International Trade Committee on Oct. 18th, 2018

[The Chair, Liberal, Mark Eyking]

I call the meeting to order.

Good morning, everyone. Welcome.

We're going to continue our study of the impact of tariffs on Canadian businesses, companies, and workers. We've had quite a few meetings, and they're very productive. Last Tuesday we had witnesses and we also had the Minister of Finance in the afternoon. Today we're going to have some officials with us from two departments. One is the Canada Border Services Agency and the other is the Department of Finance.

Welcome, folks.

The way we roll here is that you guys do presentations, and then we have a dialogue with the MPs. We're missing a couple of them, but I think we can get started right away. Canada Border Services Agency can start off, with Mr. Band and Mr. Lawton.

[Doug Band, Director General, Trade and Anti-dumping Programs, Canada Border Services Agency]

Thank you very much, Mr. Chair.

Good morning, members of the committee.

My name is Doug Band, and I am the Director General responsible for the Canada Border Services Agency's, or CBSA, trade and anti-dumping programs. I have with me today Alexander Lawton, the Director of Trade Compliance.

Within CBSA, our area facilitates compliance with Canadian trade laws and international trade agreements, including the proper assessment of duties and taxes owing on imported goods. We also conduct compliance verification audits, and deliver programs on behalf of Finance Canada that support the competitiveness of Canadian business.

Our area also administers the Special Import Measures Act, which helps protect Canadian producers who face unfair foreign competition in the Canadian marketplace from injury caused by the dumping and subsidizing of imported goods.

As the committee is aware and has heard from businesses and other officials who have appeared, the U.S. imposition of tariffs on steel and aluminum imports has increased the importance of protecting Canadian producers against the diversion of some of these goods into our market. With access to the U.S. market restricted by the tariffs, foreign steel exporters are seeking alternative markets, including ours.

The CBSA has certainly seen an increase in our anti-dumping program activity, and we expect this to continue. So far this year, CBSA has initiated 18 investigations of anti-dumping, or a subsidy, compared to an average of 12 in previous years. Sixteen of those 18 are related to steel. We've assessed over $18 million in anti-dumping and countervailing duties so far, and that's compared to a high in 2017-2018 of $33 million over the course of the entire year.

In recognition of the importance of this program to Canada's trade remedy system, the CBSA is hiring additional trade officers with new funding provided in order to conduct investigations and compliance monitoring activities, including those related to steel and aluminum. In addition, new anti-circumvention investigation authorities were introduced to further strengthen our trade enforcement, allowing the CBSA to identify and address companies attempting to avoid anti-dumping duties.

Two other programs that I'm responsible for as the director general and that I would like to highlight are the duties relief program and the duty drawback program, which I know have been subjects of discussion among the committee members. Both are regulated programs administered by the CBSA on behalf of Finance Canada.

While our trade remedy system helps preserve a fair and open trading environment for domestic producers, the DRP and drawback programs support the competitiveness of Canadian companies in the global marketplace. Through these programs, qualified companies can import goods without paying duties on the condition that the imported goods be exported within a specified time frame.

The duty relief program—or DRP, as we call it—allows eligible companies to import goods without paying duties at the time of importing. The duty drawback is somewhat different; it allows companies to claim a refund, or a drawback, after the fact, once those goods that have been imported are ultimately exported.

Both programs are valued and are well used by industry. Last year, in fiscal year 2017-18, the duties relief program had 402 participants, who benefited from approximately $385 million in duty relief. We processed over 3,000 drawback claims from over 1,300 claimants, and collectively under the drawback program they received $135 million in duty drawback.

Since the imposition of Canada's surtax on the U.S. in July of this year, the demand for these programs has increased significantly. In response, we received 73 applications to the duty relief program, of which 36 licences have already been approved. In a typical year, we would get on average between 20 to 25 new licence applications under the duty relief program.

Given the pressures facing Canadian business, we have internally reallocated resources to meet this surge in demand, and as a result we have cut the time it takes to process a DRP licence in half, from our service standard of 90 days to 45 days. While we've received a very small number of drawback claims to date, the few that we have received are being processed in less than a third of the allocated 90-day time frame. We're doing it in approximately 23 days.

While these programs are not a panacea for Canadian importers, they offer some assistance to qualifying companies in what is, as we know, a dynamic and rapidly changing trade environment.

Finally I want to mention that CBSA has worked hard to provide businesses with the information they need to comply with the surtax. We've updated our website, issued customs notices, and used social media in the days before and after the announcement. We received over 85,000 views of that material on our website.

Our border information service hotline responded to over 500 calls on the surtax within the first week of implementation alone. We've also been meeting with industry associations on how to comply, and this has included questions regarding the administration of the DRP and the drawback programs.

Thank you for the opportunity to appear before you today.

I would be happy to answer any questions the committee may have.

[The Chair, Liberal, Mark Eyking]

Thank you, Mr. Band.

We're going to go to the Department of Finance. We have Mr. Halley and Madam Govier.

You guys have the floor. Go ahead.

[Patrick Halley, Director General, International Trade Policy, Department of Finance]

Thank you for inviting us to testify before this committee.

My name is Patrick Halley, and I am the Director General of the International Trade Policy Division of the Department of Finance. I am joined by my colleague Michèle Govier, Senior Director of Trade Rules, in the same division.

The Department of Finance is responsible for Canadian import policy and legislation. First is the Customs Tariff, which establishes tariff rates for goods imported into Canada, as well as numerous provisions concerning different import situations, authorities for imposing surtaxes, and authorities for providing relief from payment of duties.

Second is the Special Import Measures Act, which sets out and governs Canada's trade remedy system, concerning anti-dumping and countervailing duties.

Last is the Canadian International Trade Tribunal Act, which establishes the tribunal and its functions, including the conduct of safeguard inquiries.

As such, the department has a primary role in import policy, and works closely with the Canada Border Services Agency, Global Affairs Canada, and many other departments and agencies that are involved in Canada's trade policy.

The department is also closely involved in steel and aluminum matters, from import policy to initiatives with fiscal implications and, more broadly, the impacts that issues facing these industries can have on the Canadian economy.

The imposition of tariffs on steel and aluminum by the U.S. earlier this year has presented important challenges for the affected industries. Before the U.S. extended its tariff measures to Canadian steel and aluminum products, the government announced a number of measures aimed at preventing these tariffs from being imposed.

First, it strengthened Canada's trade enforcement regime. The Department of Finance led on a number of these initiatives, which I will explain shortly.

Second, once the U.S. imposed tariffs on Canadian steel and aluminum, the department played a key role in the government's response. It was through the customs tariff that Canada's countermeasures against U.S. steel, aluminum and other imports were imposed, effective July 1. Related to this, where companies have sought relief from the surtaxes through remission, this is also a process that falls within the department's responsibility.

Finally, the imposition of tariffs by the U.S. on all sources of steel imports has created a problem for our domestic industry. To address this situation, the government recently announced provisional steel safeguards. Again, this falls within the department's responsibility.

I will speak briefly about each of these elements.

Canada has a strong and effective trade enforcement regime. Earlier this year, the government took a number of significant steps to demonstrate that Canada is not and will not be a source of steel and aluminum transshipment into the United States. These measures included announcing important changes to Canada's trade remedy system to address circumvention of duties. This provides greater flexibility to address distorted costs in offshore markets and allows participation by unions in trade remedy investigations.

There was also announcement of significant new funding—$30 million over 5 years—to strengthen trade enforcement. Most of that funding went to the Canada Border Services Agency for its investigative and enforcement activities.

Finally, there were amendments to Canada's origin marking regulations to align Canada's marking regime with that of the U.S. and to support more effective enforcement of country of origin rules in the North American space.

In addition, two trade monitoring committees were established, one for steel and one for aluminum, involving the participation of federal officials, provincial and territorial officials, and industry and unions. These committees have met a number of times and are a useful forum for sharing information on government initiatives, the context in the United States market, trade patterns and developments in each of the industries.

As I mentioned, once the U.S. imposed its steel and aluminum tariffs, and following a consultation period, Canada responded with countermeasures affecting the same value of trade, which was $16.6 billion. These were imposed on U.S. imports into Canada of steel, aluminum and other products.

In imposing these measures, the government was cognizant of the potential impact they might have on downstream users, particularly those in the steel and aluminum sector. Efforts were made not to include products of particular concern, such as those not made in Canada.

However, we recognized that not all of these issues could be addressed at that time, and on July 11 the government announced a framework for considering requests for remission. Remission could be granted through a remission order in a number of instances, such as to address situations of short supply in the domestic market. The relief contemplated here is distinct from the duties relief and duty drawback programs that Doug just explained.

Last Thursday, on October 11, the government announced that it would provide targeted remission from Canadian countermeasures for a number of steel and aluminum products that were determined to be in short supply in Canada. This followed careful review of those requests that were received, discussions with domestic producers concerning supply conditions, and interdepartmental discussion on the proposed relief.

For some products, relief is ongoing, while for other products for which it was determined that the short supply situation might be temporary, the relief has been provided for a six-month period. The department continues to review and assess recent submissions, and the remission order will be amended as needed on an ongoing basis.

Finally, last Thursday as well, the government announced provisional global safeguards on seven steel products. This follows the consultation period that was held last August. Safeguards are exceptional trade measures that address import surges that cause, or threaten to cause, injury to domestic producers.

Trade-restrictive measures taken by other countries—most notably by the United States, but also measures taken in response to the United States by other countries and trading partners, such as the European Union and Mexico—with respect to steel products have caused significant disruption in global steel markets. Exporters who normally sell into those markets are often looking for more open markets, such as Canada. The provisional safeguards that were announced are intended to stabilize the Canadian market and will be in place for 200 days.

In the meantime, the Canadian International Trade Tribunal has been asked to conduct an inquiry to determine whether longer-term safeguards are needed.

The safeguards are in the form of a tariff-rate quota. Imports that are in line with historical levels—that is, 100% of the average volumes over a similar period in the last three years—would face no additional surtax, provided that importers have obtained an import permit. Imports without an import permit, and those that go beyond the established quota limits, will be subject to a 25% surtax.

This safeguard is an important trade enforcement measure to address import surges and resultant injury to domestic producers that have arisen because of exceptional circumstances in the global steel market.

In conclusion, the current steel and aluminum trade context presents significant and complex challenges.

We are aware of the challenges faced by stakeholders in these sectors, ranging from primary producers to smaller businesses across the country that rely on a free flow of inputs for the products they manufacture.

In responding to the current situation, significant efforts have been made to strike an appropriate balance between different viewpoints.

As well, the government continues to work toward the complete repeal as soon as possible of all U.S. steel and aluminum tariffs.

Before concluding, we would like to inform the committee that we have taken note of the follow-up to be done regarding the current status of surtax revenues and expenses with respect to the various forms of assistance that the government has put forward, as we discussed during our presentation with the minister on Tuesday.

We are able to provide the requested information, and we hope to be able to forward it to the committee soon.

This concludes my remarks. We are happy to answer any questions you may have.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to go to questions from the MPs now, and we're going to start with the Conservatives.

Mr. Allison, you have the floor for five minutes.

[Dean Allison, Conservative, Niagara West, ON]

Thank you very much, gentlemen and ladies. Thank you for being here.

Mr. Band, I have a question for you.

How much surtax have you collected? Do you have a current number for us of what you've collected in that surtax?

[Doug Band]

In terms of the surtax, for the first two months it was hovering around $230 million. We're still refining the numbers as we speak. However, presently, from what we can tell from the data, the trajectory of the trend line that we saw in those first two months is remaining on the same path. It's going up. It will continue to increase.

Certainly in the trade world, it's a voluntary compliance regime that we monitor, and we do verification work to ensure compliance. As the industry gets more comfortable with self-assessing the surtax, we expect this to continue to grow. It's tracking to the same trend line that we saw in the first two months.

[Dean Allison, Conservative, Niagara West, ON]

Okay.

I know we've asked the Department of Finance or whomever for those numbers, just to keep us abreast of it.

One of the challenges when it comes to duty drawback, duty relief, as it relates to this specific issue, is the fact that it's a surtax. It's not really a tariff that we're putting on; we've weasel-worded around it by calling it a surtax. Most of what we're collecting is not technically.... I guess that's with the exception of the finance department through the minister's office, which on a case-by-case basis can look at those things.

Is it correct that it is a surtax going on, which makes it difficult, almost impossible, to be eligible for duty relief and duty drawback programs?

[Doug Band]

A surtax is a different form of duty. It's not a customs duty, but it is a duty, and it is eligible under the duty relief and drawback programs for relief.

[Dean Allison, Conservative, Niagara West, ON]

Okay. You're saying it is eligible.

[Doug Band]

Yes.

[Dean Allison, Conservative, Niagara West, ON]

Talk to us about the process. We've talked to a couple of hundred stakeholders. We keep pointing to the programs, to you guys, and I think one of the challenges they have is just how complicated the forms are to fill out. As a business owner, I fill out an HST form every month. It's pretty easy. I collect the HST, I pay it out and I subtract the difference.

I realize this is not HST, so I guess my question is, are there any thoughts around trying to simplify that process? This is something we've raised with the government. I realize that you guys execute what the government asks you to do, but talk to us a bit about the process.

[Doug Band]

Sure. I think the application process is, if I may say so, fairly streamlined. For the drawback, it's a one-page application. For the duty relief program, it's two and a half pages long. That said, I think what the industry is getting at is that the complexity of the compliance challenge is to demonstrate that you can meet the conditions of the program.

I think what's important for the committee is that the law is very clear that these are regulatory regimes—a licensing regime, in the DRP's case—and what's paramount is that the imported product can demonstrably have been exported to be eligible for the relief. That implies certain things for the companies, which I think some may find challenging and others not, such as the ability to have the books and records to show where that product goes across the supply chain. Who are you selling it to? Did they export it? Did it go somewhere else after that? Inventory management, similarly....

We're quite flexible in terms of what we would accept. We do a site visit and determine that it seems reasonable, but at the end of the day, what's paramount is that the relief only goes to the company for the amount of the good that was imported and subsequently exported. It's relief for the purposes of importing to re-export. It is allowable to have the product enter the domestic marketplace, but you have to pay the duty on that. You have to be able to track where that imported product is ending up before it gets exported.

[Dean Allison, Conservative, Niagara West, ON]

Sure, and I think that's among the challenges for the SMEs, while some of the bigger companies obviously have whole departments that look after trade, duty and all these other kinds of things. It makes it tough for traceability, because some companies they deal with don't have the product origin and stuff like that.

On my last question, I understand the reason for safeguards. I'm very well aware of that. My concern is that it's really going to disproportionately affect SMEs, and the challenge is their access to steel and whether it's even available in North America, etc. I don't have much time to go through all of that. It seems to me that on the 25th we're going to have a whole new round of tariffs put on the steel and aluminum industry as that relates to safeguards. Is that correct?

[The Chair, Liberal, Mark Eyking]

It will have to be a very short answer.

[Michèle Govier, Senior Director, Trade Rules, International Trade and Finance Branch, Department of Finance]

Yes.

[Voices]

Oh, oh!

[Michèle Govier]

On October 25, that's the case. I will emphasize that as Patrick said, although they are informed of the tariff rate quota, it's not a straight 25% on everything. The intent is really to stabilize the market, because we were very mindful of these potential supply issues that could arise.

[Dean Allison, Conservative, Niagara West, ON]

Thank you.

[The Chair, Liberal, Mark Eyking]

We'll go to the Liberals.

Mr. Fonseca, you have the floor. Go ahead.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

Thank you, Chair, and thank you to the witnesses.

In my riding of Mississauga East—Cooksville, a great many of my constituents are CBSA officers due to our proximity to Toronto Pearson International Airport. I don't know if much steel or aluminum comes through their borders there, but as we look at CBSA in terms of the expertise to address steel and aluminum and to understand that market, that sector, can you tell me about how many people have been trained in that regard?

Would that $30 million over five years for enforcement go into that specific sectoral training for aluminum and steel? We've just heard from Mr. Allison how it may be difficult in terms of the labelling for these products to see what exactly is coming over the border.

[Doug Band]

Thanks for the question.

I'll answer the first question in terms of the new money. The new monies go to having 40 new officers. It is for the Special Import Measures Act activities that we perform, as we're part of the trade remedy system that Patrick outlined. That's to hire new investigators and compliance personnel in relation to our anti-dumping investigations. Those folks are all located in Ottawa.

We don't have a sector-specific expertise base to the workforce. What we have is people who understand how the trade works and how to apply the various acts and pieces of legislation to all.

I will say that in my program we have a very deep expertise in the steel business. In the anti-dumping area, steel is our number one customer in terms of the volume of requests, the investigations and the number of measures that are enforced. We work very closely with them. There's a very deep understanding in my employee base of that issue they're facing an industry.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

Can you explain that anti-dumping? Is that a misrepresentation? How would a company be able to come forward with their product, their steel or aluminum? Would they say it's manufactured here? Would they say it's manufactured in the United States, and not say it's coming from China or from another country? How would they do that? I'd like to also know what penalties are put on those who have these infractions.

[Doug Band]

I think that question gets at a couple of different areas. The first one, as I understand it—please correct me if I'm wrong—is about how people avoid or evade duties.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

That's right.