Evidence of meeting #30 for Public Safety and National Security in the 39th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cigarettes.
A recording is available from Parliament.
Bloc
Serge Ménard Bloc Marc-Aurèle-Fortin, QC
Thank you, Mr. Chairman.
To begin with, I would like to offer you all my sincere congratulations. Your opening statements were clear, as is your take on the problem. In addition, your suggestions with respect to the action that is required are extremely convincing. Of course, that is no surprise coming from the Canadian Coalition for Action on Tobacco, which exclusively represents organizations with no other interest than public health. Indeed, it was formed for that purpose.
I also want to commend the Canadian Convenience Stores Association. I understand that you have a certain interest to protect, but we all recognize as well that, in order for you to practice a legal commercial activity, you have to be protected—and that is our responsibility—against illegal competition. Your brief is generally objective and has convinced me of your desire to defend the public interest.
The one difference I note in your suggestions—and I would like you to talk a little more about this—is that the Coalition believes lower taxes will have no effect. In those provinces where taxes were very high, there was neither a decrease or increase in contraband. Basically, acting on the source is the most effective response.
I would be interested in hearing your comments. My question is addressed to the Canadian Convenience Stores Association.
Executive Vice-President, Canadian Convenience Stores Association
There are a number of points there. I do not want to claim expertise that neither I, nor the other organizations around the table, do not possess.
There are reasons why Ontario and Quebec are exposed to higher rates of contraband: their geographical situation, naturally, and their population density. There is a market there. Elsewhere, you can imagine that it's not very profitable to be running around to every corner of Saskatchewan to try and drum up enough business. That is the main reason why there will always be contraband in areas that are more densely populated. That is one of the factors behind the difference in terms of the extent of contraband, which is not only based on the amount of tax included in the cost of cigarettes.
The other point is: why us? Well, to begin with, experience—it's as simple as that. There has been contraband before. I know that the nature of the contraband at the time was quite different; on the other hand, its manifestations were exactly the same. The rate of growth I referred to earlier is exactly the same. You only need 30 per cent of the market. Anyone who owns a business knows that once you have a solid market share, you can begin to expand. Even though it's illegal, it is a business supported by people because of the huge difference in price. There is absolutely no comparison.
Our proposal is not based solely on lower taxes, which would be ridiculous, particularly given the difference that has arisen since 2002-03. However, I firmly believe that a temporary tax reduction is a potential solution. In the short term, the government would not risk a catastrophe in the market, because the catastrophe is there already. Until it is able to control the problem at the source, the government could, in the meantime, introduce a reasonable rate of taxation and thereby convince smokers to behave intelligently and come back to the market.
Some studies show that, at a given rate of taxation, you have either that option or public disenchantment. The government will not be losing money if it brings in an increase, or gets it from the contraband market. However, if that doesn't work, it can be returned to the same level.
Bloc
Serge Ménard Bloc Marc-Aurèle-Fortin, QC
Yes, I understand perfectly what you are proposing. As I have very little time, I would like to move on to a different topic.
The federal government has just announced a program. Some of the measures that are planned are very similar to your suggestions. However, some people believe that is woefully inadequate. You must be familiar with the program the government recently introduced. What is missing from that program?
Director, Quebec Office of the Non-Smokers' Rights Association, Canadian Coalition for Action on Tobacco
Having read the RCMP's strategic plan, I would say that the most important and most problematic factor is what is going on on the U.S. side and in the St. Regis Reserve.
A number of measures have been proposed that we have been advocating for a number of years—such as tracing inputs that end up in the hands of illicit manufacturers. However, the strategic plan does not necessarily address the problem of illicit manufacturers operating on the St. Regis Reserve. It would have been very appropriate for the RCMP to review these proposals, and potential solutions, in cooperation with their colleagues in the United States, in order to control the problem in St. Regis, particularly since it is the most significant source of contraband cigarettes being sold on the Canadian market.
Director, Quebec Office of the Non-Smokers' Rights Association, Canadian Coalition for Action on Tobacco
Yes.
Senior Policy Analyst, Canadian Cancer Society, Canadian Coalition for Action on Tobacco
The Department recognizes that this was one step in the process. To that could be added specific legislative measures that we proposed today in our testimony. All of these elements, along with new legislation and new tools to assist the police, should, in our opinion, be part of a comprehensive strategy.
Director, Quebec Office of the Non-Smokers' Rights Association, Canadian Coalition for Action on Tobacco
As well, I believe the penalties for contraband tobacco are far too low to allow us to control the problem. We hear anecdotal information about people getting involved in the contraband market, rather than the illicit drug market, because they know that, if they get caught, the fines will not be very high and that there may be no prison term.
People must be made to understand that activity surrounding contraband cigarettes goes well beyond the simple fact of providing people with contraband cigarettes. There are other activities involved as well. As the RCMP stated, organized crime is behind this and, ultimately, we are encouraging it by buying these cigarettes. In my opinion, police should be in a position to impose much higher fines.
Executive Vice-President, Canadian Convenience Stores Association
I fully agree, and I would like to add something in that regard. There is no doubt that the biggest problem now is on the U.S. side. If the situation were reversed and Americans felt that their security was threatened… We know the kind of connections the RCMP has been able to make—namely, who is being financed through this type of crime.
I fully support that position. However, the major criticism I would make relates to the silo approach taken by the RCMP and the government, as though there were only one solution—one which focuses on security. But, as you just mentioned, we need to engage the entire population, because this is a scourge that affects our behaviour, our mores, our way of life and young people.
We have to engage Canadians on this issue. Security or coercion are not the only methods. We need to talk to the Aboriginal people, and discuss the issue broadly.
Conservative
The Chair Conservative Garry Breitkreuz
Thank you very much.
Before we go to the NDP and Ms. Priddy, I have a follow-up on this.
You talked about geography, and it wasn't clear to me why they would distribute in Ontario and Quebec rather than in New York State, where there are many more people.
The other question I have in relation to what you've just said is, why is this not a threat on the American side? What are they doing differently, and maybe successfully, that we're not doing?
Director, Quebec Office of the Non-Smokers' Rights Association, Canadian Coalition for Action on Tobacco
The governor in New York State has raised this issue for New York. New York has one of the highest tax rates in the United States. Some of the products that are manufactured in some of the reserves, specifically St. Regis on the U.S. side of the border, are also flooding the State of New York.
This has been raised. They're trying to find solutions to the problem. There are reports coming out that this is more and more prevalent in the United States, specifically in New York State. The problem has not yet reached the point of what I believe has been happening in Canada, in Ontario and Quebec.
Geographically, it's mostly here because of where the St. Regis reserve is located. We have to be very careful. That's why we need to have the collaboration of the American authorities on this issue, to work with the Canadian authorities to deal with this problem.
Senior Policy Analyst, Canadian Cancer Society, Canadian Coalition for Action on Tobacco
Just to elaborate, the $6 carton price that we see in Canada often is not found in New York State in the material quantity that we see in Ontario and Quebec. The reason for that, I believe, is that the manufacturers on the U.S. side of Akwesasne can get away with supplying to Canada; they could not get away with supplying to the U.S. If it happened in material quantity, the U.S. enforcement authorities would be all over them.
I believe that's why the problem is going north. There is some problem with interstate smuggling. There's a problem with some quantities on which New York state tax is not paid, but federal tax is paid in the case of contraband in the U.S. most of the time.
Conservative
Executive Vice-President, Canadian Convenience Stores Association
I am not an expert on tobacco, but the type of tobacco we use here is not the same as in the U.S. This tobacco comes in through containers in the port of Montreal and elsewhere. That's what we're talking about. This product goes back to the U.S., is used in manufacturing on the reservations, and comes back to us. Americans don't like that type of cigarette.
Conservative
The Chair Conservative Garry Breitkreuz
I thought it was coming up from North Carolina, somebody said.
Director, Quebec Office of the Non-Smokers' Rights Association, Canadian Coalition for Action on Tobacco
That was the situation. What was happening in the 1990s was that tobacco manufacturers were exporting large quantities of containers to the United States to duty-free warehouses, and they were basically shipped back. Sometimes it was only on paper; the cigarettes were just delivered to contraband networks at the time.
Now it's a totally different situation, in which it's not the Canadian manufactures who are involved, but illicit manufacturing operations on the U.S. side of the border. They're probably getting their raw materials from, for example, North Carolina.
Executive Vice-President, Canadian Convenience Stores Association
Just on that issue, as far as the process is concerned, I believe you're right. As far as the type of tobacco is concerned, we are wrong; it is not American tobacco.
Conservative
The Chair Conservative Garry Breitkreuz
Okay.
Ms. Priddy, you will have seven minutes, please. Go ahead.
NDP
Penny Priddy NDP Surrey North, BC
Thank you, Mr. Chair.
Thank you for being here, and thank you for your presentations.
I'm interested in the answers to two or three questions. First, I know, because I come from British Columbia, that there are certainly a number of bands who have arrangements with the federal government around applying a tax that goes back to community development in the particular band. But if most of the tobacco is being produced in the United States, I'm not quite sure how that would work in the same way. I can understand, if it's being produced here, and you tax here, and so on, but if it's being produced in the United States and shipped up here, that would have a significant difference, I would think, in terms of applying a tax.
Secondly, I wouldn't mind people speaking, just for a minute, about geography. I think you mentioned that there are 37,000 small businesses, but we've only heard about Ontario and Quebec. I realize that's where the largest problem is, but I would be interested in whether the only problem in the country is in Ontario and Quebec or whether we actually see it in other provinces but simply in smaller numbers. I expect that's the case, but I would be interested in having you speak to that.
Concerning the $5 million bond that has been a recommendation at least by Mr. Cunningham, are there any bands that are legally producing now who would not be able to put up a $5 million bond? Obviously a couple of the folks who were here the other day could do that and not even blink an eye at having to do it.
Secondly, I'd be interested in knowing—I don't know, and maybe people at the table do—whether, when people are fined, the whole bond or part of the bond is removed or taken away.
Could you start with those?
Senior Policy Analyst, Canadian Cancer Society, Canadian Coalition for Action on Tobacco
With respect to the bond, my understanding is that there are only two manufacturers located on a first nations reserve that have both a federal and a provincial manufacturing licence: Grand River Enterprises in the Six Nations, and another manufacturer—Choice Tobacco is part of the name of the company.
So I don't know the answer to that question. There aren't many that have both a federal and a provincial licence.
I think this is a very serious business and that if a business person is going to enter into an area with such risks to public security, public revenue, and public health, this would be possible.
One option would be to pay the manufacturer interest, if there's a question with respect to cost of capital—that is an option to consider—so that they would get interest every year. But the bond would remain with the government, in the event that there's a compliance problem.
There's a problem now, and we heard testimony about it, of how many fines are imposed by the courts that are simply not collected. If you have a bond, you can deal with that problem. If they don't pay their fines, it comes right out of their bond, and they have to replenish their bond or lose their licence.
So there are different ways you could structure administration of the bond. There has to be due process; there has to be some legitimate protection, so there's not.... Nonetheless, there has to be an ability for law enforcement authorities to act quickly in the public interest.
Director, Quebec Office of the Non-Smokers' Rights Association, Canadian Coalition for Action on Tobacco
To answer your first question about how we would impose a tax structure when you're talking about illicit manufacture in the U.S., south of the border, as we've heard the RCMP mention, the source of illegal cigarettes is not only on the U.S. side of the border. They've also mentioned Six Nations, Tyendinaga, and Kahnawake, south of Montreal. It would be in everybody's interest if there could be such a system put in place for those reservations that are manufacturing those cigarettes. We could come to a level playing field, and they could benefit from the financial resources from the sale of the cigarettes.
I strongly believe we have to do something here prior to asking our American friends to do something. If we can demonstrate that we are taking care of our own business, we would be in a much better position afterwards to meet with our American counterparts and say, “Why aren't you proposing this type of solution to, at the very least, control the source of smuggling coming from the St. Regis reserve?”