Bill C-24 (Historical)

Softwood Lumber Products Export Charge Act, 2006

An Act to impose a charge on the export of certain softwood lumber products to the United States and a charge on refunds of certain duty deposits paid to the United States, to authorize certain payments, to amend the Export and Import Permits Act and to amend other Acts as a consequence

The purpose of this enactment is to implement some of Canada’s obligations under the Softwood Lumber Agreement between the Government of Canada and the Government of the United States, by imposing a charge on exports of certain softwood lumber products to the United States and on refunds of certain duty deposits paid to the United States and by amending certain Acts, including the Export and Import Permits Act. The charge on exports will take effect on October 12, 2006 and will be payable by exporters of softwood lumber products. The enactment also authorizes certain payments to be made.

[Serge Cardin, Bloc, Sherbrooke, QC]

Perhaps we can't discuss the finer points of the tax system, but since we have with us public service experts familiar with the ins and outs of legislation, I was merely asking them what we, as principal stakeholders, can do to resolve the taxation issues.

It's legitimate, Mr. Chairman, for us to ask how we can intervene within the framework of Bill C-24 or some other legislation. I'd like someone to clarify the issue for me.

[Serge Cardin, Bloc, Sherbrooke, QC]

I'm sorry if you find that I'm belabouring this point, but the fact remains that when the agreement was negotiated, I firmly believe some thought should have been given to this aspect of the issue. Indeed, as you said, the current framework in which the Income Tax Act is applied does not lend itself to this. However, you did raise one point. Since different companies operate in different fiscal environments -- and I always come back to the Canadian government's generous gift of $1 billion to the Americans -- the normal thing to do would have been to make some interesting arrangements for companies from a taxation standpoint. After all, the legislator is the one who decided whether or not to give an advantage to an industry in order to help it out. Potentially then, a plan could have been formulated to give companies the choice of opting, or not, for a different tax treatment.

The committee is examining Bill C-24 and all of its potential, or unlikely, repercussions. If the government opted to give an advantage to the forest industry, who should be issuing directives regarding specific tax treatments?

[Serge Cardin, Bloc, Sherbrooke, QC]

Therefore, there could be significant implications. Why is it that when they negotiated the agreement, our representatives did not think about the costs, particularly as the agreement automatically rewards the US for imposing antidumping and countervailing duty. We reward the US by conceding $1 billion to them and indirectly, we're penalizing our industries, allowing them little flexibility and no tax breaks so that they can report this refund at some point other than in the current fiscal year.

Given that Bill C-24 amends various acts with a view to implementing the agreement, should provision be made for this kind of arrangement, or should we make allowances for a different kind of tax treatment than the one proposed by CRA?

[Serge Cardin, Bloc, Sherbrooke, QC]

In terms of the implementation of the agreement and Bill C-24, no mention was ever made of how, in the case of companies...Since 2002, in keeping with a generally accepted accounting and taxation principle, charges paid have presumably been tax deductible in the current fiscal year. Now, I would imagine that companies will be receiving a refund in one lump sum, or almost, paid over the course of the same fiscal year.

Has Revenue Canada, working with the other departments concerned, ever considered paying the refund in separate instalments or applying it to the fiscal years in which expenses were incurred, so that companies, even if they can and do defer losses, are not necessarily taxed in the same fiscal year?

[Paul Robertson, Director General, North America Trade Policy, Department of Foreign Affairs and International Trade]

Thank you, Mr. Chair.

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 C-24, 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 C-24 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 C-24 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 C-24 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 C-24 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. Bill C-24 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 Bill C-24. 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.

[The Chair, Conservative, Leon Benoit]

I call the meeting to order.

Good morning, everyone. We're here today pursuant to the order of reference of Wednesday, October 18, 2006, to deal with Bill C-24, An Act to impose a charge on the export of certain softwood lumber products to the United States and a charge on refunds of certain duty deposits paid to the United States, to authorize certain payments, to amend the Export and Import Permits Act and to amend other Acts as a consequence.

We have this morning, from the Department of Foreign Affairs and International Trade, Paul Robertson, director general, North America trade policy; Dennis Seebach, director, administration and technology services--he's not here yet, but he will be here; Brice MacGregor, senior trade policy analyst, softwood lumber; and John Clifford, counsel, trade law bureau. Thank you. And then from the Canada Revenue Agency, we have Ron Hagmann, assistant manager, softwood lumber.

Thank you all very much for being here today. I understand that you're prepared to go through the bill in a general way and to refer to certain clauses as you go along. Just go ahead and do that, and then we'll open up to questions after that.

Please proceed, Mr. Robertson.

[Tom Lukiwski, Conservative, Regina—Lumsden—Lake Centre, SK]

Thank you, Mr. Chair.

Let me assure my colleagues that this is not an attempt to run out the clock, but I do want to make a couple more comments for the record.

The first comment is to underscore what Mr. Hill said. Yes, out of principle I cannot vote for the original motion--not because the standing orders are not good enough, but because of the fact that we had an agreement. That's the point.

Ms. Jennings, let me put it this way. You say you have a good memory and you say you cannot remember. I would point out again that the unanimous consent given to this motion by all parties the day after the House leaders' meeting is indisputable proof, in my view, that there was an agreement. You may not recall it, but there had to be one. I can guarantee you, and you know it to be true yourself, that you would not have given consent to any motion we brought forward unless there was prior consent. I know Monsieur Guimond would not. That was proven yesterday when we tried to make a motion, as I mentioned, to put the NDP vote on record as supporting the Liberal amendment on Bill C-24. Monsieur Guimond said no, because we did not consult with him ahead of time.

All of you are disciplined enough that you know if someone stands up in the House and says “Mr. Speaker, I think you will find unanimous consent--”

[Dominic LeBlanc, Liberal, Beauséjour, NB]

Okay. So the two meetings next week would focus on Bill C-24 in the order you described.

[The Chair, Conservative, Leon Benoit]

Okay, thank you.

I notice lunch isn't here, but we'll suspend for maybe five minutes.

Gentlemen, you can stay at the table, or you can take a break if you like. We will have some very brief discussion on our business for Bill C-24, the Softwood Lumber Agreement, and it may take very little time. We'll do that, then we'll have lunch and continue the discussion.

So perhaps the members could stay for a few minutes for discussion on Bill C-24 and what will happen on Tuesday with that.

We suspend. I don't know if that's the right term because we're going on with our meeting.

On Bill C-24, there are really only two things I have to say. The department officials, of course, will be the first witnesses to come on Bill C-24 and they'll be here on Tuesday. That's the standard procedure. The other thing is it's going to be important in this discussion, and as a committee we've discussed this before, to stick with the implementation agreement and not to get into debate on the Softwood Lumber Agreement. Of course, that agreement has been signed and it's a done deal. Not only that, Parliament has passed the money, approved the spending. Clearly that's been agreed to.

What we will be focusing on are expert witnesses giving advice on the implementation agreement. We have four witnesses as well as the departmental officials who have been suggested. Three are from Mr. Julian, and one, I'm not sure from whom. The three from Mr. Julian are Elliott Feldman--we've had him at the committee before--Steven Shrybman, from Goldblatt and Mitchell; and Darrel Pearson, from Gottlieb & Pearson in Montreal. We can decide how to arrange those. We also have the Maritime Lumber Bureau because they have some technical concerns about the implementation agreement.

Any discussion on this?

Mr. Julian.

[The Chair, Conservative, Leon Benoit]

Thank you.

We are down to about five minutes before we need at least five minutes to discuss Bill C-24.

Apparently we could continue this. At eleven o'clock we could get our sandwiches and food and come back to continue the discussion as it has been going, for at least a while—maybe a half hour or so. Does that sound reasonable?

Mr. Hodgson, you have to leave at 11, I understand, but we'll continue with the other three, if that's okay.

All right. It sounds as though everybody else can stay.

We'll now go to Mr. Maloney. I know it's been a long wait.

[Lui Temelkovski, Liberal, Oak Ridges—Markham, ON]

Thank you very much, Mr. Chair.

We've heard a lot about border issues. We've heard a lot about interprovincial issues. You've mentioned the Pacific Gateway, the railways, the transportation, and the ports.

We were recently in Vancouver and had a presentation from the port authorities. They told us in no uncertain terms that they're definitely not capable of dealing with any more incoming trade unless we fix the infrastructure within Canada.

Can we increase our trade 20%, double-digit, and expect our current infrastructure to manage it? I think the answer is no.

Do we have the labour skills in force that we need, and will we have them in the next ten years? The answer is no.

Can we move our goods to the United States faster, as they're doing in Europe?

Borders are gone. We as Canadians go over there, and we try to drive between one country and another. We slow down at borders, and they flag us to go faster and faster, which means trade is moving faster and faster.

What are we doing here? We're talking about fences with the United States. We're talking about providing guns to border guards. We're talking about passports. Do you not think this is contrary to trade? I would think it is.

On a small scale, if I need to import a bag of beans to Canada and then transport it all across Canada once it gets here, and if I know I can't do that...before we go outside, we'd better look inward and make sure that our own gate is fixed, going out and coming in. We have labour issues. We have paper issues in terms of following all the trade going in and out. We saw that with Bill C-24. There will be more paperwork that needs to be done. How ready are we for that next step? That's one part of the discussion I'd like to pursue.

The other part is, should we be trading with big economies such as China, Brazil, and India, or should we, at the same time, be trading with other economies?

I was in business for twenty years, and my experience has told me that we build trade, commerce, and relationships. Every time there's a new president or prime minister, we look to see who came to see them first, or who he or she went to see first, to build what? To build a relationship. In Canada, we have so many people of so many countries who have relationships with so many countries. Those are the natural resources that Canada has and that we're not taking 5% advantage of.

Trade, for us, is very easy to do around the world because we can speak their language, we understand their culture, and we understand the way they do business. It's very easy for us to do. But can we get our house in order here, build up the capacity in Canada to be able to bring all those goods in and to be able to ship them out? At this time, I can't unequivocally say yes. Rather than pursuing large economies for trade, maybe we can start with smaller economies. You see, small economies of twenty years ago are big economies today.

As Ben mentioned, the long-term plan would be good if we start with the smaller economies. Maybe some of them will become the giant tigers we face today.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Myers.

We'll go to Mr. Murphy next. We can go to about five minutes to eleven with this, because Mr. Julian has graciously taken his motion from today off the floor--only one was on the floor. The other one he can choose to bring forth any time he wants, and he's not going to do that today.

We'll have about a five-minute discussion on Bill C-24. That's all, I expect. And then we can have the informal lunch at 11 o'clock still, just so you know. All committee members, staff, and the other guests appearing are welcome to stay for that lunch.

The list is now Mr. Temelkovski, Mr. Maloney, and Mr. Williams.

Mr. Murphy, we'll finish with your response to Mr. Cannan's question on that issue.

[The Chair, Conservative, Leon Benoit]

At 10:45 we do have a couple of things for the committee to deal with for about fifteen minutes. One is a very brief discussion on Bill C-24, the softwood lumber bill, and how that will start on next Tuesday. I don't think there's a lot to discuss on that, but Peter Julian also has two motions before the committee. One was passed at the last committee meeting, but it was passed in a form that we discovered really didn't allow the clerk to prepare the report, so we need a little bit of discussion to deal with that.

Mr. Julian, if you want to deal with the second motion at today's meeting.... If we could put it off to the next meeting, that would be very helpful, but that's up to you.

Let's go ahead then. If we can start with each participant giving a little bit about their background, and then very briefly, not in an opening statement, talk about what Canada's trade policy should look like, in a very general fashion....

Because of the way we're set up here, we'll go around the table very quickly, having each person at the table introduce themselves, not with a long speech, but when it comes to the members of Parliament, just give your name and riding.

I'm Leon Benoit. My riding is Vegreville--Wainwright in Alberta. Let's just go around the table this way.

Mr. Menzies.

Softwood Lumber Products Export Charge Act, 2006

[The Speaker, Liberal, Peter Milliken]

The House will now proceed to the taking of the deferred recorded division on the motion at second reading stage of Bill C-24.

The House resumed from October 17 consideration of the motion that Bill C-24, An Act to impose a charge on the export of certain softwood lumber products to the United States and a charge on refunds of certain duty deposits paid to the United States, to authorize certain payments, to amend the Export and Import Permits Act and to amend other Acts as a consequence, be read the second time and referred to a committee.