Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue No. 5 - Evidence - May 4, 2016
OTTAWA, Wednesday, May 4, 2016
The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:20 p.m. to study the issues pertaining to internal barriers to trade.
Senator David Tkachuk (Chair) in the chair.
[English]
The Chair: Honourable senators, Ms. MacEwen has her little girl here today. Her name is Anna. I want to make sure her name gets on the record.
Good afternoon and welcome to the Standing Senate Committee on Banking, Trade and Commerce. My name is David Tkachuk and I am the Chair of the Committee. Today is our ninth meeting on our special study on issues pertaining to internal barriers to trade.
I am pleased to welcome the following on our panel: from the Quebec Employers Council, Yves-Thomas Dorval, President and CEO, and Norma Kozhaya, Vice President and Chief Economist, by video conference from Montreal; from the Canadian Vintners Association, Dan Paszkowski, President and CEO; from the Canadian Labour Congress, Angella MacEwen, Senior Economist; and from the Retail Council of Canada, Susie Grynol, Vice President, Federal Government Relations, and David Wilkes, Senior Vice President, Government Relations.
I will start with the Retail Council of Canada. I understand Ms. Grynol will make the presentation. Please proceed.
Susie Grynol, Vice President, Federal Government Relations, Retail Council of Canada: Thank you. Good evening and thank you for taking the time and for having us here with.
The Retail Council of Canada welcomes this opportunity to provide the views of the retail industry on the important issue of internal trade barriers.
[Translation]
The committee has heard from many witnesses about the challenges relating to the current agreement on internal trade. Today, the Retail Council of Canada will provide the perspective of the retail sector and will make recommendations on the course of action to follow.
[English]
The Retail Council of Canada is comprised of small, medium and large retailers from across Canada in the form of department stores, grocery stores, retail chains, and online and independent merchants. Our members employ over 2 million Canadians, making our industry the largest private employment sector in Canada. With 45,000 storefronts, retailers operate in every community in this country.
As a long-standing advocate for less red tape and increased regulatory harmonization both domestically and internationally, we are delighted that this committee has expended much time and effort examining the issues related to internal trade. We are also pleased that Minister Bains has made this a priority and that there is a commitment by the Committee on Internal Trade and, indeed, the premiers, to reform the Agreement on Internal Trade.
The internal trade barriers that exist today for retailers create a significant drag on resources, productivity and growth potential. Our members are primarily affected in three broad areas: labour and employment, environmental standards, and food and product regulations.
As Canada's largest private sector employer, retailers are significantly impacted by the varying labour and employment laws across the country. There are different store hours and stat holidays, different methods of calculating overtime, licences are not always transferable, payroll systems are different, and workers' compensation regimes vary from one province to another. It is incredibly expensive and time consuming to understand and comply with all the layers of regulation.
On recycling laws and regulations, there are over 100 mandatory programs across the country that a retailer operating in more than one province has to comply with. Let me briefly touch on the example of deposit systems for beverage containers. In most cases, consumers are refunded the full amount of the deposit, but some provinces only refund part of it. Other provinces have added a separate, non-refundable container recycling fee on top of the deposit instead of refunding only part of the deposit. Manitoba, by comparison, has only a container recycling fee. In some provinces, the recycling fee not only requires a separate line item on the customer's receipts but also warrants a separate accounting and reporting structure with a distinct logic as to whether or not GST or HST should apply to the container. It is easy to see that a considerable amount of time and resources would be required in order to comply with the varied programs across the country.
Concerning food and product regulations, we have numerous examples of differing standards and regulations across provinces and territories. Labelling requirements vary in many provinces. Unpasteurized products made in Quebec cannot be shipped outside of Quebec. Multipacks of insect repellant can be sold in every other province and territory except Quebec. Container sizes differ from province to province. Provincial meat inspection requirements differ, not because one is safer than the other but simply because they are different.
Most of the trade barriers that retailers face are the result of regulatory inconsistencies. Our first recommendation, therefore, is that a federal-provincial industry council be created under the leadership of the Minister of Science, Innovation and Economic Development to identify and eliminate regulatory inconsistencies that do not serve a legitimate purpose. This council should be struck immediately.
Concerning the renewal of the Agreement on Internal Trade, RCC has two key recommendations. The first is that the new agreement be based on the concept of mutual recognition. Mutual recognition in this context is defined as an agreement between two or more jurisdictions to consider licences and certifications given by one jurisdiction as being valid in the others. This principle has been centrally adopted in modern agreements both internationally in the Comprehensive Economic and Trade Agreement with Europe and domestically in both Australia and Switzerland. These international agreements should serve as a model for Canada.
Let us be very clear. While most regulatory inconsistencies are unjustifiably different, some have been established for good reason. This is why our second recommendation is that mutual recognition should be paired with a negative list approach based on the assumption that the trade of goods and services should be allowed except where it is explicitly stated otherwise. This approach would allow exemptions to be made where they are legitimate and appropriate, while maintaining the concept of open trade as a foundation.
In this regard, RCC was delighted to learn from Minister Bains during his testimony that a negative list approach will be used in the renewed Agreement on Internal Trade. We applaud the minister and the Council of the Federations for this important step forward.
Our final point on that, Mr. Chair, is that a good agreement must contain a functional and accessible dispute resolution mechanism. This must also be included in the new agreement.
Our final recommendation is that a task force be created to review the Committee on Internal Trade's decision- making model. Currently, it does not allow for sufficient stakeholder input; the yearly rotation of the chairmanship is disruptive; and meetings cannot take place unless all parties are present — 100 per cent participation for every meeting is inflexible and hinders progress.
In closing, I would like to mention that the Retail Council of Canada is part of a business coalition with the Canadian Chamber of Commerce; the CFIB, the Canadian Council of Chief Executives, recently renamed the Business Council of Canada; Canadian Manufacturers & Exporters; CPA Canada; the Dairy Processors of Canada; and Restaurants Canada. Individually and as a group, we will continue to monitor the progress and development of a more efficient trade system in Canada.
The Chair: We will now hear from the Quebec Employers Council. Mr. Dorval, please proceed.
[Translation]
Yves-Thomas Dorval, President and CEO, Quebec Employers Council: Hello. Thank you for inviting me to appear before your committee. We will try to keep our comments brief. You have received some notes setting out our position. I would like to recall that the QEC, the Quebec Employers Council, represents over 70,000 employers with operations in Quebec, the majority of whom have operations throughout Canada. Our main mission is to create the best conditions to promote prosperity. We are pleased to participate in this debate and in the discussions among parliamentarians and senators.
These conditions for prosperity depend specifically on entrepreneurship, productivity, wealth creation and sustainable development. These conditions underlie the comments we would like to share.
According to the QEC, international trade contributes to economic prosperity in Canada, as we have maintained many times, and the same is true of interprovincial trade, which is equally if not more important. The differences in regulation, certification and inspection standards, along with other non-tariff barriers, can slow down and complicate trade and represent additional costs that do not foster the best conditions for prosperity in Quebec. These are not explicit attempts at protectionism among the various provinces but rather are instances of overlap resulting from the sharing of expertise and preferences of each administration. Since Canada is a federation, each province seeks to retain a degree of autonomy, and cooperation is better than a top-down approach.
There are many benefits to reducing barriers to interprovincial trade in Canada: reducing costs to businesses by eliminating unnecessary expenses; giving consumers lower-cost options by expanding the range of products available and encouraging competition; and enhancing labour mobility. Provincial licenses and training equivalencies are very costly to qualified workers wishing to come to Canada, even if their training standards are similar. We must increase the overall productivity and competitiveness of the Canadian economy, among other things, by allowing companies to expand and develop within Canada while preparing to conquer international markets.
Research has shown that businesses that have dealings with other provinces are more likely to expand and engage in international exports. There is no apparent consensus on the real costs of interprovincial barriers. The short brief before you refers to studies, specifically one by two University of Calgary economists. In their view, internal trade barriers add a significant percentage to the production costs of goods and services throughout the provinces, and eliminating them could boost GDP by several billion dollars, which would be a big gain.
There are various barriers, especially for merchandise. There are also issues related to energy resources, financial capital, labour mobility and taxation. We are encouraged by the progress we are seeing and the improvements made. The provincial first ministers have made numerous undertakings in this regard recently and progress has been made. Our brief provides various examples of these issues.
A good many initiatives have been taken, but of course more must be done to improve the situation. These agreements are often based on universality with lists of exceptions, but one of the key principles, as other witnesses stated, is the mutual recognition of regulations. In our view, that is the best model.
The QEC recommends an interprovincial trade strategy based on mutual recognition, as is the case in the European Union and in Australia. Mutual recognition guarantees market access for products that are not subject to national harmonization. It guarantees that any product or service that is legally traded in one province can also be sold in another, as is the case under the Quebec-Ontario Trade and Cooperation Agreement. A professional who meets the regulatory requirements in one region should be able to practice or move elsewhere in Canada without facing any additional barriers. This is the basis of the external trade agreement between Australia and New Zealand. It is also the basis of the Canada-European Union Comprehensive Economic and Trade Agreement.
This approach would work well for jurisdictions such as the provinces of Canada, which have shared objectives with respect to food safety and important issues such as environmental stewardship, security and so on.
Among the other recommendations, the concept of mutual recognition is also fairly straightforward. The original agreements between Australia and New Zealand were apparently only three pages long, although they have become more complicated over time. This approach encourages competition with respect to regulations and innovation in regulations. We must remember that innovation is often born of regulatory pressure that one state exerts on another. Instead of selecting the sectors to be covered by an agreement, an agreement should be negotiated that covers all sectors, excluding the desired exceptions, in other words, with a negative list.
Another approach would be based on the major issues. As regards the regulation of financial markets, for example, the passport system works relatively well in Quebec. A carbon tax is another issue that would have to be agreed upon. Three systems are in place: in Quebec, in Ontario, and soon in Manitoba. British Columbia and Alberta have implemented a carbon tax, but the other provinces have not.
The harmonization of pension plans is another major issue. As the other witnesses noted, however, there are also issues relating to sales taxes that vary greatly depending on the application model, the administration model, and the level of taxation in the various provinces.
Finally, environmental issues are also very important. Each state has its own agenda, but our actions should be harmonized in order to create the best possible conditions for prosperity right across Canada.
[English]
The Chair: Thank you very much.
We will now go to Mr. Dan Paszkowski, President and CEO of the Canadian Vintners Association.
Dan Paszkowski, President and CEO, Canadian Vintners Association: Thank you, Mr. Chair, and good afternoon.
As the national voice of the Canadian wine industry, our members represent 90 per cent of all Canadian wine production and are engaged in the entire value chain, including grape growing, farm management, grape harvesting, wine production, bottling, retail sales, research and tourism.
I am sure that you'll remember that many across Canada believed that the Canada-U.S. Free Trade Agreement would be our sector's demise. It was industry leadership and government support that ensured the wine industry's ability to transition and build resilience in a changing marketplace.
Today Canada is a premium global wine producer, producing high-quality, award-winning wines, and the industry contributes more than $6.8 billion to the national economy, supporting 31,000 jobs and attracting more than 3 million tourist visitors each year.
Canada is now the second-fastest-growing wine market in the world, with wine consumption growing three times faster than the global average. We are also the sixth largest wine importer in the world; and over the past decade, imports have captured 75 per cent of Canada's 150-million-litre wine sales growth over that period. Looking ahead, wine demand in Canada is expected to grow by 50 million litres or 11 per cent by 2018, making our country increasingly attractive to our import competition.
For the Canadian wine industry to reach its full potential, decision makers and political leaders must recognize that, unlike other sectors of the economy, the Canadian wine industry's domestic market share is a mere 32 per cent — of which only 10 per cent is represented by our premium 100 per cent Canadian wines. At 32 per cent, we rank the lowest domestic wine sales of any wine-producing region in the world.
Like most Canadians, I am sure that you will also be surprised to learn that only two provinces in Canada have a VQA wine sales market share of just over 10 per cent. Further, five provinces have a VQA sales market share of 1 per cent or less. Quebec, our largest per capita wine-consuming province, has a VQA sales market share of 0.2 per cent.
As a young and growing industry, new wineries are opening each year, and high-quality wines are increasingly available for sales in greater volumes.
This growth is very positive, but despite recent progress on liberalizing wine sales in grocery, we remain severely restricted by limited sales channels and finite shelf space in "brick and mortar'' provincial liquor board retail stores. Our wineries, especially small wineries, need more options to get their product to market.
The simplest and least disruptive way would be the complete removal of interprovincial barriers to trade. This would stimulate consumer interest and awareness in our products, resulting in greater wine sales for Canadian wineries and, as evidenced by the United States, increased wine sales for provincial liquor boards and retailers.
Senators, in preparation for my appearance, I looked back at my calendar and was reminded that the last time I appeared before this committee was June 13, 2012, when you were studying Bill C-311 and its proposed amendments to the Importation of Intoxicating Liquors Act of 1928.
As you may recall, on June 28, 2012, Bill C-311 received Royal Assent after unanimous passage through both the Senate and the House of Commons. This was not only a rare political event but a truly historic moment for the Canadian wine industry. Yet, in two months, we will mark four years since Bill C-311 passed. So what has been achieved?
Almost immediately after Royal Assent, both British Columbia and Manitoba opened their borders to allow interprovincial wine shipments. In July 2015, Nova Scotia opened its borders, but regrettably, the other provinces have dragged their feet in various ways, most frequently by issuing "policy statements'' that disavowed the permissibility of interprovincial courier shipments.
There have been a few positive steps in recent years to advance the issue.
In June 2014, the federal government amended the Importation of Intoxicating Liquors Act to allow Canadians to move beer and spirits between provinces for their personal use — extending the rights provided to wine in June 2012.
In 2014, the Saskatchewan government announced a reciprocity agreement with British Columbia which permits up to nine litres of wine to be direct delivered for personal consumption.
In February 2015, the federal government announced the creation of an Internal Trade Promotion Office to support the removal of internal barriers to trade. Wine has been included in the government's Internal Trade Barriers Index to explore federal-provincial regulatory cooperation opportunities.
In June 2015, provincial-territorial ministers agreed to remove internal barriers to trade, including laws that block wine from other provinces, with a commitment to a new internal trade regime by March 2016.
In July 2015, the courts received details of the Newfoundland government accusing FedEx that it broke provincial law by shipping "contraband'' wine from British Columbia into Newfoundland. The provincial Crown dismissed the case before a definitive ruling could be made.
In November 2015, the Fraser Institute released a report entitled Toward Free Trade in Canada, which concluded that the federal government should ensure that Bill C-311 is made visible to ensure that public and political pressure build on removing all remaining barriers to interprovincial wine delivery.
Just last week, a New Brunswick judge ruled that the province's restrictions on bringing alcohol into the province for personal use violate the Constitution's free trade provisions. This case has raised significant media discussion about the potential for a constitutional challenge regarding interprovincial barriers to trade.
Bill C-311 set the stage to allow for interprovincial wine shipping and provides a means to access consumers from Newfoundland to British Columbia, providing the promise to cultivate a loyal client base and build brand exposure through winery tourist visits, winery clubs and online sales.
Provinces and wineries have invested millions of dollars into tourism infrastructure, but as you can see, with the exception of three provinces representing 19 per cent of Canada's population, provincial policies and regulations continue to block 81 per cent of Canadians from having their favourite Canadian wine shipped to their out-of-province home for personal consumption.
Let me conclude by stating that when Canada signed the free trade agreement with the United States in 1989, there were approximately 50 Canadian wineries. Today there are 671 grape wineries operating across Canada. Times have changed, and our future success remains intricately tied to our growth and success at home.
As we strive to ratify trade agreements with CETA and TPP countries, it is vital to recognize that these countries already represent 89 per cent of total wine imports into Canada and will benefit from the front-end competitive benefits these agreements offer.
In 2005, the Supreme Court ruled in the United States that it was unconstitutional to allow for wine to be direct delivered within a state but not to allow wine to be direct delivered into a state from another state. Over the past decade, 45 of 51 U.S. states have amended their state laws and regulations to permit direct-to-consumer wine delivery. In 2015, small wineries represented less than 10 per cent of U.S. wine production but 63 per cent of total direct wine shipment volume and 73 per cent of direct wine shipment value. Not only does interstate wine delivery offer these U.S. wineries a new and important sales channel, where the average direct delivery price is US$38.40 per bottle, but it affords small wineries a means to scale up and even explore export markets — something many of our smaller wineries would like to consider.
Our industry is not scared of free trade and we're not afraid of competition, but our domestic and export success depends heavily on free trade within our own country. In a recent WineOnline article, François Morissette of the acclaimed Ontario winery Pearl Morissette stated:
Unfortunately for us Canadians, buying Canadian wines in Canada is a pretty complicated thing if you are not a restaurant. It is easier for us to sell our wines in Hong Kong than in the rest of Canada, and Ontario is basically my only big market. It's killing a market when it should promote it. Removal of the remaining interprovincial barriers to wine trade will help the Canadian wine sector adjust, take advantage and prepare for a new state of global trade.
The Chair: We now have Angella MacEwen from the Canadian Labour Congress.
Angella MacEwen, Senior Economist, Canadian Labour Congress: I appreciate the opportunity to be here. The Canadian Labour Congress brings together Canada's national and international unions, along with provincial and territorial federations of labour and 130 district labour councils. Our members work in virtually all sectors of the Canadian economy, in all occupations and in all parts of Canada.
I feel like I am the dissenting voice here.
Mr. Chair, even though the labour movement is keenly aware that trade is and always has been an important feature of the Canadian economy, we understand the interest that all levels of government will have in fostering healthy trade between jurisdictions, inside and outside of Canada.
Unfortunately, it is our position that trade agreements can unduly restrict governments' right to regulate, give huge advantages to larger businesses and rarely have effective protections for workers or for the environment. As such, trade agreements themselves do not always increase trade, improve economies or benefit Canadians.
Our question today is this: What is the problem that an updated Agreement on Internal Trade is meant to solve? Is it possible that there are better policy tools available to solve those problems?
Since 1995, many of the impediments to internal trade have been addressed. Most empirical studies have found that the costs of remaining internal trade barriers are quite small and that the benefits of expanding the Agreement on Internal Trade have been grossly exaggerated. Most often we hear about the movement of alcohol or the movement of trained workers.
On the labour front, I can tell you that considerable gains have been made in recent years, for example, with the Red Seal Program, which sets a high standard that's accepted in all provinces. We are confident that provinces are moving in the right direction on labour mobility and on harmonizing training, as well as certifications.
Do we need to re-open an existing agreement to deal with one-off issues that could more appropriately have experts convened to deal with them?
As Scott Sinclair recently told this committee, it would be an incredibly useful exercise to list and estimate the cost of specific trade barriers between provinces. Provincial governments could then cooperate to remove any costly barriers that do not serve a useful purpose, and that would be better than signing on to a far-reaching agreement that may have serious unintended consequences.
Another reason that we are talking about changing this Agreement on Internal Trade is to make it compliant with international trade agreements such as the Trans-Pacific Partnership or the CETA.
The labour movement has serious concerns about those agreements. They are not yet ratified, and the TPP is still undergoing negotiations and consultations across Canada. They contain elements that we feel are harmful to workers, the environment and local economies. Particularly, we want to preserve local governments' ability to deliver high- quality public services and to use procurement policies to promote local economic development and environmental stewardship.
We know that public procurement policies can have broad benefits, such as reducing waste and energy consumption, developing economic capacity among underserved populations, supporting smaller suppliers and suppliers that have sustainable and ethical business practices. Expanding the Agreement on Internal Trade will make it more difficult for provincial and local governments to accomplish this.
In terms of protecting public services, the drive to switch to a negative list in the Agreement on Internal Trade is very worrisome, particularly in light of potentially expanded investor dispute settlement mechanisms. A negative list means that any service goverments wish to be kept out of a trade deal, such as health care or education, must be specifically named. If new areas of service emerge or if there is a public consensus that new programs such as pharmacare should be brought into the public sector, then these services are automatically subject to the trade agreement. This is privatization by default.
A positive list gives all governments and their residents the chance to decide if they want to protect new areas of public service delivery. Even for those areas that have been protected in an agreement, stand-still and ratchet clauses effectively lock in the current level of privatization and only allow increased privatization rather than increased public- sector delivery. For example, if a hospital has outsourced meal, laundry and cleaning services but finds that they are getting substandard service for higher prices, decision-makers subject themselves to an ISDS complaint and a potential fine if they change their mind and want to bring those services back in house, even if, by all evidence, it's the best decision to make.
As it stands, the Agreement on Internal Trade prohibits adopting or maintaining even non-discriminatory measures that restrict or prevent the movement of persons, goods, services or investment across provincial boundaries. Moving from a positive list to a negative list would have wide-ranging consequences on the abilities of local governments to implement and to regulate in the public interests. This seriously ties the hands of elected officials at all levels of government in an unnecessary way.
We feel that Canada has followed the policy prescriptions from the OECD and IMF that we have been given from the 1980s and 1990s in terms of privatization of public services, trade liberalization and lowering corporate taxes, and we haven't seen the economic benefit that we were promised as a result. We would suggest to you that it is time to try something new rather than rehash old policies.
The Chair: Thank you, Ms. MacEwen. We will go to questions.
Senator Black: Thank you all for your presentations. It's fabulous work, and the committee very much appreciates the depth that you have gone to.
If I could, Ms. MacEwen, I would like to direct my comments to you, because it is always important to understand dissent. I presume that you have reviewed the evidence presented here over the last nine hearings, and you have certainly heard the evidence given today. You are clearly on an ice floe of your own. I am not saying that is good or bad.
Ms. MacEwen: Not by myself, but I am in the minority. Scott Sinclair would agree with me. He has presented here.
Senator Black: Very well. I am not criticizing; I just want to understand, because dissent is important. Conversation is important.
Ms. MacEwen: I agree.
Senator Black: I am interested in your response to the overwhelming evidence that we have received that there is a financial benefit in the billions of dollars to Canada and our provinces if we eliminate existing trade barriers. You have heard that today, and we have heard that consistently. What do you say to that?
Ms. MacEwen: I say there is other evidence out there that shows that the benefits are quite small, actually.
Senator Black: Could you draw our attention to that?
Ms. MacEwen: Absolutely.
Senator Black: That would be helpful.
Ms. MacEwen: One of the ways that these benefits are normally analyzed by economists is that you make certain assumptions. You assume that employment will not change, you assume that the amount of trade and imports and exports will grow hand in hand so that growth will be balanced, and you assume that there are no negative impacts in areas where we are quite concerned that there might potentially be negative impacts.
If you use a different model to analyze trade, you see a different outcome. For example, instead of assuming that allowing shipment of wine directly to households would be an additional benefit to the economy, I would argue that that's probably just replacing other purchasing of wine. While his industry may benefit from being able to do that, it certainly won't grow the economy in any real way. Do we think that Canadians aren't drinking enough wine?
Senator Black: The suggestion is that Canadians aren't drinking enough Canadian wine, which would employ more Canadians, which I would have thought would be of interest to your organization.
Ms. MacEwen: Absolutely, but the benefit to the Canadian economy is likely to be quite small from that.
Senator Black: Certainly, that is not the evidence we just heard, but nonetheless, what would be helpful —
Ms. MacEwen: You didn't hear evidence; you heard assertions.
Senator Black: I heard assertions.
Ms. MacEwen: Yes.
Senator Black: Thank you. It would be helpful if you could provide to this committee the assertions that you have —
Ms. MacEwen: Even the C.D. Howe Institute has looked at the benefits from trade and determined that they're quite small. I think Scott Sinclair gave you that study, so I'm sure it's in the record already.
The Chair: I don't know if the study is in the record, but I think it is.
Senator Black: We will have a good look at that.
Ms. MacEwen: Sure.
Senator Black: I have a second question: You said that the principle buckets of your concern with us moving forward with eliminating barriers in Canada would be that environmental regulations and worker protection would be potentially adversely affected, and local government autonomy would be affected.
Ms. MacEwen: It is interesting that you phrased the question that way. I am not opposed to removing barriers. I'm opposed to removing barriers in this way, because I feel what you are doing is too broad and will have negative implications. If you did what I suggested, you'd make a list of what the barriers are, what a reasonable estimate of the cost of those barriers is, and whether we feel that they actually are barriers or if they are beneficial and necessary regulation.
Some of the examples that the Retail Council gave are excellent in that there is no reason why it's this size in this province and that size in that province; it just happens to be that way. Let's get together and make that simpler. I think there are real things we can do that would be beneficial, but we don't necessarily accomplish that if we go to a negative list.
Senator Black: Do you like that thought of the Retail Council whereby there would be a small group of people brought together to vet regulations across Canada to basically eliminate those which are barriers to trade?
Ms. MacEwen: Absolutely. I think we had something in place like that when we had sector councils, where we could raise issues that were being seen by people in the retail sector. They could say, "Look, this makes no sense. I am in Ottawa and I can't ship into Quebec, and it makes no sense.''
There are barriers, and where there are real barriers like that that don't make any sense, we should absolutely move to address those. That could be better served perhaps through a sector council system rather than through a negative list.
Senator Black: That's very helpful. In your view, are there any no-go areas that this group could not or should not look at?
Ms. MacEwen: "That they could not or should not look at''?
Senator Black: And potentially eliminate. That would be the consequence of looking.
Ms. MacEwen: I would never want such a group to override the right of provincial governments to regulate within their authority. I would think that what you would do is have that group make recommendations and work with the provinces to find solutions that worked.
Senator Black: Isn't that the very problem; namely, that we have too many chefs in the kitchen? Isn't that the very problem?
Ms. MacEwen: Actually, for what a lot of people list as barriers, maybe the province has a reason for putting that in place. Maybe that regulation is there for a good reason and, if you sit down and talk to each other, you can find another way around it.
Senator Black: Thank you very much. Your daughter should be proud. You did a very good job today.
Senator Wallin: We have heard from a long list of witnesses on this topic. We have also heard — sometimes amusingly, but we know it comes at a cost — a long litany of bizarre anecdotes that speak to what happens when you have all this resistance to free trade within our own borders. We heard from you today, Ms. Grynol, about needing a task force to look at the decision-making process of this group of premiers and leaders, and that they require 100 per cent attendance.
I am wondering whether at some point you folks in your individual organizations, or maybe collectively, might think that it would just be faster and wiser to go to the Supreme Court of Canada and get some kind of a ruling rather than coming and telling us repeatedly that this is really important, which you've done. We kind of agree; it's just that we don't see a path to get there. Who would like to take that on?
David Wilkes, Senior Vice President, Government Relations, Retail Council of Canada: That's a very interesting option, Senator Wallin. I think we look at experience we've seen internationally. Today, in Washington, the Regulatory Cooperation Council between Canada and the U.S. is meeting and looking at making changes to specific regulations, some of which the Retail Council of Canada has put on the agenda.
I'll give an example to illustrate: Car seats. There are different testing regulations in Canada and the U.S., but there are not different safety outcomes. I could go into differences in the density of foam as an example.
But we see that process working and making headway. I truly do believe, Senator Wallin, that this is more something that requires political leadership and a will to eliminate the barriers that our colleague from the vintners association talked about. That would send a message to Canadians that we want to have internal trade as free as international trade. We believe that that also allows for the type of commentary, on an ongoing basis, that the labour congress has talked about, as well, in discussions.
I would argue that the Supreme Court may provide a ruling, but I do believe that this is more of a function of democracy than legal proceedings.
Senator Wallin: I couldn't agree more. We just don't seem to be able to find that route or the political will, despite all the public protestations.
Mr. Wilkes: I believe if we can find the political will in our largest trading partner — the U.S. — the same political will can be found here.
Senator Wallin: An optimist. Mr. Paszkowski, would you like to add to that?
Mr. Paszkowski: The United States followed the Supreme Court ruling and found that disallowing direct delivery in the U.S. was unconstitutional. It took 10 years, but now almost all states have amended their rules to allow for it, and the industry is benefiting from it. They don't have many liquor control states any more in the United States, so it's a different model than we have here.
We'll have to see what happens with the ruling in New Brunswick and whether or not there's an appeal and, if there is an appeal, whether it's successful. I'm not a lawyer, and section 121 is complicated. I find it hard to believe, with the Constitution being in place for so long and that section having been abused for so many years, that if that decision is correct, that it could be overruled. But it may be.
I think the political will has to be there. We have had three provinces now, in the case of wine, amend their rules. We believe that the fastest track would be to amend the federal law. We did that, but the provinces didn't follow the spirit of the law. Our hope is that the IT process will get us to where we want to go, and that having Liberal governments in most wine-producing jurisdictions may be what's required to get over the logjam that's been in place. If the appeal is successful or the ruling goes to the Supreme Court, we'll follow that track as well, but that would be a lengthy process for us to follow.
As we sign these trade agreements, it's not that we're scared of them, but we need to be able to grow in Canada to be able to export abroad. In the United States, those small wineries are growing; they have more margin and are succeeding, and they soon will be entering into Canada and taking market share away from us, so the fastest method is the one we would prefer.
The Chair: Do you wish to comment, Mr. Dorval?
[Translation]
Mr. Dorval: In our presentation, we clearly state that it is understandable that provincial jurisdictions wish to establish regulations and make decisions based on their citizens' needs. This is why a bottom-up approach is preferable to a top-down one. We salute the first ministers' efforts to find solutions to this problem. Through awareness raising measures, each province must come to understand the importance of eliminating interprovincial barriers in Canada as quickly as possible. Mutual recognition is an excellent example: we recognize that there may be differences among jurisdictions, but when a decision is made in one province, it automatically applies in the other provinces. This would eliminate many barriers. This is a political rather than a legal decision. There is always a way of reaching an agreement. We have seen steady improvement over the years. All this work takes time of course, but this is the basic principle of a federation. By working together and in particular thanks to the work of the House of Commons and the Senate, and by raising awareness of the impact of these issues on our national prosperity, we can get results. As the groups around the table know, prosperity spells a better quality of life for all citizens and workers.
[English]
The Chair: Does anybody else want to say anything? I'm glad there's no great enthusiasm for the Supreme Court. It would make me very sad.
Senator Campbell: I hate to burst the bubble, but I believe that this should be going to the Supreme Court. We keep talking about section 121. What does it say? It says that:
All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.
That's from 1867. Mr. Paszkowski said that that section is being abused because we don't have interprovincial trade. That's not exactly true, because we did have interprovincial trade until 1921. When we took this to Britain, which was our high court then, it was called the Gold Seal case. That court said that provinces can literally prohibit certain products from entering a province. There is this trail of judicial decision-making that's gone on. It's been 100 years since that decision.
I would ask each of you: Do you want to fool around here and come back 10 years from now and sit here discussing the same topic, or should we take it to the place where we will have a decision once and for all and then let the provinces figure out what they're going to do with marketing boards and about this? I would like your opinion on that, because we will be back here in 10 years. You're never going to have 10 provinces agree on anything. That's the problem we have. It's time for the federal government to put on its big-boy pants and go out there and actually lead this country in an area that must mystify anybody watching this broadcast. What do you think about that?
Mr. Wilkes: From a retail perspective, it's rather a unique challenge we have, as Ms. Grynol indicated. It is more inconsistent regulations that we're trying to manage and the cost of compliance in Ms. Grynol's examples, as opposed to the movement of products and interprovincial trade as it related to section 121, which you mentioned, senator.
That's why we made the recommendations that we made, based on examples that we've seen internationally of the appropriate and direct ways to deal with those inconsistencies. Our challenges are somewhat different and might not benefit from a ruling of the court.
Senator Campbell: We keep talking about international, but this issue isn't international. This is our country. We all live here in the same spot, we're all governed by the same rules, and yet for some reason — we know many of the reasons — we can't move it. I don't know why we keep going to a U.S.-Canada deal. From my point of view, I don't see that as consistent. I agree with Ms. MacEwen. Some of these trade agreements scare the living hell out of me. Why can't we have a Canada-made solution for what is clearly an unconstitutional act?
Ms. Grynol: Maybe I can talk about that one. We haven't lost all hope just yet. We've seen in the last 6 to 18 months more political will than we've seen in a long while. We have a commitment from the minister and a commitment from the premiers. The Committee on Internal Trade is meeting shortly and, as we understand it, will be coming forward with a new Agreement on Internal Trade.
There are still issues with regard to the decision-making process. You are quite right: We could end up back at this table five years from now having this same discussion, which is why our recommendation Number 1 is so important. If we create a council, a committee, or whatever you want to call it, with provincial, federal, and appropriate industry and worker participation, we can sit down and have a look from a bird's-eye view at what is being created across the country. We take your point; there are regulations that exist for good reason. Tthere has to be an inventory from a bird's-eye view where we can say, "This one is being created in one province, and it is unnecessarily different than another province, but that one is being created for a good reason.''
The next question you're probably going to ask is: "Where do we start on that?'' In 2014, the minister commissioned a study, currently taking place by Ernst & Young. It is an index of the significant regulatory barriers in Canada. That, in our view, would be a very good starting point. That is going to come to fruition at the end of this calendar year, and it will identify the largest trade barriers. Presumably there would be some costing associated with that as well. That group could look at it as a starting point, at least to examine the existing regulations.
In our view, that group would have two functions. One is a forward-looking function where the regulations to be created need to be done either jointly or harmonized, and the second is a backward-looking approach where we examine regulations that exist. They're probably going to fall into four different categories. First, they could be mutually recognized; second, they could be harmonized; third, they need to stay different; and then I suppose in the future they would be jointly developed.
The Chair: Could someone tell me a good reason for something? You just said that in some cases there are good reasons that regulations prevent trade. Give me a couple of examples.
Ms. MacEwen: This is an example that happened in Canada. One provincial government maybe leads other provincial governments in identifying harmful toxins in additives in gasoline. This happened in Canada where one province banned an additive to gasoline, and they were sued under the Agreement on Internal Trade, saying it was harmful to businesses because they wanted to sell products with this harmful additive in it. It resulted in a NAFTA chapter 11 lawsuit where we had to pay quite a bit of money so that we could avoid having the additive in our gasoline, which had been a proven toxin.
That's mainly the kind of example I'm thinking of, where one province is leading the way — one province has higher standards in terms of labour law and environmental law, which very often happens. We know that different provinces have different standards, and very often they will catch up. With minimum wages, we know one province will lead the way, one province will fall behind for a while, and there will be considerable pressure for them to catch up. If we had to harmonize that all the time, the fear is it would be harmonization downwards rather than allowing individual governments to lead the way, especially on the environmental front.
The Chair: Do you think minimum wage is a barrier to free trade?
Ms. MacEwen: It could be.
The Chair: Give me an example. Why would it be a barrier to interprovincial free trade?
Ms. MacEwen: If you had a trucker and you needed to pay them a certain amount of money to stop in Alberta and Saskatchewan, you would need to pay them the highest minimum wage of those two provinces. It now becomes difficult to sell your goods between provinces. Wages are often raised as trade barriers, as are benefits. Quebec has a fantastic agreement around protecting the rights of women on maternity leave. There's actually a bill on this right now. If you're a woman and your work is hazardous to your health or the health of your fetus, in Quebec they have a program whereby the employer has to find other work for you or pay you 90 per cent of your wage to go home. In Ontario, that's not the case. That program could potentially be raised as a barrier to trade because it makes it difficult for someone to set up shop in Quebec.
The Chair: That's a long way from shipping a bottle of wine from Kelowna to New Brunswick.
Ms. MacEwen: Absolutely, but if you introduce a negative list, that's the consequence. That's why we think it's better to deal with specific issues as they're raised rather than have this far-reaching, broad list.
[Translation]
Mr. Dorval: The basic principle was the way things were in the past. Now the provinces agree to foster the best conditions possible for trade with as few barriers as possible, and therefore to work towards agreements or mutual recognition. The principle now is that the provinces are in favour of a steady flow of interprovincial trade, with the minimum difficulty.
Since you raised the issue of regulations, there is another principle at play that is becoming increasingly important: social acceptability. In each province, social acceptability is not simply a question of the environment. It also entails a decision in which the lawfully elected governments of each province engage with their citizens. Perceptions can differ on various issues from one region to another, whether the environment, taxation or regulatory issues et cetera. The provinces are also faced with specific conditions. Consider transportation: the vision in British Columbia differs from that in a more Nordic climate, such as in Quebec.
Fundamentally, I think elected officials strive for decisions that might be slightly different, but that are all guided by the desire to improve the conditions that foster prosperity, and thus to reduce barriers or, if not possible, to opt for mutual recognition.
Even though the process is time-consuming, I think we are on the right path. In our modern era, we cannot think about the way things were 50 or 100 years ago. I think we should look ahead to the future more optimistically.
That being said, since the witness before me talked about the favourable conditions involving benefits in Quebec, I would point out that, although Quebec employers pay $225 million, or rather $231 million now, for the safe maternity program, there has been no indication of improved conditions, reduction in low birth weights or premature births, and so forth. We have to exercise caution therefore since the generous social programs in Quebec do not necessarily produce such striking results as compared to other provinces. It is very important to look at the results, not just the fine principles and good ideas.
That said, we believe that barriers still exist, which is why we are in favour of promotion and awareness. Canadians right across the country are truly in favour of more effective interprovincial trade. At the same time, the citizens of each jurisdiction also favour certain provisions that best address their concerns, while also recognizing that interprovincial barriers must be eliminated as much as possible. We are also proceeding in that direction.
[English]
Ms. Grynol: We would have used the example of minimum wage but from a different point of view. Minimum wage would be an example of where a legitimate difference should exist. In Alberta versus P.E.I., there should be a difference. That is not a barrier, in our view; that is a legitimate difference.
Where it could be a barrier, though, is the method of calculating overtime is different in many provinces. Perhaps we could agree on a method of calculating overtime and agree that the difference would be the minimum wage.
The Chair: That's a good idea.
Senator Enverga: Thank you for all the presentations and all the comments. It's been so interesting.
My question is with regard to jobs. The Retail Council members have 2 million jobs for employees. The vintner sector would have at least 30,000. When we eliminate these provincial trade barriers, what will be the effect? As soon as you remove these trade barriers, we will be streamlining operations somehow,as I see it. What's the effect on these job numbers?
Mr. Paszkowski: It won't be a panacea for the Canadian wine industry, but it will allow us to reach our consumers across the country, identify with the Canadian brand and ultimately will result in more wine sales. We don't anticipate that it would be significant wine sales, but it would be of our most premium, highest-priced wines that would access to high-income Canadians that will help grow the small wineries into a bigger business.
Over time we believe it will help us with our tourism industry, because right now, if a tourist comes into our winery, if they're from Ontario and you're in Niagara, we can ship the wine to you in Niagara. If you're from Texas, we can ship the wine to you in Texas. But if you're in Saskatchewan, sorry, you can't purchase the wine. You'll have to bring it on your person and, by the way, you can only bring nine litres, otherwise you're violating Saskatchewan law and you can be fined or thrown into jail.
It will help the industry grow — the smallest industry at best. They will be able to use social media, Facebook, sell wine online, have wine clubs and that type of thing. It will help the small guys grow, as it did in the United States, where the vast majority of the volume and the value goes to the smaller wineries who don't have access to a distribution system.
A small winery in Ontario may have access to the LCBO but really not play in a bigger field outside, because the margins on your sales will be too low and you really have a small workforce. By allowing direct delivery, you're now going to provide access to all Canadians. That winery now will be able to build that loyalty, maintain that loyalty and grow their winery and over time hopefully you'll be in a position to have enough wine to sell into the LCBO or maybe enter into the SAQ in Quebec.
The Chair: Senator Enverga, there's a short supplementary by Senator Ringuette.
Senator Ringuette: I haven't yet heard any of our panelists, today or at other times, talk about the issue of the impact on provincial income. When you ship wine to another province, who pays the provincial sales tax?
Mr. Paszkowski: If you purchase the wine in Ontario, you're at the winery. The out-of-province consumer will pay Ontario sales tax, levies, markups, et cetera. In the case of British Columbia, they've opened up their market to direct delivery. It would be the same circumstance there. The consumer will pay the Ontario taxes, for example, versus British Columbia.
Senator Ringuette: That is a major issue.
Mr. Paszkowski: There is a way to address that. That is the concern of the liquor boards and the provinces, and we've always argued tha.t in a permanent reporting system. that could be easily taken care of and the revenues could be transferred to the home province where the wine is being delivered. It's not that difficult to do with today's technology.
The issue is that when you use the liquor board system, for example, in Ontario, it's 66 per cent markup. They're providing you a service. If you're not using that service, should you be paying a 66 per cent markup when the winery is doing all of the work? They're doing the paperwork, they're doing the tax collection, they're organizing the courier — they're doing all of the work. That's what the issue becomes.
Underneath the AIT and all trade agreements, there's an audited cost of service where the service actually matches up with the cost, the cost matches up with the service provided, and that should be the same case. There should be a lower markup on that particular wine and all other taxes should be paid.
Senator Enverga: Do you have any comments?
Ms. MacEwen: Yes. I just wanted to say, as an economist, the theory is that you try to reduce some of the costs from the headaches that they're talking about and the basically unproductive work that's being done. If you're doing that work, it's not productive, but you can then shift resources and invest it into more productive areas that will grow your business and create better jobs hopefully. Under ideal circumstances, that is what you would be able to do, and you would have more resources, again, hopefully to innovative or to invest in other technologies or research that would help you grow. That's the ideal but we don't always see that happen.
Ms. Grynol: That is exactly what I was going to say, and potentially in addition better jobs and more jobs. As the retail sector, we are the largest private sector employer. Any time you can reduce cost and make your business and your retail organization more productive, you can hire more people and you can grow.
The Chair: Mr. Dorval, did you want to comment on that? If you don't, I'll go to Senator Smith.
Senator L. Smith: The various witnesses that we've seen over the past few weeks have brought up similar points: mutual recognition, federal-provincial industry council, looking at regulatory issues, negative lists, review the AIT decision-making process, and we heard social acceptability today from Ms. MacEwen.
Here we are going back to Senator Campbell's question and then, Ms. Grynol, some of the responses you've had, but I'm asking each one of you: Where will we be five years from now? Is it going to be incremental growth or change, or is it going to be major? What steps will lead us to just incremental change, and what steps would lead us to a major change? If I could ask each of you to give me your opinion without having to go through the whole answer, what would be the key to each of you to either have major change or incremental change, and either/or. Do you understand the question?
Ms. Grynol: Yes.
Senator L. Smith: It's a magic wand question, but I just want to see where your heads are at.
Ms. Grynol: I suppose there are no guarantees for change with respect to the Agreement on Internal Trade, because it is subject to every party coming to the table and agreeing on it. We're optimistic, but there are no guarantees. Where there is a guarantee is for us to create a group immediately outside of the AIT, though it would be great if it was included in that as well, where we had decision makers come to the table, provincial, federal, and appropriate industry consultations, to examine the existing regulatory barriers to identify the ones that are the highest priority, and that's where you're going to get your high-yield results that you're asking about.
Senator L. Smith: Are those priorities defined at this particular time?
Ms. Grynol: The study I referenced earlier being conducted currently by Ernst & Young I think will form the foundation of that. That study could form the basis of this entire exercise. If we can identify the top 10 and deal with them, in our view, that is your best chance of getting any change immediately, and that would be a significant chance.
Senator L. Smith: What's the definition of immediately?
Ms. Grynol: As quickly as we can get people together.
Senator L. Smith: When will the study be accessible?
Ms. Grynol: At the end of this calendar year.
Senator L. Smith: You mentioned that.
The Chair: Go ahead, Mr. Dorval. Do you want to take a crack at this?
[Translation]
Mr. Dorval: First of all, we think the global context plays a key role. There are international free trade agreements, such as with Europe or the PTP, that will lead to a greater emphasis on trade effectiveness in Canada in all respects. There is global competition and we are fortunate to be in a country that can improve its effectiveness. Some things will happen at the same time over the coming months.
There are very important discussions about access to energy resources that located in certain provinces and about the possibility of making greater use of Canadian products in the Canadian economy which will raise awareness of the fact that greater cooperation among the provinces, especially on energy matters, will lead to greater prosperity for Quebec. There are certain conditions at present, be they in the external environment or the domestic environment, which will lead to decisions in this regard.
We have talked a lot about trade, but very little about e-commerce. E-commerce has probably the fastest growth rate in the world; in Canada, it impacts the perception of sales taxes from one province to another if not internationally. Once again, if we want to resolve problems relating to equity, taxation between the provinces, rather than between Canada and other countries, we will have to start resolving these issues in Canada and ensure that the perception of sales taxes from one jurisdiction to another is correct, especially as regards e-commerce.
The issue of capital brings us to the debate over real estate commissions in recent years. We have a passport system, which also has positive sides.
Beyond that is the issue of labour. In Canada and in Quebec in particular, a large sector of the population is aging, and we are seeing changes in the need to match qualifications with labour market requirements. This will increasingly lead jurisdictions to vie for better ways of attracting the best human resources in order to achieve the best match as regards quality and skills recognition.
Canada has a Red Seal system. This is a problem for Quebec, however, because we do not recognize the same skills as under the Red Seal. Some of the skills recognized in Quebec are not included under the Red Seal, but they might be of interest outside Canada.
There are issues to be resolved, but I think international market forces and domestic considerations, be they e- commerce, energy resources or access to quality labour, will accelerate shared decisions. That is why I am optimistic that we will certainly have made a lot of progress on these issues in five years from now. We are in agreement on several points presented here by the Retail Council of Canada, and we share many of their views and solutions.
[English]
Mr. Paszkowski: In terms of five years, my hope would be that the political will would be there to address the low- hanging fruit. Wine has been identified as a low-hanging fruit issue that could be addressed relatively simply by putting in place a permanent reporting system or something of that nature to attract wine delivery and collect taxation — yes, actually collect taxation as opposed to what the liquor boards did after the passage of Bill C- 311, which was to allow a consumer to bring in one nine-litre case every time they leave the province. As long as it comes back on their person, no tax is collected on that product. If the political will is there, I think we could achieve something.
If it is incremental, in the next little while I could see liquor boards in Ontario putting in place an electronic commerce system where you could go online and order a case of wine that will arrive at your doorstep in four to eight weeks, which isn't sufficient. You will be paying full markup on that product. It has no additional benefit to the winery or to the consumer. New Brunswick, if they are not threatened by the decision on Friday, may decide to put in their nine-litre allowance as every other province did to obfuscate what happened after Bill C-311 was passed.
On the other side, if nothing happens under the AIT because the provinces are told by the liquor boards that no action is required, then there is a possibility that the Supreme Court route would be the one that would ultimately be followed. We will wait to see what happens and hopefully benefit from the result.
In our case, it's simply political will. Three provinces have acted; we are waiting for the other seven to move forward.
Ms. MacEwen: I will be absolutely hopeful in my estimation of what will happen in five years.
I'm going to say that Canada and the United States will have rejected the Trans-Pacific Partnership and that we'll have been able to amend the CETA to get rid of the negative lists and investor court system that is basically the same thing as the ISDS. We will have established the sector councils that the Retail Council talks about, and we will have identified clearly list of the actual trade barriers and what their costs are, and we will be able to sit down and talk about them in a concrete way.
This is what we have already done on the labour front. The question presumes that we have made no progress since 1995. We have made considerable progress since 1995. We have made progress since 2008.
On the labour side, we have absolutely made progress. Registered nurses can now move from province to province and be recognized. That did not happen before. The accountants have reworked their entire training and system to have one system that is recognized across Canada. That is just in recent years. That is because of the AIT and the work on the labour standards.
I think it should be recognized that incremental progress is probably robust and effective and that we need to do it based on evidence. The sector councils and the evidence that we have talked about are probably the best way to do that.
I do hope that government will invest in a real industrial policy to shift us toward a green economy. I will just throw that in.
The Chair: Thank you for that.
If there are no further questions, we will suspend for a couple of minutes and then come back to talk a bit about future business. Let us use the suspension as a time to really thank our witnesses, who have been terrific. I think we learned a lot, and I think that senators had a good time questioning and discussing it with you. To those on video conference, I wish you were here. Nonetheless, thank you very much.
With that, I will suspend and reconvene in a couple of minutes.
(The committee continued in camera.)