Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 10 - Evidence - Meeting of March 6, 2008
OTTAWA, Thursday, March 6, 2008
The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:50 a.m. to study on issues dealing with interprovincial barriers to trade; and to examine the present state of the domestic and international financial system (Farm Debt Mediation Act).
Senator W. David Angus (Chair) in the chair.
[English]
The Chair: Good morning. Welcome to this meeting of the Standing Senate Committee on Banking, Trade and Commerce. I am Senator David Angus from Montreal, Quebec, and I am the chair of the committee. Senator Goldstein is our deputy chair, from Quebec. As well, we have Senator Meighen from Ontario, Senator Tkachuk from Saskatchewan, Senator Eyton from Ontario, Senator Harb from Ontario, Senator Ringuette from New Brunswick, Senator Moore from Nova Scotia and Senator Jaffer from Vancouver.
Mr. Minister, welcome. I believe this your first visit. Our committee has had many deliberations on matters related to your present portfolio, Industry Canada. I want to say a few introductory comments about why we have invited you today and to put today's hearing into context.
I would like to welcome our viewers on the CPAC network and on the web cast. We understand we have a very large number of viewers on the World Wide Web and we are pleased about that.
Today's hearing will deal with the matter of interprovincial trade barriers. It goes back to an order of reference that we received from the Senate as long ago as November 23, 2004. At that time, the committee was mandated to do a series of three round table studies on issues that were and remain topical.
One round table was on the issue of productivity and how productivity in this country may be lagging behind that of our trading partners in other countries in the Organisation for Economic Co-operation and Development, OECD. We had full hearings on that issue and reported back to the Senate.
The second was on the demographic time bomb and issues around the fact that we have an aging population. Many of those are in good health and no longer in the workforce. However, we have a diminishing number of workers to sustain an increasing number of people on pensions with expectations of receiving funding in their old age when they are no longer working. That has been referred to as the demographic time bomb. We had experts from the U.S. and Canada enlighten us, and we filed a report on that issue.
The third issue was interprovincial trade barriers and barriers existing between the provinces and the territories. The order of reference authorized the committee to examine and report on issues dealing with interprovincial barriers to trade in Canada, in particular the economic and trade barriers that exist between provinces; the extent to which such interprovincial barriers are limiting the growth and profitability of the affected sectors of the economy and the ability of businesses in affected provinces, jointly and with relevant U.S. states, to form economic regions that will enhance prosperity; and measures that can be taken by the federal and provincial governments to facilitate the reduction or the elimination of such interprovincial trade barriers in order to enhance trade, develop a national economy and strengthen Canada's economic union. Finally, the order of reference included that the papers and evidence would be part of the record and that we would report back to the Senate.
That mandate has been renewed on three occasions. We are coming to a conclusion.
Minister, your predecessor, Minister Maxime Bernier, shared his views with us last year. As well as your appearance today, we will have two witnesses from the Bank of Canada next week, Senior Deputy Governor Paul Jenkins and the new Deputy Governor, John Murray. Senior Deputy Governor Jenkins has been on the record a number of times to say that the Bank of Canada has concerns that these barriers in Canada are an ongoing thorn in the side of productivity growth in this country and therefore in the global competitiveness of our economy. Therefore, we thought it was fitting that you would appear today and be the penultimate witness on this study. We are delighted that you are here. After your presentation, my colleagues will ask questions.
Hon. Jim Prentice, P.C., M.P., Minister of Industry: Thank you, Mr. Chair. I would like to acknowledge the fine work of the Standing Senate Committee on Banking, Trade and Commerce. It is well-known in Canadian parliamentary circles and beyond that this committee has distinguished itself over many years with excellent work and has had significant impact on both legislative developments and public policy developments. It is a pleasure to be here.
I am accompanied by Paul Boothe, Senior Associate Deputy Minister, Industry Canada. He is one of the able people recruited to the public service of Canada, formerly having been a deputy minister in Saskatchewan and having also worked with the Alberta government. I also have a number of other officials with me from the department.
It is a pleasure to meet with you to discuss the importance of a strong economic union. I will begin with an opening statement.
The Chair: Has everyone got a copy of that statement?
Mr. Prentice: I am not sure whether you do. I think you do not.
I know I am in able hands. Mr. Chair, the last time you and I were together, you had invited me to deliver a speech on science and technology policy at a lecture in Montreal. That was a 45-minute speech. I promise not to go on quite that long today.
The Chair: Whatever you decide will be added value and we look forward to it.
Mr. Prentice: Thank you for meeting with me today to discuss the importance of a strong economic union, the work that is underway to strengthen the Agreement on Internal Trade, usually called the AIT agreement, which we will address, and progress towards the elimination of trade barriers within our country.
[Translation]
I am delighted to see your interest in internal trade and the extent of the understanding of the matter around this table. We know that it is easier to trade goods and services among the countries of North America than among provinces.
Currently, for some Canadians and some businesses, barriers to interprovincial trade are becoming more significant as a problem, while for others they are already a major obstacle. The Agreement on Internal Trade represents a first step in improving the free movement of goods, services, investment and people.
[English]
For example, some Canadians, such as teachers and nurses, may still be denied their right to work some places in Canada because their qualifications are not recognized in another jurisdiction. In other circumstances, businesses face regulatory requirements that discourage any expansion outside their province, such as in the case where differing provincial technical standards exist for ethanol blending in fuels. In both cases, trade barriers are real.
At a time when Canada is facing tremendous pressure from global competitors, it is counterproductive to maintain these restraints. Much needs to be done. However, there are encouraging signs. At meetings of the Council of the Federation in August 2007 and in January 2008, premiers reiterated the importance of a stronger and more effective national Agreement on Internal Trade. They endorsed a work plan to improve the Agreement on Internal Trade in five areas: labour mobility, dispute resolution, energy, agriculture and the reconciliation of regulations in transportation.
[Translation]
The government supports this work plan because we believe that it will considerably strengthen the Agreement on Internal Trade. We are working very closely with the provinces to implement this plan and we will continue to do so.
[English]
In particular, federal, provincial and territorial governments have placed a priority on ensuring full labour mobility by April of 2009. Officials and regulatory bodies are engaged in solving the remaining problems before this date. Progress has been made, but it remains to be seen whether the goal will be fully achieved by the deadline.
At the last meeting of the Committee on Internal Trade my predecessor, Minister Bernier, proposed a stronger commitment, immediate mutual recognition of occupational standards for the professions. As many stakeholders making presentations to your committee stated, the current dispute resolution mechanism is not effective. In my opinion, a strong and binding dispute resolution mechanism that includes monetary penalties is a key. We are working with the provinces to remedy this shortcoming.
There are still outstanding issues for the completion of the agriculture and the energy chapters. I know that the premiers have indicated that they want to see results, but it is fair to say that discussions have been going on for years.
I am encouraged that some provinces are now moving at a faster pace. They will act as a catalyst for improving the Agreement on Internal Trade. I refer specifically to TILMA, the Trade, Investment and Labour Mobility Agreement between Alberta and British Columbia, and the trade talks between Ontario and Quebec as good examples of the pace at which some provinces are beginning to move.
The work plan endorsed by the premiers last summer was largely inspired by the TILMA provisions; the April 2009 deadline and the immediate mutual recognition for labour mobility, as well as monetary penalties for dispute resolution are elements of TILMA.
[Translation]
I hope that this political momentum will lead to concrete results under the Agreement on Internal Trade for all Canadians, not just those affected by bilateral agreements.
[English]
The government is committed to improving internal trade across Canada. In the Speech from the Throne, our government indicated that it will consider all options to reduce trade barriers, including the use of the trade and commerce power. Our priority is to eliminate trade barriers that affect Canadians. We are studying ways in which the government can best use this power if necessary to reduce trade barriers.
Initiatives such as the hearing of your committee provide an opportunity to highlight the work being done and, more important, the remaining challenges. Your interest is welcome, and it helps build an impetus for further action. Please be assured of my full commitment for a well-functioning economic union, which is critical for Canada's prosperity. In discussing this issue, I know that you have heard conflicting views about the importance of this subject, whether it is substantively important or merely in the nature of an irritant. I suggest that in fact we are dealing with very significant issues in terms of dollars, and we welcome your committee's prioritization of this issue.
If one looks at interprovincial and international trade figures for 2006, the trade amongst provinces amounts to $281.6 billion. The procurement alone of the provincial and federal governments amounts to in excess of $20 billion. Procurement is, of course, a significant part of the overall issue.
Estimates of the cost of internal trade barriers vary considerably, and you will hear from economists and people with more expertise than myself in this area. At the low end of the range, which some say is 0.2 per cent of GDP, the costs amount to $2 billion to $3 billion annually; at the higher end, costs have been estimated as high as 3.8 per cent of GDP, obviously much more significant numbers. I leave it to your committee to speak to the C.D. Howe Institute, respected economists such as Mr. Courchene and others regarding the quantification.
An examination of some of the examples of internal trade barriers highlights the significance of this issue beyond dollars. For example, in their TILMA discussions on the regulation of occupations, Alberta and British Columbia examined differences in standards between their provinces in 247 different occupations.
The examples of internal trade barriers in our country are legion. Without belabouring the point, you are aware of the restrictions in some food products and alcohol, which highlights that it is easier for a truck to carry a heavy load of goods from Alberta to Mexico than to travel to British Columbia, because the weight and dimension restrictions for transport trucks vary from province to province.
We have different provincial technical standards for ethanol blending in fuel as well, and we have a large number of other issues, in particular procurement, where barriers and restrictions need to be examined if we are to continue to expand the Canadian economy.
The federal powers to regulate trade and commerce are broadly stated in our Constitution in a number of places. Section 91(2) of the Constitution Act of 1867 provides the regulation of trade and commerce as a power. You will hear from legal scholars about how that clause has been interpreted, starting with the Judicial Committee of the Privy Council through to modern Supreme Court of Canada cases. There is both a general power and also an international and interprovincial power, and these two authorities are subject to different restrictions. I think the interprovincial authority is a healthy authority in respect of goods, services and capital.
The interprovincial mobility of persons is not covered by section 91(2) of the Constitution Act of 1867, but reference can be had to section 6(2) of the Charter, which deals with the right to work in provinces free of barriers, and there is emerging jurisprudence there.
Regarding the interprovincial movement of goods, reference should be had to section 121 of the Constitution, which has attracted some judicial attention; it refers to the fact that growth, produce and manufactured goods shall be admitted free of charge. There is quite a bit of judicial authority on what those provisions mean and how they will be evolving in the hands of the current Supreme Court of Canada. There is a general recognition that the problematic areas include the harmonization of standards and the removal of subsidies and that these areas are beyond the prevailing view of the constitutional authority of the federal government.
I welcome your input with respect to all of that. In closing, as the Minister of Industry wrestling with the complex issues of globalization and the technological innovations that have accompanied transportation and communication, which have opened up the global marketplace, I would say that Canada needs to be more competitive and more agile than ever.
Trade liberalization is an essential aspect of that, whether we are speaking of the Canada-United States Free Trade Agreement or the North American Free Trade Agreement or the arrangements existing with the European Union and others, but in addition we need to focus as a priority on the trade and commerce arrangements that we have in our country, eliminating all of the unnecessary barriers that restrict us in our expansion of our own Canadian economy.
I look forward to working with the committee. I am pleased the committee has made this report a focal point and that you have had a number of working authorities that take you in that direction.
The Chair: Thank you, Mr. Minister. That was a precise and relevant presentation and you touched many if not all of the bases that have come into focus during our hearings so far. That you recognize that we have heard conflicting views as to whether these are issues of substance as opposed to mere irritants is in stark contrast to what we heard from a number of labour unions on the issue of labour mobility.
You made a comment that brought to mind Quebec Premier Jean Charest's saying that it is easier for Quebec to do business with Liechtenstein and Luxembourg than it is to do business with Saskatchewan and Ontario.
Senator Goldstein: That is not true for Liechtenstein at the moment.
The Chair: Perhaps not, and I may have the wrong countries. However, his observation was similar to the minister's.
In the Speech from the Throne, you mentioned the federal powers; we are obviously interested in that. You did not quite get to the point of telling us exactly what the present government will do to further that initiative, but the intention is great. We are often looking for an appropriate title for our reports. You used the phrase ``building an impetus for future action.'' It might possibly be something our advisers use. It is exactly the concept behind the round table.
Senator Meighen: As one who suffered from barriers to mobility in my legal profession, I appreciate what the minister was talking about. I would love to practise in Halifax, but it is likely the examinations would be too difficult for me. Therefore, I will leave that to Senator Moore.
The chair has accurately expressed what I was going to say. However, can you elaborate on his comments about this particular initiative? What is new, Minister?
I am ancient but I remember talk about reducing interprovincial trade barriers since I first became interested in public policy. We have made some progress, though not as much as many of us would have hoped. There is clearly a strong minority opposed to going too far in this area. They say, ``If you want a unitary state, let us have a unitary state, but you have to accept that in a federation there will be differences.''
Could you elaborate as to how much is too much in terms of barriers? How would you alleviate the concerns expressed principally by trade unionists who have appeared before us?
Mr. Prentice: In a philosophical way, without dealing with specifics, as the Minister of Industry I would say the nations that hold the future in their hands are those able to organize themselves so that the integration of goods and services, capital and labour make them internationally competitive. I am increasingly struck by the pace of change in the global marketplace: how quickly capital moves across the globe, the pace at which jobs can be taken from our country to another country, the pace at which everything changes. There is a fascinating book entitled Supercapitalism by Robert B. Reich, one of the great thinkers in the United States. It contains an interesting analysis of all of this.
If we are to be on the cutting edge of all of that and able to take advantage of the great natural and human assets we have, we will have to be organized as a country. If we have trouble taking a transport truck across the Alberta-British Columbia border because the two provinces have different standards, it does not bode well for our capacity to deal with some of the larger issues.
In a philosophical way, I think it is extraordinarily important that we begin to deal with this. The academic commentary about what has been accomplished in other jurisdictions, including federal states such as Australia, compared to what we have been able to achieve in Canada indicates a consensus amongst academics, including the CD Howe Institute, Mr. Courchene and others, that there is much work to be done.
I would emphasize that some positive things are beginning to happen. We have made significant progress as a country on the issue of standards, for example. This is perhaps thanks to the good work of the Standards Council of Canada and others. We seem to have fewer problems on the standards issue than in other areas. TILMA is also very exciting. I think good work is being done by the Council of the Federation, and the renewed talks between Ontario and Quebec are quite helpful.
As a federal government, we want to encourage the continuation of those efforts. The integration, harmonization and mutual recognition we are talking about have to happen at a myriad of levels to make our economy more efficient. By definition, it will involve everyone at the table making progress. I am hopeful that that is happening with renewed vigour.
Senator Meighen: Minister, is the jury still out on whether TILMA is beneficial to Alberta and British Columbia — indeed to the country as a whole — and to what extent? Must we wait a little longer before we can make a definitive judgment about that? Perhaps we could use TILMA as a lever to encourage similar agreements among other provinces.
Mr. Prentice: Much has been said about TILMA. I would emphasize that an enormous amount has been accomplished between those provinces in a reasonably short period of time. Aspects of the agreement are criticized and there are lacuna in the application of the agreement that many people have thoughts about. However, the TILMA process and agreement are yielding considerable benefits for the economies of those two provinces.
I guess the question is whether it has a broader application. Is it a model that could be carried across the country?
Certainly it has been tailor-made for the specifics of two Western Canadian provinces. Presumably it has application elsewhere in Western Canada. I am encouraged because parallel discussions are happening between Ontario and Quebec. The economic interrelationships and integration between those two economies requires Ontario and Quebec to define the solutions. I think TILMA is yielding significant benefits and it is a model of what can be done.
Senator Meighen: I happen to have an interest in the issue of a common or a single regulator. Our colleague, Senator Grafstein, has a bill before the Senate calling for a single, federal regulator. Personally, I tend to favour a common regulator, which implies a buy-in by the different jurisdictions rather than a federal statute saying ``here it is.'' Senator Grafstein argues that the federal government has the power to do that. I think that is open to question, but we will see. The government has now named a panel under the Honourable Thomas Hockin to look into this question.
I wonder whether you could make any comments. Our passport system is somewhat ungainly and inefficient, although we have made improvements to it. How important is it to move to a single regulator in the sense of having an agreement that there shall be one body as opposed to 13 bodies regulating securities activities in this country?
Mr. Prentice: The Minister of Finance feels strongly about this topic and has spoken about it. I believe he has appeared before your committee on it as well.
The Chair: Yes.
Mr. Prentice: He has struck a panel of distinguished Canadians, including Mr. Kvisle, one of the finest CEOs in our country. I know they will do a great job of presenting a report that outlines the options and recommendations. I think that will happen very quickly.
Senator Ringuette: Minister, I do understand that you have many challenges on your hands with the state of the world economy and particularly the North American economy. Does your department keep current statistics on what is happening in the various sectors of our economy and by provinces? Is that updated continuously so that you know what is happening in the different sectors in the different provinces?
Mr. Prentice: We certainly do. Statistics Canada reports to me, as the Minister of Industry. Statistics Canada has a world-renowned reputation for their professionalism and their capacity to assemble and aggregate economic data. They provide all of that on their websites on a regular basis. I receive daily reports of what is transpiring.
Senator Ringuette: In your introductory statement, you said that we need a strong economic union, and I think that is highly important. In order to have a strong economic union, we need strong economies in all the provinces. On a daily basis, you are aware of the state of the economy by sector and by province. I would like to bring to your attention that there was a lost opportunity with the Community Development Trust of $1 billion that was not targeted to sectors and was not distributed to the provinces so that each province could aim to have a stronger economy than they currently have in those sectors.
My other comment is on labour mobility. The Constitution provides that within Canada one cannot obstruct the mobility of labour if it is for gainful employment. As you stated, 237 occupations have no standards from one province to the other. By the way, the federal government, in its own hiring practices, does not recognize the mobility factor as stated in the Constitution. We have removed the federal ability to help to standardize trades and occupations relevant to federal-provincial agreements that have no required objectives in respect of labour training, no required objectives in respect of the transfer of funds to the provinces for post-secondary education at the university level and the cooperation in looking at all the professional diplomas, so that we can standardize.
We need some form of leverage to incite the provinces to move forward on all issues of labour mobility and transport regulation, for which we have tools that could be used. Why are we not using them?
Mr. Prentice: I will speak first to the Community Development Trust of $1 billion. I do not agree with you that we have lost the opportunity to make targeted choices.
The very premise underlying the fund is that the dollars will be distributed to the provinces and that the provinces will make those targeted choices. It is the ultimate for dealing with targeted issues in the forestry sector and the manufacturing sector because the provinces will be allowed to make those choices to ensure that there is an appropriate application of the fund. That is the underlying premise. It will definitely be targeted.
In terms of your broader question on the exercise of federal leadership, if you will, I have not suggested at any time that the federal government does not have the tools at its disposal to deal with this. That is certainly not my point. The fundamental point I make is that these issues are complex. They deal with myriad individual regulatory standards and occupational requirements across our economy. They need to be dealt with in a collaborative way by everyone at the table. That is demanded. Certainly the federal government has a procurement capacity to lead. I do not disagree with that, but we must have all of the provinces working in concert with the federal government to make that happen.
There are very encouraging signs. Alberta and British Columbia have achieved more with TILMA in the last three years than was achieved in the decades before. Similarly, the Council of the Federation has renewed itself, and Ontario and Quebec are beginning to look seriously at these issues. That is cause for optimism, and we will do our part to work with them.
Senator Ringuette: With regard to the Community Development Trust, you said that the underlying premise is that the provinces make targeted choices. You also said that you have all the tools and the data on the people and the communities that were losing their jobs and thus losing their economy. You had that information on a daily basis, and that should have been the target for the distribution of the Community Development Trust. That is your federal responsibility. According to your opening comments, to create a strong economic union you need strong economies in all the provinces. The communities in the provinces that are being most affected should have received your priority attention in the distribution of the Community Development Trust.
With regard to labour mobility, thank you for agreeing with me that the federal government does have leverage tools. I would like to highlight another issue —
The Chair: Senator, we have half an hour to go and many senators want to ask questions. You have made many statements that are interesting, but you have asked few questions. I do not think we are here to argue with the minister. If you have a question, I will allow you one more. Otherwise, I will have to move on to the next questioner.
Senator Ringuette: With regard to labour mobility, what are we doing about the lack of standards for migrant workers?
Mr. Prentice: First, I will respond to mobility rights, which falls under section 6 of the Charter. The law has not crystallized to what the mobility rights provisions in the Charter relate. The Supreme Court decision in Canadian Egg Marketing Agency v. Richardson took a rather restrictive interpretation of section 6. I know that is not the definitive word, and other decisions suggest that it is, perhaps, a broader authority than that.
Standards for migrant workers are part of the discussion that I understand will happen at the detailed working tables. The provinces have been talking specifically about migrant workers in the agricultural area.
The Chair: Thank you. Senator, if we have a second round, you will be top of the list.
Senator Harb: Thank you. Mr. Minister, I am glad you mentioned a couple of very important points: first, you outlined the problem and recognized that it is easier to do business elsewhere than to do business within the provinces.
Has anyone looked at the provinces' rules and regulations compliance as it relates to both NAFTA and the Word Trade Organization, WTO? Do we have a checklist, and do they all comply? If they do not, in what areas do they not comply?
Mr. Prentice: Do you wish discuss compliance with NAFTA provisions?
Senator Harb: Yes. Do all the provinces comply with NAFTA provisions for goods and services mobility and labour mobility? Also, I ask the same question in regards to the WTO.
I know that NAFTA complies with the WTO rules but they go further. Are you aware of any provinces or territories that do not comply?
Mr. Prentice: In Canada, trade liberalization and the arrangements we have internationally have proceeded apace. The Canada-United States Free Trade Agreement and then the North American Free Trade Agreement put in place more liberalized trading regimes than we have between some provinces. In a sense, this expedites the north-south flow of commerce, and we have not yet dealt with some of the institutional barriers in east-west commerce in this country.
In a sense, the international trading regime shows the way forward; it shows some of the issues we need to address on the way forward.
To the extent that the provinces are engaged in north-south trade, clearly they have to comply with NAFTA requirements.
Senator Harb: I understand your frustration and I know it is not as simple as it sounds.
You have two issues. Regarding the constitutional issue, I submit that the residual power available to the federal government will allow it to do many things in the area of mobility. Nothing in the Constitution will prevent the federal government from setting up a national standard in any professional field that the provincial governments have standards in. This will not only allow the federal government to deal with some of the issues that affect mobility but would allow Canada to position itself internationally as a welcoming place for people with professions to set up shop. As you said, minister, section 6 of the Charter and section 92 of the Constitution both allow mobility within Canada.
It is bizarre, but with over 200 professional organizations in Canada with different standards, one can say this is at best a cartel and at worst a Mafia-type organization whose sole objective is to close borders and dictate how many professionals will graduate every year. Why have previous governments not exercised that type of power, and why have we not gotten to the bottom of the size of the problem?
The C.D. Howe Institute appeared before us and told us that they think it is 0.1 per cent of GDP but it could be 1 per cent or 2 per cent of GDP. When we asked why they had not done anything like this, they said that they do not have the resources. We asked Mr. Bernier the same question.
Is it possible for the federal government to say, ``I want to know exactly how big this problem of interprovincial trade barriers is''? It is affecting productivity and the ability of businesses to move back and forth between provinces. Once we know, we can go back and say, ``These are the areas where we feel there is a problem.''
Mr. Prentice: I leave the complex issue of quantification in the hands of experts. How do you quantity paramedics in Lloydminster, Alberta, having to be accredited on both the Saskatchewan and Alberta sides of the border? How do you quantify the economic costs of that or of the other professional restrictions, such as for lawyers, dental hygienists and others?
The important point is that if we want to be competitive in a cutting-edge world marketplace where labour and capital can move quickly around the globe to search out the optimal place to do business, we have to strip away as many of these impediments as we can.
You can get lost on the point of quantification. However, we have to be efficient and eliminate inefficiencies. It is unfair to say that nothing has happened: on many levels we are making significant progress. On the issue of standards, Canada has a good record compared to other federal states. That is a result of good, collaborative work.
One of the most challenging areas highlighted is occupations, and I would submit that that is really the crux. Once you are into the regulation of occupations, you are into a gray area around the constitutional authority of the federal Crown versus the property and civil rights authority of the individual provinces. Again, to deal with the myriad of professions and occupations that exist will take individual work at the provincial level to streamline and eliminate unnecessary red tape and certification procedures.
To be clear, work is being done on credentials, particularly foreign credentials, by the federal government. We are working with our provincial partners on that.
The Chair: Thank you. I think we have cut to the chase on one of the key aspects of this problem.
Senator Tkachuk: As long as I have been here, which is quite a long time now, we have been talking about this issue. No one ever gets to the nub of it. We talk about quantification. The Canadian Wheat Board restricted a farmer from hauling his grain from Saskatoon to a farm that wanted to make pasta. How ridiculous is that?
We have monopolies in each province on liquor that restrict the free sale of wine which we produce in this province. It used to be good when there were no Canadian wines except the ones we made on the farms back home. Now we have a wine industry in Ontario and one in B.C., but you have to ask a bureaucrat in Regina for permission to sell the wine. That is not difficult to quantify.
We have power companies that have a monopoly on producing power. I remember the days when we had telephone companies in Saskatchewan and Saskatoon, and it used to cost me more to phone Regina than it does now for me to have a month's worth of telephone service anywhere in North America.
Those are the big impediments that I never hear a big debate about amongst the provincial premiers. They are all protecting their own turf. They must know this cannot be good public policy for the country.
I mentioned the Council of the Federation's having agriculture on the list and procurement. What are the priorities for the national government on agricultural trade within the country, and what priorities is the Council of the Federation working on?
My second question has to do with procurement. Do we have a balkanization happening with Alberta-B.C. procurement? Are they extending their procurement policy under TILMA to other parts of Canada, or is it restricted to those two provinces' governments and businesses only?
Mr. Prentice: I will deal with procurement first. Procurement is an issue where governments collectively can lead the way. Over $20 billion in procurement is done by the federal and provincial governments annually. My understanding is that TILMA has paved the way for ease of procurement between Alberta and British Columbia. There is no intent to create a regional block from which others are excluded. That is not the philosophy of the agreement. Rather, the intent is to ensure harmonization of standards between those two provinces so that procurement will be more readily available to marketplace participants. There is no attempt to exclude anyone else.
Senator Tkachuk: I know that any province that wants to join TILMA can join and be part of the process. However, Quebec and Ontario are having separate talks. Do you fear a balkanization, whereby Ontario and Quebec have an agreement and Alberta and British Columbia have an agreement? That cannot be good for the country, and this makes it more difficult.
Mr. Prentice: Any progress that we make to break down the impediments to trade and commerce is useful. There is no doubt that the Agreement on Internal Trade is the best way forward because everyone is signatory to it. It was signed in 1994 but has had its limitations and its critics. In particular, the enforcement mechanisms have been the subject of criticism. Others have pointed out that several of the chapters have been under negotiation for longer 10 years without finalization.
Faced with that circumstance, some of the provinces have tried to move forward anyway. It will be interesting to see what approach to TILMA the new government in Saskatchewan decides to take. There is no doubt that the overall Agreement on Internal Trade approach is the best way forward if a consensus can be reached. The Council of the Federation agrees with that and is endeavouring to move that forward.
Senator Moore: With regard to the procurement figure, you mentioned $20 billion. Initially, I thought you meant that that was the total that all provinces spend on procurement. However, you just included the federal government too.
Mr. Prentice: That is correct. You will find reference to that in the most recent report of the C.D. Howe Institute. It encompasses federal and provincial procurement.
Senator Moore: You mentioned that internal trade between the provinces totals $281 billion. Do you have any idea much it could be without barriers? What are we missing?
Mr. Prentice: Again, you are back to the projection of percentages. Are you missing 0.2 per cent of that or 3.8 per cent of that? That is the range suggested by economic commentators recently. We could debate the quantification endlessly. I think everyone would agree that we are trying to make the Canadian economy more efficient so that we can compete globally.
Senator Moore: It can only improve.
Mr. Prentice: If we are hampered domestically, it is difficult to compete with foreign economies that are on the cutting edge of business.
Senator Moore: You talked about the different areas at the Council of Federations, including labour, mobility, energy, agriculture and dispute resolution. What is the main obstacle to removing these barriers? Is it the fees charged by the provinces for movement of goods in and out of their provinces? I understand that all provinces have their legal rights in this regard. Is the root of the obstacles monetary?
Mr. Prentice: We are talking about the whole Canadian economy. It is likely that for different subjects there would be different impediments. Negotiation for the elimination of trade barriers for agricultural products is one of the most complicated areas. With regard to standards, if the work is done, it is simply a matter of getting everyone at the table to harmonize them.
Senator Moore: Does the barrier in agriculture have to do with fees?
Mr. Prentice: The agricultural sectors of each province have their marketing boards and other institutions. Harmonizing these across the nation has been challenging. For labour mobility, you are dealing with self-regulating professions that exist within the confines of provincial jurisdictions and that are authorized by provincial law.
The point is that much of this is simply plain hard work that needs to be undertaken. We need to make it a priority. We are not the only country to face these issues. For example, Australia has had enormous accomplishments in achieving an agreement and doing the detailed work. The process of creating the European Union has been a process of harmonizing or mutually recognizing the various existing standards. It has been a laborious, tough, sliding exercise.
Senator Moore: It is difficult to discuss this without affixing some figures in an effort to point out the urgency and the benefit of trying to move past some of these obstacles. Which barrier is the most costly? Have you looked at that? Is there one barrier that we should take particular note of?
Mr. Prentice: We need to focus on the freedom of mobility of labour and on ensuring that we get accreditation done smoothly in order to achieve labour movement across the country to create opportunity for individuals and to service the needs of the economy. I say that in light of the committee's work on the three areas of study and the reference to the demographically created shortage of skilled labour in the Canadian economy and the fact that every group of business leaders I meet emphasizes that their biggest single challenge is securing qualified people.
Senator Moore: With regard to the work of the Council of the Federation, is it part of your responsibility, as the Minister of Industry, to monitor their progress?
Mr. Prentice: They might not agree with your term ``monitor,'' but we collaborate and work together. They have said that by April 1, 2009, there will be full labour mobility, to the extent that it can be achieved.
Senator Moore: You recognize it and they recognize it, and are all working toward that.
Mr. Prentice: That is correct.
The Chair: You said that this is an important matter and that we have to make it a priority. Are you making it a priority? When you say ``we,'' I assume you mean the federal government.
Mr. Prentice: It goes beyond the federal government. Certainly it is a priority for the federal government. That is why we highlighted it in the Speech from the Throne.
It will take a lot of work. It will take federal leadership but also a lot of work from the provinces as well as an agreement to prioritize its importance. Beyond that, it will take detailed work at the individual occupation and profession certification levels.
The Chair: Our committee was pleased to see reference to the subject matter in the Speech from the Throne. The federal government has to take the lead here. Hopefully, this government will make it a priority.
Senator Eyton: I will follow on some of the themes already raised but in a more particular way.
Ordinary dealing requires that you identify a problem and then you assess how important it is and what the cost is. Having established the cost, you establish some kind of priority and how and when to deal with it.
I want to come back to the cost aspect. You referred to the cost of 0.2 per cent of our GDP. A new number to me was the 3.8 per cent of our GDP. That is much larger than I was aware of. The latter number probably takes into account not only what I call the out-of-pocket costs that are more easily measured but also the intangible costs that you referred to, particularly the lost-opportunity cost. Those intangible costs are harder to measure. What would have been the plus side had you done it another way? Of course, that will be a larger number than the direct, measurable out-of-pocket cost.
We have the problem; we have to establish a cost; and then we have to deal with how and when to fix the problem. In order to assert leadership, which is clearly needed, this government and your department in particular must have a good fix on what the costs are and what the benefits can be to Canadians. You yourself must have some conviction on the cost to Canadians and the need for the problem to be repaired. Can you comment?
Mr. Prentice: The 3.8 per cent, the upper figure in the range I presented, comes from a Conference Board of Canada report entitled Death by a Thousand Paper Cuts: The Effect of Barriers to Competition on Canadian Productivity. That is their figure. The figure at the low end of the range was provided by a report entitled Interprovincial Barriers to Trade, which is sometimes called the Copeland study. The 0.2 per cent may underestimate the effect. As you said, certainly it does not identify the lost opportunities.
I want to draw an interesting comparison. As Minister of Industry, I am responsible for the Security and Prosperity Partnership of North America arrangements with the governments of the United States and Mexico. I was just involved in discussions there a week ago. Since the NAFTA agreement was signed, our two-way trade with the United States has doubled and our two-way trade with Mexico has increased five-fold. Any discussion about not doing the NAFTA agreement would not have reflected that kind of exponential increase in trade opportunity.
On a domestic level, we need to achieve a functioning Canadian economy, eliminating the inefficiencies so that we can expand our economic opportunity. I think the consequences of doing that will be significant. In particular, it will allow all Canadians to participate fully in the benefits of things that happen, for example, in the oil sands of Alberta or the manufacturing sector in Ontario.
Senator Eyton: The point I was trying to make is that you, yourself, have to come to some conviction about cost. The opponents of any change will say the difference between $2 billion or $3 billion is a relatively small number and we do not need to worry about it. However, if you are talking about the higher number, you are talking about $50 billion, which is a critical problem that should be addressed immediately.
It is a different way of looking at it. It should assign its own priority. If you agree with the higher number, you do more than the Agreement on Internal Trade has been able to do over 12 years. The Agreement on Internal Trade does not work very well. It may work well over a small period of time, but the problem is more urgent than the agreement has been able to manage over the 12 or so years that it has been in force.
In your report on labour, you said that we will have something next year. This is 12 or 13 years later. Regarding dispute settlement, you said there is progress but it is still up in the air. Energy, agriculture and transport still have not been addressed. That does not indicate any real priority at all by the parties. It is hard to achieve that in an organization that meets once a year.
Mr. Prentice: The essential criticism of the Agreement on Internal Trade process has been the absence of teeth in the dispute resolution clause. I read somewhere that of the eight rulings made under the Agreement on Internal Trade, the provinces chose to disregard six rulings.
By contrast, TILMA has real teeth and significant measures that can be assessed. Perhaps that is the source of the reticence on the part of some players to quickly agree with that approach. There will be real consequences.
Senator Eyton: The existence of TILMA and the fact that Ontario and Quebec are talking suggest that strong federal leadership is missing. From my point of view, it seems it is an important issue that requires stronger federal leadership. It may be outside the confines of the Agreement on Internal Trade.
Mr. Prentice: For many previous years, federal leadership was missing on this file. I can tell you it is a priority of this government. It was highlighted in the Speech from the Throne and we intend to deal with it as I described today.
Senator Eyton: I was pleased to note your expert panel on securities and that more initiatives of that side may be in order, again, outside of the Agreement on Internal Trade.
Mr. Prentice: What is different about the global economy today is not the extent to which we have international competition — that has always been the case — but the extent to which technological revolutions in communication and transportation have sped up the process. Now, the competitive marketplace of the world transforms very quickly, even, in some cases, instantaneously. We have to develop market arrangements across Canada that do not impede our ability to compete at every level, in every corner and in every industry. Every province has to be focused on that.
The Chair: Minister, I know you are on the clock and I have been conscious of that. I have two senators to whom I would like to afford an opportunity for questioning.
Senator Jaffer: The reason we want to go to India and China is to get access to the population and the markets there. It is frustrating when we cannot get access to our own population, as you have talked about.
We both come from Western regions and are happy about TILMA. I was happy when the two premiers looked at TILMA. However, from a federal standpoint, it is dangerous to develop regional blocks, especially when two provinces are flourishing. If Alberta and British Columbia coordinate their regulations and if the Atlantic provinces coordinate their regulations and a conflict occurs, what will happen with free trade? Alberta and British Columbia will continue and the Atlantic provinces will continue and we will still have issues.
You have heard from my colleagues and I hear it from you, too, that I am not keen on regional blocs. We have to find ways of creating Canadian blocs. I know you are happy with TILMA, as I am, but I have concerns
Mr. Prentice: I respect what you are saying. I would simply say that if the TILMA negotiations between Alberta and British Columbia, which have been moving at lightning speed compared to the rest of the country for generations, provide the impetus to move forward on a more national basis, then our country will be enriched. I would note parenthetically that that is exactly what happened in Australia, where the impetus for domestic trade barrier elimination started in two states and quickly became a national focus with everyone on side. That is a useful thing to keep in mind.
Senator Jaffer: Minister, it is great that the two states have started this, but, federally, we have to make sure that it spreads faster.
Mr. Prentice: Yes, and we will do that. Of course, that is why we highlighted it in the Throne Speech.
Senator Goldstein: I will give you a plug for your next election, whenever that happens. I want your constituents to know that you leave the Hill very late at night and return very early in the morning. I know that is the case because we are neighbours on the tenth floor of a certain building where we both live. We know you are working hard and your voters are getting their money's worth. It is clear that there are results from your efforts.
Senator Angus, Senator Meighen and I are products of Frank Scott, who taught us constitutional law and who had a great deal of respect for the peace, order and good government clause in the Constitution. He took the position contrary to that of the Privy Council for so many years, that the federal government had powers that it did not necessarily exercise. Previous governments have not been activist in terms of helping, inducing or inciting provincial governments to move as quickly as they should move with respect to this. I want to urge you to be more activist and to show an additional anxiety to the provinces for progress to be made at an even greater pace than the current pace of progress.
You spoke earlier of the European Union experience, which, as you know, was driven by economic considerations. It has gone considerably further, so much so that over the past number of months, the members of the European Union have abandoned their ``right'' — I put the word in quotation marks — to have foreign ministers from each country. There is about to be a single foreign minister for the entire European Union.
I am actively involved with the European Union through a parliamentary committee with which I am involved. People keep telling me that it is very hard to trade with Canada because they have to deal with provincial regulations. The obvious area, of course, is wine and liquor.
That is extremely frustrating to the French, the Italians and, to a lesser extent, the Spanish and the Portuguese. There are other areas in which it is virtually impossible from their perspective to trade with Canada. They have a considerably easier time trading within the EU than trading with Canada. That, to me, is a further indication and a further justification for exercising the powers that you have as a federal government. The government has to be able to move this process along and stop losing, whether it is 0.3 per cent or 3.8 per cent of our gross national product. It is silliness.
Mr. Prentice: Those are very learned comments, particularly in terms of the law. We do not have time to get into the judicial authorities. There is quite a debate about whether the reasoning of the Judicial Committee of the Privy Council at the end of the 19th century was the right basis upon which to define a 20th century economy, but we are where we are.
Certainly, as I look at the constitutional authority that the federal government has, I see a number of important provisions. Section 121 is quite clear with respect to the interprovincial movement of goods, and there have been suggestions by the courts that they are prepared to breathe life into that. As well, laws emerging from the Charter deal with the interprovincial mobility or people. Much has been said about the trade and commerce power but it remains a significant authority on the part of the federal Crown to move toward a common economic space.
The Chair: Minister Prentice, I understand that you are obliged to leave us.
Mr. Prentice: Yes, sir, I am obliged to leave.
The Chair: Senator Ringuette, I owe you one; and we are very good at paying our debts.
I thank you, Mr. Minister, and your official, Mr. Paul Boothe. Your information was well-researched, and it is clear that you are a master of the subject and therefore well-equipped to provide the leadership that we all agree is needed. I hope that when we issue our report this spring, you, your officials and your cabinet colleagues will take note of our recommendations.
Mr. Prentice: Thank you, Mr. Chair. It has been a pleasure to be here. Certainly, I would encourage you to follow up with Mr. Boothe. He did not have much of an opportunity to speak today, but he is one of the bright lights that we have attracted to the federal civil service. He is extremely knowledgeable in this area and can be of help to you.
The Chair: Is the Copeland report that you referred to at the low end? Could you add a word on that, sir?
Paul Boothe, Senior Associate Deputy Minister, Industry Canada: Yes, that is correct. Professor Brian Copeland is Chairman of the Economics Department at The University of British Columbia. His low measure comes from what he is willing to consider a barrier as opposed to simply provinces exercising their constitutional rights. It is less a disagreement about the economics and more a disagreement about the political authorities, I would say.
The Chair: That is fine. Thank you.
We will hear next from a second panel of witnesses on the Farm Debt Mediation Act, relevant to our Bill C-12 study on insolvency and bankruptcy.
[Translation]
The second part of our meeting today deals with the Farm Debt Mediation Act.
[English]
Canada's history with insolvency legislation for farmers dates to the 1986 Farm Debt Review Act that was replaced with the current legislation, the Farm Debt Mediation Act, in April 1998. We are interested in hearing about how that act works, its success in helping insolvent farmers, and related topics. We have not examined that act thus far during our review of insolvency legislation nor in our major study in 2003. Therefore, much of the information that we will hear now will be new to us.
While there is no compulsory statutory parliamentary review of the Farm Debt Mediation Act, the Minister of Agriculture and Agri-Food does undertake a review every three years and tables a report in Parliament. The most recent report was in May 2005. In that report, the minister noted:
In recent years the incidence of serious financial circumstances in the farm sector and, accordingly, the demand for debt mediation services, has been at a reduced level from what it was in the eighties and early nineties. However, the current activity levels are still significant and the provision of debt mediation is important to farmers who require the service . . . .
The minister's next report to Parliament is due this year.
Within the context I have outlined, we have before us this afternoon from Agriculture and Agri-Food Canada Ms. Jody Aylard, Director General, Finance and Renewal Programs Directorate; and Mr. Jean-Denis Méthot, Manager, Planning and Coordination, Renewal Division. Welcome to you both.
Jody Aylard, Director General, Finance and Renewal Programs Directorate, Agriculture and Agri-Food Canada: Thank you. It is a pleasure to be here. If the chair and members of the committee agree, I have an opening statement in which I can give an overview of the farm debt mediation service and then we are available for questions.
The Chair: That would be fine.
Ms. Aylard: Farm debt legislation, as you mentioned, has been in existence dating back to the late 1930s when a severe set of financial circumstances led to the introduction of the Farmers' Creditors and Arrangement Act. This particular act, which had been dormant since the 1940s, was repealed in 1988.
The recent need for Canadian legislation to offer protection to insolvent farmers arose in the early to mid-1980s when there was an unusually large number of farm business insolvencies and bankruptcies. You will recall this was a time of high interest rates and low commodity prices.
The Farm Debt Review Act was developed in 1986 to assist with the resolution of farm debt problems. From August 5, 1986, to November 30, 1997, almost 28,000 applications were received from the Farm Debt Review Board. The Farm Debt Review Act offered both insolvent farmers and farmers in financial difficulty protection from foreclosure, an analysis of the farmer's financial position and options, a forum for the review of the financial situation with a panel of experts and an opportunity to negotiate settlement or arrangement between the farmer and his creditors.
As a result of experience and knowledge gained with the act, it was decided to repeal the Farm Debt Review Act and replace it with legislation that offered protection against foreclosure and the use of a single professional unbiased mediator instead of a panel of experts. The mediator provides a more balanced approach to the treatment of farmers and lenders and a more efficient use of resources.
The policy objective of the current, and of the previous, legislation is to provide a forum through which insolvent farmers and their creditors can attempt to reach arrangements regarding the debt and obligations that are satisfactory to all parties. The service is voluntary for both farmers and creditors, and it is also a confidential process.
Under the current act, passed in 1998, the government provides two types of services. The farmer may apply, under section 5(1)(b) of the act, for a financial review and mediation in a situation where help is needed to resolve his financial difficulties.
Alternatively, the farmer may apply, under section 5(1)(a) of the act, for a stay of proceedings, financial review and mediation if he or she is facing legal action by the creditor for unsatisfied debt obligations. The initial stay of proceedings is for 30 days, and there can be no more than three extension periods to the stay, for a total of 120 days. In both cases, farmers must be insolvent to be eligible.
Upon receipt of an application, a private-sector financial consultant is assigned to the case. The consultant contacts the creditors and selects a meeting day, which will normally be about 45 days after the farmer has applied. The consultant will then prepare a detailed review of the farmer's financial affairs, prepare financial statements for the farm operation, prepare a recovery plan chosen by the farmer and participate at the mediation meeting. The private-sector professional mediator's role is to provide mediation services to insolvent farmers and their creditors to help them reach a mutually satisfactory arrangement at the mediation meeting.
The professional financial consultants and mediators are provided free of charge as a part of this service. Agriculture and Agri-Food Canada, AAFC, goes through a formal competitive process to hire its 52 mediators and 85 financial consultants.
AAFC delivers this service through five regional offices: Fredericton, which serves all the Atlantic provinces; Quebec City; Guelph; Regina; and Edmonton, for Alberta, British Columbia and the territories. There are 15 staff in these regional offices, and they are responsible for general administration of the program, including accepting applications, determining whether the applicant is eligible for service, coordinating mediation meetings, and processing appeals. There are also two staff in the Ottawa office responsible for coordinating the Farm Debt Mediation Service generally, things such as coordinating requests for proposals for hiring of the professionals, communicating with the minister's office regarding the Farm Debt Mediation Act appeal board member appointments, and responding to general inquiries through the toll-free line.
There are also five independent, regional Farm Debt Mediation Service appeal boards, which provide the farmer or a farmer's creditor the option to appeal a decision made by Agriculture Canada's regional administrator of the act. An appeal can be made regarding the eligibility of an applicant, the extension or termination of the stay of proceedings, or the termination of stay of proceedings due to contravention of guardianship directives. There have been 364 appeal cases.
Since the Farm Debt Mediation Act came into force on April 1, 1998, the Farm Debt Mediation Service has received a total of 5,992 applications across Canada. About 82 per cent of the completed applications resulted in signed arrangements. If a settlement is not reached under the Farm Debt Mediation Act, then the farmer may consider other avenues to resolve his financial problems. One avenue is to voluntarily use the Bankruptcy and Insolvency Act. Farmers, however, cannot be forced into bankruptcy unless the farm is a corporation.
Although the number of applications is far smaller than it was in the 1980s, when the Farm Debt Review Board received as many as 3,000 applications a year, the current activity levels are still significant, with an average of almost 450 applications per year over the last five years. An important difference to note between the Farm Debt Review Board and the current act is that we are dealing only with insolvent farmers, whereas the previous act also helped farmers in financial difficulty; hence, the numbers were considerably higher under the previous act.
Farm businesses differ from many other businesses because the family home is usually part of the business. Therefore, if the business is at risk, so is the house. The Farm Debt Mediation Service provides a structure that can lead to the resolution of debt problems, and this at no cost to the farmer or to the creditors. The Farm Debt Mediation Service is now a mature program and an accepted component of services to the farm sector.
Section 28 of the Farm Debt Mediation Act requires the Minister of Agriculture and Agri-Food to periodically review the operations of the act, and we are planning to submit a report to Parliament this spring in response to that obligation.
The Chair: Thank you. Does your colleague have a presentation to make?
Jean-Denis Méthot, Manager, Planning and Coordination, Renewal Division, Agriculture and Agri-Food Canada: We will proceed with questions.
The Chair: Senator Gustafson, in deference to your great expertise in this area, I think it appropriate for you to be the first questioner.
Senator Gustafson: In the applications that are made for your service, what happens when a farmer loses his home? I understood that they could not bankrupt you on the quarter section that your home was on; they had to leave that.
Mr. Méthot This quarter section is in Saskatchewan only, and it is part of the Saskatchewan provincial mediation program. It does not exist elsewhere in Canada, to my knowledge.
Senator Gustafson: I think you did cover this, but of the inquiries for assistance that you get, what percentage are you able to save from bankruptcy?
Ms. Aylard: Of the total applications that are submitted to the program each year, approximately 82 per cent are successful in reaching an arrangement that both the creditor and the farmer find acceptable.
Senator Gustafson: That is high.
Mr. Méthot: This arrangement is a legal, signed document between the farmer and the creditors who agree to the arrangement.
Senator Eyton: Having got to the arrangement, how many of them are entirely successful?
Mr. Méthot: The success rate of 82 per cent is for reaching an arrangement. We are now looking at going back to farmers who went through mediation service two or three years ago to find out where they are at today. This is new; we just started to implement it a few months ago. For the most part, those farmers are still farming today. There may have been changes in the way they farm and there may be debt reconciliation, but they are still there today. In a survey of 21 farmers, 20 were still farming today and only one was not.
Senator Gustafson: There are farmers who quietly sell off their land and their machinery. They do not want any fuss, and they leave broke. Have you any numbers on that? It seems to me there are more farmers who go out that way than go out through a bankruptcy.
Ms. Aylard: We do not have statistics on that. We have numbers of people who participated in our program and numbers of farmers who have actually gone bankrupt. However, we are not collecting any data on the ones who quietly manage their own affairs.
Senator Gustafson: From my experience, probably the larger number of farmers who quit farming go out that way, unfortunately, and they probably do not even realize that there is help available.
Mr. Méthot: We are sure that there are quite a few of them. Last year we did an awareness campaign all across Canada. We put a Farm Debt Mediation Service brochure in many of the farm magazines. We also purchased some advertising, to make sure that not only the farmers but also the creditors and the accountants — the people the farmers work with — are aware of the program, so that if they are talking to a farmer who is experiencing financial difficulty they can actually inform him or her that there is a confidential and free service available.
Senator Gustafson: I wanted to touch on one other area. The increased price of grain is significant, beyond anything we have seen in the last 50 years, for sure. Say you have a farmer who had a drought and he has no crop. The input costs such as fertilizer are rising. Fertilizer has gone from $300 a ton to $700 a ton, and fuel costs have doubled. Oil is $106 a barrel today. There are also machinery costs, and so on. That farmer will be in much more difficulty than if the grain prices had not gone up, because the input costs have been so difficult.
Are you aware of that?
Mr. Méthot: Indeed we are. We always follow closely the numbers for farm debt mediation by sector. Currently, we do not see it for grains, but we do see the number of applications increasing in the livestock sector, especially in Eastern Canada.
Senator Gustafson: It will be extremely severe for those farmers who had no crop last year. Their bins are empty. It will be very expensive to put in a new crop because they will not have anything to put it in with.
Senator Harb: This is an interesting topic. I was not aware of the Farm Debt Mediation Act for farmers. I think this is excellent.
Do you think we should make this initiative broader and introduce it into other fields, with say a manufacturing mediation act? What is your experience with this?
Ms. Aylard: I do not have any experience in bankruptcy or in other sectors. I cannot speculate where else it could be applied. That would be beyond my expertise.
We do get positive feedback on the confidential nature of the free service and the ability to come fairly quickly to a resolution for all parties. To the extent that those elements could be of benefit to other sectors, certainly there could be an opportunity. I think mediation is increasingly becoming a way of resolving issues in a number of legal areas.
The Chair: Such as alternative dispute resolution.
Mr. Méthot: In our review, we asked that examples of mediation from other countries as well Canada be looked at. We know there are mediation programs for farmers elsewhere. Also, programs in mediation are expanding outside of agriculture. There is, for instance, a mandatory mediation program in Ontario. It will be interesting to see what is happening elsewhere. Mediation is a relatively cheap and fast process when a resolution is required.
Senator Harb: Let us posit an example of a case in which Mr. Angus is the creditor and Mr. Moore is an applicant. You sit down and try to mediate a situation between the two. You have resolved 95 per cent of the outstanding issues and come to the final 5 per cent. What would happen if for some reason somebody has to put his hand in his own pocket? It would not be Mr. Moore because he does not have it. Mr. Angus says, ``That is it. I gave all the best I can.''
Do you have access to a fund? What is your budget, and how much money do you have to do various things?
Ms. Aylard: Our annual budget is about $3.3 million a year. About $1 million of that is salary and the rest is operational. A large percentage goes to fund the services of the mediators and the financial consultants, who are external experts, who conduct the financial analysis of the farm and then mediate the resolution of the situation. We do not provide any funding to resolve the kind of situation you presented.
The Chair: Should you do so?
Ms. Aylard: We have an 83 per cent success rate without it. I think we are doing well. Our service is to provide a neutral third party to resolve differences between the two sides.
Senator Meighen: I want to follow up on Senator Harb's comments. I had the honour of sitting on the Aboriginal Committee last night and we were discussing the Nunavut land claims. One difficulty there is that there is no meeting of minds between the federal government and the Inuit. We need a facilitator or mediation.
Your success rate is wonderfully heartening. If I am ever back in the Aboriginal Peoples Committee, I will point to your success rate and suggest that even though there is the added complicated factor of two different cultures, mediation may be a way of building consensus. There is a signed agreement but no consensus regarding implementation.
Quebec is almost a mirror image of Saskatchewan in recent years. The applications in the rest of the provinces have been decreasing. Why do you think the applications have been so high suddenly in Quebec? You point to the fact that many are from pork producers, but what is the reason?
Mr. Méthot: It goes back to the livestock industry and the situation they are experiencing with the feed prices and the price of their products. Quebec is producing half of the farm debt mediation applications across Canada this year. In comparison, Saskatchewan is way down.
However, that could change overnight. It takes only a small thing, something like the BSE situation. After that famous May with bovine Spongiform Encephalopathy coming in, a number of beef farmers came forward and the applications rates went up. Now the number of applications for mediation from the beef producers has decreased again.
Senator Meighen: Are pork producers in Quebec a high percentage of the applications compared to the rest of the country?
Mr. Méthot: Yes.
Senator Meighen: There is some concern about the amount of pork production, but that is another topic.
As people responsible for carrying out the provisions of the act, do you see anything in the act that causes you particular problems? Is there a lacuna, or something you would like to see added to the act to enable you to do things? Is there something that you cannot do now under its terms?
Ms. Aylard: We could strengthen the area of enforcement for a breach under the act. I will put a caveat around that: we have not had many breaches of the act since it has been in place. Breaches are not a frequent problem. However, we have not had much success in following through on the enforcement.
Section 27 of the act provides for criminal proceedings if there is a contravention to the act. We have to get the RCMP to work with us, but it is not a high priority for them. We met with them last fall and arranged for a trial period to work together. We provided them with as much information as we could for an investigation, and they have what they need to take the next steps. However, we have not had occasion to use that since we have had this arrangement.
Senator Meighen: What is the next step?
Ms. Aylard: The investigation is next.
Senator Meighen: Once that is completed, what is the next step? Suppose there is a lack of agreement.
Ms. Aylard: Taking them to court is the next step.
Senator Meighen: Who would do that? Would the creditor be responsible?
Ms. Aylard: It would depend on the breach.
Senator Meighen: Let us suppose the farmer agreed to pay 20 cents on the dollar over a period of time and then did not respect that agreement. Would the creditor be free to go to court?
Mr. Méthot: Once the agreement is signed, our job is done. If the agreement is not respected after signing, the farmer and the creditors will have to work it out on their own.
When we say a breach of the act, we mean a breach during a period when there is a stay of proceedings. Another possible breach is when the secured creditor fails to send the farmer a notice of intent to realize on security. The notice of intent to realize on security gives the farmer 15 business days to contact the farm debt mediation office. If the farmer does not respond, the action will proceed. If the creditor does not do that or if there is a breach during the stay of proceedings, this is when we need to proceed to the RCMP. Three sections of the act, sections 22, 23 and 27, address breaches of the act.
Senator Meighen: Have you made proposals to anyone to strengthen the act?
Mr. Méthot: We are exploring it now. That is why we met with the RCMP, and we are discussing how to work out possible solutions with our regional offices.
Ms. Aylard: As was mentioned earlier, we are also in the middle of our current three-year review of this process. It will give an opportunity to review this issue and other areas for improvement. We expect to have that report soon.
Senator Tkachuk: You note that up to 1997, there were approximately 28,000 applications to the Farm Debt Review Board. Those would have been from a mix of people who were in trouble and seeking help but not yet facing insolvency plus those who were in insolvency.
After the Farm Debt Mediation Act was created in 1997, the numbers seemed to drop like a stone. At that time, there were tremendous problems and the price of wheat was at an all time low. Did the act fix the problem, or what happened?
Ms. Aylard: You are correct. Under the previous act, both farmers in financial difficulty and insolvent farmers had access to the service. Roughly one third were insolvent, approximately 9,000, and the rest were in financial difficulty but were not in an insolvent state.
The numbers to compare are the 9,000 insolvent farmers during that 11-year period and our current number of about 6,000 insolvent farmers who applied to the program under the new act. The numbers have gone down. We have seen greater financial stability in the agricultural sector. There are a number of reasons why, but it is not as dramatic a drop from the previous period as the statistics suggest.
Senator Tkachuk: There seemed to be significant take-up to solve the problem before bankruptcy. Why wait until the person is facing insolvency if he has an opportunity the get ahead of the game? Was it a good idea to have a two- step program? Is it still a good idea?
Mr. Méthot: In 1998, with the introduction of the Farm Debt Mediation Act, farmers in financial difficulty were no longer eligible to apply for a financial review and mediation under this service. However, a new service called the Farm Consultation Service was established. An expert would spend five business days working with the farmer to do an assessment of the farm and develop an action plan. This was for farmers who were experiencing or about to experience financial difficulty. This program lasted until the creation of the Canadian Farm Business Advisory Services. The new service did not start at the same time in each province because it is part of the Agricultural Policy Framework. Between 1998 and the start of the Farm Consultation Service, about 5,000 people applied.
The renewal chapter of the Agricultural Policy Framework is the Canadian Farm Business Advisory Services. In it, there is a service called the Farm Business Assessment. This service is available to all Canadian farmers. They are entitled to access it once for a $100 fee. To date, about 18,000 farmers across Canada have taken advantage of this service. Some have 100 per cent equity and others have very little equity. Hence, a wide range of farmers use the service.
That is how we evolved from the farm debt review to farm debt mediation and from farm consultation service to the advisory services.
Senator Tkachuk: You gave statistics on how many farmers have been successful after their mediation process was completed. I am not sure whether it was the last three years for which you had statistics or that you have been gathering statistics for the last three years.
Mr. Méthot: We are in the process of gathering statistics for the last three years for the review and the report to Parliament.
Senator Tkachuk: Is it possible and worthwhile to go back further? It would be nice to know. I am surprised statistics were not kept. It seems like an attitude of ``The solution is done; see you,'' and we do not know how you made out.
Ms. Aylard: Currently, the program does not go back and check with farmers. With regard to your previous question on improvements, that may be an area where we could consider going back to get more information to assess the longer-term effects of the program. That would give us an opportunity to review successes and the areas where we could make improvements.
We are starting to do that, but it is a process of conducting client surveys. We are going back only three years. That is where we are.
Senator Tkachuk: You would want to know whether this is a worthwhile program or not. You can complete the agreement, but it does not mean that it would be successful. When you finish your study of the last three years, we would be interested in seeing it. I would ask you to file that study with the clerk when you are done. That would be much appreciated.
Ms. Aylard: That report is required to be tabled in Parliament. We will be tabling it in May, I believe.
Mr. Méthot: May or June. We are hoping for May.
Talking about a wish list, sometimes people wonder whether there should be follow-up by an expert a year of two after the mediation has finished to provide a better understanding of how farm debt mediation and the agreement worked. It is not part of the act now, but it maybe it could be considered in the future.
Senator Tkachuk: Considering what Senator Harb said, that is a probably a good idea, not that you would want to make this the new Bankruptcy and Insolvency Act. However, it could review the philosophy of it, whether is it successful and why, and what happened. That would be good to know.
Senator Harb: It should be a core recommendation.
The Chair: Absolutely. This is the reason we invited these people here to find this out.
Senator Moore: Mr. Méthot, I was interested in your remark that you deal with these matters quickly. What is the process, and how quickly? When a farmer contacts one of your field offices and indicates that he is in difficulty, what happens?
Mr. Méthot: First, we need to receive an application from the farmer for the Farm Debt Mediation Service and we need to find out how urgent it is.
Senator Moore: Is this one of the field offices?
Mr. Méthot: Yes, one of the field offices receives the application and processes it. The farmer may indicate the urgency of it. There can be emergencies such as being about to lose the farm. The farmer may be days or hours away from somebody coming to pick up the combine. If the form is duly completed and the farmer qualifies, we can put a stay in place within hours of receiving the application.
The next step is to determine whether there are livestock at risk, for instance, or perishable commodities. If there are, we will send an expert to the farm within a day or two to meet with the farmer. If it is urgent, that could happen the same day. Normally that is not the case, but when livestock are malnourished or about to run out of feed, we can have an interim mediation meeting immediately with the secured creditor and the farmer to try to ensure that the livestock remain healthy during the 45 days that it will take to have the meeting.
Senator Moore: It takes about 45 days.
Mr. Méthot: Yes, it takes about 45 days until the meeting with all the creditors can take place. The secured and unsecured creditors will be invited to the meeting. We are talking about mediation with a stay of proceedings, which is different from mediation without a stay, wherein only secured creditors are invited.
In this case, the expert aims to have a report to the office about day 35 after the application has been received. Again, we can be faster if necessary. We aim for a meeting at day 45 with all the creditors, the farmer, the expert and the mediator in attendance to try to come to an agreement. That is an outline of the process.
Senator Moore: I am impressed by the success rate of 82 per cent, which equates to 370 of the 450 applications.
Senator Tkachuk: To do a deal with that many and to do it in 45 days is lightning speed for the government or for anybody.
Mr. Méthot: There might be a need for a second mediation meeting. It happens rarely, but if there are still issues or the creditors want further information from the farmer, we can do that within another 30 days to come to an arrangement. We are flexible about having a second meeting when it is needed.
Senator Moore: At the mediation meetings, you analyze the debt obligations of the applicant. Are most of the applicants in difficulty because of the market and the farm operation, or have they taken on personal issues that put their operation in jeopardy?
Mr. Méthot: There are many reasons for them to come to the Farm Debt Mediation Service, such as the price of commodities and inputs versus the amount of their liability. As well, personal factors, such as a separation or divorce, could be at issue. No two farms are in exactly the same position.
Senator Moore: You mentioned in the wish list about strengthening the enforcement for breaches of the act, and you mentioned involvement of the RCMP. When you arrive at a solution and an agreement is entered into, would a breach of that agreement be a civil matter or would there be a criminal component? Why would the RCMP be involved?
Mr. Méthot: The RCMP is not involved once we terminate the mediation when there is an agreement between the farmer and the creditors, and that is the end of our role. No one will be involved if there is a problem with the agreement signed during the mediation meeting. Section 23 of the act addresses this situation.
The act is clear such that as soon as we have an arrangement, we must terminate the mediation. If there is a stay, we must terminate the stay. That is it — our role has ended because that is all we can do.
Senator Moore: I thought you indicated passing it over to the RCMP.
Mr. Méthot: Yes, when there is a breach during the stay of proceedings. For example, if we put a stay in place on day 1 —
Senator Moore: — and someone takes the combine off the farm and sells it.
Mr. Méthot: Exactly. The combine is protected under the stay of proceedings. That is an example.
The Chair: That is a good clarification.
Senator Ringuette: Given my last twenty years of public life and the area that I represent, the potato belt of New Brunswick, I am familiar with your programs. They are good for the farming community.
I would like to stress to my colleagues that the process is great and was designed for the farming community because of the history of communities in the farming sector, which is not prevalent in other industrial sectors. You are dealing with a tightly knit community of self-supporting and community-based economies. You are able to do the process within 45 days and everyone around the table understands where the stakeholders are coming from. That is not evident in other sectors, and I would like to thank you for the good work you are doing for the farmers. I have no question for the witnesses.
The Chair: We encourage your comments. I hope that the good people in the potato belt will see that you are defending their interests.
Senator Eyton: Your testimony is intriguing with respect to costs. What is the cost of the programs? I am an analytical soul who likes to estimate costs per applicant or per case. How does that work — the overall cost first and then in terms of performance?
Ms. Aylard: We can look at costs in two ways. There are the consulting and mediation services costs and the operating costs for the government's portion of the program. Over the last year, our consulting and mediation clearances service averaged under $4,500 per case. The government's program portion was just over $3,900 per completed case.
Senator Eyton: What would be the average amount of debt involved per case?
Ms. Aylard: I do not know the answer to that.
Senator Eyton: Do you have a sense of the amount?
Mr. Méthot: It can be from $100,000 to millions of dollars, but we do not have an average amount.
Senator Eyton: The average can be very high.
Mr. Méthot: A survey showed that 25 per cent of farmers with large operations who applied to mediation had gross farm sales of over $250,000 per year.
Ms. Aylard: That is right.
Senator Eyton: We can all appreciate the benefits to farmers. I want to cast our eye on the poor creditors, including the secured creditors, because we must be concerned about them. How do creditors generally feel about the program? Do they welcome the program or do they have reservations? Do the programs available have the effect of making credit harder to come by or do they increase the cost of credit to farmers?
Ms. Aylard: In preparing for the report that we will table in Parliament, we interviewed 32 creditors. A high proportion of them felt that the information developed by the consultant on the farmer's financial situation was extremely useful. They find it cost-effective because they do not have to gather that information.
A majority, 54 per cent, felt it resulted in lower costs of debt recovery for the creditor and about 25 per cent felt it resulted in more debt recovery than would be the case if they had gone through other action, such as the court. That is some of the preliminary feedback as a result of our review.
Senator Eyton: Are you suggesting it makes credit more readily available rather than less available?
Ms. Aylard: I do not know the answer to whether the credit is more or less available. They are coming to an arrangement in order to actually pay back monies owing.
Senator Eyton: I was thinking about the impact on the general marketplace in terms of walking in the door, looking for credit and recognizing the program is there and that it could be a help. However, it could also be a hindrance in dealing with creditors.
Ms. Aylard: I see. It could be a help because, should they get into difficulty, there is some way of working through that. I am not sure we have done analysis to link the success of the program to the overall access to credit for farmers. I expect those who offer credit are looking at other things such as their debt-to-equity ratio, the land value and all sorts of other things.
Mr. Méthot: We have noticed that a number of creditors recommend the Farm Debt Mediation Service to farmers when they see that the farmers are quickly becoming insolvent. One major creditor in Quebec is recommending the service highly. From that perspective, some creditors are convinced that farm debt mediation is the way to go.
Senator Tkachuk: That survey was highlighted in the Library of Parliament briefing we received. My question is in regards to that.
You mentioned tabling your report in the spring and fall. A report was tabled in May 2005. That report indicated that ``The Department is well advanced in the design of a questionnaire for this survey/study and will carry it out in fiscal year 2005/2006.'' This was in reference to a questionnaire for a survey or study of farmers who had used the service from 1998-99 to 2000-01. It says you would carry the study out in 2005-06.
Is that the survey you are referring to?
Mr. Méthot: Yes.
Senator Tkachuk: Did you carry it out in 2005-06?
Mr. Méthot: No, we did not.
Senator Tkachuk: This is now 2008.
Mr. Méthot: We worked on it. The first group of farmers received it in the fall of 2007. That is the follow-up survey 18 months to two years after they applied for mediation.
Senator Tkachuk: Therefore no survey was done?
Mr. Méthot: Not in 2005; not for the follow-up 18 months later. We always do a follow-up survey right after the mediation meeting. As people leave, they fill out an evaluation feedback survey. However, the feedback survey of 18 months to two years after mediation only started last fall.
Senator Tkachuk: However, you said that this survey — 1998-99, 2000-01 — would be carried out in 2005-06. It is now 2008. That survey was not done, then?
Ms. Aylard: That was one of the recommendations.
Senator Tkachuk: The report said that the Department was well advanced in the design of a survey questionnaire for farmers who had used the mediation service between those years, and that survey was to be carried out in 2005-06. Obviously that survey was not done. Is the survey you are doing now the same survey or is it a new survey?
Ms. Aylard: The survey we are doing now is to assess where farmers are 18 months after the farmers and the creditors have been through the mediation process. We are trying to get a longer-term view of the success of the process.
The survey you are referring to —
Senator Tkachuk: It was in your report.
Ms. Aylard: Fair enough. I am sorry. I do not have the answer. I can certainly find out.
Senator Tkachuk: Can you send the answer to us?
Ms. Aylard: That is what I will do.
Senator Tkachuk: Thank you. Are you doing this one or are you doing your new one now?
Ms. Aylard: Now we are responding to the interests of having some longer-term assessment of the results. As Mr. Méthot mentioned, we surveyed clients right after the process had ended. However, we had not been going back after 18 months to see if they are still on track or to determine ongoing successes as a result of the program. That is the survey we are conducting now, which was started last October.
The Chair: I want to clarify this issue that Senator Moore raised. Is this going back to the beginning of the program?
Mr. Méthot: No.
The Chair: Is it covering the last two years? Is it covering 18 months after in the 2006-07 period?
Mr. Méthot: We will continue to do that in the future. As we move closer to the two-year mark, we will be sending more surveys.
Senator Tkachuk: If you did not do the survey, could you indicate why it was not done? It seemed from the report that the design of the questionnaire was ``well advanced.'' Why did that survey not happen? If it did happen, could we have the survey?
Ms. Aylard: Absolutely.
Senator Tkachuk: Thank you.
Senator Gustafson: Do you get any assistance from crop insurance? Are you able to trigger some help from that area?
Mr. Méthot: We work only with the farmers and the creditors. Any agencies or people who are caught in as creditors are expected to participate at the mediation meeting. They are invited to attend. Our act clearly states that we can work only with the farmers and the farmers' secured and unsecured creditors if there is a stay.
Senator Gustafson: When there is a bankruptcy like that, it is a very emotional deal for the farmers. Some of those farms are third- and fourth-generation farms. To the farmer, he owns that farm even if the bank does; he believes that.
Is there any assistance in that regard? In our area, for instance, there were three suicides last spring related to financial problems. Is there any assistance or support for these issues?
Mr. Méthot: I worked for four years in the regional office talking about the Farm Debt Mediation Service with farmers on a daily basis. I can relate to your comments. People are emotional, stressed and very concerned about their future. Those are difficult times. It is difficult for farmers to come forward even for farm debt mediation. It is not bankruptcy. It is just a voluntary mediation process. It is difficult for them to do that, let alone explore other areas.
Sometimes they have driven to our offices to meet us personally before they make a decision as to whether or not they will apply to the Farm Debt Mediation Service. At times it has been a hard sell even though we explained the process and ensured that it was confidential, which is key for farmers; they are concerned about confidentiality. We have recommended that they at least look at the farm business assessment and meet with an adviser for $100. From there, maybe they will come to farm debt mediation. It has happened that they have come first. They got the advice; they did an assessment with the adviser and then they decided to come to the Farm Debt Mediation Service.
You are correct. There are families to think about; it is in a rural area and everybody knows each other. There are three-, four- and five-generation farms. There are many concerns about coming to mediation.
The Farm Line is an organization that sends a number of people our way, as well. There are a number of Farm Lines across Canada. They recommend the Farm Debt Mediation Service to quite a number of their callers.
Senator Eyton: I want to ask one further question. The notes that were provided to us say that following the financial review of the farmer's affairs, a single, neutral mediator is appointed to assist the farmer and any relevant creditors to reach a mutually acceptable arrangement. The mediator neither advises farmers nor negotiates on behalf of them or their creditors.
How do you come to some kind of agreement? I assume that creditors sometimes cooperate. I am assuming the mediator probably has to provide some leadership. Without that, the unruly crowd is not going to get together. How does that work?
Mr. Méthot: It is a big job for the mediator. The consultant is also there helping out. Usually the consultant has talked to most, if not all, of the creditors before the meeting. Therefore, we at least have a good understanding as to where people are coming from.
The mediator will use a number of tools to try to reach an arrangement. One tool might be to take the farmer aside to a caucus room. We always have two meeting rooms available, the caucus room and the meeting room. As we progress through the day, if we need to, the mediator will bring a number of creditors or a farmer to the caucus room to try to get to the next step in the mediation process.
In a few cases, a second meeting has been required.
Senator Meighen: You may have said this and I missed it, but where do you get the neutral mediators, and what training do they have?
Mr. Méthot: The mediators are professionals from across Canada. We are currently looking for 52 mediators for the next four years. That was posted earlier this week on MERX. We are looking at people who have experience in mediation, not only farm debt mediation but mediation in general. A number of them are professional mediators who do this all the time. However, we also have farmers who are qualified as mediators and do an excellent job. We have a combination of farmers, agri-business people who do mediation on a part-time basis and professional mediators coming through the MERX process every four years.
Senator Meighen: Do they need to have some agricultural background?
Mr. Méthot: We are looking for a business background. An agricultural background may be an asset, but they definitely need some business background.
Senator Goldstein: I will ask three quick questions.
One, do you see any potential application for the concept of debt mediation to small business insolvencies?
Two, I note that the statute provides for the issue of regulations. I do not know whether you have had any regulations issued. If you have, I think that the committee would like to see them. If you have not, please tell us.
Three, the act provides that there is an initial stay of 30 days with the right to renew for three further periods of 30 days each. Do you see that aggregate of 120 days as always being sufficient?
Ms. Aylard: I will start with the first question. As mentioned before, I am not an expert in small business. However, I do know that many small businesses are family businesses and may even include a home depending on the nature of the business. The service could be of potential benefit to small business in that it is confidential, free and considerably reduces stress on all parties involved.
For the second question, yes, we can provide you with regulations that have been issued under the act.
I will let Mr. Méthot answer the last question.
The Chair: Will you send us those regulations, please?
Ms. Aylard: Yes.
Mr. Méthot: If we consider the number of farm debt mediation cases open today, there are 44 in the first 30 days, 52 in the second 30-day period, 15 in the third period and 11 in the fourth. Therefore, for the most part, 120 days is sufficient. There are exceptions. There could be the odd case that would benefit from more than 120 days. Since the 120-day limitation is there, everyone does their best to ensure that the situation is resolved before the 120 days are up.
Senator Goldstein: That is good. Thank you.
The Chair: Thank you to the witnesses. It has been enlightening and important. I think the question about applicability to small businesses is of interest to you as well as to us.
The committee adjourned.