Proceedings of the Standing Senate Committee on
National Finance

Issue 7 - Evidence - November 2, 2011


OTTAWA, Wednesday, November 2, 2011

The Standing Senate Committee on National Finance met this day at 6:35 p.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.

Senator Joseph A. Day (Chair) in the chair.

[English]

The Chair: Honourable senators, I call this meeting of the Standing Senate Committee on National Finance to order.

[Translation]

This evening, we are continuing our special 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.

[English]

We are very pleased to welcome Mr. Mark Carney, Governor of the Bank of Canada; and Mr. Tiff Macklem, Senior Deputy Governor. This evening we have started our proceedings 15 minutes before we normally do in order to maximize the time with our witnesses, who, as you might guess, have a very charged calendar these days. We will try to stay within the time that we have agreed upon of roughly 7:15 p.m. We have 45 minutes with our witnesses.

Mr. Carney, you have the floor.

Mark J. Carney, Governor, Bank of Canada: Thank you, Chair and honourable senators, for the invitation. I am very pleased to be here. I apologize that we are starting five minutes late. We will push back the other bits of our schedule and go forward.

[Translation]

Mr. Macklem and I are pleased to be here this evening to discuss retail price differentials between Canada and the United States.

The mandate of the Bank of Canada is to enhance the well-being of Canadians by contributing to sustain economic growth. The most direct contribution that monetary policy can make to sound economic performance is to provide Canadians with confidence that their money will retain its purchasing power. In Canada, this is achieved through an inflation-control targeting framework. Inflation-control targeting has been a cornerstone of monetary policy in Canada since its introduction in 1991.

Since 1995, the target range has been 1 per cent to 3 per cent, with the Bank of Canada's monetary policy aimed at keeping inflation at the 2 per cent target midpoint.

[English]

It is important to stress that the target is for total CPI inflation, which is the best measure of the overall cost of living for Canadians. We do not try to target or to control prices of individual goods and services.

With 2 per cent inflation, there will always be some prices rising more quickly and others more slowly. Central to a market-based economy is the role of relative price signals in allocating resources. To understand the evolution of CPI inflation, the bank looks at the forces shaping various prices, one of which is consumer price differentials between Canada and the U.S. We also examine the role played by the exchange rate in price gaps, about which I will speak in a moment. We look at both of these and the factors that drive them to understand how prices are set in Canada, which, in turn, contributes to our analysis of the inflation expectations of Canadian households and businesses and, ultimately, to our ability to fulfil the bank's mandate.

We use two sources of information to estimate the size and evolution of retail price differentials between Canada and the United States. The first is consumer price index information from Statistics Canada and the U.S. Bureau of Labor Statistics. In particular, we examine the ratio of Canadian CPI to U.S. CPI for three price categories: autos, other consumer durables and clothing. These ratios provide information about the evolution of prices in Canada relative to prices in the U.S. On their own, however, they do not tell us much about the absolute dollar amount of price gaps between the two countries. To assess the price gap level, we use information about the prices of specific goods in both countries gathered from an informal internal Internet survey conducted by the Bank of Canada staff. Using these two sources of information, the bank's best estimate is that the Canada-U.S. retail consumer goods price differential was 11 per cent in September of this year, down from 18 per cent in April. In other words, prices of a set of comparable goods in Canada are on average, in our estimation, 11 per cent higher than the prices of those same goods in the U.S. I would caution that these are estimates and there is some uncertainty around them.

An important question — and the focus of this committee, which we welcome — is why this gap has not narrowed more for similar goods given the increase in the value of the Canadian dollar. For your consideration, allow me to discuss some of the possible factors, both macroeconomic and structural, that influence the prices of goods and services in both countries.

First, cyclical issues may be responsible for some of the differences between Canada and U.S. prices. Unexpected economic weakness in one country, in this case the U.S., could lead to an undesirable buildup of inventories and result in local discounting of prices. In addition, as long as markets are partially segmented across international borders, market power may enable firms to respond to local demand conditions, possibly resulting in lower prices in areas with weaker demand.

Secondly, from a macroeconomic perspective, prices take time to adjust. Importantly this is true in response not only to the exchange rate but also to anything that changes in the economic environment, and this is why there are lags in the effects of monetary policy.

In addition to macro elements, there are structural factors, including profit margins and underlying costs, that influence the prices of goods and services and that can also contribute to the gap in prices between our two countries.

[Translation]

Operating profit margins for both the wholesale and retail sectors will have an impact on the prices of consumer goods in retail outlets. One possible reason that margins have remained elevated in Canada may be that the retail environment is more concentrated in Canada than in the United States. In Canada, the top four retailers have a 28 per cent market share, compared with only 12 per cent in the United States.

On the cost side, there are a number of factors that are important for understanding the differences in prices in Canada and the United States. Labour costs tend to be higher in Canada than in the United States. For instance, in the retail sector, total compensation per hour is higher in Canada. Despite that, retail- and wholesale-sector employment is higher as a share of total employment in Canada, even though retail and wholesale trade in Canada each represent a smaller share of real GDP.

The latter reflects Canada's productivity performance in the retail sector, which has lagged behind that of the United States. That is partly a result of a much lower level of capital intensity in Canada and lower total factor productivity growth.

``Total factor productivity'' refers to how labour and capital are combined to create efficiency gains. Here, industry structure appears to matter, with larger productivity gains from investment at chain stores than individual stores. Following 1995, productivity surged in the United States, with investment in new equipment and organizational change. In Canada, these effects do not seem to have been experienced to the same degree, perhaps owing to the more localized nature of our markets.

[English]

Transportation is another factor on the cost side. While fuel costs are only a portion of total transportation costs, the difference in gasoline taxes between the two countries makes gas more expensive in Canada. Lower population density in Canada may also contribute to higher transportation costs on a per-item basis. All of these factors, and other domestic value-added services such as marketing, are priced in local currency. Thus when the value of the exchange rate moves, these costs to Canadian retailers, which must be paid in Canadian dollars, do not change.

For imported goods reflecting the smaller size of the Canadian market, the price paid by the Canadian importer of a good may be higher than that paid by an American importer. The Canadian market is roughly one tenth of the size of the U.S. market, suggesting a much smaller potential for economies of scale. While this may not be as much of an issue for large retail chains with a presence in both markets, smaller, mostly domestic retail firms could be affected.

Finally, given all of these factors just discussed, allow me to turn to the role played by the exchange rate in price differentials between Canada and the United States. As mentioned earlier, consumer prices tend to be sticky, and this is true on both sides of the border. More broadly, the segmentation of international markets, in part due to higher costs of shopping abroad, creates limits to competitive pressures. In addition, paying attention and adjusting to fluctuations in exchange rates requires time and energy. It is costly. When fluctuations in the rates are relatively small, not all firms and consumers tend to pay close attention.

In short, it makes sense to focus attention where it matters most, and that is one reason why prices are only adjusted over time and price gaps persist. However, when the movements in the exchange rate are particularly large they attract more attention and the adjustments tend to be much faster, which we saw in the fall of 2007. The most useful illustration of these phenomena is the behaviour of online book prices. These are often completely homogeneous goods on both sides of the border. The cost of changing prices for an online retailer should be minimal.

In addition, it is difficult to think of an easier case for consumers to take advantage of price differentials. Comparing prices is just a matter of visiting different websites. There is no constraint or tariff involved when ordering from abroad, and the transportation costs are known.

Despite all this, while online book prices do change frequently, they typically do not respond quickly to fluctuations in the exchange rate. However, as indicated in the graphs at the back of your package, they did so in the fall of 2007 and they did adjust to a very strong Canadian dollar appreciation.

Typically, exchange rate movements tend to be reflected quickly in prices for only a narrow range of goods that are homogeneous in nature, for example, fruits, vegetables, gasoline and meat prices. For other goods and services there is no apparent short-run pass-through of exchange rate changes.

The greater the value added in Canada to a good or service, the smaller the role played by the exchange rate in its price; however, estimates of pass-through at a more aggregated level, such as core CPI and total CPI, are quite low. Estimated pass-through is about 3 per cent for core inflation; pass-through the exchange rate into core inflation is about 3 per cent for core and 4 per cent for total. To elaborate, this means that a 10 per cent rise in the value of the dollar would be expected to lower the level of total CPI by 0.4 per cent.

Similar to the experience of many countries, exchange pass-through has declined in Canada over the last 20 years. Some possible explanations for this include better-anchored inflation expectations associated with the conduct of monetary policy and associated increased credibility, and the changing composition of trade, for example, the switching to different goods as relative prices change.

I trust and hope these comments provide some insight into the underlying dynamics of Canadian-U.S. price differentials. With that, Mr. Macklem and I would be pleased to respond to your questions.

The Chair: Thank you very much, Mr. Carney. Your comments indeed build on the comments that we have heard from a number of witnesses the last two or three weeks. There are a lot of interesting factors that we have to look into in this committee and we will be continuing this study into the new year.

At the present time I would like to go to senators who have asked to participate in questions and answers and I will start with Senator Gerstein, from Toronto, who is the deputy chair of the committee.

Senator Gerstein: Governor, thank you for your excellent presentation. As you obviously know, the study we are conducting is basically to look at the price discrepancies based on the value of the Canadian dollar versus the U.S. dollar. What I found very interesting, and the chair has alluded to it, is that our witnesses to date have raised issues, as you have raised some of them — geography, language, scale and size of the market, tariff fees and taxes, occupancy costs and global strategic pricing of manufacturers, amongst others that you have mentioned. However, there has hardly been mention of the value of our Canadian dollar versus the U.S. dollar, and as a matter of fact we even had one witness who indicated that if the value of the Canadian dollar went to $1.20 versus the U.S. dollar he would not expect there to be any change.

You have addressed a number of these issues directly, but the one issue I would be interested in having you pursue further is the effect of pricing on cross-border shopping and the effect of cross-border shopping on the Canadian economy.

Mr. Carney: There is an effect obviously particularly when there is a focal point, such as when the currency is around current levels, when it is around parity and the comparisons are quite easy.

That is one aspect of a focal point. The other aspect is a sharp move in the level of currency. Both of those attract greater interest and attention to the possibility of price advantages being south of the border. As committee members and all Canadians are aware, the vast majority of our population lives within 100 miles or so of the U.S. border, and this is a real opportunity.

The actual scale of cross-border shopping is quite modest. The order of about 2 per cent of overall retail sales in Canada are sourced actually or virtually cross-border. It is a relatively modest order of magnitude, even given the scale of exchange rate moves we have had and the advantage for comparison shopping of being around parity with the United States.

We have lived through — all of us over the course of decades — periods of time where there have been more severe impacts on direct border communities of surges in cross-border shopping. For the economy as a whole, it has not been that prevalent. The degree of competition that has engendered does appear to have been determinative in forcing more rapid adjustments to exchange rate moves. I would sum up the overall in this manner.

Senator Gerstein: Thank you. That is helpful.

Senator Eggleton: As the chair says, you built upon a lot of information we had already about the different causes of the differential. Let me leap over to the solution side of things because we have also heard some ideas about that. Harmonizing taxes and tariffs — for firms that need source materials and inputs from abroad — with what the U.S. tariffs are for identical inputs would be one possibility. The second would be relaxing personal exemptions for Canadians travelling to the United States. Right now you have to stay 24 hours to get $50, but the U.S. has a much higher amount as I understand. There is some suggestion they might even go to a $1,000 exemption. Should we have a same-day exemption or something much higher than it is now? What would the impact be on the economy? I think the idea is that it will force Canadian prices down because it will be more competitive. More people going across the border would force the prices to change on this side of the border, within that 100 miles.

Mr. Carney: To some extent I will hesitate to give direct advice to the government on matters of their responsibility.

Unfortunately, both of those questions are directly the responsibility of government, in terms of quality of the response I would like to give you. However, I would say that while there are tariff differentials between Canada and the United States on the baskets of consumer goods — and while there are merits in reducing tariffs for competitive reasons and the relative inefficiency of the revenue raised from tariffs — those differentials are not that large. One would not necessarily anticipate a substantial impact from those adjustments. There are other reasons to do them, but I would not necessarily anticipate other impact. We do not have a formal quantification of the dynamic aspect of simplifying a broad range of measures. These measures make the North American market more seamless and border- free with less friction. They create the opportunity for true economies of scale across the border and in their totality would — and there are a number of measures that would apply — create the opportunity of compressing some of these differentials.

In terms of the exemptions, I will be frank. We have not done any estimate of the potential impact of that. I am aware of estimates from my previous life — as Mr. Macklem is from his previous life — in the Department of Finance. I would prefer that be directed to the minister. We do not have an independent Bank of Canada estimate. My caveat to this would be that we need to situate these issues in terms of relative order of magnitude of cross-border shopping that existed, and the fluctuations of that in Canada. The order of magnitude of the purchases could go up. However, in terms of the broader impact of competitive dynamics in Canada, one might have some caution that this would be determinative in and of itself. I know you are not suggesting that in terms of price caps.

Tiff Macklem, Senior Deputy Governor, Bank of Canada: As the governor was saying, cross-border shopping is 2 per cent of retail spending. To add on that, we have not seen — and I am sure you have heard from others — a dramatic increase of cross-border shopping with the appreciation of the Canadian dollar. You can see some increase in the average size and value of purchases, but not a big surge in cross-border shopping in the way we have had other times in history.

The Chair: Before I go to the next senator, you mentioned the target with respect to inflation. You indicated an 18 per cent spread and down to 11 per cent in the difference in prices of goods based on studies that you have done. Let us assume that your figures are correct. What impact does that have on your inflationary targets?

Mr. Carney: The majority of that movement reflects a depreciation over the period — remembering it is from April to September — of the Canadian dollar, which mechanically changes the level of the price gap at a point in time. April was a local high for the Canadian dollar. September was relatively low. The rule of thumb in terms of exchange rate pass-through is something on the order of 3 or 4 per cent — given a 10 per cent change in the Canadian dollar, roughly a year out — so that is 0.3 or 0.4 off the CPI inflation in Canada.

When we manage monetary policy we have to look at two things. One is those adjustments. In many cases we will look through the adjustments because if the currency has moved and is at a new level, there is a one-time adjustment in the price level. This means an adjustment in the inflation rate on a 12-month basis, but it does not persist. Since monetary policy reacts with a lag, in part because the prices are changing slowly, we do not change monetary policy to adjust to something that is happening in the short term. We do not swing monetary policy around to catch fluctuations in the exchange rate. By the time it catches up, the change is already finished.

The answer to your question, in terms of rough order of magnitude, goes back to the pass-through issue in terms of adjustment of the overall level of the exchange rate.

Mr. Macklem: Going back to the beginning, keep in mind that that 18 per cent and that 11 per cent are for a relatively small subset of goods in the total consumer price index. What really matters is what the governor was talking about, which is the overall pass-through being roughly 4 per cent a year. The target is with respect to total CPI inflation.

Senator Runciman: With respect to currency rates, when we see fluctuations in rates, obviously, we are talking about Canada versus the U.S. currency. Those changes also occur in other jurisdictions. A lot of the products coming into North America are from Asian countries. With respect to currency changes and the impacts that they have with other jurisdictions and products coming into Canada or going into the United States, is there any relationship with respect to the price differential between the two countries?

Mr. Carney: That is a very important question. Yes, it matters because the United States exchange rate is the most important exchange rate for the Canadian economy, given the destination for our exports and the source of the majority of our imports. Our trade is diversified, as you suggest, and increasingly diversified into Asia. Therefore, we look at not just the bilateral exchange rate. What matters for the management of monetary policy as a whole are the effective exchange rates, the trade-weighted exchange rate for Canada across all its trading partners.

It happens that a number of our key trading partners in Asia shadow very closely — some would say too closely — the level of the U.S. dollar, so that the gap between movements in our bilateral exchange rate and our overall effective exchange rate has not been as large as it might be. It can be expected, over the course of time, that that gap will widen. All other things being equal, the likelihood of relative exchange rate appreciation of the major Asian currencies relative to the U.S. currency and, all things being equal, relative to the Canadian currency is higher than the likelihood of depreciation or staying the same. That will bring in some imported inflation, or rises in the price level, as that adjusts. Some of that pressure will be adjusted by productivity gains and other factors in those economies, without question. That is something we watch.

In terms of our analysis, when we look at price gap behaviour and adjustments to price gaps and this type of analysis, if you recall in my statement, we mentioned that we are trying to figure out how Canadian expectations change because of these gaps. Those changing expectations are the things that flow through into inflation, persistent change.

We focus on the Canada-U.S. gap for three reasons. First, it is the dominant bit of the trade; second, there is this relationship that still exists with the Asian currencies; and third, our mechanisms, including the Internet survey — we use the combination of the Internet survey, the prices of some goods and the relative CPIs — are most efficiently, effectively and comprehensively done for us to the level that we need to do it vis-à-vis the United States.

Senator Runciman: You mentioned the lag time to react to currency rates. Do you do any projections with respect to this? Is that a mug's game? I am not sure if you can do something like that when you see these volatile swings.

Mr. Carney: It is a mug's game to admit that you do projections of a currency, and we do not forecast the value of the Canadian dollar. However, I will say that, clearly, it is an extremely important relative price for the Canadian economy. We watch it closely, and we look to understand the reasons behind its movements, the impact on the underlying economy and the impact more directly and mechanically through to the CPI, and we adjust monetary policy appropriately.

Therefore, it is extremely important, and obviously in times of great change or great volatility we have to be even more vigilant in that analysis.

Senator Runciman: We received a letter today from Doug Porter from BMO Capital Markets. He had a number of comments to make, but there is one here I hope you can help me to understand in terms of the impacts. He concludes his letter by saying that there is simply no guarantee that prices would ever equalize across the border if the currency stays far above its so-called fair value, which is estimated to now be in the mid 80-cents U.S. range.

Could you speak to that and explain it for me, if for no one else, to give me a better understanding?

Mr. Carney: I would not want to ratify the estimate contained in that letter; I will assign that to Mr. Porter and his firm.

There is an issue of a persistent wedge, and I know this committee has been studying it. There are elements of the cost structure in the Canadian market that could lead to a persistent wedge in the level of prices for a given exchange rate because of the differences in distribution costs, the relative weight of labour here, the relative productivity at the retail sector, and some other factors. When I say ``distribution,'' I include transportation within that.

There is one dynamic, which perhaps you are on; I did not see it in my research for this in your discussions. There is the prospect of a fairly significant adding of retail space in Canada and competition through that. I know in our conversations with Canadian commercial real estate players, with Canadian retailers and in conversations we have had south of the border that it is not lost on the retail sector that the per square foot return in Canada is higher now than it is in the United States. As I said, part of that is because things are depressed in the United States in the retail sector; that is not news. These are businesses. They are looking for opportunity, there is opportunity north of the border, and we are under-served relative to the U.S. in terms of retail space, something on the order of 14 million to 23 million.

Mr. Macklem: Per square foot.

Mr. Carney: There is some dynamism to this. There is a dynamic here that will help, all things being equal, compress that.

The Chair: Thank you, Senator Runciman.

[Translation]

Senator Ringuette: Governor, I have the honour of asking you questions for the second time this evening.

I agree with the answers you have provided us this evening, especially when it comes to transportation, gasoline and diesel costs in Canada. Those are much higher than in the United States, mostly owing to the taxes imposed on the two products. However, I must say that I am a bit surprised that you did not mention lease costs, which are much higher for stores in Canada than in the United States. That is in part due to the fact that the United States real estate market was hit by a crisis, not only in the residential but also in the commercial sector.

Mr. Carney: You are right. The commercial real estate market in the U.S. is going through a difficult period. It will take some time before changes are seen in lease costs.

Regarding the price of gasoline in Canada, I would like to refer to an analysis that is part of the Bank of Canada's report on monetary policy. The report was published last week, and that analysis was intended to explain why the price of gasoline in Canada is still high, despite the drop in the price of crude oil.

We probably do not have enough time, but the committee can refer to an explanation provided in the report.

The Chair: Was the study conducted by the Bank of Canada?

Mr. Carney: Yes, it was conducted by the Bank of Canada. The Canadian gasoline market is currently experiencing structural problems. Meanwhile, oil companies have increased their margins here.

Senator Ringuette: According to my latest research — the data is very recent, from August — there is a difference of 28 per cent between the price per litre in the United States and the price in Canada. I even compared the cost of importing crude oil in the U.S. and in Canada, and I believe the difference was about $2 per barrel. That cannot justify this discrepancy. In reality, the considerable difference stems from the provincial and federal taxes that have been imposed on gasoline.

Mr. Carney: Yes. Most of all, there is a big difference between gas taxes here in Canada and those in the United States; that much is clear. However, there has been a small change in tax levels over the last year here in Canada, compared with the United States. Most of the current differences are due to the fact that crude oil here in Canada, especially in Central and Eastern Canada, is a mix of oil from England, the North Sea and the United States. Things are different in Western Canada. That is clearly explained in the chart.

Senator Ringuette: You also mentioned — and you were the first witness to do so — the international segmentation that is taking place. You said we should keep in mind that, as part of that segmentation, international manufacturers look to the Canadian market where the economy is fairly stable. Therefore, I think that is added to what we see on the manufacturers' suggested retail price tags for Canada. We see that on price tags regularly, especially on consumer products, such as clothing — that is where it is seen very often — and small household appliances.

[English]

Senator Marshall: Thank you, Mr. Carney and Mr. Macklem, for being here this evening.

We have had a lot of witnesses in, and I think what you are saying is consistent with what they have said in talking about the factors that affect price discrepancies. I thought during our initial meetings we would be able to narrow it down more precisely, but unfortunately we have quite a few factors like taxes, transportation, tariffs, and you were talking about the exchange rate. I thought that would be something that would be more precise and you would be able to see how goods were impacted by changes in the exchange rate. However, I read the study that you released back in 2004 and found that is not quite the case.

It seems most of the witnesses are pointing us in the direction of doing something with the tariffs and raising personal exemptions. From your earlier testimony this evening, did you suggest making the North American market more seamless?

Mr. Carney: I did. You said it better than I said it, but that is what I was trying to say.

Let me be clear on the exchange rate so we are on the same page. The fact is that with the vast majority of goods that are sold in Canada, there is a lot of value added in Canada, so the exchange rate affects the core of it. I will give you one example. Where we have basically instant pass-through are with imported fruits and vegetables. It takes a few months, but when the price goes up, we know it is coming through and it takes about six months to fully pass through to Canadian prices. That is a standard relationship.

However, with food in restaurants, the restaurant does not change their menu costs, even though their actual costs have gone up substantially. As we know, agriculture costs went up quite substantially last year. Food and restaurant costs did not really change. Why? Because it is such a small proportion of the actual value added. That is just one of many examples where you get that dampened effect of what looks like a big change in the exchange rate.

To your question, as a general proposition — and there are lots of other considerations around this — measures that make a North American market so that shipping across the border into Canada is exactly the same as selling, in the North American sense, in Mexico or the United States will get the benefit of economies of scale, will increase the competition here in Canada and will have the net benefit to Canadian consumers. That runs the gamut from tariffs to other regulations, which may need to be kept for good reasons, but that is part of the consideration.

We will still have issues, though, with one of the great benefits and strengths of this country, which is its vastness and the dispersed population; it does cost to ship. The extent to which people can then get their minds around a little more single point pricing for this North American market, whether it is in Wichita, Kansas, or Lloydminster, it is a single point, even though both of them are quite far from the central distribution centre.

Senator Marshall: The big word in your phrase was ``more'' seamless. How much more seamless? Completely seamless? It is a matter of degree, so that is something we will have to struggle with.

Mr. Carney: I think you do. In many things, there is a tipping point when it gets close enough so the small differences do not really matter. It would appear to be the case that there is still significant enough segmentation between the Canadian and the U.S. markets that some of these will persist.

All of that said, though, different tax structure and different labour costs — remember, labour costs in retail in Canada are probably 20 per cent higher than they are in the United States just on a minimum wage basis. As I said in my comments, we use more labour in Canadian retail than they do in the United States. Therefore, each individual is more expensive and I am sure worth it — I do not want to get the whole retail sector mad at me — there is more of them and that adds to it. There will still be other factors.

Again, we commend you for taking a serious look at this because there are many factors. If there was just one factor, it probably would have been dealt with.

Senator Marshall: What about the auto industry? We have spent a fair bit of time talking to witnesses about the auto industry and the big price discrepancies between automobiles sold in Canada and automobiles sold in the United States. I know you mentioned it in your opening remarks, so you must have some opinion on it.

Mr. Carney: There are big price differentials between Canada and the United States in the auto industry. There are some regulatory differences, but I presume you will be speaking to the auto makers about that very soon. I look forward to that.

Senator Peterson: Thank you, Governor Carney, for your presentation. When we talk about currency fluctuations, it reminds me of the price of gasoline; when the price of oil goes up, the price of gasoline immediately goes up. When the price of oil goes down, it takes considerable time for the price of gasoline to go down. As the oil companies will tell you, it takes a long time to work that product through the system. That is an aside.

In your presentation, you mentioned that the U.S. market is 10 times the size of the Canadian market. Obviously the economy of scale, buying power and everything else is very large. When an American operation sends a product here, you would think they could keep the price lower, smother the competition and life would go on. However, that does not seem to be the case. Prices seem to be 30 or 40 per cent higher. What is happening is that, number one, they do it because they can do it — no one pushes back and they get away with it — or, number two, is something happening, in your opinion, at the border, such as tariffs and taxes, that makes this happen?

Mr. Macklem: I am not sure we have a great insight on this. It is competition, as the governor said. Right now, there is a lot more retail space per person in the U.S. than there is in Canada. The U.S. is cyclically weak. Our own projections are that it is recovering but it will be a modest recovery. Large American retailers are looking north of the border. Certainly in our conversations — and it is out in the public — there are a number that are looking to expand into Canada. I expect that that will have some effect.

More broadly, one thing to bring to the attention of the committee is that about five years ago we did a study at the Bank of Canada survey of how firms set prices. It does not speak directly to the question, but there is a great deal of detailed information. What comes out of it is that how firms set prices depends a lot on what kind of firm it is. If you are a commercial services firm, you tend to change prices much less frequently than if you are a fruit and vegetable store that changes them frequently. Another factor that clearly affects how often you set prices is competition. There are two indicators: the number of competitors you have and how export-oriented you are, another measure of the degree of competition in the sector. Both those affect how frequently you change prices.

We will make sure that you get that study as well as the most recent Monetary Policy Report.

The Chair: We will have that circulated to everyone. I have asked the Library of Parliament to check your website and pick up any of the reports or documents that may be of help to us to supplement the comments that you have made.

We have heard from Mr. Mark J. Carney, Governor of the Bank of Canada; and Mr. Tiff Macklem, Senior Deputy Governor. Thank you, gentlemen, very much for being with us on short notice. It is very helpful. We will look forward to continuing this dialogue at some time in the future.

Mr. Carney: Thank you very much, chair, and best of luck.

The Chair: Thank you.

Senator Ringuette: In our discussion of cross-border shopping, and so forth, I am making a request to see if we cannot have a study of prices in the eurozone. There are no cross-border issues per se because the value of the money is constant. Perhaps our researchers could find any study related to ours that would come from the eurozone since the implementation of it.

The Chair: Thank you. Steering will consider that in conjunction with the Library of Parliament. We will be contemplating where we go from now in terms of setting things up but, as I indicated to some of our colleagues, this will be the last session that we will have on this special study likely before Christmas because of government work that is coming along now. That will give us all a chance to think about what we have heard so far. If you have any suggestions, please send them to steering. We will take those and try to put together our work plan for January and February as soon as we can.

[Translation]

We will continue our special study on the potential reasons for price discrepancies in respect of certain goods between Canada and the United States.

[English]

In the second session this evening, we are pleased to welcome two officials from Transport Canada: Mr. Gerard McDonald, Assistant Deputy Minister, Safety and Security; and Mr. Kash Ram, Director General, Road Safety and Motor Vehicle Regulation. I am sure these gentlemen will tell us all about the cost of automobiles in Canada and the United States, which seems to be a continuing issue that comes up.

Mr. McDonald, I am being somewhat facetious here; I will bring the auto industry in here in due course, but anything you could help us with in relation to this is appreciated. I give you the floor.

Gerard McDonald, Assistant Deputy Minister, Safety and Security, Transport Canada: It is a pleasure for my colleague and me to be here today to speak to you about the Motor Vehicle Safety Act, which governs the manufacture and importation of vehicles into Canada.

When the act first came into effect in 1971, it established comprehensive, minimum safety standards for all vehicles of any prescribed class manufactured or imported into Canada. The act also applies to motor vehicle equipment, specifically child restraints and tires.

Under the authority of the act, standards for vehicles and equipment are developed in a consultative manner and listed in the Canada Motor Vehicle Safety Standards as part of the Motor Vehicle Safety Regulations. The purpose of the act and regulations is to reduce the risk of death, injury and damage to property resulting from motor vehicle collisions. New vehicles sold in Canada must meet these standards and regulations.

The government's strong commitment to road safety is reflected in the requirements for importing vehicles into this country. The act was modified in 1993, in order to bring Canada into compliance with the Canada-U.S. Free Trade Agreement and to allow the importation of vehicles purchased in the United States, under specific conditions. The act requires that all imported vehicles comply with Canadian Motor Vehicle Safety Standards. However, subsection 7(2) of the act provides an exception whereby vehicles purchased at the retail level in the United States, which are not in full compliance with Canada's safety standards, may be imported into Canada, provided the vehicles were originally manufactured to comply with all applicable U.S. federal safety standards and provided they can be modified to comply with the Canadian safety standards that they do not meet. In addition, once modified, the vehicles must be inspected by a designated authority of Transport Canada.

[Translation]

In 1995, the Registrar of Imported Vehicles was created to establish and maintain a system of registration, inspection and certification for those vehicles purchased in the United States. The act authorizes Transport Canada to contract inspection and verification activities related to the importation of vehicles purchased at the retail level in the United States and imported into Canada. Through an open bidding process in 1995, 2000 and 2005, the department contracted a private company to operate the registrar.

The registrar program, established by the Canadian federal government and managed by the private sector, has been a success. It ensures that vehicles purchased by Canadians at the retail level in the United States are made to be fully compliant with the Canadian federal vehicle safety standards before these vehicles are presented for provincial and territorial licensing.

[English]

The Registrar of Imported Vehicles, RIV, also functions as an information centre, providing details about the importation program to potential importers. It operates a toll-free bilingual public information service and collects importer information. The RIV has 566 inspection stations across Canada to serve Canadians. The RIV currently receives, on average, 200,000 calls per year, 30,000 email inquiries, and the website was visited 1.4 million times last year. The unique aspect of the program is that it is funded in full by those who are importing vehicles from the United States through a processing fee paid to the Registrar of Imported Vehicles for each imported vehicle.

In addition to inspection, the RIV program also provides a 24-hour information service to Canada Border Services Agency officials who process vehicles at the border. It should also be noted that a second amendment to the Motor Vehicle Safety Act was done in 2010 to bring Canada into compliance with the North American Free Trade Agreement by allowing used vehicles from Mexico that are less than 15 years old to be permanently imported to Canada, as long as they can be modified to meet Canadian safety and environmental standards. The regulations corresponding to this act's amendment are currently under development.

[Translation]

The Canadian driving environment is different than that of our North American Free Trade Agreement partners. Therefore, we developed our safety standards to meet certain unique requirements, while still harmonizing to a large extent with the United States. In addition to driving conditions, we have other unique requirements to ensure safety, such as requirements for bilingual and metric labelling. The application of these requirements has minimal impact on vehicle cost and improves the safety of Canadians.

[English]

I hope this short presentation has given you a better appreciation of our responsibilities under the Motor Vehicle Safety Act. Mr. Ram and I would be happy to take any questions you might have with respect to our responsibilities in that regard.

The Chair: Thank you, Mr. McDonald. As a point of clarification, the RIV program — that is, Registrar of Imported Vehicles — has the power to contract, inspection and verification activities. Are there contracted inspectors at all of the major border crossings that the public who purchased a car retail in the U.S. and wants to find out what has to be done can go to your website and find out where those inspectors are located?

Kash Ram, Director General, Road Safety and Motor Vehicle Regulation, Department of Transport Canada: Certainly the act gives the minister the authority to contract the inspection verification program. The RIV is run by a private sector entity that has the authority to use subcontractors. They do use 550 across Canada, most of them in Canadian Tire locations. The inspection has to be done in Canada, after it has come past the border, at a location that is suitably convenient. Canadian Tire provides that convenience.

The Chair: When the vehicle comes across the border, it is registered and noted so that there will be follow-up afterwards. Is that the way it happens?

Mr. Ram: Yes, there is an administrative process where the importer on record fills out a form at the border and there are subsequent steps that occur upon the vehicle's entering Canada to ensure that it is inspected, modified and issued a compliance sticker such that that person can go to the provincial authorities and get plates.

The Chair: In the meantime, they drive with a temporary plate?

Mr. Ram: They would drive with the U.S. plates.

The Chair: With the U.S. plates still on?

Mr. Ram: Yes.

The Chair: I will begin with Senator Finley, from Ontario—South Coast.

Senator Finley: Thank you for your presentation.

Something has intrigued me for a while because I have a few friends who have imported cars from the U.S. How many vehicles a year are coming in, do you know?

Mr. McDonald: It varies. It is in the upper 100,000s now, 180,000 a year, roughly. We have gone as high as 239,000 in 2008, where we saw a market increase. That has fallen back somewhat.

Senator Finley: Are these new or used cars?

Mr. McDonald: It can be both.

Senator Finley: It is around 200,000?

Mr. McDonald: It is less than 200,000 now, but we have gone above that before.

Senator Finley: What are the major differences? They are not generally the drive train, or the engine, or the brake systems, or whatever. There are the harness points, tire quality and daytime running lamps. What are the major items?

Mr. McDonald: We have worked over the past number of years to harmonize Canadian and U.S. vehicle standards. We would say we are probably about 85 per cent to 90 per cent harmonized with respect to vehicles. In fact, you go on the RIV site and there is a list of vehicles that you can buy in the U.S. and bring to Canada without any modifications to them at all.

The major differences that you would probably see are, as you said, daytime running lights. We have a requirement for daytime running lights in Canada. As I mentioned in my opening statements, there is the bilingual signage, the use of metric on your indicators, and antitheft immobilizers, which are required in Canada.

Senator Finley: Really, it is an accessory almost.

Mr. McDonald: Yes. Many of those changes that I indicated, while required by regulation in Canada, are offered as options in the U.S. Most vehicles would have those options in the U.S.

Senator Finley: What would we be talking here percentage-wise on a typical recent model car, used, imported from the United States — 1 per cent, 2 per cent, 5 per cent, 10 per cent?

Mr. McDonald: In terms of cost?

Senator Finley: Yes. I know you cannot put a hard dollar number on this, but let us say on a car retail value, used, $15,000, $18,000, $20,000, somewhere in that neighbourhood, what would be the cost if we were modifying that car to meet your vehicle standards?

Mr. McDonald: Again, it would really depend on the vehicle itself and what Canadian standards it does not meet. It differs for varying vehicles. With some there would be no cost other than the cost of the RIV, which is $195, I believe. For others, the cost may be fairly extensive if bumpers have to be changed or what have you. For others yet, they may not meet the standards at all. Very few, I might add.

Senator Finley: On the whole, if people are bringing in some 200,000 cars and, as I say, with some of the numbers I have looked at — for example, a Ford F350 pickup truck 2011 built in the United States imported into Canada — would there be a lot that requires changing in a car like that?

Mr. McDonald: I do not know enough about the individual vehicles.

Senator Finley: The difference in price between Canada and the United States is $20,000. I would not think that any amount of accessorization would require $20,000 extra.

Mr. Ram: I cannot speak to the price differential, but structurally the vehicles are exactly the same and the components are largely the same. If you drive on U.S. highways, you will see that during the day, there are about 80 per cent of vehicles with daytime running lights — I am using a rough figure — whereas in Canada it is closer to full usage. Therefore, a lot of these components are on U.S. vehicles but maybe not as extensively as in Canada. The costs for those vehicles would not be that much different, similarly with immobilizers for anti-theft.

Admittedly, there is a difference with regard to the metric and bilingual labelling. There is an added cost there, but the fact is that vehicles are made on the same assembly line for sale in the U.S. market and the Canadian market.

Mr. McDonald: Some may even be made in Canada.

Senator Finley: Yes, quite possibly. I am sure my friend from New Brunswick will be bringing that subject up.

Does your department and Canadian Tire have the only paperwork that is required to be filled in, or is there a sort of revenue factor here as well for forms and what have you to bring the car across the border? How extensive is the paperwork that you require through Canadian Tire? Are we talking reams of papers? It cannot be a great deal for $180, I would not think. Most governments charge that for one checkbox.

Mr. McDonald: The amount of paperwork for the RIV side is relatively minimal. It is information on the drivers themselves. This has to be passed along to the Canada Border Services Agency which, as you rightly point out, provides that information to the CRA for appropriate tax purposes.

However, in terms of the RIV, it is basic vehicle information. There must be a check done on the vehicle against what changes might have to be done to it, and that is essentially it.

Senator Finley: I can go to the website and download this information? I do not have to ask you for anything special in this respect?

Mr. McDonald: Yes. If there is anything you cannot find, please do not hesitate to contact us.

Senator Peterson: My questions were along the same lines as Senator Finley's and they have been answered.

Senator Runciman: You talked about 100,000 or more cars in 2010. Can you provide the committee with a breakdown of the models? I think that would be helpful if we are going to be meeting with manufacturers at some point in the future.

Mr. McDonald: I think we probably have to go to the RIV, but I suspect that is available. Is it, Mr. Ram?

Mr. Ram: It would be, yes.

Mr. McDonald: We will do our best to provide that breakdown.

Senator Runciman: How do you define a used car? What is the definition there?

Mr. McDonald: A used car?

Senator Runciman: Yes. You talked about second-hand cars coming in and this is a percentage of the 100,000 plus.

Mr. McDonald: Yes. I guess I would define a used car as one that is on its second owner, essentially. I mean, a used car can be six months old, seven years old or 15 years old.

Senator Runciman: A week old or a month old?

Mr. McDonald: Yes.

Senator Runciman: Is that the kind of information you require from the individual crossing the border? What do you charge for it? There must be some fee attached to that as well.

Mr. McDonald: $195.

Senator Runciman: There is no distinction between a used car and one rightful owner?

Mr. McDonald: No. When you are bringing a car across the border, previous ownership is not relevant for our purposes.

Senator Runciman: Are there significant differences in warranties? We have talked about modifications.

Mr. McDonald: I am told there are. Warranties are not something that we really track, but I am told — I am going by hearsay here; it is not something we have studied ourselves — that some warranties are not honoured crossing the border.

Senator Runciman: Are there any examples where there are higher standards in the U.S. in terms of safety of automobiles than in Canada?

Mr. McDonald: Different is the way we would like to characterize it. We do not like to play second fiddle to anyone when it comes to safety. We do have healthy debate with some of our friends to the south on what you should have as a safety standard. A lot of it depends on the conditions under which you operate and how your public uses the vehicle.

A classic example for us is the use of seatbelts. In Canada, we like our seatbelts and over 90 per cent of us use them. When we are testing vehicles, we do not really see a need to have a safety standard that tests an unbelted occupant.

That is different in the United States. Seatbelt usage is not as high, so they have a standard that they require to test the safety of an unbelted occupant. That is an example of a difference.

Senator Runciman: It ties in with what Senator Ringuette was talking about. In terms of our standards, would ours be closer to Europe?

Mr. McDonald: No, although we do work closely with Europeans. We are working with the Americans and all international partners to develop international regulations to allow for the freer movement of goods, but we are certainly most closely harmonized with the U.S. We do keep an eye on the European market and, obviously, there are importers from Europe who would like us to look at their standards. Therefore, we are looking at ways we can accommodate both without compromising safety in any way.

Senator Runciman: Is it safe to say the majority of cars coming in are high-end cars? I have a quote here of a 2011 Kia Sorrento, which is $10,000 cheaper in the United States. Has that been your experience?

Mr. McDonald: I would not have a clue on that. Again, I do not know the split of vehicles coming across the border, so I do not know if it is higher end or not.

Senator Runciman: That information will be helpful to the committee, if you can get it to us.

Mr. McDonald: We will do our best to produce it, yes.

Senator Marshall: My questions are similar to Senator Runciman's. The RIV program has been contracted out. What sort of information is provided back to you? You have contracted it out, they are collecting the money, they have the information, but there must be some flow of information back to you for monitoring and reporting purposes. What sort of information do you get, and what sort of information can you pass on to us?

Mr. Ram: We get statistical information and intelligence on the nature of vehicles and the distribution by age up to the age of 15 years because that is what we regulate, imported vehicles up to the age of 15. As well, we look at the nature of vehicles because we regulate several classes of vehicles, such as passenger cars, trucks, ATVs, snowmobiles and so on. We have a breakdown based on the type of vehicle being imported.

Senator Marshall: To make sure I understand you correctly, every vehicle that comes across the border you would licence or put through this RIV program. Does this apply to both individuals and dealers, or is it just individuals? Who goes through this program? Everybody?

Mr. Ram: Yes, it is anybody, regardless of whether they are doing so as an individual or for commercial purposes.

Senator Marshall: Would you have information that would show Company X brought across 2,000 vehicles and Individual Y brought across five vehicles last year? Is that the sort of information you would have?

Mr. Ram: That we do not have. We do not have those statistics in terms of who and how many vehicles per batch cross over.

Senator Marshall: I would have thought the RIV program would have that. That would be useful information to have.

Just tell me a little more about the process. Can you just show up at the border with your new vehicle, with no advance notice? What sort of information do you need? Do you need your bill of sale?

Mr. Ram: You would need that. The important thing is for the importer to have done his or her homework to make sure it is admissible. If it is not on the vehicles admissible list, it will be turned back at the border and the importer will be disappointed. The homework is important to make sure the vehicle is admissible. The vehicle could need modifications to meet the additional Canadian needs. That is fine. That can be done in Canada.

Senator Marshall: Can you give us any information on the types of vehicles that are being brought across, or how many vehicles are brought across by dealership or by individual? What sort of information can you give us?

Mr. Ram: We would have to look into what kind of information the RIV collects and what we can glean from that to provide to the senators. However, right now the information is fairly limited. As I indicated, it is the volumes as well as the type and age of the vehicle. We can look for that.

Mr. McDonald: We can look into what we can provide and whether there are any limitations under access to information.

Senator Marshall: I do not think we need individual names or names of dealers, but I think that information would be informative. This issue keeps coming up at almost every hearing we have, the big discrepancy in prices between the U.S. and Canada. On an individual basis, some people are going to the United States themselves, buying vehicles and bringing them in. I would like to know how extensive that is.

Mr. McDonald: I do not think there is any doubt about that.

The Chair: That would include information on the type and model of vehicle. Could you do some averaging so we can compare the Canadian average price to the U.S. average price? We are looking for the spread and what is driving people to bring 200,000 vehicles into Canada from the United States.

Mr. McDonald: I am not sure that we would have access to the vehicle value information. However, we will see what information is available and determine what can be released through access to information.

The Chair: Do you have any information as to how many used cars from Canada are going into the United States?

Mr. McDonald: I would assume we would have to go through the United States to collect that information. I do not think it is a lot.

Mr. Ram: We do not. We understand it is very minimal. It used to be the reverse about 10 years ago because of the exchange rates.

The Chair: Over 10 or 20 years you have that information, that it used to be the reverse? Can you give us some rough figures on that so we can show a graph?

Mr. Ram: We will certainly seek it.

Senator Ringuette: Thank you, gentlemen, for being here. I am happy that you have addressed the issue of the difference in safety regulations, the metric and the bilingual labelling. You have addressed that, and you have indicated that it has minimal impact with regard to the cost of cars as between Canada and the U.S.

I have continued my research. I am sure that before coming here you read the testimony of the witnesses who appeared before us and the fact that, for example, a Chevrolet Camaro made in Oshawa, Ontario, is sold in Canada for $26,995 and in the U.S. for $23,200, a difference of almost $4,000.

Like many of my colleagues here, I was looking at these numbers and saying: Could it be just the safety issue? You are confirming to us that that is not the case.

Then I go to the other side of the border for made-in-the-U.S. cars. For example, the Chevrolet Cruze, made in Lordstown, Ohio, is sold in Canada for $14,995 and in the U.S. for $16,525. It is $1,500 more in the country in which it was made.

There seems to be no rhyme or reason. I am thankful that you have clarified for us that it is not the issue of safety and so forth that results in these price differences. However, it seems that these price differences are totally an issue of the manufacturer segmenting the market.

The Chair: Mr. McDonald or Mr. Ram, do you have any comment on that?

Mr. McDonald: I do not think we want to venture into the field of automobile pricing, which is certainly not our area of expertise. I guess I could just reinforce Senator Ringuette's comments that we see nothing in the discrepancy in regulatory standards that would or should account for any major price differences.

Senator Ringuette: I was certainly not an expert with regard to the price of cars, but I must admit that in the last month this issue has received a lot of my attention and energy.

Basically, you can only say what your information gives you and you cannot tell us any more with regard to those discrepancies?

Mr. McDonald: Unfortunately not.

Senator Neufeld: Thank you for being here, gentlemen.

Can you tell me whether the Canadian safety standards that you apply are the same in every province across Canada? Are they applied equally across Canada?

Mr. McDonald: Yes. The safety standards that we apply, apply to new vehicles only, so it is as the new vehicle is sold. After it is sold, the responsibility for safety is transferred to the province.

Senator Neufeld: Regardless of where this car or truck is imported, whether it is Ontario or British Columbia — I will use those two examples — everything you would do through Transport Canada would be exactly the same?

Mr. McDonald: It should be, yes.

Senator Neufeld: How about emissions standards?

Mr. McDonald: That is a good question. Environment Canada regulates that. As far as I know, there are certain standards.

Senator Neufeld: It should be one standard across Canada?

Mr. McDonald: It is my understanding that there is.

Senator Neufeld: Would you double-check that for us and let our clerk know?

Mr. McDonald: Not to defer responsibility for this, but if I could ask the clerk to go through Environment Canada for that information. Otherwise, I am getting information from another government department.

Senator Neufeld: You talk about emissions and safety standards in your discussion.

The Chair: If you could let us know what you know, and then we will do our own research after that.

Mr. McDonald: Fair enough.

Senator Neufeld: I will tell you why I am asking that question. I have it on pretty good advice from someone who is moving from the U.S. to Canada — to Ottawa, actually — that to bring their vehicle up to Canadian emissions will cost them $700. If they lived just across the river here in Quebec, it would cost them zero.

Are there Canadian standards for emissions, safety and so forth for vehicles that come to the U.S.? Are they the same across Canada, or do some provinces get an ``I'm out'' card? That would be an answer that I would love to get.

Mr. McDonald: The instances you are talking about are regulated provincially because you are getting into used vehicles. As I said, the federal government is responsible only for new vehicles. Once you are into used vehicles, the standards, even the safety and emissions standards, become the responsibility of the province, so provinces do have different emissions standards.

Senator Neufeld: I did not understand that from your presentation. Does your presentation only apply to a brand new vehicle that no one has ever owned?

Mr. McDonald: No, when you are importing a vehicle, we ascertain whether or not that vehicle was manufactured to meet Canadian standards and, if it does not meet all Canadian standards, whether it can be adjusted to meet those standards.

Senator Neufeld: The standards are different across Canada. Is that what you are saying?

Mr. McDonald: No, I am not saying that.

Senator Neufeld: I am having a hard time, then.

Mr. McDonald: I am talking about the safety standards, not the emissions standards.

Senator Neufeld: Okay.

The Chair: There are two different standards. You are talking about safety standards, and you are also talking about used cars coming in, though.

Mr. McDonald: Yes, I am talking about used cars coming in.

The Chair: From the safety standard point of view.

Mr. McDonald: When I say we are responsible for new vehicles, we are responsible for new vehicles and imported vehicles up to 15 years old.

Senator Neufeld: Up to 15 years old. Therefore, it is only for safety.

Mr. McDonald: That is right.

Senator Neufeld: Your responsibility is daytime running lights, and that is about it.

Mr. McDonald: No, there are number of safety standards.

Senator Neufeld: I have owned a few cars in my life that were not built in Canada. As Senator Finley said, the motor, the driveline, brakes and emergency brakes are all the same.

Mr. McDonald: Largely.

Senator Neufeld: Safety standards amount to a few things like the antitheft that you mentioned and seatbelts.

Mr. McDonald: There are a number of minute differences in other areas as well.

Senator Neufeld: If emissions have nothing to do with Transport Canada, we will ask Environment Canada if it actually treats provinces differently. That would be an interesting question for Environment Canada to answer.

I do have it from you, however, that you do not monitor anything to do with emission standards.

Mr. McDonald: No, we do not. We do not regulate them through the Motor Vehicle Safety Act.

The Chair: Could someone bring his automobile across, do all the safety standards and get the sticker but still not meet the emission standards of the province that he brought that vehicle into?

Senator Neufeld: That is what I understand.

Mr. McDonald: Yes, that is my understanding as well, the same emissions test.

The Chair: Do you have to wait to be stopped by the local police? How do the provinces follow up to ensure that the emissions standards are met?

Senator Neufeld: You have another inspection to go to.

Mr. McDonald: It would be done at the same time that you are importing the vehicle. You have to go to Canadian Tire to do your RIV inspection. You would have to have an emissions test done at the same time in order to get your provincial licence, just like you have to have your emissions tested some years with the vehicle that you own in Ontario, at least. I am not sure about the other provinces.

The Chair: It is not done at the border. It is when you go to register your vehicle in that province.

Mr. McDonald: That is correct. You would have to show that you had the emissions test done.

The Chair: Still, people find it worthwhile to bring in 200,000 vehicles a year. There must be something driving them to do it.

Senator Finley: It is a weekend of filling in forms, and you can save $12,000. That is not bad remuneration for a weekend.

Senator Neufeld: Just think if you did one every weekend.

The Chair: Colleagues, on your behalf, I would like to thank Mr. McDonald and Mr. Ram for being here this evening to help us with the safety standards aspects of motor vehicles. We thank you very much, and we thank Transport Canada for the work you are doing in keeping us safe on the highways in Canada.

Mr. McDonald: Thank you very much.

(The committee adjourned.)