Thank you, Mrs. Sider.
Honourable Madam Chair and members of the committee, many thanks for allowing us this opportunity to speak with you.
On March 27, the Department of Finance announced that businesses could defer customs duties and tax payments until the end of June. While the goal of increasing liquidity for Canadian businesses was commendable, it has had a considerable impact on the brokerage industry.
The deferral period placed Livingston and many of our fellow customs brokers at considerable risk. As of June 30, there was a total of $751 million in duties and taxes owing on imports covered by Livingston's brokerage bond. Livingston paid the entire balance notwithstanding that we had only been able to collect $680 million of the duties and taxes, resulting in an unprecedented draw on our credit line and in turn a credit risk of $71 million. Additional unpaid importer duties and taxes continued to accrue during the following months. Through significant increased investment and effort, we have been able to reduce the overall outstanding balance on a year-to-date basis for duties and taxes to approximately $12 million as of November 11.
In addition to Livingston's efforts, our primary industry association, the Canadian Society of Customs Brokers, as well as other related industry associations, has been in contact with the government since the announcement in March regarding the unintended consequences of duty deferral. Our concerns are directly related to the material cash-flow and credit risk burden that has been transferred to the brokerage industry. Existing government regulations were never designed to address the resulting scenario nor do they offer appropriate protection to the brokerage industry given our current economic climate.
Members of the committee, I trust you can appreciate that we are still carrying a sizeable credit risk. Furthermore, we expect that because of continued regulated closure of non-essential services and related economic impacts, the risk of non-collection of current or near-term unpaid duties and taxes has increased significantly. The impact of this deferral, although not intended by government, has been to place the brokerage community at a significant financial risk despite the critical role we have played throughout the pandemic.
There has been, prior to COVID, and continues to be, a tightening of the insurance and surety markets globally. This has resulted in an increased cost to obtain surety bonds or increased requirements for cash collateralization of bonds.
As the cost and difficulty of obtaining surety bonds increases more, importers of record will rely on their brokers' bonds to have their goods released. This will result in increased cost and liability for customs brokers. With the introduction of the new CARM initiative—or CBSA's assessment and revenue management—all importers of record will eventually be required to obtain their own individual bonds. While we ultimately support this initiative, if the bond market does not improve, this will result in slowing the flow of trade into Canada and conversely the export of finished goods.
It is imperative that the brokerage industry remain viable to continue to facilitate trade on behalf of importers. However, current gaps in government regulations, inclusive of consistency and clarity, could result in uncollectible debts being thrust upon customs brokers, which would impact our ability to move goods across the border in an efficient and timely manner.
Many customs brokers cannot absorb this debt and will instead change their business practices to require the importers of record to remit duties and taxes in advance of clearance of the importation instead of taking on the risk themselves. This contributes to significant delays in the moving of goods across borders, with consequences for our economy.
The United States is expected to pass legislation to partially address this issue. In 2019, representative Peter King introduced the Customs Business Fairness Act, presently before Congress, which proposes a technical amendment to section 507(d) of the Bankruptcy Code, which would in effect allow subrogation for customs brokers or sureties who have paid duties to the government on behalf of a bankrupt importer. We need similar legislation in Canada.
To address the issue of liability in the near and long-term, we recommend the following actions by government in this budget cycle.
First, we recommend that discussions commence with the Canada Border Security Agency and industry stakeholders on introducing legislation that protects customs brokers in the event of importer bankruptcy. The aim of the new legislation would be to extend protection to brokers who front payment of duties and taxes in good faith on behalf of importers, thus reducing the significant liability for unsecured claims.
Second, we recommend a framework to allow brokers to withhold payment on bad debts. The Receiver General has vast statutory powers in the event of an importer of record’s bankruptcy and could provide a mechanism whereby brokers were eligible to file a claim for reimbursement of duties and taxes remitted on behalf of an importer of record when they are unable to collect on that debt.
Third, the creation of a consistent strategy and transparent policy to deal with importers of record defaults is critical. Currently we have been advised that matters will be dealt with on a case by case basis, creating uncertainty and instability for importers and customs brokers, hindering their ability to operate effectively.
I will stop there to allow some time for your questions. Thank you once again for providing us with this opportunity to speak with you today.