International Trade Committee on Sept. 25th, 2024

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Reading your notes here, it sounds like you used data from the last two years to come up with these calculations. Were you comparing a before-and-after scenario?

[Ted Gallivan]

I'll talk about the $200 million in discrepancies that we're identifying. We used a 31-month period to say the annual range of discrepancies would be $200 million.

Some of those would have self-corrected. Businesses would have figured it out or their accountant or somebody might have figured it out. We might have figured it out through audit. I think getting it right from the start is important, and it's important for there to be a level playing field among Canadian businesses and between Canadian businesses and international competitors. By having an automated tool, our sense is that people are going to get it right from the start.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Again, to clarify, are most or all of the discrepancies related to GST situations, or is it tariffs? What's the main cause of those discrepancies?

[Ted Gallivan]

Certainly, the $200 million in GST was the most obvious. It's the biggest number. However, a policy choice on something like ball gowns and dresses.... That's where there's an 18% lift applied. The analytics from CARM are letting us figure out that some businesses aren't paying this, so I would say no.

CARM is also identifying people abusing most favoured nation status. The Government of Canada and this Parliament make choices about which countries get or don't get most favoured nation status. We're finding examples of people, mistakenly or otherwise, coding goods as coming from a most favoured trade nation, when, in fact, they're not.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Are these savings happening under CARM because, before, it was a lot laxer? I guess I'm puzzled about why there was so much missed before.

[Ted Gallivan]

There are a few things.

CARM provides an enhanced dataset, so we have an additional line of sight. It also digitizes the information and passes that on to our compliance folks more quickly. We're weaning ourselves off paper. We are asking for a broader dataset. That's feeding our analytics, because it's a digitized record.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Quickly, what are the concerns you're hearing? When I talk to business groups in general, they're very concerned about this. What are you hearing about their concerns, and what do you look for in the immediate future?

[Ted Gallivan]

I think one of the biggest concerns for our own employees and business groups is that CARM is not ACROSS. ACROSS is the system that manages actual traffic, real time, at the border. That's not CARM, and we're not touching the system that does this.

The second concern is that CARM 2.0 isn't one and done. People think we're done. That's not the case. We're going to have two updates a year, indefinitely.

I think those are the two biggest issues. If you can talk to people and say, “This isn't the system we use to clear goods at the border—it's the back-end accounting system,” it takes down the temperature. Telling people, “When we go live on October 21, it's the start, not the end,” takes down the temperature.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Martel, you have four minutes.

We're going to try to do one more round. We have several witnesses in the waiting room for the next panel, so let's try to do another round.

You have four minutes.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

Thank you, Madam Chair.

Mr. Gallivan, how does the CBSA intend to compensate for the potential loss of business partners' confidence, given that many have already expressed their frustrations about the system's reliability?

[Ted Gallivan]

First, a number of stakeholders in the private sector are very enthusiastic about this new audit. We have testimonials, which we have made public on our website, from companies that no longer have to use brokers. A lot of people are very happy to have more transparency and to have access to their own data.

Second, as I mentioned, the Office of the Auditor General of Canada, or OAG, reported a 20% error rate. The office asked us to impose fines and to cancel certain brokers' licences. It's not surprising, then, that some brokers are concerned about being targeted by this 20% error rate. If they did not code the imports properly or if they did not pay the tax due, it is perfectly normal for them to have concerns.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

What will be the economic and administrative consequences of frequent delays in the implementation of the CBSA's assessment and revenue management system, or CARM, for businesses and importers?

[Ted Gallivan]

First, I would say that Canadian businesses will have transparent access to all their interactions with the agency, like they do for their bank account or the Canada Revenue Agency. This will promote greater transparency for the entire industry.

Second, to answer the question about compliance, any errors will be detected at the beginning, not during an audit, two years later, which would result in fines and penalties. If detected, the error will be raised with the stakeholder. We can tell them that we are not sure of their calculation and ask them to check it and correct the error.

We believe that this electronic tool will make the work of businesses easier. Employees of small businesses will no longer be required to report to the customs office at the border. Enabling them to settle their excise duties electronically before arriving at the border will save them paperwork.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

What are the main risks for the CBSA after October 4?

[Ted Gallivan]

That's a great question.

One of the risks is the screw being overtightened, through things like all the controls that will be put in place. If the entire machine comes to a halt, we will have concerns. I mentioned that audits will be done and that some bids will be rejected. We worked with the system over the summer, and about 1% of the transactions were rejected.

What I was concerned about was the risk of introducing a compliance system that would have affected 50% of transactions, which would have had a punitive effect on the private sector.

[Richard Martel, Conservative, Chicoutimi—Le Fjord, QC]

Can the system guarantee that the $40 billion in expected gains for Canada will be achieved, despite the current delays and shortcomings?

[Ted Gallivan]

Forty billion dollars is the overall amount of revenue that we assess every year. I can guarantee that the amount assessed will certainly increase. As for errors, we have employees on site, as well as a contract with Deloitte. Under this contract, Deloitte will address any shortcomings at no cost to the taxpayer.

So I think we have a system in place to deal with any issues that may arise.

[The Chair, Liberal, Judy Sgro]

Mr. Martel, I'm sorry, but you have seven seconds. It's not enough time.

Mr. Miao, please go ahead for four minutes.

[Wilson Miao, Liberal, Richmond Centre, BC]

Thank you, Madam Chair.

Thank you to the witnesses for being here today.

Since the last time, are there any big finds or updates that you have experienced over the summer when working with stakeholders to implement CARM? As we know, the October 4 date is coming. How ready is CARM for the importers?

[Ted Gallivan]

I already talked a bit about the compliance approach, where we're seeing early success. That makes us comfortable that there'll be a revenue lift.

I mentioned that 99% of Canada's commercial trade has software certified that's compatible with CARM. I mentioned the number of people who are registered. We have 8,000 of our own employees now equipped with access to CARM. I think we've largely de-risked it as much as we can ahead of the October 21 launch date.

I'll turn to Mr. Leahy for some specifics.

[Mike Leahy]

You mentioned certification. We were here in the spring, and the certification numbers were not strong. There's been a lot of dedicated outreach between Shared Services Canada, industry and us, spending time together to say, “Let's get through this process.”

There are 30 digital tests they have to go through, and we went through them. We spent enough time, and there was enough commitment. There were four companies left, and we're expecting them to be done by October 21 as well. It was a real push from many sides.

[Wilson Miao, Liberal, Richmond Centre, BC]

I had the chance to be shown the demo and to see CARM by itself. Have you found any significant user experience over this past summer, through working with the stakeholders and seeing how the new CARM is coming in, that will be much better than what we have been expecting?

[Mike Leahy]

I think, for the user community we're talking about that got access in May, the lights came on. Here is a tool that they haven't had previously. CARM scores information and says, “Look at this. Somebody may be doing something that you're interested in,” and then an officer gets a chance to dig in and say, “Yes, that commodity should attract duty at this rate, and look what's happening.” Maybe it's not being remitted, or maybe there's something there they should explore further.

It gives decision support to people who have been looking for that kind of support from a tool for years. That part of our organization said that CARM really works.

[Wilson Miao, Liberal, Richmond Centre, BC]

I'm sorry to interrupt. With my limited time, I want to ask about how many transactions you are expecting once CARM goes live on October 4. If there are any incidents or issues with regard to transactions, what kind of response, time-rate response or procedure implementation do you have so that you can resolve those issues?

[Mike Leahy]

That's a good question.

There's been outreach to industry. During the cutover process, we're taking down.... We're deferring the accounting obligation, so we're going to accumulate information.

When we start up on the 21st, we're going to process the backlog and then everything that's new, concurrently. Orchestrating that and having CARM ready to deal with the 16 days' worth of volume has been planned. It's been tested. We tested performance at double what we see currently. If we're looking at 30 million accounting documents, we looked at double the impacts to get ready for that initial spike. For the solution, it's been planned to deal with what's coming, starting up on the 21st.