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.
