As to the reason for our participation and our role here today, in answer to your question, in general it can be said that Gottlieb & Pearson has been representing the Canadian importing and exporting communities in Canada since 1969, and of course, we're committed to that task. Today we serve the role more properly described as amicus curiae, so we have no client per se. These comments are the comments of myself and my firm.
I have a few introductory remarks and then I'm going to focus on three technical aspects of the legislation and seek to be of assistance to this committee.
As we review Bill C-24, the focus of our attention must shift to assisting Canada's softwood lumber industry by facilitating the softwood lumber export business to the United States, which is consistent with the 2006 treaty, the SLA, under a new legislative regime. Under the assumption that Bill C-24, as it will be amended, will pass into law, Parliament must create a law that is transparent, as user friendly as possible, and does not constitute a non-tariff barrier to trade.
In my view, the committee should focus on ensuring that the statute and regulations to be promulgated are as devoid of ambiguity as possible, do not cause undue, unnecessary financial and/or administrative hardship, and facilitate and do not obstruct trade. This calls for more precision than is evident from a reading of the bill. We should also be ensuring that the bureaucracies that will support the implementation of the treaty receive adequate resources to assist exporters and to enforce the law fairly and reasonably.
We understand this committee will consider suggestions intended to help ensure that technical aspects of the legislation are addressed. While comments are technical and while the industry has endured disruption and hardship in the past, the technical interpretation of the implementing legislation will have immediate as well as long-lasting effects on the industry's competitiveness and investment decisions.
So in that context, I wish to offer the following observations from our review of the bill, focusing on three elements: first, the industry; second, the charging section and related sections; and third, exporting from a region.
Starting with the industry, the draft bill, in our view, fails to adequately define the industry and softwood lumber in clauses 2 and 12 of the bill, and in what will be new section 8.4 of the Export and Import Permits Act. Clarity of definition of key terms and phrases is critical to the issue of both jurisdiction and the scope of taxation. For this reason, more precision is required.
Clause 2 simply defines the phrase “primary processing” as “the production of softwood lumber products from softwood sawlogs.” Softwood logs are not defined. Softwood lumber products are likewise not defined, but rather are to be merely named or listed in accordance with new section 8.4 of the Export and Import Permits Act.
In turn, the phrase “primary processing“ is not defined except that we may infer that it is a form of process that changes undefined softwood logs into undefined softwood lumber products. While these terms and phrases may be understood by some, if not many, in the industry in a general colloquial sense, clear definitions--that is, legal precision--is critical to permitting all the stakeholders to understand their application, and specifically to the implementation of the charging and related clauses, clauses 10 through 17 of the bill.
There is similarly a lack of definitional precision as to what constitutes the phrase “semi-finished” or “finished” softwood lumber products. The bill does state that “remanufactured” in clause 12 contemplates “changes in thickness, length, width, profile, texture, moisture or grading, has been joined together by finger jointing or has been turned.” Remanufacturing can ostensibly create semi-finished or finished softwood lumber products, and this does not address the possible distinction between the two. In other words, what degree of change by remanufacture creates a semi-finished versus a finished softwood lumber product?
Without a clear definition of softwood lumber products and the other phrases, the problem is compounded. Precision in definition is relevant to jurisdiction as well as to the calculation of the base of taxation, because the phrase “export price” is determined by reference to these key terms and phrases: “softwood lumber products”; “primary processing” and “last primary processing”, which I'll return to in a moment; and “remanufacturing”.
The meaning of “last primary processing ” in relation to softwood lumber products should be clarified, particularly as the phrase “primary processing” is defined to mean production of logs to softwood lumber products. That is a clear inconsistency that has to be addressed. The reference is paragraph 12(2)(a).
Those are comments about the industry and the key phrases that will help define processing, etc., as well as the products. I'd like to turn to the charging section now, clause 10.
One pays a charge if one exports a softwood lumber product, which is undefined except that it will be named on a list. The term “product” is simply too vague. It is not clear in the proposed legislation when, at what point in time, or at what time in processing one moves from a softwood log to a product. The list will not address this issue, and since primary processing is left without a specific definition, the degree of processing offers no help in establishing the meaning.
Second, the time of export is measured relative to loading, but the legislation fails to address what specifically constitutes the act of exporting or who is exporting. The reference is clause 5.
Third, clause 9 offers an exception to exports that pass in transit through the United States, and applies to goods that pass in transit through other countries en route to the United States, but there is no definition of “in transit”. For example, does this mean in customs control, or does it contemplate goods entered into a free trade zone or entered for consumption and re-exported without sale or modification in the extreme?
A great deal of the comments I'm offering you come from our experience in litigating and interpreting other forms of customs legislation. These are the very types of issues that have unfortunately had to be resolved by the courts unnecessarily.
Finally, the proposed legislation provides for region-based commitments and regional exceptions. Subclause 11(2) provides that a softwood lumber product is deemed to be exported from the region where the product underwent its “first primary processing”--there's a new phrase. This last phrase could be a corollary to the “last primary processing” phrase, but is no more precise than “last primary processing”. The legislation needs to address the meaning of “primary processing” of a lumber product, particularly as it specifically provides that the processing converts a log to a product. Again we have a contradiction in the usage of the terminology. This creates a potential problem in relation to counting volumes for quota purposes; the application or exemption from the charge; and the calculation of the charge amount due to the timing, the reference price, and volume quota factors. I'll elaborate very briefly.
Export prices are dependent on an FOB value where the last primary processing took place, and that could be different from where the product is exported. The bill contemplates that the region of export can be different from the physical location of export due to the deeming provision, or it could be the same in certain regions.
Export allocations are to be issued to benefit recipients with preferred rates of charge, but there is no reference to the mechanism of the allocations. We know there's going to be some form of quota regime, but we don't have any information concerning how that will work. There is no structure to that, except the delegation of that authority to the minister.
Proposed subsection 6.3(2) of the Export and Import Permits Act, provided for in clause 111 of the bill, requires more precision as to the entitlement for quota, under what conditions it is to be transferable—because there will be economic rents associated with the transfer of the quota, which we've seen in every other quota regime—and we also have to address whether or not there are any situations in which the transfer could be cross-regional.
Discrimination between independent and non-independent remanufacturers and the determination of export price are accomplished through the use of these phrases: “last primary processing”, “last processing”, and “remanufacturer”. If only primary processing is involved, the export price is the FOB value where that processing occurred; if remanufactured by an independent manufacturer, the export price is the FOB value where the last primary processing took place, possibly back one step; if the remanufacturer is not independent, the export price is the FOB value where the last processing occurred, but that begs the question as to whether the last processing is the same as remanufacture.
As to the concept of independence, the minister certifies independence under clause 25, but there is a void of factors or considerations and the bill contains no definition. There is a provision for related persons, but that, I believe, is not intended to be applicable.
If the considerations, as per the treaty, are exclusively tenure rights or relationships with those withholders of tenure rights and/or purchasers from the Crown, these should be spelled out in the definition in the statute. If there are broader considerations, these should be indicated generally so as to circumscribe the authority of the minister.
One last point: the export price in the absence of a determinable FOB value is, according to paragraph 12(2)(d), a market price determined in a sequential manner in arm's-length transactions. Unlike other customs and special import measures legislation that account for differences in quantities and trade levels through adjustments, this bill does not do so; nor does it provide for the means of selection where there's a choice within the price category. This will lead to uncertainties and disputes.
Thank you, Mr. Chairman.