Hon. Jim Peterson (for the Minister of Finance, Lib.)
moved that Bill C-11, an act respecting the imposition of duties of customs and other charges, to give effect to the International Convention on the Harmonized Commodity Description and Coding System, to provide relief against the imposition of certain duties of customs or other charges, to provide for other related matters and to amend or repeal certain acts in consequence thereof, be read the second time and referred to a committee.
Madam Speaker, this is one of those occasions which rarely arises in this Chamber when all party consent, quickly given, is in the interests of all Canadians.
By simplifying the customs tariff, the bill will result in duty savings next year for Canadian businesses and consumers of $90 million and will eliminate red tape. It will lower the production costs for Canadian firms, increase competitiveness in domestic and global markets and create more jobs.
All of us know that Canada's prosperity depends on trade. Exports account for 33% of the gross domestic product and 29% of GDP consists of imports. If the costs of tariffs can be lowered for Canadian businesses and administrative burden can be lessened, we will have a more competitive job creating economy. This is why the government has worked closely with Canadian businesses to design a more simple, cost effective customs tariff.
Consultations were extensive. Letters were sent to the leaders of the parties opposite from the heads of Canadian businesses and business organizations throughout Canada asking for their unanimous support for these measures. They have asked that priority be given by Parliament to passage of this legislation.
I would remind my colleagues that on January 1 next year, just a couple of months off, under the North American free trade agreement, tariffs with the United States will be eliminated. On this side we share the concerns of business that a simplified customs tariff be ready for implementation on that date. Of course, this implies that business too must be ready. We have to preclude economic disruption, allow for automated systems to be adapted and employees to be educated to the new tariff structure. This is why government has been working very closely with business to ensure that they are ready.
Since April Revenue Canada and StatsCan have undertaken ongoing, extensive outreach programs with those affected. Officials of the finance department have met with businesses and trade organizations and participated in conferences to inform interested parties. Obviously, early passage would enable the government to provide the information necessary regarding what is needed in terms of certainty, clarity and timeliness to the business community.
Quick passage will also demonstrate to Canadian industry that Parliament is not only aware of market realities, but is also able to respond quickly and effectively to industry calls for legislation. Put simply, it is timely that Bill C-11 be enacted.
Why? Because the current customs tariff represents a highly unnecessary hurdle to doing business. It is complex and outdated. It is time consuming and its redundant compliance requirements represent both a financial and opportunity cost to industry, not to mention government and bureaucracy. We have to streamline it, simplify it and update it to make Canadians competitive at home and abroad.
With rates of duty on all trade with our largest partner ending on January 1, 1998, coupled with other real rate reductions and eliminations flowing from the Uruguay round of the World Trade Organization, it is important to simplify our regime by eliminating complex and redundant mechanisms and ensuring that the tariff is responsive to competitive pressures facing Canadian industry.
Our regime has become truly complex. In all there are now 13 tariff treatments, 7 schedules, about 8,500 tariff items and 2,500 concessionary provisions or regulations and over 200 different rates of duty. The system is complicated, lacks transparency and leads, because of its complexity, to great uncertainty. This has been noted in many reports by the World Trade Organization. It is imperative to minimize these costs to industry. Let us recognize that it is not only in Canada but all around the world that tariff rates are going down.
The Uruguay round, the FTA and the NAFTA have resulted in an almost 60% trade weighted reduction in average Canadian tariffs. The tariff system must be better adapted to the competitive Canadian industrial economy. In the context of an increasingly open economy, we have to have dynamic linkages between exports and imports, meaning declining rates of duty.
For all these reasons, the February 1994 budget announced a thorough review of the Canadian tariff system over a three-year period.
The main objectives were to ensure that the Customs Tariff and its regulations better reflect the pressures of international competition and also to reduce the regulatory burden and all the related costs.
Accordingly, a working group was set up within the Department of Finance and was mandated to achieve the objectives within three years. One of the key points of this review was its consultation of all the parties concerned to ensure that the results of the review were in line with the objectives set.
Meetings were held in order to inform those involved of the measures planned and to seek their views. Following public consultations, a draft version of the simplified Customs Tariff reflecting public comments was issued in March 1996 to give everyone an opportunity to prepare their final comments.
Thus, in order to reach the greatest number of interested parties, ads were published in a number of major Canadian papers, and the provisional version was displayed on the Internet site.
The proposed legislation and letters of support from industry leaders received by the leaders of the opposition parties indicate that the consultation process was a success, since business supports the bill and is getting ready for its application.
It is obvious the bill is based on the measures the current government has taken up until now to restructure and modernize the Customs Tariff. We hope in this way to help our businesses become more competitive and prosperous.
In June 1995, Bill C-102 lowered tariffs on a broad range of manufacturing inputs, so as to reduce the pressure exerted by the competition on Canadian industry as a result of the amendments to the drawback program affecting exports to the United States. These amendments were necessitated by NAFTA.
This initiative was the first legislative measure taken to simplify tariff provisions. I am very happy to say that it enabled business and consumers in Canada to save some $60 million a year.
The planned tariff reductions will benefit Canadian producers. What's more, the administrative burden will be lighter—and related costs lower—for both government and business. Finally, the Customs Tariff will become easier to implement.
This bill will replace the seven existing schedules with a single one, simplify the tariff structure and greatly reduce the number of provisions in the Customs Tariff. The number of provisions will be reduced from 11,000 to 8,000. Moreover, obsolete or unnecessary tariff regulations and administrative procedures will be eliminated.
The new Customs Tariff will also have a broader application and permit unilateral tariff reductions for manufacturing inputs and the application of similar measures to the service sector.
I would like, in this regard, to remind my colleagues of the importance of ensuring that the Canadian service sector is as competitive as possible, especially in light of the international lifting of trade barriers in the service sector. We all know that the service sector is one of the most important ones in our country.
Until now I have spoken only in general terms concerning the overall economic benefits of simplifying our tariff structure. To illustrate these benefits allow me to turn briefly to several measures in the legislation.
I have already talked about the duty saving on a wide range of manufacturing products. The legislation will make further reductions in this direction, including the acceleration of most final Uruguay round reductions currently scheduled for the next two years.
As well, we are going to get rid of nuisance rates. Rates under 2% will be eliminated. We are going to round other rates to the nearest half per cent. These will be permanent features of our tariff system.
Rate reductions which affect goods coming into Canada that are used as inputs for manufacturing are very important. These will reduce the cost to Canadian manufacturers. It will make them more competitive and better able to take advantage of the growing regime of free trade. In short, our industries will be better able to compete for jobs.
Government red tape also stands in the way of our competitiveness. A case in point is the remaining not made in Canada provisions in the tariff to which I referred earlier. Under these provisions duty free entry is provided for specific goods, mostly manufacturing inputs.
While these provisions once provided flexibility to take into account the needs of Canadian manufacturers and producers, they have now been rendered redundant by the openness of our Canadian economy resulting from freer trade.
As well, they give rise to inconsistencies in the tariff treatment of goods, impose administrative costs to industry and the government and create uncertainty over what is dutiable.
Therefore we are now converting the remaining not made in Canada provisions to duty free items in the tariff schedule without the not made condition. This, again, will improve our competitiveness, particularly in our manufacturing sector.
Concerning concessionary codes in the current tariff, these provide for reduced rates or free entry for a wide range of goods that are not really part of the main tariff. With freer trade generally and with the United States in particular, changes in trade patterns and technology and other factors, many of these provisions are no longer justified. This is why we have proposed to eliminate about 1,000 of these codes. Another 1,000 or so codes remain relevant, since the amount of imports under them from non-U.S. sources is significant. These codes have been converted to tariff provisions at concessionary rates in a single tariff schedule.
To further reduce costs to industry we are terminating the machinery program and replacing it with duty free or dutiable tariff provisions for unavailable equipment or available equipment, respectively.
Currently duties on a broad range of machinery from all sources are remitted to applicants if reasonable equivalents are not available from Canadian production. Again, however, this program has been rendered largely irrelevant, or less relevant, by tariff reductions.
Implementing tariff items will not eliminate inconsistencies and uncertainty, it will alleviate the administrative requirements of the former remission process. Under the proposed legislation virtually all machinery production parts and most other parts under the program will come in duty free.
Regarding the remaining dutiable production machinery under the existing program, industry will continue to be able to seek and obtain relief under the proposed broadened order in council authority to reduce tariffs on inputs. Any relief granted will be implemented by means of amendments to the schedule.
I wish to note that following consultations with industry and a transitional period of three years, the sole criterion to be assessed in considering these applications for relief from the tariff will be whether the equipment is available from domestic production. This program will lower costs to machinery users, provide greater transparency and predictability and help make us more competitive.
As well, the regulatory burden will also be reduced by revoking an additional 300 duty remission orders that are no longer needed. Yet another 70 regulations will be replaced with simpler provisions in the schedule. For example, for customs duty purposes, 12 regulations and 13 provisions that provide fuller partial tariff relief on certain temporarily imported goods will be replaced by one single tariff item, an item that allows conditional duty free entry for virtually all goods that are imported on a temporary basis, again to help make us more competitive in Canada.
Turning to the legislative provisions of the customs tariff there are a number of proposed changes in the bill. Many current provisions are not continued in the new tariff because they are no longer justified because of free trade. Others such as the machinery program are not continued due to the simplification that we have brought about. Perhaps the most striking change is the way the new single consolidated tariff schedule will look. It has a revised format with two columns pertaining to tariff treatments, reduced from the current five.
The government also proposes to eliminate the British preferential tariff. The reductions in most favoured nations rates of duty over the years have significantly eroded or, in most instances, completely eliminated the preferences under the BPT on most imports from developing commonwealth countries. Over the years this treatment has been overtaken in many instances by other preferential tariff treatments for developing countries and has become largely redundant. The British preferential tariff is therefore not in the proposed legislation.
Another important change to the legislation, which I briefly mention, is the broadened order in council authority to reduce duties on all imports including production machinery used by manufactures and service providers. It will ensure that the government has sufficient flexibility to respond efficiently to competitive pressures facing our industries. It also provides a new three year authority for the Minister of Finance in light of the experience over that time to rectify errors that we find in consultation with our private sector partners. This provision is considered particularly important by the business community in view of the wide ranging changes that this bill envisages.
Given these and other changes to the customs tariff, which my colleagues will address during this debate, we proposed to repeal the current customs tariff and replace it with an entirely new act. Substantive amendments are also being made to the Customs Act including provisions to harmonize the time limits for claiming duty refunds and providing for adjustments to tariff classifications, origin or value for duty determinations without the requirement for a formal appeal.
It will also provide for a single level of administrative appeal in Revenue Canada. These will simplify the appeal process and facilitate a focus on those issues where Revenue Canada and the importer may have disagreements. Overall we will have a much more simplified, transparent and predictable administration and regime.
In conclusion this bill and the measures I have detailed here today have three overriding results. First, they will help make Canadian industry far more competitive within a much freer global trading environment. Second, they will make our tariff system more transparent, more predictable and simpler. Third, they will reduce greatly the regulatory burden and the associated costs of that for both business and government.
Industry, as it has contacted members on all sides of this House, has indicated that it is anxious to see this legislation in place for the January 1, 1998 debut. I am confident that members of this House will accede to the needs of industry and allow us to pass without undue delay these measures in order that uncertainties will not apply throughout our business community.
I reiterate our view that this bill merits all party support and accelerated approval in order that businesses, workers and consumers can reap its benefits.
Subtopic: Customs Tariff