Proceedings of the Standing Senate Committee on
National Finance

Issue 22 - Evidence - June 13, 2012 (evening meeting)


OTTAWA, Wednesday, June 13, 2012

The Standing Senate Committee on National Finance met this day at 6:45 p.m. to study the subject-matter of all of Bill C-38, an Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012 and other measures, introduced in the House of Commons on April 26, 2012.

[Translation]

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

The Chair: Honourable senators, this evening, we are continuing our study on the subject-matter of all of Bill C-38, an Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012 and other measures, introduced in the House of Commons on April 26, 2012.

[English]

Honourable senators, this is our seventeenth meeting on the subject matter of Bill C-38. This evening we will be looking at Division 44 of Part 4, amendments to the Customs Tariff. This can be found at page 379 of this bill.

We welcome Karen Proud, Vice President of Federal Government Relations with the Retail Council of Canada. Welcome back. We will have a special seat for you.

We also welcome, via video conference from Calgary, Mr. Ben Brunnen, Director of Policy and Government Affairs and Chief Economist with the Calgary Chamber of Commerce.

Mr. Brunnen, welcome, sir. We do not often have the Calgary Chamber of Commerce helping us out with legislation here at the Senate, and we are pleased you are able to do so this evening.

I will start with Ms. Proud, who will have a few introductory remarks; and then I will go to you, Mr. Brunnen, if that is satisfactory.

Ms. Proud, please proceed.

Karen Proud, Vice President, Federal Government Relations, Retail Council of Canada: It is a pleasure to be back here again. I would like to thank the chair and the members of the committee for inviting the Retail Council of Canada to speak on the changes to the personal exemption limits as set out in Bill C-38. Our members are very concerned that these changes will result in further increases in cross-border shopping, which could have significant negative effects on the retail sector, and ultimately on the Canadian economy. As such, we are hoping that the committee will support the retail industry's call for the speedy elimination of outdated import duties on finished goods to begin to establish a level playing field in Canada for retailers.

For those of you who were present, you may recall that our president, Diane Brisebois, and I appeared before this committee on April 24 on your ongoing study into the reasons for price discrepancies between Canada and the United States. At that time, we also submitted a detailed brief, which I believe will be redistributed to you, as I will refer to a number of issues within it. It outlines key factors contributing to the retail price differences and key factors that contribute to our members' concerns that the changes to Bill C-38 will make.

In light of the fact that we have already been here and have spoken about many of these issues, I will try to be brief. I will not revisit our previous testimony. I will try to get to the point immediately, with the hope that you have already reviewed our submission, which contains a lot of relevant details.

It is important for this committee and for the government to know that where Canadian retailers are able to compete, they do so, and they do so very well. However, retailers can only compete where there is a level playing field.

As presented back in April, and based on the weight of the evidence that I believe this committee has heard, the root causes for price differences in Canada and the U.S. do not lie with the retailers but are due to other inequities between the two countries, which we have already discussed.

We specifically raised four factors on April 24 that we believe are of most significance: vendor country pricing, import duties and tariffs, supply management as it relates to some food products and a lack of regulatory harmonization.

This bill could have addressed two of those factors and could have gone a long way in helping retailers compete and in keeping Canadian dollars in Canada. The two factors I am talking about are the outdated tariffs, some as high as 18 per cent, exempting or restricting supply-managed products such as dairy and poultry from personal exemption limits, as is already done for alcohol and tobacco; and enforcing those limits at the border.

I have with me over a thousand letters from retailers across Canada seeking these changes from the federal government. These letters come from retailers of all sizes and all regions of the country who, combined, employ hundreds of thousands of Canadians.

I will not go into all of the reasons behind the tariffs and what we have already requested on supply management, as we have done that already on April 24, but in closing I want to let the committee know that it is important to understand that we are not interested in telling Canadians where to spend their hard-earned dollars. Our members just want the opportunity to compete for those dollars on a level playing field so that they can bring the best products and the best value to Canadian consumers. We believe that benefits everyone, as every Canadian dollar spent in the U.S. represents a dollar not going into the Canadian economy. Ensuring that provincial and federal sales tax revenue stays in Canada is for the benefit of the retail sector and the economy as a whole.

I would like to thank the committee for providing this opportunity for retailers to bring forward their views and comments, and I am happy to answer any questions you might have.

The Chair: Thank you very much. We do have your earlier report of April. That has been recirculated, since we were dealing with that on another issue that is still ongoing.

For your information, we hope to have a report in the fall on the price discrepancy issue. However, in the meantime, we are expected to deal with Bill C-38, and it just so happens that a lot of the same issues have come up.

Mr. Brunnen, please proceed.

Ben Brunnen, Director of Policy and Government Affairs and Chief Economist, Calgary Chamber of Commerce: Thank you very much. This is the first time I have had the opportunity to present to you. I welcome the opportunity to address the Senate Finance Committee on this important issue confronting Canadians and Canadian business.

On June 1, I was pleased to participate in the Government of Canada's announcement regarding the coming into effect of the new traveller exemption limits announced in Budget 2012. For more than 120 years, the Calgary Chamber of Commerce has been the city's main connector of people, ideas and solutions. However, the Canadian economy continues to be somewhat lacklustre into 2012 and consumers are burdened with high debt levels.

One of the places some Canadians have turned to find savings is our southern neighbour, the United States. Canadians shop in the U.S. for a number of reasons, including increased selection, larger and more varied retail experiences and, increasingly, price. The high value of the Canadian dollar has made American goods relatively cheaper for Canadian shoppers. We support the proposed amendments, which are consistent with the government's recent focus on regulatory streamlining, particularly in relation to energy environmental areas. However, the proposed changes, we feel, will result in reduced costs and increased efficiency at border services.

Another benefit of these changes will be the increased competition among retailers. Indeed, we are seeing a strengthening in that market now and a strong interest in Canada's retail sector from world-class companies such as Target, Brooks Brothers and Victoria's Secret. However, we cannot be complacent. The amendments proposed here should be viewed as a first step. The next step should focus on strengthening the Canadian business climate through the reduction of cross-border trade costs, including custom tariffs.

According to a recent BMO study, the prices of various consumer goods can be as low as 14 per cent in the United States compared to Canadian prices. This gap is particularly high for some of the bigger ticket items such as sporting goods, airline flights, groceries and automobiles. The gap is the largest for some of these products that are generally homogeneous in nature with no apparent cost differential, such as running shoes, iPods and backpacks. Different regulatory structures, import tariffs, lower consumption taxes, higher labour and real estate costs and a less efficient Canadian supply chain mean that retailers often find themselves unable to compete with their U.S. counterparts. This means that we need to concentrate on creating a more competitive climate for business while reducing or eliminating tariffs, improving regulatory harmonization and working towards more comparable tax regimes. The proposed changes in this bill, along with future changes I have outlined, will help position Canada for continued prosperity.

In conclusion, the changes proposed by the government in this act are timely and will aid Canadians in making smarter purchasing decisions. The next step must be a concerted effort to streamline the regulatory and tax burden facing Canadian business to enhance our competitiveness. I would like to thank the committee for inviting me to speak today on this issue and I would be pleased to elaborate on the issue of competitiveness between Canada and U.S. retailers, as well as Canadian fiscal policy and the economic outlook for the country.

The Chair: Mr. Brunnen, when you said "the changes proposed in this legislation,'' are you talking about the proposed exemptions and tariffs and the tariff on fuel brought in for the purposes of producing electricity? Are they the changes, or were you talking about other changes as well?

Mr. Brunnen: A number of changes. We are supportive of the changes for consumer exemptions. We see it as a first step towards regulatory harmonization of border services. For that matter, we see higher efficiencies achieved through this streamlining. Our approach and advocacy efforts speak towards viewing this as a first step towards greater opportunities for streamlining our regulations and enhancing our competitiveness. We see this as the beginning and would very much encourage the federal government to focus on greater changes that will have a more meaningful impact focused on Canadian competitiveness.

The Chair: In this particular division, I think a 5 per cent tariff on oil coming into the country is used by manufacturers or producers. Are you supportive of that one as well?

Mr. Brunnen: Absolutely. We are supportive of the reduction in that tariff.

The Chair: Are there any portions of this 400-page bill that you do not support?

Mr. Brunnen: Generally speaking, it is very favourable, from a broad perspective. We are quite supportive of the overall budget bill. There are a number of parameters in it that we feel are timely and will enhance our competitiveness. The specific tariff you mention is something we support, as well as the enhanced integration at the border for consumers.

The Chair: Those latter two points are what we are focusing on this evening. I just wanted to determine how broad the comment you made during your presentation was, and I think we understand it now. Thank you.

Ms. Proud, can you expand on your statement that exempting or restricting supply-managed products, such as dairy and poultry, from personal exemption limits is what is already done for alcohol and tobacco, as well as enforcing those limits? How does that help? Can you explain that to us?

Ms. Proud: We know these products are probably some of the most cross-border shopped. People are going over filling their trunks with groceries. We believe that, as they have already done with alcohol and tobacco, they could restrict the amount of this product that Canadians could go over to the U.S., buy and bring back to Canada.

The changes that were put forward in the bill do not change the exemption limits for alcohol and tobacco. I think they recognize that those are already products that are cross-border shopped a lot, and they are not part of these new changes to the bill.

What we have asked for is that they include the supply-managed products in that basket because those products, because of the system in place — we are not suggesting they change the supply-managed system, but just make sure Canadians now, because of the difference in pricing, are not flocking across the border to fill up even more on these products.

The Chair: You would have to check off what you have, how much alcohol and tobacco, and how much —

Ms. Proud: — eggs, poultry and milk.

The Chair: Exactly. I understand that.

Senator Buth: Mr. Brunnen, I would like to follow up on your comment about faster border efficiencies. Can you elaborate on what you mean by that?

Mr. Brunnen: Our position is that with higher exemption levels consistent with those set in the United States, there is greater ability for Canada Border Services agents to not necessarily focus on specific lower limits in a nickel and dime sense but to have that broader parameter in which to view the declarations of Canadian citizens going over the border. That bigger exemption level means there is less time spent viewing the specific minutia of the border exchange and more time spent on the broader issues at hand of border security, for example, and getting people through more efficiently.

Senator Buth: You also made a comment about Canadians making better purchasing decisions and competitiveness. Are you talking about Canadians going across the border in terms of better purchasing decisions?

Mr. Brunnen: Yes. When we talk about Canadians making better purchasing decisions, this does enable some competition and choice for Canadians, not so much in Calgary directly; we sit a little bit higher on the border, so that marginal cost is higher, but certainly for the border communities.

Our contention is, without a doubt, that Canadians will be looking for the best price possible. There is a reasonably strong retail market here in Canada, particularly in Alberta, and that will encourage stronger competition among the retailers as a first step for Canadian business. We do see that as positive.

That said, without some subsequent change to the legislation to enable a little bit more equity and competitiveness from a tariff and regulatory harmonization perspective, we feel that over the long term these changes are not sufficient.

Senator Buth: Your comments are fairly consistent with Ms. Proud's in terms of the points that the Retail Council of Canada is making on country pricing and reduction in tariffs.

Mr. Brunnen: I definitely see some consistency between my comments and our position at the Calgary Chamber of Commerce and that of the Retail Council of Canada today.

Senator Ringuette: When Minister Flaherty was before this committee to propose the budget bill, I specifically asked him with regard to the increased duty-free exemption proposed in Bill C-38 if he had at any time consulted with his provincial counterparts, because not only is there a reduction in federal revenue of $17 million per year, but that also entails a reduction in provincial sales tax revenue of $23 million. That is $40 million less revenue for federal and provincial governments to provide services to Canadians.

Ms. Proud, as per the estimates supplied by the Department of Finance, this measure will cost the federal government $17 million in annual revenue by 2013-14. At a 5 per cent GST rate, we are looking at $340 million in extra estimated shopping. That is a lot of lost sales for the retail community, I would say particularly for the communities along the U.S. border, which will mostly be affected. Looking at that amount of sales, I estimate — this is a guesstimate — that that will cost roughly 11,000 full-time jobs in the Canadian retail sector.

Has the Retail Council of Canada looked at the full impact of this measure on its retail members?

Ms. Proud: We have not studied this to the full extent of what changes will occur. Our members are almost unanimously concerned about the changes. They do believe that the raising of the personal exemption limits will affect their businesses, in particular those at border towns. I think there is no question there will be more lost sales; it just follows logic.

No, we have not studied it directly. Even some of the figures that have been bandied about, I know that BMO has said it will be $20 billion worth of losses. Even if it is a fraction of that right now, it is pretty shocking for the retail sector.

Senator Ringuette: Yes. I have here some quotes from a small business owner in Langley, B.C., which is a pretty near border community. He says:

I don't understand it. The government is supposed to be in our corner, not encouraging people to go south to spend their money. And they're hurting themselves too, losing tax revenue. This doesn't help us as Canadians at all. I can't figure out the logic.

Another comment by the Cornwall & Area Chamber of Commerce says:

"By encouraging people to shop across the border, it literally takes money out of the pockets of business owners, their employees and their families,'' said Shaver. "We are not sure how Mr. Lauzon came up with this idea or if he considered the impact it would have on our community.''

The Niagara Falls Chamber of Commerce president, Carolyn Bones, says:

This proposal will allow Canadians to spend even more money in the States, which means fewer dollars, more bankrupt shops and more lost jobs for Canadian citizens.

The list goes on and on.

As a former director of a Chamber of Commerce, I am somewhat surprised. However, Mr. Brunnen, I do understand that Alberta does not collect provincial sales tax, so there is no lost revenue for your provincial government. However, we also have to look at and take into consideration — and I do not know if you have done that — that Calgary is 250 kilometres from the U.S. border, never mind a U.S. retail centre.

I can understand maybe for Calgary that you do not see a major loss of jobs with this measure, and you certainly have no loss in provincial sales tax revenue. Have you consulted with your retail members?

Mr. Brunnen: It is a good question. From a tax perspective, while we do not necessarily have a sales tax, we would certainly see losses from a corporate income tax perspective, to the extent that it is manifested through the increased exemptions. From our membership's perspective, while we will see some short-term challenges in this regard, we do see some positive attributes. There are costs and benefits, so there could be costs associated with reduced times at the Border Services Agency. That is a significant one that we hear about here in Alberta.

I also think that the biggest opportunity, without a doubt, is to start focusing on finding ways to harmonize regulations for cross-border trade. This is the first step. It is small and talks about streamlined and harmonized regulation for consumers. Taking it a step further and harmonizing regulations, whether they are safety or energy-related, those types of things are really where we need to be going to enhance our competitiveness with our largest trading partner here in North America.

The reality is that there is an entire cost structure disadvantage over a number of factors that need to be brought into play, in addition to consumer exemptions at the border, for retailers to be competitive. These include real estate costs, labour costs and technological challenge. There happens to be less competitiveness in the supply chain here in Canada, largely as a result of the need for stronger investment in ICT. There are a number of components that can counterbalance what we are seeing here today. While we feel that they might, at the margin, be perceived to be negative — we will wait for the numbers to play out — we need to take a step further to streamline the regulations and encourage that level of investment. We have seen the federal government undertaking efforts to liberalize and negotiate trade agreements globally. That is a critical strategy — it is opening your markets — particularly during challenging economic times. This is a step that we see as initial, one that we would very much encourage the federal government to explore further, particularly with the business focus.

Senator Ringuette: I asked you a specific question, and I have yet to get the answer. Have you consulted with your retail members?

Mr. Brunnen: We consult with our membership on a number of initiatives on an ongoing basis.

Senator Ringuette: Have you on this one?

Mr. Brunnen: Generally speaking, we survey our members on a regular basis. The top issue confronting our membership is economic competitiveness. We feel that this measure is a step towards enhancing competitiveness.

Senator Ringuette: I have another quote here from the Mayor of Killarney, Manitoba. He says:

The only incentive for any Canadians in the last federal budget was, "Hey, shop American.'' To me, there's no rationale behind that whatsoever.

Nancy Whip, the Chief Executive Officer of the Greater Moncton Chamber of Commerce, said that the policy change will have a very simple effect. She said that allowing people to bring back more tax-exempt goods from the United States will mean fewer shoppers in Moncton.

Mr. Bruce McCormick, the General Manager of Downtown Fredericton, said that he has already fielded calls from business owners who are upset by the change and how it will hurt their business.

When you are communities near the border — not 250 kilometres from the U.S. border — you certainly have a different perspective because you are directly affected by these measures in a negative way.

Senator Eaton: Looking at the bill, when we talk about border communities, I would think that — and perhaps you two have a much better handle on it — if I live in a border community, I will just go across, do my shopping and come back again within eight hours. I would imagine it would be the same in Alberta and B.C. You go across for a day of shopping and come back.

Nothing has changed in the budget if you just go across. If you are in a border community and go across on a daily basis to buy eggs and milk, nothing changes. To take advantage of what is in the budget, you will have to go across the border and get a hotel room. I wonder — and I guess there are no statistics on this — how much was brought back undeclared. We seem to have heard a lot of doom and gloom, but, if we could study this a year from now and really see the overall affects on retailers and not what they think will happen, it might be quite interesting. Do you have numbers on how many people go across the border daily to shop and how many people actually go across the border on a 24-hour or four-day basis to shop?

Ms. Proud: We have statistics from, I believe, Statistics Canada that speak to the fact that about 50 per cent of cross-border shopping is less than 24-hour shopping. We acknowledge and are grateful that the government did not impose a personal exemption limit for the 24 hours, not that that would necessarily have made any difference because, as you mentioned, I think many people are not declaring what they buy across the border, which is one reason we have said that we would like to see enforcement of the personal exemption limit, especially on less than 24 hours. Especially for perishable foods, people are doing exactly as you say; they are driving across the border, shopping at the local grocery stores, filling up their trunks with the supply-managed products and going back home.

We have heard — and our retailers are concerned — that the new exemption limits will encourage people to make larger journeys to the United States, spend the night, go out for dinner, go shopping the next day and come back with a trunk full of perfectly legal products under the personal exemption limits. However, we would also be very interested if the Senate undertook a study in a year to see if that was the effect. We would have been happier to see the government wait for this committee to finish its ongoing study into price differences and look at the recommendations of the committee before they changed the personal exemption limits, but, since they are in place now, we are asking for, as I mentioned, changes of tariffs and supply management. It would be very interesting to see the government look at what the actual affect was. I think that then we could have a real, good conversation about whether this was a good idea.

Senator Callbeck: About the travellers' exemption increases, Ms. Proud, you said that you had not had time to study the new ones, but you mentioned BMO. I believe you said that their study showed that the CMR will lose $20 billion a year. Am I right on that?

Ms. Proud: On May 17 BMO came out with a Canada-U.S. price gap and cross-border shopping study. Following that, Deputy Chief Economist Douglas Porter stated that he believed the cost to the Canadian economy, right now, of cross-border shopping is up to $20 billion a year. We have not studied those numbers. We are a not-for-profit industry association, and we do not have the power that BMO does to do studies. However, we think that even a fraction of those numbers are pretty shocking.

I also recently received an email from one of our members who mentioned to us that there was a recent study released on behalf of the U.S. Niagara tourism corporation. It says that Canadian shoppers currently spend nearly $933 million per year just while visiting the Buffalo/Niagara region. Again, I do not have the study, and we are looking for numbers. However, they are large numbers, and our concern is that they will just increase.

Senator Callbeck: In the past, there have been increases in these exemptions. Are you aware of studies that show how these increases affected businesses in Canada?

Ms. Proud: I am not aware of any. I can endeavour to check with my colleagues, but I suspect that if we had that knowledge I would have brought that information here today.

Senator Runciman: Does the United States provide a 24-hour exemption? I believe that they do.

Ms. Proud: I understand that our exemptions are now aligned with those of the U.S.

Senator Runciman: Is there not a quid pro quo here in terms of the Americans coming over to access Canadian retailers? I do not know what the amounts of spending would be, but from a tourism perspective, looking at the Niagara Falls region, I think that the Canadian side is the significant attraction in that area, not the U.S. side. That should be taken into consideration as well.

Ms. Proud: We recently held a town hall meeting in Niagara Falls with the Niagara Falls Chamber of Commerce, and we learned there that American tourism coming up to the Niagara region has dropped off significantly. I have a study with me today from Statistics Canada that was done in 2007. It basically says that the greatest effect of the rising loonie on cross-border trips has been discouraging Americans from visiting Canada. The report includes a number of statistics, and I am happy to provide the chair with that study. I believe that it is still relevant today. American shopping has dropped off, and I believe the BMO report speaks to that as well.

Senator Runciman: What about Niagara-on-the-Lake theatres, Stratford and other such thing? Are they not taken into consideration?

Ms. Proud: We do not see that those contribute to the retail sector, but likely tourism and other areas would benefit, you are right.

Senator Callbeck: Ms. Proud, what are the main products bought in Canada by Americans?

Ms. Proud: That is a very good question. I could not tell you that. I could try to find out from our members. We have looked at the opposite; what are Canadians going down to the U.S. to buy.

Senator Callbeck: I want to quote from an article in The Guardian of Prince Edward Island, a major newspaper on the Island. It is entitled "What were the feds thinking?'' and the last paragraph talks about these exemptions. It says:

What is the federal government thinking? In tough economic times, the feds may not have a lot of leeway to help businesses here at home, but at the very least, they shouldn't make life more difficult for them.

I agree. That is exactly what this is doing.

The Chair: There seems to be a difference of understanding of how long an American coming to Canada has to be here before they can have an exemption versus the other way around. With this legislation we are harmonizing at 48 hours, but at 24 hours it has been suggested that there is nothing either way. Is it your understanding that you have to be away for at least two days in order to have any exemption either way?

Ms. Proud: That was my understanding, but I could be wrong. I do not know that for sure.

The Chair: My researchers are indicating that in the U.S. there is a $200 exemption after 24 hours.

Ms. Proud: I would certainly defer to your researchers.

The Chair: I can recall a number of articles in which people said they were glad we did not introduce that here in Canada because that would have compounded the problem. We did not have it before and it would have made it even easier for people to get involved in cross-border shopping.

Ms. Proud: Yes. As I mentioned, we are grateful that the government did not go there, that they did not put a personal exemption limit within the 24 hours, but that said, I think there is a lot of cross-border shopping happening anyway and people are just not declaring it.

The Chair: Yes, that is another issue.

Mr. Brunnen was talking about efficiencies at the border. Mr. Brunnen, you said that this initiative will improve retail competitiveness. Presumably that is saying that because it is easier to go across the border to get product, Canadian stores will drop their prices to try to keep that business in Canada. Is that the economic logic of what you said?

Mr. Brunnen: It is more than just price dropping. When we look at the equalization of the exemptions, people are going down there for a varied retail experience and greater choice. We recognize that many U.S. retailers are already coming up here and starting to tap into this market.

It effectively gives Canadians retailers, if they are doing their surveys of consumers, and often they will, an understanding of the types of goods that Canadians are demanding when they go to the United States. In that way they will be able to think about mixing up the product offering, providing more choice here in Canada, so they can be more competitive with what we are seeing in the United States.

The other piece is absolutely a stronger focus on cost competitiveness. Without a doubt, this will ensure that retailers focus on the bottom line and try to find ways to deliver consumer goods at the best, most competitive price.

When we look at that bigger picture side of things, it is technically a first step toward streamlining the regulation between Canada and the U.S. I would very much encourage the committee to investigate the opportunity to further streamline regulations, specifically safety regulations, standardizations for products that need to come through the border so that we can be even more competitive and provide that level of choice. That is where I sit on this issue.

The Chair: I am trying to use your logic to say, why would we not increase the exemption even more and that will increase our price competitiveness even more. Where is the law of diminishing returns?

Mr. Brunnen: My logic is not talking about increasing the exemption. My logic is talking about harmonizing the regulations, be they safety regulations on various products or other such things. Remove barriers to trade, period. That is not necessarily a direct cost to government. We do not have to worry about foregone tax revenues. We can probably save some money in staff costs for regulating the goods that come over the border.

If we had a more streamlined health and safety regulatory process for some of the products that cross the border, we would be able to get more choice here for Canadian retailers and Canadian consumers as well as more competitive pricing.

This is a first step. Let us start looking at the bigger competitive picture with our largest trading partner and eliminate the minutia that is creating a barrier to competitiveness.

The Chair: Is this a good first step? That is the question we want you to comment on. We know that you think some other things should be done, such as harmonization. We understand that, and we have been studying that in our other study. We now have to deal with the exemption when a Canadian goes across the border and brings back product. Is this a good first step or just a trivial thing? Do you believe that the main changes should be harmonization and not an increase in exemptions?

Mr. Brunnen: I absolutely think this is a good first step. It is reciprocal and it leads to harmonization and streamlining. It makes sense to have equity cross border, and that is the principle. Look at the principle of equity cross border, apply it to the exemptions as a first step, take that principle and apply it to the rest of the trade that we are doing with the U.S. and you have a competitive trade environment.

The Chair: Would you like to comment on that, Ms. Proud?

Ms. Proud: On whether this is a good first step?

The Chair: Yes, and harmonization leads to great things.

Ms. Proud: The Retail Council certainly welcomes harmonization. We are very much in favour of what this government is doing towards that end. As I mentioned earlier, we had hoped that this government would wait for the study to be completed here on the price differences between Canada and the U.S. before taking a small and possibly negative step, which this budget is doing. I think our members would have preferred to see a comprehensive approach to looking at the retail industry in Canada that first, would remove some of the barriers so that we could have a level playing field, and second, would allow the retailers to compete.

However, to suggest that the retailers can compete with their U.S. counterparts for some products is just not the case. When you have products that carry an 18 per cent tariff, then right off the bat the retailers are put in a difficult position because they cannot possibly compete. We would have preferred to see the government put the move to harmonize with these exemption limits in next year's budget. Along with the elimination of tariffs and other changes, it would have allowed the retailers to compete with their U.S. counterparts.

Senator Buth: In the spirit of providing quotes from different organizations, I thought I should provide some. I did not bring a whole list of quotes.

Senator Ringuette: I have more.

Senator Buth: It is okay. I do not need your quotes.

I will just read a quote from a Mark Startup of Shelfspace, which is an organization that represents retailers in B.C. and Alberta. He told The Province in Vancouver recently:

Many retailers will see this as a threat -many retailers will see that British Columbians are going to get goods and services south of the border.

The reason the government did this is to improve the speed with which goods and services will get over the border.

By keeping more consumers from clogging border crossing, truckers can charge less and Canadian businesses will prosper.

. . . that should allow the Canadian economy to be more competitive.

I just want to put this out there, because there have been a lot of negative comments and quotes, as expected, on the retail side of things. I wonder whether you can comment on consumer attitudes and reactions to these proposed changes.

Ms. Proud: I was a bit surprised with the reaction I heard from consumers, based on some of the media that surrounded this when the changes were put in place. A lot of people who were asked wondered why this was done. I know that some consumer associations have come out in favour of the changes. In fact, one was an association that we reached out to work with us on proposing tariffs that could be eliminated. As I said, the Retail Council of Canada does not want to tell Canadians where to spend their hard-earned dollars. We just want a level playing field so our retailers can compete. They are all about the consumer. That is the heart of their business. They want the Canadian consumer to be happy shopping in Canada and finding the best products.

Senator Buth: Mr. Brunnen, would you like to make any comments in terms of whether you have heard from consumers in Calgary or in your area?

Mr. Brunnen: That quote you shared makes a very valid point — to think about it in terms of reducing congestion at our borders. This could very well go a long way. It is hard to say exactly how far, but it does mean that the border crossings will be more efficient. One of the key pieces we hear from both consumers and businesses in Alberta is about border crossing congestion. It is an enormous issue. We have the Coutts border crossing. We heard Mr. Menzies, the Minister of State for Finance, talk about some of his constituents bringing that up.

From a consumer perspective, we have not heard directly from consumers. My interpretation or impression at first blush is that there would probably be some positive news for consumers in that regard. I think it enables choice and it will bring new choice to Canadian markets too for consumers. At the end of the day, in the aggregate big picture it is a good first step.

Senator Ringuette: When one talks about quid pro quo, reciprocity, equity and so forth, one of the major problems with regard to higher prices in Canada on certain items is the transportation cost with the cost of gas and diesel per litre. Mr. Brunnen, on average, there are 31 cents more tax per litre in Canada than in the U.S. Transportation costs for the goods for the retail sector are certainly an issue, if you want an additional step to recommend to the Minister of Finance. The flip side is that it removes reciprocity because the cost of fuel for the U.S. citizen coming to Canada is enormous in their perspective. Therefore, if they have to make a trip, they will make it within the border area. We have the statistics that prove they are coming less and less frequently to Canada; and the cost of fuel is certainly a factor. Maybe the second step would be to reduce taxes on gasoline and diesel. What do you think?

Mr. Brunnen: Certainly in my comments there are three areas of harmonization and consumption tax or tax policy harmonization would be a step, too. That speaks to equity. It is about removing the distortions to trade and finding levels of equity that can be achieved, whether it is eliminating the tariffs, harmonizing the regulation or adopting comparable tax policies across the borders. It is a step in a direction that would be positive for trade.

Senator Ringuette: Thank you very much, sir. I hope that your Chamber of Commerce makes that recommendation to Minister Flaherty ASAP.

The Chair: Honourable senators, that is the end of my list. On your behalf, I thank Ms. Proud, from the Retail Council of Canada, and Mr. Brunnen, from the Chamber of Commerce in Calgary, for being here to share their points of view.

We will now meet in camera to deal with Supplementary Estimates (A).

(The committee continued in camera.)