Thank you.
Mr. Chair, thank you for this opportunity to discuss our spring 2017 report on customs duties. Joining me at the table are Richard Domingue and Philippe Le Goff, who were responsible for the audit.
Our audit focused on whether the departments of Finance Canada, Global Affairs Canada, and the Canada Border Services Agency carried out their roles and responsibilities in managing customs duties on the many goods imported into Canada each year.
In the 2015-16 fiscal year, federal government revenue from those duties was more than $5 billion. Many tariff items raised little revenue. For example, in 2015, 1,973 tariff items generated only $26 million. That is less than one half of 1% of duty revenues. In addition, 57% of customs duty revenues were generated by only three categories of goods, those being apparel, footwear, and vehicles and auto parts.
We found that the Canada Border Services Agency was unable to assess all customs duties owed to the government because its import controls were not working adequately.
The import forms filled out by importers and customs brokers were not always useful to the agency. For example, the quality of the product descriptions entered on the forms was generally poor. Almost 75% of the records we examined did not have descriptions that allowed us to determine whether the importers used the correct tariff classifications. Therefore, we questioned why the agency required the importers to provide product descriptions.
To expedite trade, the agency did not compare the goods with the information on the import form or on the invoice at the border. Goods were released at the border for delivery to their destinations. Within five days after release, the agency confirmed the amount of duties and taxes owed. We believe that this self-assessment system with little validation allowed some importers to be non-compliant with the import rules and regulations.
Importers are responsible for ensuring that the information provided is accurate, but they often use customs brokers to help them prepare import forms. We found that, despite known non-compliance with import rules, the agency did not monitor the performance of customs brokers. The agency has the power to suspend or cancel a broker's licence; however, it rarely suspended a licence because of concerns about a broker's overall performance.
We found that the Canada Border Services Agency and Global Affairs Canada didn't work together to adequately manage the limits on quota-controlled goods coming into Canada for the five imported goods we examined, which were dairy, chicken, turkey, egg products, and beef. The first four of these goods are covered under the supply management system.
Canada applies tariff rate quotas to control the volume of these goods, which can be imported into Canada at a lower rate of duty or duty-free. Once that volume has been imported, duties are applied 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 observed that a significant volume of controlled goods entered Canada without the required permit. We estimated that in 2015, $131 million worth of dairy, chicken, turkey, egg products, and beef were imported without a permit. If the appropriate duties had been applied to the excess volume, the government would have assessed $168 million in additional customs duties.
We also found that the duties relief program, administered by the Canada Border Services Agency, could not always prevent the diversion of goods into the Canadian economy. The program allows importers to import goods without paying duties as long as they are used to add value to goods that are later exported.
In 2016, the agency completed six compliance verifications of high-risk importers under the duties relief program and found that none of these importers complied with the program's requirements. The agency later suspended the licences of these importers.
Finally, we examined the $20 minimum value to import goods duty-free by mail or courier. This amount has not changed since 1992, but the volume and total value of incoming parcels have increased significantly. The agency did not have the staff to inspect all incoming parcels, which meant that duties and taxes were not always assessed when they should have been. The agency determined that administering customs duties on goods imported through the postal service and valued at less than $200 resulted in a net cost to the government.
Overall, the Government of Canada assesses customs duties and controls goods coming into the country according to methods that are complex and difficult to administer. This means that the program operates differently in practice than on paper.
The Canada Border Services Agency, Global Affairs Canada, and the Department of Finance Canada have agreed to our recommendations.
Mr. Chair, this concludes my opening statement. We'd be pleased to answer any questions the committee may have.
Thank you.