Public Safety Committee on May 12th, 2008

[Jerry Montour]

It's very important to note, because I feel a very strong commitment to the Canadian tobacco farmers. As you know, our manufacturing facility is in the heart of the Delhi-Simcoe region, so I get to see the effects. What has happened is that they all looked forward to some kind of government buyout—which may not have been the answer, and I respect your government's wishes....

One thing I respect your government for is total transparency. When they came to the Minister of Agriculture and asked whether he was going to buy them all out, he said no and stopped it right in its tracks. But because the big industry is utilizing that as a whole to barter against them and almost have them sell at fire-sale prices, it's hurting the farmers.

Therefore, they're allowing these shipments, even though they're deemed illegal, to take place, because they're desperate, sir. They come up in the middle of the night with 24-foot trucks, sell their product for cash, and move on, as you would with marijuana or any other illegal activity.

[Donald McCarty]

May we add something to that, Chair?

[Benjamin Kemball]

I think the RCMP will corroborate this information. By far the majority--the greatest part of raw tobacco used for illegal manufacture--originates from the U.S. Some of it comes from North Carolina and some of it comes from elsewhere in the world. We've heard reports also, anecdotally, that there are so-called “barn sales” of tobacco that bypass the auction system, but by far the majority comes up from the U.S.

When you look at the amount of illegal cigarettes being sold—that's 10 billion cigarettes—it's equivalent to 1,000 40-foot containers or big articulated trucks, and that's a huge amount. The amount of tobacco required for it is pretty well of the same magnitude, because tobacco is obviously the largest single component in a cigarette. So this stuff is largely being trucked up in huge quantities from the U.S.

I think that creates an additional challenge in terms of choking the supply of materials. For those reserves that straddle the U.S.-Canadian border, it's all very well to enforce the Canadian side, but unless you can ensure that similar restraints are being applied on the U.S. side of the border to incoming materials and machinery and tobacco, then there's a high risk that the choking-off strategy will be undermined.

[The Chair, Conservative, Garry Breitkreuz]

I don't mean to interrupt to ask more questions, but do either of you gentleman have evidence for what you're saying here?

[Jerry Montour]

I have evidence for what I'm saying. There was a situation where the OPP intervened with a tobacco shipment that took place in the Delhi region, with 48,000 pounds of raw-leaf tobacco in it, right here in Canada.

We always looked towards Akwesasne as the heart of the contraband problem, maybe partly as the fault of how the thing is flourishing. Maybe we're all sitting around watching one house, and five houses down the road, everything's just partying on.

If you do not offer a fair opportunity to the Canadian tobacco farmers to sell their tobacco products, and if as a government you don't do things to control that this product being consumed is at least a product from their own country, then we've let the Canadian tobacco farmers down. I'm not going to change from that position.

[The Chair, Conservative, Garry Breitkreuz]

Okay.

Mr. McCarty, you seemed to indicate you had a comment.

[Donald McCarty]

The RCMP Contraband Tobacco Enforcement Strategy, which many of you have, mentions in that very report that they believe that a lot of the tobacco that is sent into the American side of the Akwesasne reserve comes from sources in the United States.

[The Chair, Conservative, Garry Breitkreuz]

Okay. Next on our list here, on the next round, for five minutes, is Monsieur St. Amand.

[Lloyd St. Amand, Liberal, Brant, ON]

Thanks very much, Mr. Chair.

I have some short questions.

Firstly, to you, Mr. Kemball, and this is not necessarily on a point, but my understanding is that Imperial is now utilizing considerably less domestic tobacco than has been the case in years past. Is that true or not true? A short answer.

[Benjamin Kemball]

First of all, we always have a proportion of non-Canadian tobacco leaves for—

[Lloyd St. Amand, Liberal, Brant, ON]

I understand that, but the proportion of non-Canadian tobacco is increasing all the while. This is my understanding.

[Benjamin Kemball]

The majority is Canadian leaf, and we will continue to use it as our main source.

[Lloyd St. Amand, Liberal, Brant, ON]

Sorry, you're not quite dealing with it. The proportion of non-Canadian tobacco is increasing.

[Benjamin Kemball]

It has increased over the years.

[Lloyd St. Amand, Liberal, Brant, ON]

Okay, fair enough.

Mr. Kemball, you indicated that the taxpayer is losing $1.6 billion in tax, and no doubt that's correct. That's the federal tax only, or is that the total tax?

[Benjamin Kemball]

That's all in; that's federal and provincial tax.

[Lloyd St. Amand, Liberal, Brant, ON]

That's all in, okay.

Is that Canada-wide or are you just factoring in Ontario and Quebec?

[Benjamin Kemball]

Canada-wide. Obviously, the bulk of it is in Ontario and Quebec.

[Lloyd St. Amand, Liberal, Brant, ON]

And you very cogently identified the different components of this difficult issue--the social issues, etc. You would agree that legitimate convenience store owners, principally, as indicated by Mr. MacKenzie, are losing a large part of their profit margin through the proliferation of the illegal sale of cigarettes. There's no issue there.

[Benjamin Kemball]

Absolutely. They're losing, by our estimate, $120,000 in revenue every year because of illicit trade--obviously, in Ontario and Quebec, those that operate in those provinces.

[Lloyd St. Amand, Liberal, Brant, ON]

To you, Mr. Montour, if I may....

Mr. Montour's Grand River Enterprises is in my riding of Brant, so I'm well familiar with Mr. Montour, and I'm particularly familiar with the Dreamcatcher Fund, which gives back, in a tangible fashion, $2 million annually to the community.

Mr. Montour, you've been manufacturing cigarettes--licensed--since 1997?

[Jerry Montour]

Yes.

[Lloyd St. Amand, Liberal, Brant, ON]

How many other cigarette manufacturers are there on Six Nations of the Grand River territory?

[Jerry Montour]

I think that would have been a question better posed for the RCMP, because they have more insight into the activities of what goes on in our territory. It's hard for me; I don't want to be ever on record as saying legal and illegal, because there are a lot of sovereignty issues in tobacco manufacturing as a whole.

I can tell you, Mr. St. Amand, that from our manufacturer's perspective, we've contributed over $500 million in tax revenue since we've had our licence. That's why I was granted the incredible privilege of sitting at this table and that's why our company has committed to resolving these issues. That helps everybody.

[Lloyd St. Amand, Liberal, Brant, ON]

And the sale and/or manufacture of cigarettes illegally on Six Nations and the area has been a problem for a while?