Public Safety Committee on May 12th, 2008

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

And in your opinion, what does this represent in percentage terms?

[Jerry Montour]

I would have to say that it directly affects our business, being that we are a compliant tobacco manufacturer on reservations. Right now, our business is down almost 56%. I don't have access to the off-reserve study, but as for the actual people who are trying to remain compliant on the reservation, our business is down as much as 56%. Therefore, it seems to have a lot more ramifications for us operating under these standards than it does for other manufacturers.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

I will read your report and we'll see.

It's unfortunate, but when we're presented with figures like this, we have no idea of how the evaluation was done. That is why I am going to ask you, when you give us a figure, to explain to us how you obtained your results.

[Jerry Montour]

Yes, sir.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

I would now like to move on to another subject.

I believe an agreement was reached in the mid 1990s with certain first nations to have aboriginals pay the sales tax on cigarettes. However the resulting tax revenues would be turned over to the bands.

Are you familiar with that arrangement?

[Jerry Montour]

No, I can't speak to that, because we do not manufacturer in the province of Quebec. So I'm not totally aware of the guidelines in that arrangement.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

Do you think it's a good idea to have natives pay the sales tax and then to have the reserve refund the tax to them once they have established that they purchased the cigarettes for their personal consumption?

[Jerry Montour]

I didn't want to interrupt when my fellow colleague here was speaking, but I just want to let you know that from our company's perspective, we have been paying applicable federal taxes—which concerns everybody in this room—to the tune of almost $500 million, and we haven't seen any direct benefit whatsoever from that $500 million from a first nation's perspective.

So vis-à-vis any agreement that takes place, first of all, I don't have the ability to negotiate one because I'm not a chief, but I do think there has to be a strong commitment that if an agreement is to be made, it truly benefit first nations people, because you don't want them to just admit to being tax collectors, with everything else a downside.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

We don't have a lot of time, so I'll move on to another topic.

Mr. Kemball, how long have you been working for Imperial Tobacco?

[Benjamin Kemball]

I've been working for the company since 2005, or for three years.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

So then, you were not associated with Imperial Tobacco Canada during the 1990s.

[Benjamin Kemball]

No, I was working at various locations around the world.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

Now that you are very familiar with Imperial Tobacco, can you explain to us how the company agreed to increase substantially its US sales of cigarettes destined for the Canadian market?

[Benjamin Kemball]

I can't really comment on that. I've worked for the British American Tobacco group for over 25 years, but I've only worked for the last three years in Canada. I do know that for many years our company has worked in close collaboration with federal and provincial enforcement agencies, including the RCMP, on the whole issue of contraband.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

Sales by Canadian companies like yours of cigarettes destined for the Canadian market have increased substantially in the United States. Are you aware that the only possible explanation given was that these cigarettes were being brought back to Canada?

[Donald McCarty, Vice-President, Law Division and General Counsel, Imperial Tobacco Canada Limited]

May I say something?

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

If you can answer my question, then by all means.

[Donald McCarty]

Like Mr. Kemball, I too was not with Imperial Tobacco during that period of time. I began working for the company in 1998. Regardless, the period you alluded to has nothing to do with the current situation. As you know, we have been cooperating with the RCMP and its investigation into this matter for the past 10 years. I would imagine that the RCMP will wrap up its investigation one of these days. To compare that situation with the one we have today is like comparing apples and oranges. We're talking about two very different situations. Neither Mr. Kemball or myself is a position to comment on the strategy employed back then.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

By understanding what happened in the past, we can prevent similar things from happening in the future. That is what I'm trying to get you to acknowledge, but if you refuse to see that representatives of major companies are refusing to admit that their products are being sold illegally and are doing nothing to stop this trade...You may think that I'm only interested in sanctions, but that is not so. I'm concerned about preventing this from happening in the future. I have always believed that a huge company like Imperial Tobacco would never encourage illegal trade on such a scale.

[Donald McCarty]

We are not in any way encouraging illegal trade at this time. If you ask the RCMP, the Canada Revenue Agency and other provincial agencies responsible for controlling tobacco sales how Imperial Tobacco is dealing with this problem, they will tell you that we are working with them to fight the illegal tobacco trade in this country.

[The Chair, Conservative, Garry Breitkreuz]

Thank you. I gave you a couple of extra minutes because of microphone difficulties.

We're going to go over to Ms. Priddy now from the NDP.

[Penny Priddy, NDP, Surrey North, BC]

Thank you, Mr. Chair.

I have a two-part question for Mr. Kemball and a question for Mr. Montour.

In working with the Ontario Flue-Cured Tobacco Growers' Marketing Board and using that as some kind of firewall or way to control the supply management of tobacco leaf--and we see it getting worse, by the way--I'm wondering if you could comment on whether you will be continuing to work with them around what we now see as a very uncontrolled sale of American tobacco to unlicensed factories on the American side of the border, and what your continued work with that organization would be.

I have a second question, which comes from that. Since many of your sister or brother companies in British American Tobacco have long been purchasing substantial amounts of leaf tobacco from America, from the United States, if you will, from farmers in North Carolina and farmers in adjoining states, will you and your company--and I just want to get this on the record--help American and Canadian authorities to cut off that supply, if you will, of contraband tobacco at its source? And will you undertake to lend your corporate knowledge and experience, of which you have significant amounts, to those authorities in a joint effort to stop the flow of tobacco leaf and loose tobacco from the American south to unlicensed tobacco companies here in Canada?

[Benjamin Kemball]

I could take the second question first, and that concerns the international cooperation. My company—and I'm sure I can speak for the other members of the CTMC—is fully committed to cooperating, to dealing with the problem of illicit trade. That's why we're here today. We've been bringing information. We've been carrying out studies at considerable cost, to get some clarity on the problems. As I said in the introductory remarks, we're also committed to helping bring solutions to this, including some solutions that might help to contribute, along with other nations, to dealing with the problem.

Concerning the supply of tobacco to the illegal manufacturers, this is not something that is easily applied. Tobacco is grown all around the world. There is a world market for tobacco products. There are dealers in raw tobacco and in leaf tobacco, and they're beyond the control directly of the tobacco manufacturers such as us.

Having said that, whether it's for materials or tobacco leaves, as best we can, we insist that those suppliers we buy from enforce their own “know your customer” policies, so that those we can influence don't supply illegal trade.

[Penny Priddy, NDP, Surrey North, BC]

I realize some comes from China. We have tobacco-growing countries across the world, and I understand that. But within the purview of what you can do, will you do anything you can to be a partner in preventing this from happening?

[Benjamin Kemball]

Absolutely. That is what we're committed to doing.