Proceedings of the Standing Senate Committee on
Agriculture and Forestry

Issue 2 - Evidence - Meeting of May 7, 2009


OTTAWA, Thursday, May 7, 2009

The Standing Senate Committee on Agriculture and Forestry met this day at 8:06 a.m. to study on the current state and future of Canada's forest sector.

Senator Joyce Fairbairn (Deputy Chair) in the chair.

[English]

The Deputy Chair: Honourable senators, I welcome you all to this meeting of the Standing Senate Committee on Agriculture and Forestry. I am Senator Joyce Fairbairn from Alberta and I am deputy chair of our committee.

The meeting today is the committee's fifth meeting for its special study on the current state and future of Canada's forest sector. In order to gain an overview of the forest industry, the first phase of the study is to gather more general information and we have two panels of witnesses today. For our first panel we have representatives from two groups. From the Communications, Energy and Paperworkers Union of Canada, we have Mr. Guy Caron, National Representative for Special Projects. From the United Steelworkers, we have Mr. Robert Matters, Chair, Steelworkers Wood Council. We are delighted to have you here this morning. It is an important part of the work we will be doing as we move from place to place. Thank you for coming.

Robert Matters, Chair, Steelworkers Wood Council, United Steelworkers: Thank you for allowing us to be here today. I am Robert Matters, Chair of the United Steelworkers Wood Council, the predominant union in the forest industry. I wanted to say that first because I knew Mr. Caron would say the same thing.

I am sure you will all understand, but I would like to provide some background. Our members harvest trees. We convert them to viable building and consumer products and to energy systems. We work in forestry product manufacturing plants. We replant the harvested forest so generations to come can also be employed in some of the best forests in the world. The critical element is that we do this mostly in rural communities all across Canada.

My notes say that the backgrounder we supplied did not arrive here earlier. I will not go into the content of the document except to say the backgrounder details how we got into this mess. I will not focus on that except to mention the Softwood Lumber Agreement.

Whether you support the Softwood Lumber Agreement or not, and clearly we do not, the indisputable fact is that both provincial and federal governments are impotent with respect to their job, which is aiding citizens at critical times particularly when entire communities are in danger of withering away. That is all I will say on the Softwood Lumber Agreement for now.

The transformation from our modern forest industry has not been beneficial to rural communities across Canada. Today, the majority of forest tenures are held by a few companies. Few, if any, manufacturing employment requirements are attached to those tenures. The results are excessive log exports and monopolistic and predatory practices, in parts of the country. We even have unique situations, like in Saskatchewan where a single company has the rights to over 3 million hectares of land but not one person is employed.

Clearly lacking is a manufacturing strategy in general and, specific to our industry, a national policy that encourages or facilitates maximum utilization and employment from the resources owned by our citizens. Where the federal government has jurisdiction, i.e. on private lands' log exports, there must be coordinated efforts to encourage domestic manufacturing with those resources. Where the various provinces have jurisdiction, leadership is required in what I will call the ``Canadian preference," or maximum employment. The federal government clearly has a leadership role to develop a vision that other jurisdictions can follow to that end.

Steelworkers believe we need leadership with respect to a massive program for the revitalization of our forests. We need to plant more trees to restore forests hit hard by devastations like the mountain pine beetle in British Columbia and Alberta, and to create quality timber that we will need later in the century.

The government should review the experience of programs like FDRA and FDRA II, which were undertaken jointly by B.C. and the Government of Canada. This could serve as a way of maintaining income for unemployed workers in the resource-based communities to provide a viable long-term legacy for generations. We need to produce more quality timber.

Canada should become a leader in the area of carbon trading. Our forests present excellent opportunities to finance future ongoing forest development through the sale of carbon credits. However, we do not need a carbon exchange on Bay Street or on Wall Street, where the get-rich-quick schemes pollute our economy. Rather, the sale of carbon credits must be earmarked to retool our industries, build new green industries and finance the transition of our existing workforce to a green force.

We have to encourage the use of more wood in building products. I pause here to note that I read some of the transcripts of testimony by other groups who talked about changing building codes in British Columbia and what was going on in Europe. That is fantastic stuff and we have do more of that in Canada. The federal government has a key role to play in helping industry to diversify by finding new uses for wood products.

[Translation]

Guy Caron, National Representative for Special Projects, Communications, Energy and Paperworkers Union of Canada: Madam Chair, my name is Guy Caron and I am the National Representative for Special Projects at the Communications, Energy and Paperworkers Union of Canada. Gaétan Ménard sends his regrets. He is unfortunately held up this morning in Montreal on legal matters pertaining to AbitibiBowater and a ruling on the refinancing of its unfunded liabilities.

[English]

CEP is a major union in the forest sector. It represents 150,000 members, including 60,000 in forestry and 7,500 in AbitibiBowater. The situation is crucial to us.

[Translation]

I would like to thank the committee for having invited us to discuss the specific problems that the industry is now facing. That will be the focus of our presentation. We consider that there are four main reasons for the problems of the forest industry. There are many others, but I will focus on those four main ones.

The first reason is the industry's lack of a long-term vision. The forest industry finds itself in an unfortunate situation, which could probably have been avoided if the industries' sectors and companies had had a broader long'term vision, extending beyond immediate concerns. The typical example can be found in the newsprint sector.

Charts one and two of our presentation show the dramatic decrease in demand for newsprint over the past five years. As a result, producers have decreased production and shut down plants to eventually drive up prices and prop up the industry.

That was obviously not sustainable. The fall of demand for newsprint was predictable, given the increasing popularity of the Internet and decline in newspaper readership. This explains the problems faced by the major media conglomerates with their newspaper concerns. The financial difficulties were predictable. In spite of this, the industry did little. Be it in newsprint or in any other forestry sector, it did not innovate. Table 1 in the presentation shows that there was a serious lack in innovation and capital expenditures.

The industry stopped investing in R and D; it fell back on basic wood products like newsprint, kraft pulp and market pulp, rather than adapting to the new market niches. As for the basic products, Canada is up against some tough competition from countries where labour costs are much cheaper, namely from South America and Asia.

The industry sat for 15 years of a favourable exchange rate instead of making the profound changes that could have helped it become more competitive. Today, the industry is paying a high price for its inaction, as are its workers.

The second reason is the lack of cooperation between companies within the industry. The forest industry is highly competitive and its players appear to use a ``last man standing" strategy, like vultures waiting to tear into their pray. This is something we are seeing with AbitibiBowater, which has received absolutely no assistance from the industry. I think that the other players are waiting to see what will happen in order to pick out the best pieces within the company.

This mentality has led to the current crisis experienced by AbitibiBowater, which has accumulated an unsustainable debt through the leveraged buyouts of weaker companies such as Price, Donahue, Consolidated Bathurst and others.

It is important to understand that the industry has two strategies: one is American and the other Canadian. Today's corporations are not Canadian, they are multinationals, whose head offices are based in Canada and the United States, as is the case for AbitibiBowater. That is why it would be illusory to think they have the best interests of Canada at heart. That is why the government cannot simply stand by without making the decisions to help the industry take the best interests of the Canadian forest industry into account. It must encourage them to adopt a long-term vision for the industry.

The third reason is the softwood lumber agreement. Mr. Matters spoke about that earlier, and I will not dwell on the subject. We had reluctantly supported the agreement because we could foresee the perverse effects it is now having. Over $1 billion was paid to have an agreement that was supposed to ensure stability. The problem is that, since we signed the agreement, the industry has become non-competitive. Not a single month has gone by in which companies have not either had to pay the maximum amount of export taxes or received minimum quotas.

As well, the agreement has not put an end to the demands of groups such as the Coalition for Fair Lumber Imports, which will always come up with an excuse to claim that the Canadian industry is competing in an unjust and unfair way.

The last factor is perhaps less well-known. It is the black liquor issue, which is now affecting us. Some of the problems we are facing come from the fact that the United States is subsidizing its industry and giving it an unfair advantage.

To sum up a somewhat complex issue, black liquor is a residue of the transformation of wood chips into kraft pulp. It is also a renewable fuel that can be reused by the plants to meet their own energy needs.

Black liquor is a tree-based fuel and therefore considered to be a renewable source of energy. In 2005, the United States adopted a tax credit on renewable, alternative fuels in order to support ethanol, among other fuels. This credit is the equivalent of a 50¢ per gallon subsidy for a renewable fuel mixed with a fossil fuel. Four years later, in 2008-2009, the American forest industry realized that by adding a small amount of diesel fuel to the black liquor that it already produced, it became eligible for this tax credit. Their pulp plants, therefore, receive 50¢ for every gallon of black liquor they produce. That amounts to a $200-a-tonne subsidy, with production costs of between $400 and $500, depending on the plant.

Our industry cannot compete with that, and we are already starting to see some movement. For example, the Domtar plan in Espanola, Ontario, is now being transferred to the United States. Our plants are already losing orders that are being transferred to the U.S., since that is where the industry can make a profit. Plants that would have shut down can now receive subsidies to produce pulp and paper at prices under what the market could sustain.

These are major problems. I did not necessarily come here to present any solutions, since we were asked to discuss the problems. Our presentation does contain some solutions, but I am sure that I will have the opportunity to address them in response to your interesting questions.

[English]

The Deputy Chair: Thank you very much. We will now have our senators ask you both questions. I encourage everybody to take part and be as vigorous as you can so that everyone has a fair chance to hear what we need to hear from these witnesses.

[Translation]

Senator Poulin: Gentlemen, thank you for your presentations. My first question is for Mr. Matters. You gave the first presentation and are the chair of the Steelworkers Wood Council.

I have been representing Northern Ontario in the Senate since 1995. When you started by saying that the greatest threat from the problems faced by the industry is the dissipation of our Canadian communities, that is something that I see in my region. There is an impact not only on the industry, but also on the families and the institutions within a community.

You have submitted a backgrounder to the committee. This seven-page document is an excellent analysis. In it, you provide an analysis of the reasons for the current crisis. That is the first part of our committee's study, i.e., to analyze the reasons for the current situation. I would appreciate it if, in addition to officially submitting your paper so that we can take it into account when drafting our report, you could also draw our attention today to the primary causes that are set out in your brief.

[English]

Mr. Matters: Thank you very much for your comments. In fact, I was up in Kapuskasing dealing with our membership three weeks ago and, as you know, things are not going well up there now.

My research guy is a great guy, but we all have researchers that sometimes get a little bit carried away. I think he did an excellent job, and he probably brought a perspective that, respectfully, some others have not brought forward. He goes into great detail about the financial institutions in the U.S. and the financial health of the home builders in the U.S., which is unique and detailed. It goes to show the excesses that we have seen, particularly in the U.S.

In trying to answer your question, I am not sure that there is a whole lot of useful knowledge or information, given how we got into this mess that would be helpful to your committee. The short story is that the deregulation of the financial institutions in the U.S.A. got us into this mess. That is the short story. I can go into a long explanation, but we think that is being corrected in the U.S. Some of the predatory practices and banking regulations have been changing. We can probably skip over that and assume, pray and hope that we will not fall into a similar situation in the future. I am not sure if that answers your question about the backgrounder.

Senator Poulin: Yes. We have four objectives in this study. The first objective is to examine the causes and origins of the current forestry crisis, and that is why I was trying to better understand and have on the record how you, representing the United Steelworkers, see the origins of, to quote you, ``the mess we are in today."

[Translation]

Mr. Caron, thank you for your presence. You spoke about Espanola. That remarkable little community outside Sudbury is in a very vulnerable situation. You have carefully examined the causes and reasons for the current crisis. In your view, the first reason is the lack of a long-term vision. The third objective of our study is to develop a vision for the long-term positioning and competitiveness of the forest industry in Canada. Could you share with us your long'term vision?

Mr. Caron: The first thing the industry needs to do is to stop its predatory practices, to stop circling each other and hope to ensure their success through another's potential demise. We see what is happening with AbitibiBowater, but that is not the only company that has problems. Smurfit-Stone is also in bankruptcy, and even though it is mostly based in the United States, it has a number of plants in Canada. We know that White Birch and Tembec are also having a hard time with the same problems of unmanageable debts.

Senator Poulin: Could you give us a concrete example of a predatory practice? Without naming any names.

Mr. Caron: The black liquor issue is a good example. The industry has come together around black liquor to try to convince the Canadian government to call on the United States to rescind the tax credit or at least close up the loophole. Some Canadian companies, such as Domtar, have not joined the industry coalition. How come? Because they are gaining an advantage in the United States with their plants that produce black liquor. The company therefore has refused to join the effort to put an end to the subsidy because it benefits from it in the United States. That is why it has refused to join with the rest of the industry. Domtar eventually hopes to see some of the weaker players go bankrupt so that it can pick out the best pieces. That is probably the most glaring example that I can find.

Now, one of the reasons for the industry's problems is that it has fallen back on basic products: newsprint, market pulp and kraft pulp.

We are no longer competitive in the world. We can produce for our local markets, but as far as export markets are concerned, we can no longer compete with South America and Asia. We need to start looking at derivative products, wood by-products and also, at some point, biofuel. I am not necessarily talking about cutting down trees to produce wood pellets, but we could at least use wood waste.

Senator Poulin: Chips, as my grandfather used to say?

Mr. Caron: Yes, but specially designed chips to replace coal. Some people see that as the future, but we do not consider that to be very environmentally friendly as solutions go. However, using wood waste to produce green energy may be a market we could look to. And in fact, there is a factory which is open, I think that it is in Miramichi, in New Brunswick, with the old UPS factory, which is about to be converted to produce that kind of fuel.

So that is the kind of mindset the industry needs to adopt in order to survive. With the current state of affairs, I do not think it would be appropriate or realistic to think that the industry could do this. We are in financial straits. The situation has been compared to that of the auto sector. The forestry sector is not in decline, we punch in at the same weight as the auto sector as far as Canada's economy is concerned. Both sectors comprise 14 per cent of the manufacturing market.

In fact, I have drawn a comparison in the third table between the auto and forestry sectors. Not only do we pack the same punch in terms of economic impact, but we employ twice as many people. And yet, as far as government assistance in the form of loans and loan guarantees is concerned, the automobile industry was supposed to receive $2.7 billion — $4 billion, from both federal and provincial sources, for plants in Ontario. We believe the industry will need that kind of assistance; we are not talking about subsidies, we are really talking about assistance in the form of loans and loan guarantees. Perhaps, at some point, strings could be attached so that the industry is able to reorient itself in line with its long term vision. The carrot and the stick approach is probably the only way of convincing the industry to change for its own good.

Senator Poulin: Thank you, gentlemen.

[English]

Senator Baker: I would like to welcome both of you to the committee and congratulate you on your activities. I imagine Mr. Ménard is absent because he is involved in court cases. The Communications, Energy and Paperworkers Union is in an unusual position. However, we have to congratulate you for your recent successes on behalf those retired workers, widows or family members who had their pensions interrupted briefly and for your successful intervention on behalf of all Canadians in that matter.

I also welcome Robert Matters. For those people watching on television, this is the famous Bob Matters from British Columbia, a legend in his own right, sometimes defined as ``ideologically driven" by some people.

My first question is to Mr. Caron. We have seen Air Canada, Algoma Steel and Stelco restructure under bankruptcy protection with none of the problems you are encountering in the forestry sector.

Generally speaking, what changes in legislation would you like to see under the Bankruptcy and Insolvency Act to protect the forest industry in view of these unusual circumstances arising that require judicial intervention? You might also comment on the $4.5-million separation pay the CEO of a company received.

Mr. Matters, you mentioned the export of raw logs. What would you suggest this committee recommend to solve the problem? We know the province has imposed some sort of levy, but it is nothing equal to what some foreign nations have done. For example, I understand that Russia has a substantial tax on the export of raw logs because they have decided to keep the jobs in Russia.

Mr. Caron: That is a very interesting question. I have been studying the issue recently. Bill C-36 was adopted in 2007. It amended the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act, CCAA, protection against the creditors. This included contributions already paid by workers and contributions owed by companies at the top of the list of priorities in case of bankruptcy. It was added in both acts to ensure that the company would not use the one that would be more favourable. There was a symmetry adopted with Bill C-36, which received Royal Assent.

Unfortunately, it has not all been implemented. Some elements, including the one that gave priority to contributions and wages were adopted under the Bankruptcy and Insolvency Act. However, those under the CCAA have not been implemented. They are not in force, although they have been adopted by Parliament and received Royal Assent.

The Canadian Labour Congress is looking into the matter to learn why the Governor-in-Council has not implemented this bill that has been democratically adopted by Parliament.

Bill C-36 did not address unfunded liabilities and ensuring the solvency of the plans, which remains a problem. An ideal bill would have placed the financing of unfunded liabilities at the top of the priorities, but it is not the case.

We have worked with our auditors to try to develop a solution to these private pension plans that are jeopardized and in difficulty. For example, Air Canada was one. It is not only the forestry sector that is affected. Other sectors are affected as well. It represents a big hurdle for companies trying to restructure.

We are aware of that problem. We came up with what we think is a durable solution, but we need time to finish developing it. We will probably start releasing this solution by next week.

I cannot go into the details. However, our actuaries think they have found an innovative solution that will help industry to get out of this mess.

Senator Baker: I have one further thing before we go on to Mr. Matters.

You have heard of DIP, debtor-in-possession, in which a government can intervene. The United States has intervened in your particular matter with the largest forest company in the world, AbitibiBowater. For one quarter of the employees in the United States, the government put up $200 million in DIP financing. The Province of Quebec is putting up $100 million. Is that correct?

Mr. Caron: That is right.

Senator Baker: Should we suggest that the federal government come forward to protect our interests, as the government did in the U.S.? If Air Canada, Stelco, and all these companies are any example, AbitibiBowater will be continuing after this operation. We will still have a company in operation in Canada, the U.K., the U.S. and South Korea. Should we recommend a role for the federal government?

Mr. Caron: Yes, most definitely. Currently, AbitibiBowater represents 41 per cent of the newsprint market. We often talk about a company being too big to fail. In forestry, I would say that AbitibiBowater is too big to fail because the consequences would be astounding. AbitibiBowater is about more than newsprint and would need help to redirect its activities to be more sustainable in the future. This help could come in the form of loans and loan guarantees under, for example, DIP financing to ensure that governments will not be left on the hook and will be in a position to contribute.

I would like to mention that the $100-million contribution from Quebec has been challenged by the Coalition for Fair Lumber Imports, which will challenge anything that any government does. If you are afraid of what they are saying and afraid of the U.S. reaction, you have to understand that the batting average of the Coalition for Fair Lumber Imports is about 1 in 15. They challenge everything and hope that something will stick eventually. Solid legal advice obtained by the industry demonstrates that this is completely legitimate and is not considered an illegal subsidy to the industry. The federal government is in a similar position to do the same.

Senator Baker: Mr. Matters, do you care to comment?

Mr. Matters: With the committee's indulgence, I will add to that response. Governments have a critical role to play when unique crises hit, but we also have to look long term, although it is important to try to assist.

I will use the auto industry as an analogy. It is important to ensure that we have Canadian jobs producing auto parts and cars in Canada, but it makes no sense for Canadian taxpayers to bail out General Motors if in the future GM will import cars only from countries such as South Korea, Japan, et cetera. Governments have a significant role to play but they have to ensure that a company has a long-term plan to employ Canadians if we are to use Canadian tax dollars to assist their industry.

With respect to log exports, British Columbia established a round table on forestry. I made a presentation to the Minister of Forests and Range and I attended the round table. Our four-point plan dealt with the export tax. We asked, and in separate meetings I privately asked, the Minister of Forests in British Columbia to arrange meetings with the appropriate people here in Ottawa so that we can work together on the issue of exports from private lands. There is a difference between private lands and public lands in terms of federal jurisdiction.

In terms of the public lands, we had no distinction so it would apply to the private lands. Hence, we wanted to communicate with Ottawa. We wanted an equivalency tax. There is a system in British Columbia, where most log exports from Canada originate, but it is a sham process. Even the ministry admits that it needs some work.

We suggested applying an equivalency tax, which was equal to the difference between the price at which the log was sold domestically and the export price. In that way, there would be no particular incentive to export logs only because they could be sold domestically and remain financially viable. That would take away the need for these provincial surplus tests for exports. If an equivalency tax were placed on log exports from public lands in British Columbia and if we had the federal government's cooperation to do that on private lands, then we think it would go a long way to stemming the problem.

We have to understand that the logs we are exporting, by and large, are the best grade A logs that we have. People from Japan do not buy our junk. They will not ship our junk across the ocean so they can put them through their facilities to make garbage. Our mills have some competitive disadvantages for a whole host of reasons, such as Mr. Caron talked about, including lack of investment. If we could put our best logs through our existing mills, the recovery factor in the productivity of our mills would jump. That is the tack we have taken on log exports.

Senator Cordy: Bill C-36 passed both Houses of Parliament and received Royal Assent. Yet, you said that it is not available to draw on when you attempt to protect the pensions of your workers.

Mr. Caron: That is correct. AbitibiBowater is asking for protection under the CCAA, which has not yet implemented the changes found in Bill C-36.

The bill was adopted in December 2007 and the Governor-in-Council implemented a couple of these recommendations that modify, among others, the Wage Earners Protection Act, the Bankruptcy and Insolvency Act, but not the CCAA.

Senator Cordy: I find that absolutely astounding and am truly shocked by this information. In this time of economic downturn, when it is most needed, it is not available. I assumed that because it had passed both Houses and received Royal Assent, it was the law. We will have to look into that.

In terms of the federal role, you both talked about the federal vision. We know that this area entails provincial and federal jurisdictions so everyone is stepping lightly. However, what is the main role that the federal government should play in the forestry industry? What is the vision that you both talked about?

Mr. Matters: I talked about the Canadian preference. I think that everyone in this room will agree that we need employment. We can talk about needing a healthy industry and companies to make money so they can invest. But if they invest all their profits in the U.S., as we have seen happen in British Columbia, it does not do much good here in Canada. We want to refocus everything to ensure that we have employment in Canada.

I have not bounced this off our researchers yet but what can the federal government do about taxation? One suggestion is to have a taxation system based on value-added in terms of employment. For example, when one company cuts down a tree and sells it, it makes $10 and is taxed on $10. When the other company cuts down a tree, saws the tree, remanufacturers the tree, burns energy from the tree, it still makes $10 and is taxed in the same way on that $10. The two companies are taxed the same. Why would we not have a tax system that rewarded the company that included all the value-added employment and created 15 times as many jobs? That is a valuable idea for the federal government to consider.

Mr. Caron: I would suggest that there is a role for the federal government because the problem is too big for the provinces. Quebec cannot give more than $100 million, and Ontario has already said that it cannot cover the infinite liabilities of the pension plans for autoworkers, and probably not for forestry workers.

There is a role to play for the federal government on two fronts. First, this is a matter of international trade and we have a desire to export. This is not for domestic consumption only. We produce for outside markets.

The second element is that we need to have the provinces involved. They can be involved with the federal government. Of all the provinces, Quebec is in a joint committee right now to try to solve the problems of forestry.

I think that such a joint committee between the provincial and federal ministers of natural resources should be implemented in all provinces, not just in Quebec. We were quite surprised that it was implemented in only one province. We are happy to see that committee, but we do not think it will go very far until every province and the federal government are involved in the problem.

Senator Housakos: Welcome this morning to our guests. I have some pretty strong views of why we are in this mess, and I would like you to comment after I express my views. I want to know if you are in agreement and if not, I would like to hear your comments.

My view is simple, and sometimes I think the simpler the answer and the less complicated, the more you get to the root of the problem. We were dependent for too long a time on a booming U.S. market. We were too long dependent on a 70-cent dollar back in the 1990s. We had an industry, because of those two factors, that got too fat and too comfortable. As a result, they did not diversify. They did not become innovative and prepare for the downtimes that we are facing now. From some of the research and reading I have done, it would appear that during the boom period, the pulp and paper industry had the most atrocious percentage of reinvestment in research and development compared to other Canadian industries.

I believe those are some of the factors that have made the downturn and recession probably hurt more in the forestry industry than any other Canadian industry. I would like to have your comments. I am also very interested in your vision of this downturn or recession. What is the timeline, from your point of view? Do you think this will be prolonged? Do you think this will be short-lived?

I am looking at three areas. We have the reason why we are in the mess we are in, which I just outlined. We have what we need to do to get out of this mess, and unfortunately, like everything we have done in this industry and probably in other areas as well, we are too late to deal with it. By the time we figure that out what to do with it, God willing we will be out of this issue and back on our way. Then we have this human nature issue that when we get back on our way, we forget how painful the last few years were and we go back to our habits.

The ultimate question is the third issue or element. Once this is all said and done, I would like to see this committee come up with solutions where, in the future, when we have these downturns, they become more bearable for labour and industry and are not as painful as they are right now. If you are well prepared, you can deal with it.

I would like to know your vision from labour's point of view. Is labour equally responsible, along with management, for some of the reasons the industry is suffering? Could you have done something more proactive to sensitize management in terms of what was coming? What is your vision in terms of the long-term future of the industry? What is labour doing to better prepare your membership, which is actually going through very tough times?

The ultimate question is, when the industry rebounds, will the industry be able to absorb all these people back like they did 10 years ago, or will we still have individuals that, even though the industry has bounced back, have been forgotten because we have not planned for it?

Mr. Caron: As to the origins of the problems, I am in agreement with most of what you mentioned. Yes, the industry has failed in reinvesting and recapitalizing, failed to invest sufficiently in research and development, and sat on the 70'cent or even for a long time a 60-cent or 65-cent dollar.

That being said, there is a future for the industry. Paper and wood are environmentally sound products. If you are looking at building something with either wood or concrete, wood actually makes a lot more sense in terms of carbon usage, and it is stocking carbon as well. Concrete uses carbon in its production. There is an environmental element to wood. There is actually much to be said about the future of wood and wood products as well if the industry actually turns around and adapts to new market realities, which it has failed to do so far.

What can we do about this? Should we just give up on the industry and say it is a sunset industry without a future? That is not true, it has a future. We have the resources. The industry has made environmental mistakes in the past by clear-cutting and by not getting on the sustainability bandwagon early enough, but it can learn from its mistakes. Let us face it: Right now, the industry represents the livelihood of over 300,000 Canadians in direct jobs and over 800,000 indirect jobs. It is very important.

The auto sector is close to large centres. This is why we hear more about the auto industry. The forestry sector is in far-away communities, far from the media centres, and so the problems receive less coverage. If the forestry industry is abandoned, then those communities that are more isolated are also abandoned, because in many instances it represents their main livelihood.

I will finish by saying that labour has done its part. Our members, especially in AbitibiBowater mills, have brought forth ideas for local innovations and changes to local collective agreements. These changes are worth hundreds of millions of dollars. I do not have examples with me this morning, but I would be happy to forward them to the committee.

Right now, we are doing our part by trying to help companies with a new plan to restructure the private pension plans to ensure that it will not be a liability for them in the future without endangering the future of the workers. We are about to find a solution for this problem. I would say we are doing our part.

Senator Mahovlich: Thank you, gentlemen, for appearing before this committee. My question is about the pine beetle. The federal government provided $400 million a few years ago to stop this infestation. Is the pine beetle stopped, or is it continuing across Canada?

Mr. Matters: Luckily, we had a bit of an early cold snap this year. The tests are not conclusive yet. There was early anecdotal evidence that the spread would probably stop because there was a significant die-off. That was early. We have not seen the final numbers yet to prove that to be the case.

Senator Mahovlich: Have we done enough research to stop this infestation, or is it only the cold weather that can stop the pine beetle?

Mr. Matters: It is basically just the cold weather. There is a whole long answer to that, and I would love to talk to you about it, but we need cold weather early in the year.

Senator Mahovlich: That is the only hope we have?

Mr. Matters: Yes.

Senator Mercer: Not global warming, but global cooling.

Senator Mahovlich: On positive thing is that some of the lumber has been used for the roof of the oval building in Vancouver, and it looks darn good.

Mr. Matters: I know you had some discussions with others and they were talking about marketing and highlighted that building. There are some fantastic things being done now, but we are doing it all piecemeal on the engineering side. There is a whole future to the forestry industry of wood products.

Senator Duffy: Mr. Matters, your union operates on both sides of the Canada-U.S. border. I am proud to say the steel workers have sensitized their brothers and sisters in the United States, with people like Lynn Williams who have come from Canada and have led the international.

I would like to hear your take on where we will go down the road. We have a new president in the White House. We had a mood of protectionism during the last election campaign.

What is your union doing to explain to your colleagues on the other side of the border that the kinds of tactics we are seeing from the fair lumber imports people and so on are really deleterious to a mutually productive relationship on both sides for people who work for a living?

Mr. Matters: Thank you very much for that critical question. The existing president of our union is, in fact, Leo Gerard, who many of you will know is from Sudbury.

Senator Poulin: He is another one of our stars from Northern Ontario. We have not only Frank Mahovlich as a star.

Mr. Matters: Yes, exactly. With respect to the U.S. and the Buy America program, we endorse it 100 per cent. Let me explain why. There is a piece of the puzzle that the Canadian government is missing; that is, buy Canadian. We are an export nation. If the U.S does not do well, we do not do well.

For example, in the auto industry, the United Steelworkers has as many people working as a result of the auto industry as the auto workers do. We make the steel, rubber, glass and many components. We simply do not have the high profile because we are not in the large centres.

The protectionist law on the books in the U.S. is really not a new law. I am sure you understand that. It reinforces existing laws.

Why the heck would anyone use their tax dollars to support an offshore industry? I will not pick a country. Why do we use our tax dollars to support an industry offshore with this bailout that no one wants, but we have to do it? Why would we not ensure our workers benefit from that since we are doing this to ensure our workers work to keep the economy going?

Our union is trying to promote the buy Canadian aspect. There is no reason our government cannot do the same thing as the Americans. It is not protectionism.

Protectionism is a word that free traders want to use. It is the free traders that got us into this economic mess by taking all our production, manufacturing, middle class community-sustaining jobs and shipping them offshore. If we do not have Canadians working, we have a real problem.

Yes, our international union has a Buy America program. If Americans work, Canadians work. We supply the raw materials and the basics. We should be doing the same thing to ensure our tax dollars benefit Canadians to the greatest extent possible.

Senator Duffy: Is that tide in America abating or will it get stronger under President Obama?

Mr. Matters: As the economy changes, there are enough indicators that I think we have hit the bottom. I do not expect us to rocket out of it. However, I hope that removes much of the pressure for protectionism.

The Deputy Chair: You have given us some very interesting thoughts today. We will consider them and it will help us with our report when it comes out. Thank you.

Honourable senators, we will continue to our second panel. From the Canadian Hardwood Plywood and Veneer Association we have Steve Umansky, President; Michel Tremblay, Executive Vice-President; Robert Kiefer, Vice'President, Government Relations, Commonwealth Plywood Ltd; and Christian Noël, General Manager, Columbia Forest Products.

Steve Umansky, President, Canadian Hardwood Plywood and Veneer Association: Good morning. As the Chair mentioned, my name is Steve Umansky, President of the Canadian Hardwood Plywood and Veneer Association, CHPVA. On behalf of our membership, I would like to thank you for giving us the opportunity to speak with you today and to give you our views and maybe a few recommendations about what is happening out there.

Our association represents 50 companies that manufacture and harvest hardwood veneer logs. We bring to market hardwood plywood and hardwood veneer into Canada, the United States and the rest of the world. Most of these companies are located in the provinces of Quebec and Ontario.

We have four members that practice harvesting operations in Quebec and Ontario. I have brought two of the key members of the association with me today. They are Mr. Robert Kiefer from Commonwealth Plywood Ltd and Mr. Christian Noël from Columbia Forest Products. Mr. Kiefer and Mr. Noël practice the harvesting operations in Quebec and Ontario respectively.

I bring a collective message to the committee from our membership, to whom I speak on a regular basis. I would like you to imagine 50 companies behind me today shouting in unison, ``We need your help, committee." ``We need your help, Canadian government, not in 2010, now." It is very important that message gets through today. My membership was adamant that I pass that message on to the committee.

There would be companies behind me now saying that it will not even matter in 2010 what happens with the recommendations. Some companies will not even make it to 2010 because they are at the breaking point now going into the summer. Other companies will tell you they are at 10 per cent or at 20 per cent of production capacity and thinking about taking 8 weeks to 12 weeks shut-down during the summer period.

I am a small business owner in Victoriaville, Quebec. Above and beyond the recommendations today, my biggest problem is telling my employees that we will be closed for a large part of the summer. Given the several soft years we have had, employment insurance for some of these employees will run out during the summer. I do not have any illusions about retaining these employees. They will have to do what they have to do. Our work is highly specialized in bringing these products to market.

We want to focus on solutions with two recommendations. We need the harvest hardwood veneer logs in Quebec and Ontario for the members with forestry operations so they do not lose their shirts when they go into the forest. That is one of our major problems in bringing a competitive product to market. The second major issue is not new: We sincerely ask you to level the playing field with respect to Asian imports. Over the last five or six years I have witnessed this problem that has completely devastated large segments of the marketplace.

[Translation]

I will now hand the floor over to Mr. Robert Kiefer, from Commonwealth Plywood, who will give you an overview of the forestry crisis in Quebec.

Robert Kiefer, Vice-President, Government Relations, Commonwealth Plywood Ltd., Canadian Hardwood Plywood and Veneer Association: Madam Chair, members of the committee, I would like to thank you for having me here. I will begin with a quick aside: the company I work for, Commonwealth Plywood, is a Quebec company, which belongs to Anglo-Quebecers who are proud to be both Canadian and Quebecers. They have been investing for 65 years, mainly in Quebec, a little in Ontario, and very little in the United States; they reinvest their profits in Quebec and in Ontario; they generate new jobs in Quebec and in Ontario and carry out research and development in both Quebec and Ontario. They are not a multinational company, they do not export their profits to tax havens or the United States; they could have done so, but have always refused; they are proud of their roots.

The Quebec forest is primarily resinous forest, with about 15 per cent hardwood and mixed-wood forest. And that is where we work. We do not work in the resinous forest, we work in hardwood and mixed-wood forest. In order to work in hardwood and in mixed-wood forests, there needs to be high-level integration between various stakeholders. When I refer to high-level integration between stakeholders, I mean that when I decide to cut down a tree, I do so because I think that there is going to be a log that I will be able to use for rotary cutting; generally speaking, there is only one single log in a tree, but the tree is a lot bigger than the log that I get from it.

What is the rest of the tree used for? Paper manufacturing, hardboard plants, hardwood sawmills; and if I did not have those partners, I could not go and get the log which I use for veneering. A veneer log, per cubic metre, to give you an idea of the economic impact it has on employment, generates between 9 to 12 times more jobs than the same cubic metre used to make pulp. And the reason for this is that human handling is absolutely crucial in order to produce panels for decorating, making doors, cabinets, and furniture.

The current situation in Quebec is as follows. If I am in the forestry sector, when I have buyers for the other products that I will not use, the price that I have to sell them the fibre is too high. Because my harvesting costs, and I do not make any profit on that, are such that when I sell the cubic metre of pulp that I got with the veneer log, when I sell this to Domtar, AbitibiBowater, Tembec, or other companies, they can get it elsewhere for 20 to 30 per cent less.

There are some people from Domtar the other day who told me that it costs them less to import pulp from Brazil, including transportation costs, than to buy my pulp. And let us get something straight here: I do not make any profit! And the same is true for panels.

And in the mixed-wood forest, I get resinous wood, which means that the spruce next to the yellow birch costs me more in the mixed-wood forest than if I were in a pure softwood forest. Because in the pure softwood forest, harvesting methods are a lot less expensive. In the mixed-wood forest, you will never see the impact of human beings, because the rules are that I take one out of every three trees, and paint it ahead of time; there are a whole lot of criteria to be met, and that costs a lot.

So the current situation in which we find ourselves in Quebec is the following: if I am in the forest getting logs that I process into veneer wood, which will generate jobs, I will no longer have any takers for the pulp. In the Gatineau region, for example, right near here, Smurfit closed its doors, and there is only Fraser left. And we are not even sure that they are going to make it. In Timiskaming, Tembec is not at all sure that it will continue its forestry operations this year, and the chance of my selling them pulp is virtually nil. And so that leaves Domtar, and only if we are very nice to them and cut our prices. It also leaves Smurfit-Stone, in Mauricie. And so the fact is, that against all these odds, if I decide to go to the forest, I am forced to face losses on the wood that I cannot use because it is not the quality I need for veneering purposes. And that accounts to 75 per cent of my harvest. So what I lose on this 75 per cent affects the 25 per cent that I can work with, and no longer makes that profitable.

So it is no longer profitable to harvest hardwood and mixed-wood forest. And that is what our main demand stems from, and there are historical reasons that you will see in our presentation which explains in part why the hardwood forest sector has suffered. In order to get through the crisis, when the markets pick up, when the price of veneer in the United States rises, then we will be able to cope, I am sure.

Two years ago, Commonwealth Plywood Ltd. employed 2500 workers throughout the province of Quebec. They were present in Belleterre, in the Timiskaming region, where they operated the only mill, and in Tea Lake, Rapides-des'Joachim; if the company were to leave, the town would disappear.

Further, we cannot compete with Asian countries. The Asians import their wood from everywhere, and they do so without tracing it back to its source — you know this as well as I do. Chinese labour costs are negligible, and the Chinese government subsidizes the industry to a large extent, which means that when their wood reaches our markets, we cannot compete with it. The United States do it, and so does Europe, so why cannot Canada impose tariffs? China exports four times as many wood products to Canada as Canada does to China. We have the means to do something about the situation, not the Chinese.

Christian Noël, General Manager, Columbia Forest Products, Canadian Hardwood Plywood and Veneer Association: The situation Mr. Kiefer has described also applies to Ontario. However, I would like to add that it is crucial for our industry to diversify if the regions are to survive. Of course, the industry needs to be healthy and needs to streamline its operations if it is to survive in the future.

If you look at the transportation corridors comprised of Highway 17 and Highway 11 in Northern Ontario, you will notice that the surviving plants are much smaller today than they were five years ago. When I say much smaller, I am referring to the fact that about 10,000 jobs have been lost along those two highways alone. This is very significant.

Many communities are at risk: they are still healthy today, but they need support to diversify their activities so they can continue to operate in the future. In the forestry industry, you need partners, be they softwood lumber companies or pulp and paper mills. So you need a consortium of players to harvest our natural resources the best way possible, while respecting environmental legislation and also creating a diversity of activities, which is absolutely necessary. All stakeholders have to work together to achieve this. If pulp and paper mills or softwood lumber companies do not survive, there is no doubt that the plywood and veneer sector will be at risk.

On the other hand, on the import front, we have to add the value-added, but that area can be regulated, which would be a good thing. By regulation, I am referring to the environment, pollution, and health and safety. We need to focus our attention on all of these things. We employ a lot of people, and we want to save their jobs, because our people are important to us. Everybody has to be treated fairly and in the same way. But at a certain point, our products cannot compete anymore because our costs are too high. The environment is extremely important to workers' health and safety, but what are the working conditions of employees in other countries from which we import products? This serious issue should be addressed.

[English]

The Deputy Chair: Thank you very much. Senators are eager to ask questions.

Senator Mercer: The issues are complex, as we have heard from you and from the previous witnesses. Mr. Umansky, if you were trying to frighten us, you probably did by saying that in 2010 it may be too late. It is timely, and indeed maybe we should think about an interim report at some point that will address those issues in advance, because it will be some time before we get to our final report. That is not a commitment, but a suggestion.

You talked about a couple of recommendations, and I was unclear exactly what those two recommendations were although I tried to listen carefully. You talked about harvesting logs economically and levelling the playing field with respect to Asian imports, but what are the specifics? What can we do to help now or in the future? You need to be a little more specific if you want us to act now and make recommendations now. We do not have time to dance around if the issue is that serious.

Mr. Umansky: That is a very good point. We discussed this last night regarding the two very broad recommendations. We all agreed that tackling Asian import tariffs on hardwood products is not a simple subject. Many variables come into play.

As Mr. Kiefer and Mr. Noël mentioned, I do see a much quicker action that can be taken by this committee in the forests. The committee could take immediate action by funding the provincial governments to help the Quebec and Ontario forestry.

Senator Mercer: You talk about helping in the forest. What specifically can the federal government do?

Mr. Kiefer: I will invite you to go to any store downtown and compare the price of a table made in China with comparable materials, if there are any left, to a table that has been made either in Quebec or Ontario. Senator Mercer, the price difference is probably one to two. That is the gap. We are saying, let us stop it. The Americans have put up tariffs for softwood lumber that nowhere compares to the situation we have with the products of Southeast Asia. Let us put up some tariffs. We will not suffer. They are sending four times as many products here as we are sending the other way. Why be afraid? The Europeans have done it. The Americans never hesitate to do it. Let us put out a bit of pressure. That would be about 30 per cent tariff.

Senator Mercer: A 30 per cent tariff.

Mr. Kiefer: Yes, a 30 per cent tariff on all wood products coming from Southeast Asia.

Senator Mercer: You present government with another problem. I am not defending it, but I am making a comment. In other committees and other places, we are talking about increasing our trade with Asia.

This would create a difficult situation for the Minister of International Trade, government and business. I represent a part of the country where we have a major port and Asian trade comes into that port. It is difficult for us to try to expand our trade with Asia while at the same time we are imposing tariffs, as you propose.

I am sympathetic and I like what you are saying, but I am trying to get around the concept of how we help you by not hurting the dockworker in Halifax, Vancouver, Prince Rupert or Montreal?

Mr. Kiefer: There are many ways to raise tariffs including non-monetary tariffs. My target is 30 per cent, whether it is in money or other forms.

For example, two years ago, the Russians decided that all raw material coming out of Siberia, including cherry and yellow birch, would have tariffs at a level that would allow the Russians to start building mills in Siberia. It worked and the Chinese are still buying from them. The Chinese need as much first transformation product as possible. They do not want much second transformation because they want to do it at home and they certainly do not want third transformation products.

Canada is in a position where we can impose because China owes us. We do not owe them. They export four times more products here. Will they stop sending those products to punish us? I doubt it.

We could try it. It needs to be discussed. However, we cannot stay as we are now. Everything is closing down and it will not stop.

Senator Mercer: I am on your side, but I also have to think about my neighbour who is a dockworker.

Mr. Kiefer: I do not perceive you as an adversary, Senator Mercer.

Michel Tremblay, Executive Vice-President, Canadian Hardwood Plywood and Veneer Association: Senators, I want to clarify. It is important to understand that we use only a portion of what we find in a forest. However, as Mr. Kiefer indicated, you have to harvest everything to access that portion. Mr. Umansky was proposing government assistance to ensure that all concerned partners are committed to working together. That means they do not have a choice. For example, if only the paper mill goes in and helps itself to the buffet and forgets about other partners, we are not competitive to go into that forest as Mr. Kiefer indicated.

Senator Mercer: You are talking about an integration of the industry meaning that veneer people would work with pulp and paper people and with other softwood lumber people, et cetera. It would include all the people involved. My God, it is logic.

Senator Eaton: I can feel how sad and worried all of you are; it transmits quickly across the table.

I will change course a little. Yesterday, we heard from a person who makes kitchen cabinets and bathroom vanities. She said that the veneer from Asia that we can buy in big box stores is now very thin. Instead of imposing a tariff, could we not insist that the veneer is thicker? Could we not change the building or quality codes?

Mr. Umansky: In a booming market, that could be requested immediately. You can bring it to the table. With what has been happening in the market for the last four to six years, it has become a price business. The actual decorative portion of the product from China is much thinner.

Senator Eaton: She says the glue seeps through and cracks as a consequence.

Mr. Umansky: Let me be very straight with you. Kitchen cabinet manufacturers are buying that product in masses because of price pressures in the market.

Senator Eaton: Would it work if you could insist on certain quality standards that would be to your advantage instead of creating a tariff?

Mr. Noël: We could establish rules to control formaldehyde levels, stain and type of varnish that would bring the quality of products to a certain level.

[Translation]

Senator Eaton: That raises standards.

Mr. Noël: They will meet the exact same standards as do Canadian manufacturers today.

[English]

Senator Eaton: It establishes a level playing field. We are saying this is what we want for our consumers.

Are we as good in design, delivery and manufacturing as we could be in the veneer items such as kitchen cabinets and furniture? Have we kept that aspect of the industry as current as possible?

Mr. Kiefer: We were on top until three or four years ago. Many companies in Quebec and Ontario specialize in cabinet construction and furniture. Then, the Chinese arrived.

The Canadian manufacturers had a choice: Either bring down the quality or go into niche markets, which some have done. That tactic has proven to be middle of the road. They invested in research and development, in innovation and in new design. However, they cannot and they could not compete with the Chinese. They either closed down or transferred production to China, which is what most of them did.

I hear people saying that we have to move to second and third transformation. Quebec and Ontario have been in second and third transformation for at least 50 years. This is not new; we were there and we are losing it. Outside of very specialized niche markets, we do not have the market and quality of buyers. Canada has a population of a few tens of millions, and the Americans are not Europeans. That solution works in Europe with the Italians, but their market is 400 million people. The solution does not work. We are losing the current battle.

Senator Housakos: Mr. Umansky, is it fair to say that between 2000 and 2007 your members and industry enjoyed a good run?

Mr. Umansky: I would agree with half.

Senator Housakos: It was half of a good run?

Mr. Umansky: It was from 2000 to 2003.

Senator Housakos: Are you saying this problem has been magnified over the last five or six years?

Mr. Umansky: It has been magnified over the last five or six years. With the recent downturn, the stronger Canadian dollar over the last year and exports into the United States, I would say the perfect storm is taking place now. In my type of business, we will not even think about producing full bore.

Senator Housakos: I understand.

The point I am trying to make is that I sense we have all moved to the tangent of cheap labour in China.

Obviously it is a factor, but it is blown way out of proportion. China has been developing their cheap labour market for 15 years, certainly at the expense of North America. Yet, during that time, Canada has sustained some of the lowest unemployment rates seen over the last 40 years. Furthermore, some of the jobs we have lost to China are jobs that Canadians do not want, quite frankly.

The garment industry in my city of Montreal took a beating a while back when manufacturers decided to go offshore. Obviously, many people lost jobs, and many of them were approaching retirement age. Yet today, there is not a long line of people in Montreal waiting to work in the garment industry at $9 per hour. We found other ways to evolve and diversify to reach the markets. I hope that is not the case for your industry, which has potential.

I am of the view that the industry has been hurt more by the downturn in the U.S. economy than by the effects of cheap labour in China. I still believe that there is a market for high-quality, cutting-edge products in North America where people are willing to pay a little more for them.

I understand your pain and your call for government help now before 2010 because by then it will be too late. If you, as a businessman, had unlimited sources of money, would you take that money and invest it in your industry? Do you see a future in that industry? Government has to put its money where there will be a return on its investment.

Again, no insult intended in the question. I am trying to clarify this because you are the expert and know the market better than anyone knows it. In a cerebral way, do you see a future for this industry?

Mr. Umansky: Yes, without a doubt. Your first point was about people not wanting the kinds of jobs that my companies' members offer.

Senator Housakos: I was not referring specifically to your industry. I was talking generally. Currently, the Chinese market does not produce what you produce in terms of quality. I understand, and the Chinese do not sell for the same price. It is my view that there is a market in North America and around the world for a higher-quality product at a more expensive price. That should be the focus.

Mr. Tremblay: As Mr. Kiefer mentioned, many companies have survived by subcontracting, building plants and creating jobs in China for all case goods at the base. Yes, through our great design, we might be able to produce the cabinet doors or high-end bedroom sets, for example, but all of the interiors and sides are subcontracted.

The industries on the south shore in the Quebec City region bring in the product, change the stamp on it and put it down.

[Translation]

Senator Eaton: Do we sell them our wood?

Mr. Tremblay: Exactly, we sell our logs, but my colleagues are in a better position to talk to you about that.

Mr. Kiefer: I never sell logs, I process them.

[English]

Senator Duffy: Senator Housakos made the point that despite the downturn in auto sales with GM and Chrysler in deep trouble, people are buying BMWs, Mercedes and other high-end vehicles. You gentlemen make the BMWs and Mercedes of furniture, and all Canadians should be proud to buy it. In some ways, the consumer should be aware that when they go to certain stores, they are not supporting anything Canadian except the supply chain that brings the product from the ship to the store.

Mr. Kiefer, you talked about being able to utilize only 25 per cent of what you harvest. I had in mind that we were moving into an area they call ``selective logging." Can you tell us a bit about how that works in hardwood harvesting and why there would not be, as Senator Mercer suggested, a more integrated approach?

Mr. Kiefer: I will try to not be too technical because it is a highly technical process.

[Translation]

Yes, we do selective logging. In Quebec and in Ontario the legislation is not exactly the same, but we use the same approach which involves ensuring that in the long run, the forest will retain the same ability to produce quality trees.

So in principle, the act says we are entitled to harvest about 30 per cent, 25 per cent of the trees within a hectare. And certain rules must be followed. You do not go to the designated area, cut down the first 15 trees and leave; it does not work that way. There are rules to be followed, some trees may be harvested and others may not. A tree marker is sent in to identify the trees that can be harvested. Selective logging is based on that method. We have been doing that for several years.

The rules are increasingly difficult and demanding, to the extent that my boss, the president of the company, tends to say: whereas a tomato grower is ready to harvest his crop when the tomatoes are ripe and ready to go on the market, I am forced to wait until the tomato is rotten, on the ground, when the tree has already lost 50 per cent of its value, whereas I am not allowed to touch tomatoes at their peak. That debate is currently underway in Quebec and probably in Ontario too. When must a tree be harvested in order to make quality products?

Bear in mind that we are at the top of food chain. We work only with fibres of the highest quality, because no one wants a big knot in a table. It is as simple as that. I harvest under general rules only 25 per cent of lumber, for sawing and peeling. Of the 25 per cent, a mere 5 per cent is peeling and the rest is sawing, and the 75 per cent is for panels, pulp or residue to make pellets or other products. What I do is very costly. It is much simpler to go into a coniferous forest, identify an area, clear cut it and replant. The costs are very different, as you can imagine. Then, I cannot sell. Does that answer your question?

[English]

Senator Duffy: Yes. You said that provincial regulations guide you in harvesting your trees. Is there a way to ameliorate those regulations that would allow your industry to become more profitable without the government imposing a tariff at the front end in Vancouver?

Mr. Kiefer: He has the same problem.

[Translation]

Mr. Noël: If we can use or add value to the part of a tree that is unusable, given the biomass, in terms of renewable energy, that would be a choice. I think that is something we could examine. Reducing energy costs would be beneficial. Today we are dependent upon fossil fuels. If we can reduce our dependency on that with renewable energy, there would be gains for the industry and the environment.

[English]

Senator Duffy: Does that help the veneer producers?

Mr. Kiefer: It will help, but the problem with the pellets in Quebec is that we are not equipped, although the government is beginning to check out the reactions of companies. To do that, a company would have to be quite large to be able to afford the expenditure, although we do not know what the final costs would be.

To produce pellets, you need to dry the wood first. You cannot take a tree trunk and grind it into pellets. It is not done that way. The drying process is expensive. Will we be able to produce it at a competitive price? We do not know yet. We are much too new at it.

To date, we have used residues from dried wood. To go into the drying business of making pellets, I am not sure it will be possible to make money or to at least break even.

Senator Duffy: I am trying to sort out the difference between the federal and provincial areas and how, if both levels of government work together, we could help make your life better. That is where I am going.

Mr. Kiefer: We need federal-provincial joint ventures to put in money, like you are doing with the auto industry.

Senator Mercer: You started to talk about using residual material for biomass or for wood pellets. We have already heard that there is a shortage of wood pellets, particularly in Atlantic Canada where wood pellets are being used for heating. These pellets have become extremely popular. I heat my home partially by wood but not with wood pellets. This winter, I saw sold out signs. Indeed, people going home for Christmas were asked to stop in Quebec or Ontario to buy wood pellets to take home because they were so hard to get at home. I understand the need to dry the wood and all that, but it seems to me there is an opportunity in these pellets.

Senator Mahovlich: Are we the only supplier to China for forest products? Who are our competitors?

Mr. Umansky: I did not understand the question. I am sorry.

Senator Mahovlich: When China needs wood, do they come to Canada, or do they go to Russia or the United States for their wood?

Mr. Umansky: For hardwood veneer logs to make the products that we make, I understand Russia is the largest importer into China. I do not know where the United States ranks, but I think it would be up there pretty high with the private landowners.

Mr. Tremblay: Private landowners in the U.S. send their logs to China to be transformed and then shipped back for sale in North America. There is an issue of illegal logging, but the Lacey Act in the United States is attempting to address that issue. The Russians are shipping large quantities of logs into Northern China to be transformed and shipped back. If you do not have to pay much for the log and you already have reasonably low wages you can sell your products at a low price than Canadian products. Their system pushes out of the price competition.

Mr. Umansky: As far as Canada exporting hardwood logs to China, I would have to say that is nil. I do not know if it is legal in first transformation to do that.

Senator Mahovlich: I see.

Mr. Kiefer: We do not do it.

Mr. Noël: There is a provincial regulation.

Senator Mahovlich: I have a home near an IKEA store, and IKEA sells more furniture than any other company in Canada, I would think. From what I can see, the traffic is just fantastic. Is their furniture made in China?

Mr. Kiefer: Vietnam is becoming a strong producer of IKEA components.

Senator Mahovlich: It is not made in Sweden?

Mr. Kiefer: The design and planning is, but the production or transformation is not.

Senator Cordy: I am looking at the whole issue of wood products imported by Canada from Asia, particularly China. It is not just furniture and veneers, but it goes into children's toys and any number of things, even patio furniture that is made out of iron. It is great to say that we should all be buying Canadian goods, which we should be, but polling shows that while Canadians think that way, when it comes to writing the cheque or using their Visa card, they will look for price as their number one issue. The products coming in from China are not up to Canadian standards.

Placing tariffs is one way to deal with the problem, and public relations and marketing is another way, but we would have to change the mindset of Canadians so they will spend more money for a quality product. For some families, particularly in this economic downturn, that is not the possible. As Senator Eaton said, it is a very sad issue because Canadian workers are suffering.

Aside from tariffs and marketing, what do we do? It is a very troubling situation.

Mr. Kiefer, you also said we are bringing in four times more from China than we are exporting to China. How do we balance the trade issue in that regard?

Mr. Kiefer: I do not want to take the whole time answering your question, because the question is multi-faceted, but just on your last remark, we will have to be better, but we will also have to show the Southeast Asian exporters that the rules should be equal. Among the many reasons why they can sell their products so cheap is that they have low wages. In some cases, they are not paying for the wood. In other instances, we do not know where the wood comes from; it is ``black wood," as in black market.

We have to obey certain laws. I have provincial laws in Quebec and Christian has provincial laws in Ontario. We have rules concerning the cutting of a tree. If China had to follow the same rules, the market would be much more equal. I produce as good a product as does China. That is what I was talking about when I talked about tariffs. It does not have to be money, but let us impose on them the same rules that we impose on ourselves, and I think the market would change.

Senator Mercer: Mr. Kiefer, you make an interesting suggestion, but I am having a difficult time visualizing how we would do this. If we were to impose upon the Chinese exporters the same regulations that we have on our manufacturers in harvesting wood, how do we ever police that? If we said to Vietnam or China that their wood needs to be harvested in this way, I can assure you that they will tell you tomorrow that is exactly the way it is done. How do we prove them wrong?

Mr. Kiefer: I will not discuss manpower, but I will give you an example. There are issues with the environment and the black market of trees in China. The Japanese, 18 months or two years ago, passed rulings that obliged all Chinese wood products coming into Japan to have an emission level for formaldehyde and a chain of custody. The Chinese had to prove the chain of custody, which means they had to show where the tree came from and that it was legally harvested. If the Chinese did not prove the chain of custody the Japanese would not accept the product. What do you know? The Chinese agreed.

Senator Mercer: You have given me exactly what I needed. I could not conceive of what you were talking about, but that is a good, concrete example.

Mr. Kiefer: We could also do it with manpower and the wages.

Senator Cordy: When you look at children's toys, we did it with the lead in the paint. When we said, ``Sorry, these toy products are not coming in because there is lead in the paint," it worked.

Senator Eaton: If we did the provenance of the trees the way Japan has and we set certain quality and veneer standards, we would not have to impose tariffs.

Senator Duffy: Madam Chair, I wonder if our witnesses who have given us this bonanza of an idea, could send us in writing a list of some of the non-tariff barriers, shall we say regulations, which other countries impose. The regulations will have the effect of making imported products safer, greener, more environmentally friendly, et cetera.

Could you give us that list of things like formaldehyde emissions, the size of the veneer, and the safety issues involved?

Mr. Kiefer: It is not just the environment, but the workers as well.

Senator Duffy: Absolutely. If you could give us that list, that would be very helpful to the committee.

The Deputy Chair: Thank you very much, colleagues. This has been a very interesting meeting. We have heard a lot of new information. We would be glad to have any further information that you could give to us. It has been a good meeting, but a troubling meeting because of the issue itself. We are glad that you took the time to come and join us.

Colleagues, you have been right on track today. We have had good questions and good answers. Thank you very much.

(The committee adjourned.)


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