Thank you, Mr. Chair.
My name is Alexander Lawton, and I am the director of trade compliance with the Canada Border Services Agency. I welcome the opportunity to address the committee today.
The Canada Border Services Agency, or CBSA, is responsible for the secure importation of food, plants, animals, and other goods into Canada, and we enforce legislation and regulations on behalf of numerous government departments and agencies to this end.
Since its creation in 1996, the duties relief program, or DRP, and associated drawback program have enabled qualified companies to import goods without paying duties, on the condition that the imported goods are subsequently exported. The products must be subsequently exported within four years.
The CBSA administers these programs on behalf of Finance Canada, primarily for the benefit of our manufacturing sector. The DRP gives Canadian companies the ability to compete internationally by allowing them to purchase and use raw materials for goods subsequently exported at world market prices and without including customs duties in the price of the exported goods.
Since 2012, a portion of the supply-managed agricultural goods industry has transitioned from the import to re-export program or IREP—a similar program managed by Global Affairs Canada—to the duties relief program. However, the DRP was not specifically designed to provide relief for agricultural goods. It was initially designed to support Canada's manufacturing industry. As a result, issues have been identified around the potential diversion or substitution of imported non-duty-paid goods under the program being sold in the Canadian market at prices substantially lower than the prices established by Canada's supply management system. The customs tariff, in conjunction with the duties relief regulations, allows participants to use domestic or imported goods of the same class interchangeably in the processing of goods in Canada. This is often referred to as substitution.
From a DRP perspective, substitution is only permissible according to the legislative definition of “same class” if the goods being used in the production are so similar that they can be used interchangeably in the final product, and that these goods, in the same quantity as the goods originally imported, are exported.
Under the customs tariff, DRP participants must report any goods diverted into the Canadian economy as well as pay all applicable duties within 90 days of the date of diversion. If, during a compliance verification, a participant is found to have diverted goods into the Canadian economy or has failed to comply with any condition of a DRP, the applicable duties are assessed, including any interest and penalties that may apply, and the company's licence to participate in the DRP may be suspended or revoked.
The CBSA maintains a robust post-release verification regime and regularly verifies participants in the DRP to ensure compliance with all program requirements. Since April 2016 alone, a significant number of compliance verifications of DRP participants have been completed, and where non-compliance was found, the applicable duties, interests, and penalties were assessed, and participants suspended from the DRP. The CBSA will continue to ensure program compliance through regular and rigorous post-release compliance verifications. However, Finance Canada is the policy lead and is responsible for any changes to the program. The CBSA is working with government partners to review anti-circumvention measures, including potential changes to the DRP. The Canada Border Services Agency will continue to support the Government of Canada's direction in any border controls initiative and will further engage other government departments as required.
Thank you.