I'm very pleased to be before you today to explain the legislation. I think everyone has in front of them a deck that's been prepared identifying the major sections of the bill, which I'll go through. What I'll do is identify the page I'm on, and then when I move to the next page I'll notify the committee, so we can work in sync in that direction.
With respect to the summary of Bill , the bill provides the necessary legislative authority to meet Canada's obligations under the softwood lumber agreement by imposing a charge on exports of softwood lumber to the United States, and on refunds of duty deposits paid to the United States, and by amending certain acts including the Export and Import Permits Act, the EIPA.
The charge on exports took effect on October 12, 2006. Bill allows for the implementation of the other obligations under the agreement relating to the border measures administration such as registering with the Canadian Revenue Agency, CRA, obtaining export permits issued under the authority of the EIPA--you'll recall that's the Export and Import Permits Act--and filing returns and paying certain charges.
Bill authorizes payments to the provinces, as well as payments to meet Canada's obligations under the agreement. This is directed to the payments to U.S. interest. The Minister of National Revenue is the minister responsible for the Softwood Lumber Products Export Charge Act, which we refer to as the “act”.
If we could go to page 3, it looks at the charge on softwood lumber exporters. Bill mirrors the agreement's obligations with respect to charges applicable on softwood lumber exports, options A and B. Section 11 provides for the imposition of the option A and option B charges when the reference price of lumber drops to or below the United States dollars $355 per MBF. Exports from Ontario, Quebec, Manitoba, Saskatchewan, Alberta, the B.C. coast and the B.C. interior are subject to the border measures.
Export price and remanufacturers. Section 12 establishes the export price on which the charges will be applied and provides for a favourable first mill treatment for independent remanufacturers. That is to say no charge is payable on the value-added component of the remanufactured products. In order to benefit from the first mill treatment independent remanufacturers will be required to obtain a certification from the Canadian Revenue Agency pursuant to section 25.
Surge mechanism. Section 13 gives effect to the surge mechanism, which increases the amount of the charge payable by 50% when regions operating under option A increase exports in excess of 110% of its allocated share for a month. That is to say the trigger volume. The allocation share is based on the region's share of the United States market during 2004-05. The surge mechanism will operate retroactively, meaning that exporters will be charged the extra amount following the month in which their region surged. This surge mechanism will only apply when lumber prices fall below $355.
We will continue on with the charges on softwood lumber exports, page 4 of your presentation. With respect to the Maritimes, the Atlantic provinces are excluded from the obligation to pay the export charges. Lumber producers in this region rely fairly heavily on timber from private lands and were excluded from the U.S. countervailing duty order. The exclusion applies to softwood lumber products first produced in the Atlantic provinces from logs harvested in those provinces, or in the state of Maine, that are either exported directly to the United States or shipped to non-Atlantic Canada provinces and reloaded or reprocessed and then exported to the United States.
Section 14 provides for the application of an anti-circumvention provision to ensure that only lumber from the Atlantic provinces is excluded from the export charge. Exports from the Atlantic provinces that exceed 100% of the region's quarterly softwood lumber production and inventory will be subject to a charge of Canadian dollars $200 per thousand board feet.
There are excluded companies: subject to certain conditions, 32 companies that were found by the U.S. Department of Commerce not to be subsidized are excluded from the obligation to pay the export charge. Clause 16 gives effect to these exclusions.
Next are regional and production exemptions. Consistent with the agreement, Canada and the United States are to establish within three months of the effective date a working group on regional exemptions. The working group is required to develop substantive criteria and procedures for establishing if and when a region uses market-determined timber pricing and forest management systems. Canada and the United States are also required to make best efforts to incorporate the findings of the working group into an addendum to the agreement within 18 months after the effective date of the agreement.
Clause 17 provides the authority for the Governor in Council to exempt regions from the export charges should a region satisfy the criteria developed by the regional exemptions working group. Clause 17 also provides for the exclusion of products from the application of the charge.
The agreement provides for the future consideration of exclusions for lumber produced from private land logs and U.S.-origin logs.
Next is third-country refund. The third-country adjustment mechanism included in the agreement and clause 40 of the act provides for the retroactive refund of export charges, up to the equivalent of a 5% charge, collected in any two consecutive quarters in which three conditions apply when compared with the same two quarters from the preceding year.
These conditions are that the third-country share of U.S. lumber consumption has increased by at least 20%, that the Canadian market share of U.S. lumber consumption has decreased, and that U.S. domestic producers' market share of U.S. lumber consumption has increased. This provision will not apply to any region operating under option A that has triggered the surge mechanism.
We go to page 5 of the deck, which deals with the charge applied to refunds of duty deposits.
In order to fulfill Canada's obligations to provide $1 billion U.S. to the United States and to ensure that all companies benefit equally from the agreement, clause 18 imposes a special charge on all softwood duty deposits refunded by U.S. Customs. The rate of the special charge will be calculated as a fraction, the numerator of which will be $1 billion U.S., and the denominator of which will be the total of softwood duty deposits and interest held by the U.S. as of entry into force of the agreement. The rate is approximately 18%.
The special charge will be applicable to all companies receiving the softwood lumber duty refund. However, the government intends to remit the charge to all companies who participate in the Export Development Canada deposit refund mechanism. Under that mechanism, participating companies will direct EDC to pay their portion, approximately 18% of the purchase price of their deposits, to the U.S. interests.
I will go to page 6 of the deck, which is on administration and enforcement.
Exporters, even those that are excluded from the requirement to pay the export charge, are required to register and file monthly returns with the Canada Revenue Agency. The return must be filed within 30 days following the month in which the lumber was exported.
Bill also includes provisions that are standard in modern tax legislation. They provide authority to provide refunds, collect interest on amounts not paid when required, waive or cancel interest of penalty, and keep records, and they include requirements to provide documents or information. The bill establishes offences and penalties for failure to file a return or to comply with a demand or order, for making a false or deceptive statement, for failing to pay charges, and for disclosing confidential information.
Inspections may be conducted by persons authorized by the Minister of National Revenue, and prior authorization will be required for inspection of a dwelling house. Investigations are subject to search warrant requirements. Additional clauses address information respecting non-residents.
These are standard provisions that are required to enforce any tax measure. Confidentiality of information is addressed in provisions that prohibit unauthorized disclosure and that authorize disclosure necessary for Canada to implement its obligations under the agreement.
I turn now to page 7, which are the EIPA amendments. You will recall the Export and Import Permits Act. The act is amended as follows: the export control list is amended in a manner to require export permits on the products covered by the scope of the agreement; authority is provided for the Minister of International Trade to establish a quantity that may be exported from an option B region in a month, to establish the basis for calculating export quantities, to establish by order a method for allocating export quantities, to issue export allocations and consent to transfers of allocations, to establish that an EIPA permit may have a retroactive effect, to require applicants to keep records and authorize inspections, to authorize the Governor in Council to make regulations respecting softwood saw log origin and respecting export allocations, and finally, to amend offence provisions to capture offences related to export allocations.
On page 8, you will find payments to provinces. provides for payments to provinces, out of the consolidated revenue fund, of revenue collected from the export charges paid, less costs incurred by the government for administrative and legal matters related to the act and the agreement. These payments will not affect equalization payments to the provinces.
With respect to payments to accounts, clause 103 of the bill provides authority, on requisition of the Minister of International Trade, to make payments out of the consolidated revenue fund in order to meet Canada's financial obligations under the agreement.
Page 9, the second last page in your deck, is about other key provisions. With respect to regulations, the Governor in Council has authority to make regulations on issues such as the payments to provinces, allocation of quota, and other matters to carry out the purposes of the act. Clauses 107 and 108 state that certain regulations made under the act will have retroactive effect, for example, the export permit regulations.
On the issue of expiry, further authority is established for the Governor in Council to make regulations to declare that the charging provisions, clauses 10 to 15, would cease to be in force in the event that the agreement is terminated. The remaining provisions of the act would remain in effect to reserve the necessary authority, for example, to collect overdue payments, interest, penalties, and to make payments to provinces.
With respect to transition provisions, the option B border measure will not come into force until January 1, 2007, given the time required to put in place the information technology necessary to administer the quota regime and the need to consult with provinces and industry stakeholders on the rules governing the regime. During the transition period, lumber exports from all regions will be subject to the export charge under the option A border measure. Exporters of lumber from regions that choose option B but are subject to the option A export charge will receive a refund of the difference between the export charge levels for the transition period. A refund will occur if exports from these regions during the transition period do not exceed the region's volume restraint had option B been in effect.
To ensure that Canada can retroactively enforce the export charges, the majority of the provisions of the act will be deemed to have come into force on the day on which the agreement comes into force, and that is October 12, 2006.
One exception to the general coming into force rule is the provision that provides that the operation option of option B will come into force on a day fixed by the Governor in Council—that is to say, January 1, 2007. Also, because offence provisions cannot be applied retroactively, the sections of the legislation dealing with offences and punishment will only come into force upon royal assent. Even though the offence provision cannot be enforced retroactively, the obligation for exporters to pay the charge remains.
The last slide in the deck deals with what is not in . What is not in Bill C-24 are certain provisions of the agreement, because they do not require enactment under Canadian law. For example, the obligation to create the binational industry council, which we spoke of the last time I was here, does not require legislation. The softwood lumber committee and the technical working groups in article XIII of the agreement are purely institutional and administrative and do not require statutory authority.
Similarly, the dispute settlement provisions in article XIV can be administered without being enacted in legislation. The obligation for all litigation to be terminated, via the termination of litigation, is a precondition of entry into force and therefore does not require any legislative action.
With respect to the duty refund mechanism provided for in annex 2C of the agreement, EDC already has the statutory authority to operate such a mechanism.
Some treaty obligations and commitments, such as the information exchange requirements and anti-circumvention provisions, do not require implementation in Canadian law.
There are also certain provisions in the agreement that are U.S. obligations and logically cannot be included in the Canadian legislation. These include the revocation of the U.S. anti-dumping and countervailing duty orders, the refund of duty deposits, the obligation to collect no-injury letters from the U.S. industry stakeholders, and the U.S. commitment not to initiate a new trade action.
Chair, I apologize for the rapidity with which I've gone through the major elements of the legislation, but in the time remaining, it's our intention to be answering the questions on various sections and to elaborate where members would like elaboration to be done.
Thank you very much.
:
Thank you, Mr. Chairman, gentlemen.
Thank you for your presentation, Mr. Robertson. I had some rather specific questions, and perhaps because one can tend to run out of time, I'll read you the questions. I'm hoping you can answer some probably quite quickly, but if we run out of time in this round, perhaps you could get back to the committee with answers to these questions in the next few days, before we would ever get to a clause-by-clause study of the bill.
The questions focus on two areas. One is obviously Atlantic Canada's exclusion, and the other one is something I have been concerned about for some time. It's the question of independent remanufacturers.
With respect to Atlantic Canada, on page 4 of your presentation you correctly talk about the exclusion of Atlantic Canada, for reasons you've properly described. However, some parts of the proposed legislation refer to an exemption or to Atlantic Canada being zero-rated. I don't have a great deal of experience at trade law, but in my view, there is a big difference between being excluded, meaning you are never in the play, or being exempted or zero-rated, which means you're in the pot, but for whatever moment at this particular time, the export tax, for example, is not being applied.
I'm concerned that the language of the proposed legislation may not in fact track the language of the softwood lumber agreement, which itself is much tighter with respect to the exclusion, in my view. So that's one issue.
With respect to independent remanufacturers, again the proposed legislation itself doesn't provide a definition for what independent remanufacturers are. Clause 2, the definitions clause, doesn't address what independent remanufacturers are. This was a significant win for Canada in the agreement. I think many people will concede that. But I think the legislation would be improved if there were a definition of what an independent remanufacturer actually is.
Clause 12 of the bill stipulates that “‘independent remanufacturer’ means a person who is certified under section 25.” Clause 25 then says that the minister may certify an operation as an independent remanufacturer, but again there is no definition. This key concept is not circumscribed in any way in either of these two clauses. Is that something that could be tightened up, in your view?
Again, clause 100 says that the Governor in Council may make regulations regarding independent remanufacturers, and it says: “The Governor in Council may make regulations...respecting any requirements or conditions that must be met...”.
The word “any” is a very broad word. It is not circumscribed in any way. I wonder if the Governor in Council is limited to the requirements and conditions, for example, of the softwood lumber agreement itself. Is it a common practice that this is circumscribed by the agreement itself, or is it in fact much broader than that?
Then, on the power of the minister in subclause 25(2) to “amend, suspend, renew, cancel or reinstate a certification”, the power again seems to be very broad. There's not even a requirement for notice to a party in question. I was struck by how broad that may be.
Finally, with respect to quota allocation, you gentlemen know better than anybody how contentious the whole issue of quota allocation can be. You properly referred to the amendments to the Export and Import Permits Act. Would the legislation be improved by prescribing limits on the minister's power with respect to quota allocation, for example, so that it must be fair, reasonable, and transparent? It seems to me that to have such a broad power to allocate quota is open to some question.
For those who will face hardship as a result of quota allocation, there seems to be no transparency. Independent remanufacturers have for a long time requested a separate carve-out, and you know the reasons why, although we don't have time to go into them. I'm worried that they could end up inadvertently getting a bit of a squeeze with respect to quota allocation.
Thank you, Mr. Chairman.
:
Good day, Messrs Robertson, MacGregor, Seebach, Hagmann and Clifford.
As you know, the Bloc Québécois supported this agreement, albeit unenthusiastically. You're somewhat familiar with the crisis in Quebec in the softwood lumber sector since the signing of this agreement.
I have some questions concerning one article in the agreement. Export charges collected are, I believe, remitted to the provinces. I read that pursuant to one provision, the federal government will distribute among the provinces the export charges collected, minus the implementation costs paid out of the Consolidated Revenue Fund and other costs incurred to defend Canada's interests in any legal challenges arising from the agreement.
The article in question stipulates that operating requirements associated with the sound administration of the agreement, including the collection, ongoing administration of export charges, the issuing of export permits, the assignment and management of volumes and quotas...
On reading through the provision, I realize -- and you can correct me if I'm wrong -- that the export tax refund paid to the provinces will not correspond to the costs incurred, as there are many expenses associated with administering the agreement. If I understand correctly, if a portion of the export taxes is refunded to Quebec companies, it's not clear that they will get back the full amount charged, because of administration costs.
What percentage of the refund covers administration costs? Will the situation be such that the provinces and Quebec pay from 50% to 60% of the export taxes? How much will be left after the export taxes have been paid, along with all of the costs associated with the bureaucracy overseeing the agreement?
Secondly, pursuant to the SLA, a portion of the money goes to the US lumber associations. Quebec is currently in the throes of a crisis. The Quebec government has set up a program to support the softwood lumber industry because a number of major companies are in crisis at this time. Will there be any export revenues remaining, I ask you? If so, we know very well that they will go the Quebec government. The money will not go to support the industry, because that would be a form of subsidy.
Does the bill make provision in some way for this money to go to the provinces? And how will they use this money? What directives have been issued regarding the use of the refunds? What percentage is to be used to cover the federal government's costs of administering the agreement? That's the key question.
:
Thank you very much, Mr. André.
With respect to the first question about how much money will be designated for the administrative and legal costs, I think the administrative costs will be a relatively constant amount and that will be subject to the consultations with the provinces. Costs incurred for A, B, C, and D will be retained by the federal government.
With respect to legal costs, that's a function of the extent to which (a) there is arbitration, and (b) that we're working with the provinces to ensure that specific programs do not run afoul of the agreement. Those are the two basic legal activities that would precipitate costs by the federal government.
Those are the general dynamics with which we will be engaging provinces who recognize that the federal government will be keeping some money back because of those legitimate costs with respect to the agreement.
You've also raised questions that are best looked at in the anti-circumvention elements of the softwood lumber agreement and that provide for exceptions to prohibitions on programs, including forestry practices. I direct your attention to paragraph 17(c) of the softwood lumber agreement. I'll just read a portion of it for ease of reference: “actions or programs undertaken by a Party, including any public authority of a Party, for the purpose of forest or environmental management, protection, or conservation, including, without limitation, actions or programs to reduce wildfire risk; protect watersheds...”. A whole list of elements are excluded from the prohibitions of the anti-circumvention, and those are the ones that would be working strongly with respect to the ability of provinces to maintain forestry management practices for those purposes.
With respect to the question of how the money that had been transferred back to each province would be used, that is a function of each province's own decisions about how money would be used. All provinces are knowledgeable and understand the exceptions to the prohibitions in the agreement as they relate to forestry management. We would expect, and we are quite sure, they would be working with those parameters they had a share in negotiating during the bringing into agreement of the softwood lumber agreement.
That's the basic dynamic, both for the return of money to provinces as well as the exceptions under the softwood lumber agreement for elements you've identified in terms of forestry management, environment, things of that nature, as well as, I would expect, the parameters for provincial use of the refunds or the charge we transfer back to them, if they choose to put it in areas identified under the agreement. Any province is free to use the moneys it receives for any program within its scope.
I can't speculate any further about how money will be used by provinces.