CHECK AGAINST DELIVERY

NOTES FOR AN ADDRESS

BY

THE HONOURABLE PIERRE PETTIGREW,

MINISTER FOR INTERNATIONAL TRADE,

BEFORE THE SUB-COMMITTEE ON INTERNATIONAL TRADE,

TRADE DISPUTES AND INVESTMENT OF THE

STANDING COMMITTEE ON FOREIGN AFFAIRS

AND INTERNATIONAL TRADE

OTTAWA, Ontario

March 19, 2001

I am pleased to appear before the Sub-Committee to address what is one of the most important issues facing the government and, indeed, the country, today: our trade with the United States in softwood lumber. I welcome this opportunity to discuss with you the Government of Canada's approach to this critical issue.

As we all know, the softwood lumber issue is heating up once again because the Canada-United States Softwood Lumber Agreement is scheduled to expire on March 31. That agreement has now run its course and should come to an end. There is strong consensus in Canada that it is time to put managed trade in this sector behind us and to move toward what is now overdue: free trade in softwood lumber.

That is certainly what Canadians want and deserve. Unfortunately, it is also what the U.S. softwood lumber industry fears most.

The U.S. industry is once again calling for new restrictions on our exports and has said that it will file another countervailing duty [CVD] petition, and perhaps an anti-dumping petition as well, as soon as the Softwood Lumber Agreement is over. And members of Congress have introduced resolution after resolution proposing further restrictions on our trade.

The stakes are high. We are all aware of the importance of the softwood lumber sector right across the country. Let me briefly recap the familiar numbers:

• Softwood lumber is our largest export to the United States. Our shipments to that country are worth over $10 billion and account for 34 percent of the U.S. market. We have 20 percent of the world market. We can be proud of our industry's performance in this vital sector.

• The lumber industry is one of the biggest generators of jobs in Canada. One in every 16 Canadian jobs relies directly or indirectly on the sector. Over 330 communities in Canada, from British Columbia to Newfoundland, depend on it for their livelihood.

• Our lumber industry not only provides jobs, it provides housing for millions of people around the world.

• Perhaps most important in terms of our dispute with the United States, Canadian lumber mills are among the most modern and efficient in the world. And not only are we competitive but we are fair traders in lumber markets.

This is what U.S. producers do not want to face. The bottom line for the U.S. industry seems to be that it is easier to seek protection from competition than to rise to the challenge of modernizing and becoming more efficient, as Canadian producers have done.

The persistent calls for protection, cloaked in false claims of subsidies, have long distorted the debate on our trade in lumber. I want to take the opportunity today, therefore, to put the issue into perspective by briefly setting out what are actually the five core facts of the matter. These facts, which we all need to keep in mind, form the foundation of the Canadian position on softwood lumber.

I stated these facts in the House last week and I will repeat them here:

• The U.S. industry's position on softwood lumber is not based on any legitimate claim of unfair practices by Canada; it is based on protectionism pure and simple.

• Under our trade agreements Canada has rights that the United States must recognize, including a right of access to the U.S. softwood lumber market.

• Canadian forestry programs do not constitute subsidies to the Canadian industry.

• Canada is a leader in sustainable forest management practices.

• The government's role is to safeguard the Canadian interest in the face of protectionism, and to work toward free trade in this vital sector.

On the first point, I will emphasize again that it is good old protectionism that has always driven the U.S. industry position on softwood lumber.

For nearly a century, U.S. lumber producers have wanted to restrict Canadian exports; they have wanted protection from Canadian competition. What has always been behind their demands is a desire to preserve market share and keep prices as high as possible. This desire is strongest when the industry is in a cyclical downturn, as it is today on both sides of the border.

But restricting imports to protect a domestic industry is the way of days gone by. Protectionism is no longer the answer for us or for the United States. Our hard-won trade agreements are based on the conviction that open markets are in our greater economic interest.

This leads me to the second essential fact, which is that the protectionist threats being made by the United States fly in the face of those very agreements -- namely, the NAFTA [North American Free Trade Agreement] and the WTO [World Trade Organization] agreements.

Under NAFTA and the WTO, the United States is prohibited from imposing quantitative restrictions or duties on Canadian softwood lumber exports unless and until it demonstrates, through a fair application of the internationally agreed trade rules, that those exports are unfairly traded, whether through injurious subsidization, dumping or whatever. The United States has always failed to make any such case. Unless and until it does, Canada has a right of access to the U.S. softwood lumber market and the United States has an obligation to provide that access.

The government intends to ensure that our rights in the WTO and under NAFTA are respected, and we have already taken action in this regard. We have launched two important dispute settlement proceedings against the United States in the WTO, with a direct bearing on the softwood lumber issue.

First, we are challenging the stated U.S. intention to treat our export controls on logs as countervailable subsidies in future CVD investigations.

Second, we have requested consultations with the United States concerning a new provision in U.S. law that would prevent the refunding of countervailing and anti-dumping duties when those duties have been successfully challenged and must be terminated.

The bottom line here is that no country, not even the United States, has the right to make up its own version of the rules that have been agreed internationally, or to pick and choose which of its obligations it is prepared to honour.

Now for the most central truth in the softwood lumber matter: Notwithstanding persistent U.S. allegations to the contrary, the Canadian softwood lumber industry is not subsidized through provincial stumpage rates or any other program.

This was the conclusion reached by the U.S. Department of Commerce itself in the first countervailing duty case brought against us back in 1983. When Commerce eventually bowed to political pressure and reversed itself in a subsequent case, we challenged its subsidy finding before an FTA [Canada-U.S. Free Trade Agreement] dispute settlement panel and won. Allegations of subsidies are just as unfounded today as they were then.

Sometimes the allegations have included the suggestion that inadequate environmental standards constitute a subsidy to our industry. Here we come to another of the essential facts in the softwood lumber matter: Canada is a world leader in sustainable forest management.

• With 94 percent of its forest land under public ownership, Canada controls harvest levels so as to ensure that forests are not depleted. In fact, Canada grows twice as much wood as is harvested annually.

• We harvest less that 0.5 percent of our commercial forests each year, well below sustainable harvest levels.

• With more commercial forest land, Canada cuts less than half of what is harvested in the United States each year.

We can take pride in our environmental record in the forestry sector.

My final point is on the government's role and objectives as we move forward. I said earlier that we have a well-defined role and responsibility: to safeguard the overall Canadian interest, taking account of the interests of all stakeholders and regions.

During the past year, I have consulted closely with Canadian industry across the country and invited views from all Canadians. I also have consulted extensively with the provinces. I recently met in Ottawa with representatives of all provincial and territorial governments to discuss their concerns and to determine, together, how we should proceed.

A strong consensus has emerged: Canada should allow the Softwood Lumber Agreement to end and move toward free trade.

When I met with U.S. Trade Representative Robert Zoellick in Washington a little more than three weeks ago, I made Canada's position clear. I also reiterated our proposal that two special envoys be appointed to recommend constructive solutions to this dispute.

I stand ready to work with the U.S. government to pursue a collaborative approach to the challenges facing the North American industry.

So where do we go from here? To advance our goal of moving toward free trade in softwood lumber, the government will:

• continue to advocate the appointment of special envoys to take a fresh look at the situation and recommend constructive new approaches;

• assert Canada's rights under our trade agreements, and defend strongly against any countervailing duty or anti-dumping petitions filed by the U.S. industry; and

• continue to consult closely with all stakeholders in Canada, and to ensure that the interests of all regions are taken into account.

I would welcome the views of the Committee and would be pleased to respond to any questions you might have.

Thank you.