International Trade Committee on Oct. 31st, 2006

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Okay. Thank you for that.

I'd like to come back to Mr. Feldman on two points.

Mr. Pearson, you've already commented on the punitive--Mr. Feldman termed it draconian--nature of this legislation: the 18 months of imprisonment for people who are just trying to sell softwood and create jobs in their communities; inspection without warrant; the provision allowing the government to go after commercial customers and directors individually, and also going after transferred moneys at any time. So a person who set up an educational trust for their kid could presumably, the way the legislation is drafted now, see those funds taken by the government.

A lot of folks feel this is an unjust political tax because there are political reasons why this agreement is in place.

I'd like your comment on the draconian nature of this legislation, and I'd also like to indulge you. You mentioned you had some theories around the revocation of the orders, and I would love for you to provide more comment on that.

[Dr. Elliot Feldman]

On the first point, my reference to the draconian nature of the bill is to the provisions of enforcement. As I commented earlier, and as Mr. Pearson seems to be concurring, there is a view that this is not abnormal for Canadian tax law, and it's hard for me to go much beyond that. It would be abnormal in U.S. tax law, and some of these provisions seem extreme to us. I think that, as this is a piece of independent legislation, it would not be unreasonable for you to examine those provisions independently of what's alleged to be “normal” in tax law, and you've just recited some of those instances that seem to be quite extreme. Indeed, you could put aside an educational trust and have it seized years later under the terms as written.

Our principal speculation is that the revocation came when it did under extreme pressure from the coalition, which wanted its $500 million and was getting anxious about getting its money. It was supposed to be at the head of the queue, and the United States therefore made a strategic and possibly erroneous calculation that it could revoke the orders and everything else would necessarily fall into place. In the normal course of things, I don't believe the United States would have revoked the orders without everything already in place, so there were both presumably private undertakings of the Government of Canada accompanying the secret negotiations that amended the agreement, and we are aware of quite intense pressure from the coalition to get its money.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

We've been referring to this as the proceeds of trade crime, this money that was unjustly taken because it contravened trade agreements, and essentially in regard to those proceeds of trade crime, there was such anxiousness to access it that the United States may have finally provided justice in this case.

[Dr. Elliot Feldman]

In terms of revoking the orders, yes.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Mr. Chair?

[The Chair, Conservative, Leon Benoit]

Go ahead.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Please clarify which clause we are speaking to, Mr. Julian, for my records.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

We are speaking to Bill C-24, Mr. Cannan.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Any specific clause?

[Peter Julian, NDP, Burnaby—New Westminster, BC]

As I mentioned earlier in reference to the chair, we have three possibilities as parliamentarians. One is to accept the legislation, which clearly is not going to fly because there are various problems that have been identified; the second is to amend or amend substantially this legislation; and the third is to reject this legislation.

I think it's important that parliamentarians keep an open mind about the possibility of amending or rejecting--

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Absolutely. I have an open mind. I just wanted to clarify which bill or which portion of the bill you were referring to, the specific clause.

[The Chair, Conservative, Leon Benoit]

Mr. Cannan, Mr. Julian has explained.

Please continue, Mr. Julian.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

I'd like to come back to another question for both of you, which is around the administrative and legal costs that would be deducted from payments made to the provinces, which is contained in clause 99 of the legislation. I reference that for Mr. Cannan so he can pull open his clause-by-clause analysis.

Would you have any sense of what might be deducted? The fear here, of course, is that because it's done by the minister and the provinces are not involved at all, there could be a substantial deduction of funds for moneys that were promised to the provinces, and that's the only reason some provinces decided to support the agreement.

So would you have any sense of where the government might be going on that based on past practice?

[Dr. Elliot Feldman]

I believe the administrative costs in the past were in the 1% range. But here the government has also said that it wants to rely on these proceeds for legal costs. It could be associated with the dispute mechanism. The agreement said that a portion of the $1 billion was to be assigned to the cost of managing the dispute mechanism, but not to the legal costs. If I understood the testimony of government officials last week, they would expect provincial governments to carry some of those costs where the provinces were involved. I don't know if there is any precedent for that. The mechanism does not provide for anyone but the federal governments to engage in the dispute process. There is no provision for provincial governments, private counsel, or provincial counsel to engage in any of the disputes.

In the past, where disputes have arisen under these agreements, they have been disputes raised by the United States questioning the conduct of Canada, and they've focused on provincial practices. It's not easy to foresee what will happen going forward, but presumably the anti-circumvention clause would be the principal source of dispute. These would be claims brought by the United States. It would be the Government of Canada's obligation to defend these claims, but it may seek to deflect to provinces. In these cases, the provinces would carry the cost of the dispute while the mechanism would be funded by the money taken from the $1 billion. If the Government of Canada actually does the defence, it presumably would be drawing on resources from the export tax. Then your question becomes, how much would they spend on that? If they use their own lawyers, they spend internally and in theory it's already in the treasury. But then, they could also hire private counsel. There have been reports about how much the Government of Canada tends to spend on private counsel, which I can tell you is a bit more than the private sector spends.

[The Chair, Conservative, Leon Benoit]

Mr. Julian, your time is up, and our time at committee is up. Was there a question to Mr. Pearson?

[Peter Julian, NDP, Burnaby—New Westminster, BC]

My question was to both.

[The Chair, Conservative, Leon Benoit]

Mr. Pearson, do you want to answer that as well?

[Darrel Pearson]

I have not had the pleasure of being retained by the Canadian government, so I didn't share in those numbers. I would reiterate my point that, particularly in respect of the cost of administration, the public service should have funds sufficient to properly enforce this legislation, so that the industry can benefit from it.

[The Chair, Conservative, Leon Benoit]

Does anyone have one final pressing question here?

Mr. Harris.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

First of all, I would like to thank the witnesses today for their legal opinions about Bill C-24. Every opinion is of benefit. The arguments will come from opinions.

Mr. Feldman, in respect of your opinion on Mr. Julian's suggestion about the double charge, a company like Canfor stands to get about $870 million back. If your opinion is correct, they could be facing an additional $156 million charge. If they had concerns about it, do you not think that as we speak they would be landing with a planeload of lawyers? Don't you think that if they had these concerns they would be doing due diligence the instant this bill was off the presses?

[Dr. Elliot Feldman]

First, I'm not aware that many counsel have read this bill. Companies like Canfor, especially upon signature in September, and probably earlier upon initialling in July, pretty much retired their counsel from looking at any of these procedures and have trusted the government to get it right. I'm not aware that their lawyers have read the bill at all.

Secondly, I am aware that there have been quite a few private conversations between companies, government officials, and ministers on various aspects of the bill. I'm not party to any of those private conservations. Whether there's a private conversation on the subject you're raising, I don't know. What I can add, however, is that not a single lawyer I have consulted and asked to examine these problematic sections of the bill—and there are several—have disagreed with the conclusion I've reached. There is a problem in the way it's been drafted. You can fix it. If you choose not to fix it, you have a problem.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Feldman, and thank you also, Mr. Pearson and Mr. Woods, for coming today. It was very much appreciated. I'm sure some government officials will be hard at work over the next day or so, having a look at what you've steered us to. Thank you very much.

This meeting is adjourned.