February 10, 2004 (37th Parliament, 3rd Session)


John Harvard


Hon. John Harvard (Parliamentary Secretary to the Minister of International Trade, Lib.)

Mr. Speaker, may I suggest to my hon. colleague from Nova Scotia that if he wants to know something about what the government is doing on this particular file he might want to listen to my remarks for the next five or ten minutes.
I thank the House for the opportunity to talk about the softwood lumber dispute in response to Motion No. 397 brought forward by the hon. member for Etobicoke North. Before going straight to the substance of the motion, let me begin by briefly updating the House on the status of the dispute.
As members are aware, Canada continues to pursue a two track strategy to resolve the softwood lumber dispute: legal challenges and negotiations with the United States. On the legal front, Canadian governments and industry are challenging the U.S. actions before the World Trade Organization and under the North American Free Trade Agreement.
Canada is involved in six cases dealing with U.S. allegations of dumping, subsidy, and threat of injury to the U.S. domestic lumber industry. Three of these cases are before NAFTA and three are at the WTO. In addition to these legal challenges, Canada is currently in the midst of two administrative review processes before the U.S. Department of Commerce.
In all three NAFTA cases, the panels have remanded critical issues in the U.S. determinations back to the United States. At the WTO panel, reports on anti-dumping and threat of injury are to be published in March. These will show that the U.S. duties are not in compliance with WTO rules.
In addition to these legal cases, the Government of Canada has spared no effort in working toward a negotiated settlement that would provide a durable, long term resolution of the dispute. This long term solution would involve an interim border measure that could replace the U.S. duties, pending changes in provincial forest management practices.
On December 6, the United States put forward a proposal that calls for a tariff rate quota equivalent to 31.5% of the U.S. market. The proposal was presented to the Canadian industry and provinces for comment. Provinces were strongly of the view that this proposal did not give us a sufficiently clear path to free trade in softwood lumber.
On January 12, 2004, Canada presented its concerns with respect to the latest proposal to its American counterparts. We believe they now have a better understanding of our position.
We will continue to consult closely with provinces and industry on what would be required to achieve a negotiated solution. The litigation before NAFTA and WTO panels is ongoing and will be pursued aggressively until and unless we achieve a negotiated settlement.
Let me reiterate that Canada will continue to work with all those involved to find a long term solution that will get us to free trade and that will benefit both Canadians and Americans. We remain in regular and close consultation with industry and the provinces.
Let me turn to the motion at hand. The hon. member is proposing that Canada negotiate an end to the United States' countervailing duty by replacing this U.S. trade remedy with one which is either based on the concept of a net subsidy or that focuses exclusively on whether or not economic development and investment policies in Canada and elsewhere are anti-competitive in nature.
It is important to state at the outset that there are serious practical implementation concerns with a net subsidy approach given that the measure is not provided for in either the WTO or the NAFTA. The first major concern is that there are no internationally set guidelines as to how the net subsidy amount would be calculated.
The hon. member is correct in stating that a net subsidy approach could provide some degree of relief to Canadian softwood lumber exporters in the form of a lower countervailing duty rate on shipments to the United States. Of course, this is assuming that an investigation would find the countervailable subsidies are benefiting the United States softwood lumber industry, and that the subsidies to U.S. lumber producers would be deducted from the countervailing duties imposed on exports of Canadian softwood lumber.
However, one might ask if embarking on such a negotiation would result in resolving the issues and practices currently being disputed by Canada and the United States.
It would be unlikely that the United States would consider adopting an approach that would implicitly acknowledge that it is providing countervailable subsidies to its lumber sector and that potentially could lead to a reduction in the countervailing duty rate imposed on imports of Canadian softwood lumber.
It is important to recall that U.S. actions in this dispute have been driven in large part by U.S. industry concerns over the volume of Canadian softwood lumber imports and the resulting impact on U.S. lumber prices and the bottom line of U.S. forest product companies. The U.S. industry alleges unfair practices by provincial governments with respect to forest management programs generally and crown timber pricing in particular.
Another technical concern lies in determining which investigating authority would be responsible for conducting the investigation to establish the new subsidy rate. For example, would American investigating authorities be responsible for investigating the amount of subsidy present in its own domestic industry or would that responsibility lie with Canadian investigating authorities? There would undoubtedly be diverging views as to how such an investigation should proceed.
All of this is not to say that we ignore U.S. practices. The Canadian government monitors the U.S. subsidies to its industry via the WTO's trade policy review mechanism, which is conducted, in the case of the U.S., every two years. Should the Canadian industry feel that it is being injured or threatened with material injury by measure of U.S. subsidy programs, then it is well within its rights to request that an investigation be launched.
The two track approach of litigation and negotiations taken thus far is the result of extensive consultation with the provinces and the industry. Changing our course of action at this time would simply result in delaying the eventual resolution to the dispute. Furthermore, our current approach is aimed at eliminating both the countervailing and anti-dumping duties imposed on Canadian softwood lumber imports. Unfortunately, the proposals presented in the motion only address countervailing duties.
The hon. member is also of the opinion that the government should, in the context of the current softwood lumber dispute, launch negotiations with the U.S. government with a view to eliminating tax competition, in particular, manufacturing subsidies between our two countries.
A competitive tax system is a key factor contributing to economic growth. The government has taken major steps in ensuring that Canada's tax system remains internationally competitive. The five year tax reduction plan has created a Canadian tax advantage for investment by reducing the general corporate income tax rate from 28% in 2000 to 21% in 2004. The 2003 budget builds on the Canadian tax advantage by phasing out the federal capital tax by 2008 and extending the 21% corporate income tax rate to the resource sector.
Taxation is also called upon as an instrument to implement a range of economic and social objectives. Differences between the tax systems of two countries, as are readily apparent between the U.S. and Canada, result from a myriad of factors that reflect fundamental policy choices made by each country. To enable countries to make those policy choices, a certain degree of flexibility must be retained in designing their tax policies.
To attempt to eliminate tax competition between Canada and the U.S. by harmonizing the tax system would involve negotiations on several complex issues. In particular, to meet the stated objective, harmonization would also have to be achieved at the sub-national level, adding further delays or further layers of complexity to such negotiations which are far beyond the scope of the current softwood lumber dispute.
Moreover, the motion also assumes that the U.S., for its part, would be prepared to revisit aspects of its own tax policy for purposes of achieving harmonized tax rules with Canada. In fact, it cannot be taken for granted that the U.S. would wish to cooperate in such negotiations since it is not readily conceivable that the U.S. would consider it to be in its best interests to impose constraints on its tax policy.
Notwithstanding, coordination and cooperation among countries to reduce tax related distortions is desirable to the extent these distortions are harmful for global economic growth and long term welfare.
In closing, the proposals identified in the motion, while useful and stimulating debate toward finding innovative ways to resolve this long-standing dispute, would broaden significantly the scope of the disputes.
All of our efforts to date have been with the goal of working toward a solution that will provide unrestricted access to the U.S. market for the Canadian softwood lumber industry. We will continue to pursue that goal.

Topic:   Private Members' Business
Subtopic:   Softwood Lumber
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