Finance Committee on April 27th, 2010

[The Chair, Conservative, James Rajotte]

I call to order the 12th Meeting of the Standing Committee on Finance. Pursuant to the order of reference of Monday, April 19, 2010, we will be studying Bill C-9, an act to implement certain provisions of the budget tabled in Parliament on March 4, 2010, and other measures.

Colleagues, we are continuing to go through the bill. It's an 880-page bill with 24 parts and we are going through it part by part. The last time we got through parts 1, 2, and 3, so we will endeavour to get through parts 4 to 24 today. We have witnesses who are prepared to answer questions from parts 4, 5, and 6.

So I'll start with part 4. I'll just ask if any colleagues have any questions. Part 4 deals with the Softwood Lumber Products Export Charge Act. Are there any questions on this section?

Mr. Paillé, s'il vous plaît.

[Daniel Paillé, Bloc, Hochelaga, QC]

Thank you.

As I said last week—like you, I get the impression I've been in this movie before—I wonder whether my questions shouldn't be for the Canada Revenue Agency rather than the Department of Finance. I wonder about the weighting of charges collected in Quebec and the other provinces. I wonder whether more sawmills were shut down in Quebec or Ontario, whereas approximately 50% of Quebec sawmills process American wood for which there are no charges. We're mainly talking about border regions, the Lower St. Lawrence, Beauce, the Appalaches, and so on.

Do you know how the collection is done or is that completely outside your field of expertise? When you design fiscal policy, do you do it for Canada as a whole? Is it easy to adjust the application of charge collections?

[John Drummond, Director, Softwood Lumber Controls, Department of Foreign Affairs and International Trade]

If I correctly understood your questions, they concern the collection and application of charges to various regions. This part of the bill amends softwood lumber products export charges pursuant to arbitration under the Softwood Lumber Agreement. The amendment of export rights also applies to the four regions subject to Option B under the agreement. During the arbitration process, we asked the tribunal some questions about the weighting of charges. The tribunal ruled that charges must be applied to all regions subject to Option B until a total of $68 million is collected. It was therefore impossible to weight the application of rights following the tribunal's decision.

[Daniel Paillé, Bloc, Hochelaga, QC]

If I understand correctly, if Ontario exported more than Quebec over a certain time and $68,260,000 had to be collected, Quebec businesses could pay a larger part of the $68,260,000 fine based on Quebec exports relative to Ontario exports. Is that possible?

[John Drummond]

Yes, it's possible. In early 2007, export levels were quite high in all regions. They were higher than they are now when we experienced the effects of the real estate crisis in the United States. Quebec exports are currently higher as a result of economic conditions. The sawmills are apparently operating. The regions that are currently exporting pay charges, but if the bill is adopted, those charges will be collected by Canada and the revenue will be redistributed to the regions based on the origin of the exports. If one region has paid more charges, the provincial government of that region will receive the revenue.

[Daniel Paillé, Bloc, Hochelaga, QC]

Unless I'm mistaken, at the time of implementation in 2006-2007, Ontario, for example, exported a lot. Canada was assessed a penalty of $68 million in charges. Now the charges are being collected based on 2009 exports. Since Quebec exports more than Ontario, there are differences.

You're telling me they are collected and those amounts are subsequently returned to the current provinces of origin, not those of 2007. They are sent to the governments of the provinces. If, for example, Quebec has to pay half the bill, $34,134,000, the Government of Quebec would receive the cheque and would be free to return that money to the businesses or not.

[John Drummond]

The provincial governments receive the revenues. The export levels at the start of 2007 were high across all regions. There weren't any large differences between them in 2007. Quebec is currently exporting more.

[Daniel Paillé, Bloc, Hochelaga, QC]

Quebec pays the bill and that money will be given back to the Quebec government by the federal government. The Government of Quebec will have to return it to the businesses. That may take some time. However, I understand that that is completely beyond the control of the Department of Finance.

[The Chair, Conservative, James Rajotte]

Okay.

We have Mr. McKay.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Clause 101 proposes a surge charge equal to an increase of 50% of the existing export charge. Could you explain to me how that would work?

[John Drummond]

Thank you for the question.

In the agreement there is a provision. In the 2006 Canada-U.S. Softwood Lumber Agreement the United States agreed to lift the duties they were charging in previous years and to refund to Canadian exporters about $5 billion in charges that they had collected. In return, Canada agreed to implement a system of export measures. In some regions the export measures are a charge and an export quota, or restriction on exports, and in other regions the measure is an export charge with a surge trigger. The surge trigger applies to what we call option A regions. It's British Columbia coast, British Columbia interior, and Alberta. According to the agreement, exports from these provinces or regions can go to a certain level. If they pass a certain volume level, there's a surge charge, which is an additional 50% charge on exports from that region.

The provision is there to ensure that if any of the option B regions in the future ever decided to choose the option A, any surge charge that was collected would not be subject to the additional charge. It's careful drafting on that point, because in fact the option B regions that are affected by this charge are not subject to this surge charge provision.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I'm sorry I asked.

How would a company or a region or a province know when it has surged and when it hasn't surged, except after the fact?

[John Drummond]

The Department of Foreign Affairs and International Trade runs and monitors an export permit regime. With each shipment every lumber exporter obtains an export permit. This keeps track of a number of things, including the volume of the shipment. These are posted on a daily basis so that the industry can watch as the volumes accumulate over time, and they can be notified as they get near the end of a month if they're approaching a surge.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you.

[The Vice-Chair, Liberal, Massimo Pacetti]

Okay, Mr. McKay? Thank you.

Any more questions on part 4? No. Part 5? Part 6?

What part, John?

[John McKay, Liberal, Scarborough—Guildwood, ON]

You can go back to part 5.

In effect we have the creation of a tariff-free zone in Canada with respect to manufacturing input. The problem with this stuff is that it comes right out of the blue. On the face of it, it strikes me as a good idea, so why wouldn't you do it? On the other hand, presumably domestic manufacturers are going to be affected in some substantial way.

So whose ox is getting gored here when you do this sort of thing? It's not as if our manufacturers have been having a wonderful time lately with the high dollar and productivity issues, etc. My gut reaction to it is that it's a good idea, but what about our domestic folks--how is that going to impact on them? And are there compensatory mechanisms or should there even be compensatory mechanisms for this kind of proposal?

[Carol Nelder-Corvari, Director, International Trade Policy Division, Department of Finance]

In terms of the feeling that this came out of the blue, actually there have been consultations ongoing with industry for quite some time, and we saw that in budget 2009 when tariffs were removed on a broad range of machinery and equipment. Further to that, several submissions were made to the Department of Finance and it was decided that further consultation should be made. And those submissions were from manufacturers seeking further tariff relief.

Broad-based consultations were held last fall, so this has been building. And there was quite a lot of pressure last year as well, for the creation of tariff-free zones in Canada. So all these things were brought together in this budget.

We weren't able to please everyone, in the sense that we have several submissions for further tariff relief and we're trying to deal with those. And the Minister of Finance indicated that further consultations will indeed be held to see if further relief should be provided.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Who opposes this initiative?

[Carol Nelder-Corvari]

In the consultations every sector that is listed stands to benefit, although there were some sensitivities and those were accommodated through a gradual phase-out. You'll notice some of the tariffs will not be removed until 2015. So there is always a balance between sectors and within sectors, and those were addressed through phase-outs.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I appreciate that you're answering in a generalized way but at the same time you are not saying who is actually negatively impacted by this sort of thing.

Frankly, I don't know whether to let it ride and see whether the folks who are negatively impacted show up to complain. Can you tell me who is complaining and where they are coming from and why they are complaining? Because this is a very significant initiative. And as I said, as a point of principle it's not such a bad idea. But there are consequences, some intended and some unintended. So who and what are negatively impacted by this measure?

[Carol Nelder-Corvari]

I'm sorry, there are 1,541 tariff items listed here. And those that are phased out over a longer period reflect areas where there are sensitivities.

As I indicated, in those areas where there are sensitivities, those sectors are of course looking for immediate reduction on certain imports and phase-outs of others. So every sector here stands to benefit, and where there were sensitivities they were phased out over a longer period.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I'll let it slide for the time being, because I dare say that we are going to hear from some people, but I just don't know who.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McKay.

I have Mr. Wallace and then Mr. Mulcair.

Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

I think you actually answered the question in your response. The indication that this was coming out of the blue is inaccurate. The department and you have been working with those...on a public issue. When you say, “public consultation”, what does that involve? Was it last fall, or how long have we been working at it?

[Carol Nelder-Corvari]

The public consultations are quite extensive. We start with a Gazette notice that lists all the tariff items and the proposals relating to those tariff items on tariff relief. Then the industry and all interested stakeholders have a certain period of time in which to submit their views. After they have submitted their views, when we have concerns, we meet with everybody who wants to speak with us in preparation--