International Trade Committee on Oct. 31st, 2006

[Darrel Pearson]

It could be loaded on an interim vessel that would be taken to the port, for example, on a through bill of lading. It has already potentially begun its exportation at that point. Or does the legislation intend to capture the moment when the goods move from the intermediate transportation mode to the boat--if it's going by boat?

We don't know exactly when the exportation takes place. Is it when the exporter signs off on the “B13” documentation and hands that over to Customs? It needs to be more precise in terms of what act actually constitutes exportation.

The other point I made was that there is no definition as to who is considered to be the exporter. I think this is relevant in connection with establishing a number of issues, including responsibility for payment of the export tax. It's not as simple in that case as saying, well, it's the person who put it on the boat. My goodness, there are hundreds of people, and maybe several companies, involved in dealing with that.

[Ted Menzies, Conservative, Macleod, AB]

Does ownership not substantiate that?

[Darrel Pearson]

Well, it could, if it were defined that way. For example, the Customs Act contemplates that an importer and owner will be two different people. Likewise, an exporter and owner could be two different people. There is an exporter who may be the exporter of record, who's responsible for ensuring that there's been an export declaration made to Customs. He would be defined on the documents as the exporter. There are a lot of different ways this could be handled. It just needs to be handled.

[Ted Menzies, Conservative, Macleod, AB]

Thank you.

I believe you referred to clause 9, with respect to the exemption for passing through. What would take the ambiguity out of that?

[Darrel Pearson]

A definition of the phrase “in transit”.

[Ted Menzies, Conservative, Macleod, AB]

It's as simple as that, is it? There's a legal phrase that would definite that?

[Darrel Pearson]

Well, we'll leave it to the people who help you put those definitions together to say whether it's easy or not. But a proper definition that provides clarity could absolutely be prepared.

[Ted Menzies, Conservative, Macleod, AB]

Okay.

I know definitions are very important. I forget which lumber it was--one, two, three, or four--where we were exporting lumber that had added value in that there was a hole drilled in one end. It was exempted because of that. We know people are ingenious in the way they get around that.

[Darrel Pearson]

Advertently or inadvertently.

[Ted Menzies, Conservative, Macleod, AB]

I'm not suggesting it was whichever form.

Economic rent regarding quotas is something I hadn't given a lot of thought to. Can you share your concerns about that?

Then I believe Mr. Harris has one quick question.

[Darrel Pearson]

It's not a concern insofar as it's just a statement of fact. When there's a limit on the volume of product that can be either imported or exported, subject to some form of penalty or taxation or absolute volume, it creates an additional value in the ability to actually do the exportation or the importation. You may have excess inventory or you may have shortages of inventory. The fact that the bill contemplates that there will be transfers of quota or entitlement suggests that there will be payments for that.

[Ted Menzies, Conservative, Macleod, AB]

It creates a value to the quota.

[Darrel Pearson]

Over and above the value of the lumber product.

[Ted Menzies, Conservative, Macleod, AB]

Okay.

[Darrel Pearson]

Generally, they've been considered to be harmful.

[The Chair, Conservative, Leon Benoit]

Mr. Harris, I'll give you one question. The time is up.

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

This is to Mr. Feldman.

Mr. Julian suggested there's an opportunity for a double taxation in reference to those that chose the EDC provisions over those that didn't. He suggested that because this piece of legislation lacks a particular reference to remission--I think that's the word he used--those who did not choose the EDC route would get 100% and remit approximately 18%; whereas the ones who chose EDC would receive 82%. Mr. Julian has suggested that because there is an omission in this legislation, there is an opportunity for those who chose the EDC route to be charged an additional 18%. Where specifically is that omission or that area of ambiguity, and how would you fix it?

[Dr. Elliot Feldman]

Thank you for that. Obviously we need to clarify here.

Mr. Julian is absolutely correct that this is my preoccupation, if you will. It's what I consider to be the principal defect in the bill. The bill as written does double-tax the EDC participants. The first is not technically a tax because it's part of the purchase and sale agreement--

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

When you say double-tax, what you mean is that--

[Dr. Elliot Feldman]

They get the 82.5% under their purchase and sale agreement and the irrevocable power of attorney that they signed over to the United States and to Canada. Through those two agreements they're getting back less than 100%. They're getting back roughly 82.5%. But then their refund is absolutely subject to the special charge under the terms of the bill. There's no exception in the bill, in clause 18, to the special charge. Indeed, it's detailed here, which I can walk you through very quickly.

Subclause 18(1) defines specified persons, those therefore who are going to be subject to the charge. Then if you look at subclause 18(3), it says that the special charge will be imposed on all specified persons. And all specified persons are persons getting refunds.

When you look at subclause 18(4), it says the following: “The charge under subsection (3) is payable by the specified person even if the refund is issued to a designate of the specified person.” The designate here is EDC. Even if the money is transferred not directly to the company but instead is transferred to EDC, the charge applies, as explicitly as it could be, under subclause 18(4).

The government has said, “We don't mean to impose that charge, so you'll get it back in a refund or a remission.” I've gone to clause 39 in the bill to see how you get it back. Clause 39 says you can't get back any money under this bill unless it's specified in the bill. Well, there's nothing specified in this bill or under the Financial Administration Act to get that money back.

In your hearing last week, I observed how the government officials who appeared relied upon the Financial Administration Act, but abstractly. They said the authority is there, and somehow they can get the money back. So they're supposed to pay it but then get it back under the Financial Administration Act. But the Financial Administration Act does not provide the cure. I've walked through the sections of the Financial Administration Act for that purpose.

How do you fix it? I can make two suggestions.

One, delete clause 18 altogether. Alternatively, you must change the term “specifically provided” in clause 39 so that there is an amendment here that says you don't pay it--that means correcting subclause 18(4) so that you have a provision that says it won't be paid, because under subclause 18(4) everyone pays it, no exceptions--or else in clause 39 you adjust the language of “specifically provided” so that you indeed specifically provide within this act that there's to be a refund of that money.

So you have several ways in which you can fix it. As it reads now, there's absolutely double-tax.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Feldman.

Mr. Julian, five minutes.

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

Thank you very much, Mr. Chair.

To come back to your comments, Mr. Pearson, about the loose or vague language contained within the draft legislation, my question back to you is this: how probable would there be litigation arising from this to clarify the loose language, and how soon might this litigation arise?

In other words, if we don't do our due diligence on Bill C-24, when would litigation possibly arise, coming out of the loose or vague language?

[Darrel Pearson]

Inasmuch as this legislation is not law but is already regulating trade in software lumber, I would suspect it could be at any time.

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

So we could be looking at legal cases arising if we do not clarify all the terms you've mentioned.

[Darrel Pearson]

Yes.