Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 4 - Evidence - October 17, 2006
OTTAWA, Tuesday, October 17, 2006
The Standing Senate Committee on Transport and Communications met this day at 9:30 a.m. to examine and report on current and potential future containerized freight traffic handled at, and major inbound and outbound markets served by, Canada's Pacific Gateway container ports, east coast container ports and central container ports and current and appropriate future policies relating thereto.
Senator Lise Bacon (Chairman) in the chair.
[English]
The Chairman: We are meeting today to examine and report on the current and potential future of containerized freight traffic and major markets served by Canada's Pacific gateway container ports, East Coast container ports and central container ports and current and appropriate future policies relating thereto.
We have with us today witnesses from Finance Canada: Mr. Dean Beyea and Ms. Sylvie Larose from International Trade and Finance, Mr. Geoffrey MacMillan from the Tax Policy Branch and Mr. Brent Patten from the Admissibility Branch.
Dean Beyea, Chief, Trade in Goods, International Trade Policy Division, International Trade and Finance, Finance Canada: I thought I would outline the role of the Department of Finance in relation to the customs tariff and why we are here to answer your questions. The Minister of Finance is responsible for the Customs Tariff legislation and the tariff and tax policies related to that and Canada Border Services Agency is responsible for the administration and enforcement of that legislation. My understanding is you had questions relating to a part of the tariff we do not hear much about, that is chapter 98, provision for conveyances.
We welcome any questions you have on those points.
The Chairman: Any other interventions? Nothing to add?
[Translation]
I have an initial question for you. Apparently, there is a shortage of available empty containers in Canada. The main cause of the shortage seems to be existing customs regulations applied in accordance with the Customs Act established by the Department of Finance. According to the background material made available to the committee, between 20 per cent and 40 per cent of all containers transiting Canadian ports are empty. Canadian customs policies do not really recommend that containers remain empty while on our territory. As a result, shippers are contending with a major shortage of containers.
In light of this information, have you considered amending existing customs regulations to allow for greater flexibility and to address the container shortage?
[English]
Mr. Beyea: You are absolutely right. If you want to go through the provisions of tariff item 9801.10.00 where the conveyance elements are, we can do that. However, there is a requirement that the conveyances leave the country within 30 days, which has been a long standing provision of the Customs Tariff.
We have not had any complaints, I must say, at the department in the nine years I have been there about this element of the tariff.
The Chairman: Do you have the same numbers I just mentioned?
Mr. Beyea: I am not certain on the traffic.
Brent Patten, Manager of the Carrier and Cargo Policy Unit, Commercial Policy Division within the Border and Compliance Programs Directorate in Admissibility Branch, Canada Border Services Agency: I have not seen those numbers to which you refer.
The Chairman: We will have to check.
Could you look into it and send us some information if you find any?
Mr. Patten: Yes.
[Translation]
The Chairman: If we look at how things are done elsewhere in the world, it seems that a number of countries have adjusted their coastal shipping regulations to make their ports more attractive. The example of South Korea — obviously we will refrain from talking about North Korea at this time — comes to mind because after revising its coastal shipping regulations, this country succeeded in attracting more maritime shipping companies to its ports. Might Canada look to foreign reforms for inspiration and use them to its advantage in the future?
[English]
Mr. Beyea: Absolutely, we can look at what is going on in other countries.
Again, I have to emphasize that nobody has brought forward any complaints. We have not heard, as I say, in the nine years I have been doing tariff policy, anyone complaining about these issues to the department. Certainly, we regularly look at the practices of the United States.
The Chairman: You were never asked by Transport Canada to look into this?
Mr. Beyea: No. I understand last week that they had commissioned a study on this issue, but that was the first time we had heard of this study and these issues.
The Chairman: Are you aware of what is being done in South Korea?
Mr. Beyea: No.
Senator Phalen: I am trying to understand the system and I would like you to walk me through it. I am an international shipping company and I bring a container of televisions from China to Vancouver. Can I then ship them to Toronto without a tariff?
Mr. Beyea: Without a tariff on the conveyance or a tariff on the television?
Senator Phalen: Without a tariff on the conveyance, I guess.
Mr. Beyea: When goods are imported into the country, chapters 1 to 97 of the tariff are where the tariffs apply to goods. Thus, a television would have a tariff, a most-favoured nation tariff if it was coming from Asia, and that tariff would apply. I do not know what the tariff would be on a television; it might be free, it might be five per cent.
The elements of chapter 98 for conveyances allow the duty and tax free importation of the conveyance into Canada.
Senator Phalen: I am now in Toronto. My container is empty. If I want to fill it with clothing and send that from Toronto to China, would that be my one allowable domestic move?
Mr. Beyea: It would be a move outside the country, but it would be allowable.
Mr. Patten: That would be a movement as part of an international transaction or international movement being exported out of the country. It would be considered as part of your moves allowed in Canada.
Senator Phalen: What if I had no load going from Toronto to China but I have a contract to ship lumber products from Winnipeg to China. Would I have to transport my container empty from Toronto to Winnipeg or could I get a load of clothing in Toronto and ship it to Winnipeg?
Mr. Patten: What is allowable under the legislation, under the regulations, is a point-to-point move in Canada, incidental to the international move. Thus, the international move of getting the container to Winnipeg to pick up goods allows a point-to-point move in Canada as long as it is incidental to that international move. If the container is on its way to Winnipeg to pick up goods for export, a move incidental between Toronto and Winnipeg could be considered the one move you are allowed.
Senator Phalen: Therefore, I could load it up in Toronto and go to Winnipeg and take my load from Winnipeg?
Mr. Patten: That would be your one incidental move point-to-point in Canada as part of your international move.
Senator Phalen: Can you give us some idea of the actual tariffs? For instance what would the tariff be if a container was used in a domestic shipping run?
Mr. Beyea: The actual tariff on a container?
Senator Phalen: Yes.
Mr. Beyea: Normally, if the container originates in NAFTA it would be free, no tariffs apply. I believe your issue then is a tax issue.
Geoffrey MacMillan, Tax Policy Officer, General Operations and Border Issues, Sales Tax Division, Tax Policy Branch, Finance Canada: If you have already purchased the container, you would have paid GST on the purchase and you would have received it back through the tax recovery mechanism. Considering you are in a commercial activity there should be basically a revenue neutral impact.
Senator Phalen: There is no difference if the container was empty or full?
Mr. MacMillan: If we are talking a strict domestic movement, that is right. With this assumption, if you have purchased a container, it is your container.
Senator Tkachuk: How much revenue is generated by this tariff policy?
Mr. Beyea: The policy for conveyances is an exemption from the tariff that applies. For example, trucks and their trailers coming from United States do not pay the tariff. That is an exemption from the regular tariff and tax.
If your question is with regard to the restrictions and how much is collected for one who uses point-to-point movement, no transaction occurs in that situation. It falls down into a regular activity. It is not an importation.
Senator Tkachuk: Once a container comes into Canada, no tax whatsoever is applied to it? It can stay here as long as it wants, and when it is full it goes back?
Mr. Beyea: Containers are to be out of the country within 30 days. There are a variety of exemptions that allow them to stay longer.
Senator Tkachuk: Is there a tax imposed on a container if it stays longer than 30 days?
Mr. Patten: My understanding is that if it stays longer than 30 days, unless it falls within the exemptions, it no longer qualifies under tariff item 9801. If applicable, the duties and taxes apply.
Senator Tkachuk: Are there any duties or taxes generated by a container staying longer than 30 days?
Mr. Patten: It is difficult to say. I can check with our systems and our revenue collection personnel.
I am not positive we can report on the revenue collected because of containers or trailers not qualifying under item 9801. I believe when the duties or taxes are paid, there is no specification that this was a situation that did not qualify under item 9801 or is just a regular importation of a container under regular circumstances. However, I will verify that with our systems people as well as our revenue collection people.
Senator Tkachuk: My understanding is a container can stay quite a bit longer than 30 days — up to a year until a customer fills it and sends it back — in the United States without this duty being applied.
Considering that 20 to 40 per cent of containers come back empty, has there been discussion within your own department as to possibly extending the time limit under the tariff policy here in Canada?
Mr. Beyea: We have not discussed that, nor has anyone approached us with that suggestion.
Senator Tkachuk: We are approaching you with that suggestion. You might want to pay attention.
Mr. Beyea: Yes. That is something we will consider. I am just saying that we have not heard from the marine association, from carriers or shippers. We are in contact with those people regularly with regard to other issues. All I am saying is nobody has brought this forward.
The container restriction is 365 days in the United States and 30 days here in Canada or up to 24 months if one of five conditions is met as laid out in the tariff.
Senator Tkachuk: I take it that the amount of money generated by containers staying longer than 30 days in Canada is really an insignificant amount given the fact that you do not even know what that amount is. It is not a large amount. Usually witnesses who come before us from the government know an amount when it is significant.
Therefore, this may be an easy tax to eliminate considering that the amount of revenue generated is insignificant.
Mr. Beyea: Yes. Again, I emphasize that it is a tax exemption. In the normal course of business, containers come in and leave within 30 days.
Senator Tkachuk: Of course they do if there is no tax applied. However, that does not happen in the United States because containers can stay longer. If a financial barrier is present, why would they not leave? If that duty was eliminated, how do you know containers would not hang around until they were full? Would it not be better to have them full on the way back? Does it matter?
Mr. Beyea: We will take your suggestion under advisement and discuss it with those who bring it forward.
I am not ignoring the issue at all. All I can say is nobody has brought the 30-day rule up with us as a problem. Again, I stress it is an exemption to the normal tariff that one pays. The rules for conveyances are there to facilitate the movement of goods, so there are no duties and taxes applied within the 30 days.
Senator Tkachuk: I understand that. However, after the 30 days the duties and taxes do apply. Is that right?
Mr. Beyea: Yes.
Senator Phalen: Following up on that question, is there not a pool system that allows a container to stay in the country for 180 days? What is the pool system? How does one belong to it?
Mr. MacMillan: There is a pool system. We refer to it as a container bank system for GST purposes. Once one is registered within that system, he or she can export and import a similar number of like containers free of GST. However, that falls within the GST non-taxable importation schedule, and that seems to run under a different tariff heading, if I am not mistaken. I do not believe it is part of item 9801. The administration of that is part of the purview of the Canada Border Services Agency.
Senator Banks: I am sure you have explained this, but I did not understand it. If I run Maersk Line and I own a container that somebody has rented for the purpose of transporting goods from Vancouver to Toronto and that container stays here longer than 180 days — and I am assuming Maersk is in the pool — what exactly am I susceptible to with respect to costs for taxes and tariffs? Will it cost the GST only or some other tariff or tax?
Mr. MacMillan: GST would most likely apply at the rate of 6 per cent. I assume the tariffs would also apply, but I cannot speak to that.
Mr. Beyea: There could be a tariff, but it would depend on the classification.
Senator Banks: What is the tariff classification for a container?
Mr. Beyea: There are different tariffs for different types of containers. I do not know the exact tariff level, but it would be relatively low. If it originated from a country with which we have a free trade agreement, the tariff would be zero. We also have zero tariffs from many developing countries.
Senator Banks: What happens if the container came from Singapore, a country with which we do not have a free trade agreement?
Mr. Beyea: We are presently negotiating an agreement with Singapore.
Senator Banks: Yes, but we do not have one today.
Mr. Beyea: That is right.
Senator Banks: As the owner of the container, I will pay a tariff and GST based upon the assessed value of the container. Is that correct?
Mr. Beyea: Yes, that is my understanding.
Senator Banks: Madam Chairman asked you about South Korea, but what about the really big ports such as Singapore, Rotterdam and now Dubai? Do they have similar restrictions?
Mr. Beyea: I am not certain.
Senator Banks: That would be good to find out.
The Chairman: Could you furnish us with that information?
Senator Banks: International trade is fairly important.
Senator Zimmer: Senator Phalen asked my first question in his supplementary, but I will follow up on it.
You have indicated the number is 180 days that has been decided upon between the United States, but apparently it can be extended 365 days or up to three years; is that correct?
Mr. Beyea: Twenty-four months.
Senator Zimmer: How does one become a pool operator?
Mr. Patten: I will have to get that information for you, senator. I do not have it with me today. We will commit to getting it.
Senator Zimmer: What percentage of steamship lines, doing business in Canada, fall into this category? Do you have any idea what the percentage is?
Mr. Beyea: No. That is information that we would have to go to Transport Canada for or the Canada Border Services Agency.
Senator Eyton: Are you aware of who owns the containers? I see 100,000 containers across the country. It seems to me ownership is important when considering the policy issue of tariffs. Do you know who owns them?
Mr. Patten: There is a variety of ways of knowing who owns the container. It could be by researching the individual container number itself. It is important to note, however, that there is a requirement on the carrier, when bringing these containers into the country, to report that type of information to us if, to their knowledge, it does not qualify for tariff item 9801. If they are bringing in containers for certain purposes that do not qualify under item 9801, they would have to report it. At that point in the collection of tariff or duties and taxes, the manufacturer and location of the container would have to be reported to us as well.
Senator Eyton: I was asking if you were aware of who owned the containers. My suspicion is most are owned by shipping companies, maybe a vast majority of them. Beyond that I would be interested in whether or not they were foreign shipping companies or Canadian shipping companies for example. Are you familiar with that?
Mr. Patten: Our understanding is that they are owned by foreign shipping companies for the most part.
Senator Eyton: This may be perhaps more in our area than yours, but what are the policy reasons for limiting cabotage or limiting the number of days that a container can or should stay in the country? Apart from the revenue collection, and I believe it is not very significant, I find it hard to fathom the policy reasons behind those limitations. It seems to me it must impose an unnecessary cost on shippers and manufacturers here in this country.
Mr. MacMillan: Although I cannot speak to the number of days that a container is in the country, I can tell you from the tax perspective, restrictions on cabotage are in place for purposes of tax equity; basically equity between foreign suppliers of containers and domestic suppliers of containers. If you were to receive a container from a domestic supplier, say on a lease basis, you would have to pay GST. However, if you were able to acquire a container abroad, for instance, by way of lease and we did not have the cabotage restrictions in place, there would be an incentive to get your containers from outside the country.
Senator Eyton: If you do not know who the owners are it is hard to make that case as to which are the domestic and which are the international containers.
My last question is — I believe I heard part of the answer before — are we aware of where all this places us against the U.S. competition? There is Vancouver, next to Portland or competing with San Diego, and I see a lot of traffic going back and forth. To what extent are you familiar with the impact of regulations on our competitive position?
Mr. Beyea: We have looked recently at the regulations vis-à-vis those in the United States and on the 30-day rule we are certainly much less; there it is 365 days. On the cabotage, it is the same issue. There are point-to-point uses not allowed in the United States, certainly with respect to the trucking industry and we are trying to confirm with the marine industry as well. With regard to the point-to-point use, there is incidental movement; it is the same regulation in the United States.
Senator Eyton: Similar, to one destination?
Mr. Beyea: I have a draft copy here that I could hand out that goes through each of them: ``...may carry merchandise or passengers between points in the United States if such carriage is incidental to or immediately prior to or subsequent engagement of the vehicle in international traffic.'' It is essentially the same.
Senator Eyton: But limited to one stop?
Mr. Beyea: Incidental to. This is a summary we have from the United States. We can provide you with the regulations if you would like.
The Chairman: Do you meet with Transport Canada on a regular basis?
Mr. Beyea: No. In fact, the first time we heard that they were doing this study was last week after you had asked us to come here and talk about tariff items.
The Chairman: Maybe you should talk to them more.
Mr. Beyea: Absolutely.
Senator Banks: I have a question first of the clerk and then of the witnesses. Of the two studies referred to in here, do you know who the authors are?
Allison Padova, Analyst, Economics Division, Parliamentary Research Branch: University of Manitoba Transport Institute was co-author on one and sole author of the other was an academic by the name of Dr. Barry Prentice.
Senator Banks: Therefore, Dr. Barry Prentice, University of Manitoba would be a way to find both these studies. I gather you are unfamiliar with these studies, both of which suggest that some changes might be in good order for the good of Canadian trade. I would suggest to the witnesses that they might wish to read the studies.
The Chairman: And they should talk to Transport Canada.
Thank you very much for your presence here with us and we will be hearing from you. I suppose you will be sending us the information requested this morning.
The committee continued in camera.