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May 29, 2001
Standing Committees
Economic Development
Meeting topics: 
Economic Development Committee -- Tue., May 29, 2001

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HALIFAX, TUESDAY, MAY 29, 2001

STANDING COMMITTEE ON ECONOMIC DEVELOPMENT

9:00 A.M.

CHAIRMAN

Mr. Brooke Taylor

MR. CHAIRMAN: Good morning, committee members. With us this morning we have Ms. Diana Blenkhorn. Diana is the CEO with the Maritime Lumber Bureau. I wonder if we could begin by asking committee members to identify themselves.

[The committee members introduced themselves.]

MR. CHAIRMAN: We are assisted, as usual, by the very capable Darlene Henry.

Diana if you want to begin, we certainly welcome your presentation.

MS. DIANA BLENKHORN: I have prepared some remarks and I will speak to those remarks; however I won't be reading the text. This is the more formal area you will have for background. I note with interest, of the members of this committee, that virtually every riding represented here today has sawmills in that riding or is affected by it. So it is a pleasure for me to have been invited to appear before the committee and I look forward to good, constructive dialogue at the end of the presentation.

I will just briefly review the Maritime Lumber Bureau. It was founded in 1938 and we like to say it is perhaps the best example of what is possible with Maritime economic unity. It certainly has been successful, and throughout its 62 years of operation we have been able to present a united position on behalf of the softwood lumber industry in Atlantic Canada. I will say at the onset that some of my comments will talk about the Maritimes and others will talk about Atlantic Canada.

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With regard to the softwood lumber industry issue between Canada and the United States, we have always included Newfoundland in our attempts to have an exclusion for the region. It has become an Atlantic Region issue known as the Maritime Accord, so this one instance where Newfoundland doesn't mind being referred to as one of the Maritimes and not simply Atlantic Canada. So don't be confused by that, it is just in the language. Sometimes I talk about Atlantic Canada and sometimes the Maritimes.

In 1998 the Maritime Lumber Bureau became an ISO-registered organization. It is the only organization in North America of its kind to have received ISO registration. The scope of our registration applies to: the provision of administration, inspection, and grading training services to deal with the quality assurance of products produced within this area; certification programs, which are essentially those that deal with the certification that wood which originates in Atlantic Canada is, in fact, from Atlantic Canada as it applies to our exclusion; information dissemination to ensure that all of the mills, regardless of size within the region, are well informed of issues which will affect their competitive position. We deal with all market access requirements on behalf of the solid wood sector in Atlantic Canada, whether that be Europe, Cuba, or the United States. Any market access requirement or any trade impediments are dealt with through the Maritime Lumber Bureau on behalf of the industry.

Quality control and market access are interconnected. You must produce a standardized product within specified grades in order to maintain market access and, without access to export markets, even the highest quality products cannot be sold at today's production levels.

The issue that is of primary importance at this point in time is the threat of restrictions to the United States market, and most of my presentation this morning will deal with that. It is the most important and critical issue that is facing the softwood lumber industry in Atlantic Canada today. All other issues have been prioritized below this particular issue and I will show you in a few moments why it is of critical importance particularly here in Nova Scotia, but certainly to all of the Maritimes.

There has been much discussion in the media of recent days - and I see that Darlene has put together a wonderful briefing book, and I have to commend her on this - on this particular issue. What has not been well talked about in Canada is that there have been two softwood lumber agreements that have held during the past five years. One of them is the softwood lumber agreement which affects four provinces - Ontario, British Columbia, Alberta and Quebec - and it provided for a quota or a limit of the volume of wood that would cross into the United States. That agreement was in place from April 1996 and it just concluded on March 31st.

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The second agreement, which is talked about much less, is an agreement that covered the four Atlantic Provinces - Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland, and essentially that agreement recorded the historic of why we have always been exempt in softwood trade wars between Canada and the United States. It provided for unrestricted market access for softwood lumber shipments originating in the four Atlantic Provinces, and it provided protection against eventual litigation. That particular agreement we had hoped would not expire, that we would be successful in renegotiating or renewing but sadly it expired on March 31st as well; it was interconnected to the Canadian solution.

I briefly went through those points of what the agreement did. I would like to just talk a little bit about the history of our relationship between Canada and the United States. In 1986, which was the first big countervailing duty case but actually the second action against Canada, 92 per cent of all the Atlantic Canadian shipments to the United States were excluded through company-specific exemptions; the balance of Canadian shipments of lumber to the United States had a 15 per cent countervailing duty penalty applied to it. Now that 92 per cent of shipments was represented by five companies in the Maritimes in 1986, and not a single company from Nova Scotia applied for company-specific exclusion because there was not a single company exporting to the United States in 1986.

I should have said at the onset, the way we deal with this issue is always an aggregate. There is a really good reason for doing that, but for the purposes of this committee I am breaking out some Nova Scotia information - is this media? Okay, because we are very sensitive where media is concerned.

One year after the countervailing duty went into place in 1986, we realized that all Maritime companies should be excluded, that there was a potential for export. We were having problems with traditional markets in Europe and we worked collectively with the United States industry, the United States Government, and the Canadian Government, and we secured an exclusion for the entire region, but that exclusion was not from countervailing duty law. That exclusion was from the memorandum of understanding which is an agreement Canada negotiated with the United States to keep the money in Canada that would have been collected through that countervailing duty tax.

So countervailing duty was 15 per cent and that rolled, one year later, into a memorandum of understanding and an export tax that applied within Canada. The export tax went into place January 1, 1987, and it stayed in place until Canada decided to terminate the agreement in 1991. When that agreement was terminated, it was unilaterally terminated without consultation with the United States at the urging of the Province of British Columbia and I can explain why that took place. Essentially, there was a 15 per cent export tax, however, if provinces increased stumpage rates or it went to a more market-based system, that export tax could be reduced. At the end of 1991, British Columbia was zero, Alberta was still at 7 per cent, Quebec was at 2 per cent and Ontario was at 15 per cent; we had been

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excluded so it didn't apply. What it meant was that there was little ability to move downward in low markets in certain provinces so they requested the agreement be terminated.

The United States Government immediately retaliated with a self-initiated countervailing duty case which went into place on October 4, 1991. For the first time in United States history a political subdivision of a country was excluded from countervailing duty legislation and that was Atlantic Canada. The U.S. Government recognized our unique circumstances, why we had been previously excluded, and in their own self-initiation, essentially excluded us and this is why and I will talk more about it.

In Canada, using the entire Canadian production, 93 per cent of softwood lumber comes from Crown land; only 7 per cent comes from private. Of that 7 per cent that comes from private . . .

MR. CHAIRMAN: Excuse me, Diana. Do you think you could talk into the microphone while you are doing this?

MS. BLENKHORN: Oh, I'm sorry. In Canada, of all the softwood lumber productions, 93 per cent comes from Crown land. Most Canadian provinces are completely controlled by the Crown, so when you are looking at the entire Canadian aggregate, 93 per cent comes from Crown, 7 per cent comes from private. We in Atlantic Canada represent 80 per cent of that 7 per cent. If you look at the specific circumstances, and I have jumped ahead, of why we have been considered unique by the Americans, is even back in 1994 and 1991, 61 per cent of the softwood lumber that is produced in Atlantic Canada comes from private land, compared to 7 per cent for all of Canada. That mirrors exactly the situation in the United States, so they recognize the unique circumstances which exist here and excluded us from the 1991 self-initiating countervailing duty case. I'll leave that on because I am going to refer to it again.

At the close of that countervailing duty case, which initially imposed a 14.47 per cent countervailing duty against Canadian shipments of softwood lumber which was later reduced to 6.5 per cent - again, we were always exempt - when the countervailing duty case was resolved through the dispute resolution panel, a mechanism under NAFTA, the United States industry threatened a constitutional challenge against the United States Government and that was of serious concern to all in Canada, particularly had they been successful, it could have restricted the right for administrations to go into trade agreements like NAFTAs, like WTOs.

Canada entered into a series of consultations with the Americans in an attempt to permanently resolve the long-standing issue over softwood lumber. Those consultations soon became negotiations and as a result of those negotiations, we entered into the softwood lumber agreement I just spoke about and the Maritime Accord because once again, the United States recognized the unique circumstances in Atlantic Canada. As a result we maintained free trade throughout the past 15 years. People refer to what has happened recently as the five

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year exemption, it has not been a five year exemption, it has been a 15 year exemption for the industry in Atlantic Canada.

Under that agreement that I just spoke about, the most recent agreement, we had certain obligations. Those obligations were that forest policies would not be changed to have the effect of reducing stumpage on the limited amount of Crown land that existed within the province this year. Although the forest policies didn't change, the forest policy at the time would have allowed for a reduction in stumpage prices within Nova Scotia. The reason for that is stumpage was always based on the indexed wholesale selling price of lumber within Atlantic Canada. What happened, as a result of the quota being in place for other provinces, is wood from behind the quota came into our market, our wood started going into the United States and the wholesale selling price of lumber in Atlantic Canada was much less than what our producers were actually getting in the United States.

For the first time in history the industry asked government not to give them the reduction. I personally contacted all 22 licence holders in the province, recommended that a $5.00 reduction in stumpage, which the policy would have provided for, would not be wise given our exclusion, and the industry asked the government not to reduce it. Essentially, we more than maintained our obligations with the United States during that period of time, and the industry continued to operate responsibly.

MR. JOHN MACDONELL: Could you explain that to me.

MS. BLENKHORN: Sure. The forest policies, stumpage, there is a very set-force policy and there is a basis that keeps us market-based. If the index price goes up, then stumpage goes up, and this is before the changes that are just before you now. I am going back in history. If the index selling price within the region went down, stumpage was reflected accordingly, we were market-based.

What we realized during this period of the agreement is that shipments in Atlantic Canada or the selling price of lumber in Atlantic Canada was not fairly reflecting what our producers were getting for their product because the selling price of lumber in Atlantic Canada was based on wood from other parts of Canada coming into our market behind the quota. It was lower, in some instances as much as $150 per 1,000 board feet, the average over time was probably in the area of $35 to $50 per 1,000.

I may be wrong in my years but I believe it was 1998, based on the previous year's index selling price in the region, stumpage could have been reduced within the province. It was not reduced. Legislation wasn't changed. The industry simply asked for the previous year's rates to stay in place.

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The other obligation of the agreement was that we certify wood that was originating in Atlantic Canada through certificates of origin. The reason for that was the American industry and government were quite concerned that by granting an exclusion to this region that we would just actually backfill for quota that was taking place through Quebec or other provinces, it would be shipped through Quebec, through New Brunswick, into the United States or, simply falsely declared at the border.

We had to put in place a certificate of origin program which virtually tracked every single shipment of lumber which originated in the four Atlantic Provinces. That certificate of origin program was implemented on April 1, 1996. It remains in place today and it is one of the single most important reasons why we are likely to be excluded again. The program was put in place by the Maritime Lumber Bureau on behalf of the four provinces. We have contractual arrangements with each mill that governs how they use certificates. It is very strictly controlled, how certificates are issued. It is only issued to processors of roundwood, it is not issued to wholesalers, it is not issued to re-manufacturers because essentially we control the origin of the log.

It is so tightly controlled that it does not even permit for roundwood coming from Quebec to be processed in New Brunswick to be covered under certificate of origin. It is simply logs which were grown in Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland or the State of Maine, and its design was to protect the 72,000 private landowners that exist here, and the industry.

It is the only program of its type that exists in Canada. There is not another program that so strictly monitors the transfer of lumber or any product that we are aware of. We were obligated to give quarterly reports to the United States Custom Service, we reconciled numbers quarterly, determined where, if any, circumvention was taking place from provinces outside of the region and worked to resolve those.

The unified position of the industry has been and continues to be, the industry and the provinces, that no trade remedy should apply to softwood lumber shipments in Atlantic Canada in this current dispute, and no-trade remedy, simply stated is no countervailing duty, no anti-dumping penalties and no export tax levied by the Canadian Government. We have a proven history of being exempt with the unique circumstances here being recognized by the proponents or protectionist movements, if you will, by the United States. They have continually not made allegations against this region.

The obligations under the most recent arrangements have been maintained and we continue to exercise due diligence in ensuring that softwood lumber, which is declared as originating in Atlantic Canada, does originate here, provided that it is accompanied by a certificate of origin.

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The Maritime Provinces or the four Atlantic Provinces have had free trade with the United States in softwood lumber and logs throughout the various trade disputes between the two countries. The history dates back to the Webster-Ashburton Treaty of 1842, components of which are still in force. The simple fact which has supported the status and as I have demonstrated here, is we are unique in Canada. I want to show you just a few more slides of what this means to Atlantic Canada.

This particular slide basically just goes from the pie chart that I showed you before. The wood area is the total production in all of the Canadian provinces. The coniferous or the green forest areas is the Crown production represented by each province and the deciduous is the private production. You see very quickly that only in the Maritimes is the Crown a residual supplier. In every other Canadian province the Crown is the primary source of supply for the softwood lumber industry and this illustrates why it is an issue.

The far left column is the volume of production in British Columbia; the green is Ontario; the purple, Alberta; the smaller areas, the Prairies; the light mauve, Quebec; and the last line, the orange, is the Maritimes. Remember, in this instance the Maritimes are four provinces which are vitally dependent on softwood lumber or forestry and we are still very small compared to the rest of Canada. This shows you our increase and although we have had an increase in production over the period from 1992 to 1999, we are still only 2.1 billion board feet, compared to 14.4 billion for British Columbia and Quebec's growth has been phenomenal, they are now up to almost 8 billion board feet and again, we are four provinces added into that number.

This particular slide actually identifies the history of our exemptions from trade disputes. The first bar is 1986, with the memorandum of understanding which imposed a 15 per cent duty. In 1991 is the countervailing duty which was 14.47 per cent, as I have said, and later went to 6.57 per cent. In 1996, the most recent agreement which provided for quota, it is believed that the effective quota, if you were to calculate it in a percentage, would be between 15 per cent to 16 per cent additional effects on the cost. So the solid line at the top is what happened to United States consumption during the periods that we are referring to and this line is Maritime production.

There is a lot of debate that Atlantic Canada has been exempt so you have increased your shipments and it has not been fair to the rest of Canada. What this slide actually demonstrates is that we have not increased shipments because of an exclusion, we have followed market share in the United States. The first exclusion was here at 15 per cent. The market fell off - if I were to show you this enlarged - we fell off. Here we had a 15 per cent exemption again and only when the market in the United States went to 56 billion board feet for the first time in its history, did our shipments increase. It was not as a result of being excluded and the rest of Canada is suffering, that goes through the entire period of time. However, this is the enlarged version of that small dotted line and now we become the solid line. You can see how we followed the market relatively flat despite an exclusion in 1986.

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An exclusion in 1991 started to creep, but not major, we are still talking less than 0.5 billion board feet of lumber, coming in that area, but in 1996 when the U.S. market increased, so did we.

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If there was ever any question of whether it was market demand and not an exclusion, the dotted line is what happened to offshore imports into the United States. Our competitors from Sweden, Finland, Norway, Austria, that is the volume of wood base shipped into the United States. We have a longer border with the United States than we do with the rest of Canada, but yet their supplies are coming from the other side of the Atlantic Ocean in volumes now that actually are equivalent to what is coming from Atlantic Canada.

Let me show you what the last five years have meant to Nova Scotia. You will remember I said in 1986 with the first countervailing duty case, there wasn't a single company in Nova Scotia that applied for a company-specific exclusion. One year after that, we asked for a blanket exclusion for the entire region, realizing that we needed to demonstrate these unique circumstances. When I speak of these things, I should have said at the onset, I have been with the bureau for 25 years; I was involved in the 1986 case and the presentation and at the table.

Thinking of 1986, without a Nova Scotia company shipping, thinking of most of Nova Scotia wood previously going overseas until 1993 with the prime wood nematode ban, look at the impact of the last five years on softwood lumber shipments in Nova Scotia. I would never show this slide outside of a committee like this within the province because we deal totally on aggregate numbers and there are reasons for doing that. Nova Scotia has a higher volume of private land than New Brunswick does, but New Brunswick has higher stumpage fees and when you put everything together and aggregate, it gives us a very tight picture and we don't talk provincially.

In 1995 when we negotiated the Maritime Accord, Nova Scotia exported 74.3 million board feet to the United States at a production of 302 million. By the year 2000 Nova Scotia was exporting 485 million board feet of lumber to the United States out of a production of 665 million. We have had a decrease as an aggregate in the year 2000 from all provinces in the Atlantic Region except for Nova Scotia which is another reason why we use things on aggregate.

The importance of renewing this agreement is critical to the softwood lumber industry in this province. If we were to find that at the end of the current countervailing duty dispute, we were involved in an export tax and we had to compete in the open market with 74.4 per cent of our supply coming from the private wood sector and a tax, whether it be an export tax or countervailing duty penalty or an anti-dumping penalty, we would not be able to compete with the rest of Canada. We certainly wouldn't be able to compete with those supplies I just

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showed you that were coming from offshore and have the potential to increase dramatically into the United States. This is Nova Scotia's shipment compared to Maritimes and you will see 1999 when the United States market peaked at 56 billion of consumption, the region peaked. It fell off in the year 2000 when the market declined. You can see Nova Scotia compared to that.

I just would like to go back to this earlier slide. It was 1994 numbers that the 1995 agreement was based on and in 1994 of total Maritime production, 61 per cent came from the private landowner, and that is all private landowners in Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Maine because there is a fair exchange of logs from Maine coming this way. Any increase that we have had in production over that period of time has not come from an increased harvest of Crown land. It has come from an increased harvest from the private landowner who, when the market went up, in many cases put its land into productivity. By 1999, 74.4 per cent of that growth, that 2.1 billion, was coming from private land in the region.

Not only has the strength of the market and our ability to have market access assisted the industry, it has assisted the private landowner. It has allowed us to put things into place like the stewardship contracts in silviculture arrangements and all of the things that we have been wanting to do - and I will remind my friend, Mr. Downe, that we worked so hard at one point in time - it has allowed those things to take place. All of my colleagues in this room, Brooke, those things have been so positive for the health of the industry here, had we not had market access and not been able to sell our products elsewhere.

I was looking - not for this presentation, but for something I was doing in the United States - back in 1967, of the total Maritime production there was about 130 million board feet that stayed within the region for consumption. It is not very different today. The volume of our own wood that stays here for our consumption, given our population and the demand, is similar to what it was in 1967. Without the export markets, we wouldn't prosper.

In conclusion - again I have tried to make this brief so we could spend most of our time in questions and answers - over 60 per cent of the productive forest land is privately owned. That should not be confused with the 74.4 per cent that goes into softwood lumber. I am talking now about land mass. On aggregate, over 60 per cent of the productive forest land is privately owned, but 75 per cent of the softwood lumber production comes from private land, because wood from Maine is coming in and that is factored in. There are over 72,000 private woodlot owners who contribute to their livelihood through good stewardship of their forest land. As a result, 74.4 per cent of Atlantic Canada's softwood lumber is derived from private sources in both Canada and the State of Maine.

This compares, as I pointed out, to only 7 per cent of softwood lumber from all of Canada originating from private land. Despite the fact that we are responsible for only 3 per cent of United States consumption, Atlantic Canada is responsible for 80 per cent of private

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lumber production in Canada. The facts supporting an escape from any trade remedy imposed by either Canada or the United States for softwood lumber shipments originating in this region are as valid today as they were in 1986 when they were first recognized. There have been, and continue to be no allegations of subsidies. Stumpage rates in this region are market-based, and after 14 years of maintaining free trade with the United States we continue to be considered fair traders. Any increase in production and exports rose and fell with the market demand. Most importantly, the increase was sourced from private landowners who in times of good markets attempt to reap the rewards of their labour, and in poor markets they quickly reduce the available supplies at their choice. The system is market-based.

The Maritime Accord, which allowed for this continued free access, expired on March 31st, as did the overall Canadian softwood lumber agreement. As expected, on April 2nd the United States filed an anti-dumping and countervailing duty petition with their government and, as expected, there again were no allegations against the Atlantic Provinces. The United States' petition which they gave to their government specifically states, and I will read this quote, "The softwood lumber products that are subject of these Petitions are produced in Canada. As explained in Section VII below, Petitioners do not allege that softwood lumber production in the Atlantic Provinces benefits from countervailable subsidies. This portion of Canadian production should be treated as it was in 1991-92." In 1991 and 1992 we were exempt and, as I said, from the first time in history was that acknowledged.

However on April 24th, when the United States Administration initiated an investigation on the petition, regrettably they did not take the petitioners advice and, in fact, Atlantic Canada was included in the notice of initiation. What the U.S. Department of Commerce did was leave the door open and provide us with 15 days for comments on a streamlined exclusion approach.

I will deviate from my text here and explain to you the real implications of that. Had we been excluded from the initiation, then any countervailable subsidies, our volume would have been reduced, taken out of the Canadian volume. So if the Canadian shipments to the United States are 28 billion board feet and ours are 7 billion board feet, it would come out, and any affirmative determination of subsidies would have been applied to just that remaining 21 billion board feet. By leaving us in the initiation and excluding us after the fact, if there are affirmative countervailable subsidies determined, the subsidy rate will be lowered by the 7 per cent.

So it is in the Canadian interest that we be included in this notice of initiation and politically, probably in the U.S. Administration. However, on May 8th, the Maritime Lumber Bureau counsel and counsel representing the four Atlantic Provinces - because as I have said, we have had a completely unified position going forward and it is one that has not had partisan interest exposed - it is one that has been maintained completely unified between the four provinces, governments and the industry - we filed a brief with a request for

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reconsideration of the unique and the historic position of the four Atlantic Provinces. We requested that a justifiable blanket exclusion of all Atlantic Canadian lumber products be honoured because of our unique and historic market-driven trade with the United States. Our detailed brief argues in favour of the exclusion of all four provinces from the scope of the investigation, which goes back to taking our numbers out, not going under investigation.

Specifically, the submission to Secretary Evans stated, "On behalf of the governments of the Canadian provinces of New Brunswick, Nova Scotia, Newfoundland, and Prince Edward Island . . ." for these purposes known as the Maritime Provinces " . . . the Maritime Lumber Bureau of Canada ("MLB"), the certified lumber grading organization for these Provinces . . ." which is ISO registered " . . . and the lumber producers in each of the Maritime Provinces, we hereby request the Department to reconsider its decision to include the Maritime Provinces in its countervailing duty ("CVD") investigation of softwood lumber . . . In its notice of initiation the Department included the Maritime Provinces in its investigation despite the fact that Petitioners made no allegation that producers in these Provinces benefit from any countervailable subsidies."

Now, the distinction here is when we add Maritime Lumber Bureau and the producers because the work of the Maritime Lumber Bureau is not limited to its members. The work of the Maritime Lumber Bureau is on behalf of the entire industry within the four provinces. We would not envision any circumstance whatsoever where there was an operating facility that, for whatever reason, didn't get its quality control from our services that was not exempt. It is 100 per cent coverage for exclusion.

We are currently awaiting the ruling of the United States Department of Commerce. I was hoping that before I came here today, and one of the reasons I was happy when Darlene changed the date from May 15th to 29th, is I thought we may have some indication of what that ruling would be. It may come while I am on my way home. It may be days from now. They are not obligated to give us any ruling until June 27th. However, if they wait that long, they will effectively restrict the ability for companies to go individually rather than looking at a blanket exclusion.

Finally, there will be discussions going on later this week of the possibility of a negotiated settlement, rather than continuing in the route of litigation, which we are now at given that the United States has brought countervailing duty charges against Canada and our position remains clear - no trade remedy. There are unique circumstances that must be recognized and respected and no trade remedy means no countervailing duty, no anti-dumping and no export tax imposed by Canada.

Mr. Chairman, that concludes my official remarks and you assured me it would be informal and I would be happy to answer any questions.

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MR. CHAIRMAN: Thank you very much, Diana. I just wanted to ask a quick question. When the export tax was in place some time ago, was it administered by the Canadian Government?

MS. BLENKHORN: Yes.

MR. CHAIRMAN: Those funds - did they just go into the federal Treasury or was there a dedicated fund?

MS. BLENKHORN: The funds that were paid were returned to the provinces where they originated, but they were not allowed to go back to the industry. I mean by that previous export tax.

MR. CHAIRMAN: Is there any way of knowing as to whether or not they did in fact go back to the industry? We used to have the federal-provincial agreements in place, we don't anymore. I know this is like rehashing an old argument, but the fact of the matter is, if I were in the United States' position, I would have more difficulty with the export tax than I would with a softwood lumber agreement or a Maritime Accord. At least you know the parameters that are in place and you would have some control. In the Maritimes, it is more or less site specific, so I was just concerned about . . .

MS. BLENKHORN: I can answer you that they didn't go back to the industry here because we didn't collect any from here - we were excluded. If they went back to the industry in other provinces, I am not sure. You have drawn into how the U.S. industry would react. I think the U.S. industry would prefer a negotiated settlement. My contacts with them would indicate, rather than going into a confrontational, litigious route, they would prefer a negotiated settlement. But an export tax will not have the same simple escape clause that it had previously if that is what ends up coming because Canada unilaterally terminated that export tax and forced the United States back into yet another countervailing duty case.

MR. CHAIRMAN: When the United States lumber industry basically stated that they didn't feel that Atlantic Canada received any subsidies - in fact, they have stated that specifically - conversely, did you say the United States Commerce Department still wanted us included in the countervailing duty investigation? I am just wondering - we are sending in submissions to support . . .

MS. BLENKHORN: I am not sure . . .

MR. CHAIRMAN: Well, I would just like to finish, if I can and then I will leave it to committee members, but . . .

MS. BLENKHORN: Sorry.

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MR. CHAIRMAN: . . . when the countervailing duty investigation concludes, if it hasn't already, I am wondering what is the United States department responsible for investigating? If, in fact, they are not just going to entertain submissions from the Atlantic Canada producers and the Maritime Lumber Bureau, it must be an all-encompassing investigation? It is.

MS. BLENKHORN: Questionnaires are out now. The questionnaires were - there were 17 programs named for the Province of British Columbia, 6 programs named for Quebec, 4 for Alberta and I believe, 3 for Ontario, plus 3 federal programs. Questionnaires go to the federal government and then there is the section for each province and our province has the questionnaire now. We have been working on responding because the deadline for response is June 7, 2001. We are still hopeful of two tracks - one, even if we have to submit that - let me go back; we are hopeful that they will amend their notice of initiation, take us out of the scope and then that questionnaire will not have to be filed. If that doesn't happen, we believe they made a commitment for the blanket exclusion approach. The questionnaire from the province will have to be filed and it will be factored in, but none of the named programs apply here, so it is simply not applicable.

MR. CHAIRMAN: Some of the producers in my riding - and there are some rather large mills - they are very troubled that the industry in the United States seems to accept the fact that we are not subsidized, so to speak, because of the majority of the production coming off private land, but yet the United States Government is investigating us. That is a major concern, something we perhaps can't do anything about at this particular time, but it is troubling for the producers.

MS. BLENKHORN: I don't know if it is appropriate for me to speculate at this particular committee level.

MR. CHAIRMAN: I wish you would. I hope you do.

MS. BLENKHORN: I certainly don't want to be levying allegations, but the United States Government's decision to include us in the scope so that the rate our volume would stay in and the overall Canadian rate would be lowered, may not have been their idea alone.

MR. CHAIRMAN: No, I think they had some help. Any other members? Mr. Epstein.

MR. HOWARD EPSTEIN: On that point then, can we just think that through and if the volume from the Maritimes is included in the total investigation that the Department of Commerce is undertaking, and if in the end they find a violation of their countervail rules, will they not want to apply it to the whole of the industry in Canada? Does that not mean that by reason of being included at the beginning, we are forfeiting any opportunity to be exempted and, if not, why not?

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MS. BLENKHORN: First, none of the programs that were named apply here. There are specific programs. The U.S. coalition was very careful to name the Western Diversification Program that exists in British Columbia and Alberta, but not ACOA. It named the Ford Q Program that exists in Quebec, but not ACOA. None of the alleged subsidy programs exist here. What they will do is determine a subsidy rate, this is what we are expecting. Now, if the lid comes off this and it changes, it is a different dynamic, but I have no reason to believe that is where we are headed.

What we expect is that under countervailing duty law, the provisions of the law for a blanket exclusion will mean that every company that exists here will be on a list and have a company-specific exclusion, zero based is what it is called. They will take the total Canadian production, determine a subsidy and divide the subsidy rate by the production and shared by the affected provinces.

MR. EPSTEIN: Isn't that an inconsistent basis of analysis for them . . .

MS. BLENKHORN: That is exactly what happened in countervailing duty in 1991. We were excluded but the volume stayed in. It is exactly what happened in 1986.

MR. EPSTEIN: I guess all I am saying is that it still seems a very peculiar basis for them to do analysis on total volume if they are going to exclude the volume of some producers at the end. It benefits . . .

[9:51 a.m. Mr. Brian Boudreau took the Chair.]

MS. BLENKHORN: I agree with you. It would have been simpler if we had been outside, but those are some of the peculiarities of their law. To be perfectly frank, one of the reasons our volume is in is that there are question marks within U.S. countervailing duty law whether they could exclude us from the scope and survive a challenge. There were Canadian provinces threatening a challenge to the WTO if they were to exclude it from the scope for the fourth time.

MR. EPSTEIN: Apart from how you think the result will turn out for the Maritimes, because I take it that you are still very optimistic, what do you think the result is going to be for the rest of the country?

MS. BLENKHORN: I am very concerned that the rest of the country will have a - I mean, they sought penalties in the area of 74 per cent. Even if you take that in half you are looking at 35 per cent. If you take it down a quarter you are still looking at a penalty in the area of 15 per cent. We will not escape, as a country, without penalties. Then the political reality of Bush losing control of the Senate this weekend is going to exacerbate that situation even further. In fact, one of the most powerful senators in the United States is Bacchus, and

[Page 15]

Senator Bacchus has been the primary proponent of a protectionist movement from the United States industries. Canada, as a country, will not escape.

MR. CHAIRMAN: Mr. Chipman.

MR. FRANK CHIPMAN: I thought Mr. MacDonell - are you not ahead of me John?

MR. JOHN MACDONELL: That's what I thought.

MR. CHIPMAN: Mr. MacDonell is ahead of me, Mr. Chairman.

MR. CHAIRMAN: Mr. MacDonell. Sorry, the names are here.

MR. CHIPMAN: As long as he is not too long.

MR. MACDONELL: I will give some space. Ms. Blenkhorn, thank you for your presentation. I can see that this is not absorbed easily in one sitting. A couple of questions right off the bat. Am I to understand that there is a 15 per cent countervail that is actually collected by the Canadian Government?

MS. BLENKHORN: There was in 1991.

MR. MACDONELL: There was in 1991, but that wasn't the case when this last Maritime Accord expired?

MS. BLENKHORN: No, it was quota. Canadian shipments were held to 14.47 billion board feet. If they went over that and it was allocated company by company, if they went over their allocated quota they paid a penalty of between $50 to $100 per 1,000 board feet of lumber.

MR. MACDONELL: The numbers you showed us for wood volumes didn't include wood that is cut for pulp in this province, right?

MS. BLENKHORN: That is right.

MR. MACDONELL: This will be round logs or lumber that would be . . .

MS. BLENKHORN: Most of what we cut in the province now goes to solid wood first and then it ends up in pulp. No, it does not include cut for pulp, that specific for pulp; it includes that which finds its way to a mill.

[Page 16]

MR. MACDONELL: Okay, would you mind putting up that slide, of just Nova Scotia, you said if it was anything else but this committee, you would speak in aggregates and you wouldn't speak about this province.

MS. BLENKHORN: Right. I felt it was fair to share with the committee.

MR. MACDONELL: Now, that 665.1, is that million board feet?

MS. BLENKHORN: Yes, it is.

MR. MACDONELL: How is your conversion, I mean personally, your math, back to what that means in either metres, cubes, or cords, could you tell me that?

MS. BLENKHORN: I don't have it off the top of my head, but I think metres cubed roundwood is a conversion of 5.6, I can get it to you if that's what you want. We don't do it in cords.

MR. MACDONELL: Okay.

MS. BLENKHORN: Some provinces do cubits, some do cords, some do metres cubed, and we have to covert it all into one denominator, so for the presentation we do metres cubed.

MR. MACDONELL: I guess my question is, if I was to talk in metres cubed, the number would be going up, I mean we would be reducing it from metres cubed to get to board feet, am I right?

MS. BLENKHORN: Yes.

MR. MACDONELL: And that's for Nova Scotia?

MS. BLENKHORN: Yes.

MR. MACDONELL: Because the numbers that the department put out, what they would say from their registry of buyers is in the range of 6 million metres cubed, which I converted to about 3 million cords - I think there is, roughly, 2 metres cubed to a cord - which converts to about 1.5 million board feet, which is a big difference from 6.65 million . . .

MS. BLENKHORN: Well, I am not sure on that conversion factor that they are using, but we have to take those department numbers from the buyer registry and convert it the other way. We have done that recently, because the department doesn't collect any production number. That number could be right, because the wood from Nova Scotia is going into New

[Page 17]

Brunswick and into Quebec. It is not simply sold in this province. This is what is produced here.

MR. MACDONELL: Right. But this . . .

MS. BLENKHORN: If you convert that to roundwood - and I don't have the number in front of me - you will always have a larger volume of solid roundwood than you do of production, because the effect of the private landowner in Nova Scotia is wood is exported, soft roundwood is exported.

MR. MACDONELL: So you are saying the number in roundwood would be larger than the number . . .

MS. BLENKHORN: Yes. That makes perfect sense from that number.

MR. MACDONELL: It doesn't make sense to me what this number is compared to what your number is. Anyway, I will talk to you on some other point . . .

MS. BLENKHORN: Well, you are saying 1.1, and it is conceivable to me that we have the equivalent of 400 million board feet of lumber exported in logs. It is conceivable. Being Maritime, I know the mills in New Brunswick and the mills in Quebec that use Nova Scotia wood.

MR. MACDONELL: Okay. I will let somebody else have some questions. I have some more.

MR. CHAIRMAN: Mr. Chipman.

MR. CHIPMAN: Maybe this is not an area that you would like to comment on but we talked stumpage rates here some time ago at Kimberly-Clark, but then we got into other issues there. One of the comments made was that they pay it in tons, but there is also metric, which is tonnes, and there was no differentiation made at the meeting. It is very confusing for producers out there to know how much they are actually getting paid. When you are paying by the cord it is very simple. I can tell you about one producer who sells to three different places and he gets three different rates per ton, so it is very confusing. I mean we are not all educated in the metric system and I know my colleague here has mentioned that we should have a single unit for measurement. Now we are using tons, we are using metric tonnes, we are using metres cubed, and it is confusing and it is hard to get a proper picture.

Anyway, we were talking about unfair subsidies in the export market, but I know when we met with Kimberly-Clark they said they were paying so much a ton for wood and so many cords or whatever. This may not be your area of expertise, but how would you differentiate between cords of stud wood versus cords of pulpwood? I know the difference

[Page 18]

myself, but when you are paying for stumpage how do you differentiate? I mean there is a big difference. You can take stud wood and sell it in a 2' x 4' or 2' x 6' . . .

MS. BLENKHORN: Well, you don't get much 2' x 6' out of stud wood, but some, a little.

[10:00 a.m.]

MR. CHIPMAN: No, but there is some and some people want the larger ones. How do you . . .

MS. BLENKHORN: In stumpage rates?

MR. CHIPMAN: I guess what I am saying, is this something the U.S. is looking into?

MS. BLENKHORN: That doesn't even form a component of the questionnaire. I think it is something that we want to look at and ensure is fairly reflective within the province. I wouldn't discount or reject it. One of the things that we have always looked at is the effect between sawlogs and stud wood and at the end of the day pulpwood. But with most of the pulp companies closing their wood rooms and the wood going through the sawmill first and generating what can come out of that, previously would have gone to a pulp mill. Some of the problem has been corrected. There is some work left to be done. It is a little bit separate from this.

MR. CHIPMAN: I think it was Mr. Erskine or Mr. Rees, they said they were selling it for $300 per thousand U.S. Now this article that was in the paper on May 8th says $305 U.S., so we never did really get a clarification on that. Is there any profit in that? I believe it was Mr. Erskine from MacTara who said that they were losing money. Is there any money in it at $305 U.S.?

MS. BLENKHORN: I can't comment there, not because I don't want to, but because I don't know. The reason I don't know is the association under competition laws stays away from any pricing area, whether it would be a dumping issue, whether they are making a profit or not. I simply don't know.

MR. CHIPMAN: They said they had been losing money and $300 Canadian to ship it to the U.S. isn't a lot of money; $300 U.S. is a different story.

MS. BLENKHORN: If it is Canadian, it would not cover their costs when you look at what the cost of the raw material is. You have your Crown costs, which is market-based somewhat, but your private cost is generally higher.

MR. CHAIRMAN: Mr. Epstein.

[Page 19]

MR. EPSTEIN: Can you just take up again this question of volume of production and exports out of province of unprocessed materials. Is this something that your bureau has any concerns about or a position? I assume that since you are an interprovincial group, you don't have a position. Is that right?

MS. BLENKHORN: That is correct.

MR. EPSTEIN: Then let me ask the question this way. I take it that the existing number of sawmills in Nova Scotia wouldn't be able to handle all the production. Is that correct or is that not correct?

MS. BLENKHORN: Not correct.

MR. EPSTEIN: Not correct, okay. So does it mean the plants are sitting idle part of the year?

MS. BLENKHORN: No. The plants are operating within what the market will tolerate. Could the plants process additional volume? Yes, if the market would tolerate it.

MR. EPSTEIN: Meaning the local market in the province?

MS. BLENKHORN: And export market; just the North American market. Are you asking the question, as I understood it, if the plants were sitting idle?

MR. EPSTEIN: Well clearly my perspective is, the more production that goes on in the Province of Nova Scotia, the better from our perspective. But that doesn't have to be your perspective. What I need to know . . .

MS. BLENKHORN: There is a difference between my personal perspective as a Nova Scotian and here as the CEO of the Maritime Lumber Bureau.

MR. EPSTEIN: No, that is fair enough and you are here on behalf of your organization. So really I guess what I would need to know is why is it that raw logs are exported from our province? You can speak to that, I assume.

MS. BLENKHORN: There are a variety of reasons. In some instances, raw logs are exported because of the size of the material. Most mills have been configured to do a normal sawlog size. But if you get oversized stock . . .

MR. EPSTEIN: Just for the record, normally you would have something that might be a foot in diameter . . .

[Page 20]

MS. BLENKHORN: Or 5" to 12", in that area. But if you end up with a stock that is 28" across or larger, now that they have gone to different types of debarkers than the traditional area and not a sidearm carriage with a bandsaw that doesn't process those, they move them from one location to another. Some of the Irving mills would move a large log into a different operation. So that is one reason. Another reason is white pine species. Some landowners have a species growing in an area where there is not a mill close by that would process and it moves out of the province, in some instances. Finally, it is just straight economics. The landowner decides to sell it elsewhere, depending on what he views as the highest bidder, and there is no prohibition on it.

MR. EPSTEIN: So with respect to the lumber production that comes out of Nova Scotia mills, where does it go?

MS. BLENKHORN: The lumber production?

MR. EPSTEIN: Yes, after. Because I take it that the slide that you have showed us here, is that finished or processed or semi-processed lumber?

MS. BLENKHORN: That is processed. So out of that 665, 485 goes into the United States.

MR. EPSTEIN: So 73 per cent goes to the United States and the rest goes . . .

MS. BLENKHORN: Europe, Newfoundland is a big export market for us. In current numbers, about 5 per cent of what we produce stays at home.

MR. EPSTEIN: Home meaning here in Nova Scotia?

MS. BLENKHORN: Yes.

MR. EPSTEIN: Okay. That gets me back to the other part about it. Where is this capacity in Nova Scotia that could handle most of the rest of the raw logs?

MS. BLENKHORN: Among the 54 commercial sawmills that exist here.

MR. EPSTEIN: But you told me a moment ago they . . .

MS. BLENKHORN: They are not sitting idle. You asked the question, are they sitting idle. I would transfer sitting idle as are they operating single shifts when they could be double shifts, are they sitting in there only operating six months of the year when they could be operating 12 months of the year, and the answer to that question is no, not because of log supply generated because of exports. Sometimes they have downtime because we have had a rough winter and you can't get logs out of the woods, but in my experience they are not

[Page 21]

sitting idle because of exports. Every sawmill in Nova Scotia would like to see exports cease but one other - this is getting into an area that I didn't talk about because it hasn't been an issue here - component of the allegations from the United States industry is based on log export restraints.

MR. EPSTEIN: Yes, I saw that.

MS. BLENKHORN: Provinces have log export restraints which the U.S. challenges as being a subsidy, constituting a subsidy. The wood is not fairly available across the border if an appropriate bidding price or an appropriate price was paid for it. That doesn't exist here which leads us away from that challenge as well. Now I have answered all of these questions as CEO of the Maritime Lumber Bureau.

MR. EPSTEIN: Okay let me ask a slightly different point. It has to do with supply. We often hear concerns that there is overcutting and we often hear concerns that we are perhaps depleting our supply at a greater rate than we are able to regrow it. I wonder if you have anything you can offer us. You haven't really spoken about that today.

MS. BLENKHORN: No, I have stayed within the trade issue, but I will quickly comment that we share the concerns that the resource continues to provide for multiple uses in a sustainable basis. That means that there be systems put in place that the landowners can continue to replenish or provide good silviculture operations so that there is sustainable supply.

When we hit a peak in a market, like 1999, there is no question that the landowners themselves are more interested in putting that product into a saleable aspect. If you are asking me to say conclusively whether we were cutting faster than we could deplete if we had maintained that 1999 level for 20 years, there is no question, unless you are doing something on the ground, but we have made good progress in changing that. I haven't looked at the GIS numbers recently as to what the private would do. Two years ago we were felt to be sustainable if we started work on the ground immediately, and some of that work took place.

MR. EPSTEIN: I guess that is really a focus . . .

MS. BLENKHORN: There is a concern and it is a fair concern that needs to be watched carefully.

MR. EPSTEIN: What are the steps that could be taken? You talked about replanting, I take it.

MS. BLENKHORN: Silviculture, and silviculture is not simply replanting. It is thinning to make sure we get maximum yield from available stock. Programs generally zero in on planting, they don't zero in on the other work that has to take place on the ground.

[Page 22]

MR. EPSTEIN: I take it from what you are saying that you are thinking we are behind in what we ought to be doing in terms of overall silviculture.

MS. BLENKHORN: I am thinking we need to watch it carefully. We need to work co-operatively with landowners.

MR. CHAIRMAN: Mr. Downe.

MR. DONALD DOWNE: Welcome, Diana. I think for the record I would like to say that MLB has been a very positive influence on the industry and has played a vital role in maintaining our position, relative to the American countervailing process and the industry itself, whether it is the Irvings or government. Everybody seems to have worked this process through and it is no small feat. It always has been commented that your particular leadership has been the kind of cement or the glue that kept everybody together and focused on the agenda and have won. Obviously we are hoping that this will be continued in this round.

I would say although the Premier is going around talking about a number of different issues with other Premiers, I think our biggest worry and enemy is our own provincial governments west of here. Quite frankly, I think they would sell you down the river in 30 seconds for a half cord of wood. That is where I see the enemy at this point. The Americans are going to play their game and we know that enemy but I fail to see British Columbia or Alberta or some of these other provinces, they see us as simply a way of reducing the inevitable cost of the countervailing tax to their producers, you know. They want Atlantic Canada to subsidize western production. I think our Premier and our Premiers of Atlantic Canada, should be totally focused on where we are being undermined, especially when you go down to these hearings and you are having Premiers from other jurisdictions undermining having a national slandered position.

My sense is that the federal government has hopefully not fallen in the trap. Different comments and information that I have seen have been brought to the attention of Pettigrew that, don't swallow western ideology here, there is a main Atlantic initiative that has worked, is real and is fair. I think they have tried to - according to Cabinet Ministers that I have talked to - Canada has made it very clear about the Maritime Lumber Bureau and Atlantic Canada's position. I would ask you to clarify that for me if you will because I have two Cabinet Ministers who have told me one thing and I am anxious to hear what your comments are with regard to what Ottawa's position has been.

MS. BLENKHORN: First I will go back to provincially. We have been fortunate since 1986 to have had the complete support of the Premiers, regardless of political affiliation and we maintain that today and I have no criticism of past or present. With regard to Ottawa, it is a little more difficult.

[Page 23]

British Columbia represents 56 per cent of all softwood lumber produced in Canada. They may not necessarily have the ear of Minister Pettigrew any better than we do but they have a bigger stick. Minister Pettigrew and the current administration have done a good job in seeking Canadian unity. Where there is a problem - and the criticism doesn't belong with him - is that there cannot be Canadian unity unless there is respect for different circumstances. The simple fact is that the Province of British Columbia, specifically, has gone out of its way - as you absolutely put forward - to request the Canadian Government to include, enrol Atlantic Canada into this situation. The Canadian Government hasn't responded positively but neither have they responded negatively.

We are in a situation where they are trying to go forward with Canadian consensus. So when we were getting to the period of after the petition was filed, before the United States Government initiated on the scope, the Canadian Government was not representing anybody's position because - and you zeroed in on it - some provinces were actually negotiating in Washington to harm us.

MR. DOWNE: There is no question about that.

MS. BLENKHORN: So I can't be critical but I can't be complimentary, I simply say the jury is out and it is time for them to stand up and say, if there are no allegations, all the comments are right, we deserve free trade, we should have free trade. We have a NAFTA. My comment to Minister Pettigrew and to others is, if you look at things globally, which we should do, the NAFTA is simply a regional trade arrangement under the WTO. It is a North American trade arrangement, which is regional on the globe, under the World Trade Organization. The situation of the Maritimes should be a regional agreement under the NAFTA. We don't have to penalize the entire country in order to solve this issue. There are no allegations. That is my solution. That is not the way we are going.

MR. DOWNE: It is interesting. I don't know what is being said privately but when you have Brian Tobin and the Hon. Robert Thibeault and other ministers from New Brunswick who understand the lumber industry and the position we have taken . . .

MS. BLENKHORN: They have been very supportive.

MR. DOWNE: . . . as a unified, non-political body for all these years, my understanding is that Pettigrew has been saying, very clearly, that Atlantic Canada was another issue. I appreciate your comments. You are not saying one way or the other and I am hearing from ministers that we are making it very clear to the United States that there is a Maine and Atlantic initiative that is fair and that we are supporting free trade and so on and so forth but we are not going to be supporting, and in a free trade agreement, if you are not subsidizing, you shouldn't be penalized for something you are not doing. That is what I understood was being expressed.

[Page 24]

MS. BLENKHORN: I think that is true.

MR. DOWNE: I think our battle here, and I am saying this of all Atlantic Premiers, the battle should be with the western guys because they are toasting us. That is not new but boy I will tell you, it gets me awfully frustrated when you have a B.C. Premier, it doesn't matter what stripe he is, talking about a made in Canada position only because they are the bad ones and we are on the side of angels and we are being hammered on the thing.

MS. BLENKHORN: There is something I want to show you, if I can find it. You keep talking and I will stop you.

MR. DOWNE: Diana, another area that I had touched on here and that is about stumpage and the fact that we do export to other provinces. To some degree, it is a reality, they are paying more in New Brunswick than they pay here and processors do that. One of the biggest challenges is to get the large number of private woodlot owners to agree, in the Province of Nova Scotia, on some sort of a program, not only on stewardship but also on how to be fair with your return on investment. I know the attitude of the western part of the province and that of the eastern end of the province are two different strategies. Stora works differently than Bowater. It has been very frustrating for the producers in not having a fair, in my view, I don't think they are getting a reasonable stumpage rate in some jurisdictions in this province. We used to have large spreads in this province, from the western end of the province to the eastern part of the province, of $50, just ridiculous spreads, unfair. That is not really part of Diana's thing, I guess sustainability is.

MS. BLENKHORN: That is not my issue.

MR. DOWNE: Sustainability is and the sustainability issue, I think, Diana, we have been down that road a long time trying to bring producers together to come up with a program that not only talks about pre-commercial thinning and harvesting programs and so on and so forth and I think what we need to do is continually work as an industry to get there because there is a day of reckoning at the end of the time. Producers have to, before they hit the wall, come to that conclusion, producers and processors.

I guess the other point I want to bring up is the brown spruce longhorn beetle.

MS. BLENKHORN: We will have to talk about that one.

MR. DOWNE: I am not convinced we are in trouble with this little critter yet. My concern is, and I brought this to the attention of the minister, that the entomologists in the Province of Nova Scotia, I believe they have such a limited budget provincially in what is happening with this beetle, I am not convinced that everything is going to be done, and Point Pleasant Park is going to eliminate the problem and the risk in the Province of Nova Scotia.

[Page 25]

I think we have some serious problems. I think, federally and provincially, we should be putting in a lot more resources. I know federally, they have a fair number of resources. I met with the entomologists a little while ago, talking about the issue. Their concern was just not having the money, federally and provincially, both. I think that is the worry I have, because you can have all the penalties and countervail actions against you and complain about it, but if you don't have force then you have a problem.

[10:21 a.m. Mr. Brooke Taylor resumed the Chair.]

MS. BLENKHORN: If I can comment on that, I am glad that you have raised that because it is another issue. We have become an issues-management type of organization, sometimes. It is another issue we have spent a great deal of time on, particularly last summer. Less so now, not because it is not equally important but because there are only so many available resources within our office.

The simple reality is, if the brown spruce longhorn beetle is not contained, if the plan of eradication fails and it moves to one of control, the United States will ban softwood lumber shipments from Nova Scotia unless they are treated, because they don't want to import it. All the exemption in the world and the free market access isn't going to help us. As far as the resources go, and again, I am certainly not in a place to tell government exactly how they should resolve their differences between provincial and federal, but I will make this observation.

The brown spruce longhorn beetle was imported from Europe at a time when there was a ban on our shipments going to Europe for a pest that does not have any threat to it, that it is simply a trade barrier. The federal government was not, or at least the Food Inspection Agency, because of the jurisdictions that they work within, had some difficulty in advancing a challenge of Europe's decision.

Now we have a pest in Nova Scotia, and it has been joked about in some of my circles, Christ, it is in Diana Blenkhorn's backyard, given all the years of fighting with Europe. It becomes the federal responsibility to eradicate a foreign pest. If eradication is not possible, the entire bill will be on the province. My concern is that the feds step up to the plate and do absolutely everything possible in this three year window that we have for eradication. Eradication is what we have to do, we shouldn't even utter control out of our mouths. It will be a provincial issue if it becomes a control problem, not eradication.

That is my lecture on that one, because I am very concerned that it will be found in a forest block 100 kilometres toward the South Shore, as the wind blows. It will become a control mechanism, and the next thing is the Americans are going to ban our wood unless it is treated, and the Canadians will be there, because it will be an effective way - you don't need British Columbia then to be going to Washington and talking about our increasing

[Page 26]

shipments and whether there is a subsidy, all you need them to say is we in Canada don't want their wood either because it has bugs in it and we don't want that bug.

MR. CHAIRMAN: I wonder if we could move along now to Mr. MacDonell, to keep the question flow.

MR. MACDONELL: There are a couple of terms I was wondering if you would explain for me. You mentioned earlier about a low market. I wondered what that was, just a downturn?

MS. BLENKHORN: Just a downturn in the market. Prices in the early part of February this year reached nine year lows, that is a low market from our perspective.

MR. MACDONELL: Would you explain the indexing process around coming to a stumpage rate?

MS. BLENKHORN: I can't. It is very complicated, and because we are also on the cusp of change within the province, I haven't really absorbed the changes.

MR. MACDONELL: Can you define the term?

MS. BLENKHORN: Indexed is a published Canadian price averaged over the previous year. It would be the index price . . .

MR. MACDONELL: National?

MS. BLENKHORN: No, what ours was based on was the selling price within the region of Atlantic Canada, the index price for this region.

MR. MACDONELL: When you talk about ISO registration, there are a lot of components to ISO registration. Is there anywhere in this province where certification towards sustainability is an ISO registration requirement?

MS. BLENKHORN: No, not at this point in time.

MR. MACDONELL: When you said their own self-initiation, what did you mean by that? Was that the Americans, on their own, took initiative?

MS. BLENKHORN: There are two ways to do countervailing duty. The industry that believes it has been injured by the foreign export can petition or the government can self-initiate on behalf of its industry. So, in 1986, the industry petitioned; in 1991, the government initiated; and in 2000, the industry initiated. That is the difference.

[Page 27]

MR. MACDONELL: Now the Senator that you mentioned that was the protectionist, is he a Republican?

MS. BLENKHORN: No, he is a Democrat.

MR. MACDONELL: He is a Democrat? Considering the shape of the Senate, I was hoping for a Republican.

You may not know this, I am not sure about the information in the binder, how much input you . . .

MS. BLENKHORN: I saw it today quickly, but it is very good.

MR. MACDONELL: I was surprised, actually, to look in it and realize that the wood supply of Crown land that Kimberly-Clark and StoraEnso licences account for 70 per cent of Nova Scotia's Crown wood supply and then anybody else would get what is left, but I guess you probably can't answer what that means in terms of Nova Scotia's overall Crown availability.

MS. BLENKHORN: I can't, except that it appears to be misleading because most of those - for example, Kimberly-Clark doesn't have a sawmill so they would in turn distribute the wood. There is a fairer distribution than what might appear by looking at the 70 per cent number.

MR. MACDONELL: Right, but they have access to that amount of wood to trade with other mills who don't have . . .

MS. BLENKHORN: To get their chips.

MR. MACDONELL: To get their chips, yes.

MR. CHAIRMAN: John, I was wondering, where you had gone earlier, if we could maybe move on to other MLAs who haven't had an opportunity?

MR. MACDONELL: Sure, I was going to back off. Thank you.

MR. CHAIRMAN: Thanks, John. Brian.

MR. BRIAN BOUDREAU: First of all, I want to congratulate you on your presentation. Being a rookie around here, it is very learning and it is obvious you are very knowledgable in this industry and it is no wonder that this organization has been around since 1938 with capable leaders like yourself.

[Page 28]

MS. BLENKHORN: Thank you.

MR. BOUDREAU: Having said that, were you with the Premier in Washington when the controversy began?

MS. BLENKHORN: I was with the Premier - not in Washington, no. He went to Washington immediately after. I made the arrangements, he met with our legal counsel, which we jointly share, but I was not there.

MR. BOUDREAU: So you had an input right from day one when the controversy began?

MS. BLENKHORN: We have been meeting with all four Premiers, since the latter part of last year preparing for the expiration and as we were stepping up our lobby effort, I met with the Premier of Nova Scotia in a concentrated area the middle of January and again on the first of February, a direct meeting, and we went through the presentation of the pie charts - there is another area - in making sure that he was fully informed.

MR. BOUDREAU: Do you feel that the provincial government is doing enough? Could they do more?

MS. BLENKHORN: I have to be honest in this and again, my work is totally apolitical. The provinces, all of them, have done a good job. They constantly ask if they can do something more. We would be happy to give them something more if there was an area where we thought it could make a difference. While we are in a wait-and-see game, I am more concerned that one will get out of step with the other of the four of them and we will then be in damage control rather than moving forward. So, the province has been more than willing.

MR. BOUDREAU: That is good news. It is probably good news, it is probably a good question. That is . . .

MR. DOWNE: That is the same as every other government in the Province of Nova Scotia going back to 1986.

MS. BLENKHORN: Which I did say, that is right.

MR. BOUDREAU: That is good news. That is good to see that the government is standing up for this industry. It is a very vital industry within the province. You indicated before that you felt that perhaps even today on the way here, a decision would be made. So, obviously the decision is basically taking longer than you anticipated?

[Page 29]

[10:30 a.m.]

MS. BLENKHORN: Yes.

MR. BOUDREAU: Does that concern you?

MS. BLENKHORN: No, and I will explain why. Once we were in the scope, they don't have to take a decision, as I said, until June 27th, but they are trying to dot the i's and cross the t's so that the United States Government is not subject to a challenge. I had mentioned the WTO challenge. Well, it couldn't be a WTO challenge because only the signature of governments can take it to a challenge and I have asked the question, are you telling me that the Canadian Government is going to challenge you before the WTO because you excluded 4 out of 10 provinces? The actual challenge threat is by the International Trade Court which a province could do and it is simply that the Americans want to make sure they are not going to be challenged by excluding us and we are working very closely, is the best way to put it, to find a way that could not be subject to challenge to exclude us.

It is not taking longer than I - I mean, I had hoped that they could just wave the wand and give us their answer once we had found a solution to this, but they are dotting their i's and crossing their t's so that we are protected against other Canadian provinces. So, again, not for public consumption, I don't want to read this in the newspaper. This is a confidential comment. In my personal view, having been very close to this, we are in a situation whereby the foreign administration and industry is working closely with us so that we are not subject to challenge by other Canadian provinces.

MR. BOUDREAU: It sounds like you are expecting good news?

MS. BLENKHORN: Yes, I am, as far as countervailing duty goes.

MR. BOUDREAU: So really the length of time or the manner in which the Americans are handling this doesn't indicate which way, one way or the other, they are headed on this particular issue?

MS. BLENKHORN: No, and the Canadian Government and its lawyer have really been pushing recently. There is not a single adversarial route within Washington of official administrations.

MR. CHAIRMAN: Diana, could I just perhaps advise you, maybe I should have earlier on, that whereas this meeting is out of camera, anything that you say possibly could be repeated.

MS. BLENKHORN: Oh, thank you.

[Page 30]

MR. CHAIRMAN: Unless stated otherwise, all the standing committee meetings are out of camera. Although there isn't any media, per se, present, the minutes of this meeting are being recorded and the comments are for public record. So I do apologize. I had thought maybe you were aware of that.

MS. BLENKHORN: I should have realized.

MR. CHAIRMAN: Hopefully, there is no repercussion.

MS. BLENKHORN: Well, I just wanted to be as frank as I could with the committee members.

MR. CHAIRMAN: I am sorry for that intervention there, Brian.

MR. BOUDREAU: Not a problem, Mr. Chairman, actually I appreciate you acknowledging that to the lady. We talked about the brown spruce longhorn beetle, are there other pests that are a danger to the forests in Nova Scotia other than this particular bug?

MS. BLENKHORN: There are always pests that endanger, but this is the only non-indigenous pest we are aware of at the moment. I mean, whether it is the spruce budworm or whether it is the white tooth tussock moth, there are a lot of pests that endanger the forest productivity, but this is the only non-indigenous pest that we are working on eradicating.

MR. BOUDREAU: So do you feel that this system that is in place to deal with these types of pests, is an area where we could improve?

MS. BLENKHORN: Detection of . . .

MR. BOUDREAU: Well, both protection or, you know, the actual treatment or dealing with the pests, is there room for improvement there and what would you suggest the improvements could be?

MS. BLENKHORN: I would like to give that some thought and reappear before the committee if I could.

MR. BOUDREAU: That is fine. That is all for now, Mr. Chairman.

MR. CHAIRMAN: Mr. Hurlburt.

MR. RICHARD HURLBURT: Thank you, Mr. Chairman, and thank you, Diana, for coming in today. I would like to go back to a statement made by Mr. Downe. He made a statement that maybe our enemy is to the west of us and I half disagree with that. Sometimes I am wondering if Ottawa is turning a blind eye to the Atlantic Provinces. He alluded to

[Page 31]

Minister Tobin and Minister Thibault. I think maybe it is time that they stand up to the plate and make a public statement on the lumber industry in Atlantic Canada and not fight from east to west. I think it is time the federal government takes a stand on this but that is only my view.

A question to you Diana, I am a private pilot and I do a fair amount of flying around the province. I just flew up to Halifax the other day and I have a real concern with clear-cutting in this province. I think some of it is a total disgrace of what they are doing to the forests and the way they are being left. I think somebody better take a real initiative to do something about this. The trees, the way that they are doing it, they are leaving all the debris in windrows. How is your growth going to get through that? The ruts and mess that they are leaving in the forest is terrible. I have pictures if you want to see them. Maybe you could comment on that if you would, please.

MS. BLENKHORN: Only that we desire to have a productive and well-managed forest and if there are areas of concern that need to be looked into then I think collectively we should look into them. The view of the bureau is sustainability with a productive and well-managed forest with responsibility being shared by both the landowner and the industry is an area where we wish to proceed. I have written this down as you have raised it because it is something we want to look into. If it is acceptable forest practice because it is a salvage operation, I don't know. There are a whole different set of parameters whether it is doing salvage because of insect damage or windblows or whatever, compared to harvesting a forest area. You may have seen something I am not aware of.

MR. HURLBURT: Last year the initiative by Natural Resources was to put a surcharge to the sawmills and there was a fair amount of backlash from my communities on that initiative. I think that we all have a part to play in this and where does it go? That is the end user until it gets to the consumer so somebody has to take responsibility for it.

MS. BLENKHORN: You may have gotten the backlash directly from the sawmills . . .

MR. HURLBURT: Yes.

MS. BLENKHORN: . . . but it wasn't a coordinated approach from the industry or you would have heard from me because the industry did not object to it as a whole.

MR. HURLBURT: This has been five years in the making, has it not? There has been plenty of dialogue with the industry.

MS. BLENKHORN: Absolutely.

[Page 32]

MR. HURLBURT: Now that it is being implemented they are blaming the department for implementing it overnight and it has been a five year process, has it not?

MS. BLENKHORN: Or longer.

MR. HURLBURT: Okay, thank you.

MR. CHAIRMAN: Diana, just before we move to the next committee member with a question, the Canadian Food Inspection Agency, have you received complaints from some of your members that they are being a little bit intrusive regarding the foot and mouth concern?

MS. BLENKHORN: No.

MR. CHAIRMAN: No concerns. Is the Nova Scotia Christmas Tree Council a member?

MS. BLENKHORN: I haven't heard from them, no.

MR. CHAIRMAN: Mr. Chipman.

MR. CHIPMAN: Mr. Chairman, something my colleague mentioned about clear- cutting. I know in Digby Neck there is a lot of bark beetle down there and I think that has necessitated a lot of the cutting down there. Of course it usually only takes the white spruce so you don't necessarily cut the fir. I guess I have a concern and it is probably something I shouldn't bring up here but I am going to, I have a parcel of land with Christmas trees and they've got woolly aphid in it and I want to have it replanted. I must say I sent a fax four times to an individual in an organization and have yet to receive a response. It was to show that I wasn't in a conflict of interest through the conflict of interest commissioner and that was six months ago and anyway I still haven't had a reply.

The other thing is I contacted one of the large pulp and paper companies in the Maritimes interested in moving ahead with this and they seem to be more interested in cutting wood than they are in doing any replanting. That is my concern and that is what my colleague is referring to, you have a lot of clear-cuts but where is the replanting coming in. They seem to be more intent on cutting more than to go back to correct the problem.

MS. BLENKHORN: I share those concerns. I can't really comment, in fairness, on the bureau's aspects because I have itemized here our real mandate. But I would be happy to talk to you about your interest in your parcel of land.

[Page 33]

MR. CHAIRMAN: Thank you. I think what we will do, John, our presenter has been very gracious and informative and I think we should let her off the hook, so to speak. Maybe you could have the last word, then.

MS. BLENKHORN: Could I show a slide before you do that?

MR. CHAIRMAN: Sure, maybe you could answer John's very succinct question and then show us a slide.

MS. BLENKHORN: Actually it responds to your earlier question. You were asking about our relationship with other provinces and what they say in numbers and have we increased. One of the problems we run into is that people define softwood lumber as a whole bunch of different things and if you are reading, you are quoting statistics and this is where I said I wanted to comment. When you are quoting statistics it is probably based on the universal language of what is softwood lumber, which is a 4407 code. Well, these little black caps at the top of this particular graph and again this is British Columbia and this is us, those black caps represent wood that was softwood lumber until somebody drilled a hole in it. If you remember the debate over pre-drilled studs?

MR. MACDONELL: I don't remember at all.

MS. BLENKHORN: Well, as a way to access a market, instead of going under quota or paying a duty, when is lumber not lumber? Well, when it has a hole in it. This is the volume, this black cap, that each province in Canada exported to the United States as another product, called pre-drilled studs. Only the Maritimes did zero. So, the debate - I am picking on British Columbia and I am trying to be sensitive now that I realize that it is public - but the debate with other provinces like British Columbia complaining that we have had an increase while they have had a decrease is not a fair comment when you look at all softwood lumber products. Because that which they declare as softwood lumber may have decreased but when you take that which was softwood lumber, when it came out of the mill until you had a hole in it, they have actually had an increase over the period of time in question.

MR. CHAIRMAN: Are they exempt from countervail?

MS. BLENKHORN: That product is exempt now. It was the subject of a great debate.

MR. CHAIRMAN: It's not considered value, yes.

MS. BLENKHORN: It was used in our view as a circumvention tool. We believe that we are very good marketers here, we take advantage of every good market opportunity. If there was a good market opportunity for putting a hole in a stud we would be doing it.

MR. CHAIRMAN: But we wouldn't have the rationale . . .

[Page 34]

MS. BLENKHORN: It's in the centre of the pre-drilled studs, they say it is there for wiring. What was happening is that people were buying it and unless the contractor knew exactly what the hole was there for, you would have some holes at the floor and some at the ceiling, and you can imagine what wiring would do going through. So, in answer to your question of numbers, numbers can say a lot of things, and when is lumber not lumber?

MR. MACDONELL: What I had was the mean harvest in Nova Scotia; what was cut and piled. In your capacity, you probably can't, from your answers to other members, but I guess I just wanted to raise it with you around sustainability and clear-cuts. I think I can probably see a use if you have an area that is diseased or insect damaged or whatever, and maybe the best management technique would be to go in and clear-cut that. There is an awful lot of talk around replanting or not replanting. From what I have been able to pick up is that if a contractor goes in and clear-cuts an area and they sell it to a mill, they will wait two years because if you plant right away there are a couple of years where there is an insect there that damages replanted areas. So they wait to see what the level of damage would be and then they will wait a couple of years and plant that and seem to have better success.

My concern is quite often when we talk about silviculture, we only hear about replanting and replanting in clear-cuts and we don't actually try to proceed on the idea that if you harvested in a more selective fashion that you would actually be doing a silviculture treatment in your forest to improve it, so when you walk away from it, even though you have taken some wood fibre out of it, it should be better off, or will be in a short time as far as biomass is concerned. This is something I would like to see the industry think about more. It would cut the silviculture costs down I think if they harvested in a more sustainable way, although it is probably going to affect their volumes. I think this is something the industry should grapple with because you don't hear anybody talking about an annual allowable cut. They won't put a limit on what you cut in this province. They say that Crown is sustainable. What that means I certainly don't have any definition. You can't get anybody in the department to say annual allowable cut, they won't even pronounce it without biting their tongue. So I think we are in really serious trouble here on the sustainability of Nova Scotia's forest. On the other slide you had, if you would give me what the number actually means as far as the harvest, I would really appreciate that. Thank you.

MR. CHAIRMAN: Thank you, Diana. If you would like to make some closing comments, we would certainly welcome those.

[10:45 a.m.]

MS. BLENKHORN: I would. As I said at the onset, the bureau's area of expertise is in quality control, market access primarily and all the things that go with it. We don't have a registered forester on staff. We work collectively with other groups like the Forest Products Association of Nova Scotia or the New Brunswick Forest Products Association for some of the questions that have come with regard to that. I wasn't attempting to be evasive, it is not

[Page 35]

in our area of expertise, we do work collectively, but because we are Maritime and because every province here has different policies, we actually make a point of not doing so, in order to ensure the best representation for both the landowner and the industry within a particular province.

I sense a very keen interest of the committee in moving into resource-based questions, and my colleague at the Forest Products Association of Nova Scotia is Steve Talbot, and he may be better suited to answer those questions. I tried to put caveats where I was speculating, but for the record I want to say that that is not my area of expertise. When you come into the quality control and market access, that is the bureau's mandate, and I don't think I speculated much, except for in the area of unknowns, and when it comes to how some administrations might react in the world of litigation, those are simply unknowns.

MR. CHAIRMAN: Diana, thank you very much. Obviously, you have touched on a number of subjects related to the forest industry, but we were especially concerned about the re-signing of the Maritime Accord. It is so important not only to Nova Scotia but to all of Atlantic Canada. We appreciate you coming in, making the informative presentation, handling our questions with such tact and grace, it is really appreciated. Maybe another time you would like to come back again. On behalf of all committee members, I want to thank you very much.

MS. BLENKHORN: Thank you.

MR. BOUDREAU: Mr. Chairman, just on a point. I was just wondering about the slide presentation, I know there is one slide where you indicate that it is pretty, I don't know if private is the word . . .

MR. CHAIRMAN: Sensitive.

MR. BOUDREAU: Sensitive, okay, Mr. Chairman. I am wondering if the other slides could be copied and provided to the . . .

MS. BLENKHORN: I have a book on the Maritime situation, which I would be happy to send a copy of to every member of the committee. It tells the story on aggregate, and it has all the non-sensitive slides in it. If any member of the committee, after receiving the book, has any questions, I would be happy to field them.

MR. BOUDREAU: Thank you, you have been very helpful.

MR. CHAIRMAN: Committee members, does anybody have any new business they would like to bring up?

[Page 36]

MR. MACDONELL: I am only here on behalf of one of my colleagues, and I don't ordinarily make it to this committee, so I won't speak without . . .

MR. CHAIRMAN: John, we really welcome you here, today. The next meeting dates, was it decided at the committee level that we would essentially adjourn until . . .

MR. HURLBURT: The long weekend in September.

MR. CHAIRMAN: That has already been a decision of the committee. The various caucuses submitted witness lists, Darlene do you have - I know I will forget about it between now and then but other members may not - a potential list.

MRS. DARLENE HENRY: The committee decided to bring in the Department of Economic Development, first, followed by the RDA umbrella group (Interruptions)

MR. HURLBURT: I thought that was after.

MR. CHAIRMAN: The RDA, first. Richard, you submitted that.

MR. HURLBURT: I thought they were coming in first, then the deputy minister to come in so he could respond.

MRS. HENRY: That is not a problem because these guys haven't been called yet, so we could do that.

MR. HURLBURT: I just think that would be appropriate.

MR. CHAIRMAN: Committee members, we will try to bring in the RDA organization, as put forward by the member for Yarmouth. Also again, I would remind committee members that this committee is flexible, and if there is a more timely, more topical issue that comes up, as with the Maritime Lumber Bureau, we will try to schedule to accommodate. Thank you very much, and Tim, thanks for dropping in for the last few moments. We wish you were here for the full two hours, but I know you had other commitments.

[The committee adjourned at 10:51 a.m.]