Health Committee on June 20th, 2011

[The Chair, Conservative, Joy Smith]

I call the meeting to order.

Good afternoon, ladies and gentlemen. Welcome to the health committee. I'm glad that we're going to be able to re-examine and quantify all the data and everything that we've talked about over the last session.

Pursuant to Standing Order 108(2), we have the study and review of the proposed tobacco regulations, which we will address in just a moment, but before we do, we have witnesses coming in and we have to address other issues around budgets.

I would like to get the budget issue out of the road before we start, so I'm going to read you a motion:

That the proposed budget in the amount of $7,050 for the committee's review of the proposed tobacco regulations be adopted.

Can I have someone do that?

[Colin Carrie, Conservative, Oshawa, ON]

I so move.

[The Chair, Conservative, Joy Smith]

Okay, Dr. Carrie.

Will someone second it?

[Fin Donnelly, NDP, New Westminster—Coquitlam, BC]

I second the motion.

[The Chair, Conservative, Joy Smith]

Thank you, Mr. Donnelly.

(Motion agreed to)

Don't you wish we could get those budgets through that fast on regular time? This is great.

Having taken care of that, I want to welcome to our committee, from the Canadian Cancer Society, Rob Cunningham, senior policy analyst. Welcome, Mr. Cunningham. We're pleased to see you back here again.

From Imperial Tobacco Canada, we have John Clayton, vice-president of corporate affairs, and Caroline Ferland, general counsel. Welcome. We're glad to have you here.

From Southern Graphic Systems Canada, we have David Haslam, regional senior vice-president of manufacturing.

We're pleased to have you here as witnesses until about a quarter to five, at which time we will go to our second panel. I will give each of you 10 minutes.

Let's begin with Imperial Tobacco Canada.

[John Clayton, Vice-President, Corporate Affairs, Imperial Tobacco Canada Limited]

Good afternoon, everyone. My name is John Clayton, and I'm vice-president of corporate and regulatory affairs at Imperial Tobacco Canada. Thank you for the opportunity to appear today to provide the following comments on the proposed tobacco product labelling regulations for cigarettes and little cigars.

I'm joined by my colleague Caroline Ferland, associate general counsel at Imperial Tobacco Canada.

At the outset I would like to say that we recognize the health risks associated with smoking. We support the placement of health warnings on cigarette packages. We do not object to the notion that health warnings could be occasionally updated. However, we continue to maintain that the increase from 50% to 75% in the proposed regulations constitutes an unjustified infringement on a manufacturer's right to communicate with its consumers and with consumers' freedom to receive information about the products they buy.

Having said that, we would like to share three specific concerns with the text of the proposed regulations as submitted to this committee today.

First, it is our view that the proposed six-month implementation date is too short. Based on information provided by the industry's supplier of rotogravure cylinders, Southern Graphics Systems, who will address you in a moment, we believe that a 12-month transition period is required in order to be completely compliant with the more than 600 different packaging materials we have. It is important to note that similar legislation in the United States requiring new graphic health warnings on cigarette packages will provide 15 months for manufacturers to be compliant.

As you consider the important issue of the implementation date, we also believe that the only approach that is competitively neutral is a single fixed date of application for all manufacturers, whether it be six, twelve, or nine months. Please remember that the Government of Canada's cabinet directive on streamlining regulations sets out the important principle that regulations must be designed to mitigate adverse impacts on competitiveness. Only by applying a single date of compliance will the regulations affect all manufacturers equally.

Our second point of concern is a specific change made between the February version and the one before this committee today. That change is the addition of the words "at least" in section 13 of the proposed regulations. With that change, section 13 now reads as follows: "The portion of a display area of a package on which a health warning must be displayed is at least 75% of each display area".

The addition of those two words brings with it a vagueness with respect to current and future requirements on the size of the health warnings. Could this change have been introduced as a way to provide Health Canada with the authority to unilaterally increase the size of the warnings beyond 75% in the future, without parliamentary review and scrutiny? If that is the case, then this committee should reject this change.

As you know, subsection 42.1 of the Tobacco Act was designed specifically to ensure that any and all changes to the regulations proposed under the act are reviewed by the health committee and vetted by Parliament. This very unique legislative feature is in place to give you, the elected officials, direct authority to approve, amend, and reject any proposed changes to these regulations. Providing Health Canada with the ability to change the source documents and increase the size of the warning labels beyond 75% without consultation with this committee will frustrate the intent of the statute and allow Health Canada to make changes without the oversight of elected members of Parliament.

Our third and last concern with the proposed draft of the regulations has to do with the qualification of wholesalers under section 32. Section 32 is the section that contains the transition provisions. It specifies that manufacturers have 180 days to comply, and retailers have 270 days. Because of what appears to be merely a drafting oversight, section 32 does not address the question of what transition period is applicable to wholesalers.

Members of this committee have already been made aware of the issue. I would simply refer you to the correspondence sent last week that invites Health Canada to make a very simple change to section 32 to clarify this matter.

I will not expand further on this, but we'd be happy to answer any of your questions.

There is an easy solution that would address two of the issues we have raised here today, the implementation date and the role of the wholesaler. The solution would be to have a single compliance date for all. This solution would not impact the consumer, and it would allow flexibility for the manufacturer to manage the particularities of their own supply chain.

Before we conclude, it is impossible to appear before this committee and not remind all the members that the federal government has still done very little to address Canada's contraband tobacco crisis. According to the RCMP, there are now as many as 50 illegal cigarette factories operating on first nations lands and over 300 smoke shacks selling tobacco outside of any legal or regulatory framework. The transparent plastic baggies of 200 cigarettes sell for as little as $5, carry no health warnings at all, and comply with none of the current regulations around tobacco. As a result, as much as 33% of the yearly Canadian tobacco market has been made up of contraband since 2006. We would urge the health committee to hold hearings on this issue as soon as possible.

In conclusion, I respectfully ask that committee members amend the regulations and/or seek clarifications from Health Canada about the three concerns we have raised here today.

Thank you for your time. I look forward to your questions.

[The Chair, Conservative, Joy Smith]

Thank you.

We'll now go to Southern Graphic Systems Canada and Mr. Haslam.

[David Haslam, Regional Senior Vice-President, Manufacturing, Southern Graphic Systems Canada, Manufacturing]

Good afternoon, everybody. My name is David Haslam. I'm senior vice-president of operations for Southern Graphic Systems Canada.

I'll give you a brief introduction to what we are as a company, what we do, and how we fit into this.

SGS has 375 employees in Canada. We're deployed in the packaging graphics business. We don't work just for tobacco companies; it's about 25% of our business. SGS serves printers and consumer product companies, and we supply the graphic plates, tooling, file manipulation, photography, and branding. That is our business.

SGS has sales of $70 million a year in Canada and $350 million a year globally. In 2010 SGS Canada engraved 10,000 cylinders, which are the rotogravure cylinders used for actually printing most packaging, predominantly tobacco packaging. SGS is the recognized market leader in the gravure process. We engraved 75,000 cylinders in North America last year, which is probably three-quarters of the total of the North American market.

The rotogravure process is predominant in the tobacco packaging business globally because of the high quality, the difficulty of reproducing or copying its images, and the fact that in-line processes can be used with it, such as embosses, specialized ink, and security features that can be put into that print process to maintain the integrity of the packaging.

We have the broadest colour gamut in printing in the gravure process, and it is, as I alluded to earlier, the most difficult process to counterfeit and forge.

It is a capital-intensive, high-speed, high-volume business in manufacturing. We need our volumes to stay alive. The in-line capability to die cut, emboss, and enhance the packaging allows it to be as difficult as possible to reproduce.

On the execution of the proposed health warnings, there's an estimation that anywhere between 4,800 and 6,000 cylinders would need to be engraved for printing by the end of the year. I just told you that we did 10,000 in a year.

Our typical annual tobacco volume is about 2,500 cylinders. When we get the files for the new health warnings--we still don't have them yet--we have to build those files, we have to separate them, and we have to build graphics. We have to put all that together, build the layouts, and build everything before we can proceed to manufacturing cylinders, which can then go on to print.

With that, new printing layouts need to be built, new dies need to be formed, and new embosses need to be formed. We estimate that probably about 2,000 new cylinders would need to be purchased. Most cylinders can be repurposed--you can engrave a new design on the old one--but while there's this overlap period, there's going to be a demand for another 2,000 cylinders for that. That has a lead time as well.

All embossed tooling will change because of the position of the health warnings and the position of everything in there. All the embossed tooling will have to be changed, and you're saying we have six months.

On the proposed timeline of 180 days that's in the legislation, the health warnings need to be released to us. We haven't got them. We have draft copies, but we still don't have the final files. We can't even start work. We need to build the master layouts, and we can't do that until we have the final files. Then the health warning masters need to be stripped and implemented into every single layout and print layout available out there.

I talked about the new steel that needs to be ordered and the lead time that's going to come with that requirement. There will be new embossed tooling. Then we have to engrave all the cylinders. We engrave about 1,000 cylinders a month. If we take it in the middle, we have to engrave 5,500 in less than five months. That means abandoning every other customer we have. It's commercial suicide.

Then all the packaging has to be printed. Then it has to be packaged, and then it has to be distributed, so in reality, even if I walked out of here today with the final files, we would only have 120 days to execute what really will take me 360 days. The risk that poses to our business is that we cannot manage that volume of business within this timeline.

Business will leave Canada. People will work hard to be compliant, but business will leave Canada. Typically, when it leaves, it doesn't come back. Volume may go to competing processes, which then allows the risk of counterfeiting and copying. Then when you go to digital printing or offset printing, which you can do in any backyard shop, you're going to have a bigger risk of counterfeiting, which is counterproductive, I think, to the direction of the warnings.

It also impacts the future sustainability of the Canadian printers working in my sphere of packaging, because if they lose 20% of their business--nobody's running on more than 20% margins--it's going to impact sustainability of at least two companies in Quebec and three of my customers in Ontario.

There will be an impact on Canadian jobs. It won't be just within my organization; we will lose business, we will lose size, and therefore we will need fewer employees to do what we have with what is left, but it's also going to have an impact on our printer customers as well.

In closing, I'd just like to ask this. We were engaged in this process at the beginning and we were asked as the industry experts to give you an opinion. We gave you an opinion, we gave you a timeline, and to date you haven't listened. I'm here to appeal to you one more time and say that we need this time to keep this work in Canada and keep these jobs in Canada. Our debate is not with the efficacy of the warnings or how effective they are going to be or where they are going to be placed. We don't really care about that. Our goal is to make sure we maintain as many employees in Canada and maintain the business volume in Canada.

Thank you.

[The Chair, Conservative, Joy Smith]

Thank you very much, Mr. Haslam.

We'll now go to the Canadian Cancer Society. Go ahead, Mr. Cunningham.

[Rob Cunningham, Senior Policy Analyst, Canadian Cancer Society]

Chair and committee members, my name is Rob Cunningham. I am a lawyer and senior policy analyst with the Canadian Cancer Society.

Thank you for the opportunity to testify today.

Regarding the proposed regulations being considered by the committee, it is the recommendation of the Canadian Cancer Society and many other health organizations that these regulations be approved as is, without amendment, and that they be approved as soon as possible.

These regulations will reduce tobacco use, increase awareness of the health effects, and reduce package deception. These regulations will reduce youth addiction and will save lives. Clearly, delays in the coming into force of the regulations, as urged by Imperial Tobacco, must be avoided.

Minister Aglukkaq and Health Canada deserve praise for the work they have completed. The regulations are outstanding as a source document and in the new warnings. Indeed, all political parties deserve praise for their support of the enhanced picture warnings to be required by the regulations.

I note that this committee has previously studied this issue.

The tobacco industry has argued that there is insufficient evidence that the 75% warning size will be more effective than a smaller size. In fact, there is overwhelming evidence, and it is precisely because the industry knows that the enhanced warnings will reduce sales that the industry is opposed.

I have with me the cover of a compilation of evidence that the Canadian Cancer Society has already provided to all parties and to the committee's research staff. This evidence is available for consideration by MPs during Parliament's consideration of these regulations.

The Canadian Cancer Society itself has conducted four studies--three among adults and one among youth--to assess the increase in warning size to 75%. The studies, which complement Health Canada's research, were online studies conducted nationwide by Environics Research Group in which respondents were shown mock-ups of the new warnings in different sizes. These studies were conducted in 2011, after release of the proposed new warnings.

The results were overwhelming. When Canadians were shown a heart disease warning, for example, in a 75% size and a 50% size, and asked which would be more effective at discouraging smoking among Canadians, 72% selected the 75% warning size, and only 7% selected the smaller 50% warning size. Among youth 12 to 17 years old, the results were similarly powerful: 81% selected the 75% warning size, and only 6% selected the 50% warning size.

Further, as part of the material we have forwarded to committee members, there are 22 opinions from experts in Canada and internationally that the effectiveness of health warnings increases with size, and that the 75% health warning size is more effective than smaller sizes.

We've heard the industry comments with respect to the implementation date of six months. I would suggest that the industry has no credibility on this issue.

In 2000, when picture warning regulations were being considered by this committee, the industry argued that it was technically impossible in Canada for Canadian printers to print colour picture health warnings to comply with the regulations. They said it was impossible, but when the regulations were finalized, the industry was able to comply within the stipulated transition period. The industry also went before Quebec Superior Court to argue that it was impossible to meet the regulatory requirements to print colour picture warnings in time. The court dismissed the argument, and the regulations were enforced.

The industry made all changes last time in nine months, so it's interesting that today Imperial Tobacco is asking for twelve months. The regulations last time said twelve months, but they did nothing for the first three because they attempted to get an application in court to block the regulations from coming into force. They made all the changes in nine months. They also made changes for other tobacco products that are not covered by the current regulations, such as roll-your-own tobacco, pipe tobacco, and large cigars. This time they are already set up to do colour pictures. Last time they were not; it was a new thing. The industry always argues that it doesn't have enough time. The industry is very sophisticated. The industry can do it.

In 1993, for that particular round of regulations, the industry argued before the Supreme Court of Canada that it could actually make changes to all cigarette packages within three months, provided the format of the existing warnings did not change. When industry wants to move quickly, it can.

It is very interesting. I have with me a letter from JTI-Macdonald, submitted to Health Canada on December 3, 2009, as part of this regulatory development process. It recommended to Health Canada that the implementation period at the manufacturing level be six months--exactly what it is in the regulations now, so it's quite surprising to see Imperial Tobacco arguing for a longer period of 12 months--and Health Canada acted on the recommendations of JTI-Macdonald.

It's also interesting to note that a bunch of other countries have transition periods at the manufacturer reporting level of six months or less: Singapore, Bolivia, India, Uruguay. If these other countries that are less sophisticated than Canada can do it, certainly our very sophisticated manufacturers can meet similar deadlines in Canada. I believe there are others. I would have to verify, but I believe that Brazil had nine months at the retailer level, which is the same as in these regulations. Turkey had six months or less. There are a lot of countries.

Imperial Tobacco raised three particular arguments. I disagree with these three particular points in terms of interpretation of the regulation. Let me quickly indicate them.

I've dealt with the first one, the six-month transition period. Second, they expressed a concern with respect to the words “at least 75%”. This was a change compared to the draft published February 19, but these exact words appear in the current regulations, the Tobacco Products Information Regulations in place for the last 10 years. There's nothing new or unusual here, and I think it's important that these words at least be here. If tobacco companies wanted to have a warning larger than 75%, they should be free to do that. We should not indirectly have 75% as a maximum, and that change to the regulations is appropriate. It's clear. It has been in place for 10 years, in terms of similar wording.

Finally, with respect to the reference to wholesalers, I do not think that there's any problem practically. The regulations have a date for manufacturers. There's a date for retailers. Wholesalers actually don't have an obligation to comply with a particular date. There's an obligation on manufacturers and importers and retailers. As a lawyer, I do not think there's a problem with that.

In conclusion, please allow me to reiterate our recommendation that the regulations be approved without amendment.

Let me add a further point on something raised by Imperial Tobacco. They said that they admit the health risks, but they use very careful wording. They don't say “cause and effect”; for them, “health risk” means statistical association, and in Quebec Superior Court, where there is currently a class action suit, they have refused to admit that smoking has a causal relationship with cancer. This is in 2011.

So when the testimony of Imperial Tobacco is being considered, let's consider the entire context of this particular company's credibility.

Thank you once again for the opportunity to appear before the committee.

I look forward to your questions.

[The Chair, Conservative, Joy Smith]

Thank you, Mr. Cunningham.

We'll now go into our first round of questions and answers. We will have seven minutes per party for the questions and answers.

Ms. Davies, would you begin?

[Libby Davies, NDP, Vancouver East, BC]

Thank you very much, Chairperson.

First of all, thank you to the witnesses for coming today. I know it was in a bit of a hurry. This is our first meeting, and in fact a number of us are very new on this committee.

We're getting to know all the issues, but in terms of what's before us today in the proposed three sets of regulations and hearing the testimony and reading the material, it's very clear that this is something that has been ongoing. The fact that these regulations were gazetted back in February is a clear indication that things were afoot and that these proposals were being outlined and put forward in a formal process, so frankly I'm a bit surprised to hear representation today that we need more time to study this or deal with this or respond to how we address the labelling and so on. It seems to me that it has been very obvious that this was on its way in. In fact, I think we have an opportunity here to keep to the deadline and timeline that were established, and I think that if we delayed this process today, it would be very unfortunate. That's certainly not anything we want to do.

I would like to ask Mr. Haslam to respond. There has been a clear indication all along that this was going to happen. That's one question.

Second, to Mr. Cunningham from the Canadian Cancer Society, I was particularly interested in what you said about youth addiction. I think it would be very interesting for you to spell out what it will mean in real terms if we don't go ahead with these measures that are aimed to prevent addiction and save lives, particularly among young people.

I don't know the statistics for smoking among young people, but I know that it has been rising. That's a particular concern all of us should have for the younger generation.

Could you outline a little more on what it means if we don't go ahead with these regulations? What are we actually saying to young people in terms of their health and their ability to be productive members of society in good health?

[The Chair, Conservative, Joy Smith]

Go ahead, Mr. Cunningham.

[Rob Cunningham]

Thank you.

The overwhelming proportion of smokers begin as a teenagers or pre-teens. The smoking rate for youths 15 to 19 is 13%, which is unacceptably high. Every month that there's a delay in these new warnings coming into force, there will be a delay in preventing kids from starting. Some may experiment, but for some these messages are going to prevent them from becoming regular smokers, addicted smokers.

We know that they have worked. There's an abundant number of studies, and we've seen that the current round of picture warnings is associated with a reduction in youth smoking. There have also been restrictions on advertising and higher tobacco taxes, but the warnings have been an important factor. Once you're addicted, it's very difficult to quit, and a person could step on a treadmill to disease and death.

[Libby Davies, NDP, Vancouver East, BC]

Could you comment on whether any suggestions have been made about how to use social media in a more effective way? We have to recognize that sometimes traditional forms of advertising don't get the message across. I noted that there was some information about the use of social media, particularly with regard to sending an important educational and health message to young smokers.

[Rob Cunningham]

Minister Aglukkaq has announced that Health Canada is going to have a social media campaign in association with these new warnings on the packages. We support that. These messages can be complementary with the warnings on the packages; they could be interactive. We know that the package has incredible reach because it reaches every smoker every day, and it's very cost-effective, but the social media campaign is to be commended, and it's going to be forthcoming.

[Libby Davies, NDP, Vancouver East, BC]

Thank you.

Mr. Haslam, could you explain further your assertion that these regulations can't be put into effect in a timely way? Have you not been aware of the gazetting process and what was involved?

[David Haslam]

It's not a surprise, but I don't have the working materials, and until I have the working materials I can't do anything. We don't have any of the art files, anything to actually start the process with, so I can't start. I can prepare, and I have prepared, and we have ramped up because we know this is coming.

To Mr. Cunningham's point earlier, I lived through the 2001 legislation change as well. If you talk to the residents of Brockville, Ontario, who lost a big printing plant because that business went south, or if you talk to the residents in Toronto who lost another big printing plant because that work went south, you will learn that it did get done and compliance came in, but with compliance there are timelines, and timelines mean that business moves.

[Libby Davies, NDP, Vancouver East, BC]

We just heard about this letter of December 2009 that clearly laid out that it could be accomplished in six months.

[David Haslam]

That's not my opinion. I didn't write it. I'm here to give you my professional opinion, and that's my professional opinion.

[The Chair, Conservative, Joy Smith]

Thanks.

We'll now go to Dr. Carrie.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you, Madam Chair.

I want to thank the witnesses for being here for this incredibly important topic.

Mr. Haslam, I find your opinion very credible. A good friend of mine in Oshawa was in the printing business. He had a family business for decades and decades, but with the changes in technology, it went under. I am interested in what you have to say because we've just gone through this economic action plan and we're trying to create jobs, and I see you as very credible because you're not making money directly from the sale of the cigarettes, but from the printing part of it, a spinoff.

I wanted to ask you about a timeline. You were saying that you thought about 12 months would be more realistic. Are there other options that could get this done?

[David Haslam]

Twelve months is what I'm looking for to keep the print business in Canada. The health warning change is happening in the U.S., so capacity in the U.S. isn't going to be there.

[Colin Carrie, Conservative, Oshawa, ON]

You're thinking that a lot of that would end up going to the U.S. because the American companies are so much bigger and can get the job done.

[David Haslam]

No. The American companies are putting their legislative changes in place. They are following Canada's lead and putting graphic packages on there, but the capacity is going to be built up in the U.S., and there's going to be no extra capacity.

As I mentioned, it's a capital-intensive business. I can't go to a bus queue and get another 30 guys who know how to run our equipment, and neither can our customers, nor can they buy a new press in three months.