Proceedings of the Standing Senate Committee on
National Finance
Issue 12 - Evidence - February 14, 2012
OTTAWA, Tuesday, February 14, 2012
The Standing Senate Committee on National Finance met this day at 9:30 a.m. to study the potential reasons for price discrepancies in respect of certain goods between Canada and the United States, given the value of the Canadian dollar and the effect of cross-border shopping on the Canadian economy.
[English]
Jodi Turner, Clerk of the Committee: Honourable senators, there is a quorum. Due to the unavoidable absence of our chair Senator Day and our deputy chair Senator Neufeld, as clerk of your committee it is my duty to preside over the election of an acting chair for today's meeting. I am ready to receive a motion to that effect.
Senator Marshall: I nominate Senator Runciman.
Ms. Turner: Are there any other nominations? It is moved by Senator Marshall that Senator Runciman do take the chair of this committee. Is it your pleasure, honourable senators, to adopt the motion?
Hon. Senators: Agreed.
Ms. Turner: Carried. I invite Senator Runciman to take the chair.
Senator Bob Runciman (Acting Chair) in the chair.
The Acting Chair: Happy Valentine's Day, everyone. This morning we are continuing our study on the potential reasons for price discrepancies in respect of certain goods between Canada and the United States, given the value of the Canadian dollar and the effect of cross-border shopping on the Canadian economy. Today we are looking specifically at the topic of books, and we are pleased to welcome a rather large panel of witnesses.
Mr. Chris Tabor is the Manager of Queen's University Bookstore and is appearing on behalf of Campus Stores Canada. Mr. Zachary Dayler is the National Director for the Canadian Alliance of Student Associations and is here to provide support for the issues raised by Campus Stores Canada.
By video conference from Vancouver, we welcome Ms. Heather Bindseil, President and Owner of Library Bound Inc., appearing on behalf of the Association of Canadian Book Wholesalers.
Back in Ottawa, we welcome Mr. Mark Lefebvre, President of the Canadian Booksellers Association; and Mr. Christopher Smith, Vice President of that association.
Finally, we welcome Ms. Carol Osmond, Vice President, Policy, for the Canadian Association of Importers and Exporters.
I remind honourable senators that we have two hours.
Welcome Ms. Osmond and all of our witnesses this morning. We will let you lead off.
Carol Osmond, Vice President, Policy, Canadian Association of Importers and Exporters: Mr. Chair and honourable senators, I would first like to thank you for this opportunity to appear before the committee today with respect to your study on discrepancies between Canadian and U.S. consumer prices. As you mentioned, I am Vice President, Policy of I.E.Canada, the Canadian Association of Importers and Exporters.
In that capacity, I represent the members of I.E.Canada on the Border Commercial Consultative Committee, the BCCC, which is the principal forum for the Canada Border Services Agency, CBSA, to consult with the trade community on its commercial programs. The BCCC was referenced by Senator Dickson on a question to Mr. Brent Patten of CBSA regarding the OGD Single Window Initiative in one of your prior hearings. I was present at the meeting of February 2011 and in fact led the presentation to CBSA and officials from other departments and agencies with respect to industry's views on the OGD Single Window Initiative.
I.E.Canada has been representing the trade community for 80 years. The association serves small, medium and large enterprises from across Canada. Our membership comprises manufacturers, importers, exporters, wholesalers, distributors and retailers from a broad range of sectors, including food and consumer products. As an association representing importers and exporters, we support initiatives to liberalize trade, both through the lowering of tariffs as well as the removal of non-tariff barriers. Removing the barriers to trade affords Canadian manufacturers access to lower-cost sources of raw materials and other inputs to produce goods for export as well as for domestic consumption. Imports of finished goods also foster competition and result in lower prices and greater choice for Canadian consumers. Imports represent 55 per cent of the total Canadian market for consumer products. That excludes products such as food, beverages and tobacco. In some product categories the percentage is much higher. For example, in the case of clothing, the percentage of the market supplied by imports is 72 per cent, footwear is 87 per cent, household appliances is 83 per cent, jewellery and silverware is 72 per cent, and dolls, toys and games is 96 per cent.
As an association, we supported the initiative of the Minister of Finance to create a tariff-free zone for manufacturing in Canada by eliminating duties on machinery, equipment and other inputs by 2015.
We also support and have participated in consultations relating to the Regulatory Cooperation Council, RCC, and the Perimeter Vision or Beyond the Border initiatives announced by Prime Minister Harper and President Obama a year ago. Action plans under both initiatives were released in December. A joint meeting of Canadian and U.S. officials with stakeholders from both countries was held in Washington D.C. at the end of January to review and discuss draft work plans under RCC. While it will require vigilance and active engagement by the business community, we are hopeful these initiatives will help to reduce the regulatory burden on Canadian businesses and facilitate the movement of goods across borders. Done properly they will contribute to the competitiveness of Canadian businesses and in turn lead to lower prices for consumers, or at least help to control costs that could contribute to higher prices.
The committee has already heard from leading economists, academics and government officials, including the Governor of the Bank of Canada, who have done an excellent job of articulating the myriad of factors that contribute to the discrepancies between Canadian and U.S. consumer prices. I would simply caution that while overall Canadian consumer prices may be higher than in the United States, it is not the case for all product categories. Moreover, as others have also pointed out, even within Canada there are differences in prices amongst regions. It is a complex subject, and I will not repeat what you have already heard.
I will, however, offer a couple of suggestions regarding what the government might do to contribute to the lowering of consumer prices in Canada.
As I have already mentioned, the government has taken steps to eliminate the duties on manufacturing inputs. However, the government has stopped at removing the duties on consumer products. As officials from the Department of Finance have testified before this committee, the average duty rates on a range of product categories are generally low. However, there are some spikes in duty rates for certain products and some anomalies. For example, duties on household appliances are generally 8 per cent, barbecues are 8 per cent, outdoor patio furniture is 8 to 9.5 per cent, footwear is 16 to 18 per cent, and apparel is 18 per cent. Footballs are subject to a duty of 7 per cent, whereas basketballs are duty-free.
These are all products commonly purchased by Canadian families. The duty rates are left over from an era when we were attempting to protect Canadian manufacturers, but who are we protecting today, and do they need it?
I was thinking as I was in the taxi last night coming in from the airport that I was wearing a coat that was designed and manufactured in Montreal, and a pair of boots designed and manufactured in Montreal. Today I am wearing a suit that was designed and manufactured in Montreal. I bought them because I was fortunate to get them on sale, but even at regular prices, the products are competitive because they are well priced, well-made and well designed.
The federal government offers families a tax credit to support participation by children in athletic activities, yet there is an 18 per cent duty rate on skates and athletic shoes. This duty gets buried in the price charged to consumers at the same time they are already paying federal GST and provincial sales taxes in various forms. Removal of an 18 per cent duty does not obviously translate into an 18 per cent reduction in the price to the consumer. The duty is paid on the price of the goods to the importer, and not all of the reduction will necessarily be passed through immediately. However, lowering or eliminating duties is one tool available to government to contribute to a reduction in consumer prices for certain types of products.
I also want to talk about the de minimis threshold for courier and postal shipments. There has been considerable discussion before the committee with respect to shopping over the Internet as well as cross-border shopping and personal exemptions. Unfortunately, I do not have much personal experience with either. What has not been raised with the committee is that there are remission orders available for goods imported into Canada by courier or post which exempt these shipments from the payment of duties and taxes, but only if the value of the shipment does not exceed $20. This means if a Canadian consumer orders a product online from the United States, it is sent by courier, and costs more than $20, the consumer must pay the duties, if any are applicable, as well as the taxes. In addition, because the goods are subject to duties and taxes, the consumer must also pay a fee to the courier company or customs broker to clear the goods through customs. This fee often considerably exceeds the duties and taxes payable.
I checked with one courier company this morning, and the starting price was $25. You could import a product worth $21, pay duties and taxes, and pay another $25 to have the goods cleared through customs.
The value of a shipment imported by courier that is exempt of duties and taxes is referred to as a de minimis threshold. The current de minimis threshold in the United States is $200. The rationale for a de minimis is that at a certain point, it becomes administratively inefficient for governments to collect small amounts of duties and taxes, while at the same time imposing disproportionate costs on both the public and private sectors. I.E. Canada has supported increasing the de minimis threshold in Canada because of the costs and administrative burden it imposes on businesses importing low-value shipments via courier. However, in the current context, raising the de minimis threshold might also be a means for government to reduce prices to consumers.
I would like to conclude with a comment on the increasing regulatory and administrative requirements that we are seeing being imposed in order to import goods into this country. It goes without saying that we all believe in the importance of protecting the security and health and safety of Canadians, but protecting Canadians also means fostering the economic competitiveness and well-being of this country. The Canada Border Services Agency is in the process of implementing the most onerous advance data requirements for importers of any country in the world, even more onerous than the United States; yet, here we are, one of the most open economies and one of the most trade-dependent countries in the world. It seems that every day we are faced with some new or changing requirement that is being imposed at the border by a government department or agency. These new requirements come with a cost, and these costs are being passed along to the consumer. Our concern is that we are not adequately weighing the benefit of these new requirements against the cost to the economy and, ultimately, to the Canadian consumer. Increasingly, one has the sense that the marginal costs are far outweighing the marginal benefit. What is required is a more holistic approach to the border that cuts across government departments and agencies so that policies and programs implemented at the border are in the overall best interests of all Canadians.
Chris Tabor, Manager, Queen's University Bookstore, Campus Stores Canada: My name is Chris Tabor and I am the director of the bookstore at Queen's University. I am here on behalf of Campus Stores Canada, the national trade association of institutionally owned and operated campus stores. We have almost 100 member stores nationwide and more than 80 vendor and supplier associates. In short, if you know one of the more than one million university and college students in Canada, there is a good chance you know someone served by Campus Stores Canada.
I am happy to be here today to discuss price differences between Canada and the United States. It is easy to talk about this difference with books, as both the Canadian and American price are usually printed on the cover. For paperbacks, this frustrating difference can mean a dollar or two, but for academic textbooks the difference is substantially greater. While I am certain there are many general reasons for differences in the cost of goods between the two countries, I want to focus on a provision of the Copyright Act that artificially aggravates the difference. Specifically, I want to focus on a regulation in the act, not the act itself.
With the stroke of a pen, a change in regulation could save Canadian students tens of millions of dollars each year without any cost to the public purse. The Copyright Act regulations allow publishers to establish import monopolies on books from authors from around the world and, in turn, outlines what these import monopolies may charge for the cost of books. Books imported by those other than these exclusive importers are referred to as parallel imports. Section 27(1) of the Copyright Act makes the parallel importation of new books an offence, provided that those exclusive distributors adhere to the regulations promulgated under the act. Specifically, the Book Importation Regulations stipulate that an importer can charge a bookseller the price of a book in the country of origin, plus the difference in exchange rates between the two countries, plus an additional 10 per cent if those books are from the U.S. or 15 per cent if they come from the U.K.
Campus Stores Canada considers this to be a private tax established by public policy. It is a tax paid from the wallets of Canadian students and their families and is collected primarily by foreign private interests. Importantly, this returns no appreciable benefit to the artists or the authors who created the works in question, nor does it create or protect jobs for Canadians. All it does is allow publishers and distributors to receive an additional 10 or 15 per cent of pure profit from their products before risking losing a sale to parallel importers. It is important to understand that this tax is not collected by the government; it is collected by the distributors.
These unnecessary costs are not insignificant. Conservatively, the trade in imported books by Canadian booksellers is worth about $250 million annually, representing roughly half the books sold at these stores. Removing this tax would save students about $25 million annually, with savings beginning virtually overnight. The tax design is an artifact of publishing, commercial distribution and policy paradigms that have changed radically since these regulations were promulgated in 1999, most notably through the development of Internet-based commerce. Unlike booksellers, individual consumers are not bound by these regulations and are available to freely and legally purchase books from the lowest-cost provider regardless of location, and they do. Through Internet retailers, Canadian consumers are often able to buy books more cheaply than Canadian retailers can. It simply confounds market logic that a Canadian student is able to import individual books more economically than a multinational corporation importing commercial volumes of products, but this is a direct result of the tax's artificial inflation of domestic book prices.
To get the best value on learning materials, students are effectively forced by this tax to turn to Internet retailers based in other countries, an extra step that is as absurd as it is inconvenient. A substantial reduction in textbook prices can be achieved by removing this book import tax. Doing so will see students spend millions of dollars less for textbooks but without the need for any expenditure on the part of the government.
Legislative changes are not even needed to remove this tax as the relevant regulations can be altered with the stroke of a pen.
To get the best price, Canadian consumers are being forced to order their books from outside the country. Canadian book retailers, small and large alike, are being asked to sell the same product for more than their competitors. If there was ever merit for this book tax, it has long since passed and we should do away with it.
I would like to thank you for your time and I would be happy to answer any questions you may have on the subject.
The Acting Chair: The next witness is Ms. Bindseil; a special thank you to you for getting up at this hour to appear before us. We very much appreciate it.
Heather Bindseil, President and Owner, Library Bound Inc., Association of Canadian Book Wholesalers: Good morning. It is an early start for me in B.C., but thank you for hearing my presentation this morning. I am Heather Bindseil, president and owner of Library Bound Inc. We are a Canadian public library service provider and a distributor of books. We catalogue and process library material in one of our two locations: Waterloo, Ontario, and Burnaby, B.C. Library Bound Inc. sells exclusively to the public library market; it is Dewey decimal, spine labels, on- order records, selection services, custom work and automated Machine Readable Records.
The Association of Canadian Book Wholesalers, ACBW, has seven members: North 49 Books, United Library Services, S&B Books Ltd., Stricker Books, Whitehots Inc., Fairmount Books Inc. and Library Bound Inc. Five of the seven ACBW members sell exclusively to the school and public library market. There are nine associate publisher members. Earlier this month, Fairmount Books Inc. announced that after 29 years their business is closing. With lower list pricing and the strength of our Canadian dollar to the U.S. dollar, Fairmount Books, a remainder company, could no long make a reasonable living. We now have six active members.
Historically, we see two prices on 99 per cent of the U.S. books shipped into Canada. We call this dual pricing or multiple pricing. Publishers introduced this practice many years ago in response to the demands of the department stores, bookstore chains and mass merchandisers, who wanted to speed up the process of getting books onto their shelves with as little labour cost as possible.
Previously, the Canadian price of hard covers had been written on the first page of each book while the U.S. price was clipped off the front flap of the book. This process, of course, was done by hand, a costly and time-consuming process. The U.S. list price on paperbacks was covered with a sticker on which appeared the Canadian list price, also a costly and time-consuming process.
Canadian prices are set for American books sometimes years before the books are actually printed and distributed. If, during that time, the Canadian dollar fluctuates, the markup appearing on the cover is called into question. This becomes a real problem for Canadian consumers when our dollar reaches parity with its U.S. counterpart. Then consumers can do the math very quickly and expect a $10 U.S. book to sell here for the same price. When the Canadian price shown is $14, consumers have resorted to throwing the offending books in the face of the defenceless bookseller. What if the book was printed six years ago? Why should the Canadian consumer automatically expect when our dollar is at par that a $10 U.S. list price should automatically translate to $10 Canadian price? Without necessarily knowing as much, Canadians pay more for 99 per cent of everything that comes across the border, even when the dollar is at par. We pay much more for our cars, but there are not two price stickers on the front windshield, and even if there were, we do not get a choice. It is regulated.
Distributors incur costs of bringing the books into their warehouses, paying brokerage fees at the border, freighting books across the country to their customers, maintaining a warehouse, incurring sales and marketing expenses to gain exposure for their books as well as having to cover administration and accounting overheads.
Our minimum wage varies from province to province, from $9 in the Yukon to $11 in Nunavut. Ontario is $10.25. The U.S. minimum federal wage is $7.25. The print book business is labour-intensive for us all. Our market is significantly smaller, said to be the size of the state of California. Traditionally, Canadian books have been priced lower in the U.S., counting on higher volumes to offset the smaller margins.
Current government copyright import regulations allows a 10 per cent markup over the U.S. list price, and any markup above that, the Canadian consumer can buy around the Canadian distributor and order directly from a U.S. wholesaler. There is no agency in place to regulate that. We believe publishers' distributors are not intentionally insulting the Canadian consumer. Coping with this problem is expensive and will require a careful re-evaluation of past business practices. We feel failure to do so will be even more expensive as they are faced with customers increasingly buying around them. Once a bookseller has made the decision to order from a U.S. jobber or counterpart, such as Ingram, then it is easy to order more than they originally planned.
For libraries, it is the same thing. They mostly try to buy Canadian, but every municipal and provincial dollar that leaves this country undermines our already fragile agency system. The agency system underwrites our Canadian publishing program.
The entire business of books, electronic or print, has changed drastically in the last five years. Co-op incentives, The Word on the Street, One Book, One Community — every readers' and writers' festival that the public enjoys now and takes advantage of is at risk if the Canadian agency disappears.
This is not an easy issue to resolve, but the price the Canadian industry will pay for not dealing effectively with the problem will be high. The future of Canadian culture, literacy, reading and writing are at stake. It is all about costs and competitive markets. We have to educate the consumer on what it means to buy Canadian, and we have to develop a better way to display Canadian pricing or dollar pricing on U.S. books.
The Acting Chair: Thank you. Our final presenter is Mr. Lefebvre.
Mark Lefebvre, President, Canadian Booksellers Association: I am here as a representative of the Canadian Booksellers Association, CBA. Thank you for giving us a chance to speak today.
CBA is a national trade organization representing close to 1,000 booksellers from coast to coast. CBA active members include trade, campus, chain, used and antiquarian booksellers. CBA booksellers are located in all provinces, territories and all communities, large and small, from Victoria to St. John's. Our members, who run, own and manage local businesses and communities across our great nation, are tired of being apologists for a policy that none of them has any control over.
As previously mentioned, books are often thrown in the face of booksellers who are just trying to make a difference, handing books to consumers in their communities every day. Consumers who are not bound by these same policies have the freedom and luxury to direct their purchasing dollars outside of Canada and outside of our economy, benefiting from a differential on newly released books with a typical average of 20 cents on the dollar, despite the fact that the Canadian dollar has hovered close to par for well over three years. This should be more than enough time for a reasonable industry to make the necessary adjustments for such changes.
We recognize issues related to market share and economies of scale that have an impact on the costs of business, such as distribution and warehousing costs. However, the issue that CBA has is not with the publishers and businesses but with multinational corporations that are using these policies to their own bottom-line advantage, not to the advantage of Canadian booksellers, Canadian authors or Canadian consumers.
There is no doubt that our industry is in flux. Our members are seeing market share divided and parsed in ever- increasing numbers. We are familiar with many of the Canadian publishing partners within Canada that are facing similar challenges. The time is now for us to approach this issue with intelligence and reason and not simply continue to do something that has always been done. That path will lead to our own demise as an industry. Our local community stores trade on face-to-face contact and the building of relationships founded on the trust and integrity that we have earned in our communities, a trust and integrity that has been eroded by this policy, which, we respectfully request, be held up to a full and thorough scrutiny.
The Acting Chair: Thank you as well, Mr. Lefebvre. We will begin the questioning with Senator Finley.
Senator Finley: I am a little bit, over the number of hearings we have had, concerned about what I would describe as the "hoseability" of Canadians. We have actually heard, and I have heard outside these committee meetings, retailers and wholesalers saying, "We charge what the market will bear." Whether that is true or not does not matter. It is very much part of the ongoing fabric of these discussions. I just would like you to keep that in the back of your mind.
I am a large purchaser of books and related entertainment items, and I would like to go to de minimis. I recently wanted to purchase a multi-region DVD player. It means it can play DVDs from any part of the world. Having broad and catholic tastes, I find not everything is available in the North American market. I tried to find one in Canada. There was not one, so I had to go to the United States, on the Internet, to acquire it and was assured by the U.S. supplier, by email, that the price quoted to me was all up, including taxes. When it arrived last week, the gentleman who delivered it, representing one of the major courier companies, separated me from another $24.23, just for crossing the border. This is not the first time it has happened to me. It has happened to me many times. I agree with you that the de minimis thing has to be addressed in a serious fashion. I would like you to talk some more about it.
Here is another issue that is not specific to your industry, perhaps, but it is typical in Canada. Two weeks ago, I bought another DVD player here in Canada, right off the shelf. It said quite clearly, "Wi-Fi ready." As I have discovered, and I warn all my colleagues, that does not mean to say that it is Wi-Fi capable, because upon opening the box and reading the manual, I discovered I have to buy a thing called a "dongle" — new word. I went to find out what a dongle is. It is a little thing you plug in that makes it Wi-Fi capable. I have the part number, so I go to get it. It is not available anywhere in Canada. I go to the United States. The United States have them in copious numbers but will not distribute to Canada. Here is a product sold in Canada. I cannot even buy the accessory that makes it work for the reason that they will not distribute to Canada. I got around that. I will not explain how, but I got around it.
Tell me about de minimis because these shipping costs are becoming huge. Then I want to go to change in business, particularly in books. Tell me about de minimis and what your plan might be on that particular topic.
Ms. Osmond: The idea with the de minimis threshold for courier shipments also applies to postal shipments. You reach a point where, below a certain amount, the administrative costs for the government associated with collecting duties and taxes is not justified based on the amount of duties and taxes that are actually collected. This is a principle that is accepted internationally. Guidelines have been developed for express consignments at the World Customs Organization.
For the clearance of express shipments, different procedures apply to facilitate the movement of goods, depending on the value of the shipments. It is recognized that countries can impose a de minimis threshold; below that threshold, the normal customs procedures do not apply. They will just come in and there is a list; there is no customs declaration and no payment of duties and taxes to the government.
Now, as I mentioned, that threshold is $200 going into the United States. Granted, the difference in the United States is that they do not have a goods and services tax, a value-added tax or HST. Therefore, in the U.S. we are just talking about foregoing duties, not taxes collected at the border.
In Canada, we would be foregoing both the duties and provincial and federal taxes. That is something to bear in mind. Our threshold is quite low, at $20. My understanding is that in Australia, for example, it is $1,000.
Senator Finley: This courier charged me $24.23. I still have the bill; I wish I had brought it with me. It says quite clearly "for importation into Canada." Who gets that money?
Ms. Osmond: That is a fee charged by the courier company. If you chose not to use a courier company, you could use a customs broker. That is a fee for their services. They have to prepare paperwork to submit to the government; they pay the duties and taxes on your behalf and then collect them. They are charging you a fee to do that processing.
Senator Finley: It was not the courier company who collected the HST or the GST; it was the original supplier of the item. Why should the courier company get the money?
Ms. Osmond: The courier company is actually clearing the goods for you through customs. They are performing that service of accounting for the goods at customs, declaring the value and the duties payable and making sure that money is remitted to customs. I do not know if you were charged in addition or somehow they managed to collect that from the shipper, but they are charging you a fee for conducting those administrative services.
Senator Finley: I gave them a credit card right on the doorstep.
Senator Ringuette: This is very interesting. One of the very interesting things in regard to books is this regulation you have highlighted. You said: "Specifically, the Book Importation Regulations stipulate that an importer can charge a bookseller the price of a book in the country of origin, plus the difference in exchange rates between the two countries, plus an additional 10 per cent if those books are from the U.S. or 15 per cent if they come from the U.K."
I want to know, first, is this truly a regulation? If it is a regulation, it can be changed by the authority of the minister. Second, what was the purpose of this regulation that increased price?
Mr. Tabor: Specifically, it is section 5(1)(a)(iii)(A) which adds the 10 per cent for an American-sourced book and 5(1)(a)(iii)(B) for the 15 per cent on a U.K.-sourced book. That is correct; they are regulations that surround the act.
They came into being around 1999, I believe, and have resulted in these taxes being collected for over 10 years. We have always believed that the public policy was flawed then, and we believe the public policy is flawed now for two reasons. In the policy statement, the real purpose of this was never even close to precise. There was never an obligation to record the amounts collected, the $25 million a year. There was never an obligation to account for where the money was spent. We have no idea what it has been used for.
To be clear again, this is not an amount that is collected by the government; this is an amount that is collected by the multinational distributor of the book.
Senator Ringuette: Ms. Bindseil in B.C., could you comment in regard to that regulation? You are a wholesaler, an importer of books, and you would probably see this 10 to 15 per cent, depending on the country of origin.
Ms. Bindseil: I am having a little trouble hearing the sound; however, I am getting your request.
The regulations were discussed and written in 1999. At that point in time, our dollar was nowhere close to the American dollar. After the exchange rate was stipulated on the goods, 10 per cent was added on in order for the economies of scale to be able to sell the material in Canada. That covered freight east to west in this country, and it covered the additional charges in minimum wage.
In Canada we have the agency system, wherein they house the books in Canada, they ship the books and they do the marketing and the publicity for the books. There are sales agents. They are able to offer co-op incentive dollars. They are able to go to our customers and sell the product. That 10 per cent was added on to cover all of the additional costs that would be incurred in marketing and moving that material from coast to coast in Canada.
Senator Ringuette: I can understand the additional transportation costs and so forth. However, when you look at the suggested retail price in Canada for these books, it is a lot more than 10 to 15 per cent. I still see this 10 to 15 per cent as a private tax that book importers, your association, collect.
Ms. Bindseil: First, I am the Association of Canadian Book Wholesalers. We do not do anything with set pricing; the publishers do.
Senator Ringuette: Yes, but there must be some kind of agreement between you and the publisher to accept that on an item you are importing, there is a Canadian price that is different from the U.S. price. In that Canadian price, you are telling the publisher that you need an additional 10 or 15 per cent, depending on the country of origin. Am I right? Is that not your condition of importing with the publishing houses?
Ms. Bindseil: The publishing houses are doing the importing, and my company is doing the buying in Canada from the publishers. There is a trust factor with me. When I am dealing with the books, I am not looking at each book and determining whether each publisher has produced each book within the sector; the publishers have control of that.
As a customer, if I feel that the price is outside of the realm of the exchange rate plus that 10 per cent, I can then buy around, which would mean going directly to the U.S.
Senator Ringuette: If I may clarify, you have entered in a new player, which are the Canadian publishers. Are you saying that your association does not import books, that you only distribute them and that it is the Canadian publishers that import the books and collect this 10 or 15 per cent?
Ms. Bindseil: The publishers set the price on the goods in Canada. It is not the wholesalers that set pricing. We buy from publishers.
Senator Ringuette: We need to know if it is the publisher or the wholesaler that collects this 10 to 15 per cent additional fee.
Ms. Bindseil: It is not the wholesaler.
Senator Ringuette: It is not, okay.
Senator Marshall: I wanted to also ask questions regarding the Book Importation Regulations. Based on what several of the witnesses have said, my understanding is that if you eliminated that regulation, that would bring the Canadian prices into line with the American prices, that it would be the same. That is the impression I am getting, but that cannot possibly be right, can it?
Mr. Tabor: It would bring the suggested retail price, and they would be the same. An individual retailer has an opportunity to discount from that suggested retail price, and my colleague has a couple of examples. Here is an engineering and systems book.
Senator Marshall: This is assuming that the Canadian dollar is on par with the American dollar, right?
Mr. Tabor: Yes. Currently the suggested retail price for this book at Amazon.com, the American version of Amazon, is $89.95. That is the manufacturer's suggested list price, if you will.
For the same book, the list price on Amazon Canada is $107.95. However, the retailer, Amazon in this case, has elected to discount that price below, so that results in a selling price in Canada of $86.36 and a selling price in the U.S. at $62.18. At par, that is a significant difference.
Senator Marshall: It is.
Mr. Tabor: To answer your question directly, removal of that will move the list prices closer. It is up to the individual retailer, after that, how much they will discount off the list.
Senator Marshall: It is not a given.
My next question is to all witnesses: Are magazines the same? Quite a few magazines, if you buy them on a weekly or monthly basis, there is the Canadian price and the American one, and of course the Canadian price is always higher. I did bring one in this morning. It was $7.99 in the U.S. and $8.99 in Canada. Does this go back to the Book Importation Regulations? Is that the reason for the price discrepancy usually with the magazines? Do they fall under that regulation?
Mr. Tabor: I am not certain when it comes to magazines. I am only certain about books.
Senator Marshall: Ms. Bindseil, would you be familiar with the issue of the price discrepancy with magazines? Would that also relate back to the Book Importation Regulations?
Ms. Bindseil: No, I am not. We are in print books.
Senator Marshall: Would any of the other witnesses have any insight into magazines and the price discrepancy with regard to the Canadian price and American price for magazines?
Mr. Lefebvre: One of the other things that would happen is, with removal of the regulations, whether or not the magazine is bound by the very same regulations, the consumer would probably benefit from not seeing that bizarre discrepancy.
Senator Marshall: It would make a difference.
Mr. Lefebvre: It comes back to the "hoseability" of Canadians, the consumer.
Senator Marshall: Ms. Osmond, when you were talking about the price discrepancies you said the Canada Border Services Agency was in the process of implementing the most onerous advanced data requirements and that this was going to be a big difference.
Could you elaborate on that? We had a witness last week who also spoke about administrative requirements that were onerous and would cost money. Could you elaborate on that? I want to make sure we are talking about the same process, or maybe it is a different one. I would like to know that.
Ms. Osmond: As you are probably aware, there is currently an initiative under way at the Canada Border Services Agency referred to as "e-manifest." That term covers a broad range of data requirements.
We are moving to an electronic environment for providing data, and no one disagrees with that. We have started, over the last number of years, with data being provided by the carrier. We started in the marine industry after 9/11, then moved to the air mode, and we are currently in the process of implementing new electronic data requirements in the highway mode of transportation; from there we will move to rail. This is data provided by the carrier, describing the cargo and the conveyance and ultimately, eventually, the crew. In addition, in a future phase we will also be looking at data that must be provided by the importer.
You may be aware that a year or so ago the United States implemented the Importer Security Filing in the marine mode, but so far the U.S. has indicated that they are not thinking about doing this in any other mode.
In Canada where we are is that the CBSA has said they will start in the marine mode. What we are proposing to do in marine is quite similar to what the U.S. has done. Our concern is that the Canada Border Services Agency is also proposing to implement these data requirements in other modes of transportation: in air as well as at the land border. The concern is that it requires, in some cases, slightly new or different data elements, but also requiring them in a certain time frame that, in today's world, the way that business is done, can be very challenging to provide. This is where we are concerned about the additional cost and that ultimately this will impact Canadian business, and ultimately that those costs could be passed on to the consumers.
Senator Marshall: Mr. Chair, could I make a suggestion? What Ms. Osmond is speaking about, could our research people or the clerk confirm that is the same as the new system discussed here last week by another witness, or are we talking about two new areas that will blossom in the future? Can we get that confirmed?
The Acting Chair: We will do that.
Ms. Osmond: Mr. Lavoie was here last week and I think that question was posed to him as well. There was reference to statements on the website of the Canadian Manufacturers & Exporters.
The other issue that is somewhat related is the OGD Single Window Initiative.
Senator Marshall: Is that the same as what you were speaking about or is it something different?
Ms. Osmond: The OGD Single Window Initiative is different. To some extent it builds on the e-manifest initiative. We are also talking about providing electronic data to government. We are also supportive of an OGD single window and the ability to provide data to other government departments through a single avenue. You would provide the data once. If it is provided in advance, you would provide it to the Canada Border Services Agency. It is a way of trying to eliminate duplication and also to get away from paper processes.
One of the concerns we have, though, is that with this initiative it is an opportunity for government agencies to now say that in the past I wanted this, but now I want all these additional data elements. That is a big concern we have. While we support the concept, we are concerned about how it will be implemented in practice and whether that would also add to the burden being imposed.
Senator Nancy Ruth: Mr. Tabor, I am sure the book publishers have a strong lobby that can test the position that you have taken that this so-called tax should be removed. Have you seen any relationship in the publishers' businesses between the profits made for them on imported books as opposed to domestically published books?
Mr. Tabor: No, Statistics Canada, in the early 2000s, stopped following the industry, specifically the textbook side. That information is weaker than it once was, so we have nothing substantial to point to.
Senator Nancy Ruth: Is there data from 1999 onward that Statistics Canada used to use?
Mr. Tabor: Yes, backwards. They would cover the sales of books in a post-secondary market. They do not do that. It is no longer broken out.
Pearson, which is a U.K. firm, took a leadership position last year, isolated a number of titles and moved them to close to par. The sales — I can speak from the Queen's experience — increased dramatically. The publishers noticed a defection to the U.S. markets. That move was seen to mitigate some of that southbound defection. They did not do it with all their titles — nor have a majority of publishers taken the same approach — but I think they are noticing an impact on the sales as a result of differentials.
Zachary Dayler, National Director, Canadian Alliance of Student Associations: Our organization obviously has a concern with that regulation. If you want to talk about the increase of costs, one of the things we have noticed is that over 15 years or so the Consumer Price Index rose about 22 per cent and the cost of textbooks rose 280 per cent. In terms of profits and increase being put onto the consumer — in our case student shoulders — it has increased substantially.
Senator Nancy Ruth: Is that not something publishers must do, but may do?
Mr. Tabor: That is correct. Their folks have told me on a number of occasions they do not apply it to all books, to which I respond, "I am not concerned about the ones you do not apply it to. I am concerned about the ones you do apply it to." They seem to be the ones that sell. They can charge up to that before we are allowed to buy around them.
The Acting Chair: Mr. Tabor, is it safe to conclude this is impacting most negatively on the textbook area of publishing and traditional booksellers? If you are looking at reduced pricing, it seems to be more prevalent today. If you go into some of the large box stores — for example, Costco and Walmart — you will see prices that are matching. In some instances, prices for fiction and non-fiction are lower than the American prices. It seems to be having the greatest negative impact on the folks sitting at our witness table. Is that correct?
Mr. Lefebvre: The regulations in place make it easy for multinational corporations to make purchases and import in bulk, so they can afford a deep discount and make a reduced margin on it. The consumer has the ability to purchase cheaper than the booksellers themselves. I could go around. However, the stipulation and the regulations in order for me to go around — if they violated the 10 per cent — requires that I have to make an effort to place an order with them for that price, and wait a reasonable fixed amount of time before I can go ahead and legally purchase that for that lower U.S. price. The cost of labour involved to do that mitigates any margin I would make as a bookseller. The consumer can go to an online shopping experience from a U.S. source and purchase that far more cheaply than I can purchase it for my bookstore.
Senator Finley: This optional choice fee, charged by the wholesalers, publishers, is that also applicable to e-books?
Mr. Lefebvre: Again, it speaks to the habit our industry has been in. We are doing it that way because we have always done it that way. The Canadian consumer is used to seeing the two prices. Nowhere on an e-book is the price pre-printed, yet the same discrepancy occurs. The average e-book price is $9.99, which was set by Amazon in the U.S. You will see that for the same titles Canadian e-books are $10.99 on average. They are $1 more.
We respect the distribution and warehousing costs in a physical environment. There are costs, and we respect our colleagues in publishing that do the importing. I am not sure there is a digital distribution cost that would match that of the physical.
Senator Nancy Ruth: Mr. Tabor, if this so-called tax was removed by the publisher, do you have any sense that the volume of your bookstores on campuses would be diminished because they will not be able to publish in a competitive way?
Mr. Tabor: No, it would not have that effect. We conservatively say that 50 per cent of the books on our shelves are from foreign sources, but it is probably closer to 75 per cent; there is no need to publish algebra from the Canadian perspective. These are produced primarily for the U.S. market so we do not see a decrease. It should not affect indigenous publishing. Those books are printed to meet a specific Canadian demand. In Canada, publishers earn revenue doing two things: publishing or printing their own books, and distributing the books of others. We have difficulty with the distribution side. They are making these monies on foreign books, not Canadian books.
Mr. Dayler: One of the things to keep in mind about students is that in a lot of cases there is not the option to get the textbook or not. It is required material. We are seeing, from an on-the-ground perspective, students are not buying textbooks. They cannot afford it. If businesses would begin to see a decrease in the number of people through the doors, I would say they would see an increase of people through the doors if prices were lowered.
In New Zealand they did remove the import regulation, and consumer participation of buying the goods went up. It is creating competition and putting required materials in the hands of those who need them.
Senator Callbeck: Welcome, and thank you all for coming this morning.
Mr. Tabor, I missed a lot of questioning on some terms. You say because of the Copyright Act, the regulations stipulate an importer can charge a bookseller the price of the book in the country, plus the exchange, and then 10 or 15 per cent. When you talk about the cost of the book, are you talking about the retail price in the United States?
Mr. Tabor: Yes. The way the retailer would determine their costs for a book is always a percentage of the list price. On a trade book it may be 40 per cent off the manufacturers' list price. On a textbook, it is generally 20 per cent off. If the manufacture ups their list price by 10 per cent, our costs would go up by a corresponding amount.
Senator Callbeck: You say an importer can charge a bookseller the price of the book. That is the list minus what they get off, is it? What do you mean?
Mr. Tabor: Could you repeat that?
Senator Callbeck: It is on the second page, in the second paragraph.
Mr. Tabor: I think I quoted that right out of the regulations.
Senator Callbeck: The reason I am asking is because it says the price of the book, but then all you can add on is an exchange rate and that 10 or 15 per cent. According to this, your 10 or 15 per cent has to cover your marketing, transportation and so on.
Mr. Tabor: No, the 10 or 15 per cent raises the list price.
Senator Callbeck: When you say the price of a book, is that the list price?
Mr. Tabor: Yes, that is the list price, the manufacturer's suggested list price.
Senator Callbeck: That is really the retail price?
Mr. Tabor: Correct, the beginning retail price.
Senator Callbeck: It is the retail plus exchange, plus this 10 or 15 per cent?
Mr. Tabor: Correct.
Senator Callbeck: The book is published in the United States. It has to have an exclusive distributor, or I guess you could use the same words, wholesaler or importer. I have heard those three words around here; those are all the same. Are those exclusive distributors owned by the publishers generally?
Mr. Tabor: In the case of the academic market, four or five of them account for 85 per cent of the market. Yes. There would be Pearson Canada, Pearson U.K., McGraw-Hill Ryerson Canada, McGraw U.S., Wiley Canada, and they tend to be the parents of their Canadian counterpart.
Senator Callbeck: It has been said here this morning that that 10 or 15 per cent is not going to the wholesaler. Where is it going? Who is getting that 10 or 15 per cent?
Mr. Tabor: It goes to the subsidiary publisher located in Canada.
Senator Callbeck: They are the distributor?
Mr. Tabor: Correct. They fulfill both functions. As an example, the American publisher sends its book across the border to its branch, and the list price is increased as a result. As a retailer, if the regulations were not here, I could access the U.S. wholesale market or I could buy it from a retailer in many cases for less than I can buy it from the exclusive distributor in Canada, which for the most part in our case tends to be a Canadian publisher. It is getting confusing.
Senator Finley: It is a subsidiary of an American corporation.
Mr. Tabor: Thank you; it is a subsidiary.
Senator Callbeck: If that is removed, how will it affect the publishers in Canada?
Mr. Tabor: First, I do not think it will affect publishing in Canada.
Senator Callbeck: No, but it will affect the publishers.
Mr. Tabor: It will reduce their distribution profits by 10 to 15 per cent.
Senator Callbeck: Are they not going to be able to compete with the Americans?
Mr. Tabor: They in effect are the Americans. It is just a subsidiary on this side of the border.
Mr. Lefebvre: If I may, one of the issues that occurs, and we will take a look on the trade side, a publisher such as Random House that has Random House Canada that does have the distribution and the opportunity to do that in Canada, when a consumer makes that purchase through an American source, they are getting the content not from the Canadian source. That Canadian is buying it directly from the wholesaler, so neither Random House Canada nor the bookseller is getting any of that profit. That profit is completely leaving the country. The challenge is that there are not a lot of studies that can show evidence of that, because the money is leaving; it is not contained within Canada. It is difficult to see. However, we are also seeing that segmentation of our market, where no one in Canada is benefiting from this.
Senator Martin: I wish we had a representative from the publishers here at this table. There are many questions.
Mr. Dayler, I am thinking back to my university days. In Mr. Tabor's presentation, he mentioned that for academic textbooks the difference is substantially larger. I recall myself not purchasing books and trying to go to classes without them or borrowing previous editions.
This is a little off-topic, and it is probably a question for the publishers, but there are editions that come out a few years after the previous edition, and if you do not have the current edition it is a headache for students. Is that still the case?
Mr. Dayler: Absolutely, that is still the case. With the regulations we are talking about here today, and given there is kind of a choice as to where they are applied, that can restrict the choices that a student has. It also potentially limits the faculty member from whether they want to have a textbook that will have a new edition every year because they know they will have to burden the students year after year with those costs. Much to the credit of many of the on-the- ground stores, they are doing things like renting textbooks. There is a huge market for the resale of textbooks. As you say, if it is a course that has a variety of editions, the resale of that textbook really is not benefiting the students, other than they are spending money on something that is not necessarily going to be at the level at which the professor wants it. It is still very much a problem for students.
Senator Martin: As students, we all thought that there was a conspiracy to just grab more money. Who continues to put out these editions? The publishers do, but in consultation with professors and what not. I am being a little silly, but it is an issue, because when we are looking at greater costs for students, when it comes to purchasing these books, having these editions come out again and again really makes it unfair to the students.
I think you have answered these questions. I do not know if this is one of the problems in Canada, a certain lack of competition in the Canadian market due to the population and the sheer size of our country. Is productivity an issue at any of the levels, particularly in the retail sales sector, or is it that under the current regulations and the demands of this industry, these are just the realities and the challenges, that there is not an issue with lack of Canadian productivity? Are there things that all of you can be doing within your own subsections within this industry to increase productivity, to make things work together more effectively, or is it simply the challenges of this industry that cause these problems? Are there things that each of you could be doing better, and has every effort been made to do them? What are some of those limitations?
My first question is regarding productivity. Is there an issue in Canada?
Mr. Tabor: We hear from time to time that the reason the price is high is because the cost of doing business is higher in Canada, and I suppose that is related to productivity. My answer to that is that all importers should face the same barriers and we should all have the same price. My grandmother can import that book, the latest Tom Clancy book, more economically than a multi-billion-dollar multinational can. In terms of productivity, they should call my grandma for some tips.
I do not think that is an issue. This is simply that we can and we will raise the price we can get for this book in Canada because the regulations allow us to do it.
The Acting Chair: Ms. Bindseil, if there is anything you have heard in the last few minutes that you would like to comment on, feel free to take this opportunity.
Ms. Bindseil: Sure. The import regulations that we were talking about had a single-copy exemption on them as well, and that is why the consumer is able to buy the single copy outside of the agreement. If a library, wholesaler or bookseller had wanted to do so, there is that single-copy exception. However, generally speaking, when the orders are placed, when you are in a business, it is not at a single-copy level. That is why the buying from the agency system in Canada has become important, so that the sale remains in Canada.
There is also quite a discrepancy as to what a wholesaler is and what a wholesaler does, and what a distributor in Canada does and what a publisher in Canada does. It gets kind of mixed up in the language. The wholesaler business that I am in is add-on service. After we get the product, we are adding on service for our markets. The wholesalers that are dealing with the retail side, the wholesalers that are in the Association of Canadian Book Wholesalers that are on the retail side, are reselling into the retail market in Canada, but the pricing of how we price our books is based on discount, and within that we have to cover our service fees for libraries.
Senator Chaput: I thought I understood what we were discussing with regard to regulations, but now it is not clear in my mind. You will forgive me if I ask the same questions that were asked before.
We are, right now, discussing a change in regulations that could or would result in savings for Canadian students. That would be with regard to books. It would apply to books but not magazines, necessarily. Magazines could have other regulations. Am I correct?
Mr. Lefebvre: Our suspicion is that magazines are covered under the same regulations. We would need to verify that.
Mr. Tabor: I have just looked through the regulations, and it seems to be silent on magazines. It is very specific to books.
Senator Chaput: Is it an import regulation that we are talking about, only books that we import or those that we export? The lady talked about an import regulation. Is it the same?
Mr. Tabor: It is only on imported books.
Senator Chaput: Which means books that are being imported?
Mr. Tabor: Into Canada.
Senator Chaput: The savings that could be made by not charging the book fee would be on the books imported from the United States only?
Mr. Tabor: All countries.
Senator Chaput: Who would lose? Students gain because they do not have to pay the fee. Would it be the importers who would be losing and would not be making the fee?
Mr. Tabor: Correct.
Senator Chaput: Importers could include publishers and wholesalers.
Mr. Tabor: Correct, it is anyone that is deemed to be an exclusive distributor of that book, which is a commercial arrangement. It could be a wholesaler or a subsidiary of the publisher.
Senator Chaput: Would the impact of losing that fee not be negative on them?
Mr. Tabor: It would be negative.
Senator Chaput: It would be, yes, indeed.
Senator Buth: My question is for Carol Osmond. Thank you for a good presentation.
You used an example of the 18 per cent duty on skates and athletic shoes, and then you commented that the removal of this duty does not obviously translate into an 18 per cent reduction in price to the consumer. You have listed a variety of different duties here.
Do you have any information in general or examples where products with no duty are priced similarly in Canada and the U.S.? Are there products with no duties where there are considerable price differences between Canada and the U.S.? I am trying to figure out the impact of duties on prices in Canada. Would we actually see a reduction in price if we were to remove those duties?
Ms. Osmond: I do not have those examples, and I did not provide those examples with the suggestion that they explain the difference in the prices between the two countries. We did do a comparison of the duty rates charged in Canada and in the U.S., and my recollection is that on some of these products, there are also duties that are charged in the United States. As well, in general, though, they would be lower.
The point is that regardless of whether you are comparing prices between the two countries, if your ultimate goal is to reduce the price to Canadian consumers, there are a number of things that the government could potentially do. I think, in this case, we have some historically high duties on certain products that were put there as protectionist measures. It is one of those things we talked about earlier, doing things the way we have always done them. That additional 18 per cent gets buried into the price somewhere. It is one possibility for certain types of products where that could translate into lower prices for consumers. We would not want to raise the expectation, however, that, as I said, an 18 per cent reduction in duty translates into an 18 per cent reduction in the retail price. Obviously, that is not the case.
Similar to the issue of duty rates, we talk about the increase in the value of the Canadian dollar. There was some discussion by other witnesses. They spoke about the pass-through. The way I interpret that is I buy a product, say, for US$10, and the Canadian dollar is up from 80 cents to a dollar, at par with the United States. With respect to the savings to the importer, let us say the costs have gone down on the product by 20 per cent. That, obviously, does not translate into a 20 per cent reduction in the price to the consumers because their cost is the cost of the product they purchase from the foreign supplier, which, let us say, is $10. The retail price might be $20 or $30. Proportionately, the saving is lower. Our savings are on those costs to the foreign supplier, and we cannot expect that because the dollar has appreciated in Canada that automatically translates into prices being the same in the two countries.
Senator Buth: It is because the cost of the actual product is just one small part when it hits the shelf.
Ms. Osmond: Exactly, and then you have the distribution and marketing costs.
Senator Finley: That will happen anyway. Your logic is flawed. If I have a dongle and I move it from A to B, it does not matter what price the dongle was. It is still the same price.
Ms. Osmond: No, but my point is we are talking about exchange rates, and we are saying the Canadian dollar has appreciated. That does lead to savings for the importer, because in order to buy US$10 in the past, I had to pay $1.20. Now I am not paying $1.20 to buy that product; I am paying a dollar. I have saved 20 per cent, roughly. However, when I sell it, I am selling a product at a marked-up price, so I have saved 20 per cent on my original dollar that I paid when the goods were imported, but that is not 20 per cent of the retail price but 20 per cent of my cost.
Senator Buth: I just want to go back to that. You made the comment that some of these duties have been set for historical reasons. Perhaps we used to have a footwear industry, and the 18 per cent that you quote here was protecting the footwear industry.
What would be your recommendations in terms of looking at those duties and whether they need to be changed?
Ms. Osmond: At the Department of Finance, when the minister was looking at reducing the cost on manufacturing imports, including machinery and equipment, a consultation took place. What can be done is a detailed analysis of what those duty rates are to look at the possibility of reducing them. Is it justified to continue to maintain those high duties? There is a cost and a benefit. You are right. Potentially, how will that impact a Canadian manufacturer? It could be that it forces greater efficiency. As I mentioned with my suit, my coat and my boots, Canadians can be very competitive. They produce a quality product, with great design. I have worn my coat into the United States and had people stop me on the plane to say, "Where did you get your coat?" We definitely can compete.
Senator Gerstein: To a greater degree than our colleague Senator Chaput, I must say, Mr. Lefebvre, I am confused by your comments. I have to admit to you it is not the first time I have been confused, and it will not be the last, but if I may just take you to your statement. In paragraph 4, you say that your members are tired of being apologists for a policy that none of them has any control over. I assume that policy is the Copyright Act, the 10 to 15 per cent that is added on by publishers.
In paragraph 6, you say that the issue you have is not with Canadian publishers but rather with multinationals, whoever they are. Then the recommendation you provide in your second-last paragraph is, "The time is now for us to approach this issue with intelligence and reason."
"Intelligence and reason" always gets the attention of senators. We are included in that group, so I would be interested to hear, first, who is "us"? What are you asking "us" to do? Who are the multinationals? What do you think this is all about? I am confused.
Mr. Lefebvre: I will try to divide it up into segments. Let us start with the "us."
As a bookseller, when I think of "us," I think not just of myself and my colleagues who run bookstores across Canada, but I think also of the industry itself. We work in conjunction with the sales representatives, the wholesalers and the publishers. We work together as an industry.
My colleague Mr. Tabor mentioned a recent example, and this is an example of us working together. This would be Pearson Canada deciding to take a stand, recognizing there is an issue that needed to be addressed and dropping the price on the Canadian list titles to recognize these discrepancies. Rather than padding it by the extra 15 to 20 per cent that we were seeing, they lowered the price. What we saw as a result of being reasonable and making an intelligent and informed choice is the unit sales of those products went up in our stores. Pearson Canada made an informed decision to lower the price, by which we all benefited.
Senator Gerstein: That is your business. That is not government business.
Mr. Lefebvre: Right. What I am saying is that we have to work really hard to circumvent a regulation that could easily be removed so that we do not have to do all this extra work just to get there.
I am suggesting that we look at the regulations and see if they are actually doing what they were initially meant to do back in 1999, or if they are actually making it harder for local and independent businesses to be profitable in Canada.
Senator Gerstein: You say the issue is with multinationals. Who are they?
Mr. Lefebvre: I will be honest with you: Pearson from the U.K. is the multinational that would normally benefit from this. When Pearson Canada lost the sales, Pearson Canada had to recognize they were no longer making that additional percentage of profit for those unit sales. That was a decision they had to make. They took a very Canadian approach, I will call it, in terms of being willing to take a chance and see if that would actually result in not losing those sales.
Senator Gerstein: The problem is with multinationals, with the exception of Pearson?
Mr. Lefebvre: I am saying this is an example of a multinational with people working within the Canadian arm, and they are actually recognizing there is an issue with the policy and using it to their advantage. However, it is a broad exception.
Senator Gerstein: Why would the others not? You have given them the best story: The sales went up. Everyone would be delighted with that.
Mr. Lefebvre: What it means is no publisher anywhere, you will not see a single one in the room witnessing this, that when the media comes calling to talk about the problem — "look at these magazines and books" — it is the bookseller standing with the camera and consumers in their face trying to defend the industry as a whole, whereas we really do not set the list price; many booksellers are taking discounts.
My colleague Mr. Smith, when the dollar first went to par, was at a loss in many cases selling books at par in his store here in Ottawa. A lot of booksellers are continually trying to discount just to attract consumers to want to buy in that local Canadian store.
Really, this is a lot of fuss and bother just to circumvent a single regulation that could make it more attractive for the consumer to buy in the Canadian retail space.
Senator Gerstein: I take from your comments, then, you would like us to look at the 15 per cent, but with regard to your final comment about the approach to the issue with intelligence and reason, you are not including us in that?
Mr. Lefebvre: You guys always act with intelligence and reason.
Senator Gerstein: That is a good way to end up the answer. Thank you very much.
Senator Peterson: Thank you, witnesses, for your presentations. Mr. Tabor, could you lease books to students?
Mr. Tabor: We piloted that program this year. We now rent about 30 per cent of our titles to students by day, by week, by semester or by year. It is new in Canada. It is about a year old, and it is an attractive option for many students. We are delighted with it.
Senator Peterson: Could you comment on that, Mr. Dayler? Is it something you would promote?
Mr. Dayler: Of course, making sure students have access to the materials they need in an affordable way is valuable, but the leasing of textbooks would have limits. If you are talking about a student, let us say, who is in public relations and they have a textbook on standards, they need that textbook for a good portion of their career, obviously until another standard comes out. In that case, it can have limits.
For example, allowing a carpenter to use his or her screwdriver for the time they are in school but they have to give it back when they leave because they have leased it and it is not necessarily theirs limits the extent to which that student can continue to use the materials they need.
Senator Peterson: It is an option. Mr. Tabor, you said with the stroke of a pen we could save Canadian students millions of dollars. Who would be stroking the pen?
Mr. Tabor: The fine folks at Canadian Heritage and Foreign Affairs and International Trade Canada, I suspect. This is a regulation. I am not sure of the mechanics. This is not inside the act but outside of it.
To be clear, this is a commercial arrangement that they have come to an agreement where one party will be the exclusive distributor. We in all likelihood would continue to buy from that exclusive distributor. We simply want the regulations altered to zero, that number down from 10 to zero and from 15 to zero.
Senator Peterson: I presume you have talked to Canadian Heritage. It is a no-brainer, no cost to the public purse. What do they tell you?
Mr. Tabor: I have been talking to an assortment of folks here in Ottawa since 1999 on this issue, and most recently it has been lost in the Bill C-11 debates. It has fallen between the cracks. As much as I like Ottawa, I am not looking forward to coming back on this issue next year. We will see how that works.
The Acting Chair: The folks with the pen, Canadian Heritage, will be appearing before the committee tomorrow, so we can pose that question to them.
I have a quick question, Ms. Osmond, with respect to the thickening of the border. You may have referenced this; if you did, I missed it. With respect to the Beyond the Border action plan, I wonder if any of the elements of that will address the concerns that you outlined today. Are you hopeful? Have you taken a look at it?
Ms. Osmond: We always hope. There is a provision in the action plan that talks about harmonizing advanced data requirements. A meeting will be held in a couple of weeks in Niagara Falls, New York, a joint meeting of the Canada Border Services Agency and the U.S. Customs and Border Protection. We may have a little more information at that time. I am hopeful, but I am not terribly optimistic that I will get the outcome that I would seek on behalf of my members. We will have to wait and see. It is possible it could be addressed under that initiative.
Senator Finley: Let me just understand. This 10 to 15 per cent is part of a copyright legislation?
Mr. Tabor: Correct. It is a regulation.
Senator Finley: It is not a tariff. It is not under the Department of Finance or the Treasury Board, but it is set within Canadian Heritage for copyright purposes. Was that the original reason for this?
Mr. Tabor: Yes. Distribution is an aspect of the Copyright Act. You are correct. It is a regulation, not a finance tariff.
Senator Finley: Is it in any way being affected by the new copyright legislation, or does the new copyright legislation remain silent on this?
Mr. Tabor: It remains silent on this.
Senator Finley: One final question on logistics, which you may or may not be able to answer. If, for example, I go to Amazon.com to look at books and I decide to order there, they generally switch me automatically to Amazon.ca, and lo and behold the same book turns up.
I refuse to believe that Amazon, for example, or it could be anybody else, has a warehouse that big or distribution centre that large in Canada that that book or DVD or CD is on the shelf. They are probably shipping it from the United States. It is a fairly seamless operation. Are they charging me the 10 or 15 per cent generally, do you know? Is this just a straight pass-through where they are picking up 10 or 15 points because this regulation allows them to?
Mr. Tabor: First, Amazon is a formidable competitor, I can tell you that, but there is no shortage of integrity there. They are an honest player.
Senator Finley: No, I am not suggesting they are not.
Mr. Tabor: When a customer defects from Amazon.ca to Amazon.com, Amazon still has a customer. When our customer in Canada defects to Amazon.com, we do not have the customer. They win regardless. They just make less when a customer purchases it off their .com site. Their distribution and fulfillment I cannot comment on; I have no idea.
Senator Ringuette: This is a follow-up to Senator Finley's question. In the Amazon scenario, the single-copy exemption would apply and therefore the 10 per cent, if it is a book published in the U.S, would not be applicable, would it?
Mr. Tabor: It would not be applicable because they are buying it in the U.S. marketplace, correct.
Senator Ringuette: No, but it has switched to Amazon.ca, therefore it is in Canada. Let us stay with the example of Amazon in the U.S., because this single-copy exemption is for an individual consumer buying the product. The 10 per cent that we are looking at in the regulation would not be applicable, if I have heard correctly.
Mr. Tabor: Correct.
Senator Ringuette: Right from the start there is this 10 per cent if it is a book from the U.S.
Is there an import tariff on books?
Mr. Tabor: No.
Senator Ringuette: The tariff situation, then, is not part of this issue? However, I wrote down here "publisher, importer, wholesaler, distributors and retail outlets." Those are five different entities in Canada that each add to their operational revenue. Those are five middlemen.
I think the industry has created its own demise in Canada. We are in the era of Internet purchasing. We are in the era of removal of barriers for all these money-making entities, if they do make money, but I guess the proof is in the pudding, one would say. Five different operations in the chain up to the consumer, from my perspective, is more than one too many.
No one wants to comment?
Ms. Bindseil: The 10 per cent is the publishers, not the middlemen. We work on an agency system in Canada whereby the rights are sold for distribution in Canada. That is the part that then takes care of warehousing the goods in Canada, the marketing, the sales reps, buying in Canadian dollars, buying from a Canadian warehouse, customer service, all of that part. That is part of the 10 per cent. It is the publishers that are charging that. Then the wholesalers do their own pricing.
We all live on margins; we get discounts off of that list price. It is the margins we live off, and the added services we are putting on to the Canadian customers.
Christopher Smith, Vice President, Canadian Booksellers Association: To take the issue more globally, ultimately the issue is about consumer access to goods through whatever channel. With the advent of the Internet, the number of channels through which the average consumer can acquire goods has increased many-fold.
Traditionally, it has always been that the consumer purchases from a bricks-and-mortar retailer. This is no longer the case. Given the choice, price point is not the only issue. Many consumers would prefer to shop from a Canadian source, particularly a bricks-and-mortar source, if they could. There is that relationship; you know your local retailer, whether it is a small business or a trusted Canadian national corporation.
However, within the book industry it is so much less expensive to purchase, for the average consumer, from an American source particularly, that they feel they have no choice but to circumvent the Canadian retailer that they might have otherwise chosen.
Part of this stems from the egregious price difference. It is far better than it used to be, but it is still hard for me, as a retailer, to act as an apologist when it is obvious that there are two prices preprinted on an item and there is more than a 10 per cent difference. Most consumers are willing to understand that it is the cost of doing business in Canada and that a small differential in price is acceptable.
When I talk to my American colleagues and they ask me how my stance is, I say, well, we have publicly funded health care that has to be paid for somehow. It is a flippant answer, but it demonstrates that Canadians understand that there can be a difference in prices, as long as it is a reasonable one.
What I, as a retailer, have a hard time defending to the customer is that because distribution is entrenched in the copyright legislation and these regulations, and prices tied to that as well, it takes me longer to get a book from Toronto — most of the publisher and wholesaler warehouses are located in the GTA — than if I were to order from an American wholesaler. I can get it from the United States within a couple days at a cheaper price and pass that all along to my customer than if I were to go through the current Canadian distribution system.
Do I want to do that? No, and I do not do that, but I am still, as the person on the front line, having to act as an apologist to the consumer on behalf of the other parts of the industry over which I, as a retailer, have no direct control.
Do I lose credibility? Absolutely. Does anyone want that? They do not really, no.
Senator Ringuette: I have one question about the books, and then I have a question about the tariffs.
The Canadian price is printed on the book, so is it the publisher on its own that puts the suggested Canadian retail price on the book, or is it done in discussion with the importers, the wholesalers and the distributors?
Ms. Bindseil: The publishers put the price on the books. I hope they are in consultation with their agency system in order to know what the price of the goods or what the market would bear, but it is the publishers that put the price on the books.
Senator Ringuette: I am going to Ms. Osmond. You put forth a couple of suggestions, and one was lowering tariffs or duty rates. In your perspective, what is the income to the federal government of those tariffs or duties that you are suggesting here?
Ms. Osmond: Currently, the Canada Border Services Agency — and this is probably 2010 — collected something in the order of $23 billion in goods and services tax, and the duties that were collected were something in the order of $3.5 billion. That is $3.5 billion on all goods that are subject to duty. Duties on manufacturing inputs, machinery and equipment and so on are being phased out by 2015, so that pretty much leaves the balance; once those are phased out I do not know what the impact will be in terms of reducing the revenues from customs duties, but presumably, once you have taken out the duties on machinery and equipment and imports you are pretty much left with consumer goods. I do not know the breakdown between the two currently.
Senator Ringuette: We will need to talk with Revenue Canada to know exactly. I seem to remember someone telling us that it was in the vicinity of $2 billion.
Senator Callbeck: I have a brief question for Ms. Osmond. On page 3 of your brief you said that while overall Canadian consumer prices may be higher than in the United States, that is not the case in all product categories. You are saying there are some product categories in Canada where the consumer price is actually lower than in the United States. What are those categories?
Ms. Osmond: I am basing this purely on my own personal experience, and I am not much of a shopper. That is my qualification. I can tell you from years travelling back and forth to the United States, and I am thinking particularly starting in the early 2000s, my experience as an ordinary consumer going into a supermarket in the United States, and in this case it would have been Tucson, Arizona, if I compared the price of a product in the United States versus the price in Canada, at that time the Canadian dollar was quite low, dollar for dollar it was the same. If I paid $5 for a given product in Canada, that product was $5 in the United States. For me as Canadian, that was a much higher price. We are talking food products.
From my experience in cities like Washington, D.C., for example, my experience as a consumer is that prices were higher. Recently I was in Washington. I stopped into a liquor store to pick up a bottle of wine and I was surprised to find that the prices of wine were actually higher. I had my standard bottle that I check, a Pinot Grigio from Italy, and it was $2 or $3 a bottle more in the liquor store in Takoma Park, Maryland, than I can buy it at my corner LCBO.
Often we are basing our impressions on personal experience with individual purchases. I just caution because we have to be careful that we recognize that some prices could actually be lower in Canada. Certainly, we have the experience living in our own country, and I am sure it is the same in the United States, of buying a product in one part of the U.S. at a higher price than in another part, and similarly in this country as well.
Senator Callbeck: Are you aware of any study on this topic that points out areas where consumer prices in Canada are lower?
Ms. Osmond: No, I am not.
Senator Finley: There is one from 2007.
Senator Callbeck: Are there other comments?
Senator Buth: I have one question for Ms. Bindseil. You used the term "agency system" in Canada. What does that mean? Does that mean we have to have an agency, or is that just the way we run? What do you mean by "agency system"?
Ms. Bindseil: Random House Canada as opposed to Random House the world, I guess is the better way to put it. There are publishers in Canada that have counterparts in the United States where the Canadian-bound books are warehoused in their agency in a warehouse in Canada with sales staff, support staff and customer service staff, and those books then get distributed east and west in Canada. Some of the agency systems also do Canadian publishing, so they have a Canadian publishing program. With the agency system that distributes the American books, part of the revenue that they do make for the distribution of the goods goes into the funding of the Canadian publishing system, Canadian publishing books.
The agency system is fragile and could likely disappear if the face value of goods were such that $10 in American funds meant the same as $10 in Canadian funds; then there would no longer be the financial support to have an agency system in this country that also finances our Canadian publishing program.
Senator Peterson: Why do publishers print both prices on the back of the books? Is that by choice?
Mr. Lefebvre: It is a good question. It is one we have as well.
Senator Peterson: We do not have a publisher here to answer. Will we be getting one of them here tomorrow?
The Acting Chair: We are hoping to have someone to deal with the magazine issue tomorrow as well, which is of interest to many Canadians.
That concludes our hearing today. I want to thank the witnesses for appearing today and assisting us in our deliberations, and especially to Ms. Bindseil for early rising out in British Columbia.
(The committee adjourned.)