Justice Committee on Dec. 10th, 2013

[Manuel Arango]

At that time, when the rates were cut, smoking prevalence rates went up. That example definitely supports what we've said about the relationship between taxes and consumption. At that time, the contraband problem was orchestrated by the tobacco industry and they were forced to pay restitution and fines as a result.

[François Damphousse]

I started working in tobacco control in 1993, right smack in the smuggling crisis. It wasn't all the provinces that rolled back their taxes. Quebec was the first and it had a domino effect—New Brunswick, Ontario, and a few other provinces in the Maritimes. The other provinces maintained their level of taxation. The federal government lowered their tax, but it was not across the board.

Tobacco taxation was so effective that the tobacco industry was panicking. They recognized in their annual reports that they were losing a lot of their sales because of that. The policy that was brought forward was a suggestion by the health community. If you want to generate revenue, you might as well generate revenue with a product that's killing people and stop some of them from picking up tobacco.

At one point, the tobacco industry realized that, even as they were making the argument that they were losing sales, the policy was working. At one point, they engaged in a public relations campaign across the board. They invested millions. They said that tobacco taxation did not work, while illegally supplying the contraband networks, especially through Akwesasne. All of those operations were done by the tobacco industry.

Unfortunately, the pressure became so intense in the 1990s that the government thought the best way to get out of the problem was to lower tobacco taxes. At the same time, though, they came up with the Tobacco Demand Reduction Strategy. It was only later, through litigation in the United States and the uncovering of internal documents from the industry, that we uncovered a whole conspiracy on their part, in which they admitted to supplying the contraband market. The tobacco industry was sued by the States, and the industry was found liable. In 2008, you had Imperial Tobacco and then Rothmans, Benson and Hedges. After that, you had JTI-Macdonald in 2010. It was a record fine that they had to pay—$1.7 billion or $1.8 billion—an amount never before seen in this country.

[The Chair, Conservative, Mike Wallace]

Thank you very much for those questions and answers.

Rob, do you have anything really short to add? You're okay? Very good.

Thank you for that.

Our next questioner from the Conservative Party is Monsieur Goguen.

[Robert Goguen, Conservative, Moncton—Riverview—Dieppe, NB]

Thank you, Mr. Chair.

Thank you to the witnesses for sharing your expertise.

Mr. Damphousse, did you want to finish up what you were completing? We were just getting to the good part.

[François Damphousse]

No. I hope it is the type of information....

[Robert Goguen, Conservative, Moncton—Riverview—Dieppe, NB]

Thank you.

My question is for Mr. Cunningham. We've heard in committee that there are different concentrations of elements in the illegal cigarettes. We know that even the legal cigarettes are not good for smoking, but there seem to be some surprises in the illegal products.

Can you talk to us about what has been discovered in illegal cigarettes and the effects, I guess the very bad effects, it would have on those who smoke them?

[Rob Cunningham]

Health Canada is doing some studies and their basic conclusion is that the health effects of smoking contraband are the same as smoking regular cigarettes. There are some particular cases where the manufacturing processes are different and inadequate, have special flaws, have all kinds of other contaminants in the products. The biggest health problem is the low price which encourages kids to get addicted and which keeps smokers smoking. So there are really huge negative health effects from contraband.

[Robert Goguen, Conservative, Moncton—Riverview—Dieppe, NB]

You've all commented that there is no magic bullet for this problem. Of course even the legal cigarettes are bad, but I guess banning them outright might bankrupt the state of Virginia. So I guess that's probably not going to happen.

If you had to dig into your utility belt without the magic bullet, and we know that taxes don't seem to do the trick, what would be the most effective way of countering this? You've mentioned the illegal manufacturers. Dig into your bag of tricks and tell us what would be the most effective thing.

And that's open to whoever wants to venture.

[François Damphousse]

You're talking about tobacco consumption altogether?

[Robert Goguen, Conservative, Moncton—Riverview—Dieppe, NB]

Yes, and about combatting—

[Rob Cunningham]

Combatting contraband...?

[Robert Goguen, Conservative, Moncton—Riverview—Dieppe, NB]

Yes.

[Rob Cunningham]

I would say that because more than 90% of the source of contraband in Canada comes from the illegal factories we have to have a strategy for illegal factories. The best way to do that is to intercept the raw materials before they get to the reserve and get to the factories.

If you can't have leaf tobacco or cigarette papers or cigarette filters you can't make cigarettes. So I think it's very feasible.

Quebec has had some success. The United States Bureau of Alcohol, Tobacco, Firearms and Explosives has had some success with illegal factories on the U.S. side of Akwesasne. It's sort of an untapped strategy in most of Canada.

[Robert Goguen, Conservative, Moncton—Riverview—Dieppe, NB]

So it's the location of the checkpoints, the choke points, the border crossings, that are the most effective that we can come up with?

[François Damphousse]

That's just in the case of Akwesasne, which could be potentially a problem, because Akwesasne is a source of contraband tobacco, but you have some in Kahnawake near Montreal, Tyendinaga, and Six Nations.

So, for the Akwesasne situation we're considerably concerned about the issue of having the border post being moved into New York state. We understand that the decision cannot be reversed, but what Rob is proposing—having a two-tier system—could be very helpful. The international bridge is going to be a conduit. Once the border post is moved to the United States nothing is going to prevent them from moving all those products into Ontario.

[Robert Goguen, Conservative, Moncton—Riverview—Dieppe, NB]

We're not reinventing the wheel by having a double checkpoint?

[François Damphousse]

No. And for the other reserves, the other territories....

Politically, recalling the Oka crisis, it will be quite difficult to go on the reserves and shut down those manufacturing facilities. I'm from Chateauguay and I lived through what happened during that crisis. My mother had to sell her house and move out of Chateauguay because of what happened. The best way, we believe, is to cut off the supply of other materials.

It's not even illegal for the manufacturers of filters or cigarette paper to supply the illicit manufacturing facilities. How can they do that without paying any kind of penalties for doing that? For raw tobacco, that has changed—you're not allowed to do that. But you need to seize it, and to do that, you have to know where the product is coming from. Ontario made a great move by passing Bill 186. It's the implementation that's taking time. An RCMP document leaked at one point in time showed that a considerable portion of the tobacco grown in Ontario was going to the illicit manufacturing facilities on the reserves. So it's a major concern but there's no control whatsoever on that tobacco right now.

Once this bill is implemented, controlling the tobacco coming from the Ontario belt is going to be very helpful. That's why we need to choke off these illicit manufacturing facilities by preventing the supplies of the materials.

[Robert Goguen, Conservative, Moncton—Riverview—Dieppe, NB]

Thank you.

That's good, Mr. Chair.

[The Chair, Conservative, Mike Wallace]

The next questioner is from the New Democratic Party, Mr. Kellway.

[Matthew Kellway, NDP, Beaches—East York, ON]

Thank you very much, Mr. Chair. Thank you all for coming today and sharing your thoughts on Bill C-10. Like Mr. Casey, I was struck by all three of you commenting, using almost the same language, about the need for a comprehensive tobacco control strategy. I want to unpack that a little bit, but first I'd like to talk a bit about where Bill C-10 fits in all of that.

As I understand your response to Bill C-10, I think all three of you have referred to it as a deterrent. I'm wondering, because we've talked about other things like tax policy, how much thought from you has actually gone into how that's going to work as a deterrent, whether you have considered such things as differential impact on different parts of society, about the mandatory minimums involved in Bill C-10, and criminalization of possibly youth, and possibly some sections of society.

Have you guys given any thought to that?

[François Damphousse]

We obviously have contacts with different police officers and with the RCMP specifically, and one of the things I’ve learned—it was quite interesting—is that they’re frustrated. They are really frustrated because one of the things that's happening is they are catching many of the smugglers coming up, for example, from Akwesasne. They lay charges against them, they have fines to pay, but they don't pay them. They just go back on Akwesasne. So I find that very strange. We never go, and get them back, and force them to pay their fines.

This bill will change that. It will have a much greater deterrent effect by having minimum jail time, and I think that's very important.

Something I did not know even though I worked in tobacco control for 20 years was contraband was not part of the Criminal Code so police officers at the municipal or provincial level are very limited in what they can do. In Quebec they have amended the Tobacco Tax Act so police officers can at the very least immobilize a vehicle, and if they suspect it has contraband in it, they could ask for a warrant and search the vehicle.

But they can't arrest the individual. It's the revenue department afterwards that lays charges against that individual, but they can't arrest them. This will change with Bill C-10. It will provide the necessary authority for the police officers to arrest the individual if they have a minimum quantity of contraband tobacco, which is a big help.

In Ontario it's even worse than in Quebec because they don't even enforce their Tobacco Tax Act.

[Matthew Kellway, NDP, Beaches—East York, ON]

I get the principle of deterrence, but I'm wondering how much thought has been given to actually deterrence in practice.

Mr. Arango, I see you're anxious. You mentioned, for example, the social determinants behind this in poverty reduction and employment.

I think we all get the principle. If there's a big stick about to hit you over the head, you're less likely to do it, but there are other things pushing people into these practices, and so deterrence in practice doesn't always actually work.

Mr. Arango, do you have any thoughts on that?

[Manuel Arango]

I would just add that I think deterrence is part of the solution. It is clearly not going to be the magic bullet as I indicated before.

However, I think one thing about Bill C-10 is it does have a graduated approach. I think that approach can help mitigate the impact of criminalization on youth, etc.

Clearly, it's not a perfect solution. Perfect solutions aren't out there. We just have to make sure if someone comes out of jail, you have to have programs in place to ensure these people can reintegrate into society, and have employment, etc.

It's part of the solution, but not the entire solution.

[Rob Cunningham]

To build on that, the police and prosecutors have federally at least three options: charge under the Excise Act, under the Criminal Code offence as a summary conviction offence, or under the Criminal Code offence as an indictable offence. It's only under an indictable offence if there's a prior conviction that there's a mandatory minimum.

Right now there are too many operators where fines are just not being paid or it's just a cost of doing business. So there's a range of accused, but there's a range of mechanisms to address those circumstances.

[Matthew Kellway, NDP, Beaches—East York, ON]

Mr. Cunningham, while you were chatting you mentioned the World Health Organization protocol.

Could you elaborate on that. What's included in that, and how is it helpful as a comprehensive approach?