Proceedings of the Subcommittee on the
Boreal Forest
Standing
Senate Committee on
Agriculture and Forestry
Issue 6 - Evidence
OTTAWA, Thursday, April 17, 1997
The Subcommittee on Boreal Forest of the Standing Senate Committee on Agriculture and Forestry met this day at 9:50 a.m. to continue its study on the present state and future of forestry in Canada as it relates to the boreal forest.
Senator Doris M. Anderson (Chair) in the Chair.
[English]
The Chair: Good morning. Welcome to the hearings on the Boreal Forest. Our first witnesses are from the Canadian Pulp and Paper Association. Please introduce yourselves.
Mr. David Barron, Senior Vice-President, Environment, Resources and Technology, Canadian Pulp and Paper Association: Thank you for the opportunity to appear before you. We have here a multi-disciplinary team of people from the industry representing most of our interests. I will introduce them in the order in which they will make a brief part of the presentation.
Steve Stinson is our Director of Finance and Business Issues. Lucie Desforges is our Director of Environment and Energy. Jean-Pierre Martel is our Director of Forests. Joel Neuheimer is our Manager of Market Access. We also have with us Dr. Simon Nadeau who operates and runs our biodiversity program.
We would like to spend a little time on some of the major issues that we feel are before the industry and should be of interest to the committee. Each of my colleagues will speak briefly about certain aspects of those concerns.
Let me just tell you briefly what the CPPA is and how it fits into the national scene.
We are a very old association. We go back to 1913. Paper making in this country goes back beyond the turn of the century. We represent about 50 companies -- the major companies in Canada -- producing approximately 90 per cent of the pulp and paper produced across the country. We do not represent the solid wood industry, although the forest sector is highly integrated and the companies in our organization probably produce about two-thirds of the solid wood products that are produced in Canada. There are about 150 mills in Canada in the pulp and paper industry.
Historically, we have been producers of commodity products, such as newsprint and pulp, but increasingly we are getting into other grades of paper and other paper products. Our main job at CPPA is to deal with a number of areas which we have mentioned in our brief, the first of which is public policy and communications. We have national communications programs. You may have seen some of the TV ads that are now being test-run in the Ottawa-Montreal area.
One of our main functions is dealing with national policy, both at the federal level and internationally. We do not deal with provincial political and policy matters. They are handled for the most part by the provincial associations. There are some 22 organizations in the forest industry in Canada, each province having its own membership organization to deal with provincial issues.
We have a statistical exchange of data relating to production, capacity and other things related to the marketplace, such as how much volume is being moved in various product lines. We are the authority, and have been for some time, in this area. We also collect all of this data for our members on a global basis, so we have a very solid statistical-exchange and economic-projection function.
Also within the organization we have functions other than public policy and statistical exchange. We have technical and professional forums. There are some 20 sections within the organization. One, for instance, is a membership organization of experts in the manufacturing of pulp and paper, with approximately 7,000 members worldwide. There is a similar organization within the forestry sector, the objective of which is to improve both the operation of our plants and the professional capacities of our members.
The major issues we would like to touch on today will be the ones that I have listed in the brief. The first is globalization of trade. You may or may not know that the forest industry in Canada exports approximately 80 per cent of its product. Thus, the domestic industry is highly dependent on global markets and access to those markets. International competitiveness is the number one issue for the pulp and paper industry. We must continue to work at areas such as access to international markets to ensure that Canada continues to have the positive balance of trade that it presently enjoys.
The market used to take into account only cost and quality, and now all sorts of environmental factors and questions of how a product is produced have become important. The market wants to know, and not just the customer on the ground or in the store, but all through the system, the large clients to whom we sell our commodities.
Cost competitiveness is extremely important to us and that relates to all the factors of production, whether it is fibre, energy, capital, or the regulatory regime in Canada. Environmental improvement is high on our agenda, and I think you will see from some of the information that we are about to give you that there has been a great deal of improvement in that area. We are moving in the right direction, not only for environmental improvement, but also for the competitiveness and globalization of trade which I mentioned earlier.
My next topic is forest certification.I believe you have already had a presentation on this subject. We would like to touch on it again because it is important for improving the standards of forest management as well as for market assurance.
There has been a great deal of discussion around the question of a multilateral forest convention. You should know that the industry has supported an international forest convention for some time, and we continue to support the Canadian government's position.
Senator Spivak: You mentioned that there are 50 companies, and about 150 mills. Do those 50 companies own those 150 mills? Could you give us an idea of how many companies there are in Canada that you represent?
Mr. Barron: We represent 50 companies, which is approximately 90 per cent of the production, so 10 per cent of the production is not included. The 150 mills represent all of the pulp and paper companies, so there is a certain portion of the 150 mills which are not members.
Mr. Steven W. Stinson, Director, Finance and Business Issues, Canadian Pulp and Paper Association: I have three main objectives. The first is to highlight the contribution of the Canadian forest industry to the overall Canadian economy. Second, I want to draw attention to the poor historical financial performance of the forest industry in general, and the pulp and paper industry in particular, and consider the implications of this state of affairs for Canada's ability to attract the necessary investment to sustain growth and employment over the longer term. Third, I want to outline briefly some of the key issues we feel need to be addressed if the industry is to remain internationally competitive so that its full potential can be realized.
In the trade arena, the forest industry's position as Canada's largest net exporter is undisputed, with a $31 billion trade surplus in 1996. The industry surpassed other export-oriented industries, including the automotive and energy sectors, by a wide margin in terms of its contribution to Canada's trade balance. With over three-quarters of the industry's output destined for international markets, the forest industry has clearly benefited from the trend toward increased liberalization of international trade, and for this reason CPPA remains committed to removing remaining barriers in order to ensure our access to our markets.
The forest industry is one of Canada's largest employers, accounting for almost a quarter of a million direct jobs. For the most part, these are good jobs with wages well above the industrial average. Moreover, the industry is a key source of employment in Canada's regions, with over 300 communities, many in remote parts of the country, dependent on it for their livelihood.
When induced employment is also considered, the industry supports almost a million jobs overall. Traditional sectors such as transportation and construction depend on the industry for a significant share of their business. Moreover, new jobs in areas such as project engineering and the various high tech segments also depend on the well-being of the forest industry, due to the increasing use of new technology and the capital-intensive nature of production, particularly in pulp and paper.
Looking at longer-term employment trends, the forest industry compares relatively well with total manufacturing and some so-called "new economy" industries such as telecommunication services. Although it is true that total forest industry employment has dropped somewhat from its peak in the late 1980s, if you take a longer-term perspective, there has been moderate employment growth since the mid-1980s with current employment at moderately higher levels than existed at that point.
By contrast, the local telephone companies have continued to shed jobs, and this is a priority sector for the government.
Senator Spivak: You do not have the telecommunications industry in any of your figures.
Mr. Stinson: I am speaking of the local telephone companies, the Stentor companies, such as Bell.
Senator Spivak: My understanding is that telecommunications is a bigger part of the economy than forestry.
Mr. Stinson: That would be incorrect. Telecommunication services overall has had a net employment loss over the last number of years. It is not to say that it is not a critical part of the infrastructure of the Canadian economy, but technology improvements have led to drastic downsizing in large parts of their operations.
A key concern of forest industry participants is the poor rates of return that have been generated on past investments. Returns have been poorest for those firms with pulp and paper operations. As you can see from these numbers in our brief, investing in Canada Savings Bonds would have been far more lucrative. Given these abysmal returns, a key question facing the industry is whether or not new investment will be forthcoming in the future.
In contrast, governments have fared quite well. Payments to government by the industry, in stumpage fees, corporate income taxes, capital and payroll taxes, property taxes, and so on, have risen quite sharply in recent years. In fact, these payments to government have exceeded industry earnings in all but one of the past eight years.
Moreover, a disturbing trend is government's increasing reliance on non-income-sensitive taxes, such as capital and payroll taxes, which are required to be paid even when firms are not making money. We believe this violates a fundamental principle of fair taxation, that taxes should be based on the ability to pay. We are not opposed to paying our fair share of taxes, but we wish the system was more sensitive to the cyclical nature of industry returns.
This problem also has its consequence for investment in the industry. When a company and needs to undertake investment, the fact that it still has to pay those taxes means that it will have to borrow even more money.
One consequence of low returns experienced by the pulp and paper sector in the past decade is that, relative to other developed regions, Canada has lagged behind in terms of capacity additions. This is all the more disturbing when you consider that some of the regions that have experienced the strongest capacity growth are those regions that one would consider fibre-poor.
Notwithstanding the poor returns experienced by the industry, and its relative decline internationally, the forest industry, pulp and paper in particular, has continued to invest large amounts in capital projects. The industry is Canada's most capital-intensive and accounts for over a quarter of all capital spending by the manufacturing sector. If you are to look at the economy overall, the industry accounts for approximately 5 per cent of all public and private investment.
The ability of the industry to continue to invest at these levels, however, is clearly in jeopardy if investment returns do not improve. The wide swings in capital spending exhibited by the industry are closely correlated with industry profitability. The attractiveness of the Canadian forest industry to investors, both domestic and foreign, ultimately depends on generating satisfactory returns on those investments. There is some evidence that industry participants are reconsidering their commitment to Canada in this light.
Some foreign investors have reduced their holdings in Canada in recent years. Moreover, even Canadian-controlled companies, which account for the majority of the industry, have turned their sights south of the border for new investment opportunities.
Senator Taylor: Why?
Mr. Stinson: They do not make adequate returns on their investment here, and conditions in the United States have proved to be more attractive.
All of this would not be so important if demand for pulp and paper products was not growing. However, we see continued moderate but respectable growth in global consumption of paper and paper board, driven by increases in per capita consumption in the Asian economies, including China.
The question for Canadian policymakers and the Canadian pulp and paper industry is: What steps must we take to enable us to capture our traditional share of this growing market?
To finish, I want to leave you with five key issues that we believe must be addressed if the Canadian forest industry is to participate in the growing global market for paper and paper board.
First, it is imperative that the forest industry have secure access to competitive sources of fibre. This is a basic condition if firms are to make the large investments that are required to develop Canada's full potential in pulp and paper and forest products.
Second, the industry must improve its financial performance if it is to ensure its continued access to the capital necessary to fund ongoing investments. In this light, it would be wise for governments to reconsider current capital tax levies and their adverse impact on investment in capital-intensive industries such as pulp and paper.
Third, we believe it is possible to develop a more efficient regulatory structure to achieve environmental and other policy objectives at lower cost to the industry.
Fourth, as a major user of energy and transportation, the industry has a keen interest in shaping regulatory changes to those sectors in the coming years to ensure that the cost of these critical inputs are as low as possible.
Fifth, since the industry is so export-driven, CPPA will continue to work with government to improve our access to international markets.
I am confident that we will be able to work together to address some of these issues to ensure the continued contribution of the forest products industry to Canada's economy.
Ms Lucie Desforges, Director, Environment and Energy, Canadian Pulp and Paper Association: Good morning. I will present you a quick overview of our industry's recent environmental performance.
The Canadian pulp and paper industry has made immense progress in improving its environmental performance with regards to air emissions, effluent discharges, waste generation, and water and energy usage. We have invested more than $5 billion since 1989 in various areas of environmental protection and pollution prevention.
As you might know, the pulp and paper industry is regulated by both the federal government and the provincial government in most provinces. Canada's regulations are among the most stringent in the world. The federal regulations fall under the Fisheries Act and the Canadian Environmental Protection Act, CEPA, which is currently undergoing review. You might know it as Bill C-74.
Our member companies have successfully met the challenge of reducing their effluent discharges below the regulated standards. I do not want to spend a great deal of time on numbers and graphs, but if we look at the reduction we have achieved in total suspended solids in our effluents, we can see that since 1975 we have reduced by 85 per cent our total suspended solids to an average of 4.1 kilograms per tonne. The standard is 7.5 kilograms per tonne.
We have reduced biochemical oxygen demand, which we call BOD, by 95 per cent since 1975, with an average now of approximately three kilograms per tonne, the standard being five. These are significant results. They have been achieved through process and maintenance improvements as well as the insulation of effluent treatment facilities.
Senator Taylor: This is the whole industry, not just the new plants?
Ms Desforges: Yes. That is for our member companies, so it represents approximately 130 mills.
During that same period, the pulp and paper industry has also significantly reduced its water usage. We have decreased it by 57 per cent since 1975. Of course, using less water means we have less to treat, so it makes good business sense and it is also environmentally sound.
The bleaching mills in Canada have also reduced their discharges of dioxins and furans. They are now at levels that qualify as non-measurable. This was achieved before the regulations came into force, so this is also a great effort by our industry.
Our industry has not only responded to regulations and legal requirements, it has also taken it upon itself voluntarily to reduce its toxic substance emissions as well as its use of fossil fuels that contribute to climate change.
Within the ARET program <#0107> ARET stands for the Accelerated Reduction/Elimination of Toxics, a joint program of government and industry -- the Canadian pulp and paper industry has reduced by 44 per cent -- that being around 7,000 tonnes -- its emission of toxic substances. These substances include hydrogen sulphide, chlorine dioxide, formaldehyde, ethanol, dioxins and furans. This was done on a voluntary basis and we have committed to reducing those emissions by 80 per cent by the year 2000.
With regard to greenhouse gas emissions, our industry is actively participating in a Natural Resources of Canada program called Voluntary Challenge and Registry, known sometimes as VCR, as well as CIPEC, Canadian Industrial Program for Energy Conservation.
As Canada's largest industrial user of purchased energy, the pulp and paper sector has shifted away from non-renewable fossil fuels to renewable biomass fuels such as bark and sawdust. While we use this biomass fuel, at the same time we grow trees that reabsorb these CO2 emissions. The use of renewable biomass fuels results in no net increase in CO2 levels, provided that our forests are managed sustainably.
As you can see from this graph, in 1975, 46 per cent of our emissions of CO2 were due to fossil fuel, and today, only 22 per cent is due to fossil fuel. It is therefore quite obvious that these biomass emissions have much less impact on the environment than the fossil fuel emissions.
For the future, our industry will work towards fulfilling its commitments to the various voluntary programs it subscribes to, and it will continue to meet and even exceed regulations.
We are looking very closely at the results of the $88-million research program under the technology partnership program between the Government of Canada and PAPRICAN, our research institute. We are working towards closed-cycle technologies which will bring us one step closer to effluent-free mills.
Mr. Jean-Pierre Martel, Director of Forests, Canadian Pulp and Paper Association: Anyone who has flown from the East Coast to the West Coast must realize that we are a forest nation. Forests are quite important. They are part of our Canadian landscape, socially and economically.
Just over 40 per cent of our land base is covered by forest. On the pie chart we have submitted, that figure is the total of the 16 per cent, 2 per cent, 21 per cent and 3 per cent that you see. Of this total, only 21 per cent would qualify as commercial forest.
On average over the last seven to 10 years in Canada we have harvested between 800,000 and 1 million hectares. That represents less than one-half of 1 per cent of commercial forests in Canada. That is the global picture.
The ownership pattern of forest land is Canada is very unusual. There are very few countries around the world with a similar pattern. As for commercial forest land, 88 per cent is owned by the provinces, 2 per cent by the federal government and 10 per cent by approximately 425,000 private lot owners, especially in the eastern provinces.This situation reflects what is in our Constitution in terms of who is responsible for forestry and forestry management in this country.
If you look at the broad picture of forest management expenditure in this country, on average since 1988 every year we -- when I say "we", I mean governments, both federal and provincial, as well as industry -- are investing in forest management approximately $2.3 billion per year on average. The contribution by the industry increased from the beginning of 1988 up to 1991, and has stabilized since then.
Senator Taylor: Your colleague was complaining earlier about how much government was taking. Now you are showing how much government is spending. What is the net? In other words, are governments taking more than they are spending or are they spending more than they are taking?
Mr. Martel: I am not sure exactly what the average is over the last seven years in terms of net contribution to government. That was around $5 billion. What we are talking about is not related to government investment; rather, it is forest management, such things as access, protected areas, and management of parks. All those expenditures are part of forest management, as are timber inventories and wildlife inventories. It is not only related to the commercial aspect of the forest industry.
Senator Taylor: It seems that you have two different presentations that are mirror images of each other. I would like to know the difference between what the government is spending and what it is taking in.
Mr. Martel: We must compare oranges with oranges and apples with apples. We will make those comparisons. It is very important. It is a very good point.
Industrial contribution increased from 1988 up to 1991, and has stabilized since then. Provincial government contributions have been decreasing a little since 1991.
Very often we hear the complaint that we are using big trees to make toilet paper. I should like to show what the industry is doing in terms of fibre supply. In Canada, 55 per cent of our fibre supply comes from chips and sawmill residues. Most of the trees in Canada go through sawmills, and the residue is now being used by the industry, residue that in the past often had no real value. Twenty per cent comes from recovery of paper, through recycling and collection programs that we have had over the last 10 years. Those programs are quite efficient, and have allowed us to increase the contribution from recovered paper. Twenty-five per cent comes from roundwood, usually roundwood which is not suitable to go to the sawmill first.
Senator Taylor: Of the recovered paper you are using, how much is waste paper?
Mr. Martel: We have a slide showing the percentage of recovered paper in our production, and we can show it to you.
Senator Taylor: That is in production, but I am thinking of all the paper that is used in society.
Senator Spivak: As compared to Japan, for example, which recovers almost all its paper.
Mr. Barron: We have another slide here which shows that the in 1980 about 20 per cent of Canadian consumption was recovered. Is that the question?
Senator Taylor: How much of Canadian paper comes back to be recycled?
Senator Spivak: That just shows the percentage increase. Of total paper, how much is recycled?
Mr. Barron: In 1980, about 20 per cent of the Canadian tonnage was recycled, and now it is at 45 per cent.
Mr. Martel: That is the recovery rate.
Senator Spivak: That is from every kind of paper?
Mr. Barron: We are a big exporting country, so there is a lot of paper that of course cannot be recycled, although we are pushing to have that done. We also have to reach outside Canada to bring in newsprint so that we can run it through our recycling facilities. Over the past five years, mills have spent approximately $1.5 billion to put in recycling and de-inking facilities. This industry has always recycled. When I was a kid, I used to collect cardboard and sell it for so much per pound to a guy who came around with the truck. Cardboard and tissues and things like that have always had a high recycling content even before it was popular.
Mr. Martel: My next topic is the annual allowable cut. I referred earlier to the fact that most of the responsibility for forestry and forest management in this country resides with the provinces. For this slide, we have used information from the Canadian Forest Service on the total production capacity of the forest by province, and added up what has been calculated for each province. The left column represents the total annual allowable cut for Canada, the blue column on the right is the total harvest, and the brown column shows the softwood harvest, which is getting close to the total potential forest harvest in Canada. The hardwood harvest is very low; it is underused.
We could probably increase this annual allowable cut through better knowledge of our growth and yield, and by improving our forest practices.
Senator Spivak: That is 200 million what?
Mr. Martel: That is cubic metres.
Senator Spivak: For the year 1994?
Mr. Martel: 1994, if you combine all of them.
Senator Spivak: Do you not have current figures?
Mr. Martel: The figures have not changed much. They have changed in some provinces, but I would say on average the proportion stays about the same.
Senator Taylor: Does that include all the boreal forest, aspen?
Mr. Martel: Yes, as of 1994. That is the latest information we have which includes all the provinces together. That is all from the Canadian report on the environment.
As you probably know, Canada has signed and ratified the International Biodiversity Convention, which was one of the major outcomes of the Rio Summit in 1992. Canada responded by putting together a national biodiversity strategy through a multi-sectoral process involving governments at all levels, conservation groups, and the private sector.
As the private sector, we wondered how could we respond to that? How could we be part of that challenge of conservation and biodiversity? As an industry, we decided to develop stand-alone biodiversity programs with three objectives in mind. One objective was to try to promote integration of biodiversity conservation into sustainable forest management with our member companies. A second goal was to get a better recognition of the work being done by the companies in the area of biodiversity, such things as inventory, modification of practices, mitigation measures and so on. The third goal was to promote or improve our participation in international and domestic processes related to biodiversity.
Dr. Simon Nadeau is now managing this program for us, and we are working very closely with him. The program is divided into four elements. The first is policy, internationally and domestically. The second is science: What do we know or what we do not know, what are the gaps, where should we be focusing to better understand the conservation and sustainable use of forest biodiversity in Canada?
The third element is very important for us. It has to do with liaison and partnership. How can we work with conservation groups and governments to find a solution? How could we not be part of the problem but be part of the solution and work together towards common objectives? That is what we are trying to do. We have a joint project with many of the groups and some government departments.
The fourth element is communications. We are putting together some communications programs. We have a newsletter. You have in your package a document that showcases some activities of our member companies related to biodiversity, in terms of landscape management, communication, education and training. It is included simply to present short descriptions of some of our projects, which in some cases are joint projects with governments or conservation groups.
Earlier in the presentation, my colleague David Barron made reference to the forest convention. Our organization has been involved on the international scene since before the Rio Earth Summit in 1992, trying to be part of the solution. Since the summit we have tried to determine how the private sector could meet the challenge of implementing the recommendations of the summit? How do we go from the broad concept of conservation and sustainable development to implementation? We have been very involved in this process.
One particular aspect of the process that we are involved in is the need for an international forest convention for all forests and all forest values.
Your committee heard from one witness last week who talked about the commission on sustainable development that is meeting this week and next.
Yesterday I was in New York as a private-sector advisor to the Canadian delegation promoting the international forest convention, working with other countries, other private-sector representatives and conservation groups to try to find common goals, and to determine how we will be able to bring together the international community to work towards them.
We have been involved with the panel on forests and with the UN commission on sustainable development.
There are benefits that would flow from such a convention. First, we hope to be able to create a common understanding of what sustainable forest management is. A lot of people talk about it, but we do not have a common definition of it yet.
Second, we provide national commitment. Countries would be committed to moving towards sustainable forest management, and we would be forced to report on their performance.
One important aspect is to improve the dialogue among governments, conservation groups and the private sector. I think we have seen that happening since Rio. How do we work together? This convention -- if we have a convention -- will help to improve that dialogue as well.
Another aspect is the recognition of the role of sustainable forest management certification in promoting sustainable forest management. Certification will be one tool, not the answer to all the problems. Through the work on the forest convention, and based on the past dialogues, more and more countries recognize that they have a role to play.
The last aspect is quite important. When you consider forest issues internationally, you must keep in mind that more than half of the wood harvested around the world is for heating and cooking. There are many issues related to forests which are not commercial, but which revolve around the fact that people need to feed their children and heat their houses.
Many issues are cross-sectoral. For example, the agriculture system has an impact on the forests. It is recognized that this whole system is the main factor impacting on forest biodiversity around the world. The convention will help to bring the various players around the table to try to deal with those cross-sectoral issues.
We promote a forest convention. Why? Internationally, forest issues are being dealt with by very different instruments: biodiversity, convention, climate change, CITES, and so on. The forest agenda is very fragmented. A convention would bring more focus on the real issues affecting forests. The private sector is willing to work towards that and be part of the solution.
Mr. Barron: As we said earlier, the industry exports 80 per cent of its product. The marketplace now asks questions about our environmental performance and our forest management performance.
Senator Taylor: Can you tell me the export figures by hemisphere? How much goes to Europe and Asia or the U.S.?
Mr. Barron: We have a pie chart that we will show in a couple of minutes.
Senator Taylor: Thank you. I am getting impatient, which is unusual for a senator.
Mr. Barron: We have all the information. For that reason, we have been looking for a number of tools to help establish, and prove to the world, a standard for sustainable forest management.
We believe in certification for forest management to help achieve product acceptance in the marketplace, but it must have credibility, and to achieve that it must have third-party verification. At the same time, domestically it will promote sustainable forest management, as well as prove it. What we are attempting to do is to make sure that we have a voluntary, independent, non-governmental tool that is market-oriented but that is credible and verifiable by third parties.
We have promoted this through a standards approach. The standards we all use, and which guarantee product quality, arise from a global network of interconnected standards bodies that have equivalency with one another. We think that that is a vehicle which ought to be used. It is sanctioned by the Canadian government as well as internationally.
In Canada, the Standards Council of Canada, which is a government body, has sanctioned the Canadian Standards Association to develop standards within the environmental area for management systems and for products. The Standards Council of Canada is part of ISO, the international group, so we feel it is appropriate to use that vehicle.
There is a requirement, within this system of environmental management standards, for third-party auditing, and we think that is extremely important in developing credibility. There is an international global network, which includes the Standards Council of Canada and standards writing bodies in the U.K., Germany and elsewhere, where equivalency is brought to bear so that in the end we do have international equivalency and equity of application. We think this is the proper vehicle to develop certification.
You may be aware of ISO 14000. It is like the ISO 9000 that you see on correspondence from many companies and on banners around their factories, which indicates that they have a certain level of management system which is guaranteed and audited. ISO 14000 does the same thing in the environmental area. This is the type of framework that is being used domestically to develop Canadian standards, which are called Z808 and Z809, through the Canadian Standards Association.
Senator Spivak: You are not working with the Forestry Stewardship Council, then?
Mr. Barron: We have an ongoing dialogue with them. That will continue. There are two different tracks and we are in favour of continuing that dialogue to see what can be worked out, but we do think that the international framework for the development of standards is an extremely important vehicle to build on.
Senator Spivak: One has a performance review and the other one just involves management systems.
Mr. Barron: That is not the case. If you look at Z808 and Z809, you will find that it has a management system at its base, which is extremely important in any forest management system.
Senator Spivak: What I meant was on-the-ground verification, which is what I understand the Forestry Stewardship Council does.
Mr. Barron: If you look at the document containing Z808 and Z809, you will find that there is on-ground third-party verification, both of the management system and of the performance.
It also includes the Canadian Council of Forest Ministers criteria and indicators of sustainability. They are embedded in the document and the user is required to address those. Local public participation is also required to address those criteria and indicators, so the performance is well-embedded inside these standards.
The standards have been developed by a multi-stakeholder group. They have been put out for public review. There was 100 per cent support from the technical committee, and the standards have been adopted by the Standards Council of Canada, so they are now recognized as Canadian standards.
Internationally, the ISO has a working group, which is meeting this week in Kyoto, Japan, developing an ISO document on sustainable forest management, which will go together with the ISO 14000 series for environmental management systems.
Now that these documents are in place, many of our member companies -- at last count 13 or 14 -- and other organizations related not to our member companies but to other aspects of forestry, are now beginning to prepare themselves to for certification under this scheme.
Mr. Joel Neuheimer, Manager, Market Access, Canadian Pulp and Paper Association: Here is the table that Mr. Barron was just alluding to a couple moments ago. As you will see, the U.S. is by far our major export market. Of course, we are very interested in moving into the emerging markets of Asia where we presently do not have a significant export presence.
The two key messages that I have today -- I am trying to give you some perspective on our association's trade priorities -- are that the Government of Canada should continue to work to reduce and ultimately eliminate all tariffs on pulp and paper products, and that they should also continue to work to eliminate and prevent the implementation of any non-tariff barriers to trade.
Just to give you an idea of what the tariffs are on products going into the Asian market and why it is so important that we work to reduce and eliminate them, I will give you a few examples. Newsprint into China is currently assessed a 15-per-cent tariff, newsprint going to South Korea faces a 25-per-cent tariff, and newsprint going into Indonesia faces a 20-per-cent tariff. Those are significant barriers.
Exports are a very big priority for the pulp and paper industry in Canada. Four out of five tonnes of product which our members produce is exported. Our priorities are to maintain and expand current market access for pulp and paper.
To give you an idea of how important a contribution our industry makes to Canada's balance of trade, in 1996, the pulp and paper industry alone contributed $17.7 billion while the automobile industry contributed only $12 billion. We even outdo cars and trucks.
Senator Spivak: The figure for our cultural and entertainment industries is $29.6 billion.
Mr. Neuheimer: Is that a net contribution to Canada's balance of trade?
Senator Spivak: Yes.
Mr. Stinson: We are consumers of imported cultural product, so I would think our balance of trade in that sector would be negative.
Senator Spivak: That is the figure. I think it includes telecommunications.
Mr. Neuheimer: We will have to agree to disagree on that.
Senator Spivak: There is a way of finding out. This is what we were told in another forum.
Senator Taylor: I find it difficult to believe there is a tariff on pulp and paper going into China. In China a tree is a pretty rare item. Why would they have a tariff on it? Is it because they prefer product from some other country? Surely they do not have an industry of their own that is significant. Do they?
Mr. Stinson: Tariffs tend to be low or non-existent on pulp, but they want to have their own facilities to produce paper. China is a very significant purchaser of Canadian pulp.
Senator Taylor: You can put pulp in tariff-free but not paper?
Mr. Stinson: Yes. It impedes the effort to move more value-added products into those markets.
Senator Taylor: If there is anything as rare as a hen's tooth, it is a tree standing in China.
Mr. Neuheimer: We want to increase market access for our products, especially in the value-added grades, such things as coated papers which are used to make magazines. We would look very favourably on tariff reductions in this product area.
One way for us to achieve these goals is to continue to support the Government of Canada's efforts to accelerate and expand tariff reductions. In the last GATT round of tariff negotiations, the Uruguay Round, there was a significant agreement to reduce pulp and paper tariffs within a 10 year time frame. We are trying to accelerate that so it will be done within five years.
Also in the bilateral context, a good example of Canada's efforts to achieve these goals is the recently completed Canada-Chile free trade deal which is currently being reviewed by the Senate's foreign affairs committee. We support such initiatives as well as the work that is being done in forums such as APEC.
The last slide we have here addresses the issue of non-tariff barriers, which is a relatively new issue in international trade circles. I would define non-tariff barriers to trade as intentional or unintentional discriminatory trade practices based on things such as improper and insufficient science. I would include in that definition the European Union's current eco-labelling program.
CPPA supports the objectives initiatives such as eco-labelling, but we prefer that they be voluntary, that they be developed and administered in a transparent manner, that they be based on proper and sufficient science, that they provide meaningful information and conform to international trade laws and to the ISO standards to which Mr. Barron was referring a moment ago.
Senator Taylor: That was under the heading of certification. Is eco-labelling inconsistent with your views on certification? Can eco-labelling become part of certification?
Mr. Barron: It can. We are not against eco-labelling at all. We support the discussions that have gone on inside ISO in an attempt to develop a set of principles that would be universal in any eco-labelling system. We do not see any inconsistency there.
The problem arises when domestic labelling systems or environmental preference systems include factors that are peculiar to that country so that the imports become impeded because they do not meet a particular criterion that is purely domestic.
Senator Spivak: Is that not part of national sovereignty? For example, if Denmark does not want to include wood which is clear-cut, would you consider that a trade barrier?
Mr. Barron: It is something that is not based on science. It is not based on a proper life-cycle analysis and therefore should not be included.
Senator Spivak: That is not Denmark's opinion. That is a sovereignty issue.
Mr. Barron: If you study the internationally accepted principles for eco-labelling, you will see that they require proper life-cycle analysis and proper science. Otherwise we end up with nothing but a whole series of non-tariff barriers to trade, and there will be a mess.
Senator Spivak: There is a dispute about the degree to which the World Trade Organization and other such international agreements should impinge upon a country's sovereignty. Let us take hormones in beef; it is a perfect example. The Economic Union does not wish to import beef that contains hormones. You talk about science. Science may be one thing one time and another thing another time. You would consider that a non-tariff barrier, I presume?
Mr. Barron: I would think it was not well-supported in science.
Senator Spivak: Hormones in beef?
Mr. Barron: I am not arguing the point with respect to hormones in beef. I am just suggesting that the whole world could be in for an awful mess if we do not set some rules around these types of barriers.
Senator Spivak: Yes.
Mr. Neuheimer: Eco-labelling is an issue that is in the process of evolving. The World Trade Organization does not prohibit countries from implementing those sorts of measures. They merely insist, based on obligations that have already been agreed to by all members, that it be done in a manner that does not impede trade in what they see as an unfair manner. With the Europeans, it is a question of working through this with them and developing a set of criteria with which everyone can live.
Senator Spivak: At December's meeting in Singapore regarding the World Trade Organization, there was a great deal of discussion as to the extent to which environmental standards can be a country's own decision and not be looked at as a non-tariff barrier. Of course, there are people on both sides of the question. It is not a straightforward issue. That is acknowledged.
Mr. Neuheimer: That is a given, you are right.
My last point was that these discussions are being taken up essentially within the World Trade Organization Committee on Trade and Environment. CPPA supports the work the Government of Canada is doing within that forum, and we look forward to favourable results as soon as possible from that forum. Thank you very much.
Mr. Barron: We would be happy to answer your questions today, or to provide further information if you so wish. We understand that you may be interested in going into the field to look at some operations. We would be happy to cooperate with the committee in making sure that you see whatever you want to see.
Senator Taylor: After the snow goes but before the mosquitoes come.
Mr. Barron: That is a narrow window.
Senator Spivak: Can I ask that the questions that have been prepared for us be sent with the witnesses so that they can have time to examine them?
The Chair: Yes.
Senator Spivak: Mr. Stinson, I believe you indicated the total contribution to the balance of trade by pulp and paper was $17 billion.
Mr. Stinson: Yes, $17.7 billion.
Senator Spivak: What is the total contribution of forest products produced in Canada?
Mr. Stinson: We showed a total of $31 billion.
Senator Spivak: That was as of what year?
Mr. Stinson: The $31 billion was for 1996, for the year as a whole.
Senator Spivak: That included all wood products?
Mr. Stinson: Wood products and pulp and paper.
Senator Spivak: Was that exported product or the total produced?
Mr. Stinson: That was the net trade balance, exports minus imports.
Senator Spivak: Is that the same figure as total production in Canada?
Mr. Stinson: No. As we mentioned, for the forest industry as a whole, approximately 76 per cent of the output was exported. For the paper industry, the percentage is a bit higher.
Senator Spivak: I guess I am not making my question clear. What is the total value of forestry products produced in Canada prior to export? The value of export is $31 billion, but what is the value of the total production?
Mr. Stinson: In 1995, the industry revenues were in the order of $54 billion.
Senator Spivak: I believe Senator Taylor wants to know what the tax revenue was.
Senator Taylor: My question is a little more refined but it is supplemental to Senator Spivak's. It is regarding your complaint about the government take from both taxes and stumpage. We were told many times over the last few months that stumpage paid on federally and provincially owned land is considerably lower than stumpage paid to private owners right beside them or to private owners in the U.S. We recently visited Washington, and the Americans were quite vociferous in their complaint that we were subsidizing our wood by having cheap stumpage. I find it hard to reconcile that with your argument that the government is overtaxing the industry.
Mr. Stinson: With regard to stumpage, we have a system where the timber lands are predominantly controlled by governments, and the industry does not object to paying a fair price for the fibre that we utilize.
When you compare stumpage, you have to look at the value of the fibre and the cost of pulling that fibre out. The various stumpage systems take into account such things as accessibility. Private timber lands generally lie in areas that are more developed, in terms of roads and infrastructure, and for the most part the yields on properly managed private lands have been higher. Therefore, the cost of that fibre reflects its accessibility.
Mr. Barron: The textbook definition of stumpage is supposed to be the rental residual that goes to the owner, but the issue has become very confused and a lot of different numbers are quoted regarding what stumpage really is in different jurisdictions and what it is on this private land versus government land. If a company is responsible for all of the regeneration, for all of the environmental protection, for all of the road building, and so on, that may not show up in the stumpage figure. Stumpage may be in addition to all that.
If you buy from a private land owner, and you are not responsible for all of those things, you are probably likely to pay, in addition to what is the pure rent on the resource, all of those extra costs.
If you are looking for an analysis in this area, you may want to study the transborder work that was done relative to the countervail problem. There is plenty of information out there in government files on that subject.
Senator Spivak: On the actual value of the stumpage fees?
Mr. Barron: Yes, and on how to do a proper comparison. That is more important.
Senator Spivak: They vary between provinces.
Mr. Barron: Yes. The different provinces have different systems, and there are different responsibilities attached to the forest management agreement, and different rates of revenue to the Crown, so you have to look at the entire package. You have to do the same type of analysis to compare stumpage on private lands. You cannot merely take the numbers at face value.
Senator Taylor: You are quite right that stumpage involves a lot more than just the plain rate. Even things such as the interest-free loans that Alberta has written off could be considered a form of stumpage. Suppose you are right and everything is as you say. Let us say the government is charging stumpage fees that are at least adequate, and it is getting an appropriate amount of taxes. Our committee has been studying biodiversity, and while the cutting and selling of trees may be your major focus, it may not be such a major thing in the minds of many people. The forests have to supply a home for game, a place for hunting and for aboriginal rights, a buffer against air pollution, carbon sinks and so on. When we consider all of these uses of our forests, we come back to the actual volume of wood that you are exporting.
Senator Spivak: External costs.
Senator Taylor: With all these other competitive uses, will you be a viable industry for the 21st Century? Are we trying to keep your industry alive, like buggy manufacturers, when it is not viable?
Senator Spivak: Have you thought of straw or hemp as a source of fibre?
Mr. Barron: Our industry is doing a great deal of study on other sources. We are in the paper business; we are not in some other business. We will make paper out of whatever we can find.
Senator Taylor: Why should we keep you alive?
Mr. Barron: This is a viable industry. It contributes a tremendous amount to the country. Some of the things that Mr. Stinson spoke of must be addressed to make sure that this and other industries are competitive. We must address these problems and examine closely the potential for increased fibre availability. If we do that, we should be able to reduce costs and continue to export, and we will have more jobs and a bigger industry.
Senator Taylor: You can do that by making buggy harnesses, too, though.
Mr. Barron: I do not think so. Paper will be around for a long time.
Mr. Martel: The forest sector in Canada has to show that it is sustainable. It is probably the only sector in Canada which has such diverse potential. The industry is trying to be progressive. We are studying the notion of the certification, which will include all these other considerations such as conservation, water quality, biodiversity, ecosystem services. We are looking at the situation at this point and time, in order to make sure that we will be sustainable so that the 330 committees that depend on the forest industry will continue to exist. The industry is not a monolith. It is made of people, families and communities. Its survival will be in the best interests those communities, as well as of Canada as a whole.
The Chair:Thank you for your presentation. We would appreciate having replies to the questions we are sending with you.
The committee adjourned.