Proceedings of the Standing Senate Committee on
Legal and Constitutional Affairs
Issue 36 - Evidence for May 8, 2013
OTTAWA, Wednesday, May 8, 2013
The Standing Senate Committee on Legal and Constitutional Affairs, to which was referred Bill S-16, An Act to amend the Criminal Code (trafficking in contraband tobacco), met this day, at 4:19 p.m., to give consideration to the bill.
Senator Bob Runciman (Chair) in the chair.
[English]
The Chair: Good afternoon. Welcome, colleagues, invited guests and members of the general public who are following today's proceedings of the Standing Senate Committee on Legal and Constitutional Affairs. We are meeting today to continue our consideration of Bill S-16, An Act to amend the Criminal Code (trafficking in contraband tobacco). This is our third meeting on this bill.
In our first panel to begin today's deliberations, I am pleased to introduce to the committee, from the Canadian Cancer Society, Rob Cunningham, Senior Policy Analyst; from the Ontario Campaign for Action on Tobacco, Michael Perley, Director. We do have a third witness listed on the agenda, but, as of now, she has yet to arrive. We will get under way.
Welcome, gentlemen. If you have opening statements, please proceed.
Rob Cunningham, Senior Policy Analyst, Canadian Cancer Society: My name is Rob Cunningham, lawyer and Senior Policy Analyst with the Canadian Cancer Society.
[Translation]
Thank you for the opportunity to appear before the committee.
[English]
First, let me emphasize the crucial role that higher tobacco taxes play in reducing tobacco use, especially among youth who have less income. A vast body of evidence and studies confirm the obvious that as prices go up, tobacco consumption goes down. Contraband undermines public health and public revenue benefits of higher tobacco taxes, may provide direct access to lower-priced product, and may be a concern in impeding governments from increasing tobaccos taxes.
The cause of contraband, as we have it in Canada today, is not high tobacco tax rates but rather proximity to the source of supply — the illegal factories on a handful of territories in or near Ontario and Quebec. This is the key to the problem.
The tax map that I am showing you now, which was distributed to you earlier, shows provincial and territorial tobacco tax rates across Canada. You can see that tobacco taxes are far higher in Western Canada than in Ontario and Quebec, yet contraband volumes in Western Canada are minimal. There is some contraband in the Atlantic, but the Atlantic provinces are relatively closer to the illegal factories.
The tobacco industry acknowledges that contraband has decreased substantially in recent years. The second handout shows a graph from British American Tobacco that says that Canada-wide contraband was 17 per cent in 2006, 22 per cent in 2007, 33 per cent in 2008 and 19 per cent in 2010 after a dramatic decline. There are indications of further reductions since then.
Bill S-16 will be beneficial to efforts to combat contraband. The bill is reasonable and justifiable. Bill S-16 is necessary and essential as a mechanism to help drive contraband volumes down further and to do so on a sustained basis. It will provide a prosecutorial option for stronger penalties, notably prison terms. Right now, fines are too often simply treated as a cost of doing business; and fines that are imposed are far too frequently ignored and never paid. There needs to be an adequate deterrent available, and Bill S-16 will provide a new optional mechanism. The penalties in existing excise legislation are just not doing the job.
Each year 37,000 Canadians die because of the tobacco epidemic, 47 times the total number of homicides in Canada, which in 2011 was 598. By reducing contraband and sustaining further tobacco tax increases, lives will be saved and fewer kids will be addicted.
We must recognize that contraband is, in part, an Aboriginal health issue. One study found that smoking prevalence among on-reserve First Nations is a shocking 59 per cent, compared to the Canadian average of 17 per cent. Illegal factories provide Aboriginal kids and adults with direct access to cheap cigarettes with no taxes paid.
Contraband must be tackled. At the same time, we must not allow the tobacco industry and the associations they fund to use contraband as a public relations tactic to oppose other, much-needed contraband tobacco control measures, as we have seen in recent years. Bill S-16 needs to be combined with other federal action.
First, the RCMP must block the supply of raw materials, such as leaf tobacco and cigarette papers, intended for illegal factories. This is key. It is of concern that over the last five years the RCMP has had no apparent meaningful strategy or actual success in dealing with the illegal factories. The RCMP testimony last week before this committee regarding raw material inputs is welcome as an indication that there may be forthcoming action in this regard. Bill S-16 will be able to assist.
Second, there is no doubt that relocating the Cornwall border post in 2009 to the bottom of the bridge at Cornwall reduced contraband. It became a chokepoint for previous smuggling routes. One option may be a border post with two checkpoints: part one in Massena, New York, and part two at the current location in Cornwall. We see this in Canadian airports for arriving international travellers whereby individuals go through two different points.
Third, the federal government needs to persuade the U.S. government to shut down the illegal factories on the U.S. side of Akwesasne. We need a comprehensive strategy to combat contraband, and we need a comprehensive tragedy to reduce tobacco use.
Thank you. I look forward to your questions.
Michael Perley, Director, Ontario Campaign for Action on Tobacco: Mr. Chair and honourable senators, thank you for the opportunity to comment on the issue of contraband tobacco control and Bill S-16. I am Michael Perley, Director of the Ontario Campaign for Action on Tobacco. Our member groups, the Ontario Medical Association, the Canadian Cancer Society's Ontario Division, the Heart and Stroke Foundation of Ontario and the Non-Smokers' Rights Association, have been working together since 1992 to reduce tobacco use in the province of Ontario, with some focus in recent years on the issue of contraband as a health issue.
During the past five years, we have noticed how hard the tobacco industry and its retail allies in Ontario have worked to convince governments that contraband is the only tobacco issue worth their attention. We have also noted the convenience store sector's repeated calls for no new tobacco taxes in Ontario and Quebec.
Yesterday, the National Coalition Against Contraband Tobacco released a report in which it cited a claim by the Canadian Taxpayers Federation that in Ontario, the federal and provincial governments together could be losing up to $1.1 billion a year in tobacco tax revenue. The NCACT also claimed that contraband is on the rise in Atlantic Canada today and on the decline in Quebec.
To determine the actual prevalence of contraband in Ontario today, we need to look at federal and provincial tobacco tax rates and revenues. The province's taxes are about $30 per carton and the federal government's taxes are about $20 per carton in Ontario. It follows that the impact of an annual $1.1 billion loss on Ontario's tobacco tax revenue should be greater than any federal loss because we pay more taxes per carton provincially than we pay federally. This should show up in the province's budgets.
However, tobacco tax revenues for the past decade, shown on the chart at the next page taken directly from various Ontario budgets, show that nothing approaching this loss has occurred. While there has been some variability in provincial tobacco tax revenues since 2002-03, this variability has been modest, in particular since 2006-07 when the contraband issue first became prominent.
Meanwhile, the tobacco industry, although its companies are members of the NCACT, is saying something rather different about the contraband market. Philip Morris International's estimate of the total Canada-wide illegal market in 2011 was 8 billion sticks, or cigarettes, down from 14 billion sticks in 2009. In May 2011, as Mr. Cunningham mentioned, British American Tobacco, which is the parent of Imperial Tobacco Canada, stated that from the fourth quarter of 2009 to the fourth quarter of 2010, 5.5 billion sticks flowed back from the illegal market into the legal industry in Canada. Imperial Tobacco captured 2.9 billion sticks of this flow back into the legal market. If tobacco company estimates of the decline in the illegal market are accurate, then taken together with Ontario's budget figures it would appear that contraband is not on the increase in this province and is likely declining.
On a related subject, what about the danger contraband represents to our kids, an issue that the tobacco industry and its retail allies frequently raise? Recent Ontario data tell us a somewhat different story on this subject. A comparison of results from the 2009 and 2011 Ontario Student Drug Use and Health Surveys, carried out by the Centre for Addiction and Mental Health, shows that overall smoking rates among Ontario students declined from 12 per cent in 2009 to 9 per cent in 2011. Those are overall rates. Most important for us today, while the 2009 study also showed that about 60,000 Ontario students had smoked contraband at some time in the previous year — even one cigarette, the 2011 study found that this number had declined to about 37,600 students two years later. That is still too high, of course, but the direction toward progress is clear.
In Ontario, we conclude that a combination of both contraband control and tobacco control measures have combined to push both overall and contraband prevalence down among our youth and to keep tobacco tax revenues relatively stable.
First, the provincial government has enacted a variety of tobacco control program and policy changes beginning in 2006 with the Smoke-Free Ontario Act and continuing with legislation banning some flavoured tobacco products, smoking in cars transporting kids, and banning tobacco displays at retail. As well, large provincial investments have been made in smoking cessation and periodic anti-tobacco social marketing campaigns.
Second, we have had various anti-contraband enforcement actions taken by federal and provincial authorities during this period, most recently through Ontario's Bill 186, which was passed in 2011. In last week's provincial budget, more enforcement measures were promised and the provincial enforcement budget has been increasing recently.
Finally, provincial regulations mandating the control of the raw leaf tobacco supply will come into effect in 2014. This is particularly important, since I drafted these remarks, because we now have learned that from a level of about 26 million pounds three or four years ago, this year's crop is anticipated at 62 million pounds. The larger a crop there is, the more likelihood and possibility there is for leakage into the illegal manufacturing market, so those regs will be welcome although not enforced yet this year.
While contraband in Ontario remains a problem, the extent of this problem is almost certainly less than the tobacco industry and its retail allies would have you believe. We have noted the retail industry has recently called on both the Ontario and Quebec governments not to raise tobacco taxes under any circumstances, a position very much in line with the tobacco industry itself. Tobacco producers and retailers understand, as health agencies do, that tobacco taxes are the single most effective means of reducing tobacco use overall, a fact long demonstrated by hundreds of studies.
In summary, while we plan to continue to pay attention to the contraband issue, there is much more work to be done on the tobacco control side. We believe that in general Bill S-16 will provide a useful additional tool to the federal government. Unfortunately, the federal government has reduced its tobacco control budget — this happened last year in March — and apart from a long overdue refreshment of package warnings, does not seem prepared to enact other policy changes at present.
The Senate of Canada can play a critical role in broadening focus on the tobacco issue beyond contraband in order to highlight the many tobacco control measures the federal government could enact for the good of all Canadians.
Flory Doucas, Co-director and Spokesperson, Coalition québécoise pour le contrôle du tabac: Thank you and I apologize to my colleagues and everyone here for being late. I am sorry about that.
[Translation]
It is a privilege for us to be here today, especially since the coalition was founded in the wake of the contraband crisis of the 1990s. In 1994, governments agreed to cut tobacco taxes in Quebec, at the federal level and in certain other provinces. That year, health care stakeholders joined forces to say that science alone was not enough; they realized they had to do something and speak with a common voice in the political arena. Two years later, doctors, professors and all those concerned about health and young people formed a coalition.
I do not want to focus on the past, but the government putting forward Bill S-16 today is the same government that negotiated agreements with the smugglers and those who pled guilty to smuggling charges in the 1990s. Bear in mind that not a single corporate executive went to jail. We encourage you to consider that for a moment.
We raise events in the past not because we are asking for Bill S-16 to be retroactive in scope, but because we want to show you that, when it comes to tobacco smuggling, the tobacco industry and its partners are still putting out considerable misinformation.
As Mr. Perley pointed out, the contraband market in Canada has decreased dramatically, and that is wonderful news. However, that is not what the major manufacturers, their partners or retailers are saying publicly. Internal investors' documents are rife with statements congratulating the government on the decline in Canada's contraband market, especially in Quebec, and on the various measures it put forward.
We have included snapshots of presentations given to Philip Morris investors. Quarterly statements and annual reports by British American Tobacco corroborate the data that the major manufacturers are providing to Health Canada regarding the sale of legal products.
Retail sales have gone up in recent years. That is not surprising and is evidenced by the increase in government revenues. According to data from Quebec's budget, since 2008, revenues have been going up, despite the fact that taxes have not increased and the fact that the smoking rate, meaning the number of smokers, has remained relatively unchanged.
What alarm bells are being sounded and why? According to reports made public this year, between 2009 and 2011, ground that was lost when retailers, convenience stores and other shops went under has been regained. The number of closures was not in the thousands but, actually, 346. Afterwards, however, 347 new ones opened up shop. Already, that is an increase.
Propaganda and misinformation about the contraband market abounds. Why? British American Tobacco, Imperial Tobacco's parent company, runs anti-smuggling campaigns. Despite those efforts, smuggling continues. Why?
[English]
The increased illicit trade awareness leads to less tax increases.
[Translation]
What is the effect of constantly focusing on the contraband issue and making exaggerated claims? It curbs governments' desire to increase taxes and exercise broader control over the legal market. That's the message in manufacturers' statements, such as those of retailers. They regularly tell the government to make contraband a priority. They are seeking a regulatory freeze. They do not want stricter control of products such as flavoured items and ultraslim cigarettes for young girls.
At the peak of the last contraband crisis, in 2008, legal brands of tobacco were the most popular among youth. The Youth Smoking Survey of more than 50,000 students from Grade 6 to Grade 12 showed that three quarters of the students reported that they usually smoked one of the major brands, because walking around with a plastic bag, even though it cost less, was not very practical or cool. It is the attractively packaged products in the marketplace that still make smoking appealing to young people.
The coalition supports Bill S-16 but is concerned by what was said last week. In our view, the legislation confers appropriate leeway to judges, particularly in cases involving first offences. This measure is an additional tool and one that is certainly welcome in the fight against organized crime. It is, however, important to keep in mind that, year after year, 15 per cent of retailers sell tobacco to minors in Canada. The latest figures in Quebec show that 40 per cent of retailers failed the inspections for sales to minors.
I would conclude by saying that, whether they are legal or illicit, cigarettes are equally harmful and, often, deadly, to summarize Health Canada's findings. Thank you.
[English]
Senator Fraser: I have two questions, so we will need short answers because the chair runs a very tight ship.
The British American Tobacco document, to which I think you have all referred, talks about illicit cigarettes flowing back to the legal industry. How does that work?
Mr. Cunningham: Essentially, there is a reduction in the illicit market, so people who have been smoking illicit cigarettes are now smoking legal ones.
Senator Fraser: It is not the actual cigarette that moves?
Mr. Cunningham: No.
Senator Fraser: It is a diversion of the market.
Mr. Cunningham: Right.
Senator Fraser: Mr. Cunningham, you referred to the illegal cigarette manufacturers on the American side of the Akwesasne border. We heard interesting testimony last week from the chief of Akwesasne. I understood him to be saying that in their view, and by American law, those are legal cigarette manufacturers and that the Americans are much more content to give licences to manufacture cigarettes to all kinds of people. It is his view that if they are legal, as he says they are in the American section of the reserve, then they are legal. Can you explain more about the difference, in your mind, between legal and illegal?
Mr. Cunningham: Under U.S. federal law, a federal licence is required to have a tobacco manufacturing facility. There are eight or ten factories on the U.S. side of Akwesasne that do not have the required federal licence, so they are illegal. The American authorities have had success getting some prior factories to obtain a licence. The American authorities agree that it is legal.
Senator Fraser: Their approach has been to legalize it rather than to shut it down.
Mr. Cunningham: No. In some cases they have blocked the supply of raw materials and made it difficult financially for these factories to continue, so with this enforcement those factories decided to become legal.
Senator Fraser: You are ultimately lining up on this bill with the people whose positions you are attacking. Everybody comes here and says they are in favour of this bill. Even though you may start from different positions, you end up in the centre saying that you like this bill. Am I right about that?
Mr. Perley: Perhaps I can speak to that. I do not disagree with any government that wants to have an additional tool at its discretion. However, is this what we should be focusing on? In response to that question I would say no. Criminalizing this behaviour and providing minimum mandatory sentences will be useful at some point, but is this what we should be doing?
Look at the matter, for example, of public education campaigns. There is no widespread visible Canadian federal, regional or provincial social marketing campaign to describe to Canadian citizens, especially parents whose kids are accessing this from time to time, exactly what is contraband and demythologizing it. I believe Ms. Doucas referred to the Health Canada study that was revised in 2010, which said, after significant testing, that in Health Canada's opinion the toxic ingredients of contraband and legal product are identical. This despite the industry advertising in the Hill Times and elsewhere that its products — although they do not dare say "safer" — are regulated and quality controlled.
In our view, many other things could be done — notably reducing the appetite of any young person in Canada to try cigarettes and giving older people the help they need — that we would want to work on before we would advocate this kind of measure, although this kind of measure will be useful in certain circumstances.
Senator White: I am a little challenged. I will not argue the point that education will make a difference; I think it will make a difference when it comes to young people using tobacco as well as other substances. However, I am trying to get my head around the commentary about us making criminal organizations more accountable by criminalizing their activity, as well as the opportunity we would have to seize their property through proceeds of crime, which we cannot do today in the same way, and the amount of money that would be derived by the provinces that do that, which can be used for education, which happens in the province of Ontario, for example. There is an indirect way that this could have the impact you want to see, but we would first have to make the act a criminal offence under the Criminal Code of Canada rather than an excise offence, which has a much different impact. Would that make sense if we put it in that frame?
Mr. Perley: That would be valuable. This is not aimed at the market but those who supply the market. It is not aimed at the users.
Senator White: That is right; it is not.
Mr. Perley: However, to date no government in Canada has done what we would call a social marketing campaign to inform people — some of whom still think that contraband is more dangerous than regular product, which is outright wrong — about the penalties associated with possessing contraband. In Ontario, if you carry contraband around in plain view, it can be sized. We believe that under last week's budget, tickets similar to speeding tickets can be issued for possessing a small amount of contraband, so a financial penalty can be imposed right on the spot. There are many other measures.
There has been no education of the public about what these measures are or what risks you run when you buy contraband tobacco. There has been talk by the tobacco industry and its allies, but we have the impression from our tobacco enforcement officers from the public health units in Ontario who circulate in the communities that people do not really understand the link between organized crime and the contraband market.
A couple of years ago the Canada Revenue Agency did some focus group testing of messaging that specifically linked organized crime with contraband. This campaign was going to be aimed at young people. The focus group results showed that young people simply did not buy the argument, because they were not buying contraband from organized criminals; they were buying it from local suppliers.
Senator White: In the mid- to late-1990s the enforcement aspect of attacking illegal tobacco in Canada was successful. We drove down illegal tobacco in Canada through enforcement measures. You have to acknowledge that trying that against criminal organizations could have the same success in 2013.
Mr. Perley: We drove down the market for contraband by cutting tobacco taxes.
Senator White: And by enforcement. We were seizing truckloads of tobacco going to Newfoundland every day. We took those trucks from the drivers. That is how we drove it down. I am not saying that we did not reduce taxes as well. I hope you are not suggesting that we should reduce taxes.
Mr. Perley: Certainly not.
Senator White: If you are, then I would suggest that you are working for the wrong company.
Senator Baker: There is no doubt about that, because the provincial rules changed under the highway traffic act to allow the police to stop vehicles without articulable cause.
Mr. Cunningham, are you the author of the book Smoke & mirrors: The Canadian tobacco war?
Mr. Cunningham: I am.
Senator Baker: I have noticed that it is referenced quite a bit in decisions in Quebec.
Let us go to a decision of the Federal Court in Canadian Tobacco Manufacturers' Council v. Canada (Minister of National Revenue) by Russell, J. A considerable amount of that judgment dealt with a request that you had made for consultation with the Government of Canada at that time. It seemed to be a regular thing that the Canadian Cancer Society was not consulted on the drafting of regulations. Has that changed since then? Do you find the government is consulting with you more?
Mr. Cunningham: Often we are consulted. That case was some years ago. There is the recent example of the negotiated settlements with the major tobacco companies with respect to contraband. We were not consulted on those, and those were significant and had various measures in terms of new obligations.
Certainly there is a higher level of consultation with Health Canada on tobacco control legislation than on contraband measures. In recent years there has been consultation.
Senator Baker: Congratulations, Mr. Cunningham, for your many court appearances on behalf of the organization and yourself.
Mr. Perley, my second brief question is in relation to the final sentence of your presentation. What did you mean by your final sentence?
Mr. Perley: I think the Senate of Canada could play an extremely valuable role as a deliberative body in examining the current state of tobacco control in Canada: how effective is it and are we dealing with the industry that produces this product the way it should be dealt with according to the evidence? Do we have enough measures in place that are effective? Could the federal government be doing more?
Plain packaging is an obvious example of a measure to be investigated. Australia is proceeding with it and other countries are looking at it.
The Senate could exercise a useful deliberative and consultative function in holding hearings, for example. Perhaps senators would want to introduce their own bills, if this is possible, to permit discussion about some of these issues.
Right now it looks as if the federal government is not interested, and it has its reasons, but we would like to see much more vigorous action by the federal government. However, if the House of Commons is not considering these matters, then perhaps the Senate could, which would provide a useful function in airing out the issues. There are many additional interventions that we need but do not have.
[Translation]
Senator Boisvenu: Thank you for your very informative remarks. I have a question about one thing, taxes. You said that in Western Canada and the Maritimes, contraband cigarettes appeared to be less present and that the provinces with the lowest tax rates are the ones with the highest volume of contraband cigarettes. Is that not a contradictory statement? Should Ontario and Quebec not have lower contraband volumes, or is it due to the fact that smugglers have a stronger presence in those provinces?
Mr. Cunningham: I believe it has to do with the proximity of Ontario's and Quebec's populations to the illicit manufacturing facilities and the smuggling rings.
Senator Boisvenu: So that means that production of those cigarettes does not seem to be crossing Quebec's or Ontario's borders? You do not find that tobacco in Western Canada or the Maritimes?
Mr. Cunningham: There is a little in the Maritimes. There are also illicit manufacturing facilities on the American side of Akwesasne. You already heard that contraband is not much of a problem in Western Canada.
Ms. Doucas: In fact, Quebec and Ontario are the only two provinces with aboriginal territory that straddles the border, and that is the issue. I will say that the problem is not as generalized as you might think. Ontario's contraband rate is actually much different than Quebec's. Quebec went from over 30 per cent, nearly 35 per cent, to 15 per cent today, from 2007 to 2011, and one of the reasons is that Quebec showed tremendous leadership with the measures it adopted. I would say that, yes, awareness campaigns work. They are one of the items in the toolbox. But there are certainly measures that help as well. For a number of years now, Quebec has been controlling tobacco leaf. Manifests must be filled out for storage, transportation and so forth. Growers have to declare who they plan to sell their tobacco leaf to. Quebec no longer has any tobacco farmers. The same could easily be done for cigarette papers and filters. Provinces can do that, and Quebec is already evaluating certain measures in the system. But the federal government is in a much better position to implement those kinds of measures and oversee the cross-border transportation of equipment.
Senator Joyal: Ms. Doucas, the Government of Quebec published the study I am showing you in February 2012. It examined measures to counter the consumption of contraband tobacco and was published by the Committee on Public Finance of the National Assembly of Québec in Quebec City. The study is fairly recent, less than a year old.
[English]
I would think Mr. Perley is probably aware of that.
Mr. Perley: Yes.
[Translation]
Senator Joyal: The study lists a number of recommendations on page 26. In that list of recommendations, which ones are the most important to counter contraband tobacco? It does not propose any amendments to the sentences set out in the Criminal Code, the sole objective of the bill we are studying. One of the recommendations does propose giving police the authority to conduct investigations under section 40.1.1 of the Tax Administration Act, rather than just the Criminal Code. You do not seem to be stressing the importance of strengthening mandatory minimum penalties, as Mr. Perley mentioned. Instead, you seem to be much more in favour of managing the phenomenon on a broader scale. Could you tell me which recommendations in this report are the most important?
Ms. Doucas: Actually, we appeared before the Committee on Public Finance as part of that study. We are glad that a number of our recommendations made it into the report. There were two things. First, the border crossing point should remain where it is, because the evidence already shows it is working; that means it should stay in Cornwall and not move to the American side or to a side road that is not busy. It is important to force trucks to go through a crossing point. Second, raw materials should definitely be controlled. If there is some reluctance to go — the police forces expressed that last week — where the rivers are being used by armed individuals, it would certainly be possible to stamp out the resource supply. Keep in mind that reserves are assembly points. The materials arrive there. They do not grow all the tobacco, nor do they make the filters there. So one extremely effective measure, in our view, would be to get in front of the problem, on the prevention side of things, and that is one approach that Quebec seems to prefer.
[English]
Senator Joyal: Are you aware of the study, Mr. Cunningham?
Mr. Cunningham: Yes.
Senator Joyal: Did you appear at the assembly to testify on that study?
Mr. Cunningham: Yes, I did.
Senator Joyal: What were your recommendations?
Mr. Cunningham: We had a series of recommendations. In that case it was the Quebec government as opposed to the federal government, and so the recommendations may be different, such as those to which we testified here. It also dealt with raw materials and put pressure on the federal government to implement certain recommendations at the federal level.
There are also better markings on the package and markings on individual cigarettes, which is something that the federal government, at one point in the mid-1990s, indicated they were intending to do. They modified the Excise Act to give regulatory authority to do that. That particular approach has not been implemented. There is a whole series of recommendations, but those are examples.
Senator Joyal: Mr. Perley, among the recommendations the first one is that the government should work to have a joint agreement with the Ontario government — which is why I mention it — the American government and the Mohawk Nation in order to establish a joint commission composed of the five parties that are involved in the fight against contraband tobacco. Do you think this is something that is feasible with the Government of Ontario?
Mr. Perley: Our Bill 186, which was passed a couple of years ago, gave the province the authority to conclude formal agreements with First Nations bands and councils with respect to the regulation of tobacco. We were all astonished when that happened because we thought the government could already conclude agreements like that, formal agreements with binding authority and they could not, in fact.
Bill 186 gave us the ability to at least have province-to-band agreements. From our parochial position in Ontario, once we get that agreement and process figured out, then we would like to see that expanded to include Quebec and the Americans. We have had talks with some of the New York State enforcement people and the Bureau of Tobacco, Alcohol, Firearms and Explosives. They are becoming increasingly interested in the kind of contraband that is manufactured in Akwesasne on the U.S. side and comes into Ontario because it is starting to show up in New York State.
Over the years we have learned that once the Americans get interested in something like this they will bring their full attention to it. I think circumstances are such now that that kind of five-part agreement, at some point, is a little more feasible than it was even when those recommendations were made.
[Translation]
Senator Dagenais: I have three short questions. The first two are for Mr. Cunningham. Thank you to all three of our witnesses.
In your presentation, you mentioned that fines were generally paid. Where did you get that information?
Mr. Cunningham: We learned that through discussions with the authorities.
Senator Dagenais: You also said that the tax increase encouraged contraband. I would like to hear your thoughts on that again.
Mr. Cunningham: No, I believe I could say that Western Canada is an example of somewhere with higher taxes and a lower contraband rate.
Nova Scotia raised the tobacco tax by 10 per cent per carton, and contraband volumes dropped significantly. We can achieve both of those objectives.
Senator Dagenais: Mr. Perley, you mentioned the poor quality of the tobacco used to make contraband cigarettes. Do you have any data on that?
Mr. Perley: Health Canada did a study in 2010 that compared the toxic emissions produced by contraband tobacco and those of legal tobacco. The study compared the toxic composition of both and found that both types were equally toxic. According to Health Canada, there is no difference in the toxicity of the two types of tobacco.
[English]
Senator Cordy: Thank you to our witnesses for the work that you are doing, not only on contraband but also on tobacco smoking in general.
Mr. Perley, I was quite interested when you spoke about laws in Australia and referred to plain packaging. I have never heard of this before. I guess plain packaging is plain packaging. Could you explain what it is and whether or not it has been proven to help?
Mr. Perley: Essentially, plain packaging is packaging that removes all identifying colours, logos, distinguishing type faces and other distinguishing marks of a certain brand or brands from a package. All brands would simply have their name on the package, with a neutral colour of packaging that is identical. The only difference between the packages would be the name of the specific brand.
Mr. Cunningham is much more of an expert on packaging than I am, but my understanding is that plain packaging has been implemented in Australia despite vigorous opposition from the international tobacco industry and is going ahead. It has gone up to and included the Australian Supreme Court, which has approved it. This is an example for us all to look at because, although we have large package warnings in Canada, we still have packages that can be identified according to colour, typeface and other decorative or distinguishing marks. There is still some modest air, if you like, of normal consumer product about these. Although they now have good picture warnings on them that are better than they used to be, we know from research that the less decoration and normalization of tobacco as a consumer product, the less attractive it is to many young people, in particular. We saw this in Ontario's display ban, where the fact that kids could see walls of cigarettes behind convenience counters sent a message to them that, according to them, in research, this product cannot be that harmful.
Senator Cordy: It would not have any of the warnings?
Mr. Perley: It would have warnings of toxic contents, just no decorative marks at all.
Senator Cordy: That makes sense. I thought "plain" would be nothing. I thought that we had worked so hard to get these warnings on the packages, what are we doing?
Mr. Cunningham, you spoke about Bill S-16 needing to be combined with other federal action, and I agree. Prior to this, we have brought in bills on contraband tobacco. We brought in one on flavoured tobacco, and the companies have really just worked around it and changed their packaging and the sizes of their cigarettes and cigarillos, whatever they are. It seems like we are almost back to square one with flavoured tobacco.
You mentioned a few things. You spoke about illegal factories and how we need border posts in consultation with the U.S. Mr. Perley, you also spoke about social marketing and plain packaging, which you explained. You also talked about the U.S. being involved. How much consultation is the government having with the U.S.? When we heard witnesses last week from Ontario and Quebec, it seemed that it was extremely important that we work with the U.S. to stop the manufacture of illegal tobacco.
Mr. Cunningham: We do have to work with the United States, and I think there could be a more active level of engagement. If the prime source of contraband into the United States was from Canada, imagine how insistent the United States would be for action.
Mr. Perley: May I just add one thing? I think the border post issue is important. If it goes ahead as it now appears to be planned, it could be a major setback for us. It is unfortunate that we do not have a map of the area because it is a little complicated, but in essence this will be the first time that a foreign country's customs and excise post will be established on U.S. territory. There has to be a treaty between Canada and the U.S. to do this. This was proposed in the Beyond the Border Action Plan. Negotiations to conclude this agreement to do this post move were supposed to be concluded in December of last year. I do not know where they are right now, but in a nutshell, if that post moves and there is no secondary post in Canada, that makes Cornwall Island, which is within the Akwesasne reserve, a free zone for contraband to be put onto land vehicles and taken into Cornwall and to points east and west. It is a serious problem that has not been apparently addressed. I do not know whether the CBSA said anything about that, but it is something that I know the Government of Ontario is extremely concerned about, as are we.
Senator Batters: Mr. Perley, I heard a little more clarification when you were answering the question posed by Senator Dagenais, but I think I heard you indicate earlier that saying that contraband tobacco is more dangerous is outright wrong. However, we have heard testimony that contraband tobacco contains feces and vile toxic elements. I am wondering if you are contending that that does not make it more dangerous than regular tobacco.
Mr. Perley: What we can go on is Health Canada's testing of the different types of contraband tobacco. It was a series of samples that they tested. It is compared to samples from legal product, so we have no reason to believe that the contraband that Health Canada tested was in any way different than the tobacco that shows up anywhere in any contraband manufacturing. They said that, in essence, the toxic contents were identical.
I think that what you are hearing from the testimony that you described is a continuing effort to try to present contraband as somehow more dangerous in a number of different ways, such as for law enforcement or to kids. The industry's campaign is called, the way BAT describes it, Cash, Crime, Children and Convenience — the four Cs. I think what they are trying to do in this campaign — and I am sure you heard these statements from the industry and its allies — is to present contraband as a smoked product that is more dangerous, as well as a law enforcement issue. We have no evidence to show that. While there might be other ingredients in it, when you combust it and compare the combustion with legal product, the contents are the same.
Senator Batters: Would you not agree that the public has the right to know and that maybe more needs to be done, as far as public awareness goes, about the fact that things like rat droppings are commonly included in contraband tobacco?
Mr. Perley: We do not know that that is the case. There might be some statements to that effect. We try to stick to, in this case, what Health Canada did in terms of its tests. People can say that various things have been found. There have been various things found; I am not disputing that at all. The majority of contraband product on the street in bags and other forms of contraband that are manufactured by Grand River Enterprises and find their way into the contraband market are packaged goods. It is usually baggies that people are talking about.
We are not sure that the product manufactured by GRE or supplied to first Nations by the legal companies tax-free under the provincial allocation system and then resold to whoever wants it has these ingredients; but the baggies sometimes have these ingredients. The bottom line is that tobacco is tobacco. It is toxic whether it is contraband or legal.
Senator McIntyre: There is no question that the contraband tobacco market is a huge problem and that enforcement is necessary. However, as I read more and more on this topic and as I listen to the evidence, it appears that enforcement alone is not sufficient to dismantle this huge market. Obviously, raising education and awareness amongst the public is crucial to reducing consumer demand for illicit tobacco.
There have been all kinds of public awareness campaigns on this issue, some of which have proven to be inefficient or unsuccessful, notwithstanding the fact that tonnes of studies have proven over and over again the direct link not only between the consumption of tobacco and cancer but also between contraband tobacco and organized crime. This issue is beyond me. What are your thoughts on this?
Mr. Perley: I would have to take issue, if I may respectfully, with the idea that there have been many public education campaigns in Ontario, at least. There may have been some in other provinces, but in Ontario, which is our backyard, we have been asking the Ontario government for years to get some campaigns out there. We have given them proposals under which we would volunteer to run the campaigns. The campaigns would describe the product and try to dispel some of the myths about it by telling people accurately about the links with organized crime and educating the public broadly from the health perspective about why this is a serious issue. So far, the provincial government has not gone ahead and the federal government has not gone ahead. I do not believe the Quebec government has gone ahead with public education, either.
We are missing an opportunity to demythologize some of the issues around contraband and to tell people about the penalties and risks when buying this and what they are doing in many ways to law and order in the country by buying it. We just do not have that happening. If we could have that as a start, we would have a differently informed public and more support for some of the tobacco control measures that would help reduce demand for either contraband or legal product.
Senator Joyal: None of you mentioned the proliferation of smoke shacks, which, in my opinion as someone external to your daily preoccupation, seem to be one of the prime sources of supply. It is stunning that none of the presentations tackled that issue and came forward with a suggestion as to how we should limit them and enforce the regulation of smoke shacks. They are the main chain of supply in the free market.
Mr. Cunningham: In Western Canada smoke shacks do not exist. In Ontario and Quebec, where we have a different historical situation, we need to deal with the cigarettes before they get to the smoke shacks. We need to deal with the illegal factories and the raw materials before they get to the factories. That is the most efficient way to deal with what you identify as a very real problem.
Mr. Perley: I totally agree. Also, there is a very large supply chain that does not pass through the smoke shacks. I can think of several locations where 18-wheeled trailers pull up on certain weekend days in various communities in Ontario and open their doors. People come at 8 a.m. on Sundays to buy their supplies. If the OPP or local police hear about it, they get there. If they do not hear about it, the trucks come and go. These kinds of supply chains exist well beyond the smoke shacks. Although the smoke shacks are absolutely a problem, they are all on-reserve. Mohawk police have to be willing to shut them down because our law enforcement people cannot intervene.
Mr. Cunningham: I would like to acknowledge the Akwesasne police on the Canadian side and the Akwesasne council for their support and work in cooperation with the federal, Ontario and Quebec government authorities.
Going back to what Senator White indicated, a lot of it is dealing with the financial viability. If you can deal with things, whether through the proceeds of crime, through preventing the feasibility of an economic operation and you cannot get your raw materials, it would be crucial to dealing with the problem.
[Translation]
Senator Boisvenu: Are you familiar with the 2011 study done by the Center for Regulatory Effectiveness? It was essentially the same study but was not limited to Canada. That study showed that illegal cigarettes contained up to 30 times more carcinogenic metals than legal cigarettes. Some of the items mentioned were arsenic, mercury and lead, and the rate was 2 to 10 times higher. Are you familiar with that study?
Ms. Doucas: I am. Cigarettes are inherently harmful. The study mentioned excrement from I do not know where. The fact is cigarettes contain poisons such as rodenticide and polygonum. It takes half or three quarters of a bottle to get cyanide poisoning. Health Canada tells us that, despite the differences in certain contaminant levels, legal cigarettes are the ones with the most carcinogens. Smoke poses the same risk to individuals.
That is a crucial consideration when it comes to awareness campaigns about the dangers. The harmful message we risk sending is that one type of cigarette is better than the other, but that is not the case. The reality is both kill and pose the same risks.
[English]
The Chair: We thank the witnesses for appearing today to contribute to our deliberations. It is much appreciated.
Our next panel of two witnesses consists of Jean Daudelin, Associate Professor at Carleton University; and Nachum Gabler, Economist. I believe both of you gentlemen have opening statements.
Jean Daudelin, Associate Professor, Carleton University, as an individual: Thank you for the invitation. This testimony is based on a study that was commissioned by the Macdonald-Laurier Institute, which you may have seen, and that I have done with Stephanie Soiffer and Jeff Willows, two graduate students working with me at Carleton.
[Translation]
My statement is in English, but I would be glad to answer questions in French.
[English]
Contraband tobacco has significant security implications. We have identified six channels through which it can affect Canada's public and national security. The first channel is that the protection of the production, smuggling and sale of contraband tobacco products and the enforcement of the many contracts involved cannot rely on the law enforcement and judicial institutions that guarantee a degree of security to normal economic activities. You cannot call the police because your bags of cigarettes have been stolen. Protection and contract enforcement must instead rely on informal mechanisms and ultimately on the use or threat of violence.
The second channel is that the smuggling of illegal tobacco into Canada from the United States, Eastern Europe or China involves a whole chain of people and organizations, which can best be thought of as a pipeline. That pipeline can be used to transport tobacco but also goods like weapons, drugs and other controlled substances, as well as illegal migrants.
The third channel is that assessing the value of illicit activities is a very hazardous enterprise. Nonetheless, on the basis of available information, my team has calculated that the gross revenue generated in Canada by illicit tobacco could represent as much as $350 million to $400 million, with perhaps $75 million to $80 million in profit. Part of this money needs to be reinvested and other illegal activities represent an appealing option, as money laundering through important investments into the legal economy can be detected by law enforcement.
The fourth channel is that some of the profits from illicit tobacco sales could be diverted into the financing of terrorist organizations.
The fifth is that a significant proportion of the smuggling, production and sales of contraband tobacco take place on First Nations reserves where these activities, though not their criminal ripple effects, enjoy broad legitimacy. Aggressive enforcement of the law risks provoking confrontations and effective loss of control by government authorities over these territories.
The sixth channel is that much of the traffic in illicit tobacco takes place over and around the Canada-U.S. border, particularly around the so-called 401 corridor between Brantford east of Hamilton — Six Nations — and Montreal. U.S. authorities' perceptions of the risks involved for their country's security can lead to an intensification of border controls with a negative effect on the flow of people and merchandise through the border, on which Canada depends more than the United States.
Those are the theoretical channels. We found evidence suggesting that all those channels, except the one regarding terrorism, apply here. However, we found the scale of the problem not to be very significant. Violence related to collateral crime directly linked to contraband tobacco around protection and contract enforcement has been limited. An analysis of seizures by CBSA also found limited evidence of mixed smuggling, that is, the mix of drugs, weapons and other illegal goods with the tobacco that was being smuggled. Neither did we find significant involvement of large criminal organizations, and I emphasize "large," at least since September 2001. As mentioned, we found no evidence of linkages between contraband tobacco and the financing of terrorist organizations in Canadian.
Finally, while some U.S. local authorities and senior U.S. public officials have argued that drug trafficking on a large scale is taking place along with contraband tobacco in Mohawk reserves, especially around Cornwall, we found little evidence that this was the case. Moreover, general risk assessments done by the U.S. government do not consider this area a major source of insecurity. In other words, the current regime appears to have effectively contained most of the potential dangers related to contraband tobacco.
With regard to the implications of the kind of changes that are being contemplated, which you are examining here, the proposed amendments to the Criminal Code involving the introduction of compulsory sentences for repeat violations of the prohibition on the sale, transport, delivery, distribution and possession for the purpose of sale of illicit tobacco products, it is not clear to me that this would lower the overall level — and I emphasize "overall level" — of insecurity stemming from illicit tobacco, for three mains reasons.
The first is that introducing compulsory sentences would reduce the differential that currently exists between the sentences imposed on tobacco and those imposed on other illegal goods, and this increases the incentives to use the smuggling pipeline for other things. As things stand, the choice is between something that pays handsomely and involves mild sanctions — tobacco — and something that pays much more but involves much higher risk and much higher sentences, especially given the changes that were introduced to the Criminal Code recently. In our view, this is what explains the low level of violence and of mixed smuggling and the limited use of the pipeline for things other than tobacco. Under the new provision, the relative appeal of higher value smuggling is likely to increase.
The two other risks of the changes derive from the fact that, if enforced, the law would mostly affect the First Nation communities of the 401 corridor where much of the contraband tobacco industry is concentrated. That enforcement will be seen as a direct affront because, to repeat, producing, transporting and selling contraband tobacco is broadly considered a legitimate activity in these communities. Controlling alternative uses of the pipeline for drugs, weapons or people is likely to become much more difficult, to the extent that law enforcement will not enjoy the goodwill and cooperation of the community, as it currently does. The position of the Mohawk police, in particular, will become extremely uncomfortable.
Finally, direct confrontation with the communities cannot be excluded if there is effective enforcement of these new measures, in which case effective control of a strategic border area will be severely complicated and threatened.
In conclusion, I think that dialogue with the Mohawk communities about the fuller legalization of First Nations tobacco production and trade, shared taxation, economic development in and around the reserves, along with the kind of careful enforcement of the law that currently prevails in the area represent a much better path than hardening sanctions against contraband tobacco.
Nachum Gabler, Economist, as an individual: I would like to begin by thanking the esteemed members of the Senate committee for offering me the opportunity to provide testimony on Bill S-16 and to share some thoughts about the policies that can be enacted to mitigate the problem of contraband tobacco in Canada.
Contraband tobacco poses a serious challenge to public health officials, the law enforcement community, anti- smoking activists and small retail establishments that sell lawful tobacco. However, most important, contraband tobacco is a danger to the Canadian public.
Furthermore the distribution of contraband tobacco has become increasingly pervasive over the past decade. As such, I feel that it is imperative that Canadian policy-makers take effective steps to address this pressing issue. Unfortunately, I believe that the bill under consideration embodies a misguided approach to contraband tobacco control. The apparent purpose of the bill is to elucidate mandatory criminal penalties and strengthen pre-existing sanctions for use against repeat offenders engaged in various activities associated with contraband tobacco distribution.
The rationale for increasing the severity of punishment for individuals dealing in contraband tobacco is predicated on the belief that altering the risk-reward tradeoff for distributing illegal tobacco will sufficiently weaken the incentive to engage in this otherwise lucrative black market enterprise. I believe this rationale to be erroneous and I believe that the sanctions outlined in Bill S-16 will prove ineffective and needlessly costly if the intended purpose of the legislation is to reduce the trade in illegal tobacco.
Like all other market activity, the contraband tobacco trade exists because of the interaction between supply and demand forces. There is a demand for illegal tobacco and there is a profitable opportunity for those who can supply the illegal tobacco to fill that demand. Those who supply contraband tobacco need to account for standard operating costs as well as the costs of criminal sanction. However, the cost of criminal sanctions depends on both the severity of punishment and the likelihood of being apprehended.
A criminal who is aware that punishment for his offence is severe but simultaneously believes that the likelihood of being apprehended is sufficiently low may still be inclined to proceed with his delinquent activity because the cost of the criminal sanctions overall is low given the improbability of interdiction by law enforcement. If criminals are unlikely to face the justice system, the severity of prospective punishment is inconsequential.
Moreover, increasing the severity of punishment for contraband tobacco dealers will have little effect on the totality of forces driving the contraband tobacco trade. The policy does nothing to reduce the demand for tobacco. On the supply side, the cost of distributing contraband tobacco will increase and profit margins will be squeezed. However, the policy is unlikely to eliminate all potential profit and enterprising criminals still have an incentive to distribute contraband tobacco.
In this vein, I will compare the contraband tobacco control policies outlined in Bill S-16 with the use of mandatory minimum sentencing to abate illegal drug trafficking. Without straying too far afield, I would simply point out that a sizeable body of research and anecdotal evidence points to the ineffectiveness of criminal sanctions in general, and mandatory minimum sentencing in particular, for deterring both drug use and drug dealing. There is little compelling empirical evidence, in my opinion, that the use of mandatory minimum sentencing policies effectively reduces recidivist criminal behaviour.
UCLA public policy professor Dr. Mark Kleiman has offered some of the most insightful research discrediting the effectiveness of bolstering criminal sanctions against drug users and drug dealers, as well as offenders of other vice crimes. Dr. Kleiman argues that increasing the certainty and swiftness of criminal sanctions expected by potential offenders is more likely to deter delinquent behaviour than simply increasing the severity of punishment. Without increasing the likelihood that the punishment will actually be carried out, rational criminals who can profit from lucrative black market enterprises are unlikely to be deterred no matter how severe the potential sanction. This reasoning similarly holds true with respect to contraband tobacco distribution.
With this reasoning in mind, it is my belief that Bill S-16 will not have a discernible impact on contraband tobacco commerce in Canada. While enforcement-based initiatives are important for preserving law and order, I do not believe that increasing the severity of punishment for individuals convicted of contraband tobacco distribution or related offences is an effective strategy for undermining the contraband tobacco market.
In lieu of the enforcement-based approach outlined in Bill S-16, I would like to take the opportunity to propose an alternative anti-contraband tobacco strategy. In order to abate the trade in contraband tobacco, policy-makers should consider initiatives that simultaneously reduce both the demand for and supply of contraband tobacco. With this more nuanced objective in mind, I would like to suggest one policy that would likely reduce the demand for contraband tobacco and a second policy aimed at reducing supply of contraband tobacco.
The Chair: Mr. Gabler, sorry to interrupt, but I want to get some clarity here on how long you intend to continue with your presentation because we have time limits, as was indicated to you earlier. I wonder if you could wrap up in the next minute or two so that members have an opportunity to ask you questions.
Mr. Gabler: I can summarize quickly.
On the demand side, my suggestion would be to reduce excise taxes on tobacco, because I believe that is the driving force that is the incentive for smokers to seek out contraband tobacco. It also enables contraband tobacco distributors the opportunity to significantly undercut the lawful retail price. In order to reduce the demand for tobacco, I think one policy that should be considered, as was implemented in 1994, is a partial reduction or a limited reduction of tobacco excise taxes.
On the supply side, I would suggest that the part of the contraband tobacco market that is overseen by First Nations community members needs to be legitimized. Tobacco distribution on First Nations reserves, where most contraband tobacco emanates from, as my colleague said, in the 401 corridor, somehow has to be legitimized. My suggestion would be to reach out to First Nation communities and engage them with tax compacts, tax agreements and tax-sharing arrangements that would allow them to increase the on-reserve price of contraband tobacco such that it will narrow the margin between the retail price available off reserve, thereby eliminating the supply that will be available on the black market.
The Chair: Thank you very much.
Senator White: I was interested in your commentary, Mr. Daudelin, about finding a way to work with the First Nations communities in particular. In 1999, I believe there was an agreement between the Quebec government and one of the communities along the border — Kahnawà:ke, I would guess — that would have had them getting the revenue, or the tax, from non-First Nation dealers of illegal tobacco, which would have been deemed illegal previously, and yet it never took place. However, an agreement signed 14 years ago did not abate the issue around illicit tobacco. If it had, it would have raised the price to where contraband tobacco would no longer be relevant in comparison with non- contraband tobacco.
I am trying to figure out how we would do this. Ultimately, if the price was brought into line with mainstream tobacco, people would buy mainstream tobacco, the same as we saw with alcohol on the East Coast where I am from, when moonshine prices got close to the market value for otherwise legal alcohol. It stopped being something people would buy. I am trying to get my head around how it would work.
Mr. Daudelin: The level would need to be low.
There are three main obstacles to agreements about taxes with First Nations. The first is political. Many leaders, and in fact it is an opinion that appears to be broadly shared in the communities, feel that there is no reason for First Nations to collect the taxes for someone else. That is a political reason.
The second reason is economic. If taxes rise, there is a loss of market share without significant increase in profit.
Third, a study by the Institute on Governance here in Ottawa explored that issue. Their study suggested that there is a fear among First Nations that generating their own revenues would weaken the fiduciary duty of the federal government toward the communities, and the fear that this would weaken their claim on other resources that could be provided by the federal government. In that context, I think there is a potential, but very small.
Senator White: To follow up, I know that a number of First Nations in British Columbia have gone to the point of collecting taxes on reserve with and without agreements while negotiating very successfully. Do you see substance behind the fear or do you see just fear?
Mr. Daudelin: I think there is a potential, but it should not be exaggerated.
Regarding substance, my informal conversations with some Mohawk leaders suggest that they already see a weakening of the fiduciary duty of the federal government, so they are looking for options and they may be more open.
Senator White: That is not related to the taxation piece; it is related to the overall relationship.
Mr. Daudelin: Overall, but this has impact on the openness or not to the possibility of collecting taxes on cigarettes.
Senator White: It could be that they are ignoring criminal activity on their land.
Mr. Daudelin: That is another issue.
Senator White: That might drive this as well.
Senator Joyal: I have the text of the 1999 agreement in my hand. A very sound objective was enshrined in that proposed tax, especially that the person was collecting the taxes and the government would give back a percentage of those taxes to the band for the role in the collection and of course as a recognition that they have a right to receive a tax.
It seems to me that there was an element of permanent solution to the issue. I heard that in your conclusion. You proposed that in your remarks.
Mr. Gabler, in many of your studies you make the same suggestion. You know this document, Six Policies to Counter Contraband. It reads:
Instead, in an attempt to legitimize Aboriginal tobacco commerce, one option would be for Canadian provinces to implement tax revenue agreements with their local Aboriginal communities that remunerate the band with the full or partial proceeds from the tobacco taxes collected on a reserve.
It seems that there is an avenue that is an open horizon whereby there is something happening and everyone puts their hands in front of their eyes because they do not want to see what is going on. Then they say, "Oh, there is contraband and what should we do? We should cut the sources."
There will always be contraband unless those who are a party to it are also part of the solution. That is the way I understand it. It seems to me that this avenue is a profitable one, rational and economical. Everyone has to have a share of the pie. In that context, I think we would fight contraband in a more effective manner than just trying to repress it by saying we will put people in prison. We will put more people in prison, but we will never solve the source of it if we are not addressing it with all the parties who have a stake in the phenomenon.
Mr. Daudelin: The question is directed to me?
[Translation]
Senator Joyal: You and Mr. Gabler.
Mr. Daudelin: Two brief answers. I agree with you; it is definitely one possible solution and it is currently being explored as part of the talks with the provinces. An agreement on that was reached. It is not the silver bullet, however, because it imposes costs on people who currently benefit from the system.
Distributors are going to lose a share of the market. Smugglers are also going to lose a share of the market. If the taxes are too high, smuggling will resume to feed the black market. You can raise them a little, but I doubt they can be brought to the same level as current taxes in Canada's other provinces. To my mind, that does not seem very likely because those taxes, as Mr. Gabler showed, create the incentive to produce and sell contraband tobacco.
[English]
Mr. Gabler: My thought is that, like you said, there would be no solution to the contraband tobacco problem unless the demand for tobacco was addressed. I believe that on the supply side this is the most promising avenue, not necessarily one that has not got assorted issues to be worked out, for example, as has just been mentioned, the precise level of taxation to be levied on reserves. Most reserve-based issuers would be opposed to equalizing the taxes, so we would have to calibrate the acceptable level.
That would be a solution to part of the contraband tobacco problem, but it would not be a complete solution because contraband is also being sourced from other points, including the United States and overseas. The historical record shows that in the mid-1990s, when the problem had become exceptionally exacerbated, the Chrétien government lowered tobacco excise taxes, and the demand for contraband tobacco dropped off significantly. Contraband tobacco seizures fell significantly as well because the activity in the marketplace had begun to dwindle. It would take a combination of policies, I think, to really mitigate the black market for tobacco here.
Senator Joyal: In your December 2011 document for the Fraser Institute's Centre for Studies in Risk and Regulation — so it is a recent document — you propose six different policies or initiatives that would reach the objective of fighting the illegal tobacco trade. The first one is tax partnerships and agreements with Aboriginal communities. You seem to have ranked that one at a high level of importance.
Mr. Gabler: Yes.
Senator Joyal: You then talk about the complete revocation of tobacco taxes. That is the second one, and the third one is the reduction of tobacco taxes to narrow price differences among jurisdictions.
Next is better record keeping by the RCMP. I was surprised by that one, but you might want to elaborate on it.
Another one was an educational campaign to increase awareness of the dangers and costs linked to contraband tobacco. The sixth one was to increase enforcement against contraband wholesalers and retailers.
It seems to me that it is essentially tinkering with how high the taxes are, who the stakeholders in the phenomenon are and how we can address it. I agree that there are sources of supply coming from external sources. We have mentioned some countries in Asia and so on.
Mr. Gabler: They are being imported into Canada.
Senator Joyal: There will always be some kind of contraband. We know that, but the phenomenon that exists now is that there are people close to Canada who profited and benefited from the sources of revenue that they draw from that phenomenon. That is what we want to address, and that is what the bill seems to also want to address, to a point.
I have the difficult situation of trying to reconcile that with what we have heard from other witnesses. I do not know if you have had the benefit of reading the testimony of other experts that we have heard here.
Mr. Daudelin, do you have anything to add to that?
Mr. Daudelin: On taxation? I think it is part of the solution, but, again, I do not think it should be considered as a panacea because the people who benefit from the current regime will not benefit from the new one and are likely to resist. The level of tax that can be imposed cannot be as high as would be needed to have a significant impact on smuggling.
[Translation]
Senator Boisvenu: I am going to be quick as well. My first question is this. What methodology did you follow for your study?
Mr. Daudelin: We reviewed studies and secondary material, and we did a detailed analysis of CBSA seizures over the past six years, all seizures. We had access to that information. Regarding the role of organized crime specifically, we examined all the trials that had taken place in Canada, since 1990, for cases involving Cornwall, contraband tobacco or major criminal organizations.
Senator Boisvenu: Do you look beyond Canada, at the situations in South America, Asia, Afghanistan or Pakistan?
Mr. Daudelin: I work on drugs in Latin America. Cigarettes are not that significant there. We used studies, for example, with the terrorism evaluation, involving the major linkage between contraband tobacco and terrorism; it was a case that involved the major tobacco manufacturers, the big tobacco companies and Iraq at the time of the embargo. We examined the studies that were widely available in Great Britain, Australia and so forth.
Senator Boisvenu: One site indicates that, in Afghanistan and Pakistan, tobacco is now generating 20 per cent of al Qaeda's revenues. That is a recent study. Has the type of crime associated with contraband tobacco evolved over the last 10 or 15 years?
The RCMP's figures show that 105 criminal organizations revolve around illegal tobacco, and that 70 per cent of them are involved in the drug trade, the weapon trade, prostitution and other related types of crime. A third of these groups often use violence as a means of intimidation, deterrence and settling accounts. In your view, has the type of crime associated with the small-scale illegal sellers we used to see 20 years ago evolved to a more international level with more ties to other types of crime?
Mr. Daudelin: That does not appear to be the case. We started with official documents and we tried to verify the information. We occasionally came across figures that had been extremely inflated for relatively legitimate reasons. For instance, the figure of the 105 criminal organizations is based on the definition set out in the international treaty on transnational crime, which defines a criminal organization as a group of three, or more, people who regularly engage in criminal activity for a period of two years. The 105 number, which was used in the case of Akwesasne, is completely absurd if you are trying to get an accurate picture of where things stand. It is absurd because there are 10,000 people in Akwesasne. My sense was that the RCMP was trying to present information in a way that, shall we say, embellished the situation or, rather, made it look worse for institutional reasons.
The reason we did a detailed analysis of all the trials was precisely to assess the validity of those figures, as well as the data and charges laid; we did not find anything to confirm that information. That said, the RCMP knows things I do not. The RCMP uses information; there are trials under way and so forth. Through access to information and databases on the trials, we used all the data we were able to obtain to assess the role of major criminal organizations.
All that to say, at the end of the day, I do not believe the model has changed in terms of organized crime. The big change when it comes to crime associated with contraband tobacco is that the supply no longer comes from the big tobacco companies. After paying $1.7 billion in fines, they decided it was not much of a profitable undertaking.
They stopped that activity, and that is the radical change we have seen.
Senator Boisvenu: Does that mean the raw material supply could be coming from China or South America?
Mr. Daudelin: The tobacco seems to be coming from the United States, Canada and local growers. Earlier, I heard a witness say that the bulk of the activity was in Quebec and Ontario, and that is true. If we consider the CBSA's seizures in 2011, we see that, in Vancouver, they represent 50 per cent of all seizures in the Cornwall region. That suggests there is a large market out west that is not reflected in the statistics on contraband tobacco use, because it is Chinese tobacco and reproduced tobacco. The scale of the problem in Western Canada is being underestimated.
[English]
Senator Baker: In your presentation you said "no large criminal organization." Those were your exact words. You are saying it is not just the definition internationally, but the definition that we have in Canada of "criminal organization."
In all of those judgments that you looked at and examined, I imagine you saw the trial judge trying a case under a charge of belonging to a criminal organization, whereas you say the definition is only three people that get together for a common purpose that is illegal. Your evidence is that there are no large criminal organizations. When we hear "criminal organizations," that is an inflated view of reality. Is that correct?
Mr. Daudelin: Yes.
Senator Baker: When I look at the numbers you have both pointed out, it was 1994 when the taxes started being reduced. Was it 1994?
Mr. Daudelin: Drastically, yes.
Senator Baker: Up until about 2003 or 2004, there was a substantial drop in those people who were caught.
Mr. Daudelin: Yes.
Senator Baker: Then we saw an increase in 2004. It started going up and up, and now it is sky high compared to our history. As far as illegal activity is concerned, to what do you attribute this elasticity in the line moving up?
Mr. Daudelin: It is essentially related to reorganization of the industry. Once big tobacco was out, the production was picked up by on-reserve producers because the increase that you note, the type of products on the market now are very different from the types of products on the market before. Now we are talking about "Indian cigarettes," the ones that do not taste that good and are much cheaper. These are produced on-reserve. They needed time to organize the industry, get the machines.
Some people from the industry — I could not verify this, which is why it is not in my study — suggested to me that the machines being used in First Nations manufacturing are the machines that were sold when one large tobacco company decided to move its production to Mexico.
The infrastructure needed to be established, the networks of distribution. They needed to buy the tobacco and learn to produce it. I think that is what explains the time it took for it to pick up. I do not have the details on this industry because I did not have time to explore that, but their production costs appear to be extremely low. It is possibly related to the quality of tobacco they use, but they are able to come up with a product that is exceedingly cheap. I have seen 600 cigarettes for $18. That was a month ago. That is significantly cheaper than the product available in the 1990s.
Senator Baker: You think there is a substantial increase in the use of illegal tobacco —
Mr. Daudelin: No.
Senator Baker: This was my question to you. The scale goes way up here — illegal contraband tobacco — in both of the documents you have provided, yet you say there has not been an increase. Are you saying there has been an increase in the number of persons who have been caught?
Mr. Daudelin: Go ahead.
Mr. Gabler: The statistics that I quote pertain to contraband tobacco seizures, not contraband tobacco use. I did not calculate or estimate the use of contraband tobacco in Canada, but from other studies I have seen, both recent and older studies from the 1990s, the share of smokers consuming contraband tobacco typically falls between 25 to 30-plus per cent. It is higher amongst youth smokers, but I would not want to assert that authoritatively. Specifically, the statistics I used to establish that the contraband tobacco market became more predominant were based on contraband tobacco seizures.
Senator Baker: Those people who were caught?
Mr. Gabler: Yes.
Senator Joyal: That does not give credence to the phenomenon of —
Senator Baker: No. That could be because of other reasons.
Senator McIntyre: Mr. Daudelin, are you aware of other research projects and/or studies presently under way at your university or other universities on the issue of contraband tobacco? If so, could you inform us what they are?
Mr. Daudelin: It is an industry; it depends on which aspect. On the security side, I was surprised by the relatively little amount of research; and, no, I do not know of any major research program exploring that issue. On security, there are a few works, for instance on the link with terrorism. Most of the studies are based on media reports and small think tank studies. Academic work on the security implications of illicit tobacco appear to be relatively limited.
Senator Batters: Mr. Gabler, in your presentation, which I have read, you talk about the six policies to counter contraband. I wanted to give you a brief opportunity to talk about two that I found interesting: the campaign to increase public awareness and the increased enforcement against wholesalers and retailers. Can you tell us a bit about those?
Mr. Gabler: There was a study authored in 2005 by two Concordia economists. One of them has written quite a lot on the subject, Professor Ian Irvine. They found that a variety of anti-smoking initiatives have been responsible for reducing the prevalence of tobacco consumption in Canada. Going back 30 to 40 years, the tobacco consumption rate was approximately in the high 40 percentile, upwards of 50 per cent. The most recent statistics have recorded that smoking prevalence in Canada is certainly below 20 per cent; I believe around 18 or 19 per cent.
There has been a consistent trend downward in the smoking prevalence rate for the past 40-odd years. I do not believe that taxes were a significant factor in that consistent decline. Moreover, this 2005 study, which analyzed an assorted variety of data that reflects a combination of anti-smoking initiatives, found that multiple anti-smoking programs or measures have been responsible for reducing tobacco consumption in Canada. Foremost is education, teaching our children, young adults or people who have health issues that tobacco consumption is bad for them. I have a parent who was a smoker. He suffered a mild heart attack and quit the next day.
It is from personal experiences and education that I believe the reduction of smoking over the past 30 to 40 years can be attributed to a number of factors, foremost public awareness of the health consequences pertaining to tobacco consumption.
With that said, I think a similar policy could be enacted to educate the Canadian public about the dangers or negative consequences of consuming contraband tobacco and supporting the contraband tobacco market. Many studies show that the public does not quite digest the dangers that correspond to the contraband tobacco market. I believe that informing the public would be useful.
What was the second question?
Senator Batters: It was about increased enforcement, but the chair will want you to be brief.
Mr. Gabler: I suggested enforcement against wholesalers because trying to catch the guy on the street is a complete waste of time. Who else will you go after?
[Translation]
Senator Dagenais: My question is for Mr. Daudelin. The authorities in place are having a really hard time with aboriginal communities that break the laws in relation to casinos, online betting and other issues of that nature.
I would like you to explain why you are so eager to initiate talks on contraband tobacco that is being controlled by criminal organizations.
Mr. Daudelin: It is important to put the production of contraband tobacco on reserves in a broader context than simply looking at the security implications of applying stronger police pressure. There is a lower tolerance — and I use that word deliberately — for illegal activities that go on on reserves. If you look at it from that standpoint, it is clear that negotiating an agreement is imperative. On the one hand, a good deal of those activities have a certain legitimacy. On the other hand, those activities are lucrative, and even though the redistribution of the profits is not exceptional, they are nevertheless redistributed and a number of people benefit from those illegal activities. In the case of tobacco, they are benefitting from an activity that is not seen as illegitimate. The economic interests are fairly wide-ranging. And when you put the issue in that context, it becomes clear that talks are imperative.
I totally understand what you are saying, and I know that criminal organizations are involved. That said, it would be a good idea to do a systematic comparison between casinos and contraband tobacco. I am not so sure that illegal tobacco is currently being dominated by organized crime groups. Six Nations, in Brantford, is the third largest cigarette producer in Canada. A great deal of its production is exported; it is a legitimate industry that is supporting people and putting money in their pockets, money from legal profits that are not all from illicit activities. Against that backdrop, there is absolutely no way around negotiating an agreement.
[English]
Senator Frum: My question is somewhat related to your last comment. You said in your presentation that the relative appeal of higher value smuggling is likely to increase under the new provisions. You suggested that mandatory minimums will have an impact on criminal behavior because it will have an impact on people's behavior. You also said that the people engaged in this particular form of illicit activity are doing it because of circumstances and opportunities unique to their situations. I am interested in why you think that activity will be reduced, because you believe the mandatory minimums will affect the behaviour. If that behaviour is impacted, why would it morph into something different when there may not be the same opportunities?
Mr. Daudelin: I honestly think it would have some effect. That is from talking to people from the RCMP. They would like to have teeth because, as mentioned previously, they feel that people do not pay the fines. It would impact to some extent. I am not fully in agreement with my colleague here.
In the broad range of incentives, the balance would be negative. Ecstasy pills sell for $10 on the streets of Toronto, and you can put an awful lot in the back of a car. You and I cross the border to the U.S. very easily. The incentive would be significant to switch to something like that. We have something that feeds criminal activity to some extent. What happens when we eliminate it? I am suggesting that the outcome may be worse than what we have now.
Senator Frum: However, the individuals engaged in contraband tobacco in particular are doing so because they are taking what is a legal activity in one jurisdiction and engaging in an illegal activity in a different jurisdiction. They are using a product that they have easy access to. To get ecstasy pills, they have to compete with all the other dealers and they have to source it, as opposed to this product which is already in their midst. I am not sure.
Mr. Daudelin: There would be three consequences, but I do not think that is the most important. The two other reasons for not doing this are much more important, and they have to do with the relationship with First Nations communities and with the ability to enforce prohibition on activities that are much worse. As mentioned earlier, the Mohawk police and the community collaborate with the RCMP on the repression of human smuggling, drug trafficking and so on. These are the kinds of things that would be threatened by adopting a hard line on cigarettes because the goodwill would be gone. However, it would have some effect on tobacco. I am not sure that the overall effect would be advantageous. That is the only thing I am saying. I am not talking about public health or anything. From a security standpoint, I think it is a raw deal.
The Chair: Mr. Daudelin, I do not know if you have commented on shared taxes, but in your report from the Macdonald-Laurier Institute you mention maintaining the tax levels but sharing with reserves where illicit tobacco is produced or smuggled. You also say that those who benefit from new tax revenues are unlikely to be those who most benefit from smuggling. You recommend one initiative, but you knock it down in terms of effectiveness. Am I reading that right?
Mr. Daudelin: That was the gist of my perhaps confused answer to Senator Joyal. It is a good idea to go in that direction, but we should not have illusions about how much we can get from it. The level cannot be too high, otherwise the black market will come back in, and those who benefit from the tax will not likely be the smugglers. The smugglers will look for other things to do with their pipeline. I am not saying that they will do so necessarily because sanctions are harsh and enforcement is significant. We should not underestimate the ability of law enforcement to control the border.
That is exactly why I think we should be careful with investing too much hope in that particular measure.
The Chair: Thank you, gentlemen. It is very much appreciated. You were very helpful.
Our final witness of the evening is Chief Lloyd Phillips from the Mohawk Council of Kahnawà:ke.
Welcome, Chief Phillips. We appreciate your appearance here this evening.
Lloyd Phillips, Chief, Mohawk Council of Kahnawà:ke: Thank you for the opportunity to be here. I am here to express the opinion of the Mohawk Council of Kahnawà:ke on Bill S-16. We felt that we must go on the record to state our opinion on Bill S-16 to the standing committee because it directly impacts our community, and we have been watching it very closely.
With all due respect to the committee, we believe that the government will pass the legislation regardless of what is discussed here. Even so, we believe it is important to make our opinions very clear. The track record of the current government on proceeding with all legislation, not only First Nations legislation, speaks for itself.
That said, I am here today to state the opposition to this legislation of the Mohawk Council of Kahnawà:ke and to explain why we are opposed to it. You cannot look at this strictly as a contraband issue or what many view as illegal activity. There is a long history involved that extends pre-Confederation and pre-contact with European settlers. There is a history of Mohawks and other indigenous people trading to the north, south, east and west, including trade in tobacco, other goods and food. In this case we are talking about tobacco.
We traded in order to forge relationships and to support ourselves as individuals as well as collectively as a nation. Throughout the centuries, things have changed. There was more settlement by Europeans in the 1500s and 1600s. Our world changed and we had to adapt.
One of the earliest treaties, the Two Row Wampum Treaty, set out two paths of living in peaceful co-existence, respecting each other's beliefs and laws. Obviously we have seen that eroded over the years, but in our minds and in our hearts we still believe that Two Row Wampum exists and it is just a matter of reinforcing it.
We were active in the fur trade and actively helped the Europeans to explore this country and open the land for further settlement. At one point the Mohawks in particular, but other First Nations as well, were allies with the British in defending what is now Canada. Without that alliance, Canada as we know it may not exist today. That is another part of our proud history.
In more recent times, as many will know, our people have adapted to the world around them. We have taken to the high steel. My grandfather, my father and my brother have all been iron workers across Canada and the United States. My grandfather worked on the Empire State Building and my father worked on the Manhattan Bridge. We are proud of that history. Again, we adapted.
Specifically on the issue of tobacco, this was another evolution in our history. Tobacco was another avenue of economic development, and many of our community members see it as a vital tool that must continue. There was a downswing in iron work and there were minimal jobs available to our people, so this was almost a natural progression in our history.
We originally traded a lot on traditional routes. I heard Akwesasne mentioned many times. Upstate New York, Ontario and Quebec were our traditional territories. Unfortunately, international and provincial boundaries were established which we respect but, for the most part, do not recognize because it is our homeland. We never surrendered our homeland, so we feel we have the right to move these commodities around.
In the 1990s, tobacco trade became a vital part of our economy. In the early 2000s, when it got into the manufacturing aspect of cigarettes, it grew tremendously in my community and it became a vital source of the economy. I would estimate that at the height, 50 per cent of our community benefited directly or indirectly from the cigarette industry.
The vast majority of those people are just the mom and pop shops making a few bucks, a couple hundred dollars a week, just making enough to pay the bills to get by, put food on the table, pay hydro bills and things of that nature. Certainly, people involved in the industry as owners of manufacturers make much more money, but the vast majority of people are the people manning the mom and pop shops, working in the manufacturing aspect of it.
Bill S-16 is a law which we feel further criminalizes our people and the tobacco industry, and it will not stop the industry. It will not stop the industry.
When you are dealing with an issue that we feel is our right to do so, that we feel is infringement on our rights, no law will stop people from doing that. Nobody will say, "Canada and the U.S. passed a law, so now our rights are extinguished and we can no longer utilize our rights for economic benefit." That will not happen.
As I mentioned earlier, we never surrendered those rights, and we believe that right to self-determination is being exercised through the tobacco industry.
If Bill S-16 is passed, we see a tremendous cost to the Canadian public in terms of law enforcement and the judicial system. As well, it will make criminals out of many people who are not criminals. Also, the government is ultimately ignoring the Aboriginal rights of the Mohawks.
If Canada really wants progress, we suggest that Canada work with the Mohawk communities and the Kahnawà:ke on recognition of jurisdictions. The Mohawk Council of Kahnawà:ke has proven and made laws in many areas, laws that are recognized internationally and by our local business community. We have the ability, the will and the desire to make laws. What is missing in many cases is recognition of that jurisdiction, but we will continue to enforce and make laws as our community deems fit, including that of further developing legislation to regulate and legitimize the tobacco industry within our communities.
We feel it is the responsibility of Canada, within your legislation and within your political systems, to find the room or the means to have a nation-to-nation type of understanding or government-to-government agreements based on the original concept of the Two Row Wampum so that Canadians and Mohawks can continue to live in peaceful coexistence.
We feel strongly that Bill S-16 may look very good from a political point of view. Again, with all due respect to the government and the senators here, we feel it looks great publicly that the government is cracking down on crime. That is the mantra of the Conservative government, so here we are again passing more laws to further make it criminal.
However, at the same time, our view is that the government is avoiding its responsibilities. It is very easy in one respect to pass a law to make something criminal and to then criminalize individuals, an organization or a community, for that matter, but the real work is political work. It is sitting down at a table to discuss the hard issues and discuss the real political dialogue that will result in long-term and permanent solutions, so that we are not here in two, five or ten years talking about the same thing, maybe with different people around the table, but talking about the same topic over and over again.
We have to find common ground on border issues, tax concerns and on true criminal activity, rather than having the government continue to drive wedges further between us, pushing us further apart and making it more difficult for us to come together.
As a final point, if the tobacco industry did not exist in my community or other Native communities, for that matter, over the past 20-some odd years, with the lack of jobs and the lack of housing available to our people, the socioeconomic costs would have increased. There would have been an increase in welfare, social assistance and in poverty. There would have been personal and financial strain on families, resulting in domestic violence and people turning to criminal activity. I believe domestic violence would now be fivefold or tenfold. What would that cost? If you put a dollar figure on how much it would cost the Canadian system in terms of welfare rolls, policing dollars, health dollars and whatever other offshoots, it would be astronomical.
There are benefits to it. In Kahnawà:ke, on the south shore of Montreal, we have nine municipalities that are within our seigneurial land grant, which we are currently in negotiation for. Those nine municipalities benefit economically to a large extent from the tobacco industry. People have money; we have very generous spenders. Ask the car dealers, restaurants and people with gym memberships in the area. It is a booming economy, in part largely due to the Mohawks spending money, not just from the tobacco industry. I guess it is a trait we have that we tend to be spenders, and I think our neighbouring communities are open to having our business.
In closing, I want to mention that if you ignore the socioeconomic benefits and you ignore Aboriginal and treaty rights, Bill S-16 may look logical: "It is criminal activity, and we are cracking down." It may look logical, but we believe it goes much further than that. We believe the Canadian government has a legal, moral and, certainly, a constitutional obligation to act in good faith with Mohawks to address these long-standing jurisdictional and treaty issues through a process that sets that out, where there is good faith on both sides. We believe it can be done.
With that, thank you very much.
Senator White: Thank you for being here, Chief Philips.
Are you aware of an agreement signed in 1999 in relation to the collection of tax from non-Mohawk producers or people selling tobacco on your land?
Mr. Phillips: Yes, I am.
Senator White: My understanding is there are people who are not residents of your community that are participating in the distribution of tobacco through Mohawk lands. Is that correct?
Mr. Phillips: Yes.
With respect to the agreement you referred to, I heard the previous speakers touch on that while I was an observer. You have to be clear that that agreement was not to address the issue of manufacturing tobacco or what is called "smuggling" tobacco. I was on council at that time, so I am well versed on that topic. It was to address the issue of the duty-paid cigarettes — the du Muariers, the Players and the Export "A"s — that were being sold tax-exempt on the reserve, for the most part, to non-Native people as well as to Native people. That agreement was intended solely for that purpose. There were permits granted by the provincial government to be wholesalers and retailers and other different levels to sell those products. There are loopholes within the system that allow people to sell tax-reduced or tax-exempt to non-Native individuals. That agreement attempted to reverse that trend whereby Mohawks and Native people would be exempt, as a right, on reserve, and non-Native tax revenues would have been collected by a mechanism in which the majority of that tax revenue sold to non-Natives would have come back to the community coffers to benefit the community.
Senator White: Do you still do that now?
Mr. Phillips: That agreement was never implemented. It was signed off. It was a political agreement. If you have copies here, you can see it is a short agreement and touches on major things.
As I am sure you are aware, in a lot of political documents, certain wording is very crafty. You cannot say certain things because this had to go through the National Assembly of Quebec. There are certain things that it did not want to mention there, specifically about tax revenues coming back to the community, but there were political understandings that accompanied that document.
Unfortunately, after it was signed there was political wrangling, if you want to call it, within Quebec. They started to back off some of the political commitments made across the table. The agreements slowly started falling apart. On the Kahnawà:ke side, internally the language was misinterpreted as we were charging tax to our people and collecting taxes on Mohawks. There was internal strife within our community. On both sides there was political strife, so it was never implemented. It is still officially on the books in Quebec as it was renewed. We hope that a version of that type of understanding could be done, but it will be a struggle.
Senator White: Although I had to walk through the translation, it was clear to me that it was for non-Mohawks, not for Mohawk sellers of tobacco products.
I am trying to get my head around something. We have a large number of legal sellers of tobacco in Canada who pay taxes, including the excise tax. I will not argue whether you have the right to not pay taxes on buying tobacco or manufacturing your own. However, you are suggesting that we ignore the fact that it can be trafficked into the rest of Canada. That would destabilize legitimate business and legitimate taxation because of your right on your land. I am challenged, as you are, by us imposing on your land while your lack of laws is imposing on our land. You have an agreement in place that you refuse to enforce. You are not collecting tax either for your purpose or for someone else. I am challenged by your suggestion that we are imposing on you, yet you want to be able to impose on our laws.
Mr. Phillips: We did not refuse to implement that particular agreement you refer to. It was a result of politics — bottom line — on the Quebec side and on the Kahnawà:ke side. There is political spin on everything we do, and that is the nature of the job we are in. People were successful in misinterpreting what was there and making it look like something that it was not, on both sides of the fence. We did not refuse to implement that.
It is interesting the way you bring that forward. Yes, you do not want to impose on us and we do not want to impose on you, so it is a law-versus-law issue. If we identify that issue, how do we come to a table and say that we agree it is a problem? How do we work out an understanding that is win-win for everybody so that the tax system does not destabilize in Canada; that there is a fair market available to Mohawks or First Nations in general; that revenues are generated; that manufacturers, retailers and wholesalers make a profit; and that there is benefit to our community coffers to offset program cost. There are those possibilities. I cannot speak for other communities, but our community made attempts to negotiate with ministers over the years to talk about this. The answer was, "No, we cannot talk criminal activity."
Senator White: It is pretty difficult for us to engage in this dialogue with groups that are working through your First Nation and are known to be involved in other criminal activity such as the trafficking of people, drugs and guns, not just in terms of the Excise Act. It is well-known, and I have spoken to your police service who will say the same thing. I am not saying they are your community members because they are probably not.
Mr. Phillips: I will say that they may be. The proof is there because Kahnawà:ke peacekeepers are probably the most professional First Nations police force in Canada. They work with the RCMP and Quebec police to combat the things you mentioned, like human smuggling; firearms smuggling, modifications and selling to gangs; and drug smuggling. We agree on that. There is nothing that anybody can say to me or to our council that would change that. It is unfortunate that maybe some people took advantage of what initially started off as tobacco trading. Whether they were Native or non-Native, they used it for other methods, and it is unfortunate.
That is an area where we agree. Let us fight that and stop that. I said earlier that we could work on real criminal activity together. We have been doing that and we will continue to do that.
Senator Joyal: I certainly appreciate that you made yourself available to express your point of view to us.
I want to come back to that agreement you mentioned that was signed by your predecessor Chief Norton in 1999 and is still in force today. To come to a clear understanding of the importance of that agreement, are there any discussions between your government and the Quebec government to clarify what could be a misunderstanding on the scope of the agreement to exclude, as you properly said, the consumption of tobacco by Aboriginals on the reserve, which I personally understand well, that would specifically target the sale of tobacco to non-Aboriginal people? Is there any discussion at present? I ask that because in the 2012 report of the Public Finance Committee of the National Assembly, the Kahnawà:ke community was represented by Ms. Sky-Deer. Perhaps you know her.
Mr. Phillips: Yes.
Senator Joyal: I do not know her position within the community but you might tell us that. She mentioned that in 2012, reflections, not negotiations, could come to a conclusion in the summer of 2012 — about 10 months ago. Are there discussions or negotiations with the Quebec government to implement and clarify the misunderstanding or the part of the agreement that makes problems for you so that we could say that one day we have something real to work together?
Mr. Phillips: The short answer to your question is no, and there have not been discussions for some time. There have always been topics of discussions with the Province of Quebec — everything from health, ambulance service and highways to many other things. Tax concerns and tobacco have been on the list, but in terms of having meaningful or official discussions with Quebec, it has not happened in a long time. We attempted to set up a table with Quebec on the issue going back five years or so, but it never got any momentum and never progressed. With all the tax concerns in general, there is much more to it than tobacco.
That type of agreement was intended for duty-paid cigarettes, not for the manufacturing. Even if the agreement were implemented today the way it was intended, it would not cover tobacco transported across the border, cigarettes transported from Quebec to Ontario or from Quebec to Manitoba, or the manufacturing of Native-brand cigarettes. That was not the intent of that agreement. It would need major revisions. As well, it would need another partner, which would be Canada, because Canada issues the manufacturing permits for our territory and Quebec. I am no expert, but I know there are multiple levels of taxation on tobacco. It would require several partners at the table.
Senator Joyal: There have been no discussions or no priority put on that item for negotiation?
Mr. Phillips: At the current time, our political relationship with Quebec is not the greatest. We are having many struggles on land-related topics. There has been very little discussion with Quebec on anything other than land at this point. That is what we hold our discussions to. We are saying, "Let us settle this one issue. You might want to talk about many other issues, but let us look at one of the things that is close to our heart — land."
Quebec made a commitment in 2007, which we are still waiting for them to hold to, regarding 500 or so acres of land. That is not for this table, but the bottom line is that there is very little discussion with Quebec. It is a very sensitive issue in our community. We understand that full well. We are hoping that we could re-engage Quebec. In this case, we also have to re-engage Canada to look at long-term sustainable solutions to this problem because, like I said, it is not going to stop. You can criminalize people and throw them in jail, but someone else will take that person's spot. It will not solve the problem. What will solve the problem is the recognition of that jurisdiction and the whole historical context we came from. If there is movement toward recognition of that, there is movement to move forward.
[Translation]
Senator Dagenais: Mr. Phillips, first off, I have to tell you that I was a police officer with the Sûreté du Québec for 38 years. In the 1990s, I worked in Akwesasne. I worked in Châteauguay, just outside your reserve, for reasons you are familiar with. With our Night View equipment, we saw a lot of seaplanes landing near your reserve at night. I do not know what they were transporting, so perhaps you can tell me. I also witnessed fratricidal fighting between members of your community, including in Oka, where homes were set on fire.
How can you sit here today and say that the sale of contraband tobacco helps your community's economy when it benefits only a small group of individuals who thumb their noses at the law?
[English]
Mr. Phillips: Like I said earlier, there certainly is a negative side to the tobacco industry, and no one is denying that. You mentioned floatplanes. I could not comment on that. I am not a police officer myself. I do not have that level of involvement in the industry or in the policing of it, so I really could not comment on that.
Kanesatake has a long history there, and Kanesatake is not Kahnawà:ke. I will not criticize my fellow Mohawk communities, but they have a lot of their own internal political problems. In Kahnawà:ke, as in any community, there are divisions and differences of opinion. In Canada, there is a difference of opinion. However, the vast majority of people feel that the benefits of the industry have outweighed the negatives. If we could find ways to work together to ensure that we minimize that — because you never eliminate negative things in any realm of anything — the benefits will further be there.
[Translation]
Senator Dagenais: Other members of your community have appeared before this committee and acknowledged the fact that criminal organizations profited from contraband tobacco. But, if I understand your reasoning and what you have been saying all along, all the cigarettes that your community now produces are manufactured lawfully and no criminal organizations are involved in that trade. Do I understand that correctly?
[English]
Mr. Phillips: That is not what I said and that is not what I meant. Again, as I heard earlier, it depends on how you define organized crime, for one thing. However, in terms of what the public view as organized crime, they think of the Mafia, Hell's Angels and biker gangs. That is what they think. That is what is in their minds.
Is there, or has there been, that type of organized crime involved? Probably, because I am aware of at least one instance where arrests were made and where it was proven that there were people involved. However, the key point there is that they were arrested because we do not tolerate that type of activity.
As we have seen in Quebec, they infiltrate the construction industry, and I am sure you have seen that on TV. There is corruption and the infiltration of organized crime in many areas, construction being one. Tobacco probably has some, as have many other industries. Minimize that to the extent possible, regulate it to the extent possible, and get the benefits from that.
I will not deny by any means that there has been infiltration in certain areas, but we do not stand for that. We think regulations and working together in partnership will further eliminate that. I am confident in saying that the vast majority of people involved in the industry have no connection with organized crime, in the sense of biker gangs and such.
The Chair: Okay, we will get into another area of quick questions and quick responses.
Senator Frum: Mr. Phillips, you said in response to the last question that you consider that the benefits outweigh the negatives. You say that this is a tough-on-crime law. I think that for a lot of us this law is really a health law. It is about trying to keep cigarettes out of the hands of minors. Contraband cigarettes, to a great extent, fall into the hands of children.
I am wondering about your approach in your territory. The tobacco industry kills people. It is not a habit that any parent wants to see a child take up. That must be of concern to you as well. I know you are saying that your territory is heavily invested in this industry and, in fact, quite dependent on it, but I am also interested to hear your long range perspective on this dependence on this industry, in which I think the benefits do not outweigh the negatives. This is an industry that kills people.
Mr. Phillips: I am not here to talk in great detail about the health aspect of it. I agree that cigarettes kill. I smoked for 20 years, and I quit 10 years ago because I felt the health impacts of it. Did I smoke because their cigarettes were cheaper? No. I did not even smoke Native-brand cigarettes. I smoked du Maurier, but that is a whole other story.
I agree with you that the tobacco industry in general is a dying industry. Fewer and fewer people are smoking. It is getting hard to smoke. You cannot smoke in bars or restaurants anymore. It is harder to smoke in general. Fewer people are smoking. That holds true for R.J. Reynolds and the major manufacturers of the world, as well as for Native tobacco. As we are seeing, people, on an individual basis, are diversifying their assets and investing in other industries that are off-shoots that are, for lack of a better word, viewed as legal in everybody's eyes. As a community, and while this industry still exists, we want to see if there is an arrangement and understanding whereby our community can get the benefits that Canada gets through taxation revenues from the cigarette industry. If our community can get a similar type of arrangement within our community — a homegrown approach — then we might as well benefit from that while we can. Our community could then reinvest into programs and services or in other economic opportunities.
We are working diligently on wind energy south of our community. Now we are looking toward the Gaspé as another area in which to invest. We are looking at the St. Lawrence River and the rapids and how to harness that energy. There are many ways to benefit. If tobacco revenues could be the catalyst, that is where I mean that the positives outweigh the negatives.
In terms of health, I agree with you that it is not healthy, but I cannot further comment on that.
Senator Baker: You represent your people very well and have explained this very well. What do you believe is the biggest obstacle to being able to arrive at an agreement, given that all federal and provincial legislation to date relates to taxation of tobacco? All tobacco kills, whether it is legal or illegal, but it all relates to taxation. You have told us that there is a solution to the problem. What is the main obstacle?
Mr. Phillips: In a larger context, the obstacle is the lack of recognition of the Mohawks as a government with jurisdiction. In the smaller context, any discussion on tobacco over the years has been strictly from the taxation point of view. How much tax will be charged? How much will Canada get? How much will the Mohawks get? That has always been the discussion, rather than looking at this as an economic opportunity from a government-to-government perspective.
Let us be open to seeing what can be done, recognizing the authority for the community to develop its own revenue generators, its own tax codes to tax non-Native people. That type of discussion is overdue. There are many tax laws and codes, both provincial and federal, and the governments hand us the laws and tell us to work with them. How can you negotiate on something that is a fait accompli? Nothing that we bring to the table is recognized.
Senator Batters: Chief Phillips, something you said in your opening remarks concerned me. When you spoke about the possibility of domestic violence increasing, I assume you meant that if tobacco revenue would not be earned, unemployment would increase. Can you tell me a bit about the current employment situation on your reserve?
Mr. Phillips: It is a fact that when there is poverty in any society there is increased domestic violence. That was the context. If we do not have revenue, that can be a result.
I estimate that there is 20 per cent unemployment in our community. We definitely have higher rates than the surrounding communities, for many reasons, language barriers being one. Most of the people in our community are strictly English and Mohawk speakers. Some do not speak French, so that is a barrier to working off-reserve.
I hate to say this, but there is also the race aspect. Many of our people would like to work at a restaurant down the road, but they do not want to hire them. That is the reality. There are limited economic opportunities.
We try. We have an education system, including adult education. We have training programs funded with our money and federal and provincial funding to get people trained for the workforce. It is a slow process, but it is certainly worthwhile.
If tobacco sales were eliminated tomorrow and we had an extra 300 or 400 people out of work, where would they work? Will they go on social assistance or drain the already strained education dollars? The infrastructure would not be able to sustain that.
The Chair: Thank you, chief. We appreciate your appearance. I am glad that we could arrange our schedules so that you could bring your council's perspectives to the committee's deliberations.
Mr. Phillips: I appreciate the opportunity. Thank you for listening to me.
The Chair: Tomorrow morning we will deal with clause-by-clause consideration of this bill and then move back to our deliberations on Bill C-299.
(The committee adjourned.)