International Trade Committee on March 19th, 2024

[The Chair (Hon. Judy A. Sgro (Humber River—Black Creek, Lib.)), Liberal, Judy Sgro]

Welcome to meeting number 97 of the Standing Committee on International Trade. Today's meeting is, of course, taking place in a hybrid format.

I need to make a few comments for the benefit of the witnesses. Wait until I recognize you by name. I ask all participants to be careful when handling the earpieces in order to prevent feedback for the interpreters. I will remind you that all comments should be addressed through the chair. If any technical issues arise, please inform me immediately and we will suspend.

Pursuant to Standing Order 108(2) and the motion adopted by the committee, the committee is beginning its study of the CBSA assessment and revenue management, or CARM, system.

I have a budget of $9,750. Do I see any objections to the budget? I don't, so all those in favour approve.

There will be a confidential item distributed to members for you to discuss with regard to travel. If you could just quietly look at it, we'll discuss it not at 5:15 p.m. but at 5:30 p.m. The meeting will go until 5:30 p.m., and then we will deal with committee business for 15 minutes, so please, everybody, put that in your schedules.

We have with us today, from the Canada Border Services Agency, Jennifer Lutfallah, vice-president, commercial and trade branch; Ted Gallivan, executive vice-president; and Mike Leahy, director general, commercial projects.

Welcome to you all.

Mr. Gallivan, I open the floor to you and invite you to make a statement of up to five minutes.

[Ted Gallivan, Executive Vice-President, Canada Border Services Agency]

Good afternoon, Chair and honourable members of the committee. Thank you for having us here today.

I’m Ted Gallivan, executive vice-president of the Canada Border Services Agency. I am joined by Jennifer Lutfallah, vice-president of the CBSA’s commercial and trade branch, and Mike Leahy, director general of commercial projects.

Over the past five years, the Canada Border Services Agency, or CBSA, has experienced an unprecedented period of growth and complexity in our commercial operations. Last year, we assessed over $39 billion in duties and taxes.

The number of shipments and the value of e‑commerce goods that cross our borders have nearly doubled, with more than 132 million courier shipments last year.

At our land borders, the volume and value of imports entering Canada on commercial trucks are growing. In 2023, we processed over five million commercial trucks into Canada. On the marine side, it's the same pattern. The number of containers we examine continues to trend upward, with a total of almost 1.5 million last year alone. Similarly, in the commercial air stream, we are dealing with and adapting to a surge in e-commerce goods.

Through all of this, we are also tackling new and evolving threats that are trying to penetrate our borders and endanger our communities, such as fentanyl precursors and other troubling products.

The accelerated commercial release operations support system, known as ACROSS, is the system we use ahead of releasing goods. We also use an electronic tool called eManifest to allow the trade community to transmit their pre-arrival information electronically through an Internet-based portal. ACROSS and eManifest, the two systems I just mentioned, are separate and distinct from CARM, which is our back-end accounting system.

The next release of CARM, which will launch in May, will replace a 36-year-old legacy system that is at its end of life. The current systems are so old and expertize in their maintenance is so difficult to find that the only path forward is full replacement of the systems.

This urgent need to replace aging IT systems was highlighted in a report from the Auditor General last year. In addition to responding to those recommendations, the CBSA is also responding to recommendations made by the Auditor General in 2010 and in 2017. They were aimed at improving the CBSA’s revenue assessment and collection systems following findings that importers made errors on 20% of the goods imported into Canada.

CARM will respond to four key objectives. First, it will replace an aged system and introduce new digitized tools. Second, it will introduce regulatory changes to better control revenue and payments to address the 20% discrepancy gap flagged by the OAG. Third, it will make voluntary compliance easier and improve targeted compliance. Fourth, and finally, it will allow the CBSA to clear most goods prior to payment so that we can keep up with the speed of commerce and the volume growth I mentioned.

During this project, we have conducted over 70 rounds of stakeholder consultations and held biweekly meetings to make sure we get things right. We have also held two open CARM experience simulations, where industry was invited to test the system. Through these consultations, we’ve received valuable feedback and input that will help us optimize rollout.

The CBSA received $370 million in funding for CARM in 2010. The project is being rolled out in sequential releases. This approach includes important contingencies so that goods continue to flow freely and the border isn't impacted.

Currently, small businesses need to work through a broker or maintain a copy of paper records submitted to the CBSA in order to have a complete picture of their statement of account. With CARM, all businesses will be able to view their statement of account via the client portal 24‑7.

From a Government of Canada standpoint, CARM will give us increased control over revenue and payments and the ability to more accurately access and leverage our data, which will allow for improved targeted verification. It replaces the current model, which relies on a combination of paper and other sources.

We understand that transitioning to CARM is a big change. With any big change, there is apprehension. We acknowledge there are partners in the business community that are concerned about this coming change.

To support all of our partners and ensure a smooth transition, we have allowed for, and will continue to allow for, additional space and leeway for transition planning and further testing as needed. We have also planned for and forecasted issues that may emerge during a transformation of this magnitude.

We are also dedicating people and funding to continue to support our transition towards a more modern approach to collecting duties and taxes on goods imported to Canada. There will be ongoing CARM releases.

In closing, this committee's study provides us with another valuable source of input that will help us build and optimize a world-class assessment and revenue management system.

Thank you. We welcome and would be happy to answer any questions from the honourable members.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We're on to questions.

Mr. Seeback, you have six minutes, please.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

Thank you, Madam Chair.

I don't share the optimism you've just talked about with respect to CARM. I don't know if you've seen the submissions that have come to the committee from stakeholders that are going to be using CARM, but every single stakeholder that has submitted something has said the system is not ready, that it won't work and that it will have disastrous effects on importers in this country. Of course, that means the Canadian economy. We're going to delve into that in a minute.

I would say that after arrive scam, very few Canadians have any confidence in this government delivering an IT project on time. From my quick look at this—and we're going to get some details—this is another arrive scam brought to you by the Liberal government.

When we look at cost, it is very hard to determine what the cost of this program actually is, which is also what happened with arrive scam. I see an original cost estimate of $30 million, and now, from what I can piece together, it is $528 million. We've gone from $30 million to over half a billion dollars in cost.

My first question is, what was the original cost estimate? Exactly how much has CARM cost Canadian taxpayers to date?

[Ted Gallivan]

The development of CARM was originally budgeted at $370 million. We have spent $438 million to date and we have approved expenditure authority up to $526 million.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

Who are the contractors for this project?

[Ted Gallivan]

The major contractor is Deloitte.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

Are there any other contractors working on this project?

[Ted Gallivan]

During prior eras, we commissioned an independent third party assessment and a benefits realization report. There are a number of indirectly related contracts, but the major contract today, which was signed in 2018, is with Deloitte.

Other people have been contracted to give us independent advice about the viability of the business case as well as our IT readiness.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

I would ask you to produce for this committee a list of those contractors and subcontractors and what those contractors charged the Canadian government while working on this project.

[Ted Gallivan]

I would like to flag a caution.

CBSA doesn't always have visibility on all of the subcontractors. We will provide all the information we have in relation to the contracting. We anticipated this question, and that work is already under way.

There can be cases where we may not have visibility on a subcontractor, so there may be a delay or a separate process to get that for you.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

Good.

Did Dalian receive any contracts?

[Ted Gallivan]

No.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

Did Coradix Technology receive any contracts?

[Ted Gallivan]

We believe that in the early history, there was a small contract for Coradix. I believe it was $400,000.

We anticipated the question and we're in the process of getting that information ready for you.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

Did GC Strategies receive any contracts?

[Ted Gallivan]

They did not.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

They did not. Okay.

My understanding is that the Government of Canada does not own this IT solution. We're going to pay close to half a billion dollars and this IT solution is not owned by the Government of Canada. Is that accurate?

[Ted Gallivan]

No, it isn't.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

So the Government of Canada is going to own this IT solution.

[Ted Gallivan]

I think the most fulsome answer is that we, too, have been investigating the question of what aspects of IT people own. I would say that the aspect of IT that we don't control is the ability of Deloitte to sell this to the Government of France or some other government.

We have asked lawyers who are experts in IP to give us advice. It is absolutely true that Deloitte could produce the system for somebody else, but we absolutely own the rights to the design of CARM. We have built the intellectual capacity, and we have copies of the documentation. We have full rights over citizens' and businesses' data.

The issue of IP has been raised. We have consulted lawyers to better understand it. I think the gap, the risk or the concern would be that if Deloitte wants to sell their services to some other country to build a CARM-like system, they are allowed to reuse the intellectual property they built up.

Again, this is something you might want to pursue through more detailed questioning, but I think that's the bottom line.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

You don't know whether or not there are parts of the solution you don't own.

[Ted Gallivan]

I don't believe that was my testimony.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

You just said that some of it is owned and some of it may not be. You're asking lawyers what that means. That to me means that you don't know what CBSA owns and doesn't own as part of this project.

[Ted Gallivan]

No. Before turning to Mr. Leahy, I'll note that we were concerned with the question of intellectual property. We endeavour to inform ourselves. We own the intellectual property, full stop. Deloitte retains the rights to reuse the intellectual property. That is the best description I can give.

Mr. Leahy is ready to jump in with a more detailed answer if you want more on this.