Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue 3 - Evidence - Meeting of April 22, 2010
OTTAWA, Thursday, April 22, 2010
The Standing Senate Committee on Agriculture and Forestry met this day at 8:05 a.m. to study the current state and future of Canada's forest sector; and for the consideration of a draft budget.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: Honourable senators, good morning. I declare this meeting of the Standing Senate Committee on Agriculture and Forestry in session, and I welcome you all here.
[Translation]
I am Senator Percy Mockler, Chair of the Committee.
[English]
Witnesses, the meeting today follows up on Tuesday's meeting on the Softwood Lumber Agreement.
[Translation]
This morning we have two major experts with us. The committee wishes to study the causes and origins of the current forestry crisis so that it can recommend partnership solutions to the government among all the stakeholders involved, and so these experts have been invited to provide information on this objective and on how to achieve it.
We have Luc Bouthillier, Professor, Department of Wood and Forest Science, Faculty of Forestry and Geomatics, Laval University. Thank you for appearing before us this morning, for accepting our invitation.
[English]
We also have Daowei Zhang, Professor, Forest Economics and Policy, School of Forestry and Wildlife Sciences, at Auburn University in Alabama, U.S.A. Thank you both for accepting our invitation to help us fulfill our mandate.
I now invite you to make your presentation, which will be followed by questions.
[Translation]
Luc Bouthillier, Professor, Department of Wood and Forest Science, Faculty of Forestry and Geomatics, Laval University, as an individual: Mr. Chair, thank you, I am very happy to be with you this morning to celebrate Earth Day. It is a privilege to meet you.
[English]
I am happy to be here to share my vision and share my passion for the forest, but above all, for people making their living from the forest and who enjoy that great inheritance, that great heritage we have in Canada.
[Translation]
I have been asked to tell the story of the Canada-U.S. softwood lumber dispute. The dispute has a complex history. We will look at the 2006 agreement, but before that I would like to go back further so that we can understand the past and look into the future.
Since I do not have much time — and I have just used up a few minutes — I am going to speak in French. I am going to try and talk slowly, but I apologize in advance to the interpreters because, good Francophone that I am, I am bound to get excited because this is an important subject!
First, the historical depth of the softwood lumber issue between Canada and the U.S. You know, we almost went to war with the U.S. over softwood lumber. It happened on the border between Maine and New Brunswick, when they wanted to move the border a bit farther to the north so as to include the valley of the Aroostook River because this valley was rich in wood. On either side, militias were lined up across from each other. Obviously, this is anecdotal, but it shows the importance of lumber in Canada-U.S. relations.
We have to recall that the first free trade deal with the U.S., which was called the Reciprocity Treaty, signed in 1866, was aimed basically at promoting the entry of Canadian lumber duty-free, without any tariffs. Then the treaty was revoked a few years later because the American West was now available, open. The Civil War was over and the American softwood lumber industry had to be stimulated. The best way to do so was to impose a tariff on the Canadian industry. So this protectionist reaction has always been around.
We must also recall that the American Government had an extremely interesting period of openness towards Canadian forest products while President Taft was in office, in 1911, when ``dollar diplomacy,'' as it was called, was practised. President Taft agreed that Canadian products could enter the country freely, without any tariffs, provided American capital was behind the manufacturing of such products in Canada.
This ``dollar diplomacy,'' which fostered Canadian industry, in both pulp and paper, and the lumber mills, worked very well up to the Great Depression of 1929. As of February 1930, the American Tariff Act abolished this privilege, and taxes were levied on Canadian softwood lumber and a lot of other products. Taxes were about 25 to 30 per cent of the value of the softwood lumber at the border. So the history of the dispute goes back a long way.
Let us talk now about what we are really interested in, that is, the agreement of 2006. The agreement was ratified by both countries in October 2006. It was also one in a series of disputes — as they say in English, Lumber 1, Lumber 2, Lumber 3 and Lumber 4. The 2006 agreement was what we call Lumber 4. Before getting to Lumber 4, let us talk about Lumber 1, 2 and 3.
The first contemporary softwood lumber battle was in 1982. A coalition of American softwood lumber producers found that the Canadian industry — we are referring here especially to the industry in B.C. — had too large a piece of the pie, was holding too large shares of the market, and so it invoked American trade laws to demand a levelling of the playing field. For these lumber producers, especially in the American West, the good performances of the Canadian industry could be explained basically by the fact that the Canadian industry enjoys the benefits of a public forest and that it is subsidized because the Crown does not require high enough stumpage fees.
In March 1983, the American administration, which was running both the International Trade Commission and the International Trade Administration, would conclude that the complaint was unfounded, basically because the American petitioners' file was poorly prepared. Which meant that they would try again in 1985. The coalition would submit another application and, in spite of the fact that the Reagan administration and the Mulroney government got along very well together, neither of them wanted to interfere in trade between Canada and the U.S.
The coalition has a good understanding of the American law this time, and the mechanism was triggered.
Obviously, American trade laws — now we have reached Lumber 2 — are special in that a presumption of guilt prevails. It is extremely important to understand that. As soon as there is a presumption of guilt, a tax is levied on you and, depending on how the investigation plays out, if you are found not guilty, the tax is removed. However, what happens more generally is that, with this presumption of guilt, you are taxed the maximum, and then the tax may be lowered as the case evolves.
In June 1986, the International Trade Commission of the American government found that the complaint was admissible, that the American industry was being harmed since the Canadian industry enjoyed an unfair advantage, which meant that it was practising unfair competition. They actually threatened to levy a tax of 27 per cent.
The Canadian government, in the coming months — especially following the action taken by the provincial governments of British Columbia and Quebec — would agree that, even if we were not guilty of unfair competition, the customer is always right and maybe it was better, instead of having a tariff imposed on it, to impose its own import tax as long as the provincial forestry regimes were not amended so that this appearance of unfair advantage might be cleared up.
So we have just got through the second episode — Lumber 2 — in the softwood lumber war of the 1980s.
In 1991, the Canadian government would announce to the Americans that the export tax was lifted since the forest ownership regimes in British Columbia, Ontario and Quebec — the three provinces concerned — were amended so that there was no longer this appearance of unfair competition.
And immediately, the Coalition for Fair Softwood Lumber Imports, this coalition of American softwood lumber producers that claimed to suffer from competition in the U.S. would launch a third action. This third action, on account of the presumption of guilt, meant a tax of 14.48 per cent and, further to discussion, in February 1996, it was concluded again that once again, even though Canada and the Canadian provinces did not regard themselves as guilty, they agreed that, for their best client, they could impose a constraint on themselves so as to continue to have access to the markets and, this time, instead of an export tax, quotas were imposed.
And a five-year period was given, once again, to improve the political regimes. They wanted to impose on every producer that exported to the U.S. a quota based on their past presence on the American market and on the idea that the Canadian industry, overall, could not have more than 33 per cent of the American market. Take careful note of this percentage, which is extremely important in our softwood lumber history.
Well, the quotas would be lifted in early 2001 and, as soon as the quotas were lifted — because once again the Canadian provinces amended the forest ownership regime so that the rules of the game were more comparable to those of the U.S. — the American industry, or some American softwood lumber producers, would initiate another action, charging the Canadians with unfair competition.
And in May 2002, the U.S. International Trade Commission determined that there was a presumption of guilt. The International Trade Administration, within the American department of trade, was given the task of proving this presumption but, in the meantime, they would impose a 27-per-cent tax, corresponding to what was called countervailing duties, to correct by means of a tariff the unfair advantage held by the Canadian industry, but also, and this was new, certain Canadian companies were accused of dumping, of selling at a price lower than the cost of production, and so the 27-per-cent tax corresponded not only to a countervailing duty but also an antidumping duty.
All this took place in a context in which the price of softwood lumber was extremely remunerative because the housing construction market was doing very well, with over 2.3 million housing starts. The market could handle it all. For all practical purposes, even with a tax of 27 per cent, it was a little harder for the Canadian industry, but it was still possible to sell on the American market, pay the taxes, that is, both the countervailing and the antidumping duties, and still make money.
Actually the industry in B.C. incorporated this tax in its production costs and expanded its market shares in the U.S.
This was not so, however, for the industry in Ontario, Alberta or Quebec. In fact, the Quebec industry was the big loser. It was harder for it to incorporate the tax and its market shares were considerably reduced.
Nevertheless, this issue took its toll when it came to jobs, and the Canadian government — especially the new Harper government in 2006, though it was in keeping with the action of the Martin and especially the Chrétien government — would conclude an agreement to have access to the American market and stop the tag game.
The two governments would reach an agreement in April 2006 and the agreement was sealed in October 2006. Now, what did this agreement say? That is very important. Essentially, the April 26 agreement — which was sealed in October 2006 — was meant to give free and foreseeable access to Canadian production on the American market and to try to avoid quotas, restrictions and tariffs.
It was also meant to get the reimbursement of duties since, since 2002, every time 1,000 board feet, every time a Canadian softwood lumber truck crossed the border, there were duties levied. These duties were held in trust. And the total had risen to nearly $5 billion. It was a lot of money. What were we supposed to do about this $5 billion? The agreement provided that 85 per cent of the duties would be reimbursed, not to the Canadian industry, but to the various provincial governments so that more could be done with the forestry industry; $1 billion would remain in the U.S.; $500 million was for the members of the coalition; and $500 million was for charitable organizations designated by the American government.
The agreement also provided, obviously, that, if the market is not good, if the share of the American market held by the Canadian market is too great, quotas would have to be put in place, and duties and taxes imposed. It was determined that — this too is an important figure — as soon as the price of softwood lumber on the American market went below US$355 for 1,000 board feet, a tax or quotas must be put in place. This price is what is called the average of a basket of products on the American market. The basket of products consists of 15 types of softwood lumber and is the basis on which this price index would be identified as $355.
Why $355? Well, because those who drew up the agreement looked at how the market had developed over the 15 years preceding the signing of the agreement and they realized that, in 55 per cent of the cases, the price was above $355. And at the time it was expected that history would repeat itself.
Regarding this US$355, we must also bear in mind that the Canadian industry operates with costs in Canadian dollars. The rate of exchange at the time was 71 cents American to one dollar Canadian, which meant CAN$500 for the Canadian industry, and this was fairly advantageous for Canadians.
What is interesting too is the mechanism provided in the agreement. So what happens if the price goes below $355?
In April 2006, the price was $365. The price was dropping and was getting close to the infamous threshold below which constraints would be imposed on Canadians. Basically, there are three levels. If the price varies between $336 and $355, a tax of 5 per cent is imposed. From $316 dollars to $335, a tax of 10 per cent is imposed and, below $315, a tax of 15 per cent is imposed.
Since August 2007, the price has been below $315. It has gone up recently. These constraints are called Option A, where an export tax is levied, the revenues remain in Canada and vary by level according to how the price evolves. The industry in Alberta and British Columbia was entirely in agreement with this. In the East, we were not in agreement. This is why the agreement provided for Option B, which is a mix of tariffs and quotas that work by level. The idea is that, when the price varies between $336 and $355, a tax of 2.5 per cent is levied and the quotas have to be distributed so that the Canadian share never exceeds 34 per cent. Between US$316 and US$350 per 1,000 board feet, there is a tax of 3 per cent, and there the overall market must never exceed 32 per cent. When the price falls below $315, it is a tax of 5 per cent and the market share is reduced to 30 per cent and must be distributed among all producers.
Did all this work? Yes, it worked relatively well, except that, as I have often said, when we are talking about percentages, we must always question the basis, the absolute value, a percentage of what? It then becomes extremely important to realize that, as of January 2007, the building construction bubble burst.
For the period 2004-2006, an average of 2.3 million single-family and multiple-family dwellings, which essentially use wood, were built in the U.S. As of 2007, the bubble burst to such an extent that, at the time, barely 700,000 homes were built and the number has dropped. In April 2009, fewer than 500,000 homes were built. This is the lowest level ever reached since we began to keep statistics on residential construction in 1957. We have never fallen so low.
This means that during the good times, 2003, 2004, 2005, we needed about 66 billion board feet. Beginning in 2008 and 2009, we fell to 45 billion board feet. The quotas hurt and, obviously, the prices fell.
There seem to be signs of things picking up since the economic and financial crisis we have been going through since September 2008, and which got worse in 2009. President Obama, to boost the economy, is trying to stimulate green construction and the basic parameters of the economy are somewhat better. That is why construction has picked up a little. We are now at 700,000 — my colleague is sure to have more exact figures. The construction industry is doing better and prices have firmed up so that we have crossed the first threshold and prices are hovering around $320, $330 per 1,000 board feet, so that for the people on Option B, taxes have gone down. Taxes, as far as B.C. is concerned, have also dropped. This agreement is working relatively well and now taxes and quotas have dropped.
What can we conclude from this agreement? First it is a trade diplomacy success. The aim of both governments, that is, both American and Canadian, was to try and put an end to their trade disputes with an agreement that would be fair to both parties. I think it has succeeded. Clearly — and I say this in English — fair trade is not free trade. What the Canadian industry wants is free access, free trade. They have got limited access when the market conditions are hard. When the market conditions are good, trade is relatively free. It has gone very badly. You know that the forest communities and the people have been deeply affected by the economic crisis. If this 2006 trade agreement had not been concluded, probably tariffs, much higher taxes and much more difficult constraints for the industry to bear would have been imposed.
Even though this agreement hurt and affected the performance of the Canadian economy, it has still been relatively positive since, if it had not succeeded, probably the economic crisis would have triggered some protectionist reactions that would have been even harder to deal with. We should also recall that, under this agreement, every time a dollar's tax is levied, it remains in Canada. Let us also recall that this agreement was the source of some definite progress in Canadian forestry policy so that we now have a more decentralized policy, one that is open to silviculture, development of the forest industry and also a notion of public policy in forestry, open to a market dynamic. For example in Quebec, this agreement was invoked to justify the establishment of a large auction system, which should, for public forest lumber, come into effect within two years, and this agreement is often referred to, to justify this movement, which is quite interesting.
Now this agreement is for a seven-year term and may be renewed for two years. It was signed in 2006, it should end in 2007. So it is time to think about the future.
When we look at the whole Canadian-American history of softwood lumber, we have to realize, even for other products, that recourse to American trade laws by the American industry is regarded as a commercial practice, and it is part of the business model.
What we have to understand is the moment when the American industry considers that it is much more profitable for it to launch a product than to try and be more productive or to manufacture better products.
We realize from studying the history that, as soon as the Canadian industry has over 33 per cent, the protectionist reaction is immediately triggered. In the 1990s, our softwood lumber industry succeeded in gaining market shares, not because it was protected by Canadian laws, but because it performed better than the average of the American producers.
Do we have to pay when we are good? We hold from 28 to 34 per cent of the American market, depending on the year, and that accounts for practically 66 per cent of what we produce. So we need the Americans. If the rule of the game is that our American competitors can turn to protectionism when it is in their interest, we have to accept it and try to negotiate agreements like the one in 2006, which imposes constraints on us that we choose relatively freely.
It is a defensive strategy. For the future we should also have an offensive strategy based on productivity. It is very revealing that, in the early years of the fourth softwood lumber dispute in 2002, 2003 and 2004, in spite of the tax, the industry in British Columbia succeeded in increasing its share of the market. It was very productive.
We must also ensure our customers' loyalty. Our lumber may seem a little more expensive, but delivering service to our customers is very important when we look at the restructuring of the U.S. construction market, where fewer and fewer players are building houses and, in view of the quality of our lumber in Canada, if we add customer service, deliver the quantities requested on time, within reasonable deadlines, that is, between 48 and 72 hours, which is a challenge — but still that is what the Scandinavian industry does, from the time an order in placed, it is delivered within 48 hours. In Canada, we are not there yet, but if we were able to get there, we could build a list of clients and, in circumstances where a tax was levied, the quality of our products and the delivery of our services would cause customers to agree to pay more.
We can offer more than softwood lumber, we can offer wood construction systems. In Quebec, it has been calculated that, by building 200,000 prefabricated houses, all the softwood lumber in Quebec could be used and that this number would correspond to the two or three percentage points of the market shares of the U.S. housing construction market, and thus would not exceed the threshold that triggers the protectionist attacks that are part of the business model.
This is extremely important, the idea of not exceeding the market shares that provoke these protectionist reactions.
If we have good wood construction systems, what is stopping us from diversifying our markets and selling to China, Japan? The people in British Columbia have figured it out. What is stopping us from selling in Europe? As for the Ontario industry, which I know a little, and the Quebec industry, we have got what it takes to deal with the competition from Finland or Germany. We are capable and we have got good value-added products. By doing so, by diversifying our markets, we will avoid the Americans' protectionist reactions that are triggered when we take up too much room in their market or when the economic situation causes American producers to want to protect themselves from the competition, wherever it comes from and whatever area of production it is. Thank you for your attention.
The Chair: Mr. Bouthillier, thank you for your very fine presentation.
[English]
We now officially welcome Professor Zhang to Canada. Thank you very much for accepting our invitation. I ask that you make your presentation now.
Daowei Zhang, Professor, Forest Economics and Policy, School of Forestry and Wildlife Sciences, Auburn University, Alabama, U.S.A., as an individual: Thank you for the opportunity to appear before the committee today. Before I proceed, may I ask one question to the clerk or the chair. If I make a joke, I will say ``off the record:'' can this comment be off the record if I say something that is not politically correct?
The Chair: We will put anything you say in The New York Times. No, you are at home here, sir; you can say anything.
Mr. Zhang: There will be some repetition. I will avoid repetition by skipping some of my presentation. For a complete version, you can put the whole of my written opening statement on the record.
I will not speak about everything in my statement because I made changes on the plane and as late as eleven o'clock last night. Be aware that there will be changes to my statement.
I have followed and studied the U.S.-Canada softwood lumber trade dispute for 20 years. I lived in Canada for five years and obtained my PhD from the University of British Columbia in 1994.
I understand the Canadian and the U.S. forest sectors and the dispute. In 2007, I wrote a book called The Softwood Lumber War: Politics, Economics and the Long U.S.-Canadian Trade Dispute, which was published by Resources for the Future Press in Washington, D.C. It has been well-received. Commentators call it the ``authoritative work'' on the subject, and ``required reading for every Canadian and U.S. politician.'' I encourage committee members to look at it if they have not seen it before.
The history of the conflict is detailed in the book, so I will not go into it today. The most recent agreement was well stated by Professor Bouthillier, and I agree, with the exception of one or two minor corrections to his statement. This longest and largest dispute between the two countries is puzzling, as most goods and services, including most forest products, are freely traded. Softwood lumber is a rare and noticeable exception.
I was asked to talk about four topics: history of the conflict, the agreement, its consequences and my perspective after 2013. I will skip the first two parts and concentrate on the last two.
One minor correction to my co-witness's statement is that the refund of the anti-dumping and countervailing duty by Canadian producers paid between 2001 and 2006 is approximately $4.4 billion, which is about 81 per cent. That money went to the firms, not to the provincial governments.
Honourable senators, please skip the rest of my first page. I will now speak on the consequences of the agreement on the second page. The consequences on the Canadian side are primarily four-fold. First, it closed the countervailing and anti-dumping cases that were filed by the coalition in 2001 and it protects the Canadian lumber exporters from ``U.S. harassment'' in new cases. The agreement brought a temporary truce.
Second, because lumber prices in the United States had been mostly lower than $315 per unit, most Canadian lumber exporters have paid the highest — 15 per cent — export tax, or the highest export tax plus the lowest maximum export quota for much of the last three and half years under the agreement. This 15 per cent export tax is higher than the 10.8 per cent combined countervailing duties and anti-dumping duties when the agreement was signed in 2006.
Of course, export tax stays in Canada, while the countervailing duties and anti-dumping duty went to the U.S. treasury if Canada eventually lost the cases. However, before the agreement was signed, Canada had won the case under the North American Free Trade Agreement, NAFTA, but Canada did not win clearly under the World Trade Organization, WTO.
Export tax and quotas are one of the reasons that the Canadian share of U.S. market in softwood lumber declined from 33.4 per cent in 2005 to 26.6 per cent in 2009. That level is the lowest in some 30 years. At the same time, from 2005 to 2009, the share of U.S. producers rose from 62 per cent to 71.7 per cent. The other reasons are economic recession, extremely low housing starts in the United States and the unfavourable exchange rate.
Third, the agreement gave US$500 million to the coalition members. Some Canadian lumber exporters viewed this agreement as a reward for extortion by the coalition. Others see this agreement as a price they had to pay to have the U.S. return the 81 per cent of the duties they had paid and to have a truce for seven to nine years. An unavoidable consequence of this arrangement is that the coalition and its members might have used those monies to lobby and litigate against the Canadian lumber exporters.
Finally, this agreement hinders Canada's policymaking in resource management and conservation. For example, to produce renewable energy, the United States is subsidizing its pulp and paper producers $50 per unit for the black liquor they produce, but when Canada tried to do the same, the coalition challenged, saying the payment is a subsidy that is not allowed under the 2006 Softwood Lumber Agreement. This situation seems to be illogical, but it is a reality, and the reality was foreseen in my book. I wrote in my book that everything that the provincial and the federal governments do in Canada is watched and often challenged.
Those four consequences are on the Canadian side. I will not say anything on the U.S. side, the consumers and so forth.
What will happen after 2013? First, many things can happen between now and 2013. Second, I do not have inside information about the current and prevailing thoughts of the industry and the governments on both sides of the borders. Third, I do not have a crystal ball to predict that far. However, I note that the fundamental underlying factors for continuing the dispute are still there. Those factors are economic, institutional, legal and political. Thus, I expect the dispute will continue. Let me elaborate on these factors.
The first is the economic factor: The dispute is motivated by economic gains by the members of the coalition. As long as lumber demand is more inelastic than its supply in the U.S. market, U.S. producers will have an incentive to restrict supply in the U.S. to gouge the U.S. consumers. Since collusion among U.S. producers to reduce domestic production is not allowed under the U.S. antitrust laws, and Canada is a major supplier in the U.S. market, it is only natural that the U.S. producers have tried to restrict Canadian lumber exported to the U.S., much to the displeasure of U.S. consumers and Canadian producers. Further, the comparative advantage of Canadian producers in terms of resource endowment and productivity is not weakened by the current agreement. The market share of Canadian lumber in the U.S. is still considered large by some members of the coalition. Therefore, the economic motivation for restricting Canadian lumber is still there.
Turning to political factors, the coalition is well organized and plays interest group politics better than U.S. consumers. Since its inception, it has ``owned'' some U.S. lawmakers who, in turn, exert pressures on the U.S. administrations and the Canadians. This situation is understandable given that the benefits of trade restriction are concentrated while the costs are dispersed.
The political mobilization of U.S. lumber consumers in recent years has provided some counterweight to the coalition. Nonetheless, the coalition has had an upper hand in American politics that consumer groups have not been able to overcome in the past and seem unlikely to surmount in the near future.
The Canadian lumber industry is fragmented and divided at both the provincial and regional levels, perhaps more fragmented than the U.S. consumer groups. The fragmentation and the division have not promoted, and do not promote, close cooperation between the Canadian industry and the U.S. consumer groups.
I will now discuss the legal factors. The economic impact of trade restrictions on U.S. consumers is not considered under U.S. trade laws. American consumers do not have a legal standing and are not on an equal footing with American producers, even though they eventually pay the cost of trade restrictions on lumber.
U.S. producers can seek evidence for subsidy in Canada and claim injuries to U.S. producers without having to worry about injury to U.S. consumers. Trade restrictions make legal and economic sense to U.S. producers but not to U.S. consumers.
Next, U.S. administrative laws are numerous and imprecise, and are thus subject to manipulation and political pressure.
Finally, NAFTA and WTO trade dispute settlement mechanisms have recently grown out of their infancy. In fact, the softwood lumber case has weakened the NAFTA trade dispute mechanism.
There are also institutional factors. Provincial ownership of forest resources and related stumpage systems in Canada are institutional arrangements that directly contributed to the lumber dispute. The political institutions of federalism in both countries make both governments susceptible to special interest politics. The U.S. Senate worked as it was designed: to offer small, less populous states a voice in the national political arena. With Canadian subsidy an article of faith for some U.S. senators from lumber-producing states and other U.S. politicians, their voices and opinions have been reflected in the investigating authorities' decisions in the past 24 years. Protectionism in lumber has prevailed.
Canadian political institutions are reflected in interprovincial and interregional politics of the lumber dispute. The Canadian government has many constituents to listen to and has been inconsistent in dealing with the lumber dispute. The Canadian government sought free trade agreement with the United States but agreed to the memorandum of understanding back in 1986. The government had denied the allegation of subsidy and won the binational free trade agreement panel rulings in 1993 and 1994, but turned around and signed the Softwood Lumber Agreement of 1996. The government vowed to fight in NAFTA and WTO after the first Softwood Lumber Agreement expired in 2001, but at times showed a greater willingness to accept a negotiated deal between 2003 and 2006.
Indeed, it signed the Softwood Lumber Agreement of 2006 after winning strongly in NAFTA and U.S. courts, and achieving some victory at the WTO. By so doing, the government not only failed to take full advantage of its legal victories, but also gave $1 billion U.S. to the United States, half of which went into its primary adversary, the coalition, and left critical legal questions to the interpretation of the U.S. industry and government, including the authority of NAFTA, the practice of zeroing, subsidy, and the legal right to return of duty deposits.
Those issues will continue to haunt not only the Canadian lumber industry but also other Canadian industries in dispute with the United States. The U.S. trade harassment that the Canadian government vowed to eliminate through the binational free trade agreement and NAFTA will continue.
In short, the softwood lumber dispute involves many issues and many players in complicated political, economic, legal and institutional settings. Some issues make economic sense but not legal sense; others make political and legal sense but not economic sense. The mix of economics, law, institutional arrangements and politics has made the dispute long and sometimes bitter and acrimonious.
The political, economic, legal and institutional settings have produced and nurtured the most critical factor: There is no downside for the coalition to continue to fight political and legal battles against Canadian lumber imports. Even if it lost after three to five years of litigation, the lumber-price increase in those years would have generated increased profits far greater than the costs of litigation.
The inability of U.S. consumers, hindered by high transaction costs and U.S. trade laws, to fight the coalition, the division of interests in Canada, and the willingness of the Canadian government to compromise in the lumber dispute give the coalition extra incentives to fight on and take home the war prize in the memorandum of understanding and the two softwood lumber agreements.
A truly long-term and durable solution has not been found, even though all parties say they want one.
The outcome of the next round of the dispute will depend on the relative strengths in, and interplay of, U.S. consumers, Canadian producers, and Canadian federal and provincial governments versus U.S. producers and their allies in Congress. History has demonstrated that the inability of the former to offer Congress something significant enough to counterbalance the Coalition for Fair Lumber Imports in the softwood lumber dispute has resulted directly in restrictive measures on Canadian lumber imports in the last quarter century.
I appreciate the opportunity to present these perspectives to the committee. I am happy to elaborate on any of these points or answer any questions when the time comes.
The Chair: Thank you for your presentation, Mr. Zhang.
[Translation]
Senator Robichaud: Mr. Bouthillier, thank you for your presentation, which was already very complete and which was complemented by your colleague, Mr. Zhang.
You concluded by saying that we should perhaps direct our efforts towards value-added products. Because, if I understand correctly, the dispute will always be there and there will always be ways of challenging our export levels, stumpage fees and process.
Is there any risk that the coalition, which received $500 million, might challenge our value-added exports to the U.S.?
Mr. Bouthillier: Yes, of course, that is part of the business model. Except that, for the time being, the members of the coalition are not really involved in the manufacture of value-added products. But we must not assume that a new coalition will not appear and claim that Canadian value-added products are doing very well on the American market because the raw material, because it is generally publicly owned in Canada, means that the price of the raw material is clearly undervalued.
Except, when you are in added-value, the contribution of the raw material to the price of the finished product is clearly less.
So then we can be sure that this presumed unfair advantage does not make a difference in the selling price to consumers. It would be a lot harder to prove, should there be a legal action seeking countervailing duties under trade legislation by a coalition of American producers doing value-added.
Still, as my colleague Mr. Zhang clearly explained, there is a systemic advantage for American forest producers to use the trade laws when it suits them to carve out market shares for themselves. And I do not see why they would not, if ever Canadian value-added production was hurting them. There is always this idea of market shares and let us recall that triggers the American reactions are always triggered when we go beyond 33 per cent. Historically, as soon as we go over even 30 per cent, there are lots of people getting excited and the American authorities are forced to apply their trade law.
Senator Robichaud: In fact, we should be careful not to go over a certain level, in raw material, because, when we do, even though, legally speaking, we win, in the end we still lose, right?
Mr. Bouthillier: Exactly. Not only that, but when we win in legal terms, the elements that justify and motivate this victory are used by the American side to amend the trade laws. That too, my colleague Mr. Zhang showed clearly.
The message therefore is: let us try to produce something else, let us try to diversify our markets. Let us try to deliver something to American consumers that would make them see the excellence of Canadian products, despite the taxes.
Senator Robichaud: That leads to my next question. You talk about American consumers.
[English]
Mr. Zhang, if we go the route of value-added in our wood products, how will the American consumer react if the coalition fights our imports into the U.S. if they offer an advantage to the consumer?
Mr. Zhang: Naturally, the consumers will go with the Canadian exporters and fight the coalition. The U.S. consumers are on your side. They like to have goods that meet their needs and that are reasonably priced. Whether it is lumber or other value-added products, the consumers are happy to have the choice of goods at a reasonable price. They will team up with the Canadian producer and try to prevent the coalition from going too far on that issue.
Senator Robichaud: However, the consumers are in no way organized like the coalition is.
Mr. Zhang: That is true. On value-added items, there is not much activity right now so we do not know how well the consumers will respond and how the coalition will respond. We can speak only in hypotheses.
The consumers are diversified; there are lots of them. The producers are few, so they are concentrated. When the gains are concentrated and the costs are diffused, it is easy to organize for the producers and hard to organize on the consumer side. Therefore, they have a disadvantage in organizing.
Senator Robichaud: When you say the consumers, does that take into consideration the builders, the users of our products?
Mr. Zhang: Exactly, yes: In fact, the largest consumer group teaming up with Canada in the fight is the National Association of Home Builders, which has headquarters in Washington, D.C. The association is not happy with any of those agreements — the Memorandum of Understanding, MOU, and the two SLAs.
Senator Robichaud: The association's political clout is not as strong as the coalition's; is that right?
Mr. Zhang: That is number one. Number two is that they have other interests. To give you an example, back in 1986, when the MOU was negotiated, the U.S. Senate was considering giving a tax credit on mortgage interest payments; that is significant for every homeowner. The Senate finance committee said, do you want this tax credit or do you want lumber? Once that language was put in the finance committee's tax bills, home builders became much quieter. They do not want to fight on the lumber anymore because they lose on the other issues, so they have other interests as well.
Your point is well taken. Number one, yes, they do not have as much clout as the producers. However, that does not mean that in the future, they cannot have a lot of clout because home builders are still strong in the United States. If they become focused, they can be a significant political factor.
[Translation]
Senator Eaton: Thank you, gentlemen, for your presentations. To continue in my colleague's line of questioning, when we talk about value-added products, does that have anything to do with the biomass? As you know, in the energy field, a lot of forestry experimentation is taking place to create biomass for energy. Would this affect the Softwood Lumber Agreement?
Mr. Bouthillier: When we talk about forest biomass used for energy purposes, we have to understand that this is not a big value-added product. We do not create value by burning wood. We can add some; manufacturing energy products from forest biomass becomes worthwhile only if it is a complementary product to lumber, to building construction systems. When we talk about bioproducts, people think right away about energy, but we can manufacture lots of bioproducts. Some examples are lubricants and paints. We could go further with the cellulose or hemicellulose molecule. What is the connection between your question and softwood lumber?
[English]
Senator Eaton: I suppose, because we experimenting now with materials left on the forest floor — for instance, at Guelph University, where they are experimenting with willow and harvesting it every three years — we have a huge advantage because of the forest cover we have in Canada. Can you see that advantage becoming an issue? If all of a sudden it becomes easy to produce this biomass, will that situation be part of the Softwood Lumber Agreement?
Mr. Bouthillier: At the moment, I do not think so, mainly because U.S. producers of bio-energy are so far ahead of us. We are not threatening them for a minute, so for the moment there is no problem. However, as you said, since we have huge tracts of land, maybe down the road it is possible that Canadian producers of bio-energy from forests or forest products residues can make a dent in the American market.
It seems to me unlikely, probably as simple as that, because of the transportation cost at the moment. With the price of oil products close to $80 per barrel, the radius from where they can harvest forest biomass to make energy products is about 70 kilometres. I am trying to say that to make product —
[Translation]
Senator Eaton: You may express yourself in French, it is just that I express myself better in English.
Mr. Bouthillier: At present, for bioenergy to be cost-effective — the price of a barrel of oil being around $80 or $85 — we cannot harvest our raw material at a distance of over 70 kilometres from the harvest site to the place where this forest biomass is used to produce energy. So we cannot make a big difference.
When we talk about burning biomass, we might eventually with biofuels make a break-through because the Americans are energy consumers, like Canadians, but since there are more of them, it is a more remunerative market.
There is still a technical problem since, to manufacture biofuels, in view of the technology available, the energy cost of manufacturing biofuels is greater than the energy contribution, even when we are talking about second-generation biofuels that use cellulose.
[English]
Senator Eaton: I have been told that for ethanol, it is two barrels in, one barrel out. For the tar sands, it is one barrel in, three barrels out. For something like willow, it is one barrel in, ten barrels out.
Mr. Bouthillier: The results are experimental. If we try to personalize them at the industry level, it does not work like that, and that is what is going on in the U.S. We are not up there at the moment, though research findings seem to prove that, yes, there is something in terms of biofuel.
Senator Eaton: Professor Zhang, in Canada, obviously we will have these ongoing problems, and you explained the political and economic facts well. Sixty per cent of the Canadian forest industry goes south. We should try to change that equation, should we not, and aim more exports towards Asia? Is that our best safety net for the future?
Mr. Zhang: Yes, absolutely. If you can reduce the margin from 60 per cent to 55 per cent, that will be a huge help in terms of the market shares and so on. We have Asia and Europe, both the Atlantic and Pacific side. Yes, Canada should make an effort to diversify.
Senator Eaton: We should get out of the U.S. market and go the other way?
Mr. Zhang: Yes, Canada should diversify but it cannot leave the U.S. market completely.
Senator Plett: Thank you, gentlemen, for taking the time to come and explain what to me is a convoluted dispute. I have learned so much about the dispute this morning. When you started talking about the different numbers and the taxes, my mind started wandering. My questions will be basic, and one of them will follow up on what Senator Eaton already said about where we should go.
I want to hear from both of you, who was the winner in the dispute? Was there a winner? Did Canada lose by leaving $1 billion on the table? In all negotiations, eventually they have to bite the bullet. We heard witnesses earlier this week who said that with the exchange rate of the dollar and so on, if we continue this dispute, we are losing money every day. Was there a winner; if so, who?
Dr. Zhang, further to what Senator Eaton suggested, if Canada simply said that we will go to Asia and not send any lumber to the United States — although I know that will never happen — is the United States self-sufficient in supplying its own lumber? We went from 2.5 million houses a year to 700,000. If they go back up to 2.5 million again, will the United States be sufficient?
Mr. Bouthillier: Who is the winner? On the short-term basis, clearly the members of the U.S. coalition were the winners because they have the money. They have constraint on access to their market imposed on those Canadian foreigners.
Who were the losers? Clearly, the losers were the U.S. consumers, and we have to keep that fact in mind. It could have been so much worse, so maybe in the short term we can say that we are mildly a winner. For seven years, we will have a kind of commercial peace, and it will be important for us to use that time to make us a winner in the long term, because we will produce a better mousetrap. We will produce building construction systems. We will develop customer- client services. We will diversify our market in geographical terms. Those seven years from 2006 will be used to achieve a new forest product industry that will make us more reliable for the Canadian economy because we will sever some links with the U.S. market.
However, having said all that, the U.S. markets offer us tremendous opportunities. Yes, maybe in our wildest dreams, we think that we can eliminate the U.S. as a market opportunity. We should not eliminate that market. It is still a big economy. It is closer to home. Culturally, it is closer to us. The idea is to offer the American consumers a better product than the American producers are able to offer. Of course, at the moment, the home building business in the U.S. is not going well, but sooner or later, it will pick up speed, and there will be opportunity for us.
Again, since the clear winners are the coalition members in the U.S., when the market improves, those people will try to extract as much value as they can from that market improvement. It means they will not avoid using their protectionism tendency because it pays for them use it.
Mr. Zhang: Lawyers are the winners in our minds, as are the politicians, especially the congressmen and congresswomen who receive contributions from the interested groups. Those people may not want a long-term deal because they want the interest groups to come back again and again to ask for favours and, therefore, with campaign finance money.
The next winner is the coalition members, as I said in my statement. Last but not least are the provincial governments of Canada.
In 1986, when B.C. tried to squeeze money from the industry, the industry resisted so strongly and they went to the coalition. The team at the coalition brought external pressure, which resulted in the MOU. The B.C. government was able to increase the stumpage by 80 per cent in later years. We all know that the Softwood Lumber Agreement export taxes will go to the provincial government.
There are winners on that side but also on the industry side. There is a balance. If they have financial returns, provincial governments receive contributions, which are better than the U.S. duty where they receive nothing.
Regarding your second question, if we pull out of the U.S. market, the U.S. cannot sustain itself in lumber. They have to import from somewhere else. There is no question about that. My students and colleagues, even some professors, in the southern U.S. have no clue about the difference in the softwood resource endowment between the two countries. The ratio of softwood timber is such that in standing timber, Canada has a three-to-two ratio versus the United States. On a per capita basis, this resource dominance of standing timbers is 13 to 1 in favour of Canada. How can the United States supply its needs without softwood lumber from Canada?
Without Canada, their housing prices would increase somewhat. The U.S. cannot support itself in softwood lumber. It will have to import from somewhere else.
In fact, because of this duty and for other reasons, the market shares of the other 10 or so countries increased from less than 1 per cent in 1995, to about 5 per cent in 2005. Those countries have projects to increase market shares to 15 per cent by 2050.
To answer your question, no, the United States cannot support itself by what it produces without a drastic increase in price.
Senator Plett: I am happy about that and I hope I did not give anyone the impression that I do not want to deal with the United States. I want to continue to do deal with that market and I am thankful that they need us.
I do not think either one of you answered one question: Could Canada have gotten a better deal? Was the deal to give $500 million to the coalition as good as we could have done?
I am a business person, as some of us are, and I know that, sometimes, we have to bite the bullet and accept that the deal is as good as we can get. In your opinion, could we have gotten a better deal?
[Translation]
Mr. Bouthillier: What could we have done with the revenue from the countervailing and antidumping duties that accumulated between 2002 and 2006? Obviously we could have done better. Certainly the fact of leaving a billion dollars in American hands, when we are not guilty of any illegal practice, in spite of the qualified verdict of the World Trade Organization, yes, we could have done better. Especially we could have — Maybe we would have had to leave a share of the revenue to the U.S.; it is one way of negotiating. But leaving $500 million in the hands of the members of the coalition, that is exactly what they needed to hear to figure this was a good way of doing business.
And probably, in diplomatic terms, we purchased a peace that is going to cost us dearly in 2013 because the members of the coalition got the legitimacy they needed to act the way they do as soon as they feel threatened by the Canadian industry. We could have done better.
[English]
Mr. Zhang: I agree for Canada as a whole — without talking about the provinces or the administration; talking only about Canada as a whole — Canada can do better. With all the legal victories and with all the rights to return everything, Canada could have done better and not given the billions of dollars. The U.S. court ruled the coalition are not entitled to receive any of those monies but Canada had given the coalition half a billion dollars.
Anyway, I will not elaborate, but on the whole, yes, Canada can get a better deal than this one.
Mr. Bouthillier: I thank Professor Zhang for correcting me on who will receive the $4 billion that was paid back to Canadians. Initially, the idea was to have the provincial governments receive it. It was decided down the line, probably because the coalition members received something — and Professor Zhang is correct about that — that the money should be given back to Canadian industry.
Remember that, at that time, we were beginning to experience difficulties in the market. Home building was plummeting and it was clear that the Canadian forest industry would experience difficult times. Also, as industry was strapped with a burden of heavy debt, that money was welcome.
I guess that is another explanation why the federal and provincial governments accepted that curious arrangement to pay back all the countervailing and anti-dumping duties that were collected between 2002 and 2006.
Senator Plett: Chair, I was thinking of leaving my next question for the next round, but both witnesses have mentioned the provincial issues a couple of times. Their answers are a good segue to this question. Professor Zhang, you talked in your presentation about the Canadian lumber industry being fragmented and divided at both provincial and regional levels.
Earlier in your presentation, Mr. Bouthillier, you talked about a 27 per cent tax; I believe you said B.C. had accepted it and Ontario and Quebec did not want to accept it. Can you talk about why we have these provincial scraps; if we can somehow work together in our own backyard, will that help us?
[Translation]
Mr. Bouthillier: Often, in my courses on forest policy, when I explain the Canadian Constitution to the students with whom I have the pleasure of working, I tell them: you know, one of the few clear things in the Canadian Constitution is that forest management is under provincial jurisdiction.
So the idea of managing the forest, the raw material that makes economic development possible in the forestry industry, is part of the provinces' identity. The American coalition people understood this very clearly because they exploit it to the limit. Every time there is talk of forming an inter-Canadian or a cross-Canadian coalition, we come up against the identity of British Columbia, Ontario, Quebec, even the Maritimes. They all invoke their right to act the way they see fit, on their home turf, because that is part of the way of being Canadian, of our specific orientations in the different provinces.
Can we, by means of a set of interprovincial conferences, of studies, develop the idea that it is in the common interest to have a united front when dealing with Americans about forestry policy? I believe it is in our interest to do so and that maybe we can counterbalance some of the identity arguments. But Canada is a huge country, not simply in terms of identity, but also in physical terms. The resource is not the same in British Columbia as it is in the central provinces of Quebec and Ontario. And it is not the same thing either in the Maritimes. We have the best example with the mountain pine beetle. This epidemic is hitting mainly B.C, a little bit Alberta. This insect has affected the quality of lumber products in the Canadian West to such an extent that, to set the infamous price of $355 dollars, which triggers all the mechanisms of quotas and taxes in the U.S., for a basket of products that originally included lumbers from British Columbia, two weeks ago, this product was withdrawn because it was of such poor quality that the prices plummeted. No one wants to pay a lot for a poor-quality product. And that is part of the B.C. policy.
Let us honour our president. Climate changes are decimating the fir forests in the Maritimes. In the more or less near future, the fir tree will be replaced by something else. What is worrying is that we do not know what the other thing is. The governments of New Brunswick, Nova Scotia and Prince Edward Island must assume that they will have to develop an industry based on something other than softwood lumber. What is our joint position during this time on the agreement binding Canada and the U.S. on the matter of softwood inventories for making lumber when we are losing our interest in it?
It would be in our interest to get along with each other, but there are identity, ecological and physical problems because we do not work with the same material. The growing conditions are not the same. The nature of the products is going to vary a lot in the near future because of the epidemics of insects and climate changes that are beginning to occur.
This would therefore be in our interest, but it will be extremely difficult.
[English]
Senator Plett: Thank you, chair; I apologize for taking so much of the time.
The Chair: Looking at the time factor for the witnesses, as we have another item to conclude before we depart, the two last senators will be Senator Rivard to be followed by Senator Hubley.
[Translation]
Senator Rivard: Mr. Chair, many of my points have been raised by others, but I would like to understand the mechanism of countervailing duties. If I, as a consumer, buy an American product, whether a computer or a photocopier, I pay the duties sent to my country, Canada.
In the case of lumber, we are talking about billions of dollars for the producers, because there were $4.4 billion paid in duties. The exporter billed his client in the U.S. directly. The American client paid the equivalent of the Canadian price; the duties were charged by the American government to the producers. This was placed in a trust fund. You say that, as of today, if we go over such and such a level, 33 per cent, Canada collects the money in order to redistribute it. So it is the opposite of the former law. Have I understood properly?
Mr. Bouthillier: Yes, you have understood perfectly.
Senator Rivard: Do you agree with that?
Mr. Bouthillier: Listen, I agree, no one likes paying taxes, but if we have to do so, if we have to artificially increase our production costs in order to have access to the American market, I am just as happy for this increase to be the result of an export tax, the revenue from which remains in Canada, rather than a countervailing duty, from which the revenue is given to the U.S.
Senator Rivard: Thank you.
Mr. Bouthillier: We choose the lesser of two evils.
[English]
The Chair: Do you want to add anything, Mr. Zhang?
Mr. Zhang: That is correct.
Senator Hubley: Until the current Softwood Lumber Agreement expires in 2013, what steps should the industry and the governments take with the U.S. government to avoid another softwood lumber agreement? What marketing strategies are needed that are important and necessary — to target perhaps the U.S. lumber consumer, as an example — to show that the Canadian brand of lumber is not only superior, it is diversified and we have built a better mousetrap?
Mr. Bouthillier: Probably Mr. Zhang, who has specific information, will have a better answer. However, to my knowledge, the Canadian government, with the help of provincial governments, has tried to set up an American coalition of softwood consumers. I do not know how they were able to succeed, but maybe my colleague has something to say about that issue.
What I had in mind with the idea of reaching consumers is to promote one`s products: We have to get away from doing business through commodities. We need to reach the final consumers to convince them that maybe the price is a little higher but we have something in exchange for that higher price. In French, I label that strategy ``l'approche client,'' which is culturally foreign to our forest industry.
I have one example from the fine paper business. Domtar has decided to develop that customer approach in their business model. You know what? All the pulp and paper companies in Canada in 2009 were in the red, except for Domtar. There is a message there.
The softwood lumber industry should act on that message as soon as possible. That approach is the future: Reach the final customer. I understand when we are talking about home building and homes, it may be difficult. When we are talking about building materials for renovation or restoration of the actual stock of houses, it may be difficult to reach the final client, but that is the challenge. We have such a good product.
I am not the peddler here; I do not have any interest in the sawmilling industry, but I am totally convinced that we have a terrific product and it is up to us to convince our customers.
Mr. Zhang: Professor Bouthillier is correct: In the late 1990s, the Canadian industry tried to set up a coalition for affordable American homes for homeowners. It did not last long because some industries in Canada collaborated with the other groups. For example, in B.C., they attacked the other group. That did not promote any collaboration or long- term cooperation on that front.
However, to avoid further trade disputes, they have to go to the consumer. We fight this in the American political arena, therefore they have to reach the American consumers on the other side.
The Chair: Thank you. Is there anything else, Senator Hubley?
Senator Hubley: No, that is fine.
Senator Fairbairn: Thank you both. It is interesting.
Mr. Bouthillier, I come from Alberta, and I know that I all too often speak of the pine beetle and I will not go into that issue. It has been a real disaster to the two provinces involved, though.
At this point in time, is there anything being done through all the efforts of science and everything else to bring back the industry to Northern Alberta and British Columbia?
We know what happened; we have heard very little since. I wonder if you have any thoughts about that situation. For other countries or the United States, the mere thought of it is probably negative.
Is there any hope that the industry will have an opportunity in those areas in reasonable years to come, or are we shot in terms of the northern part of those two provinces?
Mr. Bouthillier: That question is a tough one. We are already in troubled times and we are heading into much more troubling times.
It will require a great deal of imagination to sort out solutions. There is a wicked pile of timber in Northern B.C. and Alberta. Sometimes I am like Senator Plett: I have wild dreams.
Senator Fairbairn: So do I.
Mr. Bouthillier: I was thinking about it. Besides the cracked wood, there are also problems with the blue-tinted fungi that affects those products. That colouration is kind of nice. Why do we not produce appearance forest products with that blue shade wood?
That is why I am saying it is a matter of imagination. Though I am not aware of the situation in Alberta, there are plenty of funds available in B.C. to follow up on those wild leads, if I can call them that.
Senator Fairbairn: Thank you for raising that idea. This committee went to northern British Columbia, which was absolutely devastating at that point, when we were in another stage of our work. Our group was invited to come to a little town that was close to where we were looking at this issue.
One little group had taken the opportunity to pick up a lot of the wood that was being desperately turned away. The group decided they would have a shot at seeing how the wood could be used. It was dead and dry and everything else, but they built some extraordinary things. People were coming from Vancouver and elsewhere, to the point that the items they were building were selling so fast they could not really keep up.
Then they stopped; they did not go any further. We asked if they were still able to continue it, but I think it was almost an idea that they were trying out. The issue was finished for them but the beetles were not and the beetles were hopping across into my province and creating a nasty situation.
There were negative results from what happened up there, and heaven knows it might happen again. There was always anxiety that it would move east, and it moved east from British Columbia into Alberta.
In terms of the industry itself and the people who work in it, from what you understand and know about this issue, is there any opportunity that there may be something useful in the future and not only another go-round of what we have been through?
Mr. Zhang: The trees will come back in that part of the country, but it will take a long time. It will take 80 years if the tree dies to grow back naturally. In the short term, number one, they salvage whatever they can salvage. Once the pine beetle infects a tree, they still have three, four or five years in which they can make lumber out of it. Secondly, they make alternative products. They diversify output. Then, if they still have actual labour and investment, they invest in silviculture and speed up the restoration of the forest. If the tree comes back naturally in 80 years, they can make it come back in 60 or 50 years if they invest in silviculture. In that way, they can shorten the growth period. They have a short-term strategy and a long-term strategy.
[Translation]
Mr. Bouthillier: I think that the challenge is probably to develop construction systems that would make it possible to use wood that has been attacked by the mountain pine beetle for lower-quality products than we make with sound wood. But that looks like a technological challenge that can be solved in the relatively short term.
Maybe we should produce more appearance wood products than structural products, but there are ways of making wood products with damaged wood. Above all, we need to find not only technological solutions but solutions for getting the new products into operation. I think we have to look still harder.
[English]
The Chair: Before we close, we have additional questions from the research staff. If we can send you questions in writing, perhaps you can respond in writing.
[Translation]
I would not forgive myself if I did not acknowledge the book.
[English]
This book was written by Dr. Zhang. I will quote some of the comments made by a congressional researcher and The Vancouver Sun: ``This book provides insights into the dispute that might help lead the various interests to a more permanent peace.'' Another comment was, ``This meticulous research analysis should be required reading for every Canadian and U.S. politician. Despite the 2006 agreement, the war is far from over.''
I thank the witnesses for being enlightening and informative. Dr. Zhang and Dr. Bouthillier, thank you very much.
The next item, honourable senators, is the budget. It has been distributed to each and every one of us. I ask the clerk to explain the budget so that we can move to the next step and be in a position to implement some travelling.
Josée Thérien, Clerk of the Committee: You have a copy of the draft budget in front of you. It is for a total amount of $188,125. It includes funds for four activities. The first one is various conferences to be chosen by the committee, for either senators or staff. Activity two is for travel to Chibougamau, Quebec, and Timmins, Ontario, one day each. Activity three is for local travel. The researchers are working on the exact itinerary, but probably a few industries would be interesting for the committee to visit. Activity four is in B.C. — Vancouver, Williams Lake and Kelowna. There are also funds for general expenses for communications and books, magazines and things like that.
[Translation]
Senator Rivard: Are you planning these trips for the short or medium term? Many associations are travelling while the Senate works. We are called on to replace our colleagues for this reason. Can you convince the whips concerned so that we keep our weeks to take care of other things or do you think this will be during our break?
The Chair: We will bring this to the attention of the leadership.
Senator Robichaud: Allow me to make a comment. If we do it while the Senate is sitting, we are forced to split up. That limits the number of people who can travel with a delegation. When we are not sitting, all the senators are free without having to find a replacement.
Senator Rivard: I understand what you are saying; it is a good point.
Senator Robichaud: I also understand; I also want to have my weeks.
The Chair: We have looked at the budget.
[English]
Is it agreed that we adopt the budget and submit it to the Standing Committee on Internal Economy, Budgets and Administration?
[Translation]
Senator Robichaud: I so move, Mr. Chair.
[English]
Hon. Senators: Agreed.
The Chair: Carried. For your information, next Tuesday we will not have a committee meeting because of changes with our witnesses. Next Thursday, April 29, we will have finally the Maritime Lumber Bureau, and our witness was part of the negotiation for the softwood lumber, so she can tell us about that process as well as advance ideas on hybrid products with non-residential construction industry.
(The committee adjourned.)