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
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
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
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
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
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,
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
The Chair: So then they can open up an operation in each province,
Mr. Pigeon: Right, they can open branches in any province or
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
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
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,
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
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
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
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,''
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
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
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
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
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
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
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
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
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
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
The Chair: Point well taken.
Are there any other questions? If not, I want to thank you very much,
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
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
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
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
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
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
Mr. Larson: No.
Senator Wallin: Is this good or bad?
Mr. Larson: I think, as you suggested, that is probably a question for
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
Senator Day: And you share information back and forth during that
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
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
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
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.)