Proceedings of the Standing Senate Committee on
Issue 11 - Evidence - February 7, 2012
OTTAWA, Tuesday, February 7, 2012
The Standing Senate Committee on National Finance met this day at 9:30
a.m. to study the potential reasons for price discrepancies in respect of
certain goods between Canada and the United States, given the value of the
Canadian dollar and the effect of cross-border shopping on the Canadian
Senator Joseph A. Day (Chair) in the chair.
The Chair: I call this meeting of the Standing Senate Committee on
National Finance to order. We have two different sessions this morning,
honourable colleagues. Before I go to the business of today, I would like to
call on the deputy chair of the committee, Senator Gerstein.
Senator Gerstein: Thank you very much, Mr. Chair. I have one quick
item of business to deal with before we hear from the witnesses. I must say
to you, and to the committee, that it is with mixed emotion that due to
other obligations I will no longer be able to serve as deputy chair of this
committee. I have greatly enjoyed my time as deputy chair, particularly
having the privilege and pleasure of working with you, Mr. Chair, and other
members of the committee. In resigning, I must say I look forward to
continuing as an active member of the committee. Accordingly, I would move
that the honourable Senator Neufeld be appointed deputy chair of the
Standing Senate Committee on National Finance.
The Chair: There is no need for a seconder in committee.
It has been moved by Senator Gerstein that Senator Neufeld be the deputy
chair of the Standing Senate Committee on National Finance. All those in
favour signify by saying "yea.''
Hon. Senators: Yea.
The Chair: Senator Gerstein, it has been a pleasure working with
you these past two or three years, and I wish you well on whatever might be
in store for you.
Senator Gerstein: Thank you.
The Chair: Senator Neufeld, you have been on our steering
committee previously and know our committee. You have been with us for some
time. I am sure it will not take you long to get up to speed on the extra
responsibilities that you will have as the deputy chair. I look forward to
working with you.
Senator Neufeld: Yes, and perhaps I could just say a few words,
I want to thank Senator Gerstein for the great leadership he has
demonstrated over these last three years. You and I joined the Finance
Committee at the same time, and I appreciate your leadership very much. I
hope you and I will be able to continue to have that good, close
relationship that we have had from day one in the duties that I am
I look forward to working with you on the steering committee again,
Senator Day. We have worked together before. It has always has been a good
experience, and I assume that process will continue. I believe in
cooperation and consensus building as much as we possibly can in moving
these important things forward for the Government of Canada and others that
are here. I look forward to the job.
The Chair: Good. We will continue to strive to make this the model
of committees operating in the Senate. My understanding is that Senator
Runciman will continue as the third member of the steering committee?
Senator Neufeld: Yes.
The Chair: Thank you. Congratulations to all. We will move now to
our business at hand for the day.
As you will recall, our committee undertook a study in the fall with
respect to 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. In our initial meetings we heard from the Minister of Finance,
government officials, academics and the Governor of the Bank of Canada. We
took a bit of a break from our study in order to deal with supplementary
estimates and other government business, which has priority in this
particular committee, as it does in all committees. However, we are now back
to the study and are interested in hearing from Canadian manufacturers,
suppliers, distributors, consumers and the associations that represent those
Colleagues, in our first session this morning, we are pleased to welcome
Mr. Martin Lavoie, Director of Policy, Manufacturing Competitiveness and
Innovation with the Canadian Manufacturers & Exporters. This is not Mr.
Lavoie's first visit here, and we welcome him back to our committee.
We are pleased to have you here with us this morning and we look forward
to hearing from you. You have the floor.
Martin Lavoie, Director of Policy, Manufacturing Competitiveness and
Innovation, Canadian Manufacturers & Exporters: I thank you for having
invited us to discuss this important matter of price discrepancies in
respect of certain goods between Canada and the United States.
If I recall, this is an issue that was studied in the early 1990s by a
task force on cross-border shopping. At the time, the Canadian dollar had
reached 87 cents U.S., which was considered very high at the time. It makes
me realize how rapid and drastic the economic context has changed since
then. That was before NAFTA, Walmart, the BlackBerry, the Internet, and even
before I started to grow a belly.
Before I begin the discussion on the core subject of the meeting, let me
give you a quick idea of who I represent. I am the Director of Policy at
Canadian Manufacturers & Exporters. We are Canada's largest business and
trade association, representing more than 10,000 manufacturers and exporters
across the country. We focus our activities among five broad categories of
issues including manufacturing competitiveness, energy and environment,
people and skills, international business, with the most focus on
More than 85 percent of our members are SMEs. Our membership accounts for
an estimated 82 per cent of total manufacturing production in the country
and 90 per cent of our exports.
We commend the Senate for undertaking such an important study. As you
probably know more than I, this is a very complex issue that involves many
people in many industry sectors. I will start my presentation by looking at
some structural characteristics of the Canadian market and those that can
affect price discrepancies between the two countries. I would then like to
say a few words about the regulatory differences between the two countries
that affect manufacturers and explain a bit more about the role of
manufacturers in the whole picture of the chain of production, distribution
In 2005 the Bank of Canada published a very good study on the price
flexibility among Canadian firms. One of the factors they came up with was
the exposure to international competition. We also know that more
export-oriented firms are also more exposed to potential price changes given
their exposure to more competition.
I think we could say in Canada that some sectors — and I would probably
include the retail sector — are less exposed to competition than others. I
think when Mark Carney came here he mentioned that the retail environment is
more concentrated in Canada than in the U.S. He mentioned that the top four
retailers in Canada have about 28 per cent market share, compared to only 12
per cent in the United States. We should note, however, that this sector is
probably going to be facing more competition in the future with the
introduction of Target into the Canadian retail market, for example.
There are other factors related to our economy that may affect the price
differences, and I am sure you have heard them before. Labour cost is one
that is often mentioned, considering that Canada's labour costs are higher
than in the U.S. Our productivity seems to be lower than in the U.S. as
well. The retail sector is one where they tend to use more labour than their
U.S. counterparts. Transportation costs and Canada's lower population
density may contribute to higher pricing per item basis. I think retail
space in Canada seems to be more expensive than in the U.S. as well. I would
like to talk about some regulatory differences between Canada and the U.S.
that definitely affect the cost for manufacturers, but also may have some
effect on the price of certain goods.
For example, if you look at the inspection of goods crossing the border
and packaging, all of these are adding costs to the products being imported
from the U.S. If a barbecue, a bike, toothpaste, or whatever you are selling
in Canada has to have two inspections and a different packaging system, this
will add cost to the price of the product for sure.
The main difference comes from Canada's market being relatively small. On
a per item basis, the cost of all these regulations will add up quicker in
Canada than in the U.S. If you sell 2 million barbecues in Canada and 25
million in the U.S., the cost of your regulatory differences will be higher
per item in Canada. This is why we have been a strong supporter of the
Regulatory Cooperation Council, the RCC, which was established in February
2011 by President Obama and Prime Minister Harper to make it easier for
Canadian and American firms to do business on both sides of the border. The
joint action plan released last December included recommendations in key
sectors, including agri-food, transportation, health and personal care
products, workplace chemicals and environmental regulations. Again, I take
this opportunity to express our support for the work of the RCC.
I would like to say some words about the role of manufacturing and the
overall price of goods one finds in stores in Canada. It is important to
state here that the role of manufacturers as an explaining factor of the
price difference is relatively small, for several reasons. First, I have
heard from retailers and others that the costs of their supplies are going
up, the price of things they buy, but it is also true for manufacturers. The
price of mineral resources and the components and parts they buy is still
going up. The way our sector has reacted to these increased costs is by
increasing innovation and productivity in order to keep the prices as
competitive as possible. Again, it is important to state that our sector is
facing strong international competition from low-cost countries as well.
There are some things that are important to raise here with regard to the
role of manufacturers. Most consumer products sold in Canada are imported,
increasingly from developing countries; Canadian manufacturers have a small
market share in the retail sector for goods of consumption. The line between
manufacturers, wholesalers, importers and retailers is getting more and more
thin, I would say. Canadian retailers themselves manufacture about 800
million of the products they sell, mainly food products, wood products and
some clothing. They actually produce more of these products in Canada than
they buy from Canadian suppliers.
If you look at Industry Canada's input-output accounts, which looks at
the breakdown of a price of a good that you find on a bookshelf, only 2.5
per cent of the price of the goods is the price they pay to the
manufacturers. Another 5.4 per cent is the cost of the wholesalers.
Together, only about 8 per cent of the cost of a product is dependent on the
manufacturer and the wholesaler. Even if the price of the manufacturer goes
up significantly, that will only account for 8 per cent of the total cost of
The main cost for retailers is labour, as I said before. About 48 per
cent of the price of products is related to labour costs. Real estate costs
account for about 12 per cent. We would argue that even if manufacturers'
prices increase, they represent a very small part of the final price paid by
the consumer. Labour costs combined with profit of retailers account for
almost 60 per cent of the full cost of the product. This is a strong
argument to look at productivity in the retail sector.
As another example of the fact that the price of manufactured goods in
Canada has not gone up significantly, if you look at Statistics Canada's
producer price index, which is a measure of the price of a product when it
comes out of a production facility, there are about 19 categories of goods
in there. In half of these there has been a decreased price or a stable
price in the last three years for most products. I included some in my
introductory remarks: clothing, lumber and other wood products, furniture,
pulp and paper products, printing and publishing — which I think is one area
that the committee is interested in — machinery and equipment, communication
products and non-metallic mineral products. In these specific sectors, if
you see prices in Canada go up for goods manufactured in Canada, it is
impossible to blame the manufacturer for that. We have to look at another
element of the whole chain.
In summary, Canadian manufacturers have not much to do with the price
discrepancies, but where we can make a difference, we count on the Senate to
look at regulatory differences, which could result in better prices for
I will stop here. It has been 10 minutes. I am happy to answer your
The Chair: Thank you very much. There are a number of interesting
statistics here; 48 per cent of costs relating to labour is an interesting
one that we will have to pursue, as well as a comparison between labour
costs in the U.S. and Canada.
We will start with the former deputy chair of this committee, Senator
Senator Gerstein: Thank you, Mr. Lavoie, for appearing before us.
I found your presentation very interesting. You focused to a great degree on
productivity. You have talked to a great degree on cost. In particular, I
would like to take you back to what our study is very much focused on, and
that is the fact that 15 or 20 years ago the Canadian dollar was at 60
cents. In your opening paragraph you talk about the 1990s when it reached 87
cents, and today it is at par.
What has happened with retail prices in Canada, which is what we are
really addressing? In your view, what has happened over this period of time
and what do you think should have happened?
Mr. Lavoie: It is difficult to talk about all the industries. Some
industries are facing regulations, for example, maybe some protection that
decreases the competition they are facing from international markets. Supply
management in the food sector has been raised here, where prices are a bit
more expensive in Canada for agricultural products — poultry and milk
products — that also affect food processors, but I do not think you can look
at it from an industry-wide perspective because all these sectors are facing
What happened is that perhaps in some sectors we have been protecting
some industries for a number of other reasons than just price discrepancies.
These sectors have not been facing as much international competition as
others. Maybe it is something that happened here.
Our members are raising questions about that because, you are right, in
theory, if you have a stronger dollar you would be able to import at a lower
price. Actually, to go back to food products, in some food products you have
seen some decrease in price. Canada is the second-lowest country in terms of
the cost of food per disposable income, the lowest being the U.S. Again, if
we compare with the U.S., we are higher, but we are second. The strength of
the dollar here is one factor that may explain that.
With a sector-by-sector approach, you might find more answers.
Senator Gerstein: I will let you do that. Let us take the retail
sector and deal with consumer goods. We were not dealing with marketing
boards or food at this point.
Mr. Lavoie: Food is something you buy at a retail store, so that
is one of them. The manufacturing sector controls a very little piece of all
of this. What happens with the wholesalers and with the retail sectors is
outside my control. You will have to ask the retailers about that. I can say
that if I look at the industrial price index, the price of goods
manufactured in Canada has remained stable or decreased in the last three
years in about half of the categories of goods listed. It is definitely not
an issue with Canadian manufacturing increasing its prices.
I keep hearing from our members that labour cost is an issue. Because
Canadians do not have more purchasing power for some goods, they ask for
increased salaries to keep up the purchasing power. Many of our members have
actually seen labour costs increase. Is it a result of the price
discrepancies? That is a question out there that I cannot answer.
The Chair: In labour costs, do you include any taxes or any fees
that the employer may have to pay for each employee?
Mr. Lavoie: The measure I have heard about so far, when I looked
at the retail sector, is the difference in the minimum wage. What I hear
from our members that are looking sometimes at the U.S. for potential
production facilities — for example, they look at certain categories, either
electricians or other types of skills — they also see a difference between
10 and 15 per cent with some states in terms of labour costs. I could not
tell you if it includes taxes or not, but I think the comparison has to be
made on the same levels. It probably does not include taxes and other things
The Chair: Could you verify that statistic for us and let us know?
Mr. Lavoie: Yes.
The Chair: Let us know if the 47.5 per cent is solely the salary
to the employee, or does that include other employer costs of employment
such as the payment to Employment Insurance — that kind of additional cost
that the employer pays.
Senator Ringuette: Mr. Lavoie, you said that few products
manufactured in Canada end up on the Canadian retail market. What would the
Mr. Lavoie: It is difficult to set a percentage, specifically for
consumer goods. I do not have the statistics as such, but we know that over
50 per cent of consumer goods are exported. I will try to find that
information and have it sent to you.
Senator Ringuette: Does your association include automobile
Mr. Lavoie: Yes, some automobile manufacturers are members of our
Senator Ringuette: Manufacturers such as Chevrolet and Ford?
Mr. Lavoie: Yes these are Canadian manufacturers.
Senator Ringuette: You seem to be a well-informed individual. I
get the impression you listened to our committee's deliberations before
preparing your presentation. You must have noticed that I have often
questioned why cars manufactured in Canada are sold at a much higher price
here in Canada than in the U.S. Can your association explain this to us?
Mr. Lavoie: I cannot provide you with any further detail as to
that specific sector. After having had a few conversations with them, I hope
to be able to provide you with some new facts.
What I was told with respect to cars is that there are fundamental
differences in the nature of the two markets. The Canadian market is mainly
dominated by what manufacturers call entry-level cars. To give you an
example, I would say that in Canada Honda Civics and Toyota Corollas are
somewhat more affordable whereas in the U.S. the market has traditionally
been dominated by higher-end cars.
In fact, if you compare Corollas in Canada to Corollas in the U.S. you
will see that some years they were less expensive in Canada because there is
a more competitive market for those cars in Canada.
Whereas if you turn to higher-end cars, you will see that price
differences are less in the U.S. than in Canada. Added to that there may be
differences that would probably apply to other sectors such as a weaker
market and higher transportation costs.
Senator Ringuette: Essentially, in response to the question of why
cars manufactured in Canada are more expensive in Canada than in the U.S.,
you are saying that it is not related to the costs of manufacturing the cars
but rather to manufacturers' marketing policies?
Mr. Lavoie: It may be related to manufacturing costs and it may be
a manufacturers' marketing policy issue. It might be a bit of both. But I
cannot say which factor is more significant.
Senator Ringuette: If it is both, I would like the information on
this point to be clear. The question is simple; why does a Chevrolet Camaro
built in Oshawa sell for $26,995 in Canada and $23,200 in the U.S.?
Mr. Lavoie: You need to know the internal structure of Camaro
manufacturers as they assess the various markets. You need to know what
factors enter into play in pricing. I do not have this information. You
would have to ask car manufacturers.
Senator Ringuette: Will you ask them?
Mr. Lavoie: I will ask them on your behalf.
Senator Ringuette: You can send the information to our committee
clerk. Then we can see what all of this is based on. Mr. Lavoie, you said
that Canadian retailers manufactured $800 million worth of goods. Can you
elaborate on that?
Mr. Lavoie: I wanted to highlight the fact that when you look at
manufacturers, retailers and wholesalers you realize that sometimes the same
company may be both a retailer and a wholesaler. Take for instance Loblaws
and its product lines. Whether you look at food products or clothing, I
think the same principle would apply to retailers.
An increasing number of major retailers import their own products and get
their products from Asia. In some sectors, aside from a stronger dollar,
there are fewer middlemen, and that would generally lead to a price drop on
Senator Ringuette: You said something quite true when it comes to
transportation. We have identified that the price of gas and of diesel are
different. There is a 36-cent per litre difference in Canada compared to the
I would like to address the issue of credit card purchasing, something
that is quasi-universal. Whether a consumer pays cash, uses a debit card or
a credit card, retailers are unaware of the method of payment until the
total price appears at the cash register.
For merchants in the U.S., Australia and New Zealand, credit card
transaction costs are approximately 0.5 per cent compared to 3 per cent and
more in Canada. So, there is a 2.5-per cent increase in the price of
consumer goods that is added automatically to transactions to counter Visa
and MasterCard costs. Why did you not raise this point in your analysis?
Mr. Lavoie: I did not do so because that is not a cost that is
covered by manufacturers. Retailers shift the cost to consumers as you
stated. If what you are saying is true, 2.5 per cent more is significant.
To get back to the point on the competitivity of some sectors, our
financial sector is one which, for reasons other than price discrepancies,
has been better shielded than other sectors because it led to less
competitiveness when it comes to the cost of credit card operations.
Senator Ringuette: There is no competition.
Mr. Lavoie: I would like to get back to the point discussed with
Senator Neufeld. Some sectors may have been better protected than others and
for other reasons, good or bad. That may be something the committee may wish
Senator Ringuette: Given that there is no real competition in the
credit card operations sector, do you think we should regulate and make sure
that transaction fees are reasonable?
Mr. Lavoie: I believe there is competition. There are several
Senator Ringuette: No, there is Visa and there is MasterCard.
The Chair: I am sorry, but we will unfortunately have to call an
end to this line of questioning. As interesting as it is, we have quite a
few senators who are interested in making their points.
We have in our next round a teleconference for one of our participants,
so that puts us into a strict time limitation with respect to finishing this
round. I have seven senators and 30 minutes, so five minutes for question
and answer for each senator.
Senator Rivard: I am replacing a senator here today. So I did not
attend previous meetings and perhaps the question I will be asking has
already been asked. I apologize ahead of time if that is the case. I would
like to get back to what Senator Ringuette was saying regarding General
Motors. You know that it is even worse with Chrysler. They manufacture some
models in Ontario that are sold at a higher cost in Canada than in the U.S.
Perhaps General Motors would provide the same response but I would be
curious to know what their response would be if the same question was put to
This committee is mainly interested in price discrepancies, in
understanding why things cost more here. You have given good answers, but
have you ever sought to know whether Canadian products other than cars, such
as maple syrup, are sold at a lower price in the U.S. than here in Canada?
Mr. Lavoie: No, we did not do a comprehensive study on products
exported to the U.S.
Senator Rivard: Take for instance well-known television sets like
the Samsung models built in Korea and that are far less expensive in the
U.S. than in Canada. If they were built in the U.S. we could assume the
differential is related to the cost of labour, or productivity. But how can
you explain this difference on a finished product such as a Samsung
Mr. Lavoie: Some observers have mentioned the impact of import
tariffs. The Department of Finance Canada itself states that tariffs are
approximately the same and that there should not be such a significant
difference. Do these differences have to do with the size of the market? I
am sure that part of the price depends on that. Can it have an impact? You
would have to ask these manufactures about their internal price structure.
Senator Marshall: When you were talking about the factors that
have an impact on costs in Canada, you were talking about labour and
transportation costs. I thought you had forgotten about the exchange rate,
and I notice you mentioned it later.
A number of witnesses have given testimony with regard to the correlation
between the fluctuation in the exchange rate and how it impacts the cost of
goods in Canada. You were saying in your opening remarks that many Canadian
manufacturers would say that foreign suppliers are increasing prices and
profits as the Canadian dollar rises in value. I was interested in that. You
were saying that companies do not get the full benefit of the exchange
appreciation. Is that hearsay or do you have actual evidence of that? How
pervasive is it?
Mr. Lavoie: No, it is a general statement to the fact that as our
dollar goes up other manufacturers of components of parts that sell into
Canada might see that and change our price accordingly. I do not have exact
evidence or examples to give you, but if you want, I can investigate and get
back to you.
Senator Marshall: That would be interesting. Is that confined to
certain industries or certain manufacturers, or is it across the board?
Mr. Lavoie: No, I was not thinking of certain sectors. Related to
that, the Bank of Canada study I referred to looked at price flexibility or
how quickly firms respond to exchange rates.
Senator Marshall: Yes, we have read that. It just seems that as
the Canadian dollar appreciates someone is taking advantage at our expense,
so I would be interested in any further information you have on that.
Mr. Lavoie: Okay.
Senator Callbeck: In reading your brief, item number three on the
second last page, you say the cost they pay for manufactured products
accounts for 2.5 of total sales, and wholesale costs for another 5.4,
maximum around 8 per cent. Are you saying that if a retailer sells a chair
for $500, that only 8 per cent of that $500, $40, is actually the cost of
production, including the wholesaling prices?
Mr. Lavoie: Across industry, yes. That is not specific to one
sector, so it might be higher for some goods and less for others. With
clothing, for example, if you buy a shirt that is made in a low-cost country
and sold for $120 here, it is an average across all products.
Senator Callbeck: Which ones are bringing that down so low?
Mr. Lavoie: I have not looked, but it is easy to look at
Statistics Canada input-output tables.
Senator Callbeck: I find that figure completely unrealistic. I
will look it up.
You mentioned Mr. Carney saying that the top four retailers in Canada
have 28 per cent of the market, whereas in the United States the top four
have 12 per cent. Have you looked at the bottom line of these retailers? Is
the bottom line better for the top four retailers in Canada as a percentage
of sales than the four top in the U.S.?
Mr. Lavoie: Sorry, I missed the question.
Senator Callbeck: If you take the top four retailers in Canada,
they have 28 per cent of the market, and we are saying we need more
competition, and the top four in the U.S. have 12 per cent. My question is
about the bottom line. Are the four retailers in Canada actually doing
better, taking their profit as a percentage of sales, than the four top in
the U.S.? Have you looked at that?
Mr. Lavoie: I have not, but I am sure the U.S. has the same
statistics as we do in Canada. For retailers, for example, we have operating
profits that account for about 12 per cent of the price. I am sure we can
compare some sectors with the same statistics that the U.S. compiles.
Senator Callbeck: That is lumping everything together.
Mr. Lavoie: Yes.
Senator Callbeck: You cannot compare apples to apples between
Canada and the U.S.
Mr. Lavoie: That is a good question. Companies that have
operations on both sides of the border could probably tell you.
Senator Callbeck: I am just wondering whether you looked into it.
Mr. Lavoie: No.
Senator Callbeck: On your website you talk about the Canada Border
Services Agency implementing a new regulation this year that the importer
must submit data on the goods being imported at least an hour before and
that it is difficult for the importer to get this information in that time
frame. What happened before that regulation came into effect this year? Did
they not have to provide information?
Mr. Lavoie: Do you mean information about the product that is
Senator Callbeck: Right.
Mr. Lavoie: I am not sure what exactly you are referring to on our
Senator Callbeck: On your website it states that importers are
often unable to provide this information within the prescribed time frame.
What did you have to provide in 2011 as compared to now?
Mr. Lavoie: For context, when goods cross the border for
importation between U.S. and Canada, there are about 45 different agencies
from both sides of the border that require data, depending on the type of
goods. Each of them has their own requirements, forms and administrative
I am not sure which one exactly we are talking about for this one hour.
Is this a time constraint that was imposed recently? I do not think the kind
of information has changed. It has probably added up within the last few
years. This is an example where, when I was talking about the regulatory
differences between the two countries, one of our recommendations to the RCC
panel was to have single-window reporting. Why have 45 different agencies
sometimes asking for the same information?
In terms of this one-hour time frame, I would have to look into it more.
I do not know exactly which one it is referencing.
Senator Callbeck: Maybe you can look at your website.
Mr. Lavoie: I will.
Senator Runciman: One area where Canadian manufacturers do produce
products that are very much attracted by consumers in this country is beer,
wine and spirits. It is an area where we see significant differences in
terms of the prices charged in New York State versus Ontario.
Can you speak to that issue? Why do we see in many instances very
significant differences between the products purchased here in Ontario, or
in Canada generally, and the same products that have been exported to the
Mr. Lavoie: That is a specific industry that I have not looked at
in much detail. For sure, I would think that taxes on tobacco and alcohol
products usually make a big difference, but I could not tell you exactly.
Senator Runciman: Are you not representing any wine and alcohol
Mr. Lavoie: Not many. There is an association that is part of our
manufacturing coalition so we have worked with them on some border issues,
but we have not looked at the specific issue of price discrepancy.
Senator Runciman: Certainly that is an issue we hear about all the
time. It would be helpful if you could check with your membership and see if
we could give the committee some feedback in terms of the specifics of why
alcohol prices in some instances are so dramatically higher in this country.
You talked about regulatory differences in your submission, and packaging
and inspection are the two that you have highlighted. Are there any other
priorities for your association with respect to regulatory change that you
would like to see occur?
Mr. Lavoie: As I just said, single-window reporting is one big ask
we have made to the panel and I think they will go on with this. It is an
Senator Runciman: What does single-window reporting mean?
Mr. Lavoie: It is for goods crossing the border that are being
imported. As I said, about 45 different agencies on both sides of the border
require data at some point, depending on the product. Sometimes it is the
same kind of information. They all have different forms and there are
administrative costs for importers and manufacturers of the products. We are
seeing an electronic-based reporting process where all this information
being tackled in one place could help reduce these costs for manufacturers
Senator Runciman: Do you face the same challenges exporting into
the United States?
Mr. Lavoie: Yes. That is why this joint Canada-U.S. panel is
looking at it.
I will give another example of little things we can do that would make a
difference. All the goods are categorized in HS codes, which are North
American industry codes. For example, a pen would fall under a code. There
are 10 digits to go into specific categories. The first six digits are
harmonized between Canada and the U.S. but the last four are not. Just for
that, a company that makes many products and imports and exports has to keep
many databases of all these products, everything in double pretty much, to
ensure they do not confuse the products they export.
Looking at inspections, one of the issues that I think will be looked at
in more detail by the joint council is food inspection, especially for some
food products that have already been inspected in the country. They require
a second inspection at the border, so we are saying that if it has been
inspected in one country before crossing the border, we just have to inspect
in one. That is one area they are investigating.
Other regulatory issues include initiatives such as the Chemicals
Management Plan that Environment Canada has put forward, which looks in
detail at all the chemicals that can be found in a product. I have nothing
against this initiative, but the problem becomes that a product made in
Canada is subject to this detailed review. A good imported from another
country will not because it is not manufactured in Canada. It puts our
manufacturers at a disadvantage. For example, the auto manufacturers will
have to list and report on all chemical products on a car seat, for example,
for a car made in Canada, but a car imported from another country will not.
This is one issue where, before going on our own to put this initiative
forward, perhaps we should do it on a North American basis and try to
harmonize both regulations.
Senator Hervieux-Payette: In your third point, you provide
percentages. I have a small favour to ask. Earlier on, we talked about the
four major department stores. Would it be possible, to provide, with all
costs combined, an explanation in the margin as to the cost differential
between Canada and the U.S.? You could easily find this information, right?
Mr. Lavoie: Yes, probably.
Senator Hervieux-Payette: We would at least have a point of
comparison. My colleague referred to European cars a little earlier. Most
German cars cost not only $3,000 more in Canada but $10,000 more. That is
right, even though they are shipped overseas, I cannot see how
transportation costs can be much higher for a boat going to Montreal versus
one going to New York.
Does your association include the book publishing industry, the Chapters
of this world?
Mr. Lavoie: People in that field have their own associations, and
we do work together with them on some issues.
Senator Hervieux-Payette: Because in this area as well there are
remarkable price differences that have always, in the past, been attributed
to the fact that our dollar was weak, and this has changed. Furthermore, the
American price tag clearly shows a price of say $32, whereas the Canadian
price tag, right next to it, shows $45. It is difficult to understand why
the same book should cost more. Here again, the difference cannot be due to
Do you have any members from the pharmaceutical industry?
Mr. Lavoie: We do have some.
Senator Hervieux-Payette: Again, that is an area where the price
differences are worrisome. I will give you an example, I take vitamins which
cost $28 in the U.S., $40 in Europe and in Canada, where a product was
recently cleared for consumer use, it costs $140. There is something wrong
with this. I am unable to understand why I should pay $100 more for a
Canadian product. As well, the pharmacist tells me that it is covered by my
insurance. I find that even more worrisome because we are being told that
our health care system is expensive.
I do not know why in Germany, Mexico or the U.S. a given product costs
$25 to $40 whereas here it costs $140. There is something wrong with that.
I will close with your Regulatory Cooperation Council that involves two
phases. First there is the enforcement of regulations and then the
establishment of regulations.
Are you working on enforcement, to facilitate the formula, et cetera, or
are you also working on the regulations as such, the substance of the
Mr. Lavoie: We are working on both. But at the moment, because the
plan was published in December, we are in a consultation phase. As you
probably noticed in the plan, these are relatively aggressive deadlines. We
are engaged in broad consultations at the moment. We are focusing more on
enforcement because the plan was released last December.
Senator Hervieux-Payette: All this to say that — I am not sure if
my colleagues would agree — I have no problem with joint regulations, but I
have a problem with using other countries' regulations.
Looking at any product from a security standpoint, making sure products
available to the public present no danger, this is not a problem for me, but
I have a problem with there being two standards, a Canadian standard and an
American standard, and that the standard which is most favourable to
companies be the one that prevails. The idea of developing a joint approval
system is certainly laudable. I think that we all support that.
Mr. Lavoie: There is indeed an issue of sovereignty which is
important and has been recognized by the council.
Senator Nancy Ruth: If 8 per cent is the cost of manufacturing the
good, the other statistic that interested me was 12.9 per cent as a return
on equity for profit. Is this a goal that manufacturers set for themselves,
or is there a variety of percentages there?
Mr. Lavoie: Ten to twelve per cent is certainly an objective that
lots of manufacturers would like to reach. Unfortunately, many of them are
way below that level.
Senator Nancy Ruth: Mr. Chair, could the clerk send us the link
for the Regulatory Cooperation Council?
The Chair: We will try to track that down.
Senator Nancy Ruth: You mentioned in your presentation that
packaging was also an issue in terms of regulations. Can you talk a bit
Mr. Lavoie: It can be. There are reasons for that at times.
Packaging, and how it relates to everything, is translation. I am not saying
we should not translate. I am a francophone and like to read my cereal boxes
in French. If certain sectors have requirements for different packaging, it
has a cost which is passed on to the customer. I think packaging itself is
minimal compared to other regulatory costs such as reporting requirements or
Senator Nancy Ruth: To repeat, you think the packaging costs for
translation from French to English is minimal compared to others?
Mr. Lavoie: Yes.
The Chair: Has this Regulatory Cooperation Council that was
announced by the President and the Prime Minister been established? Is it
functioning? Have they done anything yet?
Mr. Lavoie: Yes, they released their report in December.
The Chair: Is it just government officials on this particular
Mr. Lavoie: Yes.
The Chair: Is there any industry representation?
Mr. Lavoie: A separate group called Beyond the Border Working
Group, in which we participate is feeding the council with industry
standards and recommendations.
The Chair: We will ask our Library of Parliament people to bring
us background information on the council you mentioned.
Senator Neufeld: You list a number of things for which the costs
are higher in Canada. You said labour costs are higher in Canada than in the
U.S. Can you tell me what labour costs? Are you taking an average of all
labour costs that are more expensive in Canada? I will give you my
For people in the natural resource industries, labour costs are similar,
in fact in most cases much higher. We have a tremendous problem in Canada of
people leaving to work in the U.S. Whether it is in the electrical energy
industry, or oil and gas, people tend to go across the border because they
can make more money.
When you say labour cost, are you talking about minimum wage costs? Is
that the only thing you are targeting in here? What is it?
With respect to manufacturing cars, I doubt there is a big difference
between a person that screws bolts onto a car in the U.S. compared to
Canada. I would think those costs are almost similar because it is much the
same unions. I appreciate there would be some differences, but not many. How
do you justify that?
Mr. Lavoie: In the context of my remarks, I was referring to the
labour costs for the retail sector, so that would have two components.
Minimum wage is one. Someone mentioned that there is about a 20 per cent
difference between Canada and U.S. in terms of minimum wage. There is also
the issue of productivity. If you need more employees per square foot in
your retail store, your labour costs will go up. The best way to get your
labour costs down is to probably improve your productivity, the way you have
your inventory and the way you structure your store, for example.
In other sectors such as the manufacturing sector, you are right. In
those cases we have seen unionized workers within the same companies or
industry with similar labour costs. Sometimes you outsource other types of
workers, such as electricians, to a different firm. Not all firms have their
own electricians. What I have heard from manufacturers who were actually
looking at places to set up production in the U.S. is they also saw a
difference of 10 to 15 per cent for specific types of workers.
Senator Neufeld: It is interesting to me, to be perfectly frank,
that we are always the bad guys. We use too many people. Our labour costs
are too high. Obviously what you are saying is that retailers are not
working as smart as they do in the U.S. I do not always believe that. I am a
little shy on believing those things. I realize there are some differences.
If you take input costs for manufacturing, natural gas is priced on a
North American market and oil is a world market. You can buy copper in the
U.S. or in Canada and you are paying the same price. Lead, zinc, silver and
gold are all the same basic price. All of those costs go in.
When you agree with me that when you get to the trades where the labour
costs the same, I am having trouble understanding why it costs more to
manufacture some of the same things in Canada than it does in the U.S. I
suppose we can sit here and argue about that forever, but that is where I
When we import from Asia, using this as an example, a large container
ship comes into the Port of Vancouver and unloads. A lot of those goods stay
Western Canada for distribution right there in Alberta and British Columbia,
which are close. Then a unit train will take a whole load of those
containers and go straight across Canada into Chicago for redistribution in
Chicago — because it is a huge redistribution place — and it goes to
different places in the U.S. Yet, you can find that same product cheaper in
the U.S. than you can in Vancouver. When talking about transportation costs,
those costs in Vancouver are less than the transportation costs in Chicago
with redistribution. I am having trouble trying to figure out how you are
justifying transportation costs. They may higher be in some cases. If you
transport something from the Lower Mainland to Inuvik, that might be a
different story. They pay dearly for everything up there.
Mr. Lavoie: The way I see it is the transportation cost per item.
If you transport goods from one country to another and you have 5,000 items,
the price per item will be lower than if you have only 100. The
transportation costs are raised for those goods that go into smaller-sized
markets. There are fewer people in this market. It is in this context where
I agree with you. Transportation costs in themselves are the same, but how
many products you are transporting would have an effect. That is the way I
Senator Neufeld: Yes. I can relate to that to a degree, but I have
a problem relating with it if you are talking about transporting a Samsung
TV all the way from Vancouver to Chicago and then redistributing in Chicago.
Wherever it is made, in Korea or Japan, wherever it comes from, it is
shipped to Vancouver. Millions of them are sold in our country, too, not
just 10 or 100. Everyone has four or five TVs in their house now; it does
not matter where you are at.
With respect to the regulatory committee that you are working with, can
you give us three major examples that would make a difference to pricing in
Canada that your agency or your group can collectively agree on so that we
can actually understand them a little bit more and maybe pursue them?
Mr. Lavoie: The examples I brought here affect the manufacturers.
I cannot guarantee it will necessarily reflect on the price of the retail,
but the three I brought here to focus on was single-window reporting, the
harmonization of industry codes, and the double inspection in the food
sector, one done in the country of origin and one done at the border.
Senator Neufeld: That would be interesting.
Chair, we could actually pursue those manufacturers, then, that do not
want to give the benefit of what would happen if, in fact, we decreased our
costs. If that makes their margin 15 per cent instead of 10, we can actually
target those ones. That is where I am coming from. I need something
concrete, not just a general statement that our wages are higher so
everything is going to be higher and take it. I want to dig down. I want to
drill into three of them and find out why, and if in fact there is some
saving, will it be passed on to the consumer in Canada?
Mr. Lavoie: Absolutely. I will send a copy of our letter to the
council that has all of our recommendations.
Senator Neufeld: Thank you.
The Chair: Other senators have questions but we have run out of
time. We have our other panel waiting and we also have a teleconference for
part of the next panel.
On your behalf, I will call this first session to an end.
Thank you, Mr. Lavoie, for appearing before our committee today.
Honourable senators, in our second session this morning we are pleased to
welcome a fairly extensive panel for the next hour: Mr. Bruce Cran,
President of the Consumers' Association of Canada; Mr. Michael Janigan,
Executive Director and General Counsel, and Ms. Janet Lo, Legal Counsel,
with the Public Interest Advocacy Centre; and, finally, via video conference
from Montreal, we welcome Mr. Jean-François Vinet, Business Practices and
Financial Services File Analyst with Option consommateurs.
We will close with Mr. Vinet.
Bruce Cran, President, Consumers' Association of Canada: Good
morning, senators. I am a consumer advocate, so the presentation that I am
making is on behalf of consumers and not industry.
Five years ago our dollar started to rise towards parity, and we have
been watching it ever since; I think four and a quarter, something like
that. It reached parity and it has flirted with parity ever since. There has
actually been a 50 per cent rise in the dollar. Back then it was 66 and two
thirds per cent and now it is a dollar. Some people do not seem to get their
arithmetic right on this, but it is 50 per cent, which is quite a
During that period we have seen very little of that passed on to
consumers. The odd item has changed a little, but in the main there has been
relatively no advance for consumers in sharing the rise in the dollar.
The reality of this whole thing for consumers is quite a simple equation:
What does it cost here and what does it cost across the border? Our advice
to consumers has been to make themselves very much aware of that fact and
then make their decision. We hear a lot from people who want to see
consumers making patriotic decisions — in other words, buying on this side
of the border instead of going across the border. Such a decision is quite a
lot easier on a Christmas card or a greeting card with a small price tag as
compared to, say, a high-end motor vehicle. We have things that we wonder
How can a snowmobile that is made in Quebec sell for a third less in the
United States? How can a pickup truck manufactured in Canada sell for five
or six thousand dollars less across the line? Why should we be going across
the line to spend our dollars on American airlines and American airports
because the fares are half what they are here? Why is a book that is printed
in the United States selling for a third to half more in Canada, and on
occasion double, when it is the same book printed in the same factory and
sold to the same group of consumers?
We are very concerned as consumers to try to keep our money in Canada,
but we also must be enlightened as to what that is going to cost us, and
that is how we make our decisions.
I have not come along today with a bunch of statistics, but I would like
to answer questions. I have seen a lot in the last five years. I have seen
situations where I have been very much in sympathy with retailers.
I have visited with many retailers, probably including a couple of dozen
of the largest ones in Canada. One item that really struck me was the fact
that they were buying a particular product — this is a United
States-controlled company buying from another United States manufacturer —
and they told me that there was a premium put on the prices of goods coming
into Canada by the manufacturers, as opposed to the price that they could
buy the same goods for in the United States.
I was a bit skeptical about this. I was very reluctant to believe it, but
they led me through the process. They even showed me the letter that said in
very cold terms that if they did not like to pay the price, they did not
have to have the goods and they would find another distributor in Canada.
This was a product I guess that had been developed over 30 or 40 years,
with a big investment in it, so that company certainly had my sympathy.
However, the reality is still that you can go across the border and buy it
for about 40 per cent less than you can in Canada. Those are the differences
that I do not understand.
One last item I would like to bring up, which is very pertinent to the
average household, is the price of a gallon of milk. I live in Vancouver,
right up against the United States border. I can pay $3 for a gallon of milk
in the States; it is almost $6 in Canada. That is one that is very difficult
to explain to the average person. Of course, then you have got gasoline
prices and all the rest of it.
I do not have much more to say than that, but I would certainly like to
deal with any of your questions.
The Chair: Thank you very much, Mr. Cran.
Michael Janigan, Executive Director and General Counsel, Public
Interest Advocacy Centre: Thank you very much, Mr. Chair and members of
the committee. The Public Interest and Advocacy Centre, PIAC, in addition to
its principal interest in the delivery of important public utilities and
services, has also been engaged in issues associated with general consumer
protection and the state of competition in consumer markets. We welcome this
opportunity to discuss an issue that appears to have vexed a variety of
agencies and stakeholders.
There appears to be a consensus at this time that there is a minimal
amount of determinative evidence available. However, there are some features
of this pattern of price intransigence that seem important from a consumer
First, as one witness has phrased it, the relative stickiness of prices
seems to belie the previous explanation for the cross-border pricing
differential that reached its zenith in the 1990s, namely that the
prevailing exchange rate that was previously very favourable to the American
currency was the determining factor. The reasons for the same may include
some of the possible theories that have been advanced in this committee
concerning country differences and retailer confidence in the escalating
value of the Canadian dollar. However, it may also be attributable to a lack
of competition in the Canadian retail market.
If it is, then we must be concerned with the removal of potential
barriers to competition or consider more hands-on measures, including
changes to tariffs or duties payable, in the hope of jump-starting Canadian
retail commerce that is more price friendly to consumers.
Second, this phenomenon seems on its face very subversive of the
objective of open markets, which was not simply to open up foreign markets
to Canadian exporters but the maximizing of domestic consumer welfare in the
We would also like to add a small nugget of information concerning
consumer purchases online, which comes about as a result of a recent study
conducted by our organization for Industry Canada. Our legal counsel Janet
Lo will briefly address the same.
Janet Lo, Legal Counsel, Public Interest Advocacy Centre: In
November 2011, PIAC published a study called Point of No Return, Consumer
Experiences Returning Online Purchases. In the course of our study, PIAC
purchased and returned products from 15 North American retailers, 12
Canadian and 3 American, to test the online return process. We also
conducted a survey with consumers to gauge the importance of the consumer's
right to return.
While our study focused primarily on the return process for Canadian
consumers, we did come across some issues with the online cross-border
sample purchases. We experienced the very problem your committee is studying
today — a surprising difference in Canadian and American prices for
cross-border shopping, given the value of the Canadian dollar.
Two of the three cross-border online purchases charged PIAC using
American currency. However, the taxes charged amounted to 33 to 34 per cent
of the subtotal price of the products. In one case, the tax was presented to
the consumer as an international tax, with no further explanation. In the
other case, the taxes were broken down to duty taxes and taxes with no
In the third cross-border online purchase, prices by the American
retailer were displayed in Canadian dollars for Canadian consumers, and the
Canadian price displayed was nearly 30 per cent more than the American
prices, resulting in a US$48product listed for C$62 despite the parity of
the Canadian dollar to the American dollar at that time.
As PIAC's study was focused on the return experience for Canadian
consumers shopping online, we were merely able to make the observation that
price discrepancy for retailers exists for consumer cross-border purchases.
At that time, we were not able to speculate about reasons for the price
I will turn it back to Mr. Janigan to finish our submissions.
Mr. Janigan: We would also note in passing the 2006 study by the
Centre for the Study of Commercial Activity at Ryerson University, which
noted that mergers and acquisitions were the main tool for retail corporate
growth in the 1980s. Retailers grew larger and fewer, changing their
relationship with consumers and suppliers at different levels of geography.
While increases in size brought about by mergers may have increased
profitability, they have also given big chains more market power. The
statistics from 2003 show that the top three corporations have over 30 per
cent of the retail market, with the largest 30 firms controlling 68 per cent
of the market.
High levels of concentration tend to lead to standardization and a
lessening of competition, possibly brought about by systemic or
intentionally erected barriers. It is not a scenario that should be casually
dismissed or, on the other hand, adopted as proven fact without the kind of
market-based studies that should be the province of the Competition Bureau.
The OECD recognized this need in 2004 in its country-specific study of
competition in Canada, entitled "Updated Report on Competition Law and
Institutions.'' No agency in Canada presently has express authority to study
an industry simply for the purpose of illuminating its competitive dynamics.
This is a tool that should be available to advance the objectives of
competition policy. Market studies can reveal previously unsuspected forms
of private conduct or government regulation that impair competition, and
study results can play an important role in promoting public understanding
of how competition works and what benefits it produces.
In PIAC's view, this would be an important outcome of this committee's
review, and an important and necessary precursor to implementation of some
of the possible fixes already discussed before this committee. We would be
pleased to answer any questions on this.
The Chair: Thank you, Mr. Janigan and Ms. Lo.
Jean-François Vinet, Business Practices and Financial Services File
Analyst, Option consommateurs: Thank you so much for inviting me to
represent Option consommateurs. As the sharp thinkers you are — and as I
guess I am, I hope — I always find it funny to hear the industry saying why
prices are higher in Canada than in the United States.
We heard Mr. Lavoie saying that translation fees make prices maybe a
little bit more expensive in Canada. However, in the United States, it is as
if people were not speaking Spanish. Industries often try to find ways to
explain why prices are high, but when you analyze things more precisely,
sometimes it does not make sense.
The other thing that was mentioned is economies of scale. In the United
States, all those consumers make prices go lower, and the Canadian market is
smaller. We heard that before. I mean, this is not a new thing. The parity
of the dollar has been there for at least a year or two. What about
Plattsburgh and Detroit? Plattsburgh has 20,000 people. Many people near the
border in Montreal go there because it is much cheaper, and, as a matter of
fact, in Montreal, there are 2 million people. How can a city with such a
little market have prices that are so much cheaper, whereas prices are
higher in a huge urban area like Montreal? We heard that. It is going to be
economies of scale; it will be labour cost, then translation fees.
For me, it cannot be that. It does not explain why electronics are more
or less sold at the same price in the States as in Canada. These things have
to be transferred. We have to pay labour for it. We have to pay fees to
bring a Samsung TV into Canada. Why is it more or less the same price in the
States and in Canada? There are very strange things in the retail market.
I have heard for at least two years the merchants and manufacturers
trying to explain it. It does not make sense for Option consommateurs, which
I represent. We are asking, as is the Public Interest Advocacy Centre, to do
a study. The Competition Bureau has the mission to ensure markets in Canada
are fair for consumers, retailers, manufacturers and everybody.
Now we are seeing that it is not fair for consumers. At least, it does
not seem to be fair for consumers. In the food distribution market, four
businesses own 40 per cent of the market share in Canada. Of course the less
competition there is, every economist is going to tell you prices will be
higher, and maybe we will support what PIAC said. We need a study done by
professionals. We have an institution in Canada that can do it, and it is
called the Competition Bureau. Let them do their job and bring back a study
on the state of the retail market in Canada, and after that, we can go
further with the committee.
That is what I had to say for Option consommateurs. Thank you for hearing
The Chair: Thank you, Mr. Vinet. We will now continue with
questions and comments from the senators. You may respond in English or in
French. We have all the technology required to do this in both official
Mr. Vinet: Did you understand me in English?
The Chair: Yes, sir.
I will now begin with senators who have expressed an interest in
proceeding. Senator Neufeld, our new deputy chair of the committee, Charlie
Lake, British Columbia.
Senator Neufeld: I have one question for Mr. Cran. I think all of
us know why dairy products are more expensive in Canada than they are in the
U.S. It is because, as Canadians, we protect our farmers. Right or wrong,
that is a fact. It is not just where you live in Vancouver. It is all across
Canada. I think cheese is the dominant thing out of Quebec, and it comes
across Canada. That part I can fully understand.
I do not know if there is much difference in gasoline once you peel away
all the taxes that we in Canada put on, whether it is provincial or federal.
What is on your mind? You have obviously studied this for a long time and
are knowledgeable about consumers, and we are concerned about whether the
consumers are getting a fair deal. In many cases we do not think they are.
Other than those two things, what things can this committee dig into to
drill down and find out what we can do, just a couple of examples? If you do
not have them now, you can provide them to the clerk and we can review them
Mr. Cran: Well, senator, I have far more questions as a consumer
than I have answers, but I will try in due course to give you a written
answer on a couple of items.
With regard to milk, we all know why it is, but it is still a reality,
and that takes people across the border and they buy other stuff.
I live near Point Roberts, Washington, and there is a mile of traffic. I
live on the main street, and sometimes I cannot even get out of my house for
the traffic going up there.
I will make an effort to do what you are suggesting.
I can tell you that about five years ago, maybe a fraction more, we
selected 50 items. We have never revealed those items because I do not want
a discussion about whether we picked the right ones or not. They are a good
sample, believe me. Those items now have gone down to 35 because of
attrition, items not being available, whatever. There is still a
differential that has never gone below 25 per cent, and it fluctuates at 5
per cent, never down, but up, 25 to 30 per cent. That still remains today.
People could go across the border to save a reasonable bunch of money. I
know people are telling us right across Canada that they can go across the
border for a weekend, Friday night until Sunday, have a good time while they
are down there, and come back ahead if they are spending something like
$1,000 or more.
As for the lines and the lineups right across Canada, we check those
every week. They are very solid. Every one of those dollars being spent down
there, of course, is a dollar going out of Canada, but I cannot fault
consumers for going down there to look after their own pockets. I do not
think anybody can.
I do not know whether that helps, but I will try to get you something in
writing on two items anyway.
Senator Neufeld: Please do that.
Mr. Cran: I will.
Senator Neufeld: If we totally eliminated what people could bring
back across the border duty free, would that have a shock effect on our
retail sector in Canada to become a bit more competitive with prices in the
U.S.? That is just an observation, and I would like to know what you think.
The other thing about milk is that I live in Fort St. John, so it is a
thousand mile drive to get across the border.
Mr. Cran: You have my sympathy.
Senator Neufeld: I cannot buy the milk the same as you can. What
makes me angry is some of those dairy producers in the Lower Mainland who
are protected by that price buy their milk across the border, too, so it is
always interesting to me how that whole process works.
Mr. Cran: The showdown for that must be coming.
Senator Neufeld: You could actually help us maybe with the dairy
industry and the problems that may arise if, in fact, marketing boards were
removed, not just in dairy, in chicken and a whole bunch of things.
Mr. Cran: You have got my phone number.
I will give you one more item that absolutely baffles me. You know you
can buy soft cover and hard cover books online. You can take delivery
online. Why is there a difference of about 25 to 30 per cent on the books
you buy online across the border to here? I finally figured out, and many
Canadians can, that you can join a U.S. ISP and get your Amazon books down
there for 20 to 30 per cent less than here. If there is an answer, I have
yet to hear it.
Mr. Vinet: If I may answer as well, some very interesting things
were said there and I would like to say something about that.
Mr. Cran mentioned milk, but let us forget things where the state does
Many journalists in Quebec compared prices recently, including on tires,
shoes, jeans, ketchup, washers and dryers, cars, planes and alcohol. There
are a lot of products. If you want examples, I can give you some because we
did our own study as well. We can see that there are huge differences in
prices. As I told you, I do not think we can understand when we listen to
Interestingly, you mentioned the duty-free issue. It might help consumers
because if there are fewer taxes or if we allow consumers to bring more
products into Canada, it might help those who bring back the products. I do
not know how much it could hurt the Canadian economy, but we can think about
these issues. At the same time, the people who live up North, maybe two or
three hours from the border, that answer would not be an option for them
because the cost of fuel would be too high. All the economies could boom in
Detroit or Plattsburgh, or wherever, but it would be spent in fuel. It might
help, but we have to look at the Canadian economy as a whole to help all
Canadians benefit from a competitive economy in Canada.
The Chair: Mr. Vinet, I suspect that colleagues would be very
interested in any studies or any reports on price comparisons that you have
made mention of that you could send to us.
Mr. Vinet: There is absolutely no problem. I will make sure you
The Chair: Thank you.
Senator Ringuette: I live in a border community. Actually, while
sitting in my living room I see the State of Maine; therefore, I am
certainly aware of the issues of milk and poultry.
However, quite a number of years ago the difference in price intrigued
me. I want to bring in some facts here. The production of milk in the U.S.
in one day is more than the total yearly production of milk in Canada. One
day of production of milk in the U.S. is more. That is the same for poultry
and turkey and so forth, notwithstanding that if you start to scratch the
surface you will find that the U.S. government subsidizes the feed involved
in poultry and turkey processing to the nth degree, which is not allowed in
Canada because of said free trade agreement with Canada.
If we want to look at specific products and the cause, I think this would
be quite revealing with regard to the processes involved between Canada and
the U.S. before the products reach the retail sector. That would be quite
revealing, I am sure, and maybe even the subject of NAFTA questions.
I have a question for the Public Interest Advocacy Centre. How are you
financed? You are a non-profit group. How do you manage to get the funds and
do the kinds of studies that you have mentioned?
Mr. Janigan: With a great deal of difficulty. Actually, the study
I mentioned was a product, particularly the one from Ryerson's Centre for
the Study of Commercial Activity. In general terms, our funding comes from
two sources. First, we do policy projects for different government agencies,
principally the Department of Industry, but there are other government
departments we do it for. Occasionally we do projects for other places, such
as the European Union.
The other half of our funding comes from appearing as legal counsel on
behalf of consumers in tribunals, such as the CRTC, the Ontario Energy
Board, Yukon Utility Board, where cost awards are paid to us to effectively
present the position of consumers.
Senator Ringuette: You seem to be operating solely by different
kinds of services you provide to government entities.
Mr. Janigan: That is correct.
Senator Ringuette: In your study with regard to online purchasing
— and please correct me if I am wrong — I have looked into this, and one of
my observations was that if a Canadian bought an online product sourced from
the U.S., the cost of the product on the Internet was relatively the same;
however, there was no cost for shipping within the U.S. but there was a cost
for shipping in Canada, notwithstanding taxes and so forth. With regard to
online purchasing, there seems to be two different policies for most U.S.
goods online — free transportation within the U.S. but quite enormous costs
with regard to shipping to Canada. Am I right in my observation?
Ms. Lo: It really depends on the retailer and how they have chosen
to market their products to consumers. In one case we did have free shipping
to Canada, but in the other two cases there was shipping in addition to the
cost of the product and the taxes. It really is a variable practice. It
depends on whether they are really interested, and I suppose Canadian
consumers are not. Then the cost of shipping will also be variable depending
on the retailer and the different methods of shipping that they provide.
Senator Ringuette: Thank you, because you are confirming.
Mr. Cran: One of the companies we got involved with last year was
Babies "R'' Us. A lady had sent me two identical ads from Babies "R'' Us
for a particular crib. The price in the U.S. was $312, including freight,
and $612 in Canada. I became involved as a potential buyer when I found
Babies "R'' Us. I told them of the differences to see if I could make a
deal. I finally got up the line to the chief broom closet keeper, or
someone, and they told me if I did not like it to go down to the U.S. and
buy it there. That is only one of many examples. That was taken up by CBC
Senator Ringuette: Exactly. They are the same chain.
Mr. Cran: This was identical. The pictures were identical.
Everything was identical but the price.
Senator Ringuette: At a previous meeting I did the same thing with
a gazebo, not the politically famous gazebo, but the ordinary wooden gazebo
manufactured in Canada and sold in retail markets in Canada and in the U.S.
The U.S. one sold at least 30 per cent less than a Canadian-manufactured
product. Then we also go back to the issue of cars.
There does not seem to be a specific recommendation because depending on
the sector you are looking at there are a variety of different issues. For
instance, with regard to translation, if you look at all the recent products
you can buy in Canada you will see it is French, English and Spanish. The
cost of labeling is no longer an issue.
Senator Gerstein: Thank you for appearing before us with excellent
presentations. The reason I say they are excellent presentations is that you
are really going to the essence of our study.
Mr. Cran, you hit it right on the head; the Canadian dollar has gone up
50 per cent in the last 15 years. That is what led the minister to ask for
this inquiry in the sense that, as he stated, "I am irritated and consumers
are irritated.'' Obviously, competition plays a large role in this, but in
effect we are here representing the government.
What are the things you would specifically recommend that we should be
looking at? What types of things? Government is not running retail
businesses. They create the framework that they operate in. I heard Mr.
Janigan talk about tariffs. That is something the government can look at.
Customs allowances are something the government can look at. What else
should we be putting on our list?
Mr. Cran: One of the things that we did some four and a half years
ago — and we have done many times since — is publicly offer to partner with
any manufacturer, retailer or anyone else that wanted to challenge any of
the tariff items. A good example is a woolen mill. I do not know the last
time anyone saw a woolen mill in Canada. If you see one, take a photograph.
It might be the only one and the last one. Those tariffs, along the lines of
20 per cent on those goods, could be removed quite easily.
The sad part is, during the last four and a half years, I have had
meetings with six or eight of Canada's large retailers and several small
retailers. Not one of them has put through a formal request. I spoke to Mr.
Flaherty's office yesterday. He has about a dozen inquiries, but no formal
That makes me wonder, what is the real interest of retailers and
manufacturers? If they can remove some of these tariffs by taking that
action, that is fine. I do not know if it is in confidence or not, but Mr.
Flaherty also told me — I imagine he has said this often — they are
approaching the stage where they are prepared to look at these tariffs
themselves. What a shame. The manufacturers represented earlier on could be
encouraging his people to clip those individual tariffs, especially in view
of the fact that Mr. Flaherty has indicated his sympathy for having those
We were reminded of where we are at the moment. If anyone in that sector
wants to put an application forward, we would certainly be happy to join on
the end of it to add effect.
Senator Gerstein: Let us acknowledge that tariffs and exemptions
are on our list to consider. What other things should we be considering?
This is your opportunity to tell us.
Mr. Cran: You talk about removing the tariffs. Do you mean
removing the tariffs coming back into Canada?
Senator Gerstein: I am just saying that there might be a
recommendation that we review tariff levels coming into Canada.
Mr. Cran: I hope it would not be to remove them completely. You
would have a riot on your hands.
Senator Gerstein: I did not say that. I am simply saying it is an
area to focus on because it is under government control. The minister has
the ability to deal with tariffs. The government has the ability to deal
with customs exemptions. What other things do you feel government can deal
with that we may not have discussed to this point?
Mr. Janigan: You put your finger on it in terms of what I think is
the principle issue before us. It is easy to get knocked off the puck in
terms of looking at why there are price differences in general between
Canada and the U.S. We can fight about those until the cows come home, or
report to the Milk Marketing Board, I guess.
The principal question is that we have had this decline in exchange rates
that has not been reflected in prices in the sense we would ordinarily
expect. Either the variables have changed between Canada and the U.S. in
that period of time — which does not appear to be the case — or there is
some reason why Canadian prices have remained at those levels. From our
standpoint, that looks like a situation where there is some degree of market
dominance being exercised or concentration that has failed to pass on those
In our view, the first and most important step is to try and discover
what the barriers are in terms of competition. Why are these prices not
being passed on? Why are competitors not taking advantage of the difference
in prices available to them in the exchange and passing them on to
consumers? This may include things like problems associated with exclusive
agreements with suppliers. It could be a result of either vertical
integration in the industry, or a whole variety of different competitive
mechanisms put in place by the industry that are subverting the ability to
pass on these prices. That is why we placed first emphasis on the
Competition Bureau doing a comprehensive study in that area; to discover
whether or not there are barriers and whether or not they can be removed
through the aspect of competition law. If in fact they are resistant to
changes in the law, then we look at more hands-on solutions, such as tariff
exemptions, removing personal exemptions, trying to line up different
matters in markets, or a variety of different temporary or long-term
We do not have enough information as to why this is happening. I was
struck by Mr. Carney's testimony on that level that in fact there may be a
number of different reasons, but we have some difficulty describing them.
That is why we put our eggs in the basket of doing a comprehensive market
study to begin with.
Senator Runciman: Most of the issues I wanted to raise have been
covered. This essentially ties in with the Competition Bureau study, which
at least two of you have suggested should occur.
We had academics appear before us earlier on. Drawing from some of their
testimony, they said that one of the reasons for the price gap is that many
big multinational firms — both manufacturers and retailers — have an
expectation that they can charge a higher price in Canada than the U.S. In
other words, they are saying they charge more here because we will pay for
it. Do you have a view with respect to that?
Mr. Janigan: Ordinarily, that attitude is indicative of some
degree of market power and that they were able to force a price increase
that is effectively anti-competitive or not indicative of a competitive
market. We have to look at what circumstances exist in the market that has
given them dominance. If there are barriers to entry, or to other
competitors effectively competing with them, can we do something from the
standard competitive sense, such as an order from the Competition Tribunal,
dealing with exclusive contracts with suppliers, or different types of
agreements? That is what I would look to in the first case to try to remedy
or adjust their expectations to one which is more in accord with competitive
Senator Runciman: I do not think you responded to the issue raised
earlier with respect to exemptions. I know removing exemptions was
suggested, but what we have talked about to this stage is matching the
exemption level that the United States applies, and one-day exemptions that
we do not apparently have for Canadians visiting the U.S. In some respects
this issue is counterintuitive in that it will encourage cross-border
shopping. However, the other element is it will encourage competition and
put pressure on Canadian retailers to more aggressively price products in
relation to their competitors across the border. I do not think you
responded to that issue earlier. Maybe this is an opportunity.
Mr. Janigan: Potentially, it may be a solution in the event that
you are not able to alter market structure by way of standard competitive
solutions. It is difficult, though, to speculate what effect that may have.
It might collapse markets prematurely and lead to difficulties in
competition. It may bring competition in and prices down. I do not have
enough information to speculate on that.
Mr. Cran: When the matter of tariffs across the border comes up,
in every discussion I have been involved in — and I have been in quite a few
now — the chief resistance to changing those rules comes from the retail
groups, which normally overwhelms us. There is no financing from the
Government of Canada to attempt to equalize the playing field for consumer
groups. We get no government financing of any type. Britain, Europe,
Australia and New Zealand are all given funds. Fifteen years ago, my group
got $2 million per year. That would be heaven to me, but I was too stupid to
be involved then. Now, there is nothing. We get no operating funds or
support from government at all. This is why we cannot easily do studies like
Mr. Janigan was talking about.
The other thing I would like to mention is that you are dealing with a 50
per cent rise in the dollar, but where manufacturers are buying raw
materials from the U.S., it worked in reverse. Therefore, they should be
paying a lot less for what they were previously bringing into the country in
the U.S. A heck of a lot of that stuff goes on. These differences are more
than 50 per cent in reality because of those factors as well.
Senator Callbeck: Mr. Vinet, you talked about the fact that
Canada's top four retailers have 28 per cent of the market, as compared to
the U.S. where the top four have 12 per cent. Do you know of a study that
has been done to determine whether the bottom lines of those top four
Canadian retailers are actually better than those of the American top four
retailers? In other words, what percentage of sales is profit? Are the top
four Canadian retailers actually doing better?
Mr. Vinet: I understand your question. The study done by Ryerson
University in 2003 was taken back by Industry Canada. They said that when
four businesses own more than 40 per cent of the market, there would be
proof of market domination or a vulnerability of the economy to be in a
position of market dominance. In 2001 we saw it in big retail stores, food
markets and pharmacies. We were already seeing that in clothing as well.
There are a lot of markets in Canada maybe because at one time we wanted to
protect the Canadian economy from big U.S. businesses. We wanted to protect
the Canadian economy from the American economy. Now, maybe times have
changed and we need more competition or, at least, a better understanding of
competition in Canada.
For four businesses, 40 per cent of the market is a problem. We see that
in many markets. At least since 2001, we have seen that a lot. We want to
know what is happening now in 2012. In the food market, Sobeys, Metro and
IGA — three businesses — have 40 per cent of the market. There is probably
something going on there, but we need more information.
As Mr. Janigan said, we would like to give you a perfect answer and
recommendation, but, so far, the recommendation we can give you may hurt
more than solve the problem because we do not know enough.
Does that answer your question?
Senator Callbeck: Yes.
Mr. Janigan: The senator spoke about the Ryerson centre. It has
updates of the initial study and publishes a number of studies of the retail
industry. I have not seen the statistics you have referenced, but I have
some inclination to believe that that may be contained in those studies and
reports available from Ryerson University.
The Chair: Can you give us the name of the contact person at
Ryerson so we can get in touch with them?
Mr. Janigan: The initial study was done by Professor Ricardo
Gomez-Insausti at the Centre for the Study of Commercial Activity, but they
also have a number of different publications available there. I noted just
yesterday that they have a 2010 update of the study by Professor
Gomez-Insausti, at a price that exceeded our budget. I am certain the answer
might be there.
Senator Callbeck: Speaking of budgets, you represent three
organizations. Where does your funding come from, and what is your
approximate budget for the year?
Mr. Cran: Our funding, which is very little, comes only from
donors and members. I am not supposed to give you exact figures unless I get
permission from the board. I cannot do that, so I cannot give you the exact
figures. We are a non-profit, volunteer-run organization. I work 12 hours a
day, seven days a week sometimes, for this organization and for consumers.
There are not very many organizations that have survived the government cuts
over the last two decades. We are a non-profit organization. That is one
thing we are very good at — making no profits.
My opinion is that there would be a big improvement in Canada if the
playing field was levelled in some fashion by giving grants to consumer
groups. In Britain, every bill that the telephone companies put out has a
cent on it, and that money is divided among consumer groups. A lot of
consumer groups have disappeared from the landscape. Instead of
disappearing, we have learned to survive with what we have. It is not easy.
I could do a lot more advocacy if I did not spend a quarter of my time, or
maybe a bit more, looking for money.
The landscape has changed over the last 20 years from us getting $2
million that we used to produce a magazine. We used to have a legal branch.
We had all sorts of things. These days, we are bare bones, and I do not have
funding to do these projects. The government offers about $1.4 million
through OCA. It has been that way for about 15 years.
What we do not like about that is that those studies are not independent.
Public servants pick and choose those programs, and when you put them in,
they approve them. We feel that is worse than having industry leaning over
our shoulder. It is a very difficult time for consumer advocacy, and we do
the best we can.
Mr. Janigan: Our funding is in the neighbourhood of $600,000. We
have four lawyers located in two offices in Ottawa and Toronto, a couple of
articling students, support staff and some summer students and interns.
We derive our money primarily from the policy papers we do, either for
Industry Canada or other agencies. We also represent consumers in different
tribunals where we get cost awards paid for our representation. To some
extent, we use that money to subsidize what we do, including appearing
before you here today.
It is a large problem. I think part of it is structural in terms of the
government. Given the fact that over 50 per cent of economic activity in
Canada comes from consumer transactions, they may be well served to have an
actual minister of consumer affairs in this country. I think there are a
variety of different solutions that could be employed to try to bring some
more resources to consumer and public interest organizations that are active
in this area.
Mr. Vinet: Quickly, yes, it is a very hard time for consumer
associations in Canada. Our association manages with more or less $600,000.
We are a team of 15 people working full-time, and we are doing our best to
represent consumers in that position.
I would like to add that it is quite funny because retailers are charging
us more. Just a few months ago, they wanted to surcharge people who are
using their credit card in their stores. I guess you heard about this.
For the moment, a lot are surcharging even if the Canadian dollar is at
parity, and then they want more. They want to make people pay when they are
paying. This is quite funny. It is a big game, a lot of money is in place,
and we hope that little organizations like ours will help you to do your
Senator Marshall: Ms. Lo, I want to ask you a question on the
study you referenced earlier in our discussions. You indicated that in
addition to the base price of the product there were various taxes added on.
The way you expressed it, I read into it that maybe some of the taxes were
added specifically for the purpose of upping the price of the goods. What
kind of taxes would have been added? Was the base price of the product the
same whether you were a Canadian consumer or an American consumer?
Ms. Lo: There seem to be two types of pricing models that American
retailers use when you are purchasing items online. With the first model,
you would be paying the same price as American consumers. It would just be
an American dollar price, and when you go to check out and you indicate that
you live in Canada, all these taxes are added.
Unfortunately, I am not able to determine how the taxes are calculated. I
just noted that, for example, on one purchase, the subtotal of the product
was $70 and international duty taxes amounted to $23.45.
Senator Marshall: That is what I was wondering.
Ms. Lo: That is how it was described to me as a consumer.
Senator Marshall: There was no indication.
Ms. Lo: The second model was by the third retailer. When I went to
check out as a Canadian, they displayed a different price in Canadian
dollars that was 30 per cent more than the American price on their website.
Again, it is various practices by different retailers, but the end result is
the same in both cases, which is that as the Canadian consumer I was charged
30 per cent more.
Senator Marshall: Right. We paid more in all the cases that you
Ms. Lo: That is right, and this is independent of shipping, which
was added after.
The Chair: Regretfully, colleagues, I will have to call this
meeting to a conclusion.
The Standing Senate Committee on National Finance would like to thank
you, Mr. Cran, from the Canadian Manufacturers & Exporters; Mr. Michael
Janigan and Ms. Lo, from the Public Interest Advocacy Centre; and Mr. Vinet,
from Option consommateurs. Thank you very much for being here.
(The committee adjourned.)