Thank you, Mr. Damphousse.
I, too, would like to extend my thanks to the Committee.
My name is Rob Cunningham. I am a lawyer and senior policy analyst with the Canadian Cancer Society.
Tobacco contraband is an absolutely enormous problem. Urgent action is needed. We do wish to recognize that some measures have been taken by enforcement authorities and in the 2008 federal budget and some provincial budgets. We also wish to applaud the May 7 announcement by Public Safety Minister Stockwell Day. This represents the government recognition of the seriousness of the situation and a strong political commitment to move forward.
Perhaps I could invite the committee to grab our brief and turn to the final page. On the final page you have a graph with provincial and territorial tobacco tax rates. Ontario and Quebec have the lowest tobacco taxes but the highest rate of contraband. This shows that contraband is not a problem of higher taxes or demand, but rather of source of supply.
The key to success to controlling contraband is to target the source. We know the sources: illegal manufacturing operations on Kahnawake, Six Nations, Tyendinaga, and especially the U.S. side of Akwesasne in New York State near Cornwall.
Our recommendations for actions are as follows.
First, because by far the most important source is found on the U.S. side of Akwesasne, eliminating this source must be the top priority. The federal government must immediately persuade the U.S. government to shut down the illegal, unlicensed factories located there. The Americans must act. Indeed, it is in the interest of the U.S. to act for reasons of border security and national security. Criminals who exploit the Akwesasne territory by bringing cigarettes into Canada return to the U.S. with drugs, weapons, and sometimes people. If the situation were reversed and the U.S. were flooded with illegal cigarettes from Canada, costing U.S. federal and state governments more than $10 billion annually by comparison, the U.S. government would insist that Canada take immediate action.
Note that the Mohawk Council of Akwesasne and the Akwesasne police, both on the Canadian side, should be praised for their on-reserve enforcement and collaboration with the RCMP and others, which is a positive distinction.
Second, prohibit the supply of raw materials, including cigarette packaging, filters, and paper in addition to leaf tobacco to anyone without a tobacco manufacturer's licence. By way of illustration, in Ontario the Gaming Control Act prohibits the supply of goods or services for gambling to anyone without a provincial gaming licence. For the Americans, control of raw materials headed to the U.S. side of Akwesasne would also be desirable, for example, by targeting leaf tobacco from North Carolina.
Third, establish a minimum bond of at least $5 million to obtain a federal tobacco manufacturer's licence. At present, the current federal bond ranges from just $5,000 to $2 million. It is possible for a new, apparently small company to get a licence for only $5,000 and begin manufacturing cigarettes in this country. This is a joke that needs to be changed. A meaningful bond would give the government financial leverage to encourage compliance. Breach of laws would mean that the bond would be forfeited in whole or in part.
Fourth, revoke licences of manufacturers acting illegally, including for violation of provincial tobacco tax laws.
Fifth, establish a full tracking and tracing system to monitor product shipments, as do Purolator Courier or Federal Express, and identify points of diversion.
Sixth, promote the opportunity to implement a first nations tobacco tax equal to provincial tobacco tax. There's very little awareness that this is already authorized by the federal Budget Implementation Act, 2006. First nations would require an agreement with the province in which they're located and first nations would keep the revenue from this tax. In terms of contraband prevention, there will be benefits in the long term, but realistically not much benefit materially in the short term.
Cowichan First Nation on Vancouver Island has a tobacco tax through different specific legislation, and under this 2006 legislation the Whitecap Dakota First Nation in Saskatchewan has a new liquor tax. The retail price is the same as off reserve, and the band council of the first nation receives the revenue. They're examples to consider.
For contraband prevention measures, there's a role for provinces, as some measures can only be implemented at the provincial level. Our seventh recommendation would be for provinces to implement a provincial refund system whereby cigarettes are shipped to reserves at a price that includes an amount equal to provincial tobacco taxes. After a sale to an eligible status native on a reserve, the on-reserve retailer then applies to the province for a refund, perhaps every two weeks. Five provinces currently have such as rebate system.
In Ontario, which doesn't have this system, it would help deal with the situation of products of Grand River Enterprises being found illegally in large numbers on the contraband market. Mr. Montour testified that he didn't want that and that laws should be toughened; he didn't specifically say what laws, though.
Our eighth recommendation is that there should also be a provincial quota system that limits the quantity of tax-exempt cigarettes shipped to each reserve, based on reserve population. Five provinces do this.
The ninth recommendation is that there should be distinct markings to distinguish between when provincial tobacco tax is paid and when it is not paid and the cigarettes are intended for on-reserve tax-exempt sale. Four provinces do this. It's easier to tell what is legal and what is not.
Immediate action and a comprehensive strategy are essential. Delays in taking action will mean that the problem will get worse, adversely affecting aboriginal and non-aboriginal health.
On a final note, aboriginal smoking rates are scandalously high. The most important explanatory reason for this is access to cheap cigarettes, including contraband cigarettes. Contraband is addicting aboriginal kids and non-aboriginal kids, and everyone agrees this should not continue. We must tackle contraband and complement this with the restoration at Health Canada of an effective aboriginal tobacco strategy.
Contraband is a population-wide problem of public health, public revenue, and public safety. This committee is to be commended for initiating this study. We look forward to any questions you may have.
Thank you.