Public Safety Committee on April 27th, 2010

[Phil McColeman, Conservative, Brant, ON]

Thank you.

[The Chair, Conservative, Garry Breitkreuz]

Thank you.

We only have two minutes left.

Ms. Mourani, do you want to use that time to ask some questions?

[Maria Mourani, Bloc, Ahuntsic, QC]

Yes.

[The Chair, Conservative, Garry Breitkreuz]

Okay, you can for just a couple of minutes.

[Maria Mourani, Bloc, Ahuntsic, QC]

I have three little questions, one of which is for the representative of the Department of Public Security. When are you going to start a public awareness campaign about contraband tobacco?

I have to other little questions for Mr. Bertrand. First, do you think that lowering taxes might help to reduce contraband, as some people seem to be saying? Second, why continue to tolerate the sale of raw materials like filters, chopped tobacco or paper to factories that do not have licences, illegal factories?

[Barry MacKillop]

In terms of an awareness campaign, it would probably not be the Department of Public Security that would carry out the campaign. We work closely with our partners in the task force to find options and opportunities and decide when we might move forward on that. In fact, the need to raise public awareness about the connections between contraband tobacco and organized crime is certainly some thing we should move forward on. We are currently working with our partners to identify opportunities for starting a project on that.

[Pierre Bertrand]

I would like to pursue the point raised by my colleague. You will recall that the former Minister of Revenue, Mr. Blackburn, issued a media release saying there would be an awareness campaign.

[Maria Mourani, Bloc, Ahuntsic, QC]

Yes, in April 2009.

[Pierre Bertrand]

You are well informed, madam. In fact, the agency is currently working on it. We are in discussions with other partners regarding the scope of the campaign.

I'm sorry, I have forgotten your second question.

[Maria Mourani, Bloc, Ahuntsic, QC]

Would reducing taxes have an influence on contraband and raw materials? Why do they continue to be sold to illegal factories?

[The Chair, Conservative, Garry Breitkreuz]

Make it a quick response.

[Pierre Bertrand]

Raising or lowering taxes is up to the Department of Finance. It might be able to give you information about that. I have no idea what impact it might have.

In reply to your third question about what are called inputs, there are several analyses, some of which were done by the World Health Organization, to develop a protocol on illicit trade in tobacco. The conclusions are that other than leaf tobacco there are no inputs, no precursors, that are unique to tobacco manufacturing. It would be very difficult to have measures that would make it so that only licensed tobacco manufacturers could get them.

[The Chair, Conservative, Garry Breitkreuz]

Thank you very much. We appreciate that you came here before the committee.

We're going to suspend for just a few seconds and call our other witnesses up for the second part of our meeting.

[The Chair, Conservative, Garry Breitkreuz]

I'd like to reconvene this meeting. If you have any conversations, please take them outside so that we will not be disrupted here.

I'd like to welcome, from the Canadian Cancer Society, Mr. Rob Cunningham; from the Non-Smokers' Rights Association, Mr. François Damphousse; and from the National Coalition Against Contraband Tobacco, Monsieur Jean-Pierre Fortin and Mr. Dave Bryans.

Welcome, gentlemen. Do you have a specific order in which you want to present, or have you decided among yourselves how to handle the presentations?

Mr. Bryans, are you going to go first?

[Dave Bryans, President, Canadian Convenience Stores Association, National Coalition Against Contraband Tobacco]

I'll go first.

[The Chair, Conservative, Garry Breitkreuz]

I didn't do much of an introduction, so if each one of you wants to explain, as you present, who you are and your position, that would be appreciated.

[Dave Bryans]

Good afternoon, everyone. My name is Dave Bryans. I'm the president of the Canadian Convenience Stores Association and a founding member of the National Coalition Against Contraband Tobacco.

I will speak first, and my colleague from the Customs and Immigration Union will speak next.

Our organization represents 14 business and civil society groups that came together to urge action by government to end the scourge of contraband tobacco. In addition to the CCSA, our membership includes the Canadian Chamber of Commerce; the Customs and Immigration Union, whom I'm pleased to be here with; the Canadian Taxpayers Federation; the Ontario Flue-Cured Tobacco Growers' Marketing Board; the Frontier Duty Free Association; Toronto Crime Stoppers; the Canadian Tobacco Manufacturers' Council; the National Citizens Coalition; the CPQ in Quebec; the National Convenience Stores Distributors Association; la Fédération des chambres de commerce du Québec; l'Association des marchands dépanneurs et épiciers; and the Retail Council of Canada.

The contraband tobacco problem in Canada is endemic in Ontario and Quebec. It is spreading in the Atlantic provinces and is slowly now reaching out to western Canada. In 2008, the last year for which we have reliable statistics, 48.6% of all cigarettes purchased in Ontario were contraband. In Quebec, the number is 40%, and in the Atlantic provinces it is 9.7%. Canada-wide, contraband tobacco averages 32.7% of cigarettes purchased, representing a 98% increase since 2006.

Contraband was found at every schoolyard examined in our butt study last summer, with some schools, such as Pickering High School, showing 41% illegal tobacco; St. Mary's in Woodstock, 34%; and Huron Heights in Newmarket, 50%.

Analysis of StatsCan data has shown that tobacco use among young people has plateaued in central Canada, likely due to the ready access to cheap, illegal cigarettes, which is undermining public health efforts.

The RCMP has told you and has told us that 90% of contraband tobacco available is illegally manufactured in the United States and then smuggled into Canada. We also know that the products entering Canada largely come across the St. Lawrence River, mostly between Kingston and Montreal. The epicentre is around Cornwall, Cornwall Island, and the Akwesasne Mohawk territory.

The RCMP has told us that over 100--today it was even more--organized crime groups are currently engaged in the contraband tobacco trade in Canada. We know that smugglers do not operate only in one direction and only with one product. We know that smugglers are moving drugs, arms, cash, and people over the border illegally when they move tobacco.

The sheer scale of the lawlessness is almost unimaginable today. If there is one thing members of the committee can take from our session here today, it is the location of the port of entry at Cornwall. It is imperative that the port of entry remain on the north bank of the St. Lawrence River, as it has made it much more difficult for the smugglers to transport contraband into Canada. Moving the port of entry back to Cornwall Island or onto the south bank of the St. Lawrence will return the situation to the one we had last spring, when contraband was flooding into Canada.

I look forward to your questions later on. I now turn it over to my colleague, Jean-Pierre Fortin, of the Customs and Immigration Union.

[Jean-Pierre Fortin, First Vice-President, Customs and Immigration Union, National Coalition Against Contraband Tobacco]

Thank you very much.

Good afternoon, Mr. Chairman and members of the committee. My name is Jean-Pierre Fortin, and I am the acting national president of the Customs and Immigration Union, which represents front-line officers of the Canada Border Services Agency. So that you are clear, our members include the officers assigned to work at all ports of entry into Canada, as well as immigration screening and enforcement officers, and intelligence and enforcement officers for all the customs, immigration, and food inspection functions of CBSA.

My duties include work on a number of areas, including the issue of counterfeit cigarette smuggling, because it involves illegal cross-border activity. This is especially relevant for us because it highlights a security vulnerability for which we have been seeking action for a number of years, namely, the absence of a joint force and intelligence-led mobile border patrol in Canada.

Most Canadians, we suspect, would be surprised to know that we lack an effective capacity to detect and interdict people and what they are bringing into Canada if they enter illegally between designated ports of entry. Whether they are entering in one of the more than 200 unguarded roads in the Maritimes, Quebec, or the Prairies, or across the vast marine environment of the St. Lawrence and Great Lakes, or inland lakes that straddle our border with the U.S., Canada has a continuing border vulnerability that must be addressed.

Today's hearing is focused on the illegal cigarette trade and the harm it causes to Canadians. There is no question that this illegal activity includes the movement of these harmful goods across the border, and that our lack of mobile Canadian border patrol and interdiction capacity contributes to that problem. Let me also add that this vulnerability extends beyond the smuggling of illegal cigarettes into Canada. We know from Canadian and U.S. intelligence reports that this illegal cross-border movement includes the southbound and the northbound flow of counterfeit goods, drugs, guns, and people. Toronto police reported, for example, that at least 50% of the guns used in crimes in that city have been smuggled from the U.S.

It was this committee as well that produced the admission from RCMP Commissioner Elliott in 2007 that the enforcement surveillance on the St. Lawrence and Great Lakes was, to use his word, inadequate. As one senior police official put it, what gets through the border ends up on our streets and in our communities within Canada.

This government made some significant improvements to border security, but despite this, and for reasons we hope you will pursue, Canada still lacks this necessary patrol and interdiction capacity.

Thank you for your consideration of these issues. I'll be pleased to try to answer any questions you may have.

[The Chair, Conservative, Garry Breitkreuz]

Thank you very much.

Monsieur Damphousse.

[François Damphousse, Director, Non-Smokers' Rights Association]

My name is François Damphousse. Since 1995, I have been the Director of the Quebec office of the Non-Smokers' Rights Association. I would like to address a few points and then give the floor to my colleague Rob Cunningham from the Canadian Cancer Society. He is going to talk to you about the measures we would like to recommend for controlling the problem.

First, the main reason the health insurance community is interested in eliminating tobacco smuggling is that taxation is the most effective way to reduce smoking. In the file that was distributed to you, the first document is entitled "A National Strategy to Reduce Tobacco Use in Canada". Section 5.3 talks about priorities for action to reduce tobacco use in Canada. In the first section, which deals with policy and legislation, the first point is taxation. That is how important this measure for combating tobacco use in Canada is.

It is of great importance that reducing taxes not be used as a measure to control contraband. I would invite you to look at the document entitled "Canadian Tobacco Use Monitoring Survey". At page 3, there is a graph on the prevalence of smoking in Canada from 1985 to 2008. The blue columns, which represent the group aged 15 to 19, show that from 1985 to 1991, smoking declined. However, in 1994, when taxes were reduced at the federal level and in some provinces, tobacco use among young people aged 14 to 19 rose gradually until 1997-1998, the year when the federal Tobacco Act came into force. That was when taxes started being gradually increased.

If you continue reading the graph, you see that it a plateau was reached in 2005-2006. This shows that smuggling started up again in Canada. It is of great importance that the federal government not reduce taxes. That would be catastrophic, particularly for the most vulnerable group, our young people. We believe the government should continue its current strategy, which is to implement policies to control contraband tobacco.

In fact, as the group before us said, there are indications that contraband is starting to decline in Canada. In the Quebec government's last budget, it said that revenue from tobacco taxes rose by $65 million over the previous year. That increase in revenue is attributed to measures token to combat contraband. Even the tobacco companies, including Philip Morris International, which recently purchased Rothmans, Benson & Hedges Inc. in Canada, in its last annual report, noted an increase of 3 or 4% in legal tobacco sales. There again, the increase is attributed to stronger measures being implemented by the government. That is why we strongly recommend that you continue down this road.

That being said, in 2008 the RCMP's Contraband Tobacco Enforcement Strategy was announced, but as well, a task force was set up to make recommendations for controlling the problem better. We have been waiting for the recommendations for two years but we still have no news. We are anxious for this task force to submit its recommendations. We have met with several people from the federal government, but we have been given no information about this. This situation requires your attention. This is a serious public health problem. We are anxious to see these measures announced.

Reference was made to $20 million. Ms. Mourani asked a question about this. In 2008, the government announced an investment of $20 million over four years to combat contraband. For a problem that costs both the federal and provincial governments billions of collars, we think $5 million to combat contraband is not a large amount.

I would like to come back to what Mr. Bertrand said about agreements between the governments and the three Canadian tobacco companies relating to their role in contraband during the 1990s. In those agreements there is a protocol at the end that specifies that $50 million should be allocated to help the federal government fight contraband.

That is stated in the agreement with Imperial Tobacco and Rothmans, Benson & Hedges Inc. For reasons we are unaware of, there was no figure stated in the last agreement with JTI-Macdonald Corp, which has just been signed. We can assume that more than $100 million should be allocated to fighting contraband. That would be a great help in implementing the task force measures, which we are waiting for.

What are they waiting for, to use that money? We think the $20 million is really not adequate.

Thank you. I will now give my colleague the floor.

[Rob Cunningham, Senior Policy Analyst, Canadian Cancer Society]

Thank you.

My name is Rob Cunningham. I am a lawyer and senior policy analyst with the Canadian Cancer Society.

In my testimony today, I'd like to make four key points.

First, there is our disappointment regarding the absence of implementation of new federal action measures--including over the past two years--despite intense urgency and an announcement to do so in May 2008.

Then, with respect to priority recommendations, our second point is that the border post near Cornwall should not be moved back to where it was. The change has made a difference.

Third, the federal government must actively press the American government to shut down the illegal factories on the U.S. side of Akwesasne, the major contraband source.

Fourth, the federal government must take action on the unlicensed illegal manufacturing on three Canadian reserves, specifically through better control of the supply of raw materials to these unlicensed manufacturers.

Before continuing, I would like to acknowledge the excellent work done everyday by front-line enforcement officials and others at the departmental level. Without these efforts, things would be far worse.

I would also like to acknowledge that in Bill C-9 the federal government has brought forward--albeit with some delay--the new measures for an enhanced stamp, and we support that.

So with respect to our disappointment, of course, for us it's a public health issue. I have more than 300 studies and reports about the impact of higher prices and taxes on reducing consumption. This was tabled with the House of Commons Standing Committee on Finance.

This is our submission to you today. I invite you to turn to tab one. You see how Ontario, Quebec, and New Brunswick have the lowest tobacco taxes in Canada of all provinces, but the highest rate of contraband. This visually demonstrates that higher taxes are not the cause of the problem, but instead its the proximity to the source of illegal supply. Other provinces have been able to maintain much higher rates of tobacco taxes.

In our materials we have a series of recommendations that we have made for many years about available remedies that have not been implemented and that do not require on-reserve enforcement.

We also have a tab for the motion adopted unanimously by the House of Commons a year ago, urging action on contraband. So we have a context where there's all-party support for action. We do need a comprehensive strategy. A task force was announced in May 2008 to come up with specific concrete action measures. That is our disappointment, that nothing has been implemented as a result of that initiative.

With respect to the border post, I invite you to turn to tab two, where you see a map. The reserve straddles the Ontario and Quebec borders and the U.S. border in New York state. The red dot on the yellow Cornwall Island shows where their border post used to be. It was the case that smugglers would simply just drive around the border post and come into Canada. Moving the border post into Cornwall, on the other side of the bridge, has become a choke-point to block that mechanism off, and that's why we've seen the progress.

At tab four, for further study, you have examples from the Quebec, Nova Scotia, and New Brunswick governments. Phillip Morris International says revenues were up, tax paid sales are up, after this border post was moved.

One question that we don't have an answer to is the establishment of a fast-track lane at this border post. Is that going to create a new problem? That's been a recent development and we don't have the answer to that.

Our second priority recommendation is to press the U.S. government. We believe this has to be done at the ministerial level, at the political level, by the Minister of Public Safety, with his counterpart, the U.S. Attorney General, who has responsibility for the Bureau of Alcohol, Tobacco, and Firearms. They have the legal instruments available.

What needs to be done is a political decision to put enforcement resources in this part of upstate New York. It's our recommendation that we are not going to have action unless we make it a priority in our bilateral meetings, and until the then, the United States government will not make it a priority.

Finally, with respect to unlicensed manufacturing, the number has grown to 50 in Canada, and that's of concern. What do we do about it? We need a strategy, and our recommendation is that we have to control--one way or another--the supply of raw materials.

We recognize it's sensitive to go on reserve for enforcement. We're not recommending that, but if you can prohibit it, either through charges for aiding and abetting the supply of leaf tobacco to these unlicensed factories, or supplying cigarette filters or other materials, or amending the legislation to make it easier for enforcement authorities to do exactly this, to intercept it before it gets on reserve, that is a strategy that we recommend as part of a comprehensive strategy.

Other recommendations are in our materials.

Thank you very much for the opportunity to testify. We look forward to your questions.

[The Chair, Conservative, Garry Breitkreuz]

Thank you very much.

Committee, I have decided to give everybody six minutes, if that's okay, just to provide fairness so that every party gets at least one turn.

Who would like to go first?

Mr. Wrzesnewskyj, go ahead.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

Thank you, Chair.

Most of my questions actually would have been better put to Superintendent Oliver, who was here from the RCMP. Unfortunately, we ran out of time. But perhaps someone from the coalition could provide some guidance on these questions.

How close is the cooperation between the RCMP and U.S. agencies? Are you aware of daily communications, or have they had joint operations? Do they have ongoing coordinated operations with their U.S. counterparts? Is anyone aware of that?

[Dave Bryans]

I'll try to answer that.

We've worked well with the RCMP, as a coalition. They do work with their U.S. counterparts.

I believe the RCMP is doing a very good job with the resources they have, and they've worked very well even with the coalition and have actually toured around the province to try to tell retailers and consumers that this is a victimless crime and it's illegal.

[Borys Wrzesnewskyj, Liberal, Etobicoke Centre, ON]

What I'm curious about, though, is the cooperation with U.S. authorities, not how good a job they're doing here.