International Trade Committee on Oct. 31st, 2006

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

What if the currency had changed the other way?

[Dr. Elliot Feldman]

You may have opted to consider it the other way, but that didn't happen.

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

So it's wise to have some sort of catch in there that will neutralize the fluctuation either up or down.

[Dr. Elliot Feldman]

I think in instances where your money has been held against your will and it's been found that it never should have been held in the first place and you're entitled to get it back, the tax law ought to recognize the problem.

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

Thank you.

Mr. Pearson, you stated an awful lot of definitions. One very crucial one, softwood lumber, is not defined. I guess when one is looking at softwood lumber and you're comparing oak to walnut, maybe walnut would be softwood. Unless you define it specifically, what I heard you say is that it would create problems down the road, and it will create opportunities for litigators.

[Darrel Pearson]

That's correct. If I could add to that, as I understand it, the list set out in the treaty--I can't help but discuss that momentarily--has cross references to the harmonized system of tariff classification, as well as a non-exhaustive list of products. In other words, if that treaty legislation is to be ultimately adopted as the control list by the Export and Import Permits Act, we will still have a great deal of vagueness in terms of what constitutes a softwood lumber product.

Tariff classification is not as much of a science as we would hope it to be; it's a bit of an art as well. Frequently there are disputes concerning tariff classification. Whether or not a softwood lumber product falls within a specific tariff classification will be debated and established by the courts, not by Parliament. I don't think that's what was intended by this agreement. Likewise, the non-exhaustive list that's contained in the treaty is not limiting, so that's an additional problem.

Finally, there is consistent use of the word “product” in the context of processing--primary processing, last primary processing, etc.--throughout the legislation. In my view, as a result of that language, there will be a significant amount of dispute as to the scope of the agreement. We will be litigating these issues. This will cause uncertainty, which is the problem when you're trying to assist an industry to come out of this four or five years of difficulty.

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

This is my last point , Mr. Chair.

One noticeable omission was that you didn't reference anything to the calculation of the tariff, or the amounts. It seems that the definitions were quite vague, but there is no vagueness in terms of the collections and the remittances.

[Darrel Pearson]

Well, the rates are not vague, because they're specified. But the export price, which serves as the base of taxation...I did mention a number of difficulties with the price as well. The amounts will therefore be subject to the vagaries of the determination of the export price, and we'll have issues and litigation on that point for certain.

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

Thank you very much.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Temelkovski.

Monsieur Cardin, seven minutes.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chairman.

Good morning gentlemen and thank you for being here today.

To begin with, I must admit to you that there has been a time lag. This is unfortunate, particularly as I share virtually all of the concerns about which you have informed us. The fact remains that we are now studying Bill C-24, which is based on a signed agreement that almost has force of law. We are dealing here with statutes that would apply in Canada.

We at the Bloc Québécois had discussed many subjects, including the exchange rate. We had also discussed the tax treatment that could be applied if new amounts were received. The tax status can vary almost dramatically from one company to another. Some may be penalized indirectly, depending on the tax treatment applied. What you have been informing us of today should have been negotiated under the agreement. As it happens, the bill under review today implements the agreement. The process is therefore already underway.

Would you say that there was genuine consultation on the part of the government with a view to preparing and formulating this agreement? Given that the agreement has been signed and that what is at issue now is passing Bill C-24, it could be said that it is the end of the process.

At the beginning, the government told us repeatedly that 90 per cent of companies were in favour of this agreement. Were specialists like you able to contribute to the drawing up of this agreement?

[The Chair, Conservative, Leon Benoit]

Monsieur Cardin, first of all, we're not going back into discussion of the agreement. Secondly, Mr. Feldman appeared before the committee a couple of times on the agreement, so he certainly was involved.

Go ahead, gentlemen, but please stick to the Bill C-24 questions.

[Dr. Elliot Feldman]

I certainly don't want to be part of a revisionist history. The industry was not at the table, did not participate in the negotiations, and is not signatory to the agreement.

We were consulted fitfully. We received drafts on very short time horizons. We were not consulted about Bill C-24. We received no drafts of Bill C-24. We received no explanations of the intentions or ideas behind Bill C-24 at any time. So as to the bill, from me at least and I think also from Mr. Pearson, you're getting a fair reading from reviled lawyers--it's lawyers, after all, who are going to have to deal with the bill—and we're reading it back to you as best we can, interpreting what the draft says as best we can, but not having been consulted at all, at any stage, about this bill.

[Serge Cardin, Bloc, Sherbrooke, QC]

Do Messrs. Pearson or Woods have anything to add to this aspect of the question?

[Darrel Pearson]

I certainly didn't appear before this committee and I wasn't involved in the process. My comments relate exclusively to the bill. I've obviously read the treaty and my comments are not intended to ask Parliament to do anything that is contradictory to my understanding of the treaty.

The comments I made are exclusively in relation to the structuring and legal process that will take that bill and allow it to become law in this country. So I'm not addressing inconsistencies or matters relating to policy at all. It's strictly legal, not business.

[Serge Cardin, Bloc, Sherbrooke, QC]

As the chairman and Mr. Feldman said, we are not going to rewrite history, but the fact remains that this agreement and this bill have been erected on relatively weak foundations. There has been confirmation that consultation, whether with industry or lumber specialists, was not as extensive as we might have believed.

In any event, we are studying Bill C-24 and know that under the current circumstances, everything in the agreement needs to be complied with. In passing, I should add that if you are ready for an election, let us know. We could then improve Bill C-24 to address your concerns and ensure that certain subjects are covered more readily and more openly, whether we are talking about the exchange rate, tax treatment or definitions. Indeed, Mr. Pearson told us with respect to the definitions that it is the courts that will have to rule when the time comes for clarifications on these matters.

Does your knowledge of the act enable you to tell us whether industry representation can be assured on the softwood lumber committee, as provided for in the act, which is responsible for supervising the implementation of the agreement, for coordinating its further elaboration, for establishing working groups to examine certain aspects of the act and, indirectly, the implementation of the agreement, in greater detail? To ensure that there is industry participation, along with the involvement of regional and provincial governments, should such participation not already be provided in the act?

[Dr. Elliot Feldman]

There may be two or three ways in which I'd like to approach your question.

First, the agreement does not dictate to Parliament what Parliament has to do. That is, Parliament has a choice over this legislation. If there were no Bill C-24, the agreement would fall apart. But it wouldn't be as if the two federal governments were able to come together and tell Parliament it must pass this bill. To the contrary, the architecture of the agreement is that this legislation was supposed to precede. And what preceded was the ways and means motion, which is a temporary act, not this definitive legislation.

So without advocating any position at all, I'm merely trying to clarify for you that when you say this is done and you're now compelled to adhere to the terms of the agreement through this legislation, I don't think that's exactly so.

You could elect not to pass this bill. If you did that, you would undo the agreement, because the bill is supposed to be about the export tax, and the export tax is absolutely a condition of the continuation of the agreement.

The main point I've raised this morning is that the other taxes--the surcharges, the income tax, and so on--were not part of the agreement, and there's no obligation to pass those in relation to the agreement.

But as to the export tax, if you elected not to pass that, which is your prerogative, you would undo the agreement. But it's not as if the two governments could dictate to Parliament that you have to pass this bill.

[The Chair, Conservative, Leon Benoit]

Merci, Monsieur Cardin.

Mr. Harris, seven minutes.

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

Thank you, Mr. Chairman.

Mr. Feldman, Mr. Pearson, and Mr. Woods, welcome to our session this morning.

Mr. Feldman, I wanted to start with you. You're representing the Free Trade Lumber Council?

[Dr. Elliot Feldman]

Today I am, yes.

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

Are you being paid to be here by that organization?

[Dr. Elliot Feldman]

Yes, my expenses.

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

Have you represented them before?

[Dr. Elliot Feldman]

I've represented them continuously, yes. But I've not appeared before this committee on their behalf.

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

I see.

You talked about tax treatment, and I gather from your comments that it's your opinion the tax treatment on the refunds should in some way be forgiven, for a number of reasons, which you stated.

I would have to assume that under tax law, when those moneys were paid out they were claimed as a business expense by the softwood manufacturers as a cost of doing business, so they would have received a tax writeoff in that case. Under the tax law, to arbitrarily deem those refunds to be tax free would be, in one sense, a particular industry in Canada having it both ways.

Don't you think that would set a huge precedent for every other type of industry in the country for any future circumstances they may have that in some way could be related? Wouldn't that just throw the whole Canadian tax law into chaos? I mean, honestly now.