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Proceedings of the Standing Senate Committee on
National Finance

Issue 8 - Evidence

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OTTAWA, Wednesday, May 9, 2001

The Standing Senate Committee on National Finance, to which was referred Bill S-23, An actto amend the Customs Act and to make related amendments to other Acts, met this day at 5:53 p.m. to give consideration to the bill.

Senator Lowell Murray (Chairman) in the Chair.

[English]

The Chairman: Honourable senators, this is our second meeting of this committee on Bill S-23, an Act to amend the Customs Act and to make related amendments to other acts.

We heard from the Minister, Mr. Cauchon, and officials yesterday. Some matters remain to be discussed, particularly with regard to the coming regulations. Senator Angus, among others, has expressed an interest in pursuing these matters with the officials who are here with us tonight.

Please proceed, Mr. Lefebvre.

[Translation]

Mr. Denis Lefebvre, Deputy Commissioner, Canada Customs and Revenue Agency: First of all, I would like to mention that contrary to what I said yesterday in reply to a question from Senator Bolduc, the word "merit" does not appear in the Canada Customs and Revenue Agency Act.

Staffing at the Agency is governed by a staffing program and the eight principles set out in the Agency's business plan summary, which the Minister needs to table before Parliament each year.

The staffing principles are the following: political neutrality, representativeness, competence, equity, transparency, effectiveness, adaptability and productivity. These principles are compatible with those of the rest of the public service.

The competition selection process is the main mechanism used to promote personnel, both internally and externally. Thank you for giving me the opportunity to clarify this point.

Senator Angus: I would like to call on a point of order. Senator Bolduc will be arriving in a few moments. I would like to know whether Mr. Lefebvre has a written copy of his presentation so that Senator Bolduc can consult it if he wishes to ask questions later.

Mr. Lefebvre: I have a copy in both official languages.

[English]

In addition, I would like to mention that at clause-by-clause study, we will have a number of changes to propose as minor drafting issues, but we will also propose two more substantive amendments. I have with me a three-page document, with copies in English and French, that explains the purpose of the amendments as well as the reason they are brought to the committee at this time.

The Chairman: I think you should describe what the substantive amendments are intended to accomplish. We will get a longer explanation in writing and when we get to clause-by-clause study, Senator Setlakwe, who is the sponsor of this bill, will present the amendments.

Please continue.

Mr. Lefebvre: As background, customs authority currently basically applies to the examination and search of arriving travellers. Our authority does not extend to employees who may be working in restricted areas around airplanes or in terminals, and it does not apply to turn-around travellers - people who have access to restricted areas and then decide to leave those restricted areas.

Senator Angus: Do you mean in Canada?

Mr. Lefebvre: Yes. They leave the restricted area and come back into Canada.

Bill S-22, an act authorizing the United States to pre-clear travellers and goods in Canada for entry into the United States, received Royal Assent on June 17, 1999. This allowed for the signing of the U.S. Air Transport Preclearance Agreement on January 18, 2001. In response to the signing of the pre-clearance agreement, the Greater Toronto Airports Authority, GTAA, recently tabled a number of design options for a U.S. in-transit pre-clearance facility in the new Toronto airport. The GTAA and other airports have indicated that they would like to implement a reverse in-transit process.

This is a process whereby travellers who have gone from overseas countries through Canada to the U.S. wish to return via the same route. This causes those travellers who return from the United States en route to foreign destinations to be in restricted areas where Canadian travellers, going to the same destination, could meet with them. Our concern is that travellers who exit these areas and return to Canada would have had access to travellers who have not gone through customs. This is a risk that must be mitigated.

The purpose of the amendments that will be tabled before you is, first, to authorize the minister to designate restricted areas, which are also called sterile areas.As well, it will authorize customs to examine and search turn-around passengers who have access to those areas and then exit them. It will also authorize customs, subject to the limits prescribed by the Charter, to examine and search employees who might exit those areas after having been in contact with arriving travellers or their luggage. Finally, it will authorize the Minister of National Revenue, who is responsible for customs, to determine which employees have access to restricted areas.

This will ensure that eventual discussions with airports that want to implement reverse in-transit will be fruitful, subject to discussions with all the agencies that have an interest in the matter.

We bring these amendments to your attention at this time so that you will be aware of their content prior to clause-by-clause study. We are, of course, available to answer any questions you may have in this regard.

Senator Angus: Mr. Lefebvre, this first matter is quite interesting. Obviously it deals with the aspect of your mandate, which you described yesterday, that has nothing to do with the trade of goods, but rather with the security, safety and health of Canadian citizens. You described it in quite technical and careful language just now.

Could you give us a theoretical example, in layman's terms, of something that might happen at Dorval Airport, against which this is designed to protect?.

Mr. Lefebvre: Currently there are employees who are tasked with cleaning airplanes that arrive from foreign countries, which may be high risk countries. When those employees leave those areas, we do not have customs powers to ask them to answer questions or to search or examine them.

Senator Angus: You are speaking of employees and not travellers?

Mr. Lefebvre: Yes, they are employees. We already have all the powers we need with respect to arriving travellers.

There are currently many internal conspiracies. From 1995 to 1999, half the drug seizures we made in airports were related to internal conspiracies.

The Chairman: Explain the term "internal conspiracy" for the record.

Mr. Lefebvre: These are smuggling operations in which employees in airports, mostly with access to restricted areas, are involved.

That is one example.

Senator Angus: I was intrigued by the example you gave yesterday of a traveller who originated in New York, flying to London via a Canadian airport. He would arrive at Dorval and go into the restricted area to get on Air Canada flight 866 to London. A Canadian from Quebec, originating in Montreal, would come into the restricted area and meet up with this person travelling to New York and then leave the restricted area and not go to London. Did I understand that correctly?

Mr. Lefebvre: That is a perfect example. Such a person could say he or she had planned to travel to London, but then decided not to go, and leave the area.

The Chairman: Under the present law you have no way to question or search such a person?

Mr. Lefebvre: Legally, we do not have those powers.

Senator Angus: He had a boarding pass to get into the restricted area in the first place, but he never intended to go to London. That individual leaves the restricted area with a boarding pass and you folks cannot ask him anything.

Mr. Lefebvre: That is right. Currently the authorities, if they have reason to believe someone is up to something illegal, are limited to the same authority the police have with respect to other Canadians. We do not have the normal customs powers to examine and search.

Senator Angus: As I pointed out yesterday, those powers are broader than the police powers and authorities like to use customs powers to get the job done. That highlights the point I was trying to make yesterday. It is dangerous, but as a law and order man, I think it is great.

Am I correct, that the individual from New York who has come into this area does not have to see you either?

Mr. Lefebvre: Our responsibility is to protect Canada. At the current time they have to see us, but if there were an agreement among all the inspection agencies that the risk is manageable, a person from New York going to London would go through customs there but would not necessarily come through a Canadian inspection agency unless there were a good reason for that to happen.

The Chairman: The American traveller cannot get out of the restricted area, unlike the Canadian traveller.

Mr. Lefebvre: No, he cannot.

Senator Angus: It is interesting that you would bring this amendment at this time. Why was this not in the bill earlier? I am sure it was not just a simple oversight.

Mr. Lefebvre: As I mentioned, the pre-clearance agreement is new. The Toronto Airports Authority is in the process of building an airport. It is now factoring in one-way, in-transit pre-clearance. Its architects say that, for the size of the flow of people, it would be advantageous to have reverse in-transit inspection authority.

Those discussions are taking place. Those requests are being presented to the inspection agencies. This legislation would lay the foundation for successful discussions if the proper conditions for sterility and containment are met.

Senator Angus: I now wish to refer to a general area. Let us call it the area of discretion for CCRA officers at different levels. We agreed yesterday that there are different levels.

It has been suggested to me that there are various and many quite far-reaching powers under the proposed bill and, indeed, under the regulations which are in the process of being finalized. For example, the minister, or a designated officer, will have discretion to waive or amend penalties. You have told me and my staff that you are developing a fairness policy so that individuals may informally appeal any decisions to a customs officer before a formal appeal is launched. I think that is an element of discretion which would soften otherwise harsher aspects of the law.

You are trying develop a degree of standardization in the application of the Administrative Monetary Penalties System, AMPS, and other penalties. Is this an amount of power that would cause concern in terms of the discretion that is given to fairly junior officers who might not have the judgment or the experience to exercise such discretion? What is your view on that? It does seem a far-reaching power.

Mr. Lefebvre: Our goal is to be consistent. We have to make decisions from coast to coast and we have hundreds of ports, literally, and thousands of officers. We try to be consistent. Therefore, there is some discretion, but that discretion is within a framework of guidelines that can be fairly precise. I refer to criteria developed for the exercise of discretion. Again, there can also be referrals to senior officers up the line in cases in which there may be grey areas, as opposed to something that falls within the guidelines that are at the disposal of officers.

Senator Angus: To have the element of consistency in this exercise of discretion, it is your hope and intention to institute a kind of standardization throughout your system. However, it will not even be in a regulation. It will be in a series of guidelines. You are really saying, "We know we have this power. Trust us, we will exercise it fairly." Is that really the case?

Mr. Lefebvre: Today we are proposing a comprehensive regime of administrative penalties that are tailored to the level of the infraction. Under the Customs Act we have a plethora of sanctions and penalties, including seizures and forfeiture. They are exercised every day, with the benefit of training and guidelines that we have now. Of course, when clients think that they have been harshly done by, they have an appeal through an independent branch of the agency headed by Mr. Beaulac. It is really an appeal to the minister. Further, they have an appeal to the courts if that decision is not to their satisfaction.

Yes, we are expanding the number of sanctions. We are tailoring them much better to the level of the infraction, but we are not fundamentally changing the way we apply penalties today and how we guide and train officers to do that consistently across the country.

I might add that at the moment, especially in the commercial field, much of the business we do with brokers, who represent a multitude of clients from coast to coast, has the effect of being a control on the consistency of our decisions. That is because brokers will share among themselves, from one end of the country to the other, the decisions that customs officers are making.

Senator Bolduc: I understand, for example, because of NAFTA and all the other agreements, there are about 8,000 products that flow between Canada and the U.S., which amounts to $1.5 billion per day. There are 100 million people crossing the borders. The tariff is a huge thing. I looked at it once and found it very puzzling. I suspect that for various types of products coming from the United States or any other country the tariffs are also different. For people not involved in the financial trade agreement there is another type of tariff. I am not too puzzled by that. I can understand you have a big handbook for that and you proceed as you should. However, when it comes to penalties it is a different ball game because there is a hierarchy of faults and penalties. This is not by regulation. It is a kind of practice according to the general laws, but it is not regulated as it should be. It is kind of within an administrative process that you have in the agency. Is that correct?

Mr. Lefebvre: No. The penalties will be regulated. The contraventions are regulated.

Senator Bolduc: I am trying to get at the area of discretion by way of comparison with the area where everyone behaves the same way because it is the law.

Mr. Earle Warren, Director General, Major Projects Design and Development Directorate, Customs Branch, Canada Customs and Revenue Agency: The offences are spelled out in regulation and in legislation. It is only the monetary amount of the penalty that would be published but not contained in the legislation and the regulations.

Senator Bolduc: Would that be in a handbook that the officer has in front of him? Is it like other administrative handbooks that set out various procedural operations?

Mr. Lefebvre: Again, I think it would also be known by the clients.

Mr. Warren: All the penalties will be published and available to all clients. They will know that.

Senator Angus: Are they subject to change, too?

Mr. Warren: The dollar amounts, yes.

Senator Angus: We talked about discretion and about your intention to put in place guidelines and a series of administrative practices, as developed by Senator Bolduc. You want some kind of fair and consistent application for handling all these offences.

I have been advised that some stakeholders are concerned that these guidelines could go too far. For example, I counted 141 offences in the Administrative Monetary Penalty System, or AMPS, for this act. They seem fairly reasonable to me in terms of infractions, yet some do appear to be very trivial.

You were all here, gentlemen, when I questioned the minister on this aspect. On the one hand we are liberalizing trade. We are trying to facilitate the free flow of goods. This is all part of globalization and free trade, of which we all so heartily approve. Yet we have trivial sections, like section 35.01, whereby a person who fails to appropriately mark goods with the correct country of origin may be fined as much as $400, or 20 per cent of the duty value, whichever is greater.

That is an example of the trivial activities I discussed yesterday, of things that could be done by a customs broker or by some clerk in a warehouse when the goods are consolidated.

How do we explain this to the person who fears being put out of business by being nailed with one of those trivial offences requiring appeals and red tape?

Mr. Lefebvre: That is an important question. An important phenomenon has developed in the customs world, especially since free trade with the U.S. and since customs duties went down to zero in 1998. It used to be that the penalty for failing to properly declare and classify goods, plus the interest thereon, kept discipline and integrity in the customs program.

We have developed a comprehensive penalty system ranging from warnings to larger fines for repeat offenders. Without penalties, we lose integrity in the program and, perhaps more important, businesses will not invest in diligence to properly comply with all requirements if their competitors are not investing the same amount of time and money in proper compliance.

The penalties give significance to the requirements negotiated in the trade agreements. Marking, for instance, is a requirement that is negotiated for a good reason. Customs administration has a duty to ensure that those requirements are given life and meaning at the border. It may appear trivial, but we must keep sloppiness, due to the lack of consequences for one's actions, from becoming the manner of doing business.

Senator Angus: That is a very good answer. Yet people who have been bringing this issue to my attention are troubled. They wonder about some statistics that really have nothing to do with importation of duty-free goods. Some fines can be as high as $25,000. The information is apparently needed so that Statistics Canada can have accurate records. That seems to me to be a cynical response. I am not persuaded by that, but I would like your comments.

Mr. Warren: To explain the significance and to give you a good example, current volumes mean we must depend extensively on targeting to decide what goods are examined and what goods are not examined.

Some commodities are under the control of many other agencies. When we receive a transmission from the importer or the broker, the commodity must be classified correctly. That data is delivered to the targeting system which may identify for the officer that this is a high-risk commodity. If it is mis-classified, then the system may not target the commodity for health-related inspection or import-permit checking. The requirements exist for more reasons than statistical information. Statistical information is important. It affects balance of payments and trade negotiations. Marking data is used in all of our automated systems to target shipments for examination.

Mr. Lefebvre: The $25,000 penalty will be for only very serious infractions indeed.

Senator Angus: I hope so. Like what?

Mr. Lefebvre: One example would be a shipment that is worth over $500,000 which is labelled wrong in every respect. If the shipper has done that three times, that sort of penalty may result.

Senator Angus: Someone outlined an example of a non-profit organization, the ladies auxiliary of a church in this instance, that tried to import literature for its organization. It looked at these provisions, at the process, the fine, the redress provisions and decided it could be put out of action in a terrible way. Can you provide assurance that would not happen?

Mr. Lefebvre: It will not happen.

Senator Angus: Another cynical informant came to my office and suggested that all revenue lost by free trade and the removal of duties and so forth is being replaced by these penalties.

My friend, Senator Bolduc, raised this with the minister yesterday and was assured that was not the case at all. Where are we coming from on this, in more detail?

Mr. Lefebvre: Thank you for the opportunity to comment on this. In the customs business, the purpose of the penalty is not to raise revenue. Penalties have only one purpose, which is to raise compliance.

The Chairman: As a matter of curiosity, if a penalty is levied, does the money go to the Consolidated Revenue Fund, CRF?

Mr. Lefebvre: Yes. Customs officers do not work on commission.

Senator Angus: I understand you reviewed my speech on second reading where I discussed, as we have discussed here, that some of these monetary penalties are due right away, on assessment. People are concerned that, if they have been penalized unjustly, they must pay up and then go through the process, first informally, then formally, with all the attendant time and effort and cost. They may win in the end, if they have been unfairly treated.

I just want to give you an opportunity to expand on that. I believe you informed my office on May 7 that, in fact, the AMPS will not be collected in advance, or up front, as I had suggested, so perhaps I should be making a little statement like you did at the beginning tonight.

Mr. Lefebvre: The penalties under the Customs Act are for non-reporting, for instance. That is just one example. This can apply equally to a traveller, whether the traveller is from Peru or from other parts of the world, as it can apply to a commercial organization with which we have an account. In law, the penalties are collectable and payable immediately. Indeed, for travellers, those penalties have to be paid at the border because someone may be importing some commodity which has been misclassified, misdescribed, and in respect of which there is a penalty to be paid. The person may not be a resident of Canada, and we have to take action right there and then because we do not want to chase people in other countries.

On the other hand, we have had a longstanding practice with respect to commercial importers that are located in Canada, with whom we have accounts, not to collect the penalty and not to press collection until the appeal process is exhausted.

Senator Angus: Will that appear in the guidelines or in the regulations?

Mr. Lefebvre: It will be our practice. We will continue the practice that we have had. It is not in the legislation because the infraction applies to commercial importers and travellers where immediate collection action must take place. To avoid frivolous appeals, in the bill we are introducing that interest will be applicable from the time of the infraction.

Senator Angus: To conclude on penalties, I suggested yesterday and also last week, that the penalties contemplated in the AMPS under this act, being assessed against corporations and individuals, appear to be higher and more severe than in the other 19 acts of Parliament that provide for AMPS. Is that accurate? If so, why are they higher and more severe in this legislation?

Mr. Lefebvre: On the whole, they will not be more severe. I understand from the discussions we had with the Department of Justice in preparing this, that $25,000 is a large amount, but in customs we are dealing with large importers. The value of the goods that we are talking about, especially for people who have repeatedly been not providing the right information about the goods or classification or others, is substantial. Under the current Customs Act, we had assessed penalties in the millions because sometimes the infraction by very large importers can mount very quickly. By and large, the penalties will be more than the cost of doing business, but not harsh.

Senator Angus: They will be substantially less than they are under the present system.

Mr. Lefebvre: They will be more tailored to the level of the infraction than they are at present.

Senator Angus: That is the key issue. That is like my example of the ship where you had to put up the value of the whole vessel as security. Is that correct? That will not happen now.

Mr. Lefebvre: That is correct. Seizure could still take place, but it would be more for contraband than for commercial infractions.

Senator Cools: How does one put up the value of a ship?

Senator Angus: Yesterday, I described a case.

Senator Cools: Just for the record, it sounds to me to be a huge amount of money.

Senator Angus: It is, and that is one the draconian things that exists under the current law. I used it as an example for the other members of the committee who were present for the whole session yesterday.

Senator Cools: Good.

Senator Angus: Three years ago, in Newfoundland, a ship came in to load newsprint for export from Canada and was on a time charter. Somewhere in another port that it had visited, there were traces of drugs or illicit materials in the rafters of the ship. The ship was seized without a warrant or anything - just because this right exists under the present law to do that - and it was not released to the ship owner. To put up the value, they had to get ship brokers to assess it. These customs people have the authority to say, "That ship, in our view, is worth $25 million, so you have to put up security." There have been cases like that which I think go too far. That is why I made the reference. I apologize if it was confusing.

On going too far, there is another area where I think the issue is resolved, but I want to get it on the record. The literature, the material and the speech of my good friend, Senator Setlakwe, all indicate that one of the goals with the collection provisions is to harmonize them under the excise and tax legislation as it exists. Yet, it would appear that, on the face of it, it is not harmonized and would be much more severe and draconian under this act. Your explanation to me was that, in fact, it is harmonious and you gave me a table of concordance and demonstrated this in detail. Would you like to say something about that?

Mr. David Miller, Assistant Commissioner, Assessment and Collections Branch, Canada Customs and Revenue Agency: I was hoping to have this opportunity to clarify.

I would answer this as three questions: first, why do we want to harmonize; second, why it is so complex to achieve that and third, exactly what we will harmonize with. Those three areas cover the broad range. It does take up a large portion of the legislation to do that.

Obviously it is important that all Canadians and Canadian businesses understand their obligations and rights. It is equally important that all of the employees of Canada Customs and Revenue Agency understand how to apply the legislation that is there from Parliament.

The easiest way to accomplish this is to have the same provisions apply in the same circumstances regardless of what act they relate to. I believe Quebec has carried this concept to a point where it actually has a collections act. The advantage is that if Quebec wants to change collections provisions, it does that once in the collections act. Then, all the legislation referring to that act does not have to be amended at the same time. Unfortunately, we were not able to do that.

That gets to the second point about why it is so complex. We would have liked to have had a simple clause that said the collection provisions are the same as those in the Income Tax Act or the Excise Tax Act, which cover GST, and leave it at that. Unfortunately, the existing customs legislation is structured in a way that a simple reference to other legislation just would not work because of the interrelationships and the cross-references that already exist.

It was therefore necessary to reproduce the entire framework of the collections authority within the Customs Act. We have a handout, if senators wish to have it, to actually describe those interrelationships, but it is just a series of references between the three acts, the proposed customs legislation, the existing Income Tax Act and the existing Excise Tax Act.

Senator Angus: That is the table of concordance that you furnished to my office.

Mr. Miller: That is correct. We have that available for the committee, if it so wishes.

Senator Angus: We should have that in the record because it is very informative.

The Chairman: We will have it tabled with the clerk.

Mr. Miller: I cannot personally guarantee that the provisions are identical, because I am not a lawyer or a legislative drafter. We had to change the words slightly to put it in the right context, but the intent was there. I can certainly confirm that this is our objective and, in fact, that is the way we will administer the legislation - with the same provisions and the same implications as those under both the Income Tax Act and the Excise Tax Act.

I would also like to mention harmonization. Customs and Excise, which includes GST legislation, were administered by a separate department from income tax until a few years ago. They had their own traditions and their legislation was brought forward. Since we have been brought together, we have tried to harmonize all aspects of the legislation, not just for collections, but for other provisions as well. Thus, we are dealing with one type of transaction. Many times it is the same client group. It is important, again, for our employees and our clients to recognize their rights and obligations.

Within the world of tax, there are major differences in what we can do in particular circumstances. These differences are not well understood by the average Canadian. With your indulgence, I would like to explain that fundamental difference.

There are two levels of obligation under the various acts. The highest level deals with what we call "trust funds" or other people's money, held normally by a company in trust for the Crown. The best example of that is source deductions for employees for income tax purposes.

Senator Angus: That is tax withheld at source.

Mr. Miller: Yes, and that also includes Canada Pension Plan contributions and employment insurance premiums. The GST has many of those characteristics as well. When someone pays GST, the company that collects it does so in trust on behalf of the Crown.

We have another level which relates to taxes generated by income that is reported annually on the T1 form, or for corporations, the T2 return. There are other transactions, such as excise, which cover tobacco and alcohol, and hopefully, with the passage of the proposed legislation, that could cover customs as well so we could have customs collection provisions down with the ones that relate to income-related taxes or other taxes, but not at the high level that relates to trust funds.

The additional powers associated with collection efforts on trust funds cannot be applied to income and other taxes. The reasons are obvious. With source deductions, employees receive credits for any amounts that are deducted even though the employer does not remit them to the Crown. In practical terms, this is theft from the federal government. Employees receive the credit and the provinces are paid on the assessment of those taxes owing, not on the amounts actually collected or received. I will give you a short example. Suppose I operate a small company as an owner-operator with one key employee and a few others who are not particularly important to my operation. I say to my key employee, "We are in trouble and the company will go bankrupt in a year. I cannot see any way out, so I will pay you $20,000 a month. I will not actually give you a cheque for that amount, but I will send it all in to CCRA as source deductions." At the end of the year, the company has not actually remitted anything associated with that employee, but in actual fact, we give that person credit for the $20,000 a month, calculate the taxes that would have been paid on that $240,000 and refund the difference to the employee. Any cash or refund that comes back to that employee technically came from the moneys of the federal government.

We have provisions so that we can actually go after what we call "director's liability" in those situations to ensure that the directors of a company demonstrate due diligence. Any personal assets that they may have are subject to ensuring that they remit the source deductions or payroll withholdings.

None of that applies to the provisions in the legislation we are harmonizing for the customs operations. In that case, the Crown has the status of an unsecured creditor and not much more, unless we go through the normal process of having the courts secure our debt, or whatever is necessary to move it up on the agenda.

For us, it is always better to try to work out some kind of acceptable payment arrangements, including provisions for hardship, which happens quite often. We recognize that and defer payment. It is always better to try make an arrangement than to take more drastic action, such as forcing someone into bankruptcy. The implications of bankruptcy are that we will never get our money. If we have a company that is operating, generating income and keeping people employed, we have a chance to recover the money in the future. Payment arrangements are always preferred to drastic measures which can result in taking away a person's livelihood or affect the ongoing operations of a business.

In the case of customs, we may hold up goods at the border because of a dispute, which interferes with normal business activity. Under the new legislation, as Mr. Lefebvre mentioned, if there is an ongoing relationship with that company, it is no longer necessary that the goods be held at the border. We can try to reach an arrangement with the company that does not have an impact on the release of the goods and, more important, will not have a major impact on the ongoing operations of that business entity.

Harmonization is an important concept for us.

Senator Angus: Your explanation was clear, concise and helpful.

Mr. Miller: I had the privilege to appear several dozen times before this committee in my previous job.

Senator Angus: My question does not include the privacy issue that we spoke about yesterday. Rather, I will quickly deal with the Customs Self Assessment, CSA, if I may.

You were here yesterday when I asked the minister about why we are proceeding in what appears to be a piecemeal way. We do not have other departments that control the ingress and egress of goods to and from Canada which are governed by other statues. That results in the fact that, at very best, only 45 per cent of goods coming into Canada will benefit from this facilitation or the measures that this act provides.

Perhaps we could start there. What are your comments on that?

Mr. Lefebvre: I cannot say much more than to repeat what the minister said yesterday. The framework of the legislation that you are asked to approve provides for CSA treatment to all importers, in principle. The legislation has that framework. Initially, we, at customs, can approve importers who are importing widgets or commodities that do not have to be approved by other departments. That is the beginning. If other departments, for instance the Food Inspection Agency, develop the trust and the knowledge of certain importers that import the goods for which they are responsible and they want to approve them for CSA as opposed to transactional reporting at the border, we will certainly go along with that.

Senator Angus: If I understand well, it is a matter of getting the branches of government that would regulate the other 55 per cent of the goods to buy into this. Is it correct that this is a work in progress?

Mr. Lefebvre: I would say that the highest risk goods will probably never be CSA approved. They will always have to be inspected shipment by shipment at the border. The other departments are fully aware of this and some of them are already exploring this concept and working on it, but we do not know of any department that would be ready to buy in by October.

Senator Angus: Did you feel that it was more important to get the bill underway?

Mr. Warren: If I might add two points, the first is that there are two parts to CSA. In fact, while it gets less publicity, probably the most important part of CSA is the advantage at the accounting end of the process for businesses. From day one, that is open for all shipments that an importer would bring into the country. It is only what happens at the border that differs.

The second thing, of which we cannot lose sight, is that we have very congested border locations because of the volumes that we face. Every shipment that moves faster means that other shipments, even though they are following the normal process, are not backed up. They move faster as well, so there is a major indirect benefit.

Senator Bolduc: When you say "riskier shipments," do you mean mostly food or do you mean pharmaceuticals?

Mr. Lefebvre: It can be toxic waste or firearms.

Senator Angus: That puts it in perspective very well.

To complete another thought I raised yesterday, this is the first big step of your customs action plan being implemented and it has all these terrific elements. I know you are very proud of the bill - and properly so. What should we be expecting as the next element of the customs action plan?

Mr. Warren: Probably the next most significant element will be the expedited passenger processing system. That system will modify the CANPASS program that exists at the border today, introduce it at airports and make it widely available across the country at land borders as well as airports. That will turn what was a pilot project and is now a limited application into a program which a high percentage of Canadians will be able to access.

Senator Bolduc: Are you referring mainly to business travellers?

Mr. Warren: I refer to frequent travellers and commuters. These programs are not very effective for one-time tourists because they involve a pre-screening process. It will be most applicable for business travellers, commuters who work on the other side of the border from where they live who cross every day and students who are crossing the border. They make up a relatively small percentage of the population, but represent a high percentage of border crossings. If they are moved through a dedicated, streamlined process, we will not have the backups that we potentially have today, even for the traveller who is not participating in the program.

Senator Angus: So Expedited Passenger Processing System, EPPS, is occurring concurrently. Is this the only element that requires legislation for the implementation of the entire five-year plan, or should we anticipate further legislation as part of the plan?

Mr. Lefebvre: This legislation gives us the framework to develop all of our initiatives under the plan.

Senator Angus: That is very good.

On the privacy issue, we asked questions to the Minister and thought his answers were very good, but I think we need clarification on the record. Under the current law, you have discretion to make random checks of mail weighing over 30 grams. How do you decide whether you have a suspicion on reasonable grounds, which I understand is the trigger to open and search? Notwithstanding the explanations we received yesterday, I wonder if we could not improve this legislation by outlining the criteria. I would like to have your expert input on this. It seems to me that the bill could reasonably provide for the establishment of prescribed criteria for suspicion and opening mail. Since it is becoming a political football, I think it would be in your interest to put this question to rest.

Mr. Lefebvre: Currently international mail leaving Canada does not normally come to our postal processing centres. It goes directly out of Canada. We do not want and cannot afford to change that regime. However, on occasion, law enforcement agencies may be aware that strategic goods that are subject to export permits may be in the process of being exported from Canada by mail. In that case, they would target a particular package or number of packages and this provision would give us the power to ask the post office corporation to give us those packages for examination. That is all we are seeking here. To answer your question, we would indeed need targeted reasons to believe that those packages contain prohibited or permit-controlled export goods.

Senator Banks: That only applies to packages of over 30 grams?

Mr. Lefebvre: Yes.

Senator Banks: Is it correct that if I mail a computer chip in a normal envelope addressed to my aunt in England, it is not subject, without my or her approval, to search?

Mr. Lefebvre: In that case, the law enforcement agency would have to obtain a warrant.

Senator Angus: As an alternative to outlining certain criteria for suspicion on reasonable grounds, the opening of mail could be viewed for what it is, a search, and should accordingly be contingent upon the issuance of a search warrant which would ensure that the requirements of section 99 of the Customs Act are being met and, at the same time, that Charter rights of the senders and addressees are safeguarded. I am speaking to the issues that are being highlighted in the media.

Does it make sense that there should be a search warrant? I think you think not.

Senator Bolduc: You would not dare to put what you said in the bill. It is very important.Why do you not qualify what you are saying?

Mr. Lefebvre: We do not read mail, period.

Senator Angus: You inspect it.

Mr. Lefebvre: Below 30 grams, we do not open mail. We have a process for large envelopes and packages that can contain goods that are subject to tariff.

Perhaps I can add statistics to show the magnitude of the problem. We have about 350 million pieces of international mail coming into Canada every year. We do not even look at approximately 320 million pieces of that mail. They are basically envelopes where confidentiality may be at stake, where Canadians are writing to others and so on.

What is actually coming to us are things other than basic letters. These are packages. Our inspectors will look at them. There are some criteria. We do not open all of the 30 million packages that come to us. The criteria given to customs officers to put packages aside will vary from month to month because the risk will shift from country to country or provinces of a country where we know that the risk is higher.

There are criteria to guide the customs officers when dealing with items subject to tariff. People must pay GST. It is a competitive issue for Canadian businesses, therefore, we must be vigilant. We do collect the GST and PST applicable to goods that are imported into the country based on the law and the proper regulations. As well, we have regulated and prohibited goods that we must watch for.

Our customs officers, given the number of packages coming in, have been doing an incredible job for the last three or four months, intercepting and opening packages that contain meat from England, for instance, or cheeses that are prohibited or regulated. However, at other times it will be other goods from other countries.

We are listening to all our other government departments. We are building those indicators.Customs officers do this day in and day out and they must apply their best judgment. Before they open something, they must suspect, on reasonable grounds, that in that envelope or parcel there are goods that are subject to tariff or regulated, prohibited or controlled goods. These are the criteria that are in the act. Customs officers do not read mail.

Senator Banks: Is the reasonableness of the grounds approximately the same as you would obtain under the Criminal Code?

Mr. Lefebvre: No, suspicion on reasonable grounds is a low threshold. I could add another example. Except for the less than 30 grams, the same rule applies to someone who brings a package in his or her briefcase at the border. In the mail centre we employ the same procedure that we apply to an individual. In other words, the law currently equalizes the rules among the modes. Whether you send something by courier or by post office, whether it is brought in personally or sent by commercial means, the law is basically the same with respect to goods subject to tariff, whether they be prohibited, controlled or regulated goods.

The Chairman: I am informed, and this will not surprise you, Senator Angus, that your professional friends in the Canadian Bar Association will focus on exactly the set of issues that you have just raised when they appear on the bill next Tuesday morning. We shall have an interesting time with them.

Senator Angus: I might tell my honourable colleagues that this clearly is an area where we should be sure we are satisfied because it has been raised in many ways, as pointed out by these officials, often on false premises. It has been incorrectly described in the media, but we need to understand the process. I did take the liberty of meeting with lawyers from the bar association and I urged them to come to speak to us.

Could we not give the example of the books and the butterflies? In terms of criteria, and what is reasonable grounds, there are tip-offs occasionally. This is interesting, just to show what they must put up with.

Mr. Mike Jordan, Director General, Trade Policy and Interpretation Directorate, Customs Branch, Canada Customs and Revenue Agency: I believe the example you are referring to is when someone happened across a book, opened the package and discovered the book was hollowed out. Essentially what was in the book were protected butterflies, which in terms of trade, are a protected species. These are the kinds of things that you would happen across when doing inspections.

Senator Angus: They might get a tip-off about a shipment of books.

[Translation]

Senator Ferretti Barth: My question is not as detailed as those asked by Senator Angus. It has to do with the CANPASS program. Will this program weaken border security? Will this program make it easier for tourists, passengers, Canadians, et cetera? In the midst of this traffic, will some people take advantage of it? Will border security be protected or weakened?

Mr. Lefebvre: That is a very good question. At first glance, it might appear that border security will be weakened. However, we believe that the CANPASS program is both a tool to make easier for people to enter and a way to protect Canada. At the moment, Customs officers need to divide their efforts equally among all passengers coming into the country. If the travellers are unknown, they are asked a few questions; however, the CANPASS program would make it possible for us to know who travellers are in advance, and to know that they represent a very low risk. Our officers will thus be able to deal with those who present a low risk more quickly, giving them more time to spend on those who present a higher risk or an unknown risk.

It is a better system, because the risk assessment we will be able to complete for travellers by consulting police department databases and our databases at Customs and Immigration will enable us to know who these people are ahead of time. They would identify themselves with a card or some other means. However, for system integrity, we reserve the right to search these people occasionally to make sure that they are complying with the law.

Senator Bolduc: I have noted your comment to the effect that, contrary to what I said yesterday, the word "merit" does not appear in the Canada Customs and Revenue Agency Act. When I spoke about that, I was alluding to last year, or two year ago...

[English]

When we passed the bill it seemed to me that a portion as important as yours in the whole public service - you are 40,000 people, it is a huge part of 200,000 workforce. You are 20 per cent of the civil service.

I understand that you are not subject to all the regulations of the Civil Service Commission and the Treasury Board. I can understand that. You want to be more flexible. However, in my opinion, your people are doing very important work. They are collecting our money. That is quite important. I said the merit principle should be in the law, and I still stick to that, because you are not a private business. You are in a very important job. The people of Canada have the right to know that you will apply proper standards. I know you have proper principles in your documentation and business plan, but it is more than that. It is a fundamental aspect of employment in your agency. We must be sure that your people will be competent. If there is one place where people must be competent, it is in that field.

I will not ask for an amendment today, but I am tempted to do so. I tried that last year and I was defeated by my colleagues. I know some of them were shy about that. They were not happy. I think the next time, particularly with a man like Mr. Miller coming from Treasury Board, it should be inscribed into the legislation that the prime criteria will be competency. I understand that you have also have political neutrality and be representative, but the basic principle is competency and merit. It should be inscribed in your legislation, in my opinion.

Mr. Lefebvre: I think a combination of the eight principles that include competency, fairness, transparency -

Senator Bolduc: I know, but we want to see it in the law.

Mr. Lefebvre: The sum total of those eight principles does amount to the most competent people getting the jobs. In the agency, the way to fill jobs and promotions is through competition, as is normal.

Senator Bolduc: I agree. I know that you have good intentions.

Senator Angus: Your successors may not have the same good intentions.

Senator Bolduc: It is a matter of public policy.

Mr. Lefebvre: Those principles are always public. I will add that the baggage that is glued to the word "merit" in the legislation and through the jurisprudence would prevent us from doing the good things we are doing today.

Senator Bolduc: Use another word, but at least put into the legislation that your people will be promoted on the basis of competence.

Mr. Miller: I am sure that you are aware, senator, of the initiative by the President of the Treasury Board to make a fundamental examination of the entire way in which similar functions are carried out within the rest of the public service. I think it will be interesting, over the next 18 months as that progresses, to determine how we deal with some of the obvious problems in this area in a way that is more expeditious and advantageous. Even though it is not specifically identified in the legislation, we respect the principles that are involved with merit and promotion on competency, but it will be interesting to see how the rest of the public service now will evolve. There is a relatively short period of time allocated to finding answers to the problems that have accumulated with a tradition that has become a serious problem for recruitment and retention within the public service.

The Chairman: We will be watching very closely.

Senator Banks: I have a question for clarification. I may have been lulled by the fact that all the talk is about people coming from New York and trucks coming across the border. If I am a frequent traveller from Lithuania who becomes well known to your agency, can I be on CANPASS? If I am an importer in Canada of dates from Saudi Arabia, will I be able to use the self-assessment process?

Mr. Warren: At this point in time, the CANPASS program is restricted to Canadian and U.S. citizens and residents. As we evaluate the success of the program, we will probably go beyond that. Similarly, in terms of the CSA process, as mentioned earlier, you can use the accounting payment concept of CSA for goods coming in from any country, but at least for the first two years we are talking essentially about dealing with goods that come in by land and by rail, which, in essence, is from the United States.

Senator Banks: What about shipments by air from the United States?

Mr. Warren: They will be included, yes.

Senator Banks: But shipments by air from Great Britain will not be.

Mr. Warren: We made a commitment at an earlier stage that within two years we will have evaluated to determine, how much broader the program can be.

Senator Banks: If I am an importer, will I not have a mechanical difficulty to harmonize the imports I bring in from Great Britain or Argentina if I am also bringing in American ones? Is my system not screwed up?

Mr. Warren: For purposes of accounting, as I mentioned earlier, you use one system.

Senator Banks: I am talking about brokerage. When goods come into Canada, if I have the self-assessment system, if I redesign or reconfigure my system to do self-assessment, as you describe, it is all done by electronic communication. I tell you what I did and you trust me. I cannot do that with component B for my product that I am bringing in from somewhere else, so I have to keep two parallel systems going at the same time, for the time being.

Mr. Warren: Yes, that is correct, but that exists today with or without CSA. For example, today we have electronic release, which applies to a lot of the goods coming into the country. You can electronically transmit the information in advance. A release decision is made when the shipment arrives at the border. The shipment is either immediately sent for examination or released. If you require a permit from another government department, you are back to paper and the shipment cannot be dealt with in that way.

Actually, we will have fewer options when we introduce CAS than we have today. That is the reality that we are in today. Depending on the commodity, the origin, et cetera, there are various requirements, which vary from shipment to shipment. The brokerage industry is very effective at segregating and dealing with that. You are correct. They still have that challenge, but it exists today.

Senator Banks: You said a few minutes ago that it would be this way for a couple of years. Is that your approximate time line? Are you looking at expanding the CANPASS and self-assessment options in a couple of years?

Mr. Warren: Right now, one of the exciting things that is happening is a joint pilot project with the United States operating in Sarnia, Ontario and Port Huron, Michigan, called Nexus. There, you apply once and are approved by both countries and can use the pass going in either direction. It is a joint program and we evaluating that jointly with the U.S. If successful, we would hope to make it a national program. Canadians and Americans could apply. They would be approved once and would be able to go in both directions without reporting to Immigration or Customs, in the way that happens today with the questioning process. That evaluation will have an impact on which direction we would go, whether it would be CANPASS, which would be only coming into Canada, or whether we would have a program that would enable people to go in both directions. The timing will be influenced by that. In the case of Customs Self Assessment, we want to have the opportunity to evaluate the program. Two years is an estimate of when we could reach conclusions about expanding it beyond the United States.

Senator Banks: Thank you. I hope I get on your list.

Senator Cools: I think we are all indebted to Senator Angus. We should take this opportunity to say that and to thank him for the amount of work and the quality of the work he seems to have been doing on this. I must tell you, Senator Angus, that I really have not paid much attention to this bill, but from here on in, over the next few days, I shall be very attentive to it.

The Chairman: Think what it would cost us if he were still in private practice.

Senator Cools: Also, we should thank the witnesses. I know we have seen Mr. Miller many times before, but I have been sitting here absolutely impressed, not only with the knowledge and proficiency, but also the candour and openness.

I have been around this place for a long time and I cannot think of when last I have encountered such openness and such willingness to dialogue with senators and to provide information. There is a constant reference back and forth about an exchange of information.

There are many departments in this city that one cannot get a word out of. One cannot get a response in a year. I just wanted to say that.

Hon. Senators: Hear, hear!

Senator Cools: Know, gentlemen, that your work is appreciated.

I have a question. Your department faces enormous problems in managing these kinds of issues. I was struck with the example of the butterflies given by Senator Angus. An enormous amount of illegal goods must be moving in and out of the country. I am wondering about precious stones and jewellery which can be so valuable, but are of such small size. Is there a problem with movement of precious stones through the mail across the border? I am very curious about that.

Mr. Lefebvre: There is a 10 per cent excise tax, if I recall correctly, on jewellery. That is an economic incentive for people to smuggle jewellery. There is indeed contraband in jewellery. We sometimes have juicy success stories of border seizures from travellers. I do not have statistics on jewellery at this time..

Senator Cools: When we refer to contraband, we immediately think of drugs, but there are other areas of concern.

Senator Angus: Perhaps I can put everything into perspective in your line of questioning, Senator Cools. I have a clip from one of our national papers, two weeks ago:

Scientists at Canada Customs have developed a chemical test...

Not only do they apply and enforce the law through officers, but they have lab facilities.

...to detect counterfeit Cuban cigars.

The test...looks for a unique chemical signature in tobacco leaves processed and grown in Cuba and tests tell scientists which cigars are fakes...

In other words, there is a big trade in fake cigars and that is of great concern to the Minister's constituents in Outremont, which has the highest cigar consumption of any riding in Canada.

The Chairman: Witnesses, I cannot improve on the comments of Senator Cools of a few moments ago, except to say, she spoke for all of us. Thank you for being so helpful and forthcoming.

The committee adjourned.

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