INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, November 4, 1997

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[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I call the meeting to order pursuant to the Order of Reference of the House dated Tuesday, October 28, 1997, in consideration of Bill C-11, the Customs Tariff Act.

We have two groups of witnesses appearing before us today. First we have witnesses from the international trade policy division in the Department of Finance, and from Revenue Canada. Afterwards we are going to have representation from some witnesses.

Mr. Le Blanc, perhaps you could introduce the people you have with you, and begin.

[Translation]

Mr. Gilles Le Blanc (Senior Chief, International Trade Policy Division, Department of Finance ): Thank you, Madam Chair.

I'd like to make a short statement about the bill itself. I would remind you that we distributed some documents to the members of the committee, including a detailed statement about the origins and objectives of the bill, and about what it proposes. There is also a brief summary of its various parts, and a document containing comments on each of the bill's provisions.

I'd just like to note that the comments are based on the ways and means notice of October 7, accompanying the bill. I mention this because, when the bill is studied one section at a time, there may be some differences in pagination.

Also, when the bill is examined section by section, some technical amendments will be submitted to the committee.

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Madam Chair, Bill C-11 stems from a review of the customs tariff announced in the budget of February, 1994. Extensive consultations with all stakeholders were held.

The purpose of the review was to make the customs tariff more responsive to the competitive pressures Canadian industry must cope with as a result of freer trade, particularly in the North-American market, and to simplify the tariff and make it more transparent and predictable so as to lessen the regulatory burden and associated costs for industry and government.

Bill C-11 revokes the existing customs tariff and replaces it with an updated one that reduces customs duties on a large range of manufacturing inputs; that eliminates tariff provisions, regulations and requirements no longer justified; that eliminates or reduces administrative procedures associated with certain tariff provisions; that consolidates tariff provisions in a single annex, instead of the present seven, comprising some 8,000 provisions instead of the present 11,000; that provides for a simpler rate structure, by eliminating very low rates, rounding off rates, blending some rates and correcting some tariff discrepancies; and that suggests some additional amendments to the Customs Act.

[English]

The bill enjoys the broad support of those in Canadian industry who are anxious to see it implemented on January 1, 1998, as scheduled. Major industry associations—namely, the Canadian Importers Association, the Alliance of Manufacturers and Exporters Canada, the Canadian Chamber of Commerce and the Canadian Pulp and Paper Association—have written to state their support for the bill and see its early adoption.

Two areas of concern have been brought to the attention of the government. The first is the timing of the implementation. Some are worried that they may not have the time to get their import-recording systems ready for January 1, 1998, which is the scheduled date of implementation.

Revenue Canada and Statistics Canada have been working closely with Industry over the last few months to try to deal with this problem. I understand that these discussions have been fruitful, and that the concerns expressed by some in industry have been substantively allayed and alleviated.

The other issue that has come up—members may already be aware of it—is that the Canadian Vehicle Manufacturers' Association has very recently written to the government asking for the withdrawal from the bill of a duty-free provision for auto parts used in vehicle assembly in Canada used by non-Auto Pact companies. The bill merely continues the status quo, i.e., the uniform treatment of auto manufacturers in Canada with respect to their input costs.

This is a very brief introduction, Madam Chair. I'd like to thank the committee for their attention. We would be happy to answer questions members may have.

The Chair: Thank you, Mr. Le Blanc.

Mr. Schmidt, do you have any questions to begin?

Mr. Werner Schmidt (Kelowna, Ref.): Yes, thank you, Madam Chair.

I didn't quite get the point about the international automobile manufacturers association, outside of the big three American production people. Could you explain briefly exactly what you said? I didn't get the full import of what you said.

Mr. Gilles Le Blanc: Bill C-11 continues duty-free treatment for automotive parts. It continues a provision that exists now that provides for duty-free entry for auto parts. This provision is mainly used by the non-Auto Pact companies. The bill continues that treatment.

Mr. Werner Schmidt: Yes, I know that. It's the other part I was looking for.

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Mr. Gilles Le Blanc: The Canadian Vehicle Manufacturers' Association has been seeking the withdrawal of that provision. That is the reinstatement of the tariff for those parts.

Mr. Werner Schmidt: Okay. Thank you.

The other question has to do with the year 2000 and the co-ordination of the computers to make sure the shift that takes place at the turn of the century is actually accommodated.

I know the coding system being proposed here adds another two digits. How does this now fit in with the movement toward the year 2000 and the new dating system that has to take place? How compatible with it is the Department of Finance's recording of all that is going to take place, as well as the Department of Industry and any other department involved? This will involve virtually all aspects of government as well as industry so we will need at least three dimensions here to be worked on. How comfortable are you that's all going to happen and be co-ordinated sufficiently well to make it all work?

Mr. Gilles Le Blanc: The issue you have just raised is a general one and hasn't been a concern with respect to this particular bill. Solutions are being looked at within the government and probably within industry. It's an issue that is beyond what we've done and what we're doing, and solutions are being sought by the informatics experts in the various organizations. But it's not an issue that has been brought up in the context of our work.

Mr. Werner Schmidt: But that's not the issue here. I'm quite aware that's not within the parameters of this bill, but this thing has to work, and if those things aren't there this bill isn't going to work. It doesn't matter how good this bill is. So it has to be of concern to you. Surely being in the Department of Finance—and there are a lot of other people in there—you've had some discussions about this.

Mr. Gilles Le Blanc: Our system people are looking at this because it's a system issue and not an issue that is raised with us. When they find a system solution it will resolve it for everyone.

I'd like to have my colleague from Revenue Canada comment on this.

Ms. Candace Breakwell (Director, Tariff Simplification, Revenue Canada): There are two issues here. There are no new digits in the introduction of these ten digits. It is the same as what exists in the system now. The information in those ten digits changes, and that has been done now. That database has been given to industry and we worked very hard with Statistics Canada over the summer to ensure that Industry Canada had that ten-digit database.

With respect to the year 2000, our department is working on that to reprogram our main database and that will be taken into account. It does not affect the ten digits.

Mr. Werner Schmidt: I have another question about the preservation of the Auto Pact which is going to be maintained. I'm really concerned that the provisions of that Auto Pact continue to provide a level playing field for all the competitors in that automobile manufacturing sector. In your view, is that being provided for in this bill?

Mr. Gilles Le Blanc: Yes. The level playing field is being preserved.

Mr. Werner Schmidt: Thank you.

Thank you, Madam Chair.

The Chair: Mr. Bellemare.

[Translation]

Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): Thank you, Madam Chair.

[English]

Who in the automotive industry requested this change to Bill C-11? We initiated this bill. Someone in the industry must be hurting or must want something. I'm sure the minister didn't just sit down and say “Gee, it would be nice to change the bill”. Why are we changing the bill?

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Mr. Gilles Le Blanc: We are not changing... We are continuing the existing policy. We are not changing what exists now. We're continuing it in that bill.

Mr. Eugène Bellemare: If we're continuing, why do we need the bill?

Mr. Gilles Le Blanc: Right now automative parts imported into Canada for assembling vehicles are coming into Canada duty-free. This bill continues that.

Mr. Eugène Bellemare: There are some concerns about the timetable you mentioned. Who are these concerns coming from?

Ms. Candace Breakwell: We have made a number of presentations over the summer and we have received concerns from some in industry and some service providers. As I mentioned previously, we worked very hard over the summertime to have the database ready. We delivered that database with all the information industry needs to make the system changes through the summer and with the final version by early September.

Mr. Eugène Bellemare: Have you allayed the fears of all these people, or are there still some who have some concerns?

Ms. Candace Breakwell: We have given them all the information they need to make their changes. I think now it's a matter of making those changes, and I'm confident they will be ready for January 1.

Mr. Eugène Bellemare: Have those who had concerns in late spring, early summer, indicated that their concerns are now allayed?

Ms. Candace Breakwell: I think industry is much more confident they will make the January 1 deadline, because we had given them all that information over the summertime. Just recently, at the end of October, we published the consolidated version.

Mr. Eugène Bellemare: You say “the industry”, but that's a fuzzy term. People out there like the forest; let's pick on some of the trees. Do specific groups you know and you can name here have concerns, and are their concerns valid?

Ms. Candace Breakwell: The Canadian Importers Association did submit to us a brief on a concern about timing, but we have been working with them and I think they too are confident they can meet the January 1 deadline.

Mr. Eugène Bellemare: There must be a costing on the part of these businesses, whether they are small or of medium size. Have you made a costing of what it would be to go through this transition period, to adapt to the new regulations?

Ms. Candace Breakwell: To adapt to the system or to the regulations? The system changes?

Mr. Eugène Bellemare: The system.

Ms. Candace Breakwell: No, we haven't costed it. However, as I said, we have given them a database. It has every piece of information they need to make the change. Where the work will come in is that importers or particularly service providers will have to go through their client files to look at the changes. That is a service they provide for their clients.

Mr. Eugène Bellemare: This is my final question. I have here two reports, one from the Canadian Society of Customs Brokers and one from the Customs Brokers Association of Canada. To the ordinary person it would seem a customs broker is a customs broker. How many associations do they have? Is there one that is the real brokerage group and the other one is a sort of dissident group?

Ms. Candace Breakwell: There are two national groups.

Mr. Eugène Bellemare: Why would that be?

Ms Candace Breakwell: I think you'll have to ask one of the next witnesses.

The Chair: Thank you, Mr. Bellemare.

[Translation]

Mr. Dubé, do you have a question?

Mr. Antoine Dubé (Lévis, BQ): To my mind, it's a bit complex. If it's already been said, maybe it's worthwhile saying it again.

I see that this bill goes back to a statement made by the Minister of Finance in 1994. Last year, discussions took place, as you said at the beginning, but at the same time I see that the target date for implementation is January 1, 1998. I conclude from this that the pressure is on for this bill to be passed as quickly as possible. I am trying to understand how it is that, now, four years later, all of a sudden, it has become urgent. I would like someone to tell me what happened for it to have taken so long.

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The other aspect or matter is about the Departments of Finance, Revenue and External Trade becoming involved. Here, at the Standing Committee on Industry, are we at the end of the consultation process or are there other consultations by other Parliamentary committees concerning this issue? My question may be for the Chair of the committee.

[English]

The Chair: Mr. Dubé, we probably should speak to the fact that it's before this committee for a variety of reasons, one of which is that there is a time deadline to meet the requirement of January 1. It was explained at the steering committee meeting. I apologize. We probably should have brought it up in full committee.

The time deadline, as I said, is December 31, for implementation January 1. The finance committee is doing pre-budget consultations and Bill C-2, the CPP, and would not be able to deal with this bill until the end of November, which would not allow time for it to go through the House and the Senate prior to December 31.

A number of businesses have made a substantial investment in being ready for January 1, as well as the fact that industry is doing a number of reviews, one of which is on automotive tariffs, at the same time. There is a relation to industry here, considering that we deal with a lot of small and medium-sized business through the industry committee. That's one of the reasons it's before this committee. It was agreed by all the House leaders that it would come before the industry committee.

Mr. Le Blanc, do you wish to comment further?

[Translation]

Mr. Gilles Le Blanc: This initiative was announced in the 1994 budget, as you mentioned. At the time, the government announced a three-year review and, when the announcement was made, it identified the matters to be reviewed by a task force set up within the Department of Finance to conduct a review of the tariff system.

During the two years following the announcement, the government made public a number of proposals designed to achieve the objectives of the initiative. The public was consulted, industry was consulted,...

Mr. Antoine Dubé: Who did the consulting?

Mr. Gilles Le Blanc: The Department advanced certain proposals designed to achieve the objectives of the initiative, to simplify the tariff treatment and improve the competitive position of Canadian industry. Very extensive consultations were held, following which, in March, 1996, a general proposal for a new simplified customs tariff was made public for comments. We responded to all the representations we received in the first two years. And, last April, we arrived at the final outcome, that is, the tabling of a ways and means notice. But an election was called, with the result that the notice was tabled again in Parliament on October 7.

Throughout these consultations, we always indicated that the target date for implementation was January 1, 1998, which coincides with the elimination of customs duties between Canada and the United States under the free trade agreement. This was a major consideration when the government decided to go ahead with this initiative in 1994.

Mr. Antoine Dubé: Has this issue been studied by another Parliamentary committee during the process?

Mr. Gilles Le Blanc: No. Public consultations were held and lots of meetings took place with stakeholders. The outcome is the tabling of this bill.

Mr. Antoine Dubé: Another, existential question: why was the order of reference given to this committee and not to the External Trade or Finance Committee?

[English]

The Chair: That decision is made by the House leaders. All the House leaders agreed that it would come before this committee.

[Translation]

Mr. Antoine Dubé: I know by whom, but I do not know why.

[English]

The Chair: I've tried to explain it. It's technically a finance—

[Translation]

Mr. Antoine Dubé: I understand, but you say it was the House leader who decided. I would like to know the reasons. Why is it us, and not the other two committees I mentioned?

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[English]

The Chair: Mr. Dubé, I tried to answer that. I'll try again. It's technically a Finance and Revenue bill. The finance committee is busy right now doing pre-budget consultations and has a time deadline for the CPP, Bill C-2. They wouldn't have time to deal with this bill until after the end of November, at which time it would be too late to have it go through both the House and the Senate.

Because of the industry-related aspects to the bill, which deal with small and medium-sized businesses, in preparation for January it was felt this was the place to bring it, and it's now ours.

Mr. Peric.

[Translation]

Mr. Antoine Dubé: I'd like to make a comment in this regard. I don't mind dealing with this matter. I was afraid of your question, and your answer confirms it for me. It may be fine and the Bloc Québécois does not object to the principle. I think we're agreed that it's necessary. The only thing I find a bit odd is the urgency right now. The whole thing is part of our process and has to go through a committee that normally would not be given this study. This explains why we can't always ask the right questions.

[English]

The Chair: Mr. Dubé, as I said—and it's the last time I'm going to say it—all the House leaders agreed, including the Bloc, that it would come before this committee. If you have an issue of opposition, I suggest you take it up with your House leader.

Mr. Peric.

Mr. Janko Peric (Cambridge, Lib.): Thank you, Madam Chair.

In your opinion, should all Canadian vehicle manufacturers be treated equally?

Mr. Gilles Le Blanc: My response to that would be what the existing government policy is, which is to treat uniformly manufacturers in Canada with respect to their input costs.

Mr. Janko Peric: You indicated that the Canadian Vehicle Manufacturers' Association has asked for the removal of tariff ratios to non-Auto Pact members.

Can you explain why they are asking for that removal?

Mr. Gilles Le Blanc: I don't feel well positioned to speak on behalf of an industry association. I think it's a question that would probably be more properly put to them.

Mr. Janko Peric: Thank you.

The Chair: Just to let you know, they will be appearing before us tomorrow.

Mr. Schmidt.

Mr. Werner Schmidt: Thank you, Madam Chair.

I neglected to do this, Madam Chair, but I do want to express my appreciation now to the people who are before us as witnesses. It's nice to have people who understand the bill before us. I want to thank you for being here.

I also want to express my pleasant surprise that somebody was able to reduce some 1,000 tariffs, take them out of there and make this simpler. I wish we could do that to the revenue. Would you take that back to your revenue minister and suggest that we do it with the Income Tax Act too? I think it would be really nice if we did that.

I'd like now to refer to a couple of technical questions, if I might. Do we all have the same book we can work from, or do we not? I'm looking at this one here, on page 24. The reference is subclause 53(2).

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The Chair: To clarify, Mr. Schmidt, for anyone following along in the blue briefing book, it's on page 33.

Mr. Werner Schmidt: Thank you, Madam Chair.

I understand this is not a new provision; this is something that existed in the legislation before. Because it has been there for the last 100 years, or however long this act has been around, doesn't necessarily make it right, but I would like to ask why it is that the governor in council can override not only Parliament but every act that Parliament has passed under this act. This act somehow creates a level of authority and power in the governor in council that no other piece of legislation has in this country of ours. Why is it that this act gives that kind of power to the governor in council?

Mr. Gilles Le Blanc: In responding to the question, I would say that you will have to look at the context of the provision.

You're right. When you start looking at it, you see:

53.(2) Notwithstanding this Act or any other Act of Parliament, the Governor in Council may

But when you keep on reading, it sets out the situations where this is possible. Very often it is to enforce quickly Canada's rights under an international agreement because a country has taken an action that is affecting Canadian interests in a serious way, or to respond to a discriminatory act against Canada. It allows the government to be able to respond to those situations.

If I could make a parallel, it is a bit the equivalent of the U.S. section 301 that we hear about, which allows them to take action expeditiously to protect the interests of the United States. This is to allow the government to act expeditiously to protect the interests of Canada.

Mr. Werner Schmidt: Madam Chair, I understand the context. I think I read this about five times before I thoroughly recognized what was going on here. I recognize that this is a highly specialized position in the act. I appreciate that, and there may be emergency situations where that happens.

Now, that's a key word I just used. Is it in emergency situations where this happens, or is this a clause that could be invoked in order to get around the dispute resolution mechanisms that exist under the free trade agreement, or the NAFTA, or the WTA, or the GATT agreements?

Mr. Gilles Le Blanc: This would not be there to get around those. It is to implement our rights under those agreements when other countries have not abided by their obligations and it affects Canada.

Mr. Werner Schmidt: But if there is a dispute resolution mechanism—and there is one—and the only reason it would go to a dispute resolution mechanism in the first place is if one party or the other, in the opinion of the other party, isn't living up to its part of the agreement, what then constitutes an emergency?

It doesn't say “emergency” here. That's something that is being brought in from the outside. I know what the conditions are here, but what would then trigger it outside of the provisions of the dispute resolution mechanisms?

Mr. Gilles Le Blanc: You could have, for example, a decision by an international panel that says that a country was found not to have abided by their obligations under a treaty. They are found guilty; they decide not to act. Then Canada would have the right to react right away because of their non-response.

Mr. Werner Schmidt: This would be invoked only in those kinds of situations.

Mr. Gilles Le Blanc: That's right. It has rarely been used, and it would only be used in those situations where we are enforcing, essentially, our rights under international agreements.

Mr. Werner Schmidt: That would be after all other processes had been exhausted.

Mr. Gilles Le Blanc: After those processes. We're not equipped to play the bully, I think.

Mr. Werner Schmidt: Thank you, Madam Chair. Do I have time for another question, or do I have to wait until the next round?

The Chair: You have to wait until the next round.

Mr. Werner Schmidt: Okay.

The Chair: Mr. Shepherd.

Mr. Alex Shepherd (Durham, Lib.): That was a very interesting intervention by Mr. Schmidt. Would our trade negotiators call this discriminatory trade practices, our invoking this section?

Mr. Gilles Le Blanc: It would be in response to discriminatory practices.

Mr. Alex Shepherd: Well, it depends. If it were the United States doing this, we would call it discriminatory; and if we reacted, we would call it not discriminatory. We would call it a reaction to discriminatory trade practices.

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Mr. Gilles Le Blanc: But as I explained, it's to enforce rights we have under international agreements.

Mr. Alex Shepherd: I understand.

Mr. Gilles Le Blanc: But first you have to meet the conditions to be able to exercise them.

Mr. Alex Shepherd: There seems to be a general theme running through some of the presenters who are coming here afterwards, and it was touched on earlier: there hasn't been enough time for them to adjust to this. I know you have talked about a process where you went out during the summer months and so on. When was the first time customs brokers and other people actually got this document or were knowledgeable about the total contents of this document?

Mr. Gilles Le Blanc: I would say they were made aware on the tariff side, with respect to tariff lines, of what could be the content of the annex in the bill right now, in March 1996. I explained earlier to one of the members that this started in 1994. In 1996 we had an overall proposal we issued for public comment and it had an annex that included the tariff provisions in the new tariff. That was in March 1996.

Mr. Alex Shepherd: But this process we're going into now...it's possible people could amend this. Amendments to this legislation could be proposed even through this process. How are businesses to react to that?

I understand also penalties are imposed for non-compliance after January 1. Is it reasonable that they have such a short physical period to react to these changes?

Mr. Gilles Le Blanc: I would like perhaps to complete my answer to you; complement it.

In 1996 people had a chance to see what the schedule would look like when we finalized the whole package. The first time they saw what could be the final package was in April 1997, when a notice of ways and means motion was tabled, introducing proposed legislation; basically what we see today. Then they had the proposed new tariff schedule.

About the statistical annotations, which are not part of this bill but something else, something Revenue Canada does in its public version of the tariff, this information was provided to industry in the course of the summer.

As well, I would like to point out that not all the tariff lines are being affected by this bill, either. A lot are unaffected. For those people who say they have to adjust their input recording system, not everything needs to be changed.

Mr. Alex Shepherd: But some of them could face duress under this. I don't know what timeframe is reasonable.

Mr. Gilles Le Blanc: On the question of implementation, I'll turn to my colleague from Revenue Canada.

Ms. Candace Breakwell: Madam Chair, first I will back up for a second. It's not impossible for this to be done. Some service providers have planned for this and have completed it. We know this because they have phoned us and they have completed.

Secondly, we understand it is a task. That's why we had been working with industry in the last few months to ensure they have the complete database to do their systems.

Quite recently the Canadian Importers Association wrote us and asked that we be administratively tolerant on the correctness of the statistical digits. The statistical side forms the ninth and tenth digits, which are not part of this bill. They are the statistical component, the final piece of information. When you put the tariff lines together in this bill in the ninth and tenth digits, that forms the total tariff item in the database.

What we would like to do—and we have agreed with the Canadian Importers Association's proposal—is for the first six months in 1998 after implementation we will be tolerant on the statistical accuracy in the ninth and tenth digits. In other words, we will not go back and assess penalties. But there are some conditions. Those importers must show that, first of all, the eighth digit is correct. After all, they have known about this initiative for quite some time and they have had the eighth digit information since April.

They must also show due diligence; that they've tried to identify the proper ninth and tenth digits accurately. In that vein, we would encourage all importers to come to us before importation. We will assist them in identifying that ninth and tenth digit information.

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The Chair: Thank you, Mr. Shepherd.

[Translation]

Mr. Dubé, do you have another question?

Mr. Antoine Dubé: On page 137, the bill talks about the Canadian Wheat Board Act and, on page 138, the Copyright Act. With respect to this bill, which one would have preponderance? How should I interpret the reference to these acts within the bill? Am I to understand that the customs approach in the areas I've just mentioned is different and therefore it is the bill...?

Mr. Gilles Le Blanc: These are simply technical amendments ensuing from our bill. In specifying them, we are just correcting some tariff item numbers, for instance, referred to in these Acts, but that will be changed by our bill. So it's just a technical amendment, that's all.

Mr. Antoine Dubé: Are there some areas of activity that are not affected at all? One of them is of particular concern to me, namely shipbuilding. We know that not all this area was necessarily covered by NAFTA because the United States wished to safeguard it at all costs under what they call the Jones Act. Is it still intact? Is this area affected? You know what I'm talking about?

Mr. Gilles Le Blanc: Are you talking about the tariff that applies to ships?

Mr. Antoine Dubé: Yes.

Mr. Gilles Le Blanc: No, it's not affected at all.

Mr. Antoine Dubé: Thank you.

[English]

The Chair: Thank you. Mr. Finlay.

Mr. John Finlay (Oxford, Lib.): Thank you, Madam Chair.

I'm just trying to clear up...Mr. Schmidt asked the question, so did Mr. Peric, but I'm still confused. The witnesses said that parts for auto companies not covered by the Auto Pact are going to have no duty. Is that correct? That continues the situation in effect now?

What's the difference between parts for companies that are not in the Auto Pact and parts for companies that are in the Auto Pact?

Mr. Gilles Le Blanc: Right now, no one pays duties on their importation of parts for vehicle assembly in Canada. It has been like that for a long time.

Mr. John Finlay: So there's no distinction between—

Mr. Gilles Le Blanc: In the past, under the Auto Pact, Auto Pact companies could import their parts duty-free. When Toyota and Honda came and established in Canada, they benefited from some performance-based remission programs, and they also benefited from the duty drawback program, which allowed them essentially to import their parts duty-free.

Mr. John Finlay: So that it would be an even playing field for them.

Mr. Gilles Le Blanc: Exactly. In 1996 under the NAFTA, the duty drawback program basically ended, as did the performance-based remission program. The government then introduced a provision providing for duty-free entry of parts for automobile assembly in Canada in order to ensure that the situation that existed before was maintained, and to essentially create a level playing field for manufacturing vehicles in Canada.

I don't know if my colleague wants to add anything to this.

Ms. Christine Wiecek (Tariffs Officer, Domestic Tariff Affairs, International Trade Policy Division, Department of Finance): One more aspect is that the provision currently exists that all parts being used for the manufacture of automotive parts also enter duty-free. So right now the situation is that all companies, be they Auto Pact or non-Auto Pact, both get access to duty-free parts.

As well, all parts producers get access to duty-free parts for use in the manufacture of parts. Bill C-11 ensures that this would continue with the introduction of the new tariff.

Mr. John Finlay: Thank you. It's very clear now.

The Chair: Ms. Brown, you had a brief question?

Ms. Bonnie Brown (Oakville, Lib.): Yes, Madam Chair.

In what year was this tariff for the import of auto parts removed?

Ms. Christine Wiecek: In effect, there has not been a tariff on auto parts since 1965, when the Auto Pact was introduced. Under the Auto Pact, Auto Pact companies bring in all their parts and vehicles duty-free.

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When the Japanese companies entered Canada and started manufacturing in Canada, they also received access to duty-free parts under the production-based remission programs and duty drawback. That was in the period from 1983 to 1986.

These ensured that both Auto Pact and non-Auto Pact companies had access to duty-free parts. Under the FTA and NAFTA, Canada had an obligation to eliminate the production-based remission programs at the end of 1995, along with duty drawback, while the Auto Pact continued to provide duty-free entry for parts and vehicles for Auto Pact companies. However, the production-based remission programs and duty drawback were terminated.

To prevent a cost increase for the non-Auto Pact companies on January 1, 1996, when those programs were eliminated, the government eliminated the tariff on all auto parts used in vehicle assembly in Canada.

Ms. Bonnie Brown: That just boggles my mind.

Thank you, Madam Chair.

The Chair: Thank you, Ms. Brown.

I know a chart on automotive tariffs has been has put together. Has that been distributed yet to all the committee members?

Maybe we could make photocopies for all the committee members in order to simplify this. That was the intention of having the chart drawn up. I apologize if people don't have the chart before them.

We want to thank the departments for coming before us. I understand you're going to stay while our witnesses are here. We have a round table with four different groups of witnesses. We're going to hear from them one after the other, but we're all going to be at the table together.

We will hear from the Canadian Importers Association, the Alliance of Manufacturers and Exporters Canada, the Canadian Society of Customs Brokers and the Customs Brokers Association of Canada.

We'll take a short break while witnesses set up.

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The Chair: We'll reconvene.

I'd like to welcome the four groups that we have before us. What I propose is that each group will take no more than five minutes to make a presentation, and then we'll go on to questions. I will time the presentations in order to give a heads-up on them.

Ms. Bonnie Brown: That sounds good, Madam Chair.

The Chair: We'll see if that's good.

We will start with the Canadian Society of Customs Brokers.

Ms. Carol West (President, Canadian Society of Customs Brokers): Thank you, Madam Chair and hon. members. It's a pleasure for us to be here today to comment on the introduction and implementation of the simplified tariff.

We are the service providers referred to in the previous presentation by Revenue Canada. In fact, we represent about 170 customs brokerage firms across Canada, from coast to coast, working in large and small communities. Our members employ somewhere around 6,000 people across this country. The Canadian Society of Customs Brokers has been in effect since 1921. We have a great deal of experience with dealings with Revenue Canada, the Department of Finance and other government departments.

At the outset, let me just say that we support this legislation. We're not in any way trying to delay the implementation of this legislation, because fundamentally it benefits importers, our clients. We have been involved for several years in discussions about the legislation, but we do have concerns with its administration.

The challenge of managing the conversion to the simplified tariff is a difficult and complex one. Just as an example, three firms represented on our board of directors have more than fifteen million data records to convert. Even some of our small members in this country have more than half a million data records to convert. In fact, our members act on behalf of more than a hundred thousand importers. We're really the people who are faced with the burden of compliance with the simplified tariff.

One of the difficulties is that the conversion process is not an automated process. Yes, information has been available, but information was only available to us in a final format very recently. Information is still not available in hard copy format, nor is it available through Revenue Canada's CADEX system. It's that kind of information that our members rely on to make their conversion.

Our position has always been that it is only reasonable to expect a six-month timeframe for implementation for a change of this magnitude. Clearly we don't have that kind of timeframe with this legislation.

Within the past five years, Revenue Canada has been very responsive in responding to our concerns and suggestions about implementation of tariff changes. Five years ago, we used to get information the day before it was implemented, and we used to get it in hard copy only. Although efforts have been made to provide timely and comprehensive delivery of information in this instance, it simply hasn't been adequate to fully meet the needs of the business community simply because of the magnitude of this transition.

Our members will be taking a very close look at how the transition to the simplified tariff affects the conversion for all their clients. If there's not sufficient time to make this change, changes with a revenue impact will of course be identified first as a priority, because we want our clients to benefit from the reduced tariff rates that come as a consequence of this legislation. What then happens, though, is that changes with a trade data or statistical impact will not be changed at the outset.

Today was the first time that we heard from Revenue Canada that there will in fact be a six-month administrative tolerance period. We have concerns about that because at the same time, Revenue Canada is talking about an emphasis on compliance with trade data administration. In support of Canada's position internationally and globally in a competitive market place, we have concerns that there are mixed messages about compliance. As I say, this is the first time we have heard about an administrative tolerance, period.

We do support the legislation. We think it has positive implications for the competitiveness of Canadian business, our clients. We certainly recommend, though, that in future, changes of this magnitude have a minimum six-month implementation period after the changes have been finalized and published.

• 1625

Our association has scheduled a meeting of its members for tomorrow to discuss readiness for this implementation. We'd be pleased to report back to the committee on our findings after those discussions.

Thank you, Madam Chair.

The Chair: Thank you, Ms. West.

I'm going to go now to the Customs Brokers Association of Canada, while we're still on the same kind of topic.

Mr. Freitag.

Mr. Bob Freitag (Vice-President, Customs Brokers Association of Canada): Good afternoon, Madam Chair, and members of the committee. Thank you for this opportunity to appear before the Standing Committee on Industry.

I am vice-president of the Customs Brokers Association of Canada and president of Merchant Custom Brokers in Montreal. With me is Levon Markaroglu, director of operations of the association.

Our comments and observations on the bill today are divided into two categories, general and specific. In order to remain focused on this fairly large bill, given the short timeframe of less than a week to prepare for a presentation before the committee, we offer the following to assist in your deliberations.

Under general, first, the tabling of the motion on October 7, 1997, is generally viewed as positive legislation to implement a new, simplified customs tariff.

Two, the customs broker's role as facilitator in the trade process is the administration, enforcement and interpretation of regulations in the import-export process on behalf of our import-export clients, as well as collection and remittance of the applicable duties and taxes on behalf of Revenue Canada.

Three, regarding the intended effective date of January 1, 1998, our membership must and will be ready on time for the specific tariff conversion process that does reduce tariff classification numbers from approximately 11,000 to 8,000, a huge task in and of itself.

Our specific comments relate to some administrative difficulties that are anticipated. Our membership would be potentially subject to what is termed “late accounting penalties”. Again, relative to the announcement today with respect to what is apparently a six-month moratorium, we do welcome that. The burden imposed on private business and government alike, based on past experiences of this nature, is quite significant.

Regarding specific amendments contained in part 7, “Related Amendments”, Customs Act, clause 152—and in this instance I've taken a few brief extracts from the motion itself, dated October 3—subsections 32.2(2) and (3) are replaced with, “...importer...has reason to believe that the declaration of...is incorrect”. This proposed amendment in the bill submits a phrase placing an onus on the importer of goods into Canada to comply with myriad customs regulations still not properly communicated to the business community.

Our major trading partner, the United States, has clearly identified their changes under the Customs Modernization Act, the Mod Act, which amended many sections of the U.S. Tariff Act of 1930 and related laws.

In the United States:

The concepts of informed compliance and shared responsibility are premised on the idea that in order to maximize voluntary compliance with customs laws and regulations, the trade community needs to be clearly and completely informed of its legal obligations.

Once again, we shall be speaking with Revenue Canada officials in order to clearly understand and identify what should be understood by the phrase “reason to believe” in the context of “informed compliance”, currently buzzwords in Revenue Canada and commodity tax circles.

Regarding clause 160, amending section 42, “Verifications”, I quote:

An officer...may conduct a verification of origin...of tariff classification...of value for duty in respect of imported goods in the manner that is prescribed.

• 1630

This new amendment confers a clear authority to officers to conduct verifications in a manner that is still to be defined and understood by the business community. We have just received the related regulatory change announcements, but they fall short of the definitions and operational methodology that must be clear and effective for business to respond in a fair and compliant manner. In this regard as well, we shall be meeting with Revenue Canada officials to make the verification process as transparent as possible.

In closing, Madam Chair, we submit that for any policy to be effective it must be clearly announced and communicated.

Thank you.

The Chair: Thank you, Mr. Freitag.

We now would like to hear from the Canadian Importers Association. We have Mr. Armstrong, president; Mr. Bailie, director of government affairs, Kodak Canada; and Mr. Donald Goodwin, president of Tracon Consultants.

Mr. Armstrong.

Mr. Robert Armstrong (President, Canadian Importers Association): Madam Chair, members of Parliament, I am here today in my capacity as president of the Canadian Importers Association and the Association of International Automobile Manufacturers of Canada.

I am also accompanied by Mr. Don McArthur, my predecessor, who recently retired but still comes to work every day.

What is significant is the issue that is before you today on Bill C-11, the Customs Tariff Act. We as an association have been actively involved—Don in particular—with government consultations over the past three or four years, so it is not a new issue to us. We have been very successful in working with government to improve the process before the bill came before the House. We have, of course, submitted several formal briefs; we've participated in discussions with the Department of Finance; and there was a task force on tariff simplification that we met on many occasions.

We advocated the removal of tariffs based on the basis of availability rather than competitiveness, and we endorsed the laudable effort by the Department of Finance to simplify regulations and administrative procedures. The new customs tariff will enable Canadian businesses to face an increasingly competitive global environment. The streamlining of the existing tariff system is going to help to facilitate the importation of goods into Canada and reduce our cost for compliance, and administrative costs for both business and government.

I think more specifically, you need to look at the elimination of some 2,600 individual tariff items on January 1.

As well, our members are particularly looking forward to the benefit they will derive from duty reductions on a wide range of inputs used in Canadian manufacturing processes. The legislative changes will also broaden the importing community's access to a substantial array of duty-free industrial inputs.

It is anticipated by the Department of Finance that the new customs tariff is going to result in savings of approximately $90 million per year just in duty costs, let alone the savings in administration, so we see it as a bottom-line benefit to our industry.

You have heard this afternoon some of the concerns expressed. We have worked with government on some of our concerns with our members, like the Canadian customs brokers, who are the service providers to the importer.

We are very pleased to hear the Department of Revenue state this morning something about the six-months tolerance. Just so you know, back in the late 1980s when Canada introduced the new international code of the harmonized system of tariffs, it was a massive change for Canadian businesses, for our IS systems and the like. We were given then an administrative tolerance for about six months to get the numbers correct, so to speak.

What we're advocating is that we want the new bill to come in force on January 1, 1998, so that Canadians can reap the benefit of the duty-free tariffs, the lowering of tariffs, while we work with the department on what I call some of the issues related to administration.

To be honest, one of the biggest disappointments really related to the growth in the number of statistical annotations. So even though I could be importing tractors, now I'm being asked to add two digits for Statistics Canada. We understand it is for statistical purposes for other government departments, but what sticks in the craw of some importers is that they could have 200 different varieties of a tractor—there could be red ones, green ones, 100 horsepower, 500 horsepower—that are all duty-free. Their concern is that despite it being duty-free, they now have to add statistical annotations; and there are some 1,300 of them they need to build into their system.

• 1635

So their concern related to maintenance of a utility that has really no value-added, so to speak. There's a cost to doing that. They have to go to their IS departments and get these changes on time. So we are pleased to see there's going to be some administrative tolerance while we work together.

Overall the endeavour to produce a simplified customs tariff appeared at one time to be compromised by these complex and burdensome statistical annotations, but we feel that if, as we learned today, we are going to get this administrative tolerance—and I should tell you we will be looking for that in writing—we will continue to work with the department. We feel quite confident, by the way, that we will overcome those little annoyances.

I want to take this opportunity to thank you for allowing us to come here but to reiterate the support of the Canadian Importers Association and the automobile import manufacturers association for the tariff simplification initiative.

I would like to turn to Don and have him direct the auto issue for you.

The Chair: The five-minute period was for the group. I'm sorry.

Mr. Donald R. McArthur (Past-President, Canadian Importers Association): I'll be very brief, Madam Chair.

Madam Chair and members of the industry committee, I would like to speak very briefly to a point on automobile tariffs. This is an issue we had not at first intended to bring before this committee, because we are dealing with it and will continue to deal with it under the review by the Department of Industry. However, it was introduced by the Department of Finance in Mr. Le Blanc's opening remarks and it has been mentioned by a number of members of this committee. I know our friends from the Canadian Vehicle Manufacturers' Association who are members of the Auto Pact will be speaking on this subject tomorrow. Therefore I will make a few brief points on our view of the removal of the tariff on automobile parts.

First of all, the removal of tariff on parts represented a sound trade policy that benefited Canada and Canadians. It was entirely consistent with Canada's ongoing policy to improve the competitiveness of its exports of manufactured products by eliminating duty on manufacturing inputs and on production machinery. It recognizes the globalization of the automobile industry. It helped restore balance and equity in Canada's trade policy in the automotive sector by allowing companies such as Honda and Toyota to obtain duty-free entry for OEM parts, a condition they had lost under the FTA and NAFTA trade agreements, a condition that helped first attract them to Canada. It's not a new benefit. It only partially restores the benefits they had previously earned under remission orders.

Both Honda and Toyota have proceeded with very significant investment in Canada. I refer you to this brochure, which we have left with all members and which describes not only the contribution to Canada but also the membership of our association. These investments made by Honda and Toyota are close to $4 billion and a capacity of 400,000 automobiles, of which 80% or 90% are exported. It creates a more hospitable climate for future investment in Canada's automotive sector. It did not affect the ongoing duty-free status of OEM parts enjoyed by Auto Pact members but remained exactly the same.

The elimination of duty was the correct policy for Canada. Duty should not be reinstated on OEM parts, in light of the significant investment by Honda and Toyota—and their suppliers, I might add...and to maintain a positive environment for future investment.

Auto Pact members have publicly advocated the reimposition of tariffs. This would be a retrogressive step that would harm Canada's reputation abroad and limit future investments by international automobile manufacturers.

Our members therefore advocate that the current policy on OEM parts remain unchanged under Bill C-11. We recommend further that these tariffs be bound at the present zero tariff level.

• 1640

Thank you, Madam Chair.

The Chair: Thank you.

I want to apologize. It's Mr. Armstrong, Mr. McArthur, and Mr. Goodwin who are together from the Canadian Importers Association.

We'll now turn to the Alliance of Manufacturers and Exporters, with Mr. James Moore, vice-president of policy, and Mr. John Bailie, director of government affairs, Kodak Canada Inc.

Mr. James D. Moore (Vice-President, Policy, Alliance of Manufacturers and Exporters Canada): Thank you, Madam Chairman.

The Alliance of Manufacturers and Exporters welcomes this opportunity to comment on Bill C-11. For those who are not familiar with us, the alliance was formed following a recent merger of the Canadian Manufacturers' Association and the Canadian Exporters' Association.

We strongly support this legislation, which is intended to simplify the customs tariff and to assist businesses to be more competitive. We, like previous speakers, have had many discussions with the Department of Finance during the gestation period of this bill, and we believe the changes proposed are consistent with the government's stated principles of simplicity, transparency, and predictability.

Having said this, however, we share some of the caveats that have been expressed. This is extremely complex legislation that consolidates and makes many changes in the customs tariff as well as some to the Customs Act. There are approximately 25,000 tariff lines, with more than 5,000 new lines where the old tariff item converts to more than one possible 1998 tariff item. All this is to say that the devil may be in the detail.

While we endorse the goals reflected in the new tariff schedules... The goals have been set out very adequately already by previous speakers and in materials supplied to you by the department, so I won't repeat them.

The alliance has been actively encouraging all of our members to check carefully changes to specific tariff items that affect their businesses. Our concerns on this stretch to encouraging the Department of Finance to proactively seek out and advise companies of impending changes that would affect their business. The department did so, we believe, with some 2,000 firms, and we'd certainly like to commend them for that initiative.

However, Revenue Canada processes entries on behalf of more than 158,000 different importers, and that's by 1994 statistics, and I think it's fair to expect that many smaller or medium-sized companies as well as infrequent exporters will not become aware of changes brought about by Bill C-11 until they go into effect and they're implemented.

For these reasons, we attach great importance to exercising the very broad powers in Bill C-11 that are given to the minister to amend the schedule retroactively, especially in situations where, in the interest of simplification, it is subsequently found that inadvertent damage has consequently been inflicted on a Canadian business or businesses.

We also believe there should be provision for appeal in any instances that may arise where there is a disagreement and where Canada is not bound by international trade agreements. That appeal mechanism should be very simple, straightforward, and quick, and should not involve a tremendous legal process.

On the critical side of implementation, we certainly would have liked a lot more time to review the final version of Bill C-11.

We believe every effort should be made by both government and industry to implement the new tariff schedule on January 1, 1998, concurrently with the NAFTA duty elimination. Nevertheless, because many companies will require time to adjust their internal data and tracking systems, we recommend a six-month transitional period be introduced in Bill C-11.

During this period, Revenue Canada would have the option of changing entries from the old to the new schedule or waiting for business to do so in the form of claims for duty refunds under the new tariff. That of course precludes penalties, and it will go further than the offer that was made by the department just this afternoon at this committee to extend six months' tolerance on eight digits and above.

• 1645

Do you all have our written brief, Madam Chair?

The Chair: Yes, we all have it in front of us. Could you summarize it briefly for us?

Mr. James D. Moore: I'm not going to read a letter, which is quoted in full, on some of the practical difficulties that an individual company is experiencing. I would ask you to read it, because it illustrates very much what we've been saying and what some of my colleagues in the brokerage associations have been saying.

I'd like you to take into account that this letter comes from one of the largest importers in Canada and one of the most sophisticated. They know what they're doing and know what has been going on for the last two years. If it causes this much problem for somebody at that level of sophistication, you can imagine what it might be like for the medium- and smaller-sized exporter or the infrequent importer. It's worth reading.

I might add also that they have found already that a number of items they import will, presumably through inadvertent error in the transformation, take significantly higher tariff rates. They're very concerned about the mechanisms, which are not explicitly spelled out in this legislation, for repeal to get those tariff rates down where they should presumably have been at the outset. I strongly recommend you read that section.

Changes of special concern have already been identified.

The Chair: Mr. Moore, if you could just briefly summarize, our time is running short here.

Mr. James D. Moore: I haven't touched on automotive, and since you gave the other side of the issue some time separately from the importers' brief, could I beg your indulgence on that?

The Chair: Mr. Moore, I'll give you another minute, but I've gone over your five minutes already, and we are hearing from the automotive indus Est-ce que ce qu'on est en train de faire, peut-être que ça s'adresse autant à la présidente, est-ce qu'on est au Comité de l'industrie comme try on both sides tomorrow.

Mr. James D. Moore: Well, you've heard from one side today, Madam.

The Chair: I'll indulge you—

Mr. James D. Moore: Could I ask that it be read into the record that there is another side to that story, and I will conclude with a one-minute summary, if I may, Madam Chair?

The Chair: Yes.

Mr. James D. Moore: We support the simplification objectives of Bill C-11 and believe it is important that the bill be enacted in time for implementation on January 1. In recognition of January 1 being an ambitious implementation schedule, we recommend companies be given transition implementation leeway.

One area I haven't had time to cover, but it's a very strong recommendation and it's covered in the brief properly, is we recommend that the bill be amended to indicate more clearly a recognition that there will likely be anomalies in situations identified, where companies have had their commercial interests inadvertently compromised, by establishing a more clear-cut mechanism for redress than is presently contained in the bill.

Finally, we recommend that the provisions to permanently reduce automotive parts tariff rates to zero be deferred pending the results of a major automotive industry study now being conducted by Industry Canada in cooperation with the industry and expected early in the new year.

Thank you, Madam Chair.

The Chair: Thank you, Mr. Moore.

[Translation]

Mr. Dubé, do you have a question?

Mr. Antoine Dubé: Yes, Madam Chair. I don't wish to criticize the persons who have appeared before this committee but, as a francophone who doesn't know English well, I regret being rushed and not having the French version of texts.

I know that the witnesses were summoned late and I don't blame them. In view of the significance and urgency of the matter, I will lend my cooperation, but I wouldn't like it to always be this way at the Standing Committee on Industry.

The witnesses have said that, to comply with the provisions of this bill, businesses will have to assume the costs. Have the total costs been estimated for business? How much is it going to cost?

• 1650

[English]

The Chair: Ms. West, would you like to give a response on behalf of your group?

Ms. Carol West: Perhaps I'll get Mr. Boara to comment on that.

Mr. Richard Boara (Member, Trade Policy and Administration Committee, Canadian Society of Customs Brokers): I represent Livingston, the largest customs broker in Canada, representing 10,000 importers. In our firm we've had about six or seven people working on this since the middle of the year and we haven't begun training our people yet. That will all occur within the next few months. We also have systems people who will be reprogramming our system. If you add the dribs and drabs together, we have about eight full-time equivalents for half a year.

Mr. Robert Armstrong: With respect to costs, we haven't done a study. Our members have only used the terminology that there will be costs. Generally they would relate to IS getting their information systems to bring their systems up. I honestly couldn't tell you what that cost would be.

Mr. James D. Moore: The bill is aimed in part at reducing import costs from Canadian manufacturers and there's some $80 million worth of savings. I could not estimate the cost of implementation, but you can be sure the costs incurred by the service providers will be reflected in their bills to the importers. So our costs as importers will be theirs plus any internal ones our constituents will have.

The Chair: Mr. Freitag, do you have a comment?

Mr. Bob Freitag: We haven't done any specific study on costs. Typically when changes of this magnitude take place the response by our industry has been to get the job done. Unfortunately, we are not always able to pass the costs on to our client base. That is definitely a fallacy.

The Chair: Mr. Dubé.

[Translation]

Mr. Antoine Dubé: Has the letter Mr. James D. Moore was talking about and that he suggested he read to us been filed with the committee?

[English]

Ms. Carol West: It's part of the report.

[Translation]

Mr. Antoine Dubé: It's with his brief.

[English]

Mr. James D. Moore: It is part of our written brief. For simplicity, I didn't quote it.

[Translation]

Mr. Antoine Dubé: Thank you. The last speaker talked about automotive parts. Since I'm from Quebec, this may not affect me or interest me so much as the Members from Ontario, although GM has some facilities in Quebec. What is the present situation concerning customs charges for automotive parts and what will the bill change? I didn't quite grasp the difference between what happens now and what will happen after the bill has been passed.

[English]

The Chair: Would you like to reply to that?

Mr. Donald R. McArthur: Under the current bill there is no change. There is, however, a constituency that is advocating a change by using the occasion of the passing of this bill to reimpose tariffs on automotive parts used in the production of automobiles. That was taken away by an order in council effective January 1, 1996.

This was reduced to zero because the companies previously enjoyed duty-free entry of automotive parts used in the production of cars under a duty remission order. The duty remission order and the duty drawback were eliminated under NAFTA.

We're asking there be no change and the zero tariffs be incorporated under this bill.

The Chair: Mr. Moore, do you wish to comment on that as well?

Mr. James D. Moore: I'll comment very briefly. You've heard one side of the story. Read the statement. I wasn't able to comment on it for reasons of time, and that's understandable. I believe, as Madam Chair has mentioned, you'll be spending more time on this issue.

• 1655

The only direct observation I would make is that the duty-free provisions that were introduced two years ago were on a sunset basis, and the sunset is January 1, 1998. The original equipment manufacturers, the big three and the automotive parts industry in Canada, have a somewhat different perception from what the transplanted sector has. I think it's important that you hear the other side of the issue, which you haven't heard from me today.

The Chair: We'll hear both sides of that issue in detail tomorrow. That's what our committee meeting tomorrow is dedicated to. I hope we won't discuss the automotive issue in full today, because that's what tomorrow is for.

We have other people representing different businesses who are affected by this act. I would appreciate if we could try to stay on that topic today.

Mr. Shepherd.

Mr. Alex Shepherd: I think we've already touched on this a little bit. Obviously the objective of all of this process was to make the whole system more efficient and effective. Presumably we do want to see that those benefits are transferred onto Canadian industry. It seems that we can spend a lot of time thinking about the eight more people who are going to cost us for the implementation.

What's a reasonable reduction in costs to your clients for this process?

Ms. Carol West: Certainly the reports from the departments of Finance and Revenue Canada, which did this analysis, is that Canadian importers will save $90 million after the implementation of the simplified tariff. That's why, as we say, we see a short-term problem with this transition. It's one in which we're going to have, as a priority, the transition for those revenue-impact items in our conversion process. We've accepted those figures. That's again why we think it's important for this legislation to be passed for January 1.

Mr. Alex Shepherd: So your industry is competitive enough that, between the bunch of you, you're going to pull these costs down. Is that a fair assessment?

Ms. Carol West: Yes.

Mr. Alex Shepherd: We heard Revenue Canada today talk about this six-month trial period, which seems to be new to the industry. It seems like a strange way to make announcements, through the committee stage.

I heard that some of you don't think that went far enough. I heard you mention a few other ways in which you could benefit from that. Are there some other aspects of that in which you still differ from Revenue Canada and that six-month waiting period?

Mr. Richard Boara: Revenue Canada said that if it was determined later on that there was an error in the ninth and tenth digit, then they would waive penalties. That's only one remedy or assistance that they can give us.

Our issue is that we can prepare to convert the existing tariff to the new tariff up to eight digits. As for obtaining the ninth and tenth digit, which would satisfy Statistics Canada, we are not able to do that in many instances without being able to consult with the importer and determine the nature of the product that's being imported. In many cases, we would have to talk to their technicians and engineering people to get that ninth and tenth digit correctly.

We have five million records that we need to convert. We're not sure right now how many of them fall into that category, but we're quite certain that we will not be able to have this consultation with each of our customers between now and the end of the year.

So that simply means that in the new year, if a particular part or shipment comes in, and we don't have the ninth and tenth digit, and we need to consult with our importers, then we have five days to do that. We have five days to confirm the entry, after which we would get assessed the $100 late accounting penalty.

In determining priority, we have to determine whether we take the time to consult with our client—maybe the engineer isn't there that week—to get that ninth and tenth digit right to avoid the $100 accounting penalty. If it takes longer than five days, would they waive the $100 accounting penalty? I guess that's the issue. Or do we just take a best guess in the absence of total information and rely on the fact that if we are audited later on down the road, and there's a discrepancy in those last two digits, there would be no penalties?

The Chair: Mr. Armstrong, do you wish to make a comment to that question?

Mr. Robert Armstrong: Only with respect to the cost savings. The reality is that Canadian businesses are very aggressive when it comes to buying with respect to duty. We've seen it with the Canada-United States Free Trade Agreement and the North American Free Trade Agreement.

Our purchasing managers across Canada are very good at asking that question about duty. When duty comes down, it's lowering the cost for a Canadian producer who is importing those inputs. So their costs are going down, and historically, the Canadian consumer has benefited.

• 1700

The Chair: Do you want to comment, Mr. Moore?

Mr. James D. Moore: The alliance position goes a little bit further. We fully agree with the points being made with respect to eight digits and above, which is statistical, but we believe—and I think you'll find support for it when you read our brief—that there are a tremendous number of importers, the vast majority, I'd hasten to say, who are not aware of how this is going to affect their businesses only weeks from now.

We're asking for a transitional period of six months for not only the statistical data but also for the revenue information. We make that request by pointing out that all of the affected entries, as far as I'm aware, will be revenue reductions. But if people haven't caught up with all these changes by or on January 1, it's no loss of revenue to Revenue Canada. In fact, they'll get some extra money. The onus will be on the importer during this transition period to catch up and apply for a refund of duty which they overpaid as a consequence of the change on January 1.

We believe there needs to be transitionary leeway for six months for the tariff as well as the statistical codes, and we also believe there needs to be an appeal process where some differences of opinion may emerge.

The Chair: Thank you, Mr. Shepherd.

[Translation]

Mr. Dubé, do you have another question?

Mr. Antoine Dubé: No.

[English]

The Chair: Mr. Ianno.

Mr. Tony Ianno (Trinity—Spadina, Lib.): I'm curious; I know Livingston could use eight people to do their transition, but how about the smaller, medium-sized customs brokers? How much difficulty might they have in this transition period and how many people might they have at their disposal to actually take away from the business to do this changeover?

Ms. Carol West: In fact, we have a meeting tomorrow with a broad cross-section of members at the Canadian Society of Customs Brokers meeting in Toronto. We also are meeting with Revenue Canada in the afternoon and will further explore some of the transition issues.

We're in fact looking at how we can share information in order to benefit some of our smaller and medium-sized members just in terms of guidelines or anything helpful that those people who are well into the transition process and the conversion process can share with smaller and medium-sized brokers. Again, it could allow them to benefit from some of the resources our larger members may have committed to this already.

We are finding, though, that some of our smaller members are well on the way. If they're highly automated, they're well on the way to doing this conversion on their own and by themselves. As I say, we thought it was prudent to convene a cross-section of our members. We have a good attendance for that meeting tomorrow and we'll have a much better idea of what kinds of issues there are in terms of the marketplace.

It is interesting, though, that our members don't see the conversion and the transition as a competitive issue. It's not used to anyone's advantage in the marketplace in terms of competitiveness, so that's why people are so willing to share this information in order to allow everyone to benefit from it.

The Chair: Mr. Freitag, do you wish to comment?

Mr. Bob Freitag: With respect to the process of conversion itself, our firm, for example, employs 20 people. I've spoken with many other brokerage firms, much larger than ourselves, of course, and it's a process that will take place and shall take place, without us being able to quantify in terms of how many staff we're putting on the task at hand, much like what Ms. West has identified.

At the same time, relative to some of the announcements made today, and also with respect to what Mr. Moore has identified in terms of some of the revenue issues with respect to reduction in duty rates—and perhaps some importer-manufacturers may not be able to take advantage of that—I think that's something that could be explored a little more effectively after today's meetings are concluded.

The Chair: Thank you, Mr. Ianno.

Mr. Bellemare, do you have a question? No further questions?

• 1705

We have a bit of time before we have to adjourn, so I thought I'd do final comments from everyone. If you have anything you'd like to add, I'll go around the table, starting with Ms. West.

Ms. Carol West: The only thing is that we would be pleased to get back to the committee with the results of our deliberations tomorrow. As I say, that is when we get some input on the readiness issue from a broad cross-section of our members. We also explore in greater detail with Revenue Canada just what the administrative tolerance for that six-month period means.

The Chair: Perhaps before we go any further, Ms. Breakwell, did you have anything further to add with regard to the administrative tolerance? Are you in discussions with them?

Ms. Candace Breakwell: We have been invited by the associations to attend presentations tomorrow, and we'll be exploring the issue of administrative tolerance.

We did announce it today, because we had received a recent submission from the Canadian Importers Association. It was just a recent decision, and we will be exploring that.

But at the eight-digit level... As I said, the tolerance rule applied to the ninth and tenth digits. The eighth digit—at least the general plan—is something that has been public for the last two years. Definitely the motion itself, which identified in detail every tariff line, has been public since April.

That's not one we're willing to look at at this time.

The Chair: Thank you.

Mr. Goodwin, you didn't have a chance to comment. Do you have any comments on behalf of Kodak?

Mr. Donald J. Goodwin (President, Tracon Consultants Ltd.): I'm not from Kodak; that's Mr. Bailie.

The Chair: Okay, Mr. Goodwin, do you have any comments at all?

Mr. Donald J. Goodwin: I've been sitting back listening to the cost of this conversion process, and the difficulties importers and the service providers are having. There is a facility available now for importers and brokers to convert their databases electronically from one tariff system to the new tariff system.

There was a question on cost, and I was sitting back, wondering whether I should answer this question or not. The cost of that conversion depends on the number of lines that are being converted. The cost ranges from $5,000 to $35,000. It is a system that does it to 10 digits.

The Chair: Mr. McArthur.

Mr. Donald R. McArthur: I will not comment any further on automotive tariffs, but I very much look forward to the presentations tomorrow.

The Chair: Thank you. Mr. Armstrong.

Mr. Robert Armstrong: On behalf of the Canadian Importers Association, I just want to say that like any new initiative there's sometimes short-term pain for long-term gain. So we recognize that there's some pain, and we're quite pleased with the consultative process we're having with the department. They are listening to us, which makes me feel good.

I would urge you as parliamentarians in our country to really look at the issue of the benefit to the Canadian industry. That's the important thing.

There's quite clearly a benefit here. I believe quite confidently—our association, the service providers and the alliance—that Revenue Canada, Finance and Industry will negotiate with us in good faith to ensure that transition.

And yes, there obviously is going to be some cost, but I believe there's a gain that will far outweigh that, and we'll just keep working with them.

The Chair: Thank you, Mr. Armstrong. Mr. Moore.

Mr. James D. Moore: It's a tremendous gain. Please move this bill quickly. Short-term pain... Importers will wind up paying for it.

I would like to speak to the availability of information for importers to do this exercise. I'm told with regard to the availability of the final tariffs that it is only available at 99% accuracy, and only as of a few days ago.

Sure we've all had access to first cuts; we had it back in April. A whole range of changes have been factored in. The statistical codes have only just become available. I'm sorry, we need much more than leeway on the statistical data, and, as I pointed out, I don't think there's any cost on the revenue side here.

The Chair: Can you clarify that for me, Mr. Moore? Did you say that the information has only been made available as of a few days ago?

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Mr. James D. Moore: In its final format, yes. It's in the alliance brief, quoting from a member.

The Chair: Ms. Breakwell, could I have your comment on that?

Ms. Candace Breakwell: As I mentioned earlier, we worked with Statistics Canada over the summer to develop the ninth and tenth digits. We actually met with the Canadian Importers Association sometime in May or June. We told them that we were having a problem with timing, and that we would have some information, 90% of the statistical information, available to us in the summer.

We did consult with them, and asked them at that time what they would like. Would they prefer 80% during the summertime to start their conversions, or wait for 100% in the fall? They did all respond, and they requested that we give the information as we received it, which is what we did.

On July 31 we released the electronic database of the statistical code to all the major trade associations, and the same with the remaining 20%. The final database version was released on September 8 to all the major associations and the brokers associations. In fact, they were couriered and hand-delivered to those in Ottawa.

The Chair: Did your group not receive it then, Mr. Moore?

Mr. James D. Moore: Well, I agree fully with the timing we've been told here. I don't disagree with that at all. We're talking about an exercise, though, that for many companies will take six months to accomplish. I'm talking about the time that importers—not the service providers, the brokers—will take to do their internal system adjustments. They just haven't had the time.

Furthermore, many companies are not prepared to start investing a lot of time and money in something that isn't 100% accurate. They wait until they have the final package that has everything in it, rather than 80%, or whatever.

The Chair: Thank you.

Mr. Bailie of Kodak Canada, do you have any comments for us?

Mr. John D. Bailie (Director, Government Affairs, Kodak Canada Inc.): Well, since everybody else has been attributed to my company, and all the rest of it—

The Chair: I apologize.

Mr. John D. Bailie: —I'd just like to comment as an importer and businessperson who's been involved with the tariff simplification review virtually over the entire time.

I can tell you it's been a very positive experience. I certainly worked with the team that was here making a presentation from Finance and various areas. We have really seen it as a nice consultative process that's moved forward.

You've heard the concerns about the timing now to implementation. That was an unfortunate aspect of our parliamentary processes this year. We're now into some difficulties in trying to make timelines. But we've all worked hard on getting in the changes.

There are some things that haven't worked out quite the way we would like them in terms of some of the statistical information, and such. We will be working with the proper departments in the future trying to make some further improvements.

As I was saying, I think this a good model exercise. We look forward to the implementation working the same way, and look forward to working with Revenue Canada on how the administrative program can be rolled out.

The Chair: Thank you. Mr. Freitag.

Mr. Bob Freitag: In general terms, I have to concur with most of the comments made this afternoon.

As a matter of fact, even prior to the announcement of these committee hearings, the CBAC has meetings all day long tomorrow with departmental officials. I know for a fact that some of these issues discussed today will be followed up.

Thank you.

The Chair: Thank you. Mr. Markaroglu.

Mr. Levon Markaroglu (Director of Operations, Customs Brokers Association of Canada): I have one final comment. We've agreed not to talk about the automotive sector; however, it may be a policy issue.

The bill before you is a housekeeping issue to make Canada more competitive. It's a competitiveness issue through a reduction of tariffs on one side. On the other side, because Canada is a small market, there may be another side to the story from a competitiveness and indigenous ability to manufacture as North Americans.

So there may be merit to what Mr. Moore suggested. I urge you to look at it carefully tomorrow.

Thank you very much.

The Chair: Thank you.

Ms. Bonnie Brown: Could I have one question, Madam Chair?

The Chair: I can't—

Ms. Bonnie Brown: No, not to them; it's to you. It's a point of order about this chart you gave us.

You see, I think the people from the department, and actually our expert witnesses, have an advantage over the committee members. They use this jargon all the time: export-based remissions, duty drawbacks, etc. I'm wondering if whoever did this chart could redo it for tomorrow with, say, on the top half of the page, what was happening for Auto Pact members at that time. In other words, the Auto Pact continues, for example, or no change. Then put what was happening for the international manufacturers at, say, the bottom half.

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If you look at the third column, it says “1989 FTA implemented. Auto Pact continues”. Then it says, “Production-based remission programs”, but it does not refer to the international manufacturers.

Do you see what I mean? It is kind of all mixed up.

The Chair: I will ask the officials to take a look at the chart and see if they can revise it. Mr. Le Blanc says they can have it for us tomorrow, and he will do that.

Ms. Bonnie Brown: I have one more question on this. With regard to duty drawbacks being eliminated, it sounds to me like a negative thing is being eliminated. Perhaps we could just have it put something like this: the tariff was on, or the tariff was off, or a new deadline for getting the tariff off was announced.

The Chair: Ms. Brown, I would like to qualify that for you. Duty drawbacks were something implemented in the 1980s when the international companies joined the Auto Pact.

Ms. Bonnie Brown: Yes, I know. It says that here, but I just think—

The Chair: But it is not a tariff. It is a different system. It was a different program, and so it virtually allowed those companies to continue at a zero rate.

Ms. Bonnie Brown: That is what I need to know. Is it a zero rate?

The Chair: What it allowed was that they basically would have a tariff of zero, but it was not a tariff.

I will ask Mr. Le Blanc if he could define, as well as provide a brief definition of, these articles, both in English and French for tomorrow. That way we will have them for committee tomorrow at 3.30 p.m., and it will make it clear for us. If it is available earlier, we will circulate it to committee members before committee. I apologize.

I want to thank the witnesses for being with us today. I understand that several of you will be meeting with Revenue Canada and Finance to determine how to implement this. But I do understand from the meeting today that the bottom line is that businesses will benefit from any easier administration of tariffs, and from a reduction in tariffs.

We thank you for joining with us today.

We adjourn until tomorrow at 3.30 p.m.