Industry Committee on Nov. 18th, 2013

[Ed Holder, Conservative, London West, ON]

Let's go right to that retail store example we just used with Mr. Ptycia. In that store, if I have a choice and I can spend $500 at my cost as a business owner for a Versace purse that costs $900 or I can buy a dozen for $50 each, as a retailer I know the difference. I know what I'm buying.

[David Lipkus]

Certainly people do seek out counterfeit goods. I believe that.

Having said that, how would it make you feel if you found out the person you're paying for that item doesn't pay taxes?

[The Chair, Conservative, David Sweet]

Mr. Lipkus, I'm sorry, we're way over time. I was giving you some latitude to try to get you to answer.

Now we'll move on to Mr. Stewart, for five minutes.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Thanks very much to the witnesses for coming today. It's quite an exciting debate, which I welcome.

I was walking down my high street in Burnaby and walked into a store and bought a can of Coke. I noticed it was a little squishy, and I realized it was packaged in the U.S. Then I went to another store along the street and I noticed the same can was there.

This goes to the question of parallel goods. The confusion I have is that it's a can of Coke produced in the U.S., and because of the change in border allowances, the small retailers can now drive their truck across the border, stay for 48 hours, bring $800 worth of Coke back, and then either distribute it down the street or keep it in their own stores. I'm wondering if the CBSA is now empowered to stop these goods and hold them. I'm a bit confused about how that all works.

Mr. de Beer or Mr. Lipkus, could you perhaps give me some thoughts on that? I am thinking it might be worth adding this into the bill. I'm not suggesting that, but I'd like some more information.

[Prof. Jeremy de Beer]

I think that's excellent.

I'm glad to hear the committee and my fellow witnesses' interest in making sure that the bill doesn't deal with parallel imports and grey market goods. My fear is that particular provisions, such as clauses 44.01, 44.11, and 44.12, don't actually make that clear enough.

I think an exception that specifies that this does not apply to parallel imports, if drafted carefully, would be fantastic. I would strongly advise the committee to encourage your analysts and legislative drafters to put that provision in—I'd be happy to suggest some particular language, if you like—because that would deal with the issue you're talking about.

It's a very common situation for a wholesaler to find lower prices in the United States for particular products, and even with their paying duties and fees and complying with all the taxation and regulatory obligations, they could still offer Canadians a lower price. I think Canadians and Canadian families are entitled to pricing parity, and I worry that this bill could inadvertently jeopardize that.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Before I get to Mr. Lipkus, if this new act goes into force, the CBSA officer could actually detain those goods and hold them, whereas in the past that wasn't the case.

[Prof. Jeremy de Beer]

Yes.

What would happen is that a copyright owner in this case—not a trademark owner but a copyright owner—of the artistic work, which is the logo on the Coke can or the label on the chocolate bar, whatever it happens to be, would file notice with the Canada Border Services Agency and enlist their support in stopping these goods or detaining them at the border. That can cause a 10-day delay, which we heard can be problematic. Particularly if there are statutory damages, that can cause significant problems.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Mr. Lipkus, through the chair....

[David Lipkus]

Mr. de Beer has referenced copyright actions, and I will remind everyone today that I am here on behalf of the International Trademark Association. I'll repeat that this issue is not being addressed under the current bill. Grey market goods are currently legal in Canada and this bill addresses counterfeit goods.

With the greatest of respect to Mr. de Beer, I don't believe there is an issue with current draft language of the bill or these items being detained by customs. This bill addresses counterfeit goods.

[Prof. Jeremy de Beer]

You should have a look at the technical language.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Thanks for that.

Thank you for the range of opinions there. That's why I'm enjoying this today.

I also had a question about the following. We know there have been overall cuts to the CBSA in terms of funding, and looking at Treasury Board numbers it looks like we've had 500 staff laid off from the border services.

We had the CBSA in here last session, and they assured us that no front-line staff had been cut. But as we've been discussing today, there will be a lot of extra additional training, probably for the staff and those kind of things. If the current pattern continues and we keep cutting and removing staff—500 last year—do you think that's going in the right direction?

Do you think it's possible for us to make this work, or do you have any suggestions about what we might do there?

[David Lipkus]

I can tell you very briefly that the rights holders have also amended the way they deal with things as a result of these budget cuts. There are several rights holders, including Mr. Ptycia, who have chosen to train customs officials and RCMP officers via the web. It's a one-hour session, and there might be six or seven brands per hour. The RCMP officers or the customs officers don't even have to leave their desks. From a resources standpoint, they're going to get on-hands training on how to identify counterfeit goods—again, at no cost to the government, and with very little time expended from their day-to day activities. Oftentimes these training sessions are done during their lunch hours.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Lipkus.

Now on to Mr. Warawa, for five minutes.

[Mark Warawa, Conservative, Langley, BC]

Thank you.

Thank you to the witnesses.

Mr. de Beer, you mentioned that you thought there's a balance that Bill C-8 has reached regarding personal exemption and the exclusion of in-transit goods. Mr. Kennedy, I think, touched on the fact that there's no reduction of front-line staff. Do you feel that with the education that's available to front-line officers there will be a balance in being able to deal properly with counterfeit goods under Bill C-8?

[Prof. Jeremy de Beer]

I don't know, to be honest with you. What I do know is that if we expand the scope of the bill, as some witnesses today and during other meetings have suggested, it's going to make it increasingly difficult. It's going to put additional administrative burdens on our border services agency. It's going to put additional financial burdens on taxpayers. Ultimately what we're looking for is a pragmatic and workable system, and I think the bill has created that with the exception to scope.

[Mark Warawa, Conservative, Langley, BC]

Very good.

I think there was general consensus with the other witnesses with regard to goods that are in transit that there's some form of inspection.

I'm thinking of the hundreds of thousands of containers that come to the Vancouver and Prince Rupert ports, goods that are on rail and going to the United States that come into Canada. What percentage of the containers that enter our west coast ports actually ends up going to the U.S. and what percentage stays in Canada? If we are inspecting these in-transit goods, these containers, what do you envision? If the vast majority are going to the States, are we doing their job for them? Are Canadians absorbing that cost to do those inspections, in light of what Mr. de Beer said?

[David Lipkus]

Very briefly, I would argue that right now the U.S. government is doing our job for us, and the reason I say that is because I received several seizure notices with respect to U.S. seizures of items that are destined for Canada. The reason I get the notice is because they want follow-up to be done. Because if the counterfeiter is attempting to import counterfeit at one time, what about the shipments that end up getting through that the U.S. customs doesn't catch? That's the reality of the marketplace that we're up against, and the problems with respect to how close our borders are between the U.S. and Canada.

I believe that even if one per cent to three per cent of container shipments are observed, we're going to find a lot of counterfeit product. I don't know the numbers for exactly how much is destined between marketplaces, but you heard of the car parts example, where there's an item destined for the U.S. that's installed in a car in the U.S., then driven to the border into Canada. If something goes wrong with that car part—that air bag, those spark plugs, the brakes—it becomes a Canadian issue. And we have an opportunity to prevent it.

[Mark Warawa, Conservative, Langley, BC]

With respect, can anybody answer my question? What percentage of containers entering Canadian ports actually go to the U.S.? Do we know?

[Prof. Jeremy de Beer]

I have no idea.

[Mark Warawa, Conservative, Langley, BC]

Could you discuss the EU model? I think a number of you suggested that would be a model that we could follow. What parts of the EU model could we consider in Bill C-8?

[David Lipkus]

I'm happy to address it once again.

What I can tell you is that once there are counterfeit goods that have been identified, a seizure notice goes out to the importer—whether it's anonymous information or real information—and to the rights holder, that there is suspected counterfeit. The rights holder then confirms whether or not that's the case by providing one or two reasons why the item is counterfeit, and provides for the importer to respond either yes, that's the case, or no, that's not the case. In over 70% of the cases, the importer doesn't respond. If the importer comes to the table, then they're opening themselves up to dealing with the rights holder, and to them this is just one shipment that's being seized. It's better for them not to respond, have the goods destroyed, and hopefully stop counterfeiting, or unfortunately, in many cases, attempt another way to import their counterfeit merchandise.

I've heard comments earlier that there are significant resources being expended on the CBSA. An administrative regime eliminates and alleviates the resource issue.

[Mark Warawa, Conservative, Langley, BC]

Sorry to cut you off—

[Prof. Jeremy de Beer]

I think the statistics are very interesting. I don't know the basis for them, but they suggest to me that if they're correct, then in 30% of the cases there is some kind of dispute, which to me is an extremely high number.

[The Chair, Conservative, David Sweet]

Mr. de Beer.

[Prof. Jeremy de Beer]

I'm sorry. My apologies.