Proceedings of the Subcommittee on 
Forestry

Issue 1 - Evidence, May 18, 2000

The Subcommittee on Forestry of the Standing Senate Committee on Agriculture and Forestry met this day at 9:01 to examine the future of forestry in Canada.

Senator Ross Fitzpatrick (Chairman) in the Chair.

[English]

The Chairman: This is the first meeting of our subcommittee to examine and report on the current state and future of the forestry industry, with particular reference to the softwood lumber industry. We are fortunate to have with us this morning officials from Industry Canada and the Department of Natural Resources who will testify and provide us with some background on the subject as we launch into this study that we anticipate will run through the calendar year and into the spring of the year 2001. We expect to complete a thorough review of the subject that will include corporate consolidation and globalization of the softwood lumber industry, trade with the U.S, product enhancement, and marketing initiatives.

I welcome the witnesses from the Department of Natural Resources and the Department of Industry.

Mr. Doug Ketcheson, Director General, Industry, Economics and Programs Branch, Canadian Forest Service, Department of Natural Resources: Senators, it is a pleasure to be here this morning.

I will give you an appropriate brief overview of the Canadian softwood lumber industry and its place in the world. I will then be pleased to address any questions you might have. Should you require further information, we will be more than pleased to provide that to you.

World production of softwood lumber is relatively concentrated. You can see from the table provided that the top five lumber-producing countries in the world produce approximately 65 per cent of the global production. The U.S. is the largest lumber producer, accounting for 27 per cent; Canada is a close second at 21 per cent; and then the rest is disbursed amongst our competitors in Europe -- particularly Sweden, Germany, Finland and Austria. As well, there are significant production levels in Japan for the domestic market. Russia also has a large production of lumber.

The global trade in softwood lumber is valued at Can. $27 billion. Canada is the largest exporter of softwood lumber, accounting for approximately 50 per cent of the total global exports. I differentiate between export trade and production. Certainly, a great part of the production in the U.S. is consumed domestically.

The largest importer is the U.S., having both the largest industry and also being the largest market for softwood lumber in the world. They account for approximately 50 per cent of the total world imports.

These production and consumption patterns have been fairly fixed over time and are not likely to change dramatically. Canada, Scandinavia and Russia will probably continue to be the largest lumber exporters. The United States, Japan and European Union will continue to be the largest importers of softwood lumber.

The Canadian lumber industry is an important industry because it is a contributor to the Canadian economy, generating $17.4 billion in production annually. That represents, in value terms, 25 per cent of all the forest product shipments in Canada. However, the Canadian forest industry is highly integrated so you cannot, in economic terms, look at the lumber industry without looking at its relationship to the pulp and paper industry. They are mutually supportive and necessary.

In 1999 the industry, which is distributed across Canada, generated more than $12.6 billion in exports. Industry employees amounted to somewhere in the neighbourhood of 66,000 persons in Canada. You can find facets of the industry in every region of the country. British Columbia has over 50 per cent of the production in Canada but, the industry, over the last 150 years, has grown dramatically in Eastern Canada. Therefore, the east-west portions of the market are more balanced.

Officially, the lumber industry has 920 establishments. There are large numbers of production locations across Canada. As I said, it is found in all regions of Canada. I believe it is fair to say that the Canadian industry is very dynamic, technologically advanced, and a highly productive and competitive industry. If we want to be proud of our high-tech industries, Canadian saw mills are second to none.

In terms of traditional markets, Canada exports lumber to all regions of the world. Over the last 10 years, exports of Canadian lumber have increased by 30 per cent. Our 1999 exports amounted to 48.3 million cubic metres and generated a revenue of $12.6 billion. As to designation, the U.S. accounts for 83 per cent of our exports, Japan 13 per cent, the EU 2 per cent, and others 2 per cent. The U.S. market is, by far, our most important market, accounting for 83 per cent of sales in value terms and 88 per cent in volume terms.

Since 1993, the Canadian share of the U.S. softwood lumber market has remained relatively stable, ranging from 33 to 35 per cent. Most current numbers suggest the Canadian share is at approximately 34 per cent. Over the past eight years, the robust U.S. economy and favourable interest rates have contributed to a strong U.S. demand for housing and, as a general statement, all of the participants in that market have done well over that period.

Of course, our ability to increase our exports has been somewhat limited by the softwood lumber agreement. Nonetheless, it is fair to say that we have done very well in the U.S. over the period of the agreement.

As indicated earlier, our major competition in the U.S. is the U.S. However, we are starting to see more offshore competitors in that market. The offshore share of the U.S. market has risen from 0.2 per cent in 1991 to approximately 1.7 per cent in 1999.

These new entrants, and they are not really new, but the recent, more vigorous entrants, are largely found in Central and South America and Oceania. Although these competitors have increased and will likely continue to increase their exports of low-cost fibre products to the U.S, they are not expected to displace the greatest amounts of Canadian lumber, particularly that lumber used for construction purposes. They have done very well, nevertheless, on the low-end use: furniture stock, fencing, and products of that nature. We do not expect them to greatly increase their participation in the U.S. market.

We have had a tremendous decline in our access to Europe for Canadian lumber. We have a long history of trade with Europe. That history reflects the history of our country. However, in the 1990s, generally we have seen a major decline. The major factors related to that are probably the emergence of the European Union and the participation of the Scandinavian countries in the EU. There is also the emergence of the Baltic countries as significant lumber producers in Europe. They have been particularly strong in green lumber, which was one of our areas of participation. The suspicion is that the Baltic producers are producing lumber from logs originating in Russia, although I certainly cannot be too definitive about that this morning.

We also have issues with regard to pest problems like the pinewood nematode, where the Europeans have ceased to buy green lumber from Canada due to the alleged threat of phyto-sanitary problems for their forests.

Another factor in Europe is the emergence within the EU of changes in the common agricultural policy which have caused agricultural subsidies moving to some degree into forestry as the Europeans try to reduce their agricultural land base. This creates domestic expectations in Europe, as well as actual increases in production.

There are many factors to be considered in Europe.

Although it is not part of the EU, Russia has the potential to significantly influence European wood markets due to its vast inventories of softwood timber. As I said earlier, Russian log exports to Europe and into the Baltic areas are having a significant impact on those markets at this time.

The third major market area for Canada is Japan. Japan accounted for approximately 13 per cent or $1.6 billion of Canadian lumber exports in 1999. The Japanese market has been in decline over the last four or five years, largely related to the continuing recession in that country. While that market has picked up over the last year, it certainly has not returned to the norms that we experienced earlier in the 1990s.

There are some questions about the continuing viability and the size of Japan's market. It will remain a good market for Canada, but how much growth there is in that market remains somewhat uncertain. There are demographic changes in Japan, as elsewhere, resulting in changing housing demand.

Changes in the building code results in changes in the nature of the wood they want. We are having trouble selling traditional species like green hemlock into Japan. They changed their building codes, requiring more stable, drier wood.

In response to the changes in the building code, to the depression in Asia, and to an oversupply of wood products globally, we are seeing new entrants into Japan. This is a market in transition as well. I think that the Canadian industry, in the west particularly, remains confident about Japan, but it is clear that Japan's market in the late 1980s was a different market from that of today.

In terms of emerging markets, Canada is looking toward countries such as Korea, India, Taiwan and China, all countries experiencing relatively vigorous economic growth and rising incomes. While these markets offer potential in terms of the macroeconomic factors that are at play there, they offer some unique challenges for Canadian shippers.

Lumber markets tend to be regionally oriented. As you see by the trade numbers, we ship into the U.S. because the U.S. is proximate to us, and we have access. Markets tend to be highly influenced by cultural and historical factors. Do you use wood to build houses or do you use concrete or brick or other materials? Do you have a cultural disposition for or against various building products? These factors are subject to change over time but they certainly govern practice.

Most of the Asian markets do not, at this point, have a cultural disposition towards platform frame construction housing, which we have in North America. Therefore, they do not have much experience with our kinds of products. They do not have an infrastructure in the form of codes and standards that allows them to look at our kinds of products. They do not have an infrastructure in the construction trade that has knowledge of how to use our products.

In looking at these emerging markets, we are faced with how to deal with some of these structural issues. This is not all a bad story. The experience for Canadian lumber producers in Japan since the Second World War has been quite dramatic. Japan was a market that did not exist in the prewar period. We have managed to find a place in that market, through a lot of work by the industry and government, through introducing Canadian building techniques, and through adapting our products to their particular needs.

If we are to take advantage of the other emerging markets, we can expect to face similar challenges in terms of finding a place, finding a niche, in those markets for the kind of products we have, and/or finding a niche in those markets for products that they want that we could deliver.

In summary, I would say that Canada has a productive and highly competitive softwood lumber industry. I cannot overestimate the points about how competitive and modern the industry is, in general. Our main market is the U.S. and will likely continue to be so. However, there is a need, if we want growth and faster growth, to diversify. There are challenges in returning to the European and Asian markets. Those are challenges that need to be dealt with if this industry is to benefit from the opportunities that those regions offer.

Obviously, there are issues facing the industry. Access to the U.S. market is a major issue that will need to be dealt with over time, as will the issue of emerging competitors. The ability of non-traditional producers of softwood lumber, such as Brazil, Chile, and New Zealand, to create softwood forests and produce softwood products is a topic on the rise.

We have resource use and access issues related to the environment. As you are no doubt aware, there are many pressures on Canadian forest producers relative to how they use their forests -- whether we have good management of the forests in Canada and can meet the expectations of people who buy forest products -- related to environmental concerns, real or otherwise.

The Chairman: Thank you Mr. Ketcheson. Mr. Farrell, do you have anything to add?

Mr. Jim Farrell, Director of Industry, Industry, Economics and Programs Branch, Canadian Forest Service, Department of Natural Resources: No, I have nothing to add.

The Chairman: I will now turn to Ms Bresolin from the Department of Industry.

Ms Nancy Bresolin, Director, Forest Industries and Building Products, Industry Sector, Department of Industry: Mr. Chairman, mergers and acquisitions present a relatively new major shift in the softwood lumber industry in Canada. Mergers and acquisitions are of overriding importance in worldwide businesses, as a strategy for securing market share, improving balance sheets, and maintaining or improving competitiveness. Currently, a number of factors influence mergers and acquisitions, particularly in the forest sector.

Why are there so many mergers? To achieve the desired return on equity of 12 per cent, corporations have been favouring mergers and acquisitions rather than greenfield start-ups because historically, start-ups have not been delivering sufficiently high returns. Low interest rates and a relatively low-valued Canadian dollar have also favoured merger and acquisition activity.

In order to compete with giant international competitors in global markets, forest companies have to expand through M & A or be taken over by others. Comparatively, Canadian companies, although we ship a lot of softwood lumber, are not large on a world scale.

As part of these mergers and acquisitions, companies have closed high-cost production facilities around the world. That has led to a reduction in overcapacity.

It is more efficient to obtain well-established global business through mergers and acquisitions rather than by building a market over a long period. For example, by buying U.S. rival Consolidated Papers Incorporated, Stora Enso gained access to the biggest paper market in the world.

Mergers and acquisitions reduce administrative and marketing costs and improve efficiencies, as these functions can be performed by fewer people using more sophisticated electronic systems. One of the key objectives of many mergers and acquisitions is to obtain a secure supply of raw materials. For example, Smurfit of Ireland will have access to 920,000 hectares of private land resulting from the acquisition of St. Laurent Paperboard. That is before our minister right now.

I will touch on the trends in the industry. Takeovers in the industry reflect a general consolidation trend in North American business as a whole. A report by Canadian merchant bank, Crosbie & Co., tallied 954 transactions with a value of $105.2 billion during the first five months of 1999.

In the paper and forest products sector of the Toronto Stock Exchange, there were 30 deals with a value of $9.4 billion in the first nine months of 1999. This pace is much higher than in 1998, when there were 19 deals with a value of $5.5 billion in the same period.

For the most part, the consolidation over the last two years in the forest industry has taken place on a regional basis within North America or Europe. This is now changing with the recent examples of Finnish UPM-Kymmene bidding for U.S.-based Champion International and Finnish-Swedish Stora Enso's bid for U.S.-based Consolidated Papers.

With the exception of the Abitibi-Consolidated takeover of Donohue, major transactions in Canada were takeovers by U.S. firms, namely, Bowater/Avenor, Weherhaeuser/MacMillan Bloedel, and Louisana-Pacific/Forex.

In the EU over the last 10 years, takeovers of European firms by Scandinavians have created global giants like Stora Enso, UPM-Kymmene, and Norske Skog that have been challenging U.S. giants everywhere other than in North America. These Europeans are now making moves into the U.S. market.

A few years ago, U.S. firms were not looking to buy Canadian companies. Today, the situation has changed with improved labour relations, better productivity and the need for access to fibre. The low Canadian dollar is also advantageous for U.S. firms, but it is certainly not the most significant issue.

Mergers and acquisitions have resulted in the creation of giants in specific areas. For example, Abitibi-Consolidated in newsprint and Smurfit in containerboard. Ongoing change will be the rule during the next few years in the North American wood products industry. Industry consolidations, wood and non-wood substitutes, offshore competition, distribution channel dynamics, electronic commerce and the end of the Softwood Lumber Agreement in April 2001 will be the key challenges that the industry will need to face head on.

The Chairman: Could you add something on value-added wood products?

Ms Bresolin: Yes. We were also asked, Mr. Chairman, to talk about value-added wood products, specifically in softwood lumber. It is more difficult to be precise in this area because softwood lumber is not broken down separately -- how it becomes a value-added product.

At this time, there is no single definition of which products are included in value-added. The range of products that are generally considered to fall within the definition, fits into five subcategories: prefabricated buildings, cabinets, household furniture, doors and windows, and other mill work. Softwood lumber as a product is used in a number of these product groupings.

In the case of value-added lumber products, there is an extensive list of examples that utilize both softwood and hardwood lumber. The degree of processing that is done to the standard commodity lumber is also variable and can span a range. I will list a few: precision end trimming of softwood lumber studs to specific lengths for builders; finger joined lumber products used in the manufacture of structural lumber for building applications or used in the manufacture of other value-added products such as wood-I-joists and I-beams; specialized engineered wood trusses in residential and commercial building; and the remanufacturing of low-grade and short pieces of lumber into higher-grade products through cutting to size, trimming and finger joining.

As I said, there is not one statistical category that captures the output of value-added products, but growth is occurring in a number of these product lines. For example, demand for engineered wood products has grown dramatically in the last 10 years and now consumes 250 million board feet annually in the U.S. alone -- probably about 10 per cent of that in Canada. It is believed that North America leads the world in this area.

The shift to value-added wood products can be attributed to a number of driving forces, including the Canadian softwood lumber agreement which motivated an increasing number of Canadian softwood lumber mills to move away from traditional commodity markets.

The forest resources in many areas are changing as harvesting volumes and patterns change. More forest land is being protected as Canada moves toward a commitment to preserve 12 per cent of land as park area. As a result, less larger diameter wood is available in most regions. In many areas the largest trees have been harvested, and provinces are reducing harvesting in some areas.

Softwood lumber prices in North America have enjoyed a period of high demand and exceptionally high prices. High costs have resulted in some users, particularly the residential construction sector, to consider alternative building products. These alternatives include both wood and non-wood building materials.

High prices encourage substitution with alternative products and have supported the development of engineered wood products such as wood I-beams and wood trusses.

Recently, both the federal and provincial governments have recognized the benefits of encouraging the development of a value-added sector. Maximizing resource optimization, job creation and export potential all provide considerable benefits to both levels of government.

A similar move toward value-adding is occurring both in the U.S. and Scandinavia. In the case of Scandinavia, which has developed into one of Canada's principal competitors in some export markets, producers are manufacturing products similar to those produced in Canada. Other regions of the world are not as advanced technologically in the manufacture of value-added softwood lumber products, and many of these countries do not produce the same type of lumber produced in Canada.

Forintek Canada Corp., with laboratories in Vancouver and Montreal, is Canada's principal wood products R&D facility. Forintek's R&D efforts focus on a number of areas of wood product development with a dedicated research group which focuses on value-added manufacturing, technologies and products. The Forintek value-added research program is guided through input provided by the Canadian industry. In addition, the federal government, through NRCan, and some provincial governments have allocated special funding to enhance Forintek's value-added R&D capability.

Last, Industry Canada, in conjunction with some provinces and the Canadian softwood industry equipment manufacturers, suppliers and academics, has engaged Forintek to undertake a comprehensive study of the needs of the Canadian lumber and value-added products industry. This study is part of a series of technology road maps undertaken in a number of industrial sectors to identify technologies and processes which need to be developed over a 10-year time frame to ensure forest sectors remain ahead in competitiveness.

This road map will be completed shortly. We have a copy of the draft with us which we can show you. If you are interested, we can have copies in about a month or so, when they are final.

The Chairman: Thank you very much, Ms Bresolin and Mr. Ketcheson. Those were very helpful and well-presented briefs. They will be invaluable in our study. We have some questions, of course.

Senator Fairbairn: Thank you for starting us off so well. This is a very important industry in Canada. I suspect not enough Canadians, and perhaps not enough people like myself, are as aware as we should be of its dimensions and the challenges facing the industry in terms of competition.

My blood ran cold with the comment that, in Europe, the kind of subsidy activities that we have been battling in the agricultural sector may be moving into the forestry sector. In our Standing Committee on Agriculture, we are completing a lengthy study on farm incomes and the whole situation in Canada which have so largely been buffeted by the subsidy issue. Then we had the WTO talks in Seattle.

Can you expand on the similarities that you see occurring and, perhaps, the portent that gives us for this highly competitive industry?

When the softwood lumber agreement was reached, there was perhaps a naive thought that this would smooth out problems for a lengthy period of time. That has not been the case. Going into a new round of discussions, as it were, could you give us an indication of the kind of consensus that we may have within our country now among the provinces who are most involved in the forestry and softwood lumber areas? The last time around, I seem to recollect that was a major issue.

Perhaps you could also give us your view on the environmental issues. We have taken a kicking over the last several years, particularly in Europe. We have done a lot in this regard, but I am not sure that what we have done has been adequately communicated to Canadians.

Mr. Ketcheson: If I may, I will try to deal with questions one and three and ask my colleague from Foreign Affairs, Mr. Dowswell, to deal with the consensus question.

I am not sure how much I can add on the subsidy issue. It is pretty clear that in Europe there is a lot of support for private landowners. European forestry is dominated by private landowners. Under the EU, there is a lot of support for the forestry business as producers try to move out of the agricultural business.

Given that our market share is so small in Europe at this point, there is not much to displace. As to a direct threat to our shipments, it is not clear what our risks are. I suppose the big risk is if a European product, over time, starts to show up in world markets, that is, if it flows out of Europe and into Asia and North America. It is hard to judge that situation right now. The central to southern European timber industries do not produce very good quality wood products relative to what we produce in Canada.

Having said that, there are issues related to the new composite products and their ability to go offshore. Recently, a European company was able to go into Japan and tie up quite a large share of a particular product market there. How much that relates to subsidy, I do not know. People are going to find ways to use the wood. It is a concern.

If you consider subsidies in the context of the problems we have with the United States and the allegations of subsidies that rage in connection with certain items, I would point out that you are vulnerable to the subsidy argument when you trade abroad, but you are not vulnerable to the subsidy argument when you consume domestically. We have no recourse against subsidies in Europe or in the U.S. if they do not trade those products. Indeed, I have heard Americans say for many years, "Well, you can subsidize all you want, just do not send it here." It is the flip side of that discussion.

My own view is that, around the world, we will see more and more production of wood products, and certainly by the Europeans as the reforesting of Europe continues at a pretty good rate. South American and Central American countries are seeking economic development in forestry. They have attractive climates and circumstances, and so much investment is happening there. New Zealand and Australia are entering into softwood plantations at a high rate and they are doing so effectively. The same situation applies to Asia.

Whether those efforts are subsidized or not, the circumstances of trade in wood products is such that there will be more competition, and I believe that Canadian wood industries will need to be more competitive in more places. To date, the Canadian industries have relied heavily on the U.S. We will need to go offshore and do battle in those other markets, if for no other reason than to protect our position in the North American context. It is interesting and dynamic time in the wood industry.

I am not sure if that ramble came to your point, senator.

With regard to environment, I am pretty biased about how we deal with our forests in Canada. I have been around the forests for many years. When I started looking at forests 30 years ago, we were good forest miners. Today, relative to the forests that we have, and not to trivialize any of the problems, Canadians are probably the best forest managers in the world. We do not know ourselves in that regard. It is a challenge for us. The forests are not only an economic resources, but they are also emotional beings in our lives. The forests grow over long periods of time. When logging takes place, for some period of time the landscape looks terrible. However, that does not mean it is an ongoing problem, it simply means that the area looks bad for a period of time. We must fix the problems, but we should be proud of what we are doing in our forests.

As exporters, we are vulnerable to this discussion. Many people around the world have not had the opportunity to get to know us, and they do not know what is going on in Canada. The images that are portrayed are very emotional, striking images of devastation. Canada's forests are compared with those in Brazil but, biologically, our forests may as well be on two different planets. The Canadian forest is the most regulated forest in the world. Even if you set out to destroy it, you cannot get at enough of it to possibly do that. Our problem is how to portray that.

We need to deal with this on a number of levels. Canada has been very active in trying to work through the United Nations Commission on sustainable development to pursue the notion of an international agreement on forest and forest use -- a forest convention. We need a level playing field relative to how our forestry industry is perceived. What are the standards of forestry around the world? How do you weigh, in some form of reasonably objective fashion, what is acceptable or not? At this time there are no rules governing those sorts of questions.

We have been active in the development of criteria and indicators to measure sustainability, but what is sustainability? Our view is that it is a combination of how you balance economic, environment, and social values in your use of forests. However, having said that, how do you measure that? We have been working very hard with other countries to try to establish some definitions and some measurement so that there can be effective reporting, and indeed effective auditing if that is the issue.

We have worked with the industry and the provinces to try to deal with allegations about forestry. We have a program where we try to bring opinion leaders to Canada to show them what we are doing, and have them meet with all of the participants in this debate in Canada. We believe that our strength is in transparency.

The Canadian industry is extremely active in pursuing forest certification. There are many systems out there but in principle, we are looking at ways and means of demonstrating to the customers that we are doing a good job of looking after the forests. The key is that they are prepared to work without a framework and subject themselves to third party audits and assessments.

However, many people believe that all forests, or some forests, should be used differently or not used at all. They believe that mistakes have been made in the past, and that mistakes are currently being made and that this is unacceptable. This debate on forests and forest use will never go away because there will always be polar views on forest issues. It is an emotional topic. We must work harder to demonstrate that Canadians know how to balance all of the values that are embodied in forests. For the benefit of our citizens and, indeed, for the global community, we have a responsibility to our forests.

Senator Fairbairn: Obviously, this is not a black and white issue, although it has been portrayed that way. I think back a few years to the time when we had these discussions in the agriculture and forestry committee. At that time, there were quite dramatic protests. In fact, visual concepts were circulated, particularly in Europe. What kind of working relationship do we, as government -- and if you could comment on industry as well -- have with those who advocate on behalf of the environment in Canada? Over the years, has there been a sizeable effort to change certain practices and to introduce new ones to increase transparency? Has a better, productive working relationship developed with environmental groups on this issue?

Mr. Ketcheson: There is a general answer to that question. In some cases, the answer is yes. For instance, the recent legislation on species at risk was notable for the fact that the industry and significant groups got together to help Environment Canada. The government framed that legislation.

That was a very positive element, but I do not believe that is characteristic of the whole relationship. There are very large splits in Canada between the environmentalists and the industry. I will leave it there. This is apparent when dealing with certification. We have more trouble coming to accommodations than the Europeans have with regard to certification schemes that are generally acceptable to all the parties.

Our challenges are quite different in Canada. For better or for worse, we have a large natural forest, and it is our challenge to use that natural forest in a way that preserves the values that are embodied there. The Europeans got rid of their large natural forests 500 or 600 years ago, therefore, they do not have old-growth issues in Europe as we do. The world views our natural forest as something that should stay as it is. Some of the world views it as a reservoir for ecological, environmental or social values. In Europe there are roads everywhere and it is much more densely populated. They are 500 years too late to have this discussion.

Our issues are sharper, therefore, it is harder for the various groups to come together as they do in other parts of the world. However, it is a continuing process and we can see good results along the way.

Senator Stratton: Senator Fairbairn asked about the Department of Foreign Affairs and its view of our agreement that expires in 2001. Where are the provinces with respect to that? What will our position be? Are we all on side federally and provincially? This is a fairly significant question that should be answered, if possible.

Mr. Wallace H. Dowswell, Director General, Export and Import Controls Bureau, Department of Foreign Affairs and International Trade: For some unknown reason I drew the short straw and I am working on the softwood lumber issue for a few years now with my colleague, Doug Ketcheson, in particular.

Where are we? I have only a brief answer because I think you will probably get into this in more detail later on. I would not want to go on extensively at this point, but I will answer any of your questions.

Minister Pettigrew, as you know, began a consultation exercise with concerned stakeholders last fall. That was initiated particularly with the deputy head of our mission at the Canadian Embassy in Washington who is the chief facilitator in that exercise. Over several months, we have spoken with the representatives of the provinces and territories across Canada, as well as the various industry, aboriginal groups and others. The message we received from essentially everyone -- and this was the only consensus among them -- was that they did not want a renewal of the current agreement. Apart from that, there was no clear consensus on where we are going at this point.

Obviously, if we do not make an alternative, positive decision to extend, renew, renegotiate or take any action, the current agreement will expire. In that scenario, we will most likely face -- whether immediately or a little later in the year -- a U.S. industry reaction through the filing of a trade action, or a countervailing duty charge, as has happened in the past.

In the current circumstances, we must consider preparations to face a CDC. On a separate track consultations are continuing with provinces and with industry. In this sense I will distinguish between Atlantic Canada and the industry under the current agreement, which is basically the four covered provinces. The industry affected by this agreement has been making major efforts over the last several months, from Quebec, Ontario, Alberta and British Columbia, to see whether or not they can arrive at a consensus position. At their recent meetings, progress has been made, and we expect to hear from them shortly on the outcome of a meeting that took place yesterday in Toronto where, I understand, they were beginning to reach a common view.

As government, we will be interested to hear if they have reached some degree of consensus. We have been urging industry to do that because, whatever stance we do take, it is essential to deal with the United States with a pan-Canadian consensus as strong as we can secure.

We have had and continue to have ongoing discussions with the provinces, both those directly affected by the agreement and others. The provinces need to examine some issues that affect them and their jurisdiction, because last fall the United States informed us that they, too, were not particularly enamoured with the current agreement. In fact, their preference would be to return to a free-trade environment but, in their view, of course, that could not exist unless the alleged subsidized forest management practices in Canada were corrected or amended to be more market-based systems. Therefore, by stating that position, they put on the table provincial forest management practices and policies.

In our consultations, we have told the provinces that the United States has put those issues on the table. We have acknowledged that it is their jurisdiction, and we have asked them where they stand on it. They are pondering how they will respond, and, indeed, whether they want to respond to the United States at all. Policy changes are ongoing in many provinces, and certain provinces are considering more significant changes for their own domestic reasons. They are currently examining that situation and deciding upon their position. That is not yet firm. However, the process is underway. Consultations are underway between industry and other stakeholders and the provinces. We are trying to determine a common position before the end of March. If that is not achieved, we will have a trade fight with the United States.

Atlantic Canada has a clear consensus, which is: "Leave us alone. Leave us out. We are not part of the problem. Do not come knocking." The Maritime provinces, in particular, have for some years highly valued a recognition they obtained from the U.S. administration and industry that acknowledged their system had more market-oriented features than elsewhere in Canada. As a consequence, they were excluded from some of the earlier agreements and the U.S. countervail actions. They value that status, because they are not under any constraints in their trade with the United States.

That has leads us to your discussion with Mr. Ketcheson about the decline in European exports and the increase in United States exports. The growth in the U.S. market and the prices in that market, led Maritime Lumber significantly away from Europe as well. That is where Atlantic Canada is on that point.

The Chairman: Thank you, Mr. Dowswell. We will be pursuing this aspect of our study and I am sure we will see you again.

Senator St. Germain: I have two questions. One is a follow-up of what Senator Fairbairn has asked. Have we not won every countervail ITC case we have been on?

Mr. Dowswell: Yes, in the end.

Senator St. Germain: Why is it that we capitulated? We have allowed that .2 per cent to go to 1.7 per cent, which is significant in that this has allowed other offshore competitors to get into our traditional American market.

Who is leading this? Are we, at the federal level, leading it the way we should, or are we being coerced by those who say it is too costly? I asked Mike Apsey why we capitulated. I know there is a litany of political gyrations in this whole equation of local, interior people who want to go with quotas.

Who will lead the negotiations? Are we actually leading, or is this one of the sensitive federal-provincial areas that often forces the federal government into an untenable position?

Mr. Dowswell: I can only answer that the federal government is leading, but you are quite accurate in that this is a sensitive federal-provincial area. Forest management systems is an area of provincial jurisdiction. Clearly, the federal government does not want to go to Washington to negotiate for B.C. or Quebec. It is complex.

There is also the relationship with industry, as you have heard from Doug Ketcheson and Nancy Bresolin. It is a large and important industry, widespread across the country, with large employment levels. The U.S. is its largest market. They need us and we need them. Managing that industry is, you are right, complex. In our experience, we have found that one party will just unilaterally walk off the edge of the cliff. You need to bring everyone along to try to get consensus.

The last time around, we had discussions about why that came about. The "why" at that point was, in fact, from the federal government's perspective, that the industry and the provinces concerned, who were participating effectively at the time, were keen to go that route. Some other segments of the industry who thought this would have no impact on them and had not paid attention found out later on, as we have seen on the B.C. coast, for example, that that was not entirely the case.

We cannot reinvent history. At the time those discussions took place, that was the majority recommendation to the federal government from industry and the provinces, primarily led by British Columbia, as you know. The other provinces came along as that evolved.

Senator St. Germain: It seems counterproductive. The whole thing never made sense to me and I guess it never will.

My next question is, how much of a impact will this 1.7 per cent have? Will there be significant growth in the offshore competitors who were mainly, I believe you said, from South America and Oceania?

Mr. Ketcheson: It is a significant increase, senator, but, again, we do not see that these competitors will directly displace Canadian softwood lumber exports. We think they are moving into market niches related to reconstituted board products, manufactured board products, furniture stock areas, and so on.

At this time, we believe that Canadian producers have a fairly large quality advantage in terms of traditional lumber products. The future is hard to foresee in many ways in this area because of changes in technology.

Also, it is not 100 per cent clear to me that the increased penetration is due to the softwood lumber agreement, if that is the question. It may well be due to changing products, changing markets for products, et cetera. We have seen a great deal of change in the wood products industry over time. Nancy Bresolin referred to the development of value-added products and different types of markets or different types of standards of acceptance for new products. All of these are factors in terms of who is able to import what into the U.S.

[Translation]

Senator Gill: You said, and I agree with you, that our vision of forest use has changed a lot in Canada. It is a positive thing and future prospects seem fairly favourable.

You know that more and more, in my area in particular and elsewhere too, in British Columbia and in various regions of Quebec, such as Abitibi, Saguenay-Lac-St-Jean and in the boreal forest, we deal with native communities which have their own traditional uses. They have the resources, but under their ancient traditions, they hunted and used the forest just to meet their needs, for instance to build canoes, etc. Over a number of years, under the leadership and influence of Aboriginal leaders, those Aboriginal peoples have started to get involved in forest activities such as logging. In some cases, partnerships have been established. Unfortunately, those partnerships deal with forest development or value added industries. In my area, Aboriginal people have little opportunity to get involved in development, unless I am mistaken. This may not be the case throughout Canada. You know what happens with Aboriginal communities when there is a change in their way of life and everybody urges Aboriginal people to get into the mainstream and participate in the economic activity of the country. When we want to do something, however, there is not much room for us.

Are the departments in charge of forests doing something in that respect? Are those departments asking those who are already present in that industry to understand that the Aboriginal people who did not take that place before now have a place in that industry and it is something that people will have to get used to.

On social welfare, Aboriginal people will eventually be taking a stand. Is something being done in that respect in Canada? Is there an awareness?

I know that things are being done at the Department of Indian Affairs, but I am talking about other departments. I know what the responsibilities of Indian Affairs are.

[English]

Mr. Ketcheson: Senator, I would like to speak to two initiatives for which I have responsibility that certainly bear directly on your question.

The first one is of a federal program called the First Nations Forestry Program, which is co-sponsored by the Department of Indian Affairs and Northern Development and the Canadian Forest Service. This program is designed to work with aboriginal peoples on capacity building related to forestry. It is very good in the sense that there is tremendous participation. It is a decentralized program in that we have tried to organize ourselves in such a way that we can be responsive to aboriginal peoples across the country in the context of their circumstances and their particular needs, recognizing your point that there is tremendous variability within that population.

This program is not large in terms of federal dollars being spent. That figure is approximately $5 million a year. However, it is a large program in terms of participation in total expenditures because it draws partners to the programs, and that raises the amount of dollars to approximately $15 million to $20 million a year.

There are many challenges. We must find a way to work with aboriginal peoples at the community and regional levels to help them bridge the gap from where they were to where they want to be.

This program is about to receive recognition from the government as being an excellent program. That makes me proud because my staff will receive their due recognition. If you would like more information on the program we could provide that.

The second program is the Canadian Model Forest Program. The model forest program was set up in the early 1990s. We have 11 model forests in Canada. We started out with 10, and we now have 11. The program was set up to pursue the idea of sustainable forest management at the local level. This program sponsors, to some degree, a partner on developing approaches to sustainable forestry where all of the stakeholders who have an interest in that forest have the opportunity to come to the table and work together.

With regard to aboriginal people, two dimensions of this program are important. The program was renewed three years ago. Part of the process of renewal involved key stakeholders in forestry who were not well represented in that program. The first thing we did was run a special competition for an aboriginal-led model forest. We invited proposals, and I believe we received a dozen or so. We selected a model forest, which was the Waswanipi Cree Forest Program, run by the James Bay Cree. It is a project that deals directly with your point: How do you look at forests? How do you look at the value in forests? How do you bring together all of the interested parties? The partners in that model forest are a couple of large forest companies and the Waswanipi community. There is a company there that is co-owned by the community and a couple of companies. It is a good example of trying to bring that community, in the context of the model forest, into this discussion about to deal with forests from an aboriginal and non-aboriginal perspective. The issues you raise related not only to forest management but to traditional values, other products, et cetera, all of which get attention in that particular forest.

The second initiative under the model forest program is a national initiative, which is, again, designed to work across the network for us on projects related to aboriginal use of forests and needs in forestry. At this point 8 of the 11 forests have a very strong aboriginal partnership component in their projects. This is a long and at times very difficult topic to pursue, but these two projects are good examples of how the government has tried to address some of the issues that you raise. I do not want to overrate them because it is a major issue. However, they are good projects and we would certainly be more than pleased to provide you with more information on them.

Ms Bresolin: Two other programs that Industry Canada, under our minister, deals with are Aboriginal Business Canada and Canada Economic Development in Quebec. We provide a large amount of sector input and advice when submissions or proposals to work with aboriginal peoples come to our department. Much of the interest that comes in relates to the forestry world. Probably 50 per cent of the business with aboriginal peoples is in the forest sector.

We meet with the provinces and the industry from time to time to keep up to date with what is happening. A couple of companies who have been to see us lately are Weherhaeuser and Tembec. Weherhaeuser has a large initiative in Saskatchewan. Tembec is trying to do the same thing in Manitoba with a band of 16. They are calling it "16 Bands." The Province of Saskatchewan has been very forward looking in working with Weherhaeuser, in particular, in developing large facilities.

[Translation]

Senator Gill: I appreciate the efforts that are being done, as I said at the beginning. The other aspect of working with Aboriginal people, and this is what you mentioned when you talked about the Waswanipi forest, I agree with the situation but I want to stress that we have to develop a new culture in our country. Instead of looking at Aboriginal people as people who may be unable to take part in the economic development of our country, I would like non-Native people to be more open and understand that it might be beneficial for non-Aboriginal people to have Aboriginal partners, and to work with people who will use, develop and preserve the forests. I would like us to move in that direction, not considering Aboriginal people as a problem, but rather as stakeholders in economic development. This is what I would like to work on ,and the various departments as well.

My other question will deal with quotas. I am a layman in that respect. We heard earlier that Americans -- takeovers and mergers are carried out mostly by Americans, and some are taking place in my region -- are buying sawmills. How do we deal with them? The Americans buy those sawmills because a large part of our exports go to the United States. They are the buyers of our products, and soon they will be the producers.

How can we establish quotas if the buyers are also the owners? They are becoming the owners of many forest facilities and businesses. I have a problem with that aspect of those deals.

Obviously there is no room for Aboriginal people on the export side. I know a place where there is a partnership with Kruger and where the Aboriginal people cannot export. There is no room for them on the market while we are trying to create jobs at home. I would like to hear some explanation about that.

[English]

Mr. Dowswell: I will try to respond to some of your points, senator.

The mergers that are taking place, particularly in the last year or two, are introducing another new dynamic into the softwood lumber discussion. Five years ago, the level of U.S. ownership in Canada was less, and, where it existed, the result was a tendency toward neutrality of those companies in the sense that they were both sides of the border so they were torn as to which way they would go. With the number of mergers that are happening this year, those companies are re-examining their stances. They have not yet come to a firm conclusion. However, we find that, in Canada, several of them are more active in attempting to find a more amicable solution. It will be determined over the next year whether or not that will be achieved.

In terms of the aboriginal issue, particularly in Quebec, we are aware of the situation from the number of representations. We worked very closely with the AMBSQ last summer. As you know, in quota terms, it is fully allocated. There is no drawer full of quotas in my office that we can distribute easily, without taking something away from someone else.

With the AMBSQ we have worked out what we call the "bonus" quota. We earn a certain amount of extra quota when the U.S. price is above a certain level for each quarter. Beginning last summer, we were earning those bonuses. We worked with the AMBSQ on a generic plan. We were not trying to signal only aboriginals, but they get captured in it because they tend to be the smaller participants who do not have high quota levels. We put in a program to which the full committee of the AMBSQ, which is 99 per cent of Quebec industry, agreed. We proposed taking their share of the quota and distributing it to those companies that have quota-to-sales ratios below 50 per cent in inverse pro rata ratio.

The result is that you are rewarding those with low quotas. We have been earning those bonus quotas from last summer until now. The Quebec industry has shown a great deal of solidarity with that group of companies, and has continually distributed those bonuses to them. I understand that this has been very well received among the companies in Quebec. That has been a major help in bridging this.

It does not solve the problem but, in a transactional and immediate sense, it has done a great deal for these companies.

On the business side, as you know better than I, in Quebec at this time a large number of aboriginal or other smaller mills are in joint ventures or joint operations with larger mills. We have encouraged that transactions take place through quota transfers with those mills. Sometimes that works better than other times. We have attempted to encourage that in the short term.

[Translation]

Senator Gill: I would like to thank the departments. Despite all my concerns, we are seeing a lot of progress.

[English]

Senator Stratton: Mr. Ketcheson and Ms Bresolin, thank you for your excellent presentations.

I would like to explore how we can be more competitive internationally. Ms Bresolin, is Forintek a Crown corporation or a private corporation?

Ms Bresolin: It started its life as a government research facility and it is now a cooperative arrangement. It is private-sector led. NRCan contributes financially and two government departments sit on the board, but it is mainly a research institute aimed at solid wood products in the high technology end, private-sector led and run.

Senator Stratton: Do you believe that the best way of helping our forest products companies to compete internationally is to be at the leading edge?

Ms Bresolin: Member companies, which pay to belong, pay on their tonnage or shipments in production. They have a strong interest in seeing that Forintek is well managed and well run and develops products that work for them.

With cyclical downturns in the industry, members tend to drop off, which causes severe concern for the three research institutes in the sector. Through the last year, Mr. Ketcheson and I have worked with the institutes to help assure some funding for a few years until they are back up.

It is generally considered by the industry to be a good approach. Rather than being driven by a government agenda, their own interests are paramount.

Mr. Ketcheson: To add to that, competitiveness comes from many directions. In the first instance, probably the biggest driver, particularly in the commodity industry, is cost competitiveness. Having a good research base is an important element of that. Having companies that understand their business and are able to understand their competitors' advantages and disadvantages, as well as their own, is a major factor. Having a good resource to be able to produce good products is also a major factor.

In that context, the Canadian lumber industry is very good. The sawmills in western Quebec are the fastest and best sawmills in the world. There are no sawmills like them in the world. That does not mean that they are the most profitable, but technologically and cost effectively they are very competitive.

The other dimension I would mention is markets. The U.S, in a sense, is an easy market, which makes the softwood lumber agreement painful. We know how to do business there. We have done business there for a long time. They are like us in terms of that business. We know how to compete with them and we do a very good job of it -- too good for their liking.

However, it is a competitive world. We need to find ways to secure and strengthen our entry into the Japanese market, which poses different challenge for us. The Asian market, outside of Japan, is a non-traditional wood market. Those people will buy houses. They will upgrade housing. They will be looking for characteristics that we can deliver, if we can find a way to deal with them.

To some degree, there is a role for government, as well as the private sector. The government has a role to play in institutional constraints to trade related to codes and standards, for instance, and we need to be situated to deal with that.

An example is Taiwan, which has suddenly become extremely interested in platform frame construction because of earthquakes which have caused much of their housing to collapse. Taiwan does not have a building code. Canadian interests, through the industry, through Canada Mortgage and Housing, are working with the Taiwanese on developing a code. That is not a challenge only for industry; it is a challenge for industry and government.

There are many ways of growing markets being competitive around the world.

Senator Stratton: At least one company in Manitoba that exports pre-fab housing suffered dramatically with the drop-off. Do you have any knowledge of that market bouncing back? I see that as a wonderful way of selling the whole package, and there is potential for huge growth in that market.

Ms Bresolin: I do not know the company specifically, but there has been a market increase in exports of pre-fab housing along the border states. Much of this has been building-code related. We work closely with a number of American states specifically to ensure that the houses that are prefabricated here and sold in the United States meet their codes and standards. It is ongoing.

Senator Stratton: I know of one company that exports to Japan.

Ms Bresolin: Is that company called Neufab?

Senator Stratton: I think that is the name. I see that as a wonderful way to present the package. I hope that we do everything that we possibly can to reinforce that for both high tech products. Combined as a complete package, it is a wonderful entry into the market, if you can develop a standard that will allow us to get in ahead of most other countries.

Ms Bresolin: You are right. The nature and size of the export product makes it more difficult, which is why the market across the U.S. border is better, but we are developing markets in Japan. There is a lot of competition from the Scandinavians. Once the product is loaded onto a ship, it does not cost that much more to send it from Scandinavia than it does from Canada. They have a high-quality product that we must compete with.

We have a Trade Team Canada Sector for building products, and prefab housing is one of the focuses of that. The three country markets that we look at are Germany, the United States and Japan. It is one of a number of products that are a particular focus of that group. In fact, the co-chair of that committee with me is the head of the Manufactured Housing Institute of Canada, so we do have a particular focus.

Senator Fairbairn: In reference to the question from Senator Gill on the mergers and acquisitions, I think Mr. Ketcheson said that there was a great deal of emotion surrounding the issue of forests. Canada is a vast country with a huge natural forest that we are told other countries, having done in their own forests many years ago, would like us to keep for the benefit of world science and development. Also, we have a tiny population. Thus, when you talk to us about the mergers and acquisitions, with the exception as you note of Abitibi-Consolidated, it is a one-way street. We have watched, especially in the last year or so, some extraordinary developments in Canada. There is, in a sense, an historic element to this, and in many respects we are dealing often with historic families. I have good friendships within the Macmillan family, and certainly this was not just a cut and dried, dollars and cents business deal: there was a great keel of pain and anguish involved as well.

We can, as a country, control these giants -- these new entities -- with regulations. We can control them also with rules and trade agreements. However, if this is the pattern, what about national goals in the forest industry? How effective will our position as a country be, through our provincial and federal governments, when these corporate giants, who are not of our culture, our history or our country, have control over one of our very large industries? Or is it just a question of a buck is a buck, and the marketplace rules? How will we be able to continue to ensure that we develop and move our industry the way as a country we would wish to when the agents within that industry are these huge multinationals?

Ms Bresolin: A dollar is not a dollar.

Senator St. Germain: That is right.

Senator Fairbairn: My friend will have a supplementary question to this one.

Ms Bresolin: It is certainly of interest to our department, and we work closely with the people in the industry review regarding competitiveness when a foreign investment application is made. The bottom line is that there has to be seen to be net benefit to Canada. We are focusing right now on the forest sector, relative to foreign direct investment, and it is required that they keep a head office in Canada. If a Canadian company is purchased, merged or acquired, the head office must remain in Canada. There must be a commitment that R&D will continue to be done in Canada. Membership in the research institutes -- at least for the entity being acquired -- must be maintained. We try to get the company that is purchasing or acquiring the Canadian company to bring themselves into membership in research institutes. For interest, foreign direct investment into Canada last year was smaller than out. We invested in a larger way outside of Canada than inside Canada.

Senator Fairbairn: In this industry?

Ms Bresolin: I do not know the details of the industry. It is a sensitive issue and we have just started compiling information on it by sector and across. I have global numbers only on foreign direct investment, but I do not have specific information. I do not think it is that one-way. There are Canadian companies buying American companies and investing in South America as well.

Senator St. Germain: The thing is, at half price, who will not buy? They are 50 cent dollars. Is there any talk within these departments about a North American currency? We get all this rhetoric from the so-called protectors of Canadian culture. We could loose all our industry and especially a main industry like forestry. We could say that the head office is sitting in Edmonton or Vancouver or wherever, but let's be honest: it is just cosmetic. If something is not done and the government monetary policy continues to do what it is doing -- and this morning I heard that the dollar is dropping again because of interests rates -- foreign interests will buy everything up. If we do not do something we will loose all of our industry to the Americans, because they have a great deal of buying power. We may be investing offshore, but I still think that it is a major concern. Is there any discussion about a North American currency? Are you hearing anything, or is that too political a question for you to answer?

Ms Bresolin: No, the North American currency has not been discussed in any of our deliberations.

One would think intuitively that the low Canadian dollar would have that sort of effect, but the Canadian dollar has been low for a number of years. These mergers and acquisitions only started last year. It is the competitiveness climate, the skilled labour in Canada, and the support of the government in the industry that are bringing foreign investment into Canada. We do not believe that it is just the low dollar. Our dollar is low only against the American dollar, not the European or Scandinavian currency.

Senator St. Germain: Who else counts?

Ms Bresolin: Acquisitions are not all being made by American companies. We have done research on this because that was the first question that was posed to us. We do not relate it to the Canadian dollar directly.

[Translation]

Senator Gill: I do not know if this was mentioned before, but do we have in Canada a national forest harvesting plan, for instance for logging?

Excluding areas reserved for wildlife protection and parks with native plants or even the boreal forest where trees take hundreds of years to grow, do we have a plan or does the situation change with each new government? When the Liberals are in power, the plan goes one way, and when the Conservatives are elected, it goes another way? Do we have a specific plan?

I would give you the example of Quebec where we try to get a plan with Hydro-Québec to know where dams should be built. We wonder if dams are going to be built on all the rivers or if at some point some areas will become protected. Do we have a national plan to deal with the conservation of the resource or the harvesting of that resource?

[English]

Mr. Ketcheson: As you are aware, senator, under the Constitution, the responsibility for the management of public forest lands rests with the provinces. The fundamental issues of how those forests are managed, the regulatory regime, the governance of participation of the private sector on those public lands, all fall within the jurisdiction and competency of the provinces. The fundamental questions about how much, where, when, and what we do with it after it is used, rests with the province.

Having said that, we have a long tradition of cooperation in Canada in the context of national forest strategy. That goes back 20 years. The provinces came together with the federal government and other stakeholders to look at principles in respect of forest use and tried to establish goals and common understandings. To some significant degree, they have demonstrated that all of the jurisdictions and many of the shareholders and interest groups in forestry have a common vision for Canadian forestry. That, of course, is not a legislated regulatory document, it is a principle document which sets out a national goal or standard. It allows us as a country, particularly in international circumstances, to say that this is what we believe in as a country as it relates to forests and forest use.

The participants in that have a realistic approach in their participation, given that these policies and our implementation plans, and so on, are reviewed periodically and publicly. It becomes a report card to some degree, so that, if you are a province, company or other group, you do not approach it lightly, even though it is not a legislative vehicle. We have a national identity in terms of forests, as well as a national forests strategy and a group of common understandings as to how we think we should, as a nation, approach forestry and forestry issues, including industrial development. However, we also have a great respect for the Constitution and its provisions relative to the use of public lands.

[Translation]

Senator Gill: I have one supplementary. In fact, I think it is not by chance that there is no problem. You want to accommodate people because there is a real issue, and there is a common understanding on a national forest strategy with the provinces.

In other areas, there are management criteria and standards. Provinces deal with the management of some resources or some services under specific standards, but in the area of forestry, this is not done. In other words, no standards are imposed upon the stakeholders. There are discussions with the provinces. Is that it? Yes?

[English]

Mr. Ketcheson: Yes. The use of forest is a complex topic. Where does the national interest and perception come into line with the constitutional responsibilities? In terms of federal-provincial relations in forestry, and I do not wish to be naive here but, there are good relations and understandings of what the common goals and objectives are, based on a long tradition of dialogue, partnership and respect for the institutions that we live and work with. I believe that the record is pretty good. It is not like health care in the sense that you have different partnerships based on jurisdiction or based on financial contributions. It is less a regulatory relationship, and one can trivialize it, however, we have a long tradition -- we are in our fourth generation of national forest strategy.

In a country as complex as this one, we are not doing too badly. There are many countries in the world who are looking to us. The Australians, for example, copied our approach to national forest strategy because their allocation of constitutional powers is similar to ours. We are doing well, given what we are in forestry, with a common vision.

The Chairman: Thank you. I have a questions or two for Ms Bresolin which relate to trends, for Ms Bresolin.

First, Mr. Ketcheson indicated in his report that the U.S. is the largest lumber producer at 27 per cent and Canada is second at 21 per cent. We talked about enhanced product development. What are the ratios, if we have the numbers, of enhanced products produced in the United States versus Canada?

Second, and this is a difficult question because it is asking you to look into the future but, have you made any projections on the trends we will see with consolidation or further globalization of the industry? We certainly have seen a trend in the last several years. Have we any ability to project that?

Ms Bresolin: We have not done any projections. It is too new a phenomenon to know what will happen in the future. However, we know that a number of Canadian companies are looking to merge, which would create a larger Canadian presence internationally. I have a list of the largest Canadian companies and where they fit in the world.

I did not understand the percentage question.

The Chairman: The numbers for lumber production were 27 per cent and 21 per cent respectively. Within that, do we have a breakdown as to what portion of it would be defined as an enhanced product or developed product, as opposed to the raw lumber product that we export?

Ms Bresolin: No, the number would be small because value added products take much less fibre. There is a more value in a value-added product. With significant value-added products, and if that increases, the amount of lumber will be small but the value would be high. I think the numbers are six to seven times the job per unit of wood fibre for the value-added industry.

Mr. Ketcheson: I do not have the numbers either and you probably cannot get them.

I would expect that the U.S. secondary wood industry is proportionately larger than ours. We are proportionately more into the commodity market. It becomes a question of trade and the cost of moving high-value products over what distances. You will find that the so-called higher-value products generally are produced closer to the consumption point. In addition, they have a longer history in the lumber industry than we do, in the sense of large scale. I would expect that their structure is a little different across the products than ours.

The Chairman: One of the areas of our study is to look at value-added product. Could you pursue that a little further. In order to begin our examination, we need to have a better feel for that.

Ms Bresolin: It is something that we have an ongoing interest in, so we will be pleased to do that. I will show you a copy of the technology roadmap that I spoke of earlier, which is a start. That roadmap referred to lumber and value-added products.

The softwood lumber agreement has actually encouraged more value-added producers in Canada to take advantage of using softwood lumber in other ways.

The Chairman: Thank you. This has been a good introduction to our study. You have provided us with good material.

The committee adjourned.