Mr. Chair, thank you for this opportunity to discuss our spring 2017 report on customs duties. Joining me at the table is Richard Domingue, the principal responsible for the audit.
Our audit focused on whether the Department of Finance, Global Affairs Canada, and the Canada Border Services Agency carried out their roles to manage customs duties on the many goods imported into Canada each year.
I want to highlight two observations for this committee, as they relate to imports, that could have an impact on the agricultural sector and the food processing industry.
First, let me address the issue of quota-controlled goods. As you know, Canada applies tariff rate quotas to control the volume of certain imported goods, such as dairy, chicken, turkey, and egg products. These tariff rate quotas limit the volume of goods that can be imported into Canada at a lower rate of duty. Once that volume has been imported, duties apply at a higher rate.
In the audit, we noted a discrepancy between the volume authorized by Global Affairs Canada and the volume declared to the Canada Border Services Agency as eligible for a lower rate of duty. We compared the volume permitted to individual importers by Global Affairs Canada in 2015 with Statistics Canada's import data, which is based on the Canada Border Services Agency's information. We observed that a significant volume of controlled goods entered Canada without a permit. This means that some importers did not pay the appropriate amount of customs duties. We estimated that, in 2015, some 131 million dollars' worth of dairy, chicken, turkey, beef, and eggs were imported without the appropriate permit. Had the duties been properly assessed on goods that exceeded quotas, the government would have collected $168 million in customs duties.
The second observation I want to highlight relates to the duties relief program. This program, administered by the Canada Border Services Agency, allows importers to bring goods into Canada duty-free as long as the goods are further processed in Canada and later exported. For example, chicken can be imported duty-free if it will be used as a topping on frozen pizzas that will be later exported.
We found that the duties relief program had few mechanisms to prevent the diversion of goods into the Canadian economy, especially for those subject to a high rate of duty. We found that there were few incentives for importers to comply with the rules because import licences under the program never expire and because there is no requirement for a financial deposit by importers.
In 2016, the Canada Border Services Agency completed six compliance verifications of duties relief program participants. It found that all six importers of goods under supply management didn't comply with program requirements and were diverting goods into the Canadian market without the proper assessment and collection of duties. The agency later suspended the licences of these importers.
Overall, these are two examples of government activities that operate differently in practice than on paper. Our audit showed that the principles of supply management weren't applied as intended because quota limits on some imports weren't enforced properly, imported agricultural products destined for export were diverted into the Canadian market, and applicable duties weren't always assessed and collected. As a result, Canadian producers may face unexpected competition from some importers.
Mr. Chair, the Canada Border Services Agency, Global Affairs Canada, and the Department of Finance have agreed with our recommendations.
This concludes my opening remarks. We would be pleased to answer any questions the committee may have.