Proceedings of the Standing Senate Committee on
Banking, Trade and
Commerce
Issue 6 - Evidence - December 4 meeting
OTTAWA, Thursday, December 4, 1997
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-11, respecting the imposition of duties of customs and other charges, to give effect to the International Convention on the Harmonized Commodity Description and Coding System, to provide relief against the imposition of certain duties of customs or other charges, to provide for other related matters and to amend or repeal certain Acts in consequence, met this day at 11:10 a.m. to give consideration to the bill.
Senator Michael Kirby (Chairman) in the Chair.
[English]
The Chairman: Senators, we are here to continue our study of Bill C-11, which, in short, deals with the customs tariff. Our first witness this morning is Professor Michael Hart, who has been asked to come and discuss the specific issue raised by senators last week in connection with the automobile industry.
Senator Kelleher: I would like to publicly declare a conflict of interest with respect to Bill C-11. It appears that our law firm acts for Chrysler Leasing, although not for Chrysler Canada.
The Chairman: I am not sure that that is a conflict. The issue is not over leasing.
Senator Kelleher: I realize that, but I wanted to indicate that on the record.
The Chairman: Professor Hart, please proceed.
Professor Michael Hart, Norman Patterson School, Carleton University's Centre for Trade Policy and Law: Thank you, Mr. Chairman. It is a pleasure to be here. I should indicate that while I am currently teaching at Carleton University, I spent 22 years in what was then called the Department External Affairs dealing with these kinds of issues. Therefore, I may have a slight bias in favour of free trade which I am fully prepared to admit. I was involved in both the FTA and NAFTA negotiations which in many ways was the crowning point of a career devoted first to protection, which is where I learned my trade policy, and then to getting rid of it, which I thought was the useful part.
I have carefully read the testimony presented here by various witnesses which suggested one sticky point raised by the automobile manufacturers, and that is the question of the 2.5 per cent tariff on some parts. It might be useful to give you a quick background to that and to put it into perspective.
The witnesses indicated at the time that the bedrock of Canadian trade policy as regards the auto industry has been the Auto Pact. That is accurate up to a point, but it is more accurate to say that Canada, even before the Auto Pact, made very skilful use of the tariff as an instrument of industrial policy. Canada negotiated the Auto Pact largely because the United States objected to the fact we were too clever in using the tariff as an instrument of industrial policy. They said that the way we did it at the time, in terms of a duty remission based on export performance, was inconsistent with our obligations under the GATT. That led to the negotiation of the Auto Pact.
Senator Angus: Who did you say used the tariff as an instrument of policy?
Mr. Hart: The Government of Canada. It made very clever use of the tariff as an instrument of industrial policy.
The Auto Pact in effect, then, was a response to a particular policy instrument used in the 1960s to try to induce more manufacturing activity in Canada by creating a more efficient use of the tariff, that is, by reducing the tariff if companies performed in a particular way. That was enshrined in part in the Auto Pact for what at that time were the Big Four. Over the years, the government used that instrument of remitting duties for performance to all kinds of manufacturers, and the extent of that is well illustrated if you look at the annex to Chapter Ten of the Canada-U.S. Free Trade Agreement listing all the companies which, by the end of 1986, had achieved what was called Auto Pact status, that is, the ones which were benefiting from various kinds of duty remission schemes. It goes on for 10 pages. Literally hundreds of companies had gained Auto Pact status.
In addition to that, a number of companies which had not yet achieved full Auto Pact status also were given duty remissions of various kinds in return for their commitment to engage in certain levels of manufacturing in Canada, including a number of the Japanese companies. As some of the witnesses from the department indicated to you earlier, in effect, the tariff on auto parts has not been collected in Canada, in so far as manufacturers are concerned, since 1965 because the government has used the tariff as an instrument to induce a certain level of manufacturing activity in this country.
In effect, the bill simplifies a complex set of regulations into a simpler one by indicating that parts for the use in manufacturing will be in the tariff at zero.
One of the concerns raised is that that is giving away a possible negotiating coin that Canada could use in future multilateral trade negotiations. I suppose there is a small element of truth in that, but the real truth of the matter is that, for negotiating purposes, what counts is not the level of the tariff as it sits in the customs tariff but the level of the tariff as it is bound in the WTO. The tariff is currently bound in the WTO at a variety of levels. For some parts it is at 6 per cent, for some parts it is at zero, and for the parts of greatest interest to the vehicle manufacturers it is bound at 2.5 per cent. That is the tariff that Canada would negotiate.
Would future negotiations be influenced by the fact that the tariff is bound at 2.5 per cent in the WTO and applied at zero as a result of the customs tariff? Perhaps very marginally, but given the level of the tariff today at 2.5 per cent and the nature of tariff negotiations, which are largely of a formula kind rather than a product-for-product horse-trading kind of negotiation, I doubt if it would make a tremendous amount of difference to negotiators from Japan or from the European Union at some point in the future to see that we have a bound rate at 2.5 per cent and an applied rate in the customs tariff at zero.
That is my reaction to what I have read, and I would be more than happy to entertain any questions.
Senator Meighen: Is your conclusion that, given the marginal usefulness, you see no reason to maintain the 2.5 per cent tariff on the books?
Mr. Hart: I see very little utility to that. It is largely cosmetic.
Senator Meighen: And it is of very little negotiating worth?
Mr. Hart: Very little negotiating worth.
Senator Stewart: I am trying to understand what is going on here. Let me sketch a scenario, and you tell me where I am wrong.
Back in the 1960s and thereafter, we had a tariff on original parts, and we remitted that tariff in one way or another in order to encourage foreign producers, specifically Japanese in the case of the automotive industry, to locate plants in Canada. That continued down to the time when we had to fulfil a condition of the Free Trade Agreement or the NAFTA. Under that agreement, we had to eliminate this form of subsidy, if I may use that term. I know the Americans do not like the term because they do not understand it, not having any subsidies in the United States. However, we had to get rid of this form of subsidy, and we did so.
The argument is now made that, under the provisions of this bill, we are simply continuing the policy which prevailed for the previous 20 years by zero rating these goods.
My analysis is that down until the time when we had to stop our subsidies, the policy purpose was to encourage the establishment of assembly plants in Canada. Now we have a different purpose, and that is to realize free trade in these goods. In fact, there has been a change in policy; am I correct?
Mr. Hart: Not totally. If you or I wanted to import some of these parts, we would have to pay the tariff. That tariff is still limited to manufacturers who will use the parts in the manufacturing of vehicles. Therefore, it is not a free trade tariff; it is an application of industrial policy by using the tariff to maintain or induce certain kinds of activity. That same purpose was used in the 1960s to make more efficient use of the tariff as an instrument of industrial policy -- that is, to say to people, "Here is the tariff and, if you engage in certain kinds of activity the government is trying to promote, you do not have to pay the tariff." Having the tariff bound in the WTO at 2.5 per cent for use in manufacturing is a different tariff from the tariff you and I would pay. If you wanted to assemble a car in your backyard, should you be so included, you would have to pay more.
Now the government is saying, "We want to bind that tariff in the customs tariff because we are satisfied at the level of activity that is being performed." In other words, it continues to be a tariff at zero for manufacturers who are using these parts in the manufacture of a vehicle.
Senator Stewart: However, the argument that we were encouraging these plants to establish in Canada would no longer be viable. They are here.
Mr. Hart: They are here; that is true.
Senator Stewart: To put it another way, do we have here an example of the infant industry argument, except that the industries are forever infant? They are always demanding the kind of special treatment they thought they were eligible for when they were indeed infants.
Mr. Hart: They are at least juveniles now. The level of protection indicates that because in the 1960s the tariff on engines was 25 per cent, and on most other parts it was 17.5 per cent. We are now down to largely 2.5 per cent. We can at least call them juveniles. They are not seeking protection; they are seeking to impose a penalty on their competitors.
Senator Stewart: Their competitors being?
Mr. Hart: The Japanese manufacturers.
Senator Stewart: The Japanese manufacturers in Japan?
Mr. Hart: No, in Canada.
Senator Stewart: What are they trying to do?
Mr. Hart: The big three vehicle manufacturers are asking for the reimposition of a 2.5 per cent tariff on parts imported by non-Auto Pact manufacturers.
The Chairman: Is it fair to say that they have couched their argument by saying that what they want is a level playing field on the grounds that Japanese car manufacturers in the United States also pay the 2.5 per cent? In talking about a level playing field, they carefully neglected to point out that the U.S. manufacturers in the United States also pay the 2.5 per cent, and the Big Three in Canada do not want to pay the 2.5 per cent. Essentially they want a level playing field between Canadians and Americans for the Japanese, but not for themselves.
Mr. Hart: Yes. That is not a bad summary.
Senator St. Germain: Is there any way Japanese or Asian manufacturers could take advantage of this, and the currency as well, to ship in more parts from outside the country?
Mr. Hart: I do not know what you mean by "take advantage". The two Japanese manufacturers that are well established here -- Honda and Toyota -- engage in a fairly high level of economic activity. They make decisions on a day-to-day basis as to where they will source their parts. The zero tariff in effect allows them to source the parts from the most efficient and economical source, wherever that source may be. If Canadian parts manufacturers are competitive, that is where they will source them. If not, they will get them elsewhere. In the end, the Canadian consumer benefits from manufacturers sourcing from the most efficient, productive, and lowest cost source.
Senator St. Germain: However, there is no way that it will provide an unlevel playing field for the Big Three because they are more committed to North American production.
Mr. Hart: Talking about commitments is interesting. Both Honda and Toyota now manufacture cars that have more North American content than cars manufactured by the Big Three. The Big Three also import components from offshore.
Senator Callbeck: You said that tariffs on auto parts have not been collected since 1965. Does that refer to non-members of the Auto Pact?
Mr. Hart: The tariff has not been collected on auto parts imported for use in manufacturing, but it is collected.
Senator Callbeck: It has not been collected at all with respect to the non-members.
Mr. Hart: All manufacturing activity in Canada has enjoyed one duty remission or duty drawback program after another.
Senator Tkachuk: Are Canadian manufacturers offered a level playing field with Japanese manufacturers in Japan?
Mr. Hart: I do not know what you mean by "level playing field".
Senator Tkachuk: In other words, do they have a tariff duty imposed on their parts?
Mr. Hart: Yes.
Senator Tkachuk: What is that?
Mr. Hart: I do not know what the tariff is set at currently.
The officials who keep track of that in much more detail than I tell me it is zero.
The Chairman: Thank you for being here today, Professor Hart.
Our next witnesses are from the Canadian Steel Producers Association. Please proceed.
Ms Jean Van Loon, President, Canadian Steel Producers Association: First, I should like to address a question that is on everyone's mind: Why have we come up with this issue at this late date? It is a good question because there have been extensive consultations on this complex legislation. We have worked closely with officials of the Department of Finance on a number of issues related to the customs tariff. In fact, we even had consultations at one point on the very issue we are raising now.
When the Department of Finance announced that they would not take our comments into account in moving forward, we did not proceed to fight further at that time. Given the overall balance of exchange rates and economics in the world at the time, it was not that big a business issue. When it began to be perceived in our industry as a larger issue, we thought about coming forward. We did not want to come forward unless it was serious.
The bottom line for us is that this is serious. It is largely due to the changes that have taken place in Asia in the last few weeks and months which have dramatically changed the balance of exchange rates and made imports from that part of the world much more of a competitive threat. Given that a large number of investments have been made over the past several years to gear up for higher quality and greater output for the automotive industry, our members are concerned at the idea of moving these duties to zero at this particular time.
Our goal is not to slow down this legislation because we have a stake, as does every other industry, in having it introduced smoothly on January 1. Our industry ships steel back and forth at the rate of 1,000 or more transactions a day. We do not want to see that disrupted.
Our goal is not to increase any tariffs from where they are now but to maintain the rate of diminution of the tariffs negotiated with the WTO so we have that cushion for getting through the next months and years with the pressure from the Asian markets.
I should like to say also that when we first started expressing concerns about this, we understood that the only way it could be addressed was through an amendment to the bill. We were advised last evening by officials from the Ministry of Finance that they believe there is an alternative way to resolve this issue which would allow the bill to go through as it stands. We could deal with our particular concerns.through the minister's power to make adjustments in the transition period,
If the government can confirm for the committee this morning that that is a possibility and that they are prepared to work that way to address our concerns, we would be prepared to work with them in that fashion and withdraw our proposal for an amendment.
Senator Angus: The situation that you are referring to relates to chapter 99, tariff item 9959.0000, on page 2388 of the schedule to the act; is that right?
Ms Van Loon: Yes.
Senator Angus: Your product is covered under materials of sections 3, 6, 7, 11, 13, 14 or 15. I think section 15 is the one.
Ms Van Loon: It is in chapter 72 and 73 under 15.
Senator Angus: Subject to a possible alternative way of giving you the relief you seek, could you elaborate for us, on the record, form of amendment that would give you appropriate relief if there were no other way to fix your problem?
Ms Van Loon: If there were no other way to fix the problem, we would look for some way to exclude from the provisions of 9959 those steel products which are made in Canada and were not coming in duty free.
Senator Angus: Have you a specific wording for such an amendment?
Ms Van Loon: No, we have not. I guess the closest we could say would be with the exception of certain products under chapters 72 and 73, something along those lines.
Senator Angus: Would the gentleman with you like to add something?
Mr. Denis Martin, Manager, Trade Relations and Market Data, Dofasco Inc.: If you wanted to make it broad, you could say with the exclusion of chapters 72 and 73 from section 15. That would cover all products, but then there are some that are currently at zero and deservedly so. That would need some adjustment, whereas the proposal we are making would indeed work around that.
Senator Angus: As I understand the reasons you have come at a late date, it is because you were focusing in another area and it only recently became apparent to you that you were working at cross-purposes. Is that right?
Mr. Martin: That is right.
Senator Angus: From which department were the officials with whom you had discussions last night?
Ms Van Loon: They were from the Ministry of Finance.
Senator Angus: Were they receptive to the problems you outlined?
Ms Van Loon: They indicated that they would be prepared to work with us if we were prepared to work with them in that manner and to deal with our concerns.
Senator Angus: I understood you to say earlier that you wanted the minister to attend, as he will be this morning before this committee, and state something. What is the level at which you would feel comfort? What would you need him to say in order to withdraw your submission?
Ms Van Loon: We would need him to say that there is an alternative option that is technically feasible, that he and his department are prepared to use it, and that it would be used in such a way as to not remove the current tariffs from steel products made in Canada that are now subject to duty.
Senator Angus: We will see if the minister will do that when he arrives.
In the meantime, you are talking about the rate of diminution of tariffs on these items coming in from abroad as per a rate of diminution that was more or less worked out under the WTO; is that correct?
Ms Van Loon: Yes. The WTO provided that steel tariffs would all go to zero over a certain period. I believe the latest year is 2003 for the last tariff to go to zero. We are concerned about moving that faster, given the changes that have taken place recently.
Senator Angus: Are those changes particularly currency related?
Ms Van Loon: Yes, as well as related to the slowdown in the Asian markets which will slow down their own consumption of steel and create more pressures on the world markets.
Mr. Martin: To give you an example of what we have heard in the last week, the Japanese, who are big suppliers to the Asian market, have doubled their allocation of tonnage for Western Canada and the U.S. for next year because of the market falling off in Asia. Those kinds of things prompt us to introduce a whole new issue into the West Coast, where we must compete. The car companies will look to any savings they can get and, depending upon the product, 4.5 to 8 per cent is a big savings.
Senator St. Germain: Would anti-dumping legislation would address this issue, or is this too marginal?
Mr. Martin: Not only that, but it is a matter of time.
Senator Angus: The damage is done.
Mr. Martin: You bleed for two years before you win.
Senator St. Germain: My other question relates to the level playing field and automobiles that are manufactured here being exported out of Canada. Do we have access to those markets?
The Chairman: When the minister attends, he will have with him the ADM dealing with trade policy. Perhaps you should direct the question there.
Mr. Martin: Another issue I should like to raise, and you have made me think of this, is that one of the things negotiated under NAFTA was that the duty drawback is the lesser of the duty that you paid coming into Canada and the duty that your finished good gets going into the U.S. Drawbacks have been available until January 1, 1998, when the duty going into the U.S. is zero.
Therefore, there is no longer a duty drawback available, so they have lost that cushion, if you will. We were concerned about that cushion up until now. We thought at least that was gone. Again we will lose that cushion, that 4.5 to 8 per cent, depending upon the commodity. The advantage to using Korean steel to make a car part in Canada is that they received duty drawback because that is the way the Canadian system works. Starting January 1, there will be no duty drawback available to them, so that puts us back into the competitive position that we feel we have as an industry in Canada.
Senator Austin: Mr. Martin, have you found that the non-North American auto manufacturers in Canada have been willing to use Canadian steel? Has it been easy, or do they prefer to rely on steel made in their home countries?
Mr. Martin: Honda, Toyota and to a lesser degree CAMI work with us to varying degrees. If we had a product which we felt was comparable to what they were getting from Japan but which they were bringing in under a not-made-in-Canada duty-free status, they were less than willing to work with us at times. They used the fact that they could buy it duty-free to their advantage.
I go back to the 5933, which was the current tariff which allowed duty-free access to materials, not just steel, not made in Canada. They used that 5933 to bring in steel that they wanted to buy. When we convinced the government that we had a product which was as good as the other for their part, the duty went back on. Suddenly they were more willing to work with us. At that time, I believe the duty rate was 7 per cent, which was a great deal of money. When the prospect arose that they would have duty-free access again, suddenly they wanted to talk about a price cut because the tariff was gone.
Senator Angus: To place it on the record, can you briefly tell us about the Canadian Steel Producers Association?
Ms Van Loon: We represent the primary steel manufacturers in Canada. We have 12 member companies. We represent 33,600 direct employees. We have plants from Alberta to Nova Scotia, although everyone thinks of Hamilton. In addition to those direct employees, another four for every one is employed in processing, distribution, and downstream activities, which amounts to approximately 150,000 employees nationally. These are high-value-added jobs. The value added per employee in the primary steel industry is above the national average for manufacturing.
Senator Angus: Yes, and you are here on behalf of that industry to make this specific point.
Ms Van Loon: That is right.
The Chairman: Thank you.
Our next witness is the Secretary of State for International Financial Institutions, Mr. Jim Peterson. This is our first opportunity to welcome him to this committee but not the last since he is responsible for the task force report on which we will be holding hearings next year.
As you know, Mr. Peterson, the evidence here focused almost exclusively on the automobile tariff issue until the steel issue was raised a few minutes ago. We can perhaps make maximum use of your time by focusing on those two questions.
The Honourable Jim Peterson, P.C., M.P., Secretary of State (International Financial Institutions): Mr. Chairman, for inviting me to appear before you. I have been looking forward to this because I know that we will be counting a great deal on the expertise you have developed in the area of financial institutions. We will need your help, advice, and cooperation in the months and years ahead.
On this particular issue, I know that you have focused on cars and steel. These are critical to our economy. In the auto industry, 39,000 people are employed in assembly, 92,500 in parts. In the steel industry, 33,600 people are employed. They are great exporters. I understand why you have concentrated on these two particulars areas in your hearings.
This bill has great implications for all of Canada and our economic future. It involves duty savings of some $90 million for Canadian businesses and consumers. It undertakes a great simplification of the existing law and, as you are aware, it enjoys broad support, not only in the House of Commons but in the industries -- the Canadian Importers Association, the Alliance of Manufacturers and Exporters of Canada, and the Chamber of Commerce to mention a few.
We know that major changes such as this have the potential for problems and have therefore undertaken a conditional six-month period of administrative tolerance that would start, assuming this bill passes, on January 1.
As you are aware, the duty-free status of auto parts used by non-Auto Pact producers would be continued to maintain a uniform manufacturing environment for all auto assemblers in Canada.
In terms of the steel issue, which I know you have discussed in detail, I would note that if the industry's real concern is with the threat of a surge in steel imports in light of recent developments in the Far East, then we do have instruments we can use to deal with that such as anti-dumping, countervail, safeguards, and import controls. That being said, and this issue having been brought to your attention and our attention fairly late in the process, we are concerned that the industry does deserve some examination because they have some legitimate concerns.
Therefore, I undertake that we are prepared to work constructively with them in the days ahead to deal with their concerns. We do have the legislative authority to make rectification. This kind of rectification could be of a transitional, ministerial authority to amend the schedule to correct legitimate problems that may arise as a consequence of the implementation of the new tariff.
In conclusion, honourable senators, there is widespread support for this bill. We recognize, however, that the committee and the Senate are masters of their own affairs and fate. Early passage, this year, would be appreciated by Canada's business community because they have already undertaken extensive preparation to convert their automated import systems. Early passage would certainly avoid the major disruption that could result from uncertainty. Thank you.
Senator Angus: Welcome to our committee. I understand you are here to talk to us about Bill C-11 today.
Mr. Peterson: I think so.
Senator Angus: I was hoping you would bring us the foreign branching bill. It seems to have been lost in the shuffle.
Mr. Peterson: We look forward to your help and knowledge on that one. We were delayed in that. We put our consultation paper out in September for comment and criticism, and we have just received the latest inputs. Because of this delay in receiving feedback from the industry, we will be delayed a month or two.
Senator Angus: I appreciate your candour on that. In the paper yesterday, I did notice some specific reference, which took me by surprise. Was the report accurate?
Mr. Peterson: Yes, it was.
Senator Angus: Regarding the bill before the committee, you are here on behalf of the government generally, because it crosses several departments.
Mr. Peterson: Yes.
Senator Angus: Does your department have specific input on it?
Mr. Peterson: Anything that deals with money or tariffs must come through us. It is fair to say the true expertise regarding the auto and steel industries lies in the Department of Industry, but I am blessed with very knowledgeable officials on the entire issue of tariffs.
Senator Angus: Let us deal right up front with the issue of the steel producers.
I think I heard you say that you were familiar with the nature and scope of the issue that they brought to the table late in the game. I think their explanation for why they are late is reasonable. Do you agree?
Mr. Peterson: Yes.
Senator Angus: I gather from your comments that you are sympathetic to the problem they have outlined.
Mr. Peterson: We are sympathetic. We think the best way to deal with this would not be an amendment to the bill, but we do have other remedies through the process of rectification as well if there are surges in imports and things like that.
Senator Angus: Obviously some are more efficient than others. We have been told that the anti-dumping legislation is a lengthy process and would not address the immediate problems caused by the unfortunate situation in the Pacific Rim.
Let me put a very blunt question to you.You did make an undertaking to work constructively with these people. Would you go so far as to undertake to use the most efficient means at your disposal, alternate to amending the act, to give them the equivalent of an amendment to the tariff item?
Mr. Peterson: I understand that if we use the rectification provisions, it would be an immediate and direct way of meeting their concerns. That would keep things more or less as they are today in terms of the duty position.
Senator Angus: I take it at face value when a minister of the Crown says he will undertake to find a mutually satisfactory solution to the problem.
Mr. Peterson: Absolutely. Our officials have been impressed by the fact that there are legitimate concerns to one of Canada's most important industries. If you have suggestions as we go along, we would welcome your input.
Senator Angus: We have had a good deal of discussion on auto parts and tariff item 9958.00, some indicating that moving away from the Order in Council situation -- the relief that had a sunset of December 31 of this year -- and dealing with it holus-bolus and removing the duty in this act and in this schedule entirely is a fundamental change in our trade policy. Could I have your comments on that, please?
Mr. Peterson: Correct me if I am wrong, senator, but it has been our policy to ensure that there is a level playing field among those who assemble automobiles in Canada. It will not be completely level because of the Auto Pact benefits enjoyed by the members of that group. We want to ensure more jobs in Canada and to encourage people to assemble here rather than bring in vehicles.
Senator Angus: In the context of the discussion that we have heard, we did have a reference made to a letter from Mr. Skorupinski of Industry Canada. That letter that was tabled before this committee.
Mr. Peterson: I have not seen it, but perhaps I could defer to the author.
Senator Angus: It is dated January 11, 1994. The issue arose as to whether the Canadian automobile manufacturers were blind-sided when the Order in Council came in. There was some discussion. Reference was made to this letter, and we asked that it be tabled. The letter is addressed to the President of the Motor Vehicle Manufacturers' Association and advises of changes in the tariff in automotive original equipment parts, or OE parts, made at the end of 1993. Before the change, Canada's tariff rate on automotive parts was 9.2 per cent. The rate in the U.S. at that time, as it still is today, was 2.5 per cent.
After the change, Canada's rate was reduced to 2.5 per cent. It indicates in the letter, and I quote, "The new rates in Canada will eliminate this differential on those parts identified in the Order in Council."
Mr. Skorupinski added that in arriving at the new tariff structure, "We were particularly sensitive to concerns about the impact on Auto Pact safeguards. Consequently not all parts tariffs were reduced."
The following questions arise. If the reduction in tariff rates discussed in this letter eliminates the tariff differential between the U.S. and Canada, then will a further reduction at this time -- to zero in the Canadian tariff -- create a differential? If other words, if the differential had been removed before, then, yes, it would be 2.5 in the states and zero here.
Mr. Peterson: It certainly will. I am not sure exactly what the implications are, except that it creates a somewhat more favourable environment for attracting investment and jobs.
Senator Angus: Here.
Mr. Peterson: Yes.
Senator Angus: Who will benefit from this differential -- the Auto Pact members or the non-Auto Pact manufacturers?
Mr. Peterson: I encourage my officials to tell me when I am wrong here.
My assumption is that the non-Auto Pact members will benefit from this. That is essentially what we were trying to do by eliminating this tariff. We wanted to ensure that we got our fair share of North American manufacturing or assembly jobs.
Senator Angus: If not all parts tariffs were reduced at the time of the Order in Council because of the government's particular sensitivity to concerns about the impact on the Auto Pact safeguards, what has changed since the time of the letter to which we are referring?
Mr. Peterson: As I understand it, this letter was issued before major announcements of investments by transplants, but perhaps Mr. Skorupinski could confirm that.
Mr. Slawek Skorupinski, Director General, Automotive, Urban Transit and Rail Branch, Industry Canada: That letter goes back to 1993 when we first made the change in tariffs. Since that time, two major things have happened. One is that both Honda and Toyota have announced huge investments in Cambridge and in Alliston. Second, the tariff under the free trade agreement will go to zero at the end of this year. At that time, it was still there.
Senator Angus: We heard this morning from Mr. Michael Hart, a learned professor from the Norman Patterson School at the Carleton University Centre for Trade Policy and Law. He indicated that there are various instruments for enhancing our industrial situation in Canada, including the customs tariff. I think he indicated that it is quite common to use the tariff as an instrument of industrial policy in this fashion. Is this another example of that?
Mr. Peterson: I certainly agree with your comment, senator. Particularly in the past, we have used tariffs as a major instrument of industrial policy in Canada. However, our ability to do so has become very circumscribed and limited because of our many bilateral and multilateral pacts on free trade.
It is fair to say that, to the extent that we can now offer this 2.5 per cent differential, it gives us an opportunity as a country to try to get those jobs here when they very easily could go south of the border where the markets are far larger.
Senator Angus: Someone suggested in this discussion that the Big Three, as they are often referred to, are being disadvantaged in some respects by this change, whether it was a change that took place in 1993 or whether it is being changed again at this time. Would this be taken into consideration in that something might be done for them in another context? Would that be reasonable?
Mr. Peterson: I have always felt that the auto industry, including assembly and parts manufacturers, are a critical element of our current and future economic development.
I would certainly welcome the report that is forthcoming, however, I would also welcome working with your committee to determine if there are ways we can nurture and foster further developments in this particular industry.
Senator Angus: The representatives of the Big Three attended before us, and they seek a specific amendment to Bill C-11. Would you be willing to undertake such an amendment, minister?
Mr. Peterson: I believe we should continue with the current policy that we have of no tariffs on the auto parts in question coming into Canada for assembly. This gives us an opportunity to try to create the jobs here. That certainly does not mean that we have anything against the Big Three or that we would not be prepared to work constructively with them in the future.
Senator Angus: Do you still consider the Auto Pact to be a basic part of our industrial policy? You would not want to violate its terms.
Mr. Peterson: It is a very important part of our industrial policy.
Senator Kenny: Minister, I wanted to ask you about the area that Senator Angus first addressed when he began questioning you. What are the instruments or tools at your disposal in the event of a surge in imports? For the edification of the committee, would you care to review those tools and instruments and indicate the relative effectiveness of them and how quickly they can be put in place and how useful they are in protecting Canadian industry?
Mr. Peterson: In order to not waste your time, I will ask officials to deal with that, particularly on the efficacy and the timing available.
Mr. Terry Collins-Williams, Director, Department of Finance: Of the trade remedy instruments available, we are talking about anti-dumping safeguards and import controls. Of those, anti-dumping is by far the most commonly used and has been extensively used by the steel sector in Canada and the United States.
The anti-dumping provisions of the Special Import Measures Act provide the authority to impose duties to deal with dumped imports which are causing material injury to Canadian producers. It would take between 120 and 180 days from the time of a complaint to have a provisional anti-dumping duty put in place.
Anti-dumping duties tend to be. and have been in the case of the steel industry, at rates which effectively stop imports of that product from the dumped country, that is, rates which would tend to be in the area of 25 per cent and above. That is a fairly effective form of protection.
I could provide the committee with a list of anti-dumping steel findings under SIMA which are now in place. That gives you an indication of the extent to which anti-dumping has been used as a remedy to deal with dumped steel imports.
The other mechanism which is currently being used in the case of steel imports is import controls under import and export legislation. All steel imports require licences -- that is, importers must apply for a licence prior to the importation of a shipment of steel. These licences are granted by the Minister of Foreign Affairs and the Minister for International Trade.
In addition, there is a committee of steel industry representatives and government officials which meets regularly and reviews steel trade import data on the basis of the data provided by these licences and by customs entries.
Senator Kenny: Without belabouring the point, how long does it take for your officials to become seized with the problem, evaluate it, decide that there is an issue with which you must dealt, and then move ahead and deal with it? While we have some time frames here to put things in place, I wish to know how long it takes from when you push the button before you start these things happening.
Mr. Collins-Williams: As soon as we are made aware by industry, we begin discussions with industry. Since we have an ongoing mechanism for consultation among steel and government industry representatives, that happens almost immediately. For example, at the present time, we are engaged in discussions with industry representatives about problems posed by Russian steel imports.
Senator Kenny: If I may come at it from a different angle, how much damage could happen between the time the button is pushed, if you will, and the 180 days lapse? What sort of injury might the industry incur in waiting for the time it takes for the button to be pushed, the committee to be seized with it, for you to conclude that this is a dumping situation, and then for you to institute the mechanism available to you? In the meanwhile, what has happened to the people producing the product?
Mr. Collins-Williams: Anti-dumping is dealt with under the provisions of the law. An investigation is conducted by Revenue Canada on the dumping aspect and by the Canadian International Trade Tribunal on the injury aspect. The law specifies periods of time for the conduct of these investigations which are governed by international obligations under the World Trade Organization.
I would make two points: First, the very act of initiating an anti-dumping action does tend to have a chilling effect on imports and on the price of imports. Importers and foreign producers become aware that they may be liable for increased duties and that these increased duties may be applied as early as the preliminary dumping determination, which in itself could be within 90 days of the investigation being launched.
In the most recent case which was taken on steel action against China, Mexico, the Russian Federation, and South Africa, the Canadian International Trade Tribunal made a finding of threat of injury. They found that while there was no injury at present from steel imports, there was a threat that, in the future, increased dumped imports could cause injury and, in this case, the industry is getting relief immediately from the potential for injury from dumping.
Senator Kenny: Minister, in your view, are these instruments and tools effective? Are they doing the job they way they should be doing it, or do they need improvement and modification?
Mr. Peterson: I am neither enough of an expert nor have I had enough experience to answer that important question. However, I am prepared to consider it in the future. If there are suggestions that we could make improvements within the context of our international obligations in these areas, I would certainly be prepared to look at them. My preliminary view of this -- and I think it is the view of the steel industry as well -- is that with the remedies at our disposal, including rectification, we can act in such a way as to protect in this particular circumstance. That is my major concern.
Senator St. Germain: Minister, did the Big Three appear before your committee at the House of Commons?
Mr. Peterson: Yes, I am informed that they did. I have personally been privileged to have ongoing conversations with them over the years.
Senator St. Germain: Recent conversations?
Mr. Peterson: No, not recently.
Senator St. Germain: As you pointed out, this industry is critical to the country and they are covered by the Auto Pact. I understand that there was supposed to have been a phase-in of the Asian automotive producers into the Auto Pact, but that has never taken place as such. Now, we may be tilting the playing field against those which have made a commitment to Canada. As we all know, the way Ontario's economy goes is the way Canada's economy goes. Without the automotive industry, we are toast. What remedies would you have to satisfy them in the interim?
Mr. Peterson: We do have the study coming up. Here, again, I must tell you I am a big fan of the Auto Pact. I think we should do everything we can to ensure that those provisions continue. If suggestions are brought forward concerning what we might do to encourage further production in Canada and to work with the Auto Pact members, including the Big Three, I would welcome them.
Senator St. Germain: My big concern is that we still do not have access to their markets with our finished products. I do not think that playing field is level yet. In view of that, would you entertain an amendment to the legislation dealing with this particular aspect of the matter?
Mr. Peterson: No. I understand your concern for the Big Three, but I do not think they need this amendment in order to continue their Auto Pact provisions. It is our policy not to hurt them but to encourage others to produce in Canada and create jobs.
Senator St. Germain: I am looking at correspondence from various people across the country. If they are not in jeopardy in reality, their perception is that they are in jeopardy and that their position will be undermined by this. If everything is going so well, why are we not out there reassuring people? People perceive that they will be discriminated against and that it will weaken their position against their foreign competitors.
Mr. Peterson: I should like to assure them that they have my full commitment and this government's full commitment to work with them on an ongoing basis. Imposing tariff barriers which would discourage other people from establishing in Canada and having their assembly here and creating jobs here is not necessarily the best way to do things. What we have built up and what we have been able to achieve is something we should maintain.
Senator Tkachuk: Mr. Skorupinksi, were you not going to give us an overview of the automobile industry in Canada? Is that not why you are here?
Mr. Skorupinski: I have no idea. No one told me why I was here.
Senator Tkachuk: Could you do that?
Mr. Skorupinski: Yes.
Senator Tkachuk: It would help us on our following questions if you could take a few minutes and tell us what is happening in that business.
The Chairman: Before that, Senator Stewart has a question.
Senator Stewart: I may lead into that subject. Mr. Peterson has told us that they are prepared to consider rectification action in the case of steel. Presumably, if rectification action were necessary in the case of OEP parts, the same would apply there. I want to broaden the discussion a bit and ask if some fears can be dispelled. I hope they can be. We are seeing currency devaluations in Japan, and I am told that one of the purposes of the proposed common currency in Europe is to achieve an effectual devaluation of the Deutschmark. Both of these devaluations would make automobiles originating in those countries or places less expensive.
Given the fact that the automotive industry in Canada is fundamental to the current and future prosperity of the country, have you anticipated problems that might arise from the availability on the international market of relatively inexpensive Japanese-produced our German-produced automobiles and the impact this might have on the Canadian automotive industry?
Mr. Peterson: That is an important question, Senator Stewart. It would be not only the auto industry but also our entire system of domestic production. Every country faces this vulnerability to international currency fluctuations. Over the long-term, these devaluations have a way of smoothing themselves out and working against themselves as prosperity brings higher currencies. In terms of short-run fluctuations, it is my understanding that this is what antidumping has always been there to deal with.
Senator Stewart: I am a bit amazed by that response. Perhaps I should read my Economics 100 text again.
Mr. Peterson: I would turn to our experts on this, then.
Mr. Collins-Williams: The way the antidumping law is administered, it can effectively deal with sudden price fluctuations as a result of currency movements.
Senator Stewart: Here we may not be talking about short, small choppy waves. We may be talking about a massive devaluation of the Deutschmark.
Mr. Collins-Williams: In that case, I think monetary instruments available to the government and to governments around the world and market reactions would deal with currency fluctuations.
Senator Stewart: You understand this vague language, Mr. Chairman, but I do not.
Mr. Peterson: I cannot predict what would happen. I do not want to get into the position of having to predict how much foreign currencies will be advantaged vis-à-vis the Canadian dollar. In terms of monetary instruments, we would have a limited range of application through our trade instruments. However, as a government, if currencies were suddenly to put us out of production in major areas, we would have other alternatives that we could look at.
Senator Stewart: This is the point to which I thought Senator Tkachuk's question might be relevant.
Senator Callbeck: Do Honda and Toyota meet the requirements for membership in the Auto Pact? If not, where do they fall short?
Mr. Skorupinski: Currently, they do partially. They meet the production-to-sales ratio in that they produce more than one vehicle that they sell. They probably do not meet the Canadian value-added requirements. They both said publicly that they would meet those requirements once their new plants are onstream in 1999.
Senator Callbeck: Under Bill C-11, is there any way for the government to ensure that non-Auto Pact manufacturers meet the same conditions as those in the Auto Pact?
Mr. Skorupinski: No, not under Bill C-11. The only way to ensure that those manufacturers met the same conditions as those in the Auto Pact is to put them in the Auto Pact. We cannot do that as a result of international obligations.
They are also not receiving the same benefits. The Auto Pact manufacturers can import both parts and vehicles duty free.
Senator Callbeck: I realize that.
Mr. Skorupinski: Honda and Toyota cannot import vehicles duty free whereas the Big Three can import finished vehicles duty free under the Auto Pact.
The Chairman: I believe it was the representative from Toyota who said when he was here last time that he thought they met currently the conditions of the Auto Pact; the other representative, who I believe was from Honda, said they did not. Do you have any clarification on that?
Mr. Skorupinski: I cannot tell you definitively. Since they are not under the Auto Pact, they do not have to report to us. It is possible.
The Chairman: You also said that they have stated that by 1999, when the new plants open, they will both have met those conditions. Yet they are not eligible to join the Auto Pact because they were excluded explicitly under the FTA.
Senator Tkachuk: I should like a quick overview on the automobile industry, a part of which we have already covered. However, if you want to add something on the state of the automobile industry in Canada, please do so.
Mr. Skorupinski: Currently, the Canadian industry is performing very well. Employment, production and output by both the vehicle and the parts manufacturers are at record levels. For the most part, plants have been modernized. They are producing vehicles that sell well. There are a couple of plants whose products are not selling that well in the marketplace. Most plants are operating at two or three shifts, with a couple of exceptions, such as the ones at Sainte-Thérèse and CAMI which run one shift because of market conditions.
In general, the industry in Canada is doing very well. There is nothing on the horizon that would indicate that things would change. Honda and Toyota plants will be coming onstream within a year or so. At that time, they will more than double their production. Production will continue to increase, as will employment. The outlook is relatively positive.
Senator Stewart: Are you taking into account any possible increase in imports from Japan and Germany, for example, brought about by the financial situation to which we referred earlier?
Mr. Skorupinski: If is difficult to speculate. There has been a modest increase in imports from Japan because of some models that they have developed which are unique. On the other hand, the Japanese are increasing their production in North America. I would expect imports from Japan to continue to decline. They have decreased dramatically from several years ago when they were relatively high. That was before they put their production facilities in Canada.
The Big Three always refer to Korea, which is a bit of a question mark. I say that because before the current situation, they had a plan to put in a lot of capacity in Korea. Everyone wondered where that capacity would go. We have no idea what will happen in the current situation to that capacity.
Senator St. Germain: With regard to the increased production that we will see with these two plants coming onstream, will this not increase supply and possibly alter the entire market in North America? Or will it just result in a pure reduction of imports which will balance the scenario?
Mr. Skorupinski: To a large extent, it will be a reduction of imports. Some of that will be models produced by other companies. There will be a competitive factor in the marketplace. With regard to who will win, I do not know.
The market is growing slightly in North America. This incremental capacity will be offset by market growth. In this industry, the companies compete fiercely. Much depends on the models, et cetera. It is hard to say who will win.
Mr. Peterson: First, I look forward to seeing the competitiveness review on the auto sector which is being led by Industry Canada and which we expect to see in the spring of 1998. Because it is such an important industry, I would welcome the views of your committee as to whether there are matters which will arise out of that at which we should look and be aware of. Senators today have raised some important questions about not only our auto industry but also all our industries in terms of what is happening globally.
In terms of the major currency fluctuations and the impact they could have on jobs in Canada, I want to assure you that we are monitoring this closely in terms of the exposure of our financial institutions as well.
Lastly, I should like to thank you for this opportunity to be with you. I look forward to working with you an ongoing basis.
The Chairman: Thank you, minister.
Following the minister's comments on the request from the steel industry, I asked Dr. Goldstein to ask Ms Van Loon, the President of the Canadian Steel Producers Association, if she was satisfied with the minister's comments to the extent that she was happy and therefore let her amendment go by. I believe the answer is "Yes".
Mr. Van Loon: Yes.
The Chairman: Our next witnesses are from the Customs Excise Union. Welcome back.
Approximately two or three years ago, members of your union were concerned about some changes that were taking place concerning some consolidation that was taking place within the department. We felt the union had some quite legitimate concerns. You will recall we agreed that they would try to work out a settlement with the deputy minister and the administration of the department and that we would monitor it.
We subsequently had a meeting the best part of a year later jointly with the deputy minister and the members of the union. In fact, they were fairly happy with the solution.
I am delighted to welcome you back here again. Mr. Moran, for the record, please introduce your colleagues and then proceed to make your comments.
Mr. Ronny Moran, National President, Customs Excise Union: Thank you, Mr. Chairman. With me today from the Customs Excise Union are Sister Karen Dwyer, who works at Revenue Canada in Calgary, Alberta, in the area of trade administration; and Brother Wayne Mercer, who works for Revenue Canada in Halifax, Nova Scotia, as a tax interpretations officer with experience working in trade administration.
CEUDA, the Customs Excise Union Duoanes Accise, represents some 10,000 employees of Revenue Canada, of whom approximately 1200 work in the area of trade administration that will be affected by Bill C-11. I express our gratitude for agreeing to hear testimony from CEUDA on Bill C-11.
[Translation]
Mr. Chairman, on behalf of our association, I would like to thank you for having accepted to hear from us today, and for having allowed us to share our members' concerns on Bill C-11.
[English]
Our concerns relate largely to the impact this bill will have on our members, employees of Revenue Canada who work in the area of trade administration and border services and to the extent to which Revenue Canada has planned to administer this bill, given the scope of changes that will be made to the Customs Act and the Customs Tariff Act.
Having studied the bill and having consulted with Revenue Canada officials on aspects of the bill, we do not feel Revenue Canada has adequately planned for the changes this bill will bring about, considering the government's intentions to implement Bill C-11 on January 1, 1998.
It is our opinion that many issues on which we have raised questions are being afforded little, if any, attention by the ministry before the bill's implementation. This concerns our members, CEUDA, and we feel it should be of concern to senators.
Given the terminology relating to aspects of this bill, I invite senators to refer to Appendix B, Summary: Definitions of Terms, and Appendix C, Current and Proposed Processes, while I review some of our concerns. These appendices are appended our brief.
Our first area of concern with this bill relates to the fact that it will essentially allow all goods imported into Canada, with the exception of prohibited goods and travellers' effects, to be deemed determined at or before time of accounts. This means the importing community will essentially be solely responsible for determination of country of origin, tariff classification, and value for duty when goods are imported into Canada. It means that no Revenue Canada officers will have the opportunity to review and make an actual determination of what importers will declare at or before time of accounting.
Why might this be a problem? Consider the following. During a two-year period, 30 audits were conducted by Revenue Canada to measure importer compliance with the Customs Act and the Customs Tariff Act. The review from these 30 audits revealed a 70 per cent error rate in country of origin, tariff classification, and value for duty. How can the government assume importers will suddenly get it right as of January 1, 1998?
With removal of what the Honourable Senator Kirby described as red tape, this bill will significantly streamline the process for importers, but we wonder if, in the drive to streamline, the pendulum is not being swayed too far towards facilitation at the expense of enforcement.
Our second area of concern relates to the fact that this bill down-loads a new one-step appeal process and further redetermination to Revenue Canada's regional offices. As stated in our brief, we are seriously concerned that Revenue Canada has not made sufficient provisions for resources at those regional offices. Further, we are surprised at this eleventh hour that Revenue Canada is only beginning to train staff at regional offices.
Lastly, while we are pleased Revenue Canada has agreed to look at job descriptions with CEUDA in the new year with respect to new jobs being created subsequent to this bill, we are disappointed down-loaded duties are not currently reflected in the new job descriptions for work that will be undertaken in regional offices. Of course, we are equally suspect that the jobs have not been classified properly, which will negatively effect the remuneration our members will receive.
Our third area of concern relates to the accuracy and importance of trade data. Trade data is collected at the time determination takes place. Furthermore, this data is used considerably in developing and negotiating international trade deals. If importers' declarations are essentially deemed determined at or before time of accounting, then we suggest importer declarations will form a significant backbone to our trade data. With an exceptionally high error rate of 70 per cent when declaring country of origin, tariff classification and value for duty, we suggest our trade data will not be accurate nor reliable. How can we expect the government to negotiate international trade agreements with inaccurate trade data?
Our last area of concern with this bill relates to enforcement. We suggest the existing fine structure for non-compliance by the importing community could very easily become part of doing business. We have suggested in our brief that Revenue Canada explore the existing penalty structure, giving consideration to a method that would impose higher fines to repeat offenders.
Before closing, if the chair is agreeable, I wish to have our brief appended to the minutes of this meeting and to form part of the record of these proceedings.
The Chairman: We always do that. It goes with our proceedings.
Mr. Moran: We thank you for agreeing to hear our testimony on this important bill. We would be pleased to answer any questions you may have at this time.
The Chairman: Thank you.
Senator Kenny: I have a general concern that came to light in the course of your testimony, namely, the propensity of this government and the previous government to create new obligations for departments to take on while, at the same time, removing staff to take on these obligations. I should like to hear more from you about this down-sizing. My impression is that your department has been decimated and you do not have staff to do the tasks that you are currently assigned. If I am wrong, please correct me.
As well, what concerns do you have about the move to an agency? How does that relate to these issues?
Mr. Moran: I will transfer the first question to Ms Dwyer, who works in trade administration and is also the chairman of our union staffs account.
Ms Karen Dwyer, National Vice-President, Prairies and National Capital Region, Customs Excise Union: As a union, we have concern about the down-loading of responsibilities to the regions. This bill enables work which is currently undertaken by people in headquarters to be down-loaded to staff. Staff resources will increase in accordance with the department by approximately 5 per cent, but we are getting a lot of down-loading of work to the regions.
I work in a trade administration office. Prior to me becoming quite involved with the union, I did go out to the community in the province of Alberta and to businesses throughout Alberta.
As a trade administrator within the regions, we want to ensure that we have the knowledge to work with the business community. We want to retain our professionalism within the business community.
With this bill being implemented on January 1, 1998, there is a fear that we will not have all the necessary knowledge or training to fully advise our direct client, the business community.
Senator Kenny: Do they have other places to go to get this information?
Ms Dwyer: It depends. Most of the information in terms of trade, whether it be with the various free trade agreements, with tariff classification or with valuations, would come from the trade office within the region.
Senator Kenny: I am trying to address the frustration of calling this department and not getting an answer. I am not trying to blame you. I am suggesting that it may be because of the very reasons you are pointing out. The service that Canadians receive is diminished because either there are not enough staff or they are not properly equipped to do the job. This seems to be a recurring problem in terms of the government providing services. The public servants in place cannot provide them, and we have a lot of aggravated citizens.
Ms Dwyer: That is one of the concerns we address in our brief. Our concern is that the training and resources will not be in place to adequately resource this bill once it is passed in 1998.
In reading the commentary from the House of Commons, I think there was a feeling it was rammed down the throats of the public and people did not have enough time to adequately debate the bill and the issues contained within the bill.
It is a large bill. It changes the way that we, as officers of the Canadian importing and exporting community, will operate in the future. It is not a small piece of legislation that will have no effect on the business community. It is an important piece of legislation.
Senator Kenny: Could you answer my question about the agency, please?
Mr. Moran: It goes without saying that we share your concerns on resourcing. It ties in to the agency aspect. We are of the firm opinion that the agency is a further down-sizing exercise. We also have concerns that the agency will no longer be reporting to a minister. We are of the firm opinion that the transition to an agency will monopolize the agenda and that not enough consideration will be given to the actual people in the field trying to adjust to all these major changes.
Senator Meighen: I wanted to raise the same issue that Senator Kenny raised.
On the assumption that we have agreed to append this brief to the record, and on the understanding that you are not asking for an amendment to this bill but, rather, are raising concerns with respect to its application, then I am satisfied. I have had my questions answered.
Senator Stewart: I wish to ask a question about the accuracy or inaccuracy of the paperwork -- or whatever form it now takes -- and, thus, of the trade data. Twice you told us, if I heard correctly, that the extent of error or inaccuracy was monumental. We know this because of audits that were done. Is that correct?
Mr. Moran: They were carried out by Revenue Canada.
Senator Stewart: You mentioned various types of inaccuracy in country of origin, classification and value for duty. You bulked all of those together to get the final percentage. Could you tell us which one was most common? Where was the error or inaccuracy most common?
Ms Dwyer: There was an overall 70 per cent error rate. We do not have the figures or the breakdown of which was more prevalent.
In terms of the 20 audits being done over a two-year period, and showing a 70 per cent error rate, if you read any of the data provided by Revenue Canada, there are approximately 1,000 large importers within Canada. They import approximately 69 per cent of all imports coming into Canada.
Let us assume that the department, over a two-year period, could only complete 30 audits. With the changes in legislation, the time-frame will increase from two years to four years. Let us quadruple that figure. We will probably do 200 audits. That still leaves approximately 800 companies that will not have an audit. I find it hard to understand how you can have fairness and equity within the importing community when it has already been determined that there is such a high error rate.
Mr. Moran: You were asking how we have compiled the information to arrive at those figures. We did not compile that ourselves. Revenue Canada came up with the overall figure. You would have to ask that question of Revenue Canada.
Senator Stewart: What happens after an audit? Is this just saying that we must do better, or do they go back and try to rectify what had been paid?
Ms Dwyer: If money is owing, an assessment would be levied by the department. The department would do a follow-up consultation with that company to ensure that the country of origin and value for duty on goods is properly done in the future. I do not know what the time-frame of the evaluation would be.
As trade people within the field, our concern is that, if we look at the number of large companies and the percentage that can be audited, there is an unequal balance mathematically of trying to even the playing field. This bill is trying to provide a level playing field for all importers in Canada. We believe that will be hard to accomplish, given the data already created by Revenue Canada.
Senator Stewart: Given the fact that we have moved to a free trade regime in North America and much of our trade in goods is with the United States, I should have thought, in a superficial way, that the importance of the branch in which you work would be declining. Is that true?
Ms Dwyer: No. You must remember that one of the mandates of our job is to ensure that accurate trade data is collected. Another mandate is to provide information on importing and exporting to the business community in the region in which we live.
As the Canadian dollar decreases and the American dollar increases, importers have a tendency to source other countries for their materials and resources. I do not know the percentages off hand, but when I talked to the manufacturing industry in the Province of Alberta, one of the things that came out loud and clear was that in terms of importing raw materials or other types of materials, because of the low Canadian dollar, they had a tendency to look at marketplaces outside of the U.S.
Senator Tkachuk: Following up on Senator Stewart's question about the 70 per cent error rate, was the wrong country listed, or was there a mathematical problem? An error can be one error or a multiple of errors.
Ms Dwyer: We received the figures from the department in an oral presentation from the department that it was a 70 per cent error rate.
You can ask the department. They should be able to provide you with that data concerning what percentages were a tariff classification and what was country of origin or what was undervaluing goods. That is something you may wish to do with the department itself.
Mr. R. Wayne Mercer, Second National Vice-President, Customs Excise Union: One of the points which must be remembered in this 70 per cent error ratio is that this also impacts the income tax and excise taxes that are collected on the value of goods being imported and declared.
Senator Tkachuk: Are you saying that the error lay in the money being wrong?
Mr. Mercer: If the goods were underclassified, misclassified or underdeclared, this government loses income and excise taxes.
Senator Tkachuk: If someone imports something from Korea but lists Thailand, he may have to pay less money?
Mr. Mercer: That is right.
Senator Tkachuk: So it would be a deliberate thing?
Mr. Mercier: It could be a deliberate thing.
Senator Tkachuk: It is hard to mistake.
Mr. Mercer: We have goods coming through the United States that originally started in Japan. When the broker declared under free trade, saying, "Okay, I picked up the goods in Dallas, Texas," he may not have realized that the original sourcing of the goods came from Japan or Korea, too.
Mr. Moran: It could have gone through a 10 per cent manufacturing process in Texas and then be shipped up.
Senator Tkachuk: Are you saying that because the importers would be responsible for doing all the paperwork rather than people at the border or customs officers at the border, this will increase the error rate? You have a 70 per cent error rate now. That tells me someone is not doing their job now, or else there is no one doing their job. That is a big error rate.
Are you are telling me that it will jump higher if the people will be doing it themselves? Will we have an 80 or 90 per cent error rate?
Mr. Mercer: We are telling you that a 70 per cent error rate is too high and unacceptable. We are neither ready nor prepared to handle the changes that are coming through, so the error ratio has an opportunity to increase.
Mr. Moran: Even if it is maintained, it would be unacceptable.
Mr. Mercer: If it is maintained, it is an unacceptable error rate. These are departmental figures, not our figures.
Senator Tkachuk: However, under the present conditions you will have an opportunity to review.
Mr. Mercer: That is correct.
The Chairman: One of the roles of government is to provide good customer service. That is one of the things that is increasingly important and it is an area where governments at all levels have never really focused much attention.
In reading your brief, I was troubled by the potential of the level of these kinds of changes to have a significant impact on customer service. I should like to invite you to do what we did with your union three or four years ago, namely, if you are unable over the next nine months between now and when we return at the end of the summer to solve the administrative issues, we would be delighted to have you return here to talk to us about it. It is one thing to change public policy but it is another to change public policy in a way which substantially causes customer service to decline. That is an issue for this committee, not just here but elsewhere.
I thank you for your brief and hope you will return in the fall if you are unhappy with the solutions that you try to get from the department.
Mr. Moran: Thank you. We accept your invitation to come back should we have the difficulty that you have mentioned.
The Chairman: Senators, may we dispense with the clause-by-clause portion and address the issue of amendments?
Hearing no amendments, may I have a motion to report the bill without amendment?
Senator Austin: I so move.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: Carried.
The committee adjourned.