Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 11 - Evidence - May 15, 2014
OTTAWA, Thursday, May 15, 2014
The Standing Senate Committee on Banking, Trade and Commerce, met this day at 10:30 a.m. to examine the subject matter of those elements contained in Parts 2, 3 and 4 and Divisions 2, 3, 4, 8, 13, 14, 19, 22, 24 and 25 of Part 6 of Bill C-31, An Act to implement certain provisions of the budget tabled in Parliament on February 11, 2014, and other measures.
Senator Irving Gerstein (Chair) in the chair.
[English]
The Chair: Good morning. Today is our fifth and final hearing as part of the pre-study of Bill C-31, An Act to implement certain provisions of the budget tabled in Parliament on February 11, 2014.
In the first part of our meeting this morning, we're going to focus on Part 4, which amends the Customs Tariff Act. In particular, it reduces rates of duty on items related to mobile offshore drilling units used in oil and gas exploration and development. Part 4 can be found at tab D in your briefing binder or at page 71 of the bill.
Two weeks ago, the committee heard from government officials regarding Part 4, and today we welcome, from the Canadian Association of Petroleum Producers, Mr. Bob Bleaney, Vice President, Ottawa and Eastern/Atlantic Canada; and Mr. Paul Barnes, Manager, Atlantic Canada and Arctic.
Mr. Bleaney, I believe you have some opening remarks. The floor is yours, sir.
Bob Bleaney, Vice President, Ottawa and Eastern/Atlantic Canada, Canadian Association of Petroleum Producers: Thank you. Good morning, Mr. Chairman and members of committee. My name is Bob Bleaney. I'm the vice- president for the Ottawa and Eastern Atlantic region for the Canadian Association of Petroleum Producers, or CAPP. Today I'm joined by my colleague, Paul Barnes, who is CAPP's manager for our Atlantic Canada and Arctic region. CAPP's head office is located in Calgary. CAPP also has regional offices in Vancouver, in Ottawa and St. John's, Newfoundland, and that's where Mr. Barnes is based.
CAPP represents Canada's upstream oil and gas sector, companies involved in the exploration, development and production of oil and gas. Our members find and develop over 90 per cent of Canada's petroleum resources all across the country. Together, they invest over $60 billion annually and employ over 55,000 people across Canada.
In Atlantic Canada alone, our industry, which is mostly offshore related in this region, directly employs over 6,000 people and supports over 800 local service and supply companies. Cumulative investment in the region has totalled over $37 billion since 1995.
The oil and gas industry also accounts for up to 30 per cent of Newfoundland and Labrador's GDP, and there remains significant growth potential in New Brunswick and Nova Scotia, as well as Newfoundland.
We appreciate the opportunity to offer CAPP's perspectives regarding Bill C-31, specifically Part 4 related to the Customs Tariffs Act, as this proposed legislation will have a positive effect on our industry.
We're supportive of Part 4 of the bill, which includes legislation to eliminate the tariff on mobile offshore drilling units, commonly referred to in our industry as MODUs. MODUs are used for offshore petroleum exploration, delineation and/or development activities in Canada. There are fewer than 500 MODUs commercially available worldwide. More important, only a very small number of these can operate offshore of Atlantic Canada and in the Beaufort Sea due to the unique challenges these operating environments provide, such as ice, harsh weather conditions and wave heights.
CAPP has advocated for the elimination of the tariff on MODUs for many years, as we are of the view that eliminating the tariff, which has been under periods of temporary relief that have been renewed every five years since 2004, will provide the energy sector with long-term certainty, increase the potential for resource discoveries in Canada's Atlantic and offshore regions and Arctic regions and create a level playing field with other major oil and gas countries competing for offshore petroleum investment, like Norway, U.K., the U.S. and Australia.
The cost of exploring for, developing and producing oil and gas in the Canadian offshore is high. The cost of drilling one well typically ranges in the order of $100 to $200 million, depending on various factors, including the water depth and specific offshore location. If there was no relief on MODU tariff, given the amount of drilling activity we anticipate to take place in offshore Canada in the next six years, we would estimate the tariff could cost our industry more than $180 million. Given the already high-cost environment of this region, any added costs would further burden decisions on whether or not companies would choose to conduct a specific program in Canada or make that investment somewhere else in the world.
The Canadian offshore is not only a high-cost area to do business but it's also a high-exploration-risk environment, as oil and gas prospects struggle to be commercial in this particular part of the world. The exploration success rate in certain areas has not been great. In Newfoundland and Labrador, we have seen about a one in ten success ratio for exploration wells. The success rate in offshore Nova Scotia has even been lower.
Further, the opening of the northern offshore to further exploration activity relies on cost containment in order to make oil and gas activity there viable. In the next several years, our industry plans to expand its exploration effort to offshore areas of Canada, in particular the Beaufort Sea. Canada's north will always be a high cost and technically challenging place to work, with very high environmental sensitivity and stewardship requirements. Eliminating tariff on MODUs will reduce costs and will help advancing industry activities through Atlantic Canada and the High Arctic.
In 2004, the federal government established a duty remission order on the temporary importation of MODUs used for petroleum exploration, delineation and/or development activities in Canadian waters. The order was extended for five years in 2009 and has recently expired, as of May 4 of this year. While the duty remission order has achieved its intended goal of maintaining a level playing field for investment in the global marketplace, we have advocated that a permanent exemption is appropriate.
A permanent exemption on the Customs Tariff for MODUs will maintain Canada on a level playing field with other nations competing for offshore investment, such as Norway, the U.K., the U.S. and Australia. It also provides oil and gas companies with certainty in planning their long-term exploration programs, which can often extend well beyond five years. Five years was the maximum amount of the duty remission order that's been afforded in the previous remission cycles.
Any action that can be taken to eliminate the competitive barriers and keep Canadian offshore areas on a level playing field relative to other international jurisdictions will serve as a benefit to all Canadians. We have seen an increase in offshore activity in Canada in recent years, and we do view that the duty remission orders played a role in helping to support this.
Over the past several years, new and continuing exploration projects have kept the offshore industry, especially in Newfoundland and Labrador, thriving, and this exploration activity has led to new discoveries in new areas. In Nova Scotia, recent land sales have also seen exploration licences acquired in the deep water Scotian Shelf, and companies have begun exploring activities in that area, which is expected to continue for the next several years.
In Northern Canada, the recognized potential for additional discoveries of petroleum in the Beaufort Sea continues to attract interest, and companies have acquired several new exploration licences in recent years. Some companies have entered into joint ventures with others who already hold licences in that region. New exploration interest was also expressed for the first time in the area west of Banks Island, northeast of the focus of the current Beaufort Sea activity.
Given the unique and specialized market for Mobile Offshore Drilling Unit construction and global application, it's impractical for MODUs to be built in Canada. However, it's important to note that a number of MODUs have undergone and completed rig repairs and upgrades at marine fabrication yards in the Atlantic Canada region while in the country. The amount of work undertaken at these facilities totalled over $158 million in the last four years alone and helped to foster additional employment, skills upgrading and facility sustainability in these regions. Attracting work for these vessels in Canada can result in significant economic benefits through maintenance alone.
To conclude, I reiterate CAPP's support for Part 4 of Bill C-31 relating to the Customs Tariff Act. Elimination of the MODU duty represents the government's continued commitment to support the competitiveness of the Canadian offshore industry. It will facilitate new investment and provide certainty for planning exploration and development activities that often have planning horizons well beyond the terms of the previous remission orders.
Elimination of this duty supports industry activity, which benefits all stakeholders including operators, drilling contractors, Canadian shipyards and other local service and supply organizations. From industry's perspective, the permanent exemption of import duties on mobile offshore drilling units will put Canada on a level playing field with our global competitors, thereby helping to increase the attractiveness of the Canadian offshore area for investment and contributing to increasing benefits to Canada from this industry. Thank you for the opportunity to present to you today.
The Chair: I want to clarify what we are dealing with before the committee: There has been no duty on these MODUs for the last ten years. They have been in five-year cycles, which have just terminated. What is included now will be made permanent.
Mr. Bleaney: That is correct, since 2004, remission orders in place have abated the application of duty on MODUs. As of this cycle, May 4, the last remission order ended, and the government put a proposal in the budget to make it a permanent exemption going forward as opposed to continuing with five-year remission orders.
The Chair: So that we have perspective, you said that these MODUs cost in the hundreds of millions to build.
Mr. Bleaney: They would probably rank much higher than that. Do you have a comment on that, Paul?
Paul Barnes, Manager, Atlantic Canada and Arctic, Canadian Association of Petroleum Producers: They would be in the hundreds of millions of dollars.
The Chair: Could you give us some idea of how many MODUs exist in the area you deal with?
Mr. Barnes: There are only about 500 MODUs in the world. To bring a MODU into the country to drill offshore Eastern Canada and the Arctic, only about 30 of the 500 would be suitable to come to this jurisdiction.
The Chair: How many operate now?
Mr. Barnes: Offshore Newfoundland we have three, which are the only three in the country.
The Chair: Thank you.
Senator Hervieux-Payette: This is very interesting. I know that some Canadian companies doing exploration using this type of MODU in the sea near Norway had some problems. Was there a lack of petroleum or was the MODU the problem? What can be a problem with MODUs? You have new ones, old ones, big ones and smaller ones. Of course, we know about the disaster in the Gulf of Mexico. Please give us an overview of the type of MODU because I don't think they're all the same.
Mr. Bleaney: They are certainly not all the same. As Mr. Barnes was alluding to, the kinds of MODUs that would be of application in our environments have to be specialized vessels for all the reasons you spoke to. The Canadian offshore is a more challenging environment to work in because of the sea state conditions and the presence and proximity of ice and other dynamics relevant to the offshore region. The nature of the vessels that can come here to operate are put through very high stringency tests in terms of their qualifications to operate in our offshore environment. That limits the number of MODUs that can be allowed to come into this environmental for Canada.
I'm not sure I fully understand your comment around problems with them but I guess the point I would make is that our operators in the Atlantic region in particular and in the Arctic are extremely experienced. They are very cognizant of the kinds of risks for operations in those environments and have taken special measures to ensure that the facilities being brought in to work in this environment satisfy all the requirements for safety and operational performance. Do you want to expand on that, Paul?
Mr. Barnes: Yes. As Mr. Bleaney was saying, the MODUs that typically operate off Eastern Canada are newer. They are built for purpose and they're relatively new versus some in other jurisdictions in the world. Like any mechanical unit that operates in the harsh conditions of the North Atlantic, it requires frequent repairs and maintenance. As we alluded to in our opening remarks, quite frequently these MODUs have to go to shipyards for repair work and maintenance, often in Atlantic Canada, so they are kept to as high a standard as possible.
Senator Hervieux-Payette: Would you float them to the Beaufort Sea? How do you transport them as it's quite a distance? There is sea ice for quite a few months. How do these platforms behave in such conditions? I presume that offshore Newfoundland those units are always in the water, not on the ice. Up North, for months of the year there is only ice. Do you have different models? How will it work? This is not only a preoccupation of mine but also Canadian citizens. How would we operate in the North? I don't see any other way of doing exploration in that region of Canada.
Mr. Barnes: Most of the MODUs are floating and can move on their own just like any other ship. Most often when they move, they are accompanied by supply vessels to ensure safety. Some MODUs are called Jack-up Rigs. We see them mostly off Nova Scotia because they have tension legs that sit on the ocean floor. They are more or less stationary as opposed to floating. They're used more in shallow water, such as off the coast of Nova Scotia. We have not seen many of those lately because most of the drilling off Eastern Canada has been in deeper water or, as in the case of offshore Newfoundland, in waters that Jack-up Rigs normally do not frequent because of the length of time it can take to jack up the legs and move away in case of icebergs and other ice conditions.
We typically don't see Jack-up Rigs used off Newfoundland. They're mostly used off Nova Scotia.
Mr. Bleaney: I can expand on the Beaufort Sea. I was actively involved with the exploration programs that were held in the Canadian Beaufort in the 1980s. The nature of moving vessels into the Canadian Beaufort will be done during the open water season. In the past, vessels have been moved in by going around Alaska and into the Beaufort. In historical operations in the Beaufort Sea, all the vessels are equipped to manage ice conditions or safe to be operating in ice conditions. I expect the same requirements will be placed on new vessels coming into the future exploration activities in that region. The vessels will be equipped to deal with ice management concerns and supported by supply vessels and support vessels to protect their ability to pass through those waters and to maintain station. They will be designed to accommodate that.
Senator Hervieux-Payette: Can we say there is some comparison with Norway, for instance?
Mr. Bleaney: I actually can't speak from my experience on any specifics about Norway. Paul, are you familiar?
Mr. Barnes: Most of the rigs that work off Eastern Canada work in the Norwegian sector as well, in particular northern Norway where environmental conditions are similar to what we see off Newfoundland.
Senator Hervieux-Payette: We are ensuring that you won't have any duties, but did you ever pay duties? It seems that they did not exist before so we are now not removing anything, we're just perpetuating an exemption of duty.
Mr. Barnes: We used to pay duties up until 2004, and we were, as an industry, always concerned about the fact that we were paying duties at a very high rate and Canada was becoming uncompetitive with other jurisdictions internationally, where these drilling rigs were operating. So the government at the time, in 2004, decided to put a five- year moratorium, initially, on these duties, to ensure that Canada was as competitive as other jurisdictions. Since then, they would renew that moratorium for an additional five years, up until this year when it was permanently exempted.
Senator Black: Thanks to you both for being here. The organization CAPP does tremendous work for the energy industry across Canada, so thank you very much for that. May I also say, as a preamble to my question, that the continuing development of the Newfoundland and Nova Scotia offshore, in conjunction with the Beaufort Sea, is extraordinarily important to Canadian prosperity. So my view would be that we must be doing, as Canadians, all that we possibly can do to ensure that that prosperity continues for the benefit of us all.
Having said that and having noted your support for the exemption here, I'm interested in knowing whether or not there is other equipment that would be utilized in the offshore, such as supply vessels or tugs, that are currently subject to tariff duties that should also be reduced or removed?
Mr. Bleaney: I'll defer the specifics of that question to Mr. Barnes because he's quite familiar with that particular area.
Mr. Barnes: The answer to your question is yes, there are a number of specialized vessels that come in to do work in the offshore. They're mostly doing work on fields, such as laying pipe or doing specialized diving work. They come into the country for, typically, very short periods of time, usually in the summer months, for three or four months. These are specialized vessels that work around the world. Our members have to contract far in advance because they are so widely used. They come into the country to do work for small periods of time, and we have been advocating, for the last several months, some duty relief on these vessels as well. Currently, the Department of Finance officials and some other department officials are analyzing our request, and we hope to have a positive answer in the near future.
Senator Black: Thank you very much, gentlemen.
Senator Ringuette: How would you pay duties on an item that you're not purchasing? If they're only coming here to do work, you're not paying any tariffs on that equipment.
Mr. Bleaney: My understanding of how these duties are calculated is that they're based on the value of the asset, so, if you bring in a vessel that's worth several hundred million dollars, they assign a —
Senator Ringuette: You're not an asset. You don't own it.
Mr. Bleaney: I agree.
Senator Ringuette: It's a contract that you use, a maintenance contract, so a maintenance contract would not be subject to tariffs. If it is, it would be quite a surprise.
Mr. Barnes: It wouldn't be a maintenance contract; it would be a service contract to bring this unit into the country for X number of months to do work. I guess, the way the tariff structures work, they have been assessed a duty.
Senator Ringuette: Chair, we have to look into this because that would be unusual.
The Chair: That's a good question brought up by Senator Ringuette. I think we should pursue this.
Senator Ringuette: This tariff that we're looking to put in permanently is specifically for mobile offshore drilling units. You have also mentioned the Nova Scotia type of legs. You call them ``Jack-up,'' I think?
Mr. Barnes: Jack-up rigs, yes.
Senator Ringuette: Are they subject to any tariffs?
Mr. Barnes: They are, but most of the Jack-up rigs that we have been using in offshore Eastern Canada are built in the U.S. So they come in duty free under NAFTA. But there are those that are built elsewhere in the world that are used elsewhere in the world. We just have not been using them in Canada.
Senator Ringuette: Okay. So these units are mobile, and then you said, Mr. Bleaney, in your presentation, that you have a 10 per cent success rate in exploration. So how many explorations would one do in a given year with one of those mobile units?
Mr. Barnes: It all depends. Usually, the average offshore well takes about four months, so sometimes the rig comes into the country only for four months, to do one well. What we've been seeing typically, in recent times, is that a rig may come in that is under contract by one company, but that company enters into agreements with other oil and gas companies to share that rig. So it may come into the country for multiple years. One company takes it, drills a well, finishes its well and gives the rig to another country, which then, in turn, drills its well.
Senator Ringuette: Your answer brought up an entire slate of questions in my mind in relation to my first question with regard to contracting out. Who owns these mobile offshore drilling units?
Mr. Barnes: They're owned by drilling contractors.
Senator Ringuette: Canadian drilling contractors?
Mr. Barnes: No, they would all be international drilling contractors. There are no Canadian drilling contractors that operate offshore drilling units.
Senator Ringuette: So no member of your association owns one of those mobile drilling units?
Mr. Barnes: That's correct.
Mr. Bleaney: They are a very specialized form of equipment. As was pointed out, there are only a few in the world that have access that would be usable in the Canadian waters, but they're also very highly sought after in other foreign jurisdictions. So the nature of this business is that major drilling contracting companies build these vessels for a specific purpose. They own the vessels. Operators that wish to get work done hire these companies to bring in their vessel to do the drilling and then go on to other work. Mr. Barnes is pointing out that, in most cases, these things come in to drill a well, but, in the case where we have increasing business activities going on, sometimes these units can be redeployed to work for another operator on a different location. So they can be used for more than one well on a yearly basis, for example.
Senator Ringuette: It goes back to my first question, and probably that's why the decision, in 2004, was to temporarily relieve these duties. This equipment is not owned by any Canadian firm. I'm supposing that the firms that do contract mobile drilling are not registered in Canada, either.
Mr. Barnes: That's correct, yes. The way we understand why these rigs were assessed duty to begin with was that there was a policy decision by the Canadian government that they thought the Canadian shipyards would be building these drilling units. To protect the Canadian shipyard industry, there would be duties assigned to foreign drilling units, but that didn't turn out to be the case. Canadian yards did not build these units. They're all built internationally. This tariff wasn't performing as it was originally intended to.
[Translation]
Senator Maltais: Welcome, gentlemen. Thank you for coming. Can you tell me where these platforms are built?
[English]
Mr. Barnes: Most of the platforms are built in shipyards in Korea or South Asian countries like Japan or China.
[Translation]
Senator Maltais: When you lease a platform for drilling, does the manufacturer deliver it to the place you want it?
[English]
Mr. Barnes: Typically, what happens is the manufacturer manufactures it for a drilling contractor company. That company then has it and markets its services to the oil and gas companies that operate around the world. Where it is built is typically not where it operates.
[Translation]
Senator Maltais: Does the personnel have highly specialized knowledge of drilling? Are you in charge or recruiting personnel or is it the drilling company that leases out the platform? Is it the person in charge of research who provides the personnel?
[English]
Mr. Barnes: Most of the personnel who work on the offshore drilling units, the MODUs, are employed by the drilling contractor themselves, but there are some representatives from the producers that contract the rig that are onboard as well. We have been finding offshore in Eastern Canada, where we have been in the offshore petroleum business for quite a number of years, that the majority of the positions on these drilling units are actually Canadian.
[Translation]
Senator Maltais: I have one last question, Mr. Chair. If all of a sudden you get lucky and stumble across an unlimited oil deposit, what happens then?
[English]
Mr. Bleaney: In the case of a discovery, where the drilling of an exploration project proved to find significant resource potential, the company that found the discovery would probably undertake some additional drilling, delineation drilling as we call it, to confirm the size of the resource. Once it is confirmed to be an economically viable prospect, a significant commercial discovery, then it would move into a mode of being developed and they would build a specific development production platform. For example, the Hibernia platform is a production platform. It was a huge construction project to build that facility and move it out onto location and permanently fix it on the floor of the ocean. From there, they build the production wells to exploit the resource that they found. That is the typical cycle. You go in with exploration, which is typically MODUs. These mobile units float to a location to explore. If they find a discovery that's material, they may drill a few more exploratory or delineation wells to prove up the scope of this discovery, but then once the decision is made that it's a viable project to proceed with development, then it moves into a different phase of building a development facility to be permanently positioned.
[Translation]
Senator Bellemare: Thank you for coming. I want to continue along the same lines as Senator Maltais. Once a project is viable and a permanent platform has been built, is it built in Canada or is it imported? Are there tariffs on that new platform?
[English]
Mr. Barnes: That is a good question. What we have been witnessing off Eastern Canada, where we have a number of production facilities at the moment, is that it depends on the facility. Most of the components can be built in Canada, but some of the technical components have to come from other areas of the world as well. Typically, they are assessed a duty, but get duty relief based upon the size of the project. I guess it would be a specific request to Finance Canada to exempt certain parts of the production of the facility from duties.
[Translation]
Senator Bellemare: I think we need to encourage drilling to promote prosperity in Canada, but obtaining these tariffs is important. Under the provisions of the budget, there are no costs, because there was a moratorium in place. However, if there were, the cost would be 20 per cent. That represents $187 million over six years, or some $30 million per year?
[English]
Mr. Bleaney: Our estimate of that number that we included in our discussion is based on a future outlook of activity looking forward based on the nature of the work that we see in front of us.
The answer to your question is that if a duty were to apply, it could be of that level of cost experience to our industry, which is significant.
I think it is also noteworthy, and Paul can expand on this, that this duty does not typically apply anywhere else in the world. If Canada did apply such a duty, it would uniquely distinguish itself as a more cost experienced area to be doing work. That would be a negative factor in terms of considering activity in our country.
Senator Hervieux-Payette: We know there are a lot of companies doing exploration, but what is the percentage of Canadian companies using platforms today? I suppose that Suncor is a Canadian company, and it is one that is doing some exploration in Newfoundland.
Mr. Barnes: That is correct.
Senator Hervieux-Payette: Who are the others? Do we have Canadian companies that will benefit from that? What is the percentage of the industry in this particular sector, not the overall exploration in Canada but really dealing with platforms?
Mr. Barnes: In offshore Newfoundland, there are currently five oil and gas companies that are what we would term to be active: Suncor, Husky, Chevron, Statoil and ExxonMobil. Suncor and Husky are purely Canadian companies. The other three are global, multinational companies that have Canadian offices. Those five are actively exploring offshore and producing offshore in Newfoundland and Labrador.
In Nova Scotia, Encana is producing natural gas there, so they have a production facility, as is ExxonMobil. They are producing natural gas there. There are two companies that are actively exploring, BP and Shell.
Those nine companies are active on the East Coast.
In the Beaufort Sea, we are primarily seeing Imperial, BP, Chevron and Coneco Philips taking the most active interest in the Beaufort Sea area.
Senator Hervieux-Payette: When you talk about Nova Scotia, are you talking about Sable Island, or is it a larger territory?
Mr. Barnes: The current production facilities that are producing natural gas off of Nova Scotia are in the vicinity of Sable Island, but the planned exploration activity is much further south in deeper water off the Scotian Shelf.
The Chair: That concludes our questions. I know I speak on behalf of every member of the committee in thanking you for appearing before us today. You have been very informative and helpful. Keep up the good work.
Mr. Bleaney: Our pleasure. Thank you.
The Chair: Our second panel will focus on Part 3, which implements excise measures including adjusting the domestic rate of excise duty on tobacco products and eliminating the preferential treatment of tobacco products available through duty free markets. Part 3 can be found in Tab C in your briefing binder.
Having heard from government officials two weeks ago, today our panelists represent a number of associations that wish to address this session: From the Canadian Cancer Society, Mr. Rob Cunningham, Senior Policy Analyst; from the Heart and Stroke Foundation of Canada, Mr. Manuel Arango, Director, Health Policy; from the Canadian Medical Association, Ms. Jill Skinner, Associate Director, Public Health; and Dr. Chris Milburn, Member of the Committee on Health Care and Promotion.
I turn the floor over to Mr. Cunningham, who will be followed by Mr. Arango and Dr. Milburn.
[Translation]
Rob Cunningham, Senior Policy Analyst, Canadian Cancer Society: Mr. Chair, honourable senators, I am pleased to appear before you today.
[English]
Higher tobacco taxes are the single most effective strategy to reduce smoking, especially among youth. We urge all senators to support the tobacco tax increase included in the federal budget and in Bill C-31, Part 3. We strongly support this measure that will reduce disease, disability and death.
Prior to budget 2014, there had not been a net increase in federal tobacco taxes since 2002 — fully 12 years earlier. That means the $4.03 increase per carton of 200 cigarettes is really just an inflationary increase. It also means that over the 12-year period, the real after inflation federal tobacco tax rate was actually decreasing, an unintended and undesirable policy.
A vast number of studies from around the world show that higher tobacco taxes reduce tobacco consumption. In fact, increasing tobacco taxes is the theme of this year's World No Tobacco Day 2014 on May 31, organized by the World Health Organization. The tobacco tax increase will benefit both public health and public revenue — a win-win.
In response to the federal budget, the tobacco industry and some associations they fund made reference to contraband. We have heard these claims before. However, contraband has decreased substantially in Canada as admitted by the tobacco industry. I refer you to our binder.
At Tab 1, a graph from British American Tobacco says that contraband in Canada decreased from 33 per cent in 2008 to 19 per cent in 2010. A graph from Phillip Morris International also indicates a declining trend in Canada. For subsequent years, statements from the tobacco industry and revenue data from federal and provincial governments confirm this trend as well.
Tab 2 of our binder shows a massive growth in the sale of discount cigarettes, which may be $20 per carton cheaper than regular brands, such as du MAURIER or Player's. These are legally sold by the major companies. The $4-per- carton federal tax increase counters only a small part of the industry's price discounting strategy. There is lots of room for governments to act.
Tab 3 of our binder contains a graph showing provincial and territorial tobacco tax rates. Tobacco taxes are far higher in Western Canada than in Ontario and Quebec, yet contraband volumes in Western Canada are minimal. Phrased differently, contraband is worse where tobacco taxes are lowest, which many people did not expect in Ontario and Quebec. Clearly the cause of contraband as we have it in Canada today is not high tobacco tax rates. As western provinces have shown, contraband can be prevented even with much higher tobacco tax rates.
Despite the progress that's been made to lower contraband, further measures can bring lower levels. We support the budget announcement of increased resources to prevent contraband of $92 million over five years. We also continue to support Bill C-10, the proposed Tackling Contraband Tobacco Act, approved by the Senate in the last session as Bill S-16.
We have three further recommendations: First, the RCMP, which does considerable good work, should block the supply of raw materials such as leaf tobacco, cigarette paper and cigarette filters intended for illegal factories. Intercepting these materials off reserve before they get to the factories is key. To date, the RCMP has been inadequate in this area of its responsibility but with new enforcement resources much more can be done in terms of intelligence and action; and that's positive.
Second, the federal government should adjust plans to move the Cornwall border post to a new location in Massena, New York. Instead, there should be a two-part border post with check points in both Massena and Cornwall to better intercept contraband.
Third, the federal government should persuade the U.S. government to shut down the illegal factories on the U.S. side of Akwesasne.
To curb tobacco use, it has long been recognized that a multi-faceted comprehensive strategy is needed. In addition to tobacco taxation and contraband prevention, other measures include enhanced package warnings that we see in Canada, a ban on all flavoured tobacco products, well-funded Health Canada programming, and the implementation of plain packaging as we have seen in Australia.
With 37,000 Canadians who die each year and 5 million Canadians who still smoke, an enormous amount of work remains to be done.
Finally and briefly, there is another measure in the budget regarding lotteries that we would like to highlight. We support the proposed legislative change to allow charities to use computers in their lottery ticket sales and operations. This will reduce administrative costs and allow charities to direct more funds to support mission initiatives, such as programs and research.
Honourable senators, thank you for the opportunity to testify on Bill C-31. We look forward to your questions.
Manuel Arango, Director, Health Policy, Heart and Stroke Foundation of Canada: I am the Director of Health Policy with the Heart and Stroke Foundation of Canada. The foundation appreciates the opportunity to appear before this committee.
[Translation]
Today I am pleased to have this opportunity to discuss Bill C-31 with you.
[English]
First, some information about the Heart and Stroke Foundation of Canada: Our mission is to prevent disease, save lives and promote recovery. We are a volunteer-based health charity drawing upon the support of 140,000 volunteers across the country. We have a presence in every community across the country. We strive to tangibly improve the health of every Canadian family every day.
Tobacco use is a key risk factor for heart disease and stroke. In fact, of the premature deaths caused by smoking- related disease in Canada, heart disease and stroke account for almost one third of these deaths — or 11,000 deaths. These are grim statistics, but they are preventable. As such, for the foundation it is crucial that as a society we do our utmost to reduce tobacco use.
Over the years, the Heart and Stroke Foundation of Canada has worked with its partners, including the Canadian Cancer Society and the Canadian Medical Association, to advance a variety of tobacco control measures across the country at the federal, provincial and municipal levels. The Heart and Stroke Foundation of Canada supports the measures included in the recent federal budget, including the proposal to amend the regulatory environment to strengthen charitable lotteries.
This amendment will allow charities to use computer technologies in the processing of lottery tickets, saving charities millions of dollars per year — money that can be reinvested in life-saving programs and research, et cetera.
We also support budget measures to address tobacco contraband as well as the $4 tobacco tax increase per carton of 200 cigarettes and the $5 tax increase per carton of 200 cigarettes in duty free shops.
In particular, the last measure will ensure consistency in the federal excise tax between duty free cigarettes and other cigarettes. These increases are particularly important because cigarette taxes have not been changed since 2002, meaning that the real rate of the tax deteriorated by almost 25 per cent since 2002. These increases will restore the effectiveness of tobacco taxes in reducing tobacco consumption.
The bottom line is that these tax adjustments are a great win for the heart health of Canadians given that price is a huge predictor of tobacco use. So the Heart and Stroke Foundation applauds the recent federal budget.
Price plays a significant role in consumption. We believe that an excise tax on duty free tobacco and other cigarettes, within the framework of a comprehensive tobacco control strategy, will help to reduce smoking in Canada, especially among our youth.
Vulnerable populations, such as our youth, are especially sensitive to tobacco taxes. Preventing smoking among our youth — Canada's future — is important, given that, once a teenager begins smoking, they typically continue to smoke for at least 20 years. For this reason, nipping the tobacco habit in the bud is critical amongst youth, and tobacco taxes have an important role to play in this respect.
Increasing tobacco taxes while allowing cheap duty-free cigarettes undermines smoke-free policies. That is why the duty-free excise tax is especially important.
The final comment that I would make is on the subject of contraband tobacco. Let me be clear that today, in Canada, the principle causes of tobacco contraband smuggling are criminality and geographic hubs, not tobacco taxes. We know this because we do not have any significant contraband in those jurisdictions in Canada where tobacco taxes are high. In fact, it is in the jurisdictions with the lowest taxes, such as Ontario and Quebec, where we see the highest rates of contraband. So, clearly, other factors, such as geographic hub and criminality are at play.
Mr. Chair, the Heart and Stroke Foundation of Canada supports Bill C-31. Tobacco tax increases are clearly a means, within the context of a comprehensive tobacco control strategy, to combat tobacco consumption in Canada.
The Chair: Thank you, Mr. Arango. Dr. Milburn, please.
Chris Milburn, Member of the Committee on Health Care and Promotion, Canadian Medical Association: Honourable senators, on half of the CMA, thank you very much for the opportunity to be here today.
An increase in the excise tax on tobacco is very important to the well-being of the public and the health care system, and it is long overdue.
Almost 51 years ago, Judy LaMarsh rose in the House of Commons, as Minster of Health and Welfare, to declare war on smoking. Since then, the CMA and important allies like the Canadian Cancer Society and the Heart and Stroke Foundation have been on the front lines to win this war.
There have been many victories in this struggle, including the fact that the national smoking rate has plummeted from a staggering 50 per cent of all Canadian adults at one point. Instead of celebrating, we need to face the fact that our work is far from done. The national smoking rate is still at 17 per cent, and is at 20 per cent for young adults.
Despite the lower rates of use, tobacco is still the number one cause of preventable disease and death in Canada, claiming the lives of 37,000 or more Canadians every year.
The financial costs are more than $17 billion a year for medical treatment, social assistance, lost productivity and reduced quality of life.
Every day, Canada's doctors treat the devastation of tobacco. The CMA has consistently recommended tough legislative and regulatory measures to control tobacco use.
The current proposal to adjust the domestic rate of excise duty on tobacco products to account for inflation and eliminate the preferential excise duty treatment of tobacco products available through duty-free markets will increase the cost of cigarettes and other tobacco products.
The duty-free rate for cigarettes will increase from $15 to $21.03 per carton, with adjustment for inflation every five years.
Youth are up to three times more sensitive to price than adults. A 10 per cent price increase is estimated to reduce youth smoking by 5 per cent and reduce consumption among continuing young smokers. Estimates show that the long- term effect of a permanent price increase is approximately double the short-term impact. So a 10 per cent increase in cigarette price is expected to reduce the prevalence of cigarette smoking by more than 8 per cent in the long-term. There is certainly a concern that higher tobacco taxes will lead to an increase in the smuggling of lower cost cigarettes. To avoid potential unintended consequence, such as smuggling, the CMA recommends that Ottawa work with other countries to ensure that tobacco prices are harmonized across national borders.
In addition, all levels of government should take the most stringent measures possible to control the sale and distribution of contraband tobacco on their own and in cooperation with other affected jurisdictions. The Minister of Finance estimated that increasing tobacco taxes, including excise taxes on tobacco products, would increase federal tax revenues by $96 million in 2013-14, $685 million in 2014-15 and $660 million in 2015-16. The CMA recommends that revenue from increased taxation should be directed toward strengthening Canada's tobacco control strategy. To sum up, this provision of Bill C-31 will provide ammunition in the war against tobacco for years to come. Let us all hope that we don't need another 50 years to eradicate smoking.
On behalf of the CMA, thank you again for this opportunity to address this important issue.
The Chair: Thank you, Dr. Milburn. We have a lengthy list of questioners, starting with the deputy chair of the committee, Senator Hervieux-Payette.
[Translation]
Senator Hervieux-Payette: Thank you for coming. I agree with you that it was time for an increase. However, increasing the cost of cigarettes, according to what we have been told in Quebec, generally leads to more contraband. There is almost a direct connection.
You addressed this briefly, but in your view, what will the increase be? There are undoubtedly precedents that will ensure we are not directing young people primarily to contraband cigarettes, are there not?
Mr. Cunningham: In November 2012, Quebec increased the tax on a carton of cigarettes by $4. The Department of Finance concluded that there was no negative impact on contraband. So tax revenues increased. They achieved their objective.
The Department of Finance concluded that contraband, in Quebec in particular, has decreased considerably in recent years. So can we do more to reduce contraband? Yes. You can see at Tab 3, that in the western provinces, in Manitoba for example, taxes are $66 per carton; in Quebec they are $26. So it is possible to set a much higher tax level, but more efforts are needed to target specific problems.
Senator Hervieux-Payette: At any rate, just as a comment, the Quebec government needs money too. You raised the idea of intercepting filters and other items used for manufacturing cigarettes, but this bill does not deal with that. Is that a recommendation you are making to the government?
Mr. Cunningham: That is correct. It is an enforcement strategy for the RCMP. Bill C-10 will help to some degree, but it is in fact a complementary strategy.
Senator Hervieux-Payette: As for closing down American companies, is there any help? Do your counterparts in the United States support your measure?
Mr. Cunningham: Yes, we work with the American Cancer Society. There are some illegal cigarette factories on the American side of Akwesasne. The U.S. authorities — the Bureau of Alcohol, Tobacco, Firearms and Explosives, Tobacco and Trade Bureau — have already taken steps to close some of the factories, and they have also intercepted tobacco leaves that were illegal. So yes, we believe that it is possible to shut down the other factories.
Senator Hervieux-Payette: Are there farmers who are lobbying on the other side to continue tobacco production, or has tobacco as a crop now been virtually abandoned in Canada? I am from L'Assomption, which was a tobacco- producing region. I know now that it is no longer produced there. Are there regions in Canada where significant amounts of tobacco are produced?
Mr. Cunningham: There are approximately 200 tobacco growers in southwestern Ontario. There are far fewer now, and a large part of their production is exported. Many of the tobacco leaves used by Canadian companies are imported from Brazil, Zimbabwe or elsewhere. There are still some producers, but far fewer than in the past.
Senator Hervieux-Payette: Have you recommended measures along those lines to the Canadian government?
One of the ways of ending production in Canada is to help facilitate the transition for these producers to other crops, by granting them subsidies; have you discussed that?
Mr. Cunningham: Several transition programs were put in place in the 1980s. About five years ago, the federal government put in place measures to stop production. They eliminated the quota system. A lot less is produced than in the past. That is something we have seen, but there still are a number of tobacco producers.
[English]
Senator Tkachuk: I have just a few questions. What are the demographics? How do the demographics break down on who smokes? You mentioned youth is a little higher than the norm. Who smokes?
Mr. Arango: Definitely amongst 20- to 24-year-olds, we see the highest rates of smoking in Canada. I believe it's roughly around 22 per cent amongst 22- to 24-year-olds.
Senator Tkachuk: By income or demographics, who are these people? Are they less educated, more educated, professionals, farmers?
Mr. Cunningham: Individuals with higher levels of educational attainment are much less likely to smoke. Individuals from lower socio-economic groups are far more likely to smoke. Of course, that's of concern, because we have vulnerable Canadians in that category. Smoking is much higher among the Aboriginal population. We're concerned about that. It exceeds 50 per cent in terms of the on-reserve First Nations population compared to a Canadian average of under 20 per cent. This tobacco tax increase will help prevent Aboriginal kids from starting to smoke because it will apply Canada-wide, and that's good. In Northern Canada and the territories, the level of smoking is much higher.
Senator Tkachuk: The Aboriginal kids on the Indian reserve, and maybe I'm wrong here, I don't know, aren't they able to obtain much cheaper cigarettes than the guy in Saskatoon, for example?
Mr. Cunningham: Yes. On reserve to a status native, there's no provincial tobacco taxes, nor GST, HST, PST, but federal tobacco taxes apply. At least for federal taxes, this increase in this bill will help. But you're right, provincial tobacco taxes do not apply, and that is a concern.
Senator Tkachuk: You mentioned the percentage of I think 17 per cent across the country, and you've got the tax rates per carton of 200 cigarettes on tab 3. I notice Manitoba has a very high tax, $66 per carton, and they pay in Ontario and Quebec $25.80 and $36. What's the difference in smoking rates in those provinces? It would seem to me that Saskatchewan and Manitoba would be very low, but I live in Saskatchewan and I don't believe that. Nonetheless, it would seem by your reasoning that these would be very low or lower than say Ontario and Quebec, which has a cheaper price.
Mr. Cunningham: There are a number of factors that contribute to the overall smoking rate. In the case of Saskatchewan and Manitoba, there is a very high First Nations population, which is exempt from these high provincial tobacco taxes, and the smoking prevalence is much higher, so that's a factor. Also, because of addiction, it does take time for the long-term benefits of a tobacco tax increase to be fully realized. There are other measures, such as historic prevalence rates. It's a factor, but not the only factor.
Senator Tkachuk: Is there a correlation across the country, is what I'm trying to get at, with the higher price? The higher price would mean lower incidence of smoking versus a lower price, say amongst the non-Aboriginal population.
Dr. Milburn: Part of the answer is that it is not so much the comparative rate province to province. It's the change in rate. People get used to a certain price. When you change that rate, smoking rates change. Whatever your base rate is to start in that province, it has been demonstrated over and over that when you increase the price of cigarettes, whatever that price was to begin with, you increase the price, and rates go down. That's been well demonstrated.
Senator Black: Thank you all, not only for being here today but for the work that you do for communities across Canada. This is a serious issue, and I'm very appreciative that you're taking your professional time to dedicate to it.
Given that you have shared with us that we lose 37,000 Canadians a year to related health issues to smoking, and I hear you, doctor, to say that the estimated health costs to the Canadian system are $17 billion a year, what specific advice would you have for the Government of Canada respecting taxes on tobacco on an annual basis?
Dr. Milburn: It's important to continually adjust the rates upward to care for inflation because, if the rate is left too long, it becomes less and less of an impact on smokers. As a physician, I can say that there is so much that we can do in our offices, so much we can do with public education programs, but I've seen examples over and over again. When I was a new, young family practitioner, one of my patients came and told me they quit smoking, and I was so proud of myself until they said, ``No, doc, it was just too expensive.'' There had been a hike in the tobacco taxes. As much as I can do in my office, or as much as public health services can do with education, I think all you people can do in increasing tax rates does have a real tangible impact.
Mr. Arango: To that point, in the budget, there is a proposal to automatically adjust for inflation, increase tobacco taxes every five years, so that's a really good intervention in the budget.
Mr. Cunningham: In terms of recommendations for the government, it would be to continue on this approach in terms of both tobacco taxes combined with contraband prevention measures. It's interesting. Historically, the federal government, if we looked at all the tobacco taxes, federal and provincial, the federal government had two thirds and the provinces about a third. That situation is about reversed now, where the federal government only collects about one third and the provinces about two thirds. Federal tobacco taxes are to be preferred because they apply across Canada and there is less possibility of diversion and so on. I think the federal government can continue along its path.
Senator Black: Thank you all very much.
[Translation]
Senator Bellemare: I am interested in the issue of electronic cigarettes. I would like to hear your views on the topic. This product is increasingly popular, and even comes in various fruit flavours. I have never tasted them though. Will that not attract young people? Those cigarettes are designed to help people stop smoking, but they could have the opposite effect on young people, do you not think?
I would also like to know if that type of product is taxed. Should we be cautious or encourage it? What do you think?
Mr. Cunningham: The regulatory framework for electronic cigarettes in Canada is very different from that of the U.S. In the United States, electronic cigarettes containing nicotine can be sold; that is legal. In Canada, it is illegal to sell electronic cigarettes containing nicotine, because nicotine is a drug. The Food and Drugs Act stipulates that any product containing nicotine must be approved by Health Canada. To date, no company marketing electronic cigarettes containing nicotine has received approval from Health Canada; the same is true for patches. However, electronic cigarettes without nicotine are sold in Canada. You can find them at the corner store or at a drugstore.
The fact remains, however, that electronic cigarettes containing nicotine are being sold illegally in Canada, and the government must implement regulations to that effect. Selling to minors must be prohibited. At the provincial level in particular, but also at the federal level, electronic cigarettes should be banned in public places, the workplace, everywhere where smoking cigarettes is forbidden. We need controls over advertising, and flavours, as you mentioned. In short, we need a response.
[English]
Mr. Arango: I would just add that this is certainly an issue that has been of interest to public health groups. There are some concerns, but there is also a great potential benefit here.
Our first recommendation to government is that we regulate this, at both the federal and provincial level. We are concerned about the possibility of e-cigarettes renormalizing cigarette smoking. At the same time, we realize that there's great potential for smoking cessation with these devices.
There is no benefit from non-nicotine-based e-cigarettes. They cannot really provide any cessation benefit that we know, but with the nicotine-based e-cigarettes there is a possibility that it could be useful in terms of cessation. We think the government should act quickly to regulate these products in the way that Mr. Cunningham indicated.
Dr. Milburn: The CMA has been discussing this issue a lot and feels there needs to be some immediate and significant research. It's not clear yet whether these are a path off of cigarette smoking or a path on to cigarette smoking. That remains to be seen, which one of those is a bigger effect.
It seems clear to me that breathing any foreign substance into your lungs on a regular basis is probability not safe. We haven't seen proof of that yet, but there's certainly good reason to think these may be harmful. Until we know they're safe, I think the government has to approach this with a good degree of regulation and a lot of caution.
[Translation]
Senator Bellemare: You say that there are no regulations in this area in Canada, no cigarettes containing nicotine, and that no tax is collected on electronic cigarettes either?
Mr. Cunningham: Just the GST, the sales tax.
Senator Bellemare: Do people who smoke electronic cigarettes exhale vapor? Is there any smoke?
Mr. Cunningham: There is no smoke, but vapor that may contain substances, nicotine or otherwise. It is not the same as second-hand cigarette smoke.
Senator Maltais: I want to welcome our witnesses. I thank you for the work that you do. For 30 years now I have gone from one Parliament to the other and, each year, naturally, in the respective provinces doctors appear.
You do exceptional work, but I want to inform you ahead of time that revenues from taxes on tobacco, as on alcohol, are not necessarily earmarked for health. Part of them end up in the national or provincial consolidated revenue fund.
I am a smoker. In the 1970s, we had to smoke to pay for the Olympic Stadium. In 2014, we have to smoke to repair the stadium, which is crumbling.
An Hon. Senator: There is the Champlain Bridge.
Senator Maltais: You are authorities in this area; I admire your work, even if my doctor smokes. Why not, while you are here today, just come out and ask the Government of Canada to prohibit cigarette production, sales and imports, and to ban them completely: put an end to tobacco in Canada? Could you make a suggestion like that?
Mr. Cunningham: We are not recommending that today because of nicotine and the millions of Canadians who are addicted to it.
Senator Maltais: I will stop you there! You have just opened a door that makes no sense. In the case of drug users, there is an addiction, and we give them medicinal marijuana. We allow them to smoke marijuana and to inject other substances for health reasons, so why not cigarettes? Why not ban all drugs, all nicotine, marijuana as well as cocaine, and all of the by-products and anything that is smoked with a pipe? You show up today and you say: we have a suggestion — let us put an end to all of that Canada-wide!
Mr. Cunningham: Our aim is certainly to have a tobacco-free Canada.
Senator Maltais: Why not today?
Mr. Cunningham: We saw that it did not work during the prohibition, because we are close to the U.S. border. It is not possible to do that today, but perhaps over time we will succeed in reducing tobacco use to such an extent that it will be feasible.
Senator Maltais: As to tobacco-producing countries, were you aware that people in those countries smoke the least?
M. Cunningham: Yes, because in developing countries, there is less disposable income to buy tobacco. That has an impact.
Senator Maltais: I have just returned from Cuba with Senator Ringuette; Cuba is one of the biggest tobacco producers in Latin America. They make excellent peach cigars there. They have the highest rate of non-smoking youth.
[English]
Dr. Milburn: You would have a lot of fun around a family dinner at our house. My father and my brother both smoke, and we have these conversations. Exactly the same conversation.
I think the reason that we're not proposing banning cigarettes, and why cigarettes are legal, I think it's an accident of history in Canada. At the time that tobacco became a common thing culturally, we did not know the harm of it.
I have no doubt that if I were here today saying that I have a new product, it's called tobacco, here's how you're going to use it, will you allow it to be legal in Canada? You would all tell me no. There is no question.
We're looking at it from the point of view of here we are today, people smoke, and how do we deal with this from here on forward.
Mr. Arango: I would add to that point as well. As indicated, if we could go back in time we would no doubt address this in a different way. Right now, if we were to ban tobacco cigarettes, it would be an enforcement nightmare for the RCMP, for police forces across the country. However, it is possible that in the future, if we get down from the current 17 per cent smoking rates to around 5 per cent, I think that's a time where it could be feasible to entertain a ban. But, right now, I think it would be quite difficult.
Senator Ringuette: I'm a smoker too, and I was indicating to the chair that I fully appreciate the work that you're doing, and probably I would have a lot of fun at your family dinner, too.
I understand your answer in regard to completely banning cigarettes in Canada, the production and the sale, but isn't there a medium ground here that you could seek to have a maximum level of chemical products in cigarettes sold in Canada, the nicotine and all the other items indicated on a pack of cigarettes? Isn't there a way that, through Health Canada, the addictive content of cigarettes could be mandatorily lower in Canada?
Mr. Cunningham: We know that Health Canada, through the Tobacco Reporting Regulations, does receive information by product from tobacco companies and that there's an ongoing study with respect to nicotine in tobacco products.
Senator Ringuette: Health Canada studies stuff ongoing and ongoing.
Mr. Cunningham: One thing that can be done in the immediate term, and some provinces are taking action on this, is to ban flavours in tobacco products, to ban these additives that make them more attractive to kids. You have chocolate, vanilla, peach and mint flavoured cigarillos and chewing tobacco and water pipe tobacco, you have menthol cigarettes. These are attractive to kids. This is a category that could be banned right away. We are seeing an increasing number of provinces take action, and we strongly support that.
Senator Ringuette: You haven't told me if you would recommend to Health Canada and the Government of Canada to have a mandatory maximum level of nicotine in cigarettes sold in Canada.
Mr. Cunningham: That's an area that needs further review. To date, no country has done that. Historically, tobacco companies have abused test methods by manipulating and adding certain holes in the filter so that what they say on the package in terms of level of nicotine is far less than what is inhaled by the consumer. They have been able to beat the test methods and the measurements in the past. I know there's lots of work in terms of academic study on this, and those studies should continue.
Mr. Arango: I would add that the tobacco industry has apparently tried to introduce harm reduction measures; they're called light, mild cigarettes. There's no evidence that they're any different from regular cigarettes.
Senator Ringuette: It's marketing.
Mr. Arango: Yes, it's marketing, and the problem with the cigarettes is that it's not as much the issue of nicotine. Nicotine causing the addiction, but combusting the tobacco leaves is what causes cancer, heart disease and stroke, et cetera. There's no real way of getting around that. If you're smoking cigarettes you're going to be inhaling these carcinogens and you can't really reduce the harm from that. We need to find other ways, such as nicotine replacement therapy and pharmacological therapies, as they can help to reduce smoking but we can't combust cigarettes and smoke it; that's the problem.
Senator Tkachuk: I have a follow-up question on the smoking percentages across the country. I don't know whether there have been any studies done on culture and as to why people take up cigarettes. My parents didn't smoke. They thought it was bad for you. This was before any doctors thought it was bad for you, but I smoked because I thought it was cool. I think my generation all smoked. In the 1980s, it wasn't.
My kids don't smoke — never did — and the interesting thing is that I don't know one of their friends who smokes. I don't know what happened during that time, but obviously because the parents were all smokers the kids were not, knowing young people. I think there's something we have to do some work on because I notice a lot of the movie actors are smoking now in the movies. They're trying to make it cool again. I think that's what will get the kids smoking. They don't know what a cigarette tastes like until they actually start inhaling that nicotine. I smoked for 35 years so I know a lot about this. I'm suffering the consequences of it, too.
Dr. Milburn: Clearly there's a lot of research that says peer groups of youth probably have as much or more affect than their parents, and I see that working in very socially, economically depressed parts of Cape Breton. Certain groups of kids might come from parents who will pound into their heads that they shouldn't smoke, but they start to smoke because it's happening there.
That's where I think these types of measures — increased taxes, bans on smoking in public, in bars and places where kids hang out — can have so much effect. A doctor or parent can tell a kid over and over again and that child knows at some level that it's bad, but things like price and not being allowed to smoke in most public areas really have a big impact on smoking. I think those are big parts of the reason why we have seen rates fall in Canada from 50 to 17 per cent, and I hope to see that continue along as public health measures are so important.
Mr. Arango: I would add that marketing is a big issue. It has had a big impact in increasing smoking and the restrictions on marketing have helped to reduce it. You mentioned smoking in the movies. That is a gap area right now in terms of marketing and we need to look at potential means of addressing that, because we suspect that the industry has paid Hollywood and others to include this in movies.
Mr. Cunningham: As you say, there is a decrease in smoking among youth, but there still remain an unacceptably high number of teenagers who smoke. Of course, the tobacco industry knows that the overwhelming majority of new smokers begin as teenagers. That's essential for their future market and why we must continue to do more. That's why the ban on flavours is so important and why taking away the lure of the brand, through plain packaging, is important. There is a lot more that remains to be done.
Senator Tkachuk: As every other drug dealer knows for any kind of drug, get the young kids smoking or doing whatever and it hooks them for life.
The Chair: I would like to start by complimenting two members of our committee who declared their conflicts before they made any comments. But I know that without question that I speak on behalf of all members of the committee, including those who may be a little conflicted, in expressing our appreciation to you for being here today and taking us through this in the manner in which you have, not only for what you have done for the committee today but what you are doing for the health of Canadians across our land.
On that basis, we thank you very much for your appearance.
I would like to ask the committee members if they would remain for a few minutes for a brief in camera session after we have concluded.
(The committee continued in camera.)