Public Accounts Committee on Nov. 9th, 2017

[John Ossowski]

In terms of the work we're going to be doing for cannabis, yes, there was a budget ask with respect to this, and we will be getting extra resources to deal with it.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

Let me get back to e-commerce. You said it is growing and that it is a big issue for you. What is the percentage of e-commerce compared with big business—the transfer between big businesses and shops and plants, all of that? What is the percentage of e-business? Is it 30%, 35% of your daily work?

[John Ossowski]

I don't have the annual comparison. I have the annual commercial amount, at more than 17 million releases a year. I know that on the e-commerce postal and courier side.... I could get back to you with some more detailed numbers concerning what we would call e-commerce. As I mentioned, between postal, which is more than 200,000 items a day by itself.... That's the majority of e-commerce stuff that I'm worried about, but it comes through the courier side too.

It depends on the way people choose to ship the goods that they buy. If you're willing to wait a long time, you can send it through the postal stream, but if you're willing to pay a little more for faster service, it comes through a courier stream.

[Gérard Deltell, Conservative, Louis-Saint-Laurent, QC]

I think that closes my intervention on e-commerce, but as we can see, from your point of view, this will be a big challenge for you in the years to come. I think you and other departments, especially Canada Post, should work hand in hand and have a closer relationship. As this type of exchange grows and as more Canadians buy things over the Internet and from offshore, I think this will be the most important issue you have to address.

What is your plan to address it?

[John Ossowski]

We meet regularly with Canada Post to talk about it. Obviously, they're a critical partner for us in this. We work in their facilities, and we have done for many years. This is a new phenomenon for us both, in terms of the volumes and increases. We've installed, for the fentanyl piece, some detection equipment in these facilities so that officers can do the examinations in a safer way, to protect themselves and their colleagues at Canada Post.

As I say, this is an evolving issue. We're all dealing with it at the same time. Ultimately, we would like to see better data up front on everything that comes into Canada. As I say, I'd be happy to arrange a tour for you. You can see literally a conveyor belt and large containers called monos filled with little puffy plastic envelopes that might have an iPhone case, might have a battery, or might have 30 grams of fentanyl.

Thirty grams of fentanyl—one ounce—is 15,000 fatal doses, and it might not have any information on it of use for me to target it. This is a huge area of concern for us, and we're putting a lot of energy into working with Canada Post to figure it out, and also with importers and the countries that the material is coming from.

[The Chair, Conservative, Kevin Sorenson]

Thank you very much. We'll now move to Mr. Christopherson, please, for seven minutes.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you all for your attendance today.

This is a really bad audit, make no mistake. This was one of those in which, with every page I went through, I got a little angrier.

Let's start with that point, the focus of the audit, on page 2, paragraph 2.9:

This audit focused on whether the Department of Finance Canada, Global Affairs Canada, and the Canada Border Services Agency adequately managed customs duties according to their roles and responsibilities.

Under “Conclusion”, on page 17, in paragraph 2.86, the Auditor General says:

We concluded that the Canada Border Services Agency could not ensure that all customs duties owed to the government were assessed. We also concluded that Global Affairs Canada and the Canada Border Services Agency could not ensure that the tariff rate quotas were respected. The Canada Border Services Agency allowed some supply-managed goods to enter the Canadian market without the proper duties being paid. 2.87 Furthermore, we concluded that the Department of Finance Canada suitably fulfilled its responsibilities in regard to customs duties, but needed to further review the relevance of tariff items to ensure that they met government objectives.

I want to go back to page 7, paragraph 2.83.

I read that just to say that in terms of the oversight, you failed. The main audit was to go and look at what I described, and you failed abysmally.

It's a shame. This is one of those times when I wish we had seven hours rather than seven minutes, because I have to tell you, it's just unbelievable how badly you're conducting your business there.

One area I want to focus on.... Help me, Auditor General, to understand how this works exactly. Apparently, when goods are brought in, there's a self-assessment done as to what's in there. Then, according to your report, there's a period of up to four years during which the importers can adjust their paperwork, and apparently that was done. In the period 2014-15, there were about 200,000 adjustments that resulted in $136 million in refunds, and not surprisingly there were only 20,000 adjustments that resulted in payments of $55 million to the agency.

Then the Auditor General concludes in paragraph 2.40: “In our view, this situation allowed importers to circumvent paying required duties.”

Auditor General, help me make sure I have all my facts straight. Would you, in your language, describe exactly what's going on that is problematic? As I understand it, because the self-assessment was done, the agency can't go back and determine years later whether the adjustment matches with what was there, because it's all being done by the same person.

Auditor General, if you would put that in more technical terms for me, I'd appreciate it.

[Michael Ferguson]

Thank you, Mr. Chair.

I think that in the question you have more or less gone through the process. It's not in all cases, but in a number of cases the importers have up to four years to change the original classification of the goods.

As you said, that happened 200,000 times during that one year. It resulted in refunds. The difficulty is that when somebody comes along four years later and says, “What I told you I imported in the first place wasn't what I actually imported; I imported something else”, that's four years down the road, and the goods are probably in many cases already in the market, have already been used, and may not even exist anymore. The difficulty is the difficulty of the department's being able to verify that.

We noted in the report that the agency itself indicated that the longer the amount of time that passes before somebody makes the adjustment, the more likely it is that perhaps the adjustment isn't totally the right adjustment.

I also, though, want to point out that yes, it was 136 million dollars' worth of refunds. The importer said, “I didn't import what I told you I imported originally; I imported something else, and that something else has a lower duty on it, so you owe me some money back for what I paid.”

In the other case, there were also instances in which the importer came back later on and said, “I imported something else, and the duty is higher, so I owe the government money on that.” To be totally cynical, which comes along with my job, I suppose, that may be a case of an importer's actually managing their float—

[David Christopherson, NDP, Hamilton Centre, ON]

—planning it.

[Michael Ferguson]

That's right.

—thus paying a lower duty originally and then making the appropriate adjustment in four years' time, but in the meantime having the benefit of not having to pay the full amount of the duty up front.

You have to look at both of those cases and try to get down into the details, to understand what's going on in both of those cases.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you.

Whoever feels like taking the lead on this, I'd like to hear how we got to the point that this is going on and exactly what you are doing about it and how long it is going to take.

[John Ossowski]

I'll jump in.

Yes, this was a specific recommendation in terms of the legislative provisions.

This is a legislative provision. You have four years to make an adjustment. We're working to understand what changes could be done to—

[David Christopherson, NDP, Hamilton Centre, ON]

I'm sorry to interrupt and I apologize for being so rude, but let me ask you this.

If I'm self-assessing and telling you what's in there and I can go back four years later, as the Auditor General just said, and you don't know what was in there in the first case, what's to stop me from having a little side business plan in which my intention is to make sure I scoop back those millions of dollars deliberately? Just conceptually, how could this possibly work?

[John Ossowski]

Well, just to be clear, if you were to come back, it's not just your saying, “I think I miscalculated; send me a cheque, please.” It is, “Provide us the documentary evidence to do so.”

We do a rigorous process. Absolutely, as the Auditor General has pointed out, there are misclassifications. They could turn out to involve money owed to us; they could turn out to be net zero; it could be a refund, as was--

[David Christopherson, NDP, Hamilton Centre, ON]

But only one-tenth of the time is it money back.

[John Ossowski]

I appreciate the Auditor General's point on this one, and we are looking at the four-year time frame to understand how, again with the dual role that we have in terms of facilitation, to best manage this and come up with a proposal, as per our response—

[David Christopherson, NDP, Hamilton Centre, ON]

What would some of that be?

I'm out of time?

[The Chair, Conservative, Kevin Sorenson]

Yes.

We'll now move to MP Arya, please, for seven minutes.

[Chandra Arya, Liberal, Nepean, ON]

Mr. Chair, I have so many things to ask, I don't know where to start.

Let me start with the Auditor General's note that despite “known non-compliance with import rules, the Agency did not monitor the performance of customs brokers”, and it has “rarely suspended a licence because of concerns about a broker's overall performance”.

In your speaking notes, you said, “brokers are expected to provide correct declarations to the CBSA and the Agency then...assesses the declaration”. You also said that to follow recommendation 1, you will start “consultations with impacted stakeholders, including customs brokers” and that you will complete them by September 2018. You also mentioned that you suspended the licences of eight importers in 2016.

There seems to be a big hesitancy on your part to take any action against the customs brokers who are non-compliant. What is your reaction?

[John Ossowski]

Once again we agree with the Auditor General's recommendations in this case. He made a couple of very important points, including the shared liability that customs brokers and importers could share in terms of the import requirements and paying duties and taxes. Right now, it's the importers' responsibility.

We're reviewing and have had some preliminary discussions with the Canadian Society of Customs Brokers to gain a better appreciation of their views on licensing regime reform, understanding that they play a key role in the commercial importation process. As well, concurrently we're in the procurement phase of a new assessment and revenue management—

[Chandra Arya, Liberal, Nepean, ON]

I'm sorry to interrupt. I apologize, but I have very limited time.

My comment still stands. There seems to be hesitancy in taking any actions against the customs brokers.

I will move to another point, and go to Mr. Stewart. There are 1,973 items that generated only $26 million. Then, for the up to $200 being imported, the cost is enormous. The Auditor General says that the gross imported through postal services and valued at less than $200 resulted in a net cost to the government.

Are you contemplating any measures to change or to address this?

[Rick Stewart]

If I understand your question, I think you have asked me two things. One is about the sheer number of tariff classifications that we have in the system, and the second relates to the de minimis threshold. Let me start quickly with the first one.

As the committee may be aware, the tariff classification structure is established by the World Customs Organization, and it's designed to ensure that there is a commonly understood system.

[Chandra Arya, Liberal, Nepean, ON]

Okay, now I understand it. Thank you.

Could you answer the second part, please.

[Rick Stewart]

With respect to de minimis, I'm not going to speak to the agency's administrative cost to assess de minimis packages. What I will say is there are two dimensions to the considerations around what an appropriate de minimis threshold is. One is administrative efficiency and cost, but the second is the issue of tax fairness and the competitiveness of the Canadian industry.

[Chandra Arya, Liberal, Nepean, ON]

Okay, I got it. So you're not immediately addressing that. I have very limited time. I have to go to two other things.

The Auditor General stated that the department refused to provide the OAG with the documents that contained particular analyses. You considered them to be cabinet confidences, especially with this $20 minimum threshold.

Is it something that is absolutely covered under cabinet confidentiality as per the new order in council that was issued by our government?