reference to the distinct value-added sector and its exclusion. Otherwise, such an approach runs the risk of glazing over critical differences between Canada's industry sector.

CONCLUSION

Thank you for this opportunity to submit this presentation on behalf of the Canadian Lumber Remanufacturers Alliance. We hope the committee has a better appreciation for our sector and what makes us unique.

As a recap, what the CLRA is seeking:

. We are pan-Canadian. We are united. We have a solution. And we are free and fair traders. All our members share in common is subsidy free lubber and wood fibre.

. We are seeking exclusion from any countervailing duties, dumping actions or any other restriction on the export of Canadian softwood lumber to the US.

. The argument supporting us is simple, clear and current. We buy our wood fibre. And we pay market rates for it. Any alleged subsidy is extinguished through these arm's length transactions.

. We are exploring all option for the responsible exclusion of our sector, including the development of a transparent and enforceable mechanism.

. We support stakeholder meetings prior to appointment of negotiating committees or special envoys.

. We seek the Government of Canada's recognition of our unique circumstances, and support for our exclusion request.

. Further we seek the Government of Canada's assistance in formally advising the US government of the necessity for expedited reviews for Canadian remanufacturers included any trade action.

. By taking the CLRA members off the table, everybody wins and this will allow focus on the real issues at stake...issues that do not apply to our group and our members.

. We believe that taken together, we form a distinct and important sector within Canada's lumber industry. The secondary lumber sector. We want your support in recognizing us as distinct.