Notices

1.1 The purpose of this Notice is to:

a) explain the background to the system of assigning softwood lumber export levels (allocations) to firms (Part II);
b) explain the allocation method used to establish individual export levels as of September 30, 1996 (Part III);
c) provide information to exporters (Part IV);
d) explain how allocations may be transferred (Part V); and
e) tell exporters where to get more information on any aspect of the system (Part VI).

1.2 This Notice also updates Notices to Exporters nos. 90 and 92, as well as the Notice to Industry of October 18, 1996 regarding transferability, by further explaining or clarifying elements of the system already covered by them. For convenience, this Notice summarizes information from those parts of the earlier Notices that are still valid. Finally, to the extent that this Notice provides more recent and complete information than sections of those earlier Notices, it supersedes them.

2.0 Coverage and Definitions

2.1 Coverage: This Notice refers to Item 5104 of the Export Control List (ECL), "softwood lumber products". This means softwood lumber products first manufactured in British Columbia, Alberta, Ontario or Quebec that are exported to the United States, irrespective of the province or territory of export. Shipments of softwood lumber first manufactured in the territories, in other provinces or in another country, are not covered by Item 5104, though exporters are required to keep appropriate documentation on the origin of such shipments as U.S. Customs entry documents require the province of origin to be identified. Shipments of softwood lumber from any province or territory to a country other than the U.S. are also not covered, but if these are sent through the U.S.in transit, proper documentation must be kept in case the Export and Import Controls Bureau of the Department of Foreign Affairs and International Trade (the EICB) or U.S. Customs wish to investigate such transactions.

2.2 Definitions: From time to time in this Notice softwood lumber products covered by the Canada-U.S. Softwood Lumber Agreement (the Agreement) be referred to as "covered products", and the four provinces listed above as the "covered provinces"; when the term "national" is used, as in "national exports", it means from or in the covered provinces. Terms such as "softwood lumber", "province of first manufacture", "primary producer", "remanufacturer" and "wholesaler", among others, are defined in the Preamble to the Questionnaires contained as Annex 1 in Notice no. 92. The term "year", when used in this Notice, means a period from April 1 of one calendar year to March 31 of the following year (the period of validity of an assigned export level), unless the expression "calendar year" is used. The term "quarter" refers to a sequential quarter of such a year, so that the "first quarter" is April 1 to June 30 of a calendar year, and so on. The assigned export levels shall be called "allocations" in this Notice, to conform with common usage. Finally, the expression "Provincial Corporate Allocation" means the total of all allocations to companies in a province.

3.0 Duration

4.0 Authority

4.1 Softwood lumber was added to the ECL by the Governor in Council pursuant to Section 3(d) and Section 6 of the Export and Import Permits Act (EIPA) in order to implement the Agreement. Export permits are issued under the authority of Section 7(1) of the EIPA, while fees are levied under the authority of the Financial Administration Act and the Softwood Lumber Products Export Permits Fees Regulations.

4.2 Readers of this Notice and other indications of policy referred to herein should know that export permits are issued at the discretion of the Minister responsible for the EIPA; accordingly, nothing in this or other Notices or other communications can be taken to guarantee the issuance of a permit. However, it is the Minister's intent normally to follow the policy outlined herein in his decisions regarding permit issuance, and it is accordingly presented as a guide to interested parties.

Part II: Background

5.0 The Softwood Lumber Agreement

5.1 The Agreement was signed on May 29, 1996 with retroactive effect to April 1, 1996. It shall remain in force for five years from that date, to March 31, 2001. Itprovides for exports to the United States under three bases: an Established Base (or EB) of 14.7 billion board feet of softwood lumber from the covered provinces each year free of fees; a further Lower Fee Base (or LFB) of 650 million board feet subject to a fee of US $ 50 per thousand board feet; and an unlimited Upper Fee Base (or UFB) at a fee of US $ 100 per thousand board feet. These fees will be adjusted annually on April 1 for inflation. The Agreement also provides for a bonus amount if a set trigger price is exceeded in any quarter; the trigger price will be adjusted upward in 1998. The main administrative provisions of the Agreement, which describe this in greater detail, are reproduced in Part II of Notice no. 92.

6.0 The Government's policy

6.1 Introduction: In an announcement on September 10, 1996, the Hon. Arthur C. Eggleton, Minister for International Trade, set out the Government's policy regarding the assignment of export levels for softwood lumber. This policy allows companies already operating in the U. S. lumber export market to continue their traditional patterns of trade, while providing for the possibility of new entrants, and other elements of flexibility; it takes a balanced approach to meeting the interests of the industry throughout the country. The main elements of the policy are set out below by way of background to the more detailed review of the allocation method in Part III.

6.2 Who gets an allocation: The allocation is a national corporate-based system. Export levels attracting no fee under the Agreement (Established Base levels), or attracting a fee of US $ 50 per thousand board feet (Lower Fee Base levels), have been allocated to primary producers and remanufacturers, including new entrants. The allocation process is based on their recent export shipments (including indirect sales through wholesalers), or on special criteria for new entrants. The recent base periods used are given in Part III.

6.3 The role of wholesalers: While wholesalers have not received allocations, the primary industry has provided assurances to the Government that it will continue to use Canadian wholesalers as distributors to the United States on a "business as usual" basis. To facilitate this, provision has been made for transfers and draw-downs (see Part V). The impact of the new system on the wholesaler export trade will be monitored closely, including through a Wholesaler Advisory Committee.

6.4 Other advisory mechanisms: The Government will also establish a national Advisory Committee representing industry stakeholders and provincial governments, who will nominate their respective representatives. This Committee will monitor the implementation of the export level assignment system. Provinces may also establish Provincial Advisory Bodies to advise the Minister for International Trade on the allocation system.

6.5 Annual review: The Government intends to review the system in January 1997 and annually for each year of the Agreement, with adjustments to allocations andadministrative aspects based on factors such as changes in firms' participation in the export trade, the previous year's exports, and advice from the consultative bodies and concerned parties. This will permit changes to the allocation and administration of allocations to respond to developments in the lumber industry and trade.

6.6 Duration of validity of allocations: Individual allocations are normally valid for one year at a time; unused amounts at the end of the year do not carry forward.

6.7 Market responsiveness: It is the Government's policy that the allocation system for export levels shall be a flexible and responsive one, able to grow and change with the trade rather than confining it. While there are obvious limits to this given the fixed Established and Lower Fee Bases, the policy provides four important elements of market responsiveness: a growth mechanism for companies whose sales exceed their EB level, an under-utilization provision allowing the reallocation of quantities away from those unable to ship their allocated levels, a new entrants' provision to assist companies with new or expanded production facilities, and transfer mechanisms to allow normal business relationships with wholesalers to be maintained.

Part III: The Allocation Method

7.0 Introduction

8.0Allocation methodology: national features

8.1 The industry associations in each province were asked to provide the formulas to allow for the most accurate and fair reflection of corporate export performance for the purposes of determining the EB allocations. There are, however, some common features of the allocation scheme nationally:

·each corporate allocation is based on verifiable export performance in a recent base period by the allocation holder; however, please note that shipments by allocation holders so far this year have been deducted from the confirmed allocation levels.

·the 14.7 billion board feet national Established Base has been reduced by 2%, for this year only, to accommodate the new entrants' provision (see paragraph 12.1)

·there have been further adjustments to the national EB to cover all shipments made to October 31.

·indirect exports in the applicable base period (those made through wholesalers and not counted as direct exports by the supplier) have been calculated and redistributed to allocation holders according to a formula provided by the industry association of each province.

·as stated in Notice no. 92 at paragraph 6.3, shipments made by exporters in the first two quarters of the current year have been counted against their final allocation, with appropriate adjustments for exports through wholesalers.

·the national Lower Fee Base has been adjusted to reflect the provision of 150 million board feet to the new entrants' pool, and to reflect LFB shipments in the first two quarters of the year. Each allocation holder will get a share of the remaining LFB that is proportionate to their EB allocation and takes into account their LFB shipments to date.

9.0 Allocation methodology: provincial features

9.1 The specific method used in each province for the allocation of the Established Base is as follows.

9.2 British Columbia: Established Base allocations to remanufacturers are based on the better of 1994 and 1995 direct exports to the U.S. Initial allocations of export levels to primary mills are based on the average of 1994 and 1995 direct exports to the U.S., except where this would result in a drop of 35% or more compared to the 1995 figures (because 1994 exports had been much lower than 1995 exports). In those cases, the 1995 figure is used. (Direct exports are those reported in reply to questions 9(a), (b), (c.iv) and (c.v) of the primary producers' questionnaire attached to Notice no. 92, questions 10(a), (b), (c.iv) and (c.v) of the remanufacturers' questionnaire).

9.3 In replying to the questionnaire attached to Notice no. 92, wholesalers gave information on where they purchased the wood that they exported. They also reported how much they exported overall on behalf of primaries and remanufacturers (their agency sales) and how much they exported on their own account. Primaries and remanufacturers, for their part, reported their sales to wholesalers. Using these three sources, the share of the wholesaler contribution attributed to each B.C. allocation holder was based upon the lesser of an estimate of each wholesaler's shipments for that company or that company's sales to wholesalers.

9.4 Alberta: Allocations of export levels to primary mills and remanufacturers are based on their best direct export sales in 1994, 1995 or a third period (exports in the second half of 1995 plus two times exports in the first quarter of 1996). Wholesaler sales were attributed back to primary mills or remanufacturers on an individual basis according to criteria developed by Alberta stakeholders.

9.5 Ontario: Primary and remanufacturer allocations are based on their best direct export sales in 1994, 1995 or a third period (exports in the second half of 1995 plus two times exports in the first quarter of 1996). Wholesaler sales were credited to holders of allocations using the method described in paragraph 9.3.

9.6 Quebec: Allocations of export levels to primary mills and remanufacturers are based on their best direct export sales in 1994, 1995 or a third period (exports in the second half of 1995 plus two times exports in the first quarter of 1996). The wholesaler contribution was attributed to them using the method described in paragraph 9.3.

10.0 Transitional arrangements

10.1 Certain allocations may include a special one-time adjustment to facilitate the transition from the first-come, first-served permit issuance system to an export-level-based system. That special adjustment will not be taken into account in the calculation of the allocation holder's 1997/98 level.

10.2 Some holders of allocations may find that the amount remaining is insufficient for their needs for the rest of the year. To ease the adjustment of their operations to the new market circumstances, allocation holders with smaller EB allocations (normally less than 50 million board feet) may be allowed to borrow up to 20% of their anticipated 1997/98 Established Base allocation for use this year. Companies will not be eligible for this provision until they have used 100% of their current EB and LFB allocations; in the case of companies with multiple mills, they must have used up the EB and LFB allocations to each of their mills in the same province before they qualify. The amount borrowed will be paid back through an automatic adjustment to the company's 1997/98 allocation. Any borrowed amount will not be counted as 1996/97 utilization for the purpose of calculating 1997/98 allocations, but it will be counted against next year's utilization. The allocation bank is subject to the overall constraint that, except for bonuses, the combination of exports in the year to date and unused allocations (including amounts borrowed under this provision) cannot, pursuant to the Agreement, exceed 14.7 billion board feet of Established Base and 650 million board feet of Lower Fee Base shipments. It is anticipated that the allocation bank option will only be available until December 31, 1996.

10.3 Certain other transitional arrangements are covered in the relevant sections of this Notice.

Part IV: Information for Exporters

11.0 Exporters with an allocation

11.1 Basic conditions: Letters have been sent to primary mills and remanufacturers confirming the allocations made to them in accordance with the approaches outlined above. These allocations are divided into Established Base (levels that may be exported without the payment of a US $ 50 or $100 fee per thousand board feet), and Lower Fee Base (levels that may be exported on payment of US $ 50 per thousand board feet). Companies' exports will be counted first against their EB, and then against their LFB levels if they run out of EB or if they exceed 28.75% of their EB in any quarter. That threshold of 28.75% is the so-called "speed bump" provision of the Agreement; it puts all shipments over the threshold into the holder's LFB - or UFB, if the LFB has been used up - until the beginning of the following quarter. Allocations are valid for the current year only; any amount assigned in September 1996, for instance, must be exported by March 31, 1997 or it lapses, as it cannot be carried forward into the 1997/98 year.

11.2 Bonus allocations: At this stage, most allocations do not include any bonus share. The bonus is the additional 92 million board feet that is earned following a quarter in which the average price of softwood lumber exceeds the trigger price of US $ 405 per thousand board feet (US $ 410 from April 1, 1998); the bonus must be exported within the four quarters following the quarter when it was earned, and bonus amounts are not counted in applying the "speed bump". It is provided for in Article III ("TriggerPrice") of the Agreement (see pages 9 and 10 of Notice no. 92). Some of the bonus amounts earned to date have been allocated to new entrants. For these exporters, the EICB will count their exports or transfers against the bonus levels first, until they are used up, before starting to count them against their regular EB or LFB levels (if applicable).

11.3 More about the "speed bump": The "speed bump" applies at the level of the individual allocation holder. As mentioned, every exporter whose quarterly exports pass 28.75% of his or her annual allocation moves automatically into the Lower or Upper Fee Base, as applicable; shipments up to that level remain within the Established Base and do not attract LFB or UFB fees. However, the Agreement exempts small producers (those with production of less than 10 million board feet in the previous calendar year); their allocations would be correspondingly small, and their production might well be seasonal, so they are not subject to the same discipline. This special provision was described in paragraph 6.7 of Notice no. 92, which was published before the verification of production levels was complete. The production levels of small producers will be surveyed annually, to keep this information current.

11.4 Fee refunds policy: It is also possible for fees levied on individual allocation holders who have passed their "speed bump" to be refunded, according to Article II:8 of the Agreement. This could happen in one of three ways:

(a) If an individual allocation holder exceeds the "speed bump" in a quarter, its shipments will automatically pass from its EB level into its LFB level (or into the UFB, once the LFB is used up), and it will be billed accordingly. If national exports under the Agreement do not hit the 28.75% mark in that quarter, however, each individual holder who has paid a fee is entitled to a complete fee refund in the following quarter, to the extent that they have unused EB levels. This refund will be processed automatically by the EICB, without application from the fee-paying company, and any shipments which had been counted against its Lower Fee Base will be switched to its Established Base instead (thereby topping up its LFB allocation again).

(b) If an individual allocation holder pays fees, but national shipments never exceeded 28.75% in any quarter of the year, that holder is entitled to a refund of one-half of the fees collected (within the national EB of 14.7 billion board feet). Since any allocation holder meeting the conditions of (a) has already received a refund under that provision, this is intended to cover those holders who use up their EB levels and are shipping on a fee-paying basis while others, evidently, have not shipped their entire EB levels (which is why the country as a whole, in this case, has not reached the national EB).

(c) If an individual allocation holder pays fees, but national shipments do actually hit the "speed bump" in any quarter, a refund is still possible. However, it is reduced to only one-third of the fees collected, in consideration of the surge ofexports in the relevant quarter(s). As in (b), it is a condition of this refund that the country as a whole has not reached the national EB.

Refunds under (a) are limited by the Agreement to holders of allocations; the Government's policy regarding refunds under (b) and (c) is under consideration, so these sections merely describe the current form of the Fees Regulation, which restricts refunds to holders pending a policy decision.

11.5 Illustration available: To clarify all this, an example showing how a typical exporter's allocation would be administered has been worked out in detail; it is attached as Annex A.

11.6 The growth mechanism: Each company's total EB and LFB export performance in any one year will be considered in calculating their EB and LFB allocations for the next year, which will take due account of their growth. However, smaller companies (those that exported less than 10 million board feet in 1995) will have the choice of opting out of this mechanism and declining to accept an LFB level; in that case, their allocations in coming years will not reflect any growth, but in exchange they will have their initial EB allocation safeguarded for the life of the Agreement (subject to any under-utilization penalties, as below). To opt out, firms will have to inform the EICB of their decision, in writing, by November 15, 1996; their LFB level will be withdrawn, and EICB records will show that their EB level is protected.

11.7 Under-utilization: A company that does not use its full allocation will have it reduced in the following year by the amount of its under-utilization. This is calculated separately for EB and LFB, and the LFB may not be reduced by more than 20%. It is basically these reductions for under-use, combined with the growth mechanism, that will ensure that the allocation of export levels remains market-driven. However, it is not the Government's intent to force exporters to export exactly 100% of their allocations, so three measures of flexibility are provided:

·first, a 2% margin is foreseen, so that companies using 98% or more of their EB allocation will be considered to have achieved full utilization.

·second, it is recognized that companies may foresee under-utilizing their remaining allocation this year, so as a one-time transitional measure they may return any portion they do not think they will use by notifying the EICB in writing by December 31, 1996. In return, their full allocation this year (without reduction) will be taken as this year's export performace for the purpose of calculating their 1997/98 share.

·third, it is foreseen that even after the transition companies may not be able to export their entire allocation in a given year, whether for commercial reasons or because of force majeure. A 10% margin is foreseen for these companies: if they return any portion of their EB and/or LFB allocation up to 10% of their initialallocation, by so notifying the EICB in writing by December 31st of that year, their initial allocation will be taken as their export performance for the purpose of calculating their allocation in the following year. To be clear, no under-utilization formula will be applied to a company that thinks it will actually ship at least 90% of its initial allocation and returns up to 10% of that allocation by December 31. The EICB will look at the total of its actual exports and the amounts it returns, and if these come to 98% of its initial allocation, the company will be considered to have achieved full utilization.

The amounts returned under the second and third provisions will be distributed to all other participants that do foresee using their full allocation.

11.8 Force majeure: There will be times in the normal course of events when level holders' production or shipments will be disrupted by circumstances beyond their reasonable control. Such instances of force majeure (literally, superior force) include, but are not limited to, worker strikes, mill fires, and forest fires. Besides the provision for the return of part of an allocation described above, the Agreement itself allows for some flexibility in these cases. Specifically, if a level holder's production of softwood lumber in a quarter was substantially disrupted (meaning reduced by at least 25% compared to the same quarter in the previous year), it can catch up on its shipments in the next quarter without facing a fee under the "speed bump" provisions. There is a stipulation, however: in order to be able to waive those fees, Canada must provide notice and documentation of the event to the United States within 60 days. Level holders that face such a disruptive event should therefore provide the EICB with relevant details (e.g. copies of police reports, production estimates for the quarter up to the force majeure event, production figures for the equivalent quarter in the preceding year) as soon as possible. The EICB understands that companies cannot necessarily tell whether their shipments will be down by 25%; that could depend on circumstances, e.g. how long a strike might last. Nonetheless, it is in level holders' own interest to communicate the relevant details by registered mail within six weeks of the event (or the start of the event, if it is a strike), so that the Government has time to give notice of a possible fee waiver to the U.S. Government. Allocation holders are also encouraged to keep duplicate records of relevance in a safe place so that a claim may be made even if, for instance, fire destroys their administrative records.

11.9 Limits on use of allocation: Allocation holders may only ship wood from their own facility against their allocation, except where they have received an automatic transfer from another member of the same corporate group in the same province. Remanufacturers face an additional condition: the letters confirming their allocation have indicated a breakdown by province of origin of the wood (on the basis of their export figures), and they are expected to respect this breakdown. Remanufacturers are also expected to use their allocations for the export of wood they have remanufactured. The EICB intends to conduct periodic audits to ensure that remanufacturing activity continues to be supported by the allocations to that sector, and to verify the provincial origin of remanufacturers' exported lumber.

11.10 Amalgamation of allocations: Companies that received separate allocations as primary mills and remanufacturers may keep these separate or amalgamate them (for this year only) by notifying the EICB of their wishes in this matter. If in the first two quarters of this year they effectively already amalgamated their allocations (by using only one EICB number for their permit applications), their allocation will be notified under one file number only. Beginning April 1, 1997, allocations for primaries and remanufacturers in the same corporate group will be kept separate, so as to let the EICB verify compliance with the conditions set out above; holders are accordingly advised to prepare to keep appropriate shipping records.

12.0 New entrants

12.1 The new entrants' pool: Based on the advice of industry associations in all four covered provinces, an amount of 628 million board feet was set aside for allocation to new entrants over the 18-month period between October 1, 1996 and March 31, 1998. This amount consisted of 294 million board feet from the fee-free annual Established Base level (i.e. 2% of 14.7 billion board feet, as mentioned in paragraph 8.1), 184 million board feet of fee-free trigger price bonus allocation from the first two quarters of this year (i.e. two times 92 million board feet), and 150 million board feet of the Lower Fee Base level (out of the total LFB level of 650 million board feet).

12.2 Definition of 'new entrant': It was intended that this amount would recognize export performance or potential that could not be reflected in the numbers on which the initial allocations were based. More specifically, the aim is to provide export access to:

(d)companies that have undertaken major capital investments in new production capacity since January 1, 1995.

12.3 Results of the new entrants' allocation exercise: Companies were sent a new entrants' questionnaire on October 9. Unfortunately, the industry associations' estimate of 628 million board feet proved insufficient to meet the declared needs of new entrants. Over two hundred companies replied to the questionnaire requesting allocations totalling nearly 8.3 billion board feet, which has meant that only 7.5% of the total request level for new entrants could be met. In the circumstances, it was necessary to review each application extremely rigorously, taking into account such factors as the completeness of the information provided, and the levels of incremental investment (as substantiated by independent accountants and engineers). Export projections and allocation needs over the 18-month period were assessed according to stringent criteria; for instance, it was decided that capacity expansions involving less than 50% incremental investment could not be accommodated. It was also recognized thatexports under allocations made this year would qualify new entrants for a regular EB allocation next year on the basis of their new or increased export performance. Even after these individual assessments, the total requested far exceeded the amount recommended by the industry associations for such allocations over the 18-month period. The companies that qualified for new entrants' allocations have been informed of their levels and conditions of use by letter.

13.0 Exporters without an allocation

13.1 Exporters without an allocation may export unlimited quantities of covered softwood lumber under the authority of permits issued against the Upper Fee Base of US $ 100 per thousand board feet. Alternately, certain exporters (wholesalers) may arrange for transfers or draw-downs from holders of allocations; these will attract the applicable fees (zero, within the Established Base, and US $ 50 per thousand board feet, within the Lower Fee Base). Part V explains the procedure in greater detail.

14.0 Permits

14.1 Export permits are used to keep track of shipments within the Established Base and the Lower and Upper Fee Bases; allocations as such are merely an administrative convenience indicating to exporters the likelihood of export permits being issued to them within these various bases. Because of the legal and regulatory structure of the EIPA and the ECL, permits are a requirement of export for all covered softwood lumber shipments to the United States. All exporters, whether or not holding allocations, should know that Canada and the United States will conduct a regular reconciliation that will identify all entries of softwood lumber into the U.S. and relate them to Canadian export permits issued. The Agreement requires all shipments of covered products to receive export permits, so any exporter identified through this process as having shipped without an export permit will be notified of their breach of the EIPA, and the appropriate Upper Fee Base (US $ 100 per thousand board feet) permit will have to be issued to ensure compliance with the Agreement. Apart from the UFB permit, breaches of the EIPA may also lead to prosecution, as explained in Notice no. 90 at paragraph 7.1. Finally, exporters should know that the Minister may take their compliance with the Softwood Lumber Products Export Permits Fees Regulations and other relevant laws and regulations into account in his decisions regarding permit issuance in the following year.

14.2 Given the foregoing, exporters will appreciate that the Canadian and American brokers handling their shipments (or their own internal units handling shipments, if the exporters are getting their permits directly from the EICB) play a crucial role in ensuring that permit issuance matches up to actual shipments by getting the permit requests in quickly. This includes any cancellations of permits (e.g. where two permits were requested for the same shipment), and subsequent reissuance of amended permits (e.g. following the appropriate U.S. procedures for correcting customs entries as regards tariff classification, including provincial origin of softwood lumber. It is up toexporters to ensure that their brokers give them complete and timely service: the Government of Canada cannot be held liable for failure of any party to comply with the terms of a private contract or understanding, whether between exporter and client or between either of these parties and brokers, transporters or other intermediaries.

14.3 The $ 9 processing fee for permits is explained in paragraph 8.1 of Notice no. 90. It is levied once per U.S. customs entry even though several Canadian "permits", with different numbers, may be issued, since the fee is based on the administrative costs of processing the Ministerial authorization for the shipment, rather than on the number of pieces of paper issued.

15.0 Payment of LFB and UFB fees

15.1 As explained above, LFB fees must be paid by any holder of allocations who has run out of Established Base, or who has passed the "speed bump" of 28.75% of the annual level in any quarter, and who has LFB levels available. These fees must be remitted according to the procedure outlined in Part III of Notice no. 92, with one change: fees are now due when the permit is issued, not when it is applied for. Exporters' brokers will be able to query the EICB computer system to find out whether LFB or UFB fees are applicable to part or all of a shipment before inputting the permit request, although it will be understood that if this query is made after the goods have been released into the U.S., any applicable fees must be paid.

15.2 Upper Fee Base fees must be paid by exporters without allocations (see above), and by any holder of an allocation who has run completely out of both EB and LFB, or who has passed the "speed bump" in a quarter and has exhausted any available LFB.

15.3 As stated at paragraph 11.6, all Established Base and Lower Fee Base exports in a given year will be taken into account in the calculation of allocations for qualifying companies the following year.

15.4 Fees payable are due to the Receiver-General for Canada at the time of issuance of the permit; if an application is withdrawn, no fees are due.

16.0Information about U.S. Customs procedures

16.1 Section 2 of Notice no. 90, and its Annexes 1-3, give information on the U.S. Harmonized Tariff Schedule tariff items that define softwood lumber under the Agreement, and list the points where exporters may obtain binding rulings. U.S. customs brokers, for their part, can inform exporters or their Canadian brokers on how to get a U.S. entry number, which is a prerequisite for obtaining the Canadian export permit.

16.2 The key point in the process of exporting, as far as the issuance of a Canadian export permit is concerned, is release. Goods released into the U.S. (including goodsplaced in bond) are counted against Canada's overall exports, and we are responsible under the Agreement for ensuring that the appropriate export permits cover all such goods - Established Base, Lower Fee Base or Upper Fee Base. Once shipments are released, therefore, the exporter has incurred a potential liability for fees under Canadian law if his or her EB has been exceeded - regardless of whether the release is based on an erroneous entry declaration. Where subsequent correction or audit procedures under U.S. customs law result in the U.S. crediting Canada with unused EB or LFB levels, the EICB can cancel or reissue permits and refund fees as appropriate and possible under the Agreement; such claims must be presented to the EICB in writing, with proof of the U.S. customs procedure followed. At time of writing we are still seeking clarification from U.S. customs of the post-release procedures that could result in an adjustment to the count of imports and therefore trigger matching action by Canada.

Part V: Transferability

17.0 Introduction

17.1 Allocations are transferable using 'draw-downs' or 'transfers'. Allocation holders may provide draw-down authorizations to remanufacturers or wholesalers alike, but transfers as such may only be made to wholesalers. The two procedures were described in the Notice to Industry of October 18, 1996 they are summarized here for convenience.

17.2 Please note that only one of the two procedures may be used for dealings with any given wholesaler in any given quarter: since draw-downs are unlimited and transfers are limited, they cannot be run simultaneously for the same allocation holder/wholesaler relationship. For this quarter only, as a transitional measure, allocation holders will be allowed to make a switch between one and the other mechanism for any given wholesaler during the quarter (changing draw-down authorizations into transfers and vice versa); beginning January 1, 1997, the changes will only be allowed at the end of the quarter and will take effect in the following quarter.

18.0 The draw-down mechanism

18.1 A holder of an allocation can designate in advance any number of wholesalers or remanufacturers to draw down from its export level. The holder has sole control of the list of authorized entities, and can add to or subtract from that list. Any written notice of authorization to draw down is valid until revoked in writing. The draw-down may go as high as the remaining allocation balance; the EICB cannot control amounts drawn down. (The commercial arrangements that may underlie such authorizations are a private matter between the parties, and the Government will not enforce their provisions). A company authorizing a draw-down must notify the EICB in writing (by letter, or fax followed by original letter), and the written notice must identify the company receiving the draw-down authorization (which should also be copied on thiscorrespondence). It is expected that such draw-downs will be a convenient form of business for primary mills or remanufacturers with their own wholesaling operations, as well as for those with long-standing relationships with independent wholesalers that effectively have acted as their marketing arms.

18.2 Some other features of draw-down should be remembered. First, a draw-down authorization cannot be further transferred without the express written consent of the allocation holder; if that is given, the third company will be given the same access to the export levels as if it had been designated by the allocation holder in the first place. (In effect, the draw-down is not actually transferred: the first company given draw-down authority has negotiated a separate draw-down authority from the allocation holder for the third company). Second, since all draw-down authorizations are open, whichever exporter of record (applicant for an export permit) happens to apply for a permit as the "speed bump" is hit in a quarter will start drawing down the allocation holder's LFB level (if any remains), and will be assessed the US $ 50 per thousand board feet LFB fee. If this is not acceptable for the recipient of the draw-down authorization, it must arrange for reimbursement of the fee from the allocation holder; alternately, it must arrange for a broker to query the EICB computer regarding the balance available, to see whether a fee is likely (see also paragraph 20.3). A similar situation would occur when the overall EB level for that holder was exhausted: all future shipments would be subject to a fee. (Note: if both EB and LFB allocations are exhausted, the draw-down effectively terminates, as anyone can export on paying US $ 100 per thousand board feet). Third, the draw-down authorization must be received by the EICB sufficiently in advance of the first intended exportation that the new exporter's (likely, wholesaler's) account can be established; otherwise, the Upper Fee Base will be applied, and cannot be corrected by a retroactive authorization - even where the wholesaler is a corporate affiliate of an allocation holder.

19.0 Transfers

19.1 The second form of transfer provided in the system is the transfer to a wholesaler of a portion of the export level only. The main conditions of transfer are:

·all notices of transfer must be made in writing to the EICB, in the prescribed form;

·the essential character of the level transferred (EB or LFB) is not changed by the transfer; unless it is explicitly stated to the contrary, transfer requests will be taken to refer to no-fee (EB) amounts only.

19.2 Further transfers: In the draw-down system the company receiving the draw-down authorization is always drawing against the allocation holder's levels. In the transfer system, by contrast, the transferee becomes a temporary allocation holder andcan further transfer a portion of that level to another company without the permission of the original allocation holder. Like other transfers, these must comply with all notification requirements and other conditions. It is important, however, that the ultimate exporter of record identify the primary or remanufacturer of origin of the lumber correctly on the export permit request; since in practice this flipping of export levels is likely to reflect a physical transfer of lumber, it is assumed this accounting obligation will be easily met. Monthly reports to the original holder of the allocation will identify the take-up, including by transferees, but will not divulge anything more than the levels taken up by transferees (without indicating whether these represent shipments or further transfers, or to whom).

19.3 Transfers and utilization rates: The entire amount of an EB transfer will count as use of the level for the purposes of calculating whether exports have hit the "speed bump" for an individual allocation holder, just as the entire amount of an LFB transfer will count as use for the purpose of determining whether LFB or UFB fees should apply. By the same token, any EB transfer authorized by a company holding a bonus level (paragraph 11.2) would also count first against that level.

19.4 Under-utilization of transfers: Any unutilized transfer balances revert to the holder of the original allocation at the end of the quarter (or sooner, on written notification from the transferee to the EICB and the allocation holder). An unused balance that reverts to its original holder will be credited to its allocation in the following quarter, except that at the end of the year there is no carry-forward: unutilized transfer balances will show as under-utilization by the allocation holder, with all that this implies for under-utilization penalties. (Conversely, amounts transferred and used for export shipments will count as utilization for the purposes of the next year's allocation exercise). A wholesaler may receive transfers from a number of different allocation holders, but at the end of the quarter the amount utilized for each specific allocation holder will be reconciled with the amount transferred (so that unused balances can be returned to the original allocation holder).

19.5 Carry-forward of transfers: Since there are commonly delays between the shipment from the primary mill or remanufacturer, and the subsequent export shipment from the wholesaler's yard, it is possible that part of a transferred amount might lapse at the end of a quarter before all the shipments planned against it have taken place. There is no automatic provision to carry forward such amounts, even on the request of both the allocation holder and the wholesaler. In the event, wholesalers and their suppliers would have to agree on the latter making new transfers equivalent to the unused amount that reverted, where necessary. As this is a new circumstance related to the existence of an allocation system, it is recommended that the companies concerned foresee such transfer renewals in their commercial contracts or agreements.

19.6 Restrictions on companies making the transfer: Allocation holders will not be able to transfer more than their EB maximum for a quarter (i.e. 28.75% of their holding), unless they are a small exporter exempt from the "speed bump" (see paragraph 11.3). Allocation holders will also not be allowed to transfer more EB than they have left; similarly, they will not be able to transfer more LFB than they have. As they receive an export level in respect of lumber originating in a given province, remanufacturers with levels for more than one province must specify which provincial level they are transferring from. It is the Minister's policy that transfers to wholesalers or amongst corporate affiliates in a given province will normally be automatic; such transfers must nonetheless be notified in writing to the EICB in each case. Other transfers may take place with the Minister's prior permission, which must be requested through the EICB.

19.7 Restrictions on wholesalers receiving the transfer: The wholesaler must respect the provincial origin of the allocation transferred to him or her (e.g. a transfer from a B.C. primary means that B.C. wood must be bought; a transfer from a Quebec remanufacturer's 'Ontario portion' means that Ontario wood must be bought). Within these constraints, the wholesaler is free to use the transferred amount any way he or she pleases; any ties to sales by the allocation holder will be a matter for private contractual arrangements, and will not be enforced by the EICB. Wholesalers' temporary accounts will normally provide Established Base levels only, so they should take care to remain within those levels: any overage will go straight into the Upper Fee Base.

19.8 Timely notice: The transfer notification must be made to the EICB sufficiently in advance of the first intended exportation that the wholesaler account can be established or replenished; if that account does not have enough to cover the amount exported, the Upper Fee Base will be applied, and cannot be corrected by a retroactive authorization. If the account balance is queried before the shipment is released into the U.S., of course, the likelihood of goods being shipped too early and fees being incurred will be reduced. (See paragraph 20.3)

19.9 The Minister reserves the right to approve or reject all transfers. His decisions will be based on the above-mentioned policy considerations, which are intended as a common-sense reflection of how the trade and the export controls system can best work together.

Part VI: Further Information

20.0 Information about Canadian procedures

20.1 Who to ask: Inquiries about Canadian procedures described in this Notice or about the Canada-United States Softwood Lumber Agreement may be addressed to:

20.2 Service charges: Holders of allocations may call the EICB to get their balance as it shows on the system; this service is free. However, the Bureau has no means of knowing what shipments have been made until a permit is requested, so the balance obtained this way will usually be higher than the actual allocation remaining within the holder's EB or LFB. In other words, querying the EICB system (whether directly or through on-line brokers, who may charge for the service) is not a substitute for keeping accurate shipping records. Holders of allocations may also get a report listing the take-up on their export levels (whether these are ones initially allocated by the Minister, or ones transferred from other holders); information on subsequent transfers will be limited to permit quantities only, as explained at paragraph 19.2. These detailed reports will be provided once a month free, and (subject to resource availability) may be ordered at other times for $ 60 or more, depending on the costs incurred to produce them.

20.3 Role of brokers: A number of Canadian customs brokers have on-line access to the EICB computer; the Softwood Lumber Unit can provide the list. These brokers can provide many of the services described in this Notice, notably obtaining permits and querying balances available, at charges that vary from broker to broker. However, holders of allocations must send the EICB written authorizations before on-line brokers can query their balance levels.

21.0 Information about American procedures

21.1 The U.S. service ports listed in Annex 3 to Notice no. 90 provide binding tariff classification rulings. Such rulings may also be obtained from:

Notices

The Assignment of Export Levels

Table of Contents

Part I: General

1.0 Purpose

2.0 Coverage and Definitions

3.0 Duration

4.0 Authority

Part II: Background

5.0 The Softwood Lumber Agreement

6.0 The Government's policy

Part III: The Allocation Method

7.0 Introduction

8.0Allocation methodology: national features

9.0 Allocation methodology: provincial features

10.0 Transitional arrangements

Part IV: Information for Exporters

11.0 Exporters with an allocation

12.0 New entrants

13.0 Exporters without an allocation

14.0 Permits

15.0 Payment of LFB and UFB fees

16.0Information about U.S. Customs procedures

Part V: Transferability

17.0 Introduction

18.0 The draw-down mechanism

19.0 Transfers

Part VI: Further Information

20.0 Information about Canadian procedures

21.0 Information about American procedures