Evidence of meeting #81 for International Trade in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was goods.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Michael Ferguson  Auditor General of Canada, Office of the Auditor General
Richard Domingue  Principal, Office of the Auditor General
Philippe Le Goff  Director, Office of the Auditor General

4:05 p.m.

Liberal

Linda Lapointe Liberal Rivière-des-Mille-Îles, QC

Thank you very much.

That is very interesting.

4:05 p.m.

Liberal

The Chair Liberal Mark Eyking

Thank you.

That ends the first round. I think we have enough time for another round.

We're going to start with the Liberals. Go ahead, Mr. Dhaliwal.

October 18th, 2017 / 4:05 p.m.

Liberal

Sukh Dhaliwal Liberal Surrey—Newton, BC

Thank you, Mr. Chair.

Thank you, Mr. Ferguson and associates.

The recommendation is that we should have more CBSA staff. I'm trying to understand. On the one hand we are saying that a wrong classification is causing all these issues of not collecting full duties. If we hire more CBSA officers, how would we be able to mitigate this problem?

4:05 p.m.

Auditor General of Canada, Office of the Auditor General

Michael Ferguson

I want to be clear that we didn't make a recommendation to increase staff or resources. We referred to it in paragraph 2.42 of the audit. The agency estimated that for the 2015-16 fiscal year, each additional compliance officer could have identified unassessed customs duties, taxes, and interests totalling four to 11 times their individual salaries. What we are bringing to your attention is that the agency has done this calculation.

Again, we're not making a recommendation one way or another. What we are bringing forward is that given the way the system is described right now, given all of the requirements on the system and the resources that are in the system, that's not all lining up.

Right now the organizations involved in this area are not able to implement the system as it is. That may not be something that you can solve just by providing more resources. For example, as Mr. Domingue just said, there has been an increase in packages through the mail. Can that all really be managed, even with an increase in resources, if the threshold is kept at $20? We don't know the answer to that question.

What we do know is that right now all the different components of the system are not lining up to make sure that the system works the way that it is intended to work on paper. I think that is really the struggle that the department has to deal with. What needs to happen to bring those two things into line, the resources and the requirements? Right now, the requirements are significantly more onerous on the department than they can actually meet. Somehow those two things need to come in line, and there are different ways of doing that.

4:05 p.m.

Liberal

Sukh Dhaliwal Liberal Surrey—Newton, BC

Did they disclose how much we lose by the customers bringing in goods and not disclosing at the borders?

4:10 p.m.

Auditor General of Canada, Office of the Auditor General

Michael Ferguson

No. In fact, even with the goods coming across the border by importers and even though the Canada Border Services Agency has done a number of inspections and identified things like misclassifications and that the misclassifications have resulted in an under-collection of duties, they themselves haven't done any estimate even of that information, of what the total quantum might be. They haven't taken the information from those more focused activities that indicated that they're not collecting all the revenue that they could collect. They haven't even taken that to extrapolate it, let alone some of those other more difficult things to extrapolate, such as people coming across the border with things.

4:10 p.m.

Liberal

Sukh Dhaliwal Liberal Surrey—Newton, BC

It worries me more now when we see every day that people are ordering by the Internet. Amazon is shipping like crazy. You order something today and they ship tomorrow, because they have one-day delivery.

As Peter was asking, how can we manage or streamline this system with less workforce to achieve more?

4:10 p.m.

Auditor General of Canada, Office of the Auditor General

Michael Ferguson

That is what the department needs to sort out in its analysis of what it can do. I think there is no question that the complexity of what they're trying to deal with has changed significantly in the last few years. They really have struggled to enforce all of the rules as they exist right now. It could be a resourcing issue, or it could be that there is some technology that could help, or maybe some of the rules are not enforceable the way that they exist currently. Maybe that needs to be looked at. I think of those components of the problem need to be analyzed.

4:10 p.m.

Liberal

Sukh Dhaliwal Liberal Surrey—Newton, BC

Okay. Thank you.

4:10 p.m.

Liberal

The Chair Liberal Mark Eyking

Mr. Dhaliwal, thank you. Your time's up, and we're going to move over to the Conservatives now.

Mr. Dreeshen, you have the floor.

4:10 p.m.

Conservative

Earl Dreeshen Conservative Red Deer—Mountain View, AB

Thank you very much, Mr. Chair. Mr. Ferguson, it's great to see you again.

Having been on public accounts for a number of years and having a chance to take a look at all this information over a long period, I'm happy to see that you're working in areas that are so important to our nation's finances. Of course, these areas are especially important when we're talking about trade, as we are, and when we talk about how goods are moving across the border.

We're looking at this strictly from the Canadian border customs perspective and goods that are coming into Canada, but we also have to start looking on the trade side as to how things are moving in the other direction.

That's part of what was being discussed when we talked about the $20 versus the $800. You indicated that $200 would perhaps be a break-even amount. Nobody's pinning anyone down as far as what the ultimate dollar figure should be, but I think it's important that it at least become part of our discussion.

Just going back to deal with what we were talking about, it was back in 2002 when it began to be noticed that 20% of these goods that are being imported were being misclassified. You also indicated in paragraph 2.21 that through misclassification, sometimes importers pay too little tax and sometimes they pay too much. It's a fact that you just don't have confidence that it's being tracked properly. That's really one of the key things.

I'm wondering if in the discussions there was consideration of how our system compares to the inspection of goods when they cross into the U.S. Did you get into any discussions with CBSA on the reciprocal treatment that the U.S. was giving to our goods?

4:10 p.m.

Auditor General of Canada, Office of the Auditor General

Michael Ferguson

I'll start and then I'll turn it over to Mr. Domingue.

We have done an audit, not on how the U.S. treats Canadian goods going into the U.S. but on how Canada controls its exports at the border. We have looked at the export side of things from that point of view, but I'll ask Mr. Domingue if there was any conversation at all about how the U.S. treats Canadian imports coming into the U.S.

4:15 p.m.

Principal, Office of the Auditor General

Richard Domingue

Thank you, Mr. Chair.

We did not look specifically at how the U.S. treats Canadian imports to the U.S., so we don't know exactly how or if things are better or worse over there.

4:15 p.m.

Conservative

Earl Dreeshen Conservative Red Deer—Mountain View, AB

That's fine. I'm just curious whether or not that had been part of the discussion.

On the duties relief program, you spoke about some high-risk importers. I'm wondering what sectors were primarily of concern to you and what your definition of a high-risk importer would be.

4:15 p.m.

Auditor General of Canada, Office of the Auditor General

Michael Ferguson

Actually, in paragraph 2.56, we specifically state: “In 2016, the Agency completed six compliance verifications of Duties Relief Program participants that import supply-managed goods”. In terms of identifying the importers who presented the highest risk to be investigated, that was something the agency did. They identified that this problem was most likely to be happening in the supply-managed goods. The one they particularly focused in on, for example, was the marinated chicken issue.

They looked at importers who are using this program, and probably across that program there are some importers they would consider to be at low risk of not using the program appropriately, and others who are higher risk. They focused their verification process on those they considered to be the higher-risk importers.

4:15 p.m.

Conservative

Earl Dreeshen Conservative Red Deer—Mountain View, AB

On the department's acceptance of your recommendations in various areas, I know these questions were asked: what would happen if we had more staff, and what would happen if we had more auditors to deal with this?

Of course, one of the issues right now is the massive change in disruptive technologies and things that are crossing borders. We start looking at vehicles that are moving across without having people in them. A lot of that is going to be the case.

Did they talk about having dollars—

4:15 p.m.

Liberal

The Chair Liberal Mark Eyking

Sorry, Mr. Dreeshen, but I can't let you throw a question in there because your time's up.

4:15 p.m.

Conservative

Earl Dreeshen Conservative Red Deer—Mountain View, AB

I'm curious whether they might have enough money to deal with it, but that's fine. Thank you.

4:15 p.m.

Liberal

The Chair Liberal Mark Eyking

I think there's time. Mr. Carrie might want to finish that thought when he comes up.

We're going to move over to the Liberals now. We have Mr. Peterson. Go ahead.

4:15 p.m.

Liberal

Kyle Peterson Liberal Newmarket—Aurora, ON

Thank you, Mr. Chair. Thank you, gentlemen, for being here today. We appreciate your input.

Mr. Ferguson, you mentioned in your remarks that in 2015, 1,973 tariff items generated only $26 million, less than 0.5% of duty revenues. What's the significance of that? Why did you feel it necessary to comment on that?

4:15 p.m.

Auditor General of Canada, Office of the Auditor General

Michael Ferguson

Mr. Chair, that's in the section of the report that deals with what the Department of Finance does. We felt that the Department of Finance should be reviewing the whole tariff schedule to identify whether, in their analysis, it needed to be changed.

We started our analysis by looking at all of the different tariff lines to determine how many items are coming in, what's being collected, and what that shows. For the most part, we found that the Department of Finance was doing a pretty good job of analyzing things. There was one area where they wouldn't give us access to the information we asked for, and that caused us some concern. For the most part they would do their analysis when they were in negotiations to change something, and when they did that analysis, they did a reasonably good job.

However, we wanted to understand the tariff lines ourselves to know how many lines were generating revenue, which ones were generating the most revenue, and that type of thing. Part of it was to build our own knowledge. We put it in the report because we felt it was interesting information for Parliament to know.

4:20 p.m.

Liberal

Kyle Peterson Liberal Newmarket—Aurora, ON

Conversely, three line items generate 57% of the duty revenue, it seems, through duties on apparel, footwear, and auto parts.

4:20 p.m.

Auditor General of Canada, Office of the Auditor General

Michael Ferguson

Right. Again, it shows that while there are about 7,400 different tariff line items and while Canada collects $5 billion in duties, when you look at all of the individual tariff items, you see that a very few tariff line items are responsible for a very large portion of the revenue. From that point of view, I think it's interesting to understand the effort required to enforce the rules. I think analysis based on which things are actually generating revenue would be interesting.

4:20 p.m.

Liberal

Kyle Peterson Liberal Newmarket—Aurora, ON

Is it the implication, or the inference that can be drawn, that resources should be targeted on those three items that generate the most revenue?

4:20 p.m.

Auditor General of Canada, Office of the Auditor General

Michael Ferguson

It would be a reasonable starting position to consider that if these three items are bringing in the most, then we should make sure we are collecting the right duties on those items, always remembering that part of the problem on duties is knowing what is coming across. It's easy to enforce a duty when you know that footwear's coming across the border and what type of footwear it is. When what's coming across the border is a kit, which is actually some type of footwear, but they've just called it a kit or something like that, that's really where it becomes more difficult to make sure the rules are being applied.

It's not so difficult to make sure the rules are being applied when everything is being properly coded and classified and paid. That's easy enough. The difficulty is going through all of the details to find the things that were actually shoes, but weren't called shoes, and then making sure that the duties apply.