Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue No. 6 - Evidence - June 2, 2016

OTTAWA, Thursday, June 2, 2016

The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:32 a.m. to examine the subject matter of those elements contained in Divisions 3, 4, 5, 6, and 10 of Part 4 of Bill C-15, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016, and other measures.

Senator David Tkachuk (Chair) in the chair.

The Chair: Good morning and welcome to the Standing Senate Committee on Banking, Trade and Commerce. My name is David Tkachuk and I'm the chair of the committee.

Today is our second meeting regarding our subject matter examination of Bill C-15, the proposed budget implementation act 2016, No. 1, or "BIA,'' in particular Divisions 3, 4, 5, 6, and 10 of Part 4 of the bill. Honourable senators will know that our committee must report our findings to the Senate by Thursday, June 9, 2016. Our report will be deemed automatically referred to the National Finance Committee for their consideration.

Today's public portion of the meeting will be composed of two segments. In the first segment, with respect to Division 4, we welcome, from the Canadian Credit Union Association, Chris White, Vice President, Government Relations; and Marc-André Pigeon, Director, Financial Sector Policy.

Mr. White, I understand you will deliver brief opening remarks, after which we will go to questions and answers. Once this concludes, we will suspend briefly to welcome new witnesses relating to Division 10 in particular. Following this segment we will have a brief in camera session to discuss committee future business. Mr. White, please proceed.


Chris White, Vice-President, Government Relations, Canadian Credit Union Association: Thank you for inviting us to be part of your hearings on Bill C-15. This morning, we will focus our comments on divisions 3 and 4.


Before discussing these in detail, I'd like to take a moment to introduce you to our new trade association. This is the first time the committee has heard from the Canadian Credit Union Association, or CCUA. We were formerly the Credit Union Central of Canada when we appeared here previously.

Like our predecessor, the CCUA represents 316 credit unions across Canada. These credit unions are 100 per cent Canadian-owned and competitors to the big banks. More than 5 million Canadians trust a local credit union for their day-to-day Canadian banking needs. Collectively, credit unions employ more than 27,000 Canadians and manage about $190 billion in assets, making them collectively bigger than the National Bank. In terms of our market share, credit unions have about 6.3 per cent of the assets held by deposit-taking institutions but have considerably larger market share in the two key segments of small business and agricultural lending. In each of these important areas, credit unions have an approximate share of 11 per cent of the market.

When the Canadian Bankers Association was here two weeks ago, they made a point of emphasizing, and rightly so, how stable they are. We think it is equally important to note that credit unions have, throughout the financial crisis, been equally stable. To back up our contention, we have provided the clerk with two studies we have had done in the last 24 months by outside researchers, including the Conference Board of Canada. They show that, on average, credit unions have been better capitalized than their bank counterparts and thus are even better positioned to weather adverse conditions.

Let me now turn to our comments on the proposed legislative changes.

Starting with Division 3, we are strongly supportive of the proposal to push the financial services legislative review process out by two years to 2019. In fact, as some you will know, over the last year or so we have asked the federal government to consider a more comprehensive review of financial services legislation, one that would take some time, money and effort. What do we mean by "comprehensive review'' and why do we need one?

Since the financial crisis, financial sector policy has been a bit like fire-fighting. In the early phase of the crisis, policy makers focused on putting out the fires. Once the worst of the crisis was over, the focus shifted to fire prevention. The bail-in framework in Division 5 is an example of fire prevention. It is meant to minimize the risk of taxpayer bailouts of the big banks in the unlikely event of a disruption there.

In our view, the fire-fighting approach was and is entirely appropriate, but we also see the 2017 and now 2019 review process as an opportunity to sit back and ask whether, in the rush to stamp out and avoid future fires, and in the related effort to align our privacy and taxation rules with international norms, we might have created a regulatory environment that dampens competition and that prioritizes stability over efficiency. In particular, we're concerned that the focus on stability and on meeting international norms has inadvertently led to a policy environment that more than ever favours big over small institutions, especially if the latter happens to be credit unions.

The forthcoming rules around the OECD's Common Reporting Standard, or CRS, are a good example of this. The CRS is designed to monitor bank accounts for the risk of tax evasion. In the industry, we refer to these rules as the global FATCA because they template most of the U.S. Foreign Account Tax Compliance Act into the international sphere. Unlike FATCA, the federal government plans to require all financial institutions, even low-risk credit unions, to begin reporting on all accounts held by non-residents starting July 1, 2017, despite the fact that in a recent survey we found that the median number of non-U.S. non-residents served by the 100 responding credit unions was only three people. This is an issue we have raised both at the political and bureaucratic level with the Department of Finance and is something they are now cognizant of.

Our point, though, is that financial institutions don't all pose the same risk for cross-border tax evasion. The CRS rules are easier for large, internationally active banks that can spread the costs over a large operation and which, by their nature, likely serve a lot of non-residents. That makes a lot less sense for locally owned and locally focused credit unions. For credit unions, the rules will impose a disproportionately heavy compliance burden with no tangible policy benefit to the federal government.

It is also important to note that we are hoping not to have to wait until the 2019 review to get this fixed. We would like to see a reasonable risk-based exemption before the rules get implemented. The CRS is a good example, from our perspective, of the kind of challenges we face regularly as smaller cooperative institutions and why a comprehensive review is needed.

Let me conclude this part of my remarks by saying that the kind of review we'd like to see is analogous to the McKay report from the 1990s. It would scope in larger questions about the right balance between stability and competition and in doing so range widely to include not only discussions about the process of getting a federal bank charter but also discussions about the effects of taxation, privacy and trade policy on competition.

Let me turn briefly to Division 4, which zeros in on federal credit unions. As the Department of Finance noted when it was before the committee a couple weeks ago, the policy intent behind these measures is to address impediments related to credit unions that want to shift from a provincial to a federal regulatory environment. On the way to becoming a federal credit union, the Minister of Finance will have new powers to exempt the applicants from the application of federal rules where the applicant subsequently complies with these rules.

Once a credit union successfully obtains a federal charter, the minister will also have new powers to exempt credit unions from certain voting-related requirements of the Bank Act for up to three years, again, so long as they substantially comply with the Bank Act.

Finally, the government is also proposing a loan guarantee that would address another impediment, namely the potential challenge inherent in shifting from a province with unlimited deposit insurance to a federal jurisdiction that offers considerably less, at least to a small institution.

We are grateful to the department for advancing these proposed measures. They respond to real impediments. We would only suggest there is scope for more of this kind of thinking, and the 2019 review is an excellent opportunity to do that.


Finally, thank you for giving us the opportunity to appear before your committee to share our viewpoint on this important bill.


If we can leave you with one parting idea, it is that we think it is time for a comprehensive review of the financial sector policy. Bill C-15's proposal to push this off into 2019 is exactly the right thing to do. The decision to give it a budget is also the right thing to do. With the committee's help, we just need to make sure the review asks the right questions: namely, do we have the right stability/competition policy mix that will best serve all Canadians?


Thank you for your time and attention. My colleague and I will be happy to answer your questions.


The Chair: Just before I get to the questioners, I have a question. When a credit union decides to fall under the jurisdiction of the federal Bank Act, under the federal government, what is the share structure? You have credit unions at the local level owned by members, or with member shares, and then you have credit union central. What is the share structure? What would be the difference?

Marc-André Pigeon, Director, Financial Sector Policy, Canadian Credit Union Association: There wouldn't be any difference. The members would continue as members in a federal credit union.

The Chair: Which credit union is it? Each credit union is individual, isn't it?

Mr. Pigeon: Right. So they just shed the shell of provincial regulation and take on the shell of federal regulation, but the structure itself remains the same.

The Chair: So it would be the same credit union?

Mr. Pigeon: Yes.

The Chair: The credit union in Saskatoon, for example, would apply for a federal charter? Is that what would happen?

Mr. Pigeon: Yes. It's their choice, but they could continue with the same name and same branding.

The Chair: Like Vancity in Vancouver?

Mr. Pigeon: Right. They could be a Vancity federal credit union, and their members are still their members. Nothing really changes from that perspective.

The Chair: So then they can open up an operation in each province, obviously?

Mr. Pigeon: Right, they can open branches in any province or territory.

The Chair: And each branch, then, that they open would be owned by the new members that would become members, say, in Saskatoon?

Mr. Pigeon: That's right. They would, as a condition of using the services of the credit union, take out a membership, and that would apply whether you have a branch in Saskatchewan, Ontario, or P.E.I. It doesn't matter. It would be the same.

Senator Ringuette: Thank you. I have two questions. I'm from New Brunswick, and I know that the Caisse Populaire Acadienne has applied to become federally chartered. I'm a shareholder of at least three different caisses. What is the risk, never mind for the entity, for the shareholders of the caisses right now in moving from a provincial regulatory system to a federal one?

Mr. Pigeon: I think the main concern that has been expressed, pretty much since this federal credit union legislation framework was created in 2010, has been one around a transition from a province with a higher deposit insurance coverage than the federal government offers. The major concern has been how you, as a member, might pay some price for that shift from a provincial to a federal concept.

Senator Ringuette: But that's not the only risk.

Mr. Pigeon: No, there are other risks.

Senator Ringuette: Never mind the ones that have been making headlines. What are the other, unknown risks?

Mr. Pigeon: Again, this is one of these kinds of impediments. At least in some provinces, as a member, you can purchase your insurance products from the branch, but as that credit union becomes a federal entity, that won't be permitted any longer, other than credit-based insurance products. From a member's perspective, that might be a bit of a disadvantage.

There are obvious advantages, too — I think that's important to underline — with moving to a federal realm. One of the challenges we face in the credit union system is that a lot of young people come on board with their parents, and they leave the province to go to university somewhere else and they think they can't continue to do banking with that credit union and that they have to take up an account somewhere else. More often than not, that means they take an account with one of the big banks. We see this as mostly an opportunity from that perspective.

There's also an opportunity in that some credit unions are on the border with one province or another and they would be able to consolidate those operations, potentially.

Senator Ringuette: I don't see the Caisse Populaire Acadienne having a branch in every university campus in Canada in order to meet that challenge of youth membership leaving the caisses.

Mr. Pigeon: I've been at the credit union system for six years, and at every single event I go to, this is the number one issue: how do we keep our young people in the credit union system? It's all about that move from Acadie to Quebec or Montreal or Toronto. The relationship just tends to sever there. It's just a fact. It doesn't mean the caisse is going to set up a branch in every university, but they might selectively choose a couple universities where they know a lot of their young members end up going. That might be a strategy, for example.

Senator Ringuette: Mr. Pigeon, you've been around this committee for a long time, in a prior position. Have you looked into the potential for the caisses populaires, or any other caisse that wants to move to the federal regime, of a buyout or takeover from a federally-chartered bank?

Mr. Pigeon: I would say, in fact, that it would probably be less likely than it currently is. With the exception of Quebec, there are no strong rules around de-mutualization — that's effectively what you're talking about — but the federal framework actually has rules that say you have to do this, that and the other thing before you can even consider de-mutualization. I actually think there is a lower risk of that happening in the federal context than there is provincially, just based on the rules.

Senator Ringuette: Well, we're seeing what's happening economically, and it's not that positive.

Senator Tannas: Thank you for being here. I have just a couple of questions. Number one, you mentioned membership of 315 credit unions and about $190 billion in assets. Is Desjardins part of your group?

Mr. White: No.

Senator Tannas: So this really is effectively doubled when we talk about credit unions in the country, right?

Mr. White: That's right. When you factor in the number of Canadians that are members of the credit union system, you are looking at just a little over 10 million.

Senator Tannas: Exactly. As you as an organization look at this move to bail-in type of securities, does that increase your members' and your association's interest or appetite in trying to form external securities that go beyond your members? I'm thinking of in the U.S. where they have Trust Preferreds. Community banks use that, and those will soon have potential bail-in provisions. Are there things like that that in which you could use your collective activities to do things in the capital markets?

I understand that heavy regulation means more capital, and you guys are the most vulnerable for more capital because you have nowhere to go other than your own profits and your own members. In my view, you're going to be faced with either asking your members for more at a time when you're concerned about membership or you will need to look at this.

Can you give us any colour on where you're going and what you're thinking in these areas?

Mr. Pigeon: The bail-in framework applies only to domestically systemic important banks. First of all, we're kind of scoped out of that. That's the first thing to note.

The second thing to note is that this is something we've been thinking a lot about. If I can underline one thing Chris said in his opening remarks, we tend to be and have historically been better capitalized precisely because we can't go and tap the markets, so we hold back more retained earnings, and they comprise 80-odd per cent of our capital.

There's a prudential constraint built into our business model that's actually very positive. If you look globally, you will see the same behaviour repeated in all cooperative structures. Prudent, long-term, intergenerational trust — we look out into the future. We are not obsessed with quarterly profits..

Another comment is that the system is considering those kinds of things. We are in talks currently with OSFI around how credit union capital, member shares, recalled investment sharings and other shares might eventually fit within the Basel III framework. This is a classic example of how rules get made internationally and then very little thought is given to how they will land in a cooperative space. It's been five years since those rules have landed, and we still haven't fixed this problem; the joint stock banks have been working under this framework now for five or six years, and we're still trying to get that right.

Senator Tannas: Desjardins, for instance, has seized on this and are in the process of orienting themselves so they can better obtain external capital. They have followed the model of prudent capital management. They were Canada's safest bank, ranked —

Mr. Pigeon: By Bloomberg.

Senator Tannas: All that stuff.

So even though you've got 300 members in your organization, it strikes me that you've got this responsibility. If I'm hearing you right, you're maybe not as far along as Desjardins, but this is on your radar and you're moving towards doing it; is that right?

Mr. Pigeon: Yes, I think so. To add to that, Desjardins has raised a lot of capital through these series-F shares that they've sold through their branch network, but to members. It's perhaps the advantage of their more centralized structure that they can do that from a federal level down to their local level. We're not there yet as a structure, but that could be a model that could be contemplated in the future.

Senator Tannas: That's to members. They're also preparing for external securities that would go outside of their membership and into the capital markets — not just debt but also forms of equity, potentially, as well.

Mr. White: We're looking at all of these provisions because we know that we have not just an immediate but a long- term challenge as well. When we look at the work that Desjardins has done, that's certainly a model.

From conversations with OSFI, particularly if you see credit unions making a transition to the federal sphere, I think it will be incumbent upon us to make sure there's a structure that the federal government and the federal credit unions feel comfortable with and that there's access to those kinds of markets. Because right now, they're challenged, and it will only get worse. There's an expectation that there will probably be more international regulatory burdens imposed on Canada that Canada will have to abide by that will then trickle down and capture credit unions in that space as well.

Senator Tannas: Great. So by the time we get to the review, you will be able to say, "We've addressed this and we're not asking for a free pass,'' right?

Mr. White: I don't think we are asking for a free pass now, no.

Senator Day: Gentlemen, thank you very much for being here and for your presentation. Just to follow up on Senator Tannas's question: Are the 315 members all provincially oriented? You don't have any federal?

Mr. White: Not yet.

Senator Day: There's a possibility of this as some transition under this legislation into federal?

Mr. White: That's right.

Senator Day: You would have them possibly as members of your association?

Mr. White: They're all members of the association, senator, but all credit unions in Canada are provincially regulated, currently. A possible scenario is that you will see some credit unions become federally regulated credit unions; they will transition from the provincial to the federal space.

Senator Day: And the rules and reporting requirements that this legislation would provide for those transitioning credit unions, do they put them in any different position than the provincial credit unions that would be members of your association?

Mr. White: Just in terms of the reporting structure.

Mr. Pigeon: They'd be regulated federally.

Senator Day: I understand, but some of the reporting requirements — in this legislation under Part 4 — the government is saying you don't have to do. Would they still be doing that if they were provincial?

Mr. Pigeon: I think you're referring to the exemption power that the minister will have as a result of this legislation.

Senator Day: Yes.

Mr. Pigeon: The department has been very clear, in the legislation and in its communications around this, that these potential exemptions have to lead to an outcome that substantially replicates what's in the Bank Act. It can't be a radical deviation from the Bank Act requirements as it concerns the continuance process, so into the federal place. Then, once you're in the federal place, the Part 5 rules apply, which are the voting-related governance rules.

The exemptions are about coming in and for three years after. They're discretionary, and they have to substantially comply with the rules as they are currently. When the department was here, they made another important point: Any exemption would more than likely replicate the current provincial practices than go against them.

I can give you an example, if you like; it might be helpful illustrate what we're talking about. One of the requirements for a credit union that wants to move federally currently is it has to send a notice out four weeks before a vote around the shifting deposit insurance framework. When you leave the provincial context, you will take up the federal deposit insurance scheme. They have to notify their members four weeks before the vote that this is what will happen — you will go from provincial deposit insurance to federal deposit insurance.

During that four-week period, the rule prohibits a vote. That creates a challenge, because the credit union may want to do just one mailing and send out the information about the deposit insurance shift with a ballot. But during that four week period, the member won't be able to vote, and they'll have to hang onto that ballot somehow; they'll have to be careful not to lose it. If they mail it early somehow, that will create a problem for the credit union.

The exemption could be applied in this case, for example, to allow the members to vote during the four-week period where they have that information about the shifting deposit insurance coverage. That's an example of how the exemption could be applied, and it aligns with provincial rules that currently allow voting ahead of an annual meeting, for example. That's an example of where there's slight friction, impediment or difference between federal and provincial rules. The minister is now empowered to fix that for a short period of time.

Senator Day: I don't need to ask anything further with respect to the exemption in voting that appears in this particular legislation.

Mr. Pigeon: It's really around electronic voting. That's one of the big concerns. Provincially, they're allowed to electronically vote in the period leading up to the AGM — federally, they're not. That's the kind of thing we're looking for.

Senator Day: Final question: There's a two-year extension in Division 3, I think, from 2017 to 2019, but that's just for this five-year review, extending it to seven years. Does it make sense to have a review permanently every seven years? Why are we doing a two-year extension this time to a normal five-year review?

Mr. White: From our perspective and from what we understand in talking with officials at Finance, with everything else that was going on, they just needed additional time. There's a new government, and international standards have changed and evolved, and I think they wanted to be confident that when they did have the Bank Act review, that it was substantive and as broad as possible.

From our perspective, seven years is a long time to wait for a review. If it were to be enshrined in legislation, we would certainly want a smaller window. Five years is a good amount of time; seven is a bit long, from our perspective.

Senator Day: So this is an extraordinary extension, and you would not want to see it permanent?

Mr. White: No.

Senator Massicotte: Thank you for being with us. In your speech, Mr. White, you say you don't want to be treated like a big bank, it's burdensome and so on. One of the comments you made is that the federal government plans to require all financial institutions deemed low-risk to report on all accounts held by non-residents starting on July 1, 2017. I appreciate that. I can understand why you say that. Out of 100 credit union, there are only three people who are eligible.

I acknowledge the bureaucracy, but I wonder relative to where we're at as a country, where you have the Panama papers and a lot of leaked information showing a lot of Canadians taking advantage, unfairly so, manipulating the complicated tax rules to not pay their fair share of taxes — I just don't know how you can win that argument. These people are no fools. If you're the institution that doesn't have to provide it, you're going to get a lot more deposits. Maybe that's your plan. It's a pretty good business plan, but it doesn't serve our country's needs to make sure we have full transparency of information and that the federal government, especially FINTRAC, knows what's happening.

How do you deal with that issue? I can appreciate your practical sense, but how do you deal with that issue relative to where we are as a country and relative to the need for information?

Mr. White: It is a challenge, obviously. When we've had discussions in the international fora, it's clear that it's a losing argument from our perspective.

Senator Massicotte: That's a good start. We both agree on that one.

Mr. White: The challenge is that you want to be as transparent as possible. Given everything that has transpired at the international level, it's difficult for you to start segmenting out.

The point we are making is that it's an example of where an international policy is put in place that makes sense for some situations and in some jurisdictions. However, when you take a small credit union in Saskatchewan or New Brunswick and you have an operation of 8, 10, 12 people, to then layer upon them this type of responsibility and reporting structure is onerous. While it makes sense from a policy perspective on the one hand, at a practical level it doesn't make any sense. We are asking the department to look at whether or not there is a way to reconcile those two challenges.

In a previous life politically, I worked at CRA. I know there are not a lot of carve-outs for those types of situations. We have told Finance this is an example of one of the challenges that the credit union system faces all the time and increasingly so post-financial crisis.

There is a need to have more policies and more regulations in place, but there are consequences to those regulations. Oftentimes, they are not as well thought out as perhaps they should be. What we are hearing when we talk to our counterparts in the U.S. and internationally is a sense that the pendulum has swung quite a way this way — and understandably so — but the expectation is it will slowly come back to the middle and will be more moderate.

When you look at policies affecting the banking and financial sector in Canada, are there opportunities for a carve- out? In some instances there won't be, but in some instances we want to have that conversation. When officials from Canada have those discussions at the international level, there should be those considerations in the back of the decision makers' and the policy makers' minds.

Senator Massicotte: What is it you would like to achieve? You don't dispute the FINTRAC requirements of deposits over $10,000. You don't dispute anything suspicious that you have to report. There is no problem with that, am I correct?

Mr. White: No, sir.

Mr. Pigeon: That is right.

Senator Massicotte: You are referring to the other report where you must seek adequate information to confirm whether people have offshore accounts. Is that what you are objecting to?

Mr. Pigeon: This is the forthcoming set of rules called the Common Reporting Standard. The thing to understand about these rules is they are patterned after the Foreign Account Tax Compliance Act, FATCA, out of the United States. When FATCA was implemented in Canada, there were exemptions for small institutions, risk-based exemptions. All we're asking for is the same kind of rules applied here in the Common Reporting Standards that were applied in the Foreign Account Tax Compliance Act. It's a simple ask. If we cross a threshold where the risk elevates, then we get scoped in. I think what we are putting forward is quite reasonable.

Senator Massicotte: Is that the case in the United States? Is that what they are doing in the United States?

Mr. Pigeon: The United States has not signed up to the Common Reporting Standards, even though their legislation spawned it. It is interesting. They got the ball rolling about looking out for tax evasion, but when the international community took it up, the U.S. said no, we're not going to get involved.

Senator Massicotte: Every country must have to deal with this issue. We all have small financial institutions. Is there another country that exempted these small financial institutions that you can point to and say they did it this way?

Mr. Pigeon: That's a fair question. No, but there are other areas where we will probably see some exemptions applied on a risk basis. For example, there are discussions around tax-free savings accounts and the risks embedded in those versus not and reporting on those. The concept of risk-based exemptions is built into the reporting framework. All we are saying is to apply it in a fair-minded way to small institutions.

Senator Massicotte: What is it specifically you are recommending? You were previously with CRA, so you know the mentality; you know your situation. Do you have a specific recommendation that's saleable?

Mr. Pigeon: I think we do. We are saying, apply the same kind of test you apply under FATCA, which is the father, if you will, CRS. Apply the same kind of exemption that you apply there. That would simplify application.

Senator Massicotte: What have they said?

Mr. Pigeon: They have said pretty much what you said, which is, "Show us international precedent.'' Of course, if everyone is pointing at everyone else and saying show me international precedent, you'll never get anything. There are some levers where we are starting to see slight shifts on this policy front.

Mr. White: In fairness to the Department of Finance, there is an appreciation of it. I think they recognize this. Glen Campbell was here, and I think they get it. It's a very small ask in the totality of everything that Finance is dealing with on files like this.

Our expectation is that it won't happen. I would be very surprised, frankly, if it were to happen. But we are also trying to lay a foundation with Finance that these are the types of things that often happen. It's not something that just affects the credit union system; there are other examples in all sorts of areas. It is kind of that mentality we are trying to shift incrementally.

Senator Massicotte: Despite the fact it is in your speech and in your ask, you don't expect a positive response, but you want to make the point for future reference?

Mr. White: Well, much like Senator Tannas thinking that by 2019 we'll have this all sorted out, it's an ask.

The Chair: It's an ask for future reference, too. You don't want the international negotiators to sit around and just think about the big six when they are talking about these matters. You want them to talk about everyone.

Mr. White: It is interesting that when we talk to the Americans, there is a sense at times that, when Canada is in these international meetings, Canada's views aren't necessarily taken into account because they are so worried about the bigger economies within the G7. That is somewhat analogous to our situation.

The Chair: Point well taken.

Are there any other questions? If not, I want to thank you very much, witnesses.

I am pleased to welcome here to discuss Division 10 elements of the bill, from the Canadian International Trade Tribunal, Jean Bédard, Q.C., Acting Chairperson; and from the Canada Border Services Agency, Darryl Larson, Director, Anti-dumping and Countervailing, Consumer Products, Programs Branch. Thank you for being with us today. I understand you both have brief opening comments. and then we will go to question and answer. Mr. Larson, will you start?

Darryl Larson, Director, Anti-dumping and Countervailing, Consumer Products, Programs Branch, Canada Border Services Agency: I would like to thank you for the opportunity to contribute to the committee's discussion of Division 10, Part 4 of the Budget Implementation Act 2016, which amends the CBSA's role in the administration of the Special Import Measures Act, or SIMA.

As the committee is aware, the Department of Finance has the policy responsibility for SIMA, whereas the CBSA, in partnership with the Canadian International Trade Tribunal, or the CITT, conducts dumping and subsidy investigations pursuant to the legislation.


Mr. Chair, Canada was one of the first countries to enact antidumping and countervailing legislation, and this program has been in existence since 1904.

The CBSA's role in the administration of the Special Import Measures Act is to investigate complaints made by Canadian producers who allege their industry is injured by dumped or subsidized importations, and to assess antidumping and countervailing duties for measures in force.

This work is complex and technical in nature and requires a sound knowledge of accounting and auditing practices, as well as expertise in industry sectors and market patterns.

SIMA measures in force encompass industrial products such as steel, aluminum, copper, as well as consumer products such as potatoes and sugar, among others.

Dumping refers to the practice of foreign exporters selling their products to Canada at prices that are lower than they charge in their own markets, or below the full cost to produce and sell the products.


"Subsidization'' refers to the practice of foreign governments providing subsidies to foreign exporters or producers.

Before explaining the impact of the amendments before you, I will quickly go through the CBSA's role in conducting investigations under SIMA.

If a complaint from Canadian producers contains sufficient evidence of dumping or subsidizing and the related injury, the CBSA will initiate an investigation. The purpose of the CBSA's investigation is to determine whether the imported goods are dumped or subsidized and to determine the margin of dumping or amount of subsidy on those goods.

The CITT conducts a parallel inquiry to determine whether the dumped or subsidized imports have caused or are threatening to cause material injury to the Canadian industry. These two investigations run concurrently within legislated time frames.

The CBSA's investigation generally takes six months and involves both a preliminary phase and a final phase. Based on the results of the preliminary phase, the CBSA will either terminate the investigation or make a preliminary determination of dumping or subsidizing and begin assessing provisional duties on the importations of subject goods. Then based on the results of the final phase, the CBSA will either terminate the investigation or make a final determination of dumping or subsidizing, in which case the provisional duties will continue until the CITT makes its final decision on the question of injury.

If the CITT finds material injury to the Canadian industry, the CBSA will then begin assessing anti-dumping or countervailing duties on the goods. These duties remain in place normally for a period of five years, after which they can be reviewed through another bifurcated process called the expiry review process.

If the CITT decides to initiate an expiry review, the CBSA is required to determine if the expiry of the order or finding is likely to result in the continuation or resumption of dumping or subsidizing of the goods.

Part 4, Division 10 of the BIA will enact two amendments to SIMA which will affect the CBSA's role. The first change will ensure that a full investigation is conducted even if, during the preliminary phase of the investigation, the CBSA finds that the margin of dumping or the amount of subsidy on the goods is insignificant. The second amendment will allow more time for the initiation and conduct of the expiry reviews, which will result in measures being in force for a longer period of time.

With respect to the first change, SIMA currently requires the CBSA to terminate an investigation if, during the preliminary phase of the investigation, we find that the margin of dumping or the amount of subsidy on the goods is insignificant or if the volume of dumped or subsidized goods is negligible.

Under the proposed amendments, the CBSA would no longer terminate an investigation where the margin of dumping or the amount of subsidy is insignificant in the preliminary phase. Instead, the investigation would continue on those goods, but no provisional duties would be assessed on the goods that were found to have an insignificant margin of dumping or amount of subsidy.

This amendment will allow our investigators more time to verify whether the goods are dumped or subsidized before terminating an investigation at the final phase. This amendment is not expected to have a significant impact on the CBSA's workload as there have only been three cases where the CBSA has applied these provisions since 2004.

From the CBSA's perspective, the changes to the expiry review process will provide the CBSA with an additional 30 days to conduct their expiry review. This means that the CBSA would determine whether the expiry of the order or finding is likely to result in the resumption or continuation of dumping or subsidizing of the goods within 150 days as opposed to the current 120 days. Again, this amendment allows CBSA officers more time to fully consider and verify the information that they receive during an investigation before making their expiry review determination.

Because of the changes to the timing of the expiry review process, where a SIMA measure is allowed to expire after the conduct of an expiry review, the duties assessed after the five-year anniversary of the order or finding would be returned to the importer. This would result in minor resource implications for the CBSA in terms of imposing duties that would subsequently be refunded.

Mr. Chair, I want to thank you for the opportunity to explain the CBSA's role in the administration of the Special Import Measures Act and the implementation of these proposed changes. I would be pleased to take any questions the committee may have.


Jean Bédard, Q.C., Acting Chairperson, Canadian International Trade Tribunal: Thank you, Mr. Chair. I had not expected to be making any comments, but since you are giving me the opportunity, I too would like to thank you for your invitation. It will be our pleasure to answer your questions concerning amendments to the Special Import Measures Act.


Mr. Larson has given you a comprehensive overview of the bifurcated system, so I will not go back into what he said. You have already received explanations as to the respective roles of the Canadian International Trade Tribunal and the CBSA in this process.

Our tribunal is a quasi-judicial and adjudicative tribunal, a court of record. We have the powers of a Superior Court of record for certain of our duties and orders that we issue. We conduct our procedures in terms of the SIMA, which is one of the mandates that the Canadian International Trade Tribunal has. We conduct those procedures as a quasi- judicial inquiry.

The only provision of these amendments that impacts directly the CITT is the one concerning the expiry reviews. This one — and I can go in further details when we have questions — will allow us greater flexibility because of the longer period of time that is given to us now to give a decision on expiry reviews.


Thank you once again. I will be pleased to answer the committee's questions.


The Chair: Colleagues, I want to mention that we have in the audience here, from the Department of Finance Canada, Michèle Govier, Chief Trade Rules, International Trade and Finance; and Laura Bourns, Senior Economist, International Trade Policy Division and International Trade and Finance Branch; and from Global Affairs Canada, André Moncion. We have lots of brain power here, so ask away.

Senator Wallin: Was it your ask or Finance's ask for the change on the investigative work?

Mr. Larson: The CBSA is the administrator of the law.

Senator Wallin: You didn't say, "Geem we want to make sure we look at everything?''

Mr. Larson: No.

Senator Wallin: Is this good or bad?

Mr. Larson: I think, as you suggested, that is probably a question for Finance.

Senator Wallin: But from your point of view, it doesn't impact your work. It just means you now have to look at everything as opposed to making some judgment calls?

Mr. Larson: It gives us more time to conduct an investigation before we terminate it. It gives us the opportunity to better verify the information and collect additional information before we terminate, so on that perspective.

Senator Wallin: But on the first amendment, a full investigation even if the amount is insignificant, for something that you would have said "let us not bother'' before?

Mr. Larson: It's not a matter where we would have said "let's not bother.'' With the existing law, if we come to the conclusion that the margin of dumping or the amount of subsidy is insignificant in the preliminary phase, we are required to terminate the investigation instead of moving on to the secondary or final phase of the investigation.

Senator Wallin: All right; thank you.


Senator Massicotte: My question is similar to the previous one. I know you are not the person who prepared the proposed bill, but you are aware of the file and well-acquainted with the reality. I presume they are open to your comments and have asked you for your advice already. We are talking about taxpayers' money. I have trouble when people draw the conclusion — which has happened on at least three occasions — that the amount is not important and that it is not worthwhile to continue the study. Whatever your professional opinion, the legislation will oblige you to continue the study. I do not understand why such constraints would be imposed on you, since you expressed a contrary opinion.


Mr. Larson: Under the current legislation, we are required to terminate the investigation once we conclude that the amount of subsidy or the margin of dumping is insignificant.

The legislative time frames for these investigations are short time frames. We have 90 days from the time we initiate the investigation to solicit, collect, analyze information and issue a preliminary decision. The requirement to terminate the investigation at the end of that preliminary decision is quite onerous on the CBSA in terms of collecting, analyzing and verifying the information that we are going to use to make the preliminary decision. This change will allow us to have more time to make that decision.

Senator Massicotte: I understand that. Let me try again. As I understand the way it currently stands, if your preliminary research tells you there is not much there, or nothing there — that's your professional opinion; you have more experience than any legislator in this matter. You come to the conclusion, "I will not do more work. I will save the taxpayers some money. It's not a good allocation of my time.| But now you will have a bunch of legislators that will impose upon you the completion of the study on the file where you thought there was nothing there and it didn't deserve further attention. Why the big boss from Ottawa imposing the common sense answer and your professional knowledge to the contrary?

The Chair: Maybe we have the big boss here. Ms. Govier?

Michèle Govier, Chief, Trade Rules, International Trade and Finance, Department of Finance Canada: I hesitate to call myself that.

One of the issues is that the nature of information available in the preliminary phase may not be fulsome or verified. Although there is an initial determination being made on the basis of that information, with additional investigation and verification, that could well change. We do see in CBSA investigations that the amount of dumping, the amount of subsidy, can change between the preliminary phase and final phase. That is quite common. It won't necessarily go from a de minimis level, below 2 per cent, which is what we are looking at now, but it could be a small amount found that ends up being a larger amount on final, or vice versa. That happens quite regularly.

Senator Massicotte: Why would you legislate that? If the person who does the work says, "We've seen occasions where it doesn't seem important,'' but it becomes important, common sense is that it would continue. But you're legislating is in spite of the fact there may be a circumstance where it is immaterial or insignificant to those people, you say irrespective of your opinion, we will force you to complete the file and spend taxpayer money on something — life is full of probabilities — that is probably insignificant. Why would you force them to proceed anyway?

Ms. Govier: The issue is that, at that preliminary phase, the basis on which you are saying that it is insignificant is not based on a full investigation.

Senator Massicotte: Therefore, their professional opinion would be to let us continue.

Ms. Govier: It could be. They were prevented from doing so under the previous legislation. I guess your question would be more why not give the leeway?

Senator Massicotte: Yes, why not allow professional opinion to dictate as opposed to some form of legislation which says, "In spite of your good common sense, you're not smart enough. We're going to impose it anyway.''

Ms. Govier: There are certainly aspects of the trade remedy system within CBSA's purview to make policy decisions on and they give flexibility. However, most aspects of the investigative process, like timelines, when you terminate, et cetera, are quite clearly laid out in the law. That is consistent with other aspects of the legislation.

I think it is an important thing to have in order to make sure it's clear that the full investigation has taken place. When you give discretion, there is some uncertainty as to how that will be applied — not to question the judgment of the CBSA officers, but to ensure that all of the information is considered before that decision is taken.

Senator Massicotte: We had an earlier witness talk about bureaucracy. This is not going in the right direction.

Now that we have the experts here, I have a question about dumping. I understand the definition. A company is accused of dumping if it sold below its cost or sold at a price lower than anywhere else and it's the principle of the country, I gather. It's "or'' right? In other words, he could be selling something below his cost. but if it's also being sold below his cost in his country — because businesses often have liquidation of products that didn't work out — is that dumping, or it is either/or?

Mr. Larson: It is either/or.

Senator Massicotte: If something costs $10 but he is selling it for $8 here, but for $8 our currency in his own country, is that dumping?

Mr. Larson: Yes, it is.

Senator Massicotte: That doesn't seem right to me. The failure rate of many businesses is high. When you do contracts, you sometimes get it wrong. He wants to liquidate the product. He wants to get rid of it. He cannot sell lower than his cost irrespective of the situation in his own country?

Mr. Larson: The way the law is set up, we establish a normal value, which is essentially that fair price. An exporter, if he cooperates with our investigation and receives a normal value, can sell to Canada at that normal value or above it without incurring antidumping duties. We would not establish a normal value that was less than the full cost of production of the goods. We would then look at the domestic selling price of the goods and make sure that the normal value was above the domestic selling price.

Senator Massicotte: You say full cost. You realize that's a complicated term. "Full costs'' includes amortization of capital costs?

Mr. Larson: "Full costs'' includes everything — the cost of production of the goods, an amount for general selling and administrative expenses and an amount for profit.

Senator Massicotte: It's not marginal costs. It's amortization of the building and so on over the useful life for that product?

Mr. Larson: If they have those costs, yes.

Senator Massicotte: You realize that is an extremely complicated and probably expensive accounting exercise where definitions become important but are insignificant. Do you agree with that? It's an accounting nightmare. It is an argument over accounting terms most often, I would assume.

Senator Wallin: Which are different across the border?

Mr. Larson: It is not necessarily an argument over accounting terms, but it is a complex process in order to establish a normal value that meets the legislative requirements.

Senator Massicotte: Reasonable people could disagree seriously.

Mr. Larson: Somebody can always make the argument that we should be looking at marginal or variable costs, but, again, that is not the way the law is established.

Senator Wallin: I have a follow up on that question because the accounting standards, as you know, are radically different.

I want to come back to Ms. Govier, if I could, to get this clarified.

You are saying that you want to enforce or mandate a full investigation on everything because sometimes the amount or the value of this action changes between the initial inquiry and some latter inquiry, but having dismissed it round one, CBSA wasn't allowed to reinitiate?

Ms. Govier: That is right. It's all part of the same inquiry. It is set up now so that in the preliminary phase, if there was a negative finding, then they were not allowed to continue with it. Before the preliminary decision was made, if a particular country was found to have this insignificant margin of dumping, they would be taken out.

Senator Wallin: How would you be able to assess, then, that the cost or the amount involved had somehow changed?

Ms. Govier: For those countries, that would not occur at that point. I am talking about an example where a country is not found —

Senator Wallin: Why not give us an example? Perhaps that would be easier.

Ms. Govier: When I was speaking about that one, it was more for a country that, in the initial phase, was found to have a margin of dumping of 10 per cent, which is not insignificant. The investigation would continue to the final phase, and there would be further verification of the information, et cetera. At the final determination, it might be found that the margin of dumping is something other than 10 per cent. It might be 15 per cent because of the additional information found at that second phase.

That was the example that I was providing where there could be a difference between the two. In a case where the margins are insignificant and previously they had been terminated, it's reasonable to expect that, had they been continued, there could be a different finding as well.

Senator Wallin: Do you have some reason? Is this a company or a country that you are suspicious about? Other than more bureaucracy and the building of bureaucracy, which I think is a fair comment from one of my colleagues, what would motivate you to do this? Do you think a lot of stuff was going on that was getting missed?

Ms. Govier: There could well be.

Senator Wallin: No, but did you think that?

Ms. Govier: Once an investigation is terminated, that doesn't take place. It's not like we have evidence of that.

I would point out that in the United States, for example, they take this approach where they continue an investigation afterwards. I don't have data in term of the results of that, but I think that was kind of the model being looked at by stakeholders who were asking for this change, to say, "Let's have this fulsome investigation take place so we can get a better chance of having a favourable result.''

The Chair: Do you have a supplementary, Senator Tannas? I'm noticing an inquisitive look on your face.

Senator Tannas: Could either of you share what percentage of investigations were cut off at the insignificant level versus carried through, over the last year, five years, whatever?

Ms. Govier: As Darryl pointed out, going back to 2000 forward, when we looked at the data, there have only been three cases where that has occurred. I don't know the total number of cases we've had in that time, but it's four or five per year, I would say, on average.

Senator Tannas: So only three have been dismissed?

Ms. Govier: Yes.

Senator Tannas: So there isn't an epidemic that has caused you to all of a sudden say, "Oh, we have to do this?''

Ms. Govier: No. That's right.

The Chair: Do you have anything further, Senator Wallin?

Senator Wallin: That's where I was trying to head, which was what prompted this. Is there a simple answer to that?

Ms. Govier: I would say it's a stakeholder request that had concerns that by continuing this practice — although I agree it's not common in the overall picture of things, there could be situations where an investigation is terminated where it should not be.

Senator Wallin: Who was the stakeholder?

Ms. Govier: It was the Canadian Steel Producers Association.

Senator Wallin: Thank you.

Senator Ringuette: My first line of questioning is with regard to the changes in the timeline and the investigation. What would be the problem in having more time, if necessary, to conduct an investigation as opposed to less time? That's what I see is being proposed here. If you need more time, then this will enable you to use that time to complete what you have to do, whereas right now, your time constraint is shorter.

With regard to taxpayers and all of that, I don't see a major issue, because if you need more time and more resources to pursue, you will have that opportunity. If you don't need it, you won't need it. But the time frame has nothing to do with the amount of resources and taxpayer money that you will use to conduct your proper investigation process. Am I wrong or am I right?

Mr. Larson: I think you're right. The investigation will continue, so that would give us the opportunity to ask for additional information and to verify the information.

All of our investigations, of course, are in foreign countries, so this would give us the opportunity to arrange for on- site verification of that information, which under the current process is, as I mentioned, quite difficult to do within that 90-day window, to solicit, receive, analyze and verify the information on site.

So, yes, this change would give us additional time to ensure that we're making the right decision when we do make it.

Senator Ringuette: Exactly. That was my perspective. Then I guess in the same line of thought, to Ms. Govier, we're doing all this investigation with regard to anti-dumping and subsidy with regard to products. I understand it is easier because it's a physical item. What is the Canada Border Services Agency or the Department of Finance doing with regard to services in terms of dumping and subsidies?

Ms. Govier: You're correct that anti-dumping and countervailing duties don't apply to services.

I would point out first that the rules we have domestically flow from rules that are also embodied in the World Trade Organization agreement. There is an anti-dumping agreement as well as a subsidies agreement that lay out the procedures and when and how these things should be applied, and those are only applied to goods.

Certainly bringing it in to services would be a novel area. I don't know of any country that has tried to do so or whether it would be as feasible. You're right that with a good, you have a physical product that you can easily compare across borders. With services, that might not be the case.

It's not something I've looked at or can speak to much other than say that it's not something we're currently considering.

Senator Ringuette: I think since services is the leading growth item with regard to trade, it should certainly warrant your attention.

I have another question. Mr. Larson, does your definition of "dumping'' include falsely identified products?

Mr. Larson: Are you talking about counterfeit goods?

Senator Ringuette: Counterfeit or purposely not properly identified goods.

Mr. Larson: No, the Special Import Measures Act is not the law designed to deal with those goods. We look at the cost of production and the selling price of that good in the exporter's foreign market.

Senator Ringuette: Would there be another unit within the Canada Border Services Agency that would look at such —

Mr. Larson: There probably is. I don't have that information with me but, if you like, I can try to find that information and provide it.

Senator Ringuette: I would appreciate that. Thank you.

Senator Enverga: Thank you for your presentations. Most of my questions have been discussed.

I have one with regard to services. Do you think there's value in — maybe not in this amendment but in the next — having this anti-dumping for services? It's putting our labour products at a very big disadvantage when you do outsourcing outside of the country. Could that be part of your mandate?

Ms. Govier: Trade in services generally is a very different area from trade in goods because of the nature of trade in services. It could occur where people come into Canada to provide the service or when the service is occurring across the border. It's a much more complex area, so I think that's part of the reason.

I went back to the WTO rules that also exist that govern dumping and subsidizing and how we apply that domestically. There are no rules on the services side that allow for that or provide guidelines for that, so it's not clear that we would actually be able to do that under WTO rules or that it's provided for.

As I said, it's not something we've considered. It's something we could look into to see to what extent there is an issue there that can be addressed through this type of system. But I would say generally the trade problems we might have on the services side are addressed quite separately and through different mechanisms because of the particular nature of services trade.

Senator Enverga: What I see is that a bunch of organizations, certain banks specifically, are being moved somewhere. Those are the services that are here, and those are our products, basically. They're being taken by other countries because they provide cheaper labour costs. That could be a good reason why you should maybe look at it.

Ms. Govier: As I said, I think those types of issues may be addressed. I'm not an expert on services, so I feel I have to be careful wading into this area. I think those can be addressed through other mechanisms as well.

One thing I would say on the trade remedies system, when we're looking at dumping, it's not just that another country can sell things to us more cheaply, which often occurs because people have competitive advantages and whatnot. It really has to be this unfair trade situation where subsidies are being granted or where dumping is occurring.

Senator Enverga: There are definitely subsidies from other countries. I hope something will be done on that end.

Ms. Govier: I will make a note to have a look at that.

Senator Enverga: On a different topic, when you get to the normal value of goods, have you considered depreciation costs when you try to balance one product with another from one country to another? Is that part of the costs that you've looked into?

Mr. Larson: In order to determine whether they're dumped, you compare the normal value of the good to the export price, which is basically the selling price to Canada. When we determine a normal value of a good in a foreign country, we look at that exporter's full cost, which includes all financial costs and depreciation. We're looking at the full costs of the individual exporter. It doesn't have anything to do with the costs in Canada, costs of their competitors or costs of other producers in that country. It's the full cost of the particular exporter that we're determining a normal value for.

Senator Enverga: Thank you.

Senator Day: Mr. Larson, I've been thinking about the extra work or less work that you'd have to do. If we take away this insignificant test, why would you have to do a test at all if you're going to continue? That's the first thought I had. Then I realized in your comments you said you have to do this test to determine whether provisional duty is going to be applied. Is that correct?

Mr. Larson: In the preliminary phase of our investigation, we essentially have two options; we either terminate the investigation or we make a preliminary determination and then we continue the investigation. Under the current law, if we come to the conclusion that the amount of subsidy or the margin of dumping is insignificant, we must terminate the investigation.

Senator Day: Yes. And with this change in the law, that's not going to apply. You're going to continue.

Mr. Larson: That's right.

Senator Day: So why do you need the two phases? It looks like you need two phases to get out of this thing if there's just nothing there, or alternatively, to apply a provisional duty after the first phase. Is that correct?

Mr. Larson: Yes. Again, Finance may want to comment on why the law is structured that way, but the law is structured so that, generally speaking, 90 days after we initiate the investigation, we will make a preliminary decision, which is either terminate the investigation and nothing happens, or we make a preliminary determination and it's at that point that we start to impose provisional duties and the investigation continues for another period of 90 days.

Senator Day: But you have to apply this significant-insignificant test to determine whether provisional duties will apply?

Mr. Larson: In order to determine whether to make a preliminary determination, which then brings with it provisional duties, yes.

Ms. Govier: Except that with these amendments where there is an insignificant margin of dumping or subsidy, provisional duties would not be applied. So you're correct in what you're saying, that only in certain cases would it be applied.

Senator Day: But the test still has to be applied?

Ms. Govier: You still have to determine, yes.

Mr. Larson: Yes.

Senator Day: That clarified that one. The second point is what triggers the Canadian International Trade Tribunal to get going on this thing. Do you have to do your own determination of dumping or subsidization, or can you assure us that there is some sharing of information between the two agencies?

Mr. Bédard: I'm pleased to assure you that there is a division of duties between the two organizations.

The determination of the subsidy or dumping or both is made by the CBSA and is the sole purview of the CBSA. It comes to us once that determination has been made, and our inquiry relates to the injury part of the investigation. In other words, the law requires it is not only a matter that there is dumping but also that the dumping causes a material injury to the domestic industry. We leave all the calculations to our friends at the CBSA, and we focus on the injury only.

Senator Day: So your determination of material injury doesn't really start until border security has told you that, in their view, there is dumping or subsidization going on?

Ms. Govier: I can go through the process. When a complaint is accepted by the CBSA, they're sort of the gatekeepers of the system to say, "Yes, we're going to initiate an investigation.'' At that point, both of these agencies start their work on their separate issues.

The CITT first issues its preliminary injury finding, whether they have general information to suggest there's injury to the domestic industry. Then the CBSA makes its preliminary dumping and subsidy determination, at which point the provisional duties will be applied.

Senator Day: Can you stop there?

Ms. Govier: Yes.

Senator Day: It seems to me that's a duplication of investigation. If you look at material injury, you're either making an assumption that there has been dumping or subsidization that's contrary to the law, or alternatively, you have to do some investigation to find out just what it is before you can determine material injury to the industry.

Ms. Govier: Please correct me if I'm wrong, but on the CITT's preliminary injury finding, a lot of it is based on information provided in the complaint. The industry that's bringing the complaint to the CBSA will include quite a bit of information with indicators, et cetera, with evidence that they are being injured. I believe it's that, with some additional work done at the CITT. It also includes information on why they say dumping and subsidization has taken place.

It's not that there's no threshold. There has to be a threshold that there is some evidence that the activities in the complaint are taking place. That's the hurdle to get to initiation, and that's what triggers the beginning of the investigation.

Senator Day: And then the two of them are running parallel?

Ms. Govier: Yes, with their separate analyses.

Senator Day: You're trying to determine material injury based on some assumption that there is dumping?

Mr. Bédard: In that process, we will have received a preliminary finding from them and then eventually receive a final finding. But, yes, given the time frames that are set out in the legislation, the two investigations run parallel.

Senator Day: And you share information back and forth during that parallel investigation?

Mr. Larson: There is an official exchange of information at given decision points in the process, where the CBSA transfers certain information to the tribunal and the tribunal transfers certain information to the CBSA.

Just to add a little bit more information in terms of your concern about whether there's any evidence of dumping or subsidizing as the process goes on, I think it's important to back up a little bit in terms of the CBSA's role as the gatekeeper of the process.

We only conduct investigations where we've received written complaints by Canadian producers, and those complaints have to contain a certain amount of evidence and backup to substantiate the fact that the goods have been either dumped and/or subsidized, and the complaint has to contain at least a reasonable indication that the dumping and subsidizing is causing injury. Nothing happens until that threshold has been met. That's the threshold that has to be met before the CBSA even initiates an investigation.

Once an investigation is initiated, that's when the bifurcated process starts, with the CITT focusing strictly on injury and the CBSA focusing strictly on the calculations or the amount of subsidy and margin of dumping.

Senator Massicotte: I have a question on the details. Basically, we have to come to a calculation: What is the full cost of the producer, which is the exporter? You're going to ask a foreign company — in China, let's say — for the calculation of their full costs. Do you have auditing powers? How do you make sure it's accurate and complete?

Mr. Larson: The process is that when we initiate the investigation, we send out a request for information, which is fairly detailed and which requests information on the exporter's or producer's cost of production, all of their selling, administrative and financial expenses, their domestic sales of the same goods and their sales to Canada of those goods. It's only when exporters cooperate with us and provide a complete response to that information that we would then normally go to the foreign country — China in your example — and verify the information provided to us.

Senator Massicotte: So contractually, they would agree to give you the power of auditing to physically review their records on site?

Mr. Larson: It's not contractual. It's a requirement of their ability to get a normal value and be able to continue to sell their products into Canada, either once we impose provisional duties or once we impose definitive duties. They're under no legal obligation to allow us to verify their information, but if they don't, then we can't use it in the investigation.

Senator Massicotte: Are you quite confident you're getting full information when you do that? Are you getting the right answer?

Mr. Larson: Yes, I am. We have a training program for our investigators that normally takes between two and four years, where we provide them with a mixture of formal training and on-the-job training in order to do exactly that, to go to China or whatever the foreign country is, to examine their books and records and be satisfied that all of the information we have in front of us is accurate and complete.

Senator Massicotte: You said earlier in answer to Senator Day that the process starts with a producer, a local Canadian company, saying, "I'm getting injured from the fact that this fellow is importing goods into our country.''

Mr. Larson: Dumped or subsidized, yes.

Senator Massicotte: It has to be a producer, right?

Mr. Larson: Yes.

Senator Massicotte: Let's takethe aeronautical industry where, as you know, there's consistent debate between Bombardier and Embraer where they both accuse each other of subsidizing. The whole aeronautical industry is indirectly subsidized. We have a conundrum in our country with that issue.

Therefore, let's say Bombardier tries to sell in Brazil and Embraer opposes it. They do a study and we do the same thing here. But in a country where there's no producer, which is 196 of them, there's no recourse. They can sell at whatever price. Is that accurate? They can sell below their costs?

Ms. Govier: There are WTO rules, recourse through the WTO, that allow for that. They're not frequently used.

Senator Massicotte: But the WTO only deals with financing costs, to a large degree.

Ms. Govier: No, the subsidy rules that apply in our CVD investigations also apply. There are WTO disciplines as well. You may know we were in a dispute with Embraer, in fact, in the 1990s that was quite prominent. That dispute used the WTO rules.

If it's an export subsidy, there are certain definitions within the WTO that specify that if it's an export subsidy, it's prohibited. That you would take to the WTO potentially, and if found to be successful, the subsidy would have to be withdrawn.

If it's not an export subsidy but it's still a subsidy subject to the WTO rules, there are different mechanisms in place, still through the WTO, that could be used, including where there are sales to a third market, for example; so Canada and Brazil competing in the U.S. market or in Europe or elsewhere.

Senator Massicotte: So you don't need a U.S. producer to complain?

Ms. Govier: That's right.

Senator Massicotte: You can extend your ruling, if you wish, through the WTO five or ten years later?

Ms. Govier: That's right, yes. It's certainly not as quick a process as our domestic one, and they are completely separate.

Senator Massicotte: There is an appeal process in the WTO, but if you come to a determination, they don't agree and it goes to you to determine injury, there's no appeal or process to say, "We disagree and a third party will rule on the matter''?

Ms. Govier: There are a couple of options. There's a domestic appeals process, so if a domestic producer, for example, feels a decision rendered by the CBSA or CITT goes counter to what's provided for in the law, then that can be appealed to Federal Court. If another country feels that we have taken a decision that does not adhere to WTO rules, then there's the WTO dispute settlement mechanism as a recourse for that.

Senator Massicotte: Thank you.

Senator Ringuette: I'm kind of intrigued that the process is only triggered by a complaint. Do you not have another process that is a random selection of bulk shipments to Canada that might be a dumping situation but, because we have no Canadian manufacturer, then you don't have a complaint? There might be a slate of dumping in Canada.

Ms. Govier: We're looking at injury to domestic producers, so that's why it's very much a domestic industry-driven thing. They have to show they're being injured. If there's no domestic producer, that's it and nobody is being hurt.

The Chair: Thank you very much, witnesses. I'd also like to extend a thank you to the people from the Department of Finance, like Ms. Govier, who came here and helped us out. It was a good session, and we used up all our time, which is great.

We're going to suspend for a couple of minutes and then go in camera.

(The committee continued in camera.)