Proceedings of the Standing Senate Committee on
Banking, Trade and
Commerce
Issue 46 - Evidence, March 2, 1999
OTTAWA, Tuesday, March 2, 1999
The Standing Senate Committee on Banking, Trade and Commerce met this day at 9:45 a.m. to examine the present state of the financial system in Canada (electronic commerce).
Senator Michael Kirby (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, each witness will make a brief opening statement, after which we will have a general discussion with the panel as a whole.
For the record, I should like to remind honourable senators that we got started on the subject of electronic commerce because, in large measure, that subject was raised in a number of the other hearings we have had in the last few years related to financial institutions, amendments to the Canada Business Corporations Act, et cetera. Many of us on the committee felt relatively ignorant because it was so highly technical that we did not really understand it. Since it is an area of business that is rapidly changing, and given the fact that this committee handles virtually all legislation affecting the corporate sector, we decided we ought to learn something about it.
At about the same time, the government introduced Bill C-54, which is a privacy bill related to electronic commerce. It will be coming to this committee whenever it gets through the House of Commons. Although the idea of today's meeting was originally designed to help educate the committee, it can also serve, in part at least, as a bit of a background briefing for Bill C-54.
Ms d'Auray, we will begin with you. Please proceed.
Ms Michelle d'Auray, Executive Director, Electronic Commerce Task Force, Industry Canada: Honourable senators, I am pleased to start so that the others can criticize afterward what the government is doing.
The slides that you see copied in my presentation will take us through the government's overall strategy in terms of electronic commerce. The second slide on the first page gives a sense of why we considered electronic transactions over open networks to be of such importance for our economy and society. Transactions over the Internet represent all the key elements of the shifts in the knowledge-based economy -- that is, globalization, the shift to information, and the capacity to move effectively and efficiently.
For example, if you look at the cost-effectiveness of sending over the Internet, as opposed to by fax, a 42-page document from Ottawa to Tokyo, you will see that it is 720 times faster and 260 times cheaper than overnight delivery. Some of my colleagues have said that only a bureaucrat would send a 42-page document to Tokyo by fax. However, it is a useful example to demonstrate the cost-effectiveness of using open networks.
The goal of the government with regard to electronic commerce comes out of a broader vision called connectedness. We firmly believe that increasing the level of connection of Canadians to the Internet will increase their capacity for knowledge and information. The result will be better informed citizens and possibly increased competitiveness, which would lead to a stronger society and a stronger economy. That is why we have developed a six-part agenda with which some of you may be familiar. It is called "Connecting Canadians Agenda."
On page 3, you will see some of the goals we have established to ensure that Canada is one of the most connected countries in the world. By the end of this month, all our schools and public libraries will be connected. Our next level is classroom connectivity by the end of fiscal 2000. Under the Community Access Program, we will have established 10,000 public access sites by the end of fiscal 2000. This is what we consider to be the equivalent of a public telephone booth for the Internet.
By the end of fiscal 1999, we will have in place the fastest optical network in the world. As a result of the last budget, we hope that we will be able to establish a pilot project called Smart Communities wherein we will test what happens to a community on the economic and social side when all the key institutions and key players within that community are connected to the Internet.
Last but not least, the mandate of the task force which I head is to make Canada a world leader in electronic commerce by the year 2000.
We are not the only country that wants to be a world leader in electronic commerce. Therefore, we have established an overall private-sector strategy that includes business and consumer organizations. We have a two-part strategy, which is both domestic and international in nature. Because electronic commerce is a global activity, whatever we do domestically has to work on the international scene. As well, whatever is done internationally will have a definite impact on Canada. The domestic strategy was launched by the Prime Minister in September 1998. On the international scene, Canada hosted the OECD Ministerial Conference on Electronic Commerce in early October in Ottawa.
I should like to mention the impact of the OECD ministerial conference. Essentially, it did two things. First, it established Canada as a player in electronic commerce on the international scene. We emerged with a fairly aggressive work plan for the OECD in the areas of taxation, privacy, consumer protection and authentication. We also managed to bring business together with governments to develop an action plan for business dealing with contractual obligations and the use of technology to advance electronic commerce. For the first time, we brought together all the key international organizations involved in some form or other with electronic commerce. Since then, we have seen a number of interesting developments at the WTO with its work program on electronic commerce. Essentially, it served as a catalyst in many respects.
Because Canada is a trading nation, we have every interest in ensuring that electronic commerce is facilitated worldwide and that we benefit from that. Thus, our next prime fora for activity will be the free trade area of the Americas and the WTO.
We have developed the domestic agenda in terms of four thematic approaches. This comes about from an understanding reached as a result of discussions we have had with private-sector consumer organizations, as well as looking at what is happening on the international scene. For electronic commerce to grow in Canada, we need to built trust in the digital marketplace.
I am sure that Ms Lawson will be speaking to that more specifically in terms of consumers.
We also need to clarify marketplace rules, and there we start from the premise that most existing legislation will apply, except that, where required, we will then make the necessary adjustments. Obviously, if we want to increase the capacity and the use of electronic commerce in Canada, we must ensure that we have the right infrastructure for it and ensure that everyone can benefit. Thus, the fourth theme is: Realizing the benefits.
Not only do we produce materials electronically, but we also produce papers. These are the consultation documents for the consultations that we have undertaken with the non-governmental sector, in which I include both business and consumer organizations.
Specifically, in terms of building trust in the digital marketplace, the government wanted to ensure that citizens could use all kinds of secure transaction methods, software cryptography being the most important of those, so we tabled a cryptography policy on October 1, 1998, which allows for the use of any strength cryptography in Canada and does not impose a mandatory key recovery.
On the privacy front, we tabled Bill C-54. It is based on the Canadian Standards Association model code for privacy, which is incorporated directly in the law, and provides for some recourse and redress mechanism through the Office of the Federal Privacy Commissioner.
In the area of consumer protection, we have been working with private sector business and consumer organizations to develop voluntary guidelines to ensure that consumer protection in the on-line world is virtually the same or equivalent to the physical world.
In order to clarify marketplace rules, Revenue Canada had developed a number of advisory groups to establish what would be the key issues to deal with in respect of tax policy. The basic one was tax neutrality for media and technology. In its response, the government indicated its willingness to go down that route, and it has set up, or is in the process of setting up, four additional working groups to deal with some of the key issues arising from taxation and electronic commerce, notably compliance and administration.
With regard to legal frameworks, if we are going to move to an electronic world and use electronic signatures and electronic documents, there is a requirement to shore up our legal framework, at least at the federal level. There is, as we call it, a paper bias. We have reviewed about 600 federal statutes, of which approximately 335 were deemed to have a paper bias. They were requiring a witness, a seal, a signed document; there was an assumption that paper was required. In response, we developed what is known as an opting-in formula, also tabled as part of Bill C-54, which basically recognizes the validity of an electronic signature as well as an electronic document, and government departments and ministers can opt in once they are ready and willing to undertake electronic transactions.
In respect of intellectual property, the digital world definitely offers some challenges at that level. Canada is a signatory to the WIPO treaties that were recently agreed to, and we are in the process now of undertaking discussions with regard to the implementation of those treaties and the issue of liability for Internet service providers. For example, if there is in fact a copyright infringement, who is responsible for identifying where that infringement has taken place and who is actually liable for the infringement?
With respect to strengthening information infrastructure, CANARIE, the Canadian Advanced Network for Research, Information and Education, has launched CA Net III with its private sector consortium to build the world's first optical network for Internet, and three nodes are now operational.
Standards are also a crucial element and we are in the process of developing with the private sector, and have almost completed doing so, what is known as a standards framework to ensure interoperability across networks and systems.
Finally, the last element, which I will be spending a few more minutes on, is: Realizing the benefits. Obviously, we can get the right policy framework, but citizens as well as businesses need to be able to adopt this fairly quickly. Right now the bulk of electronic commercial transactions, about 80 per cent, are business-to-business transactions.
We were the first G7 country with the right ECom framework put together. In fact, we are one of the only countries to have worked on all fronts simultaneously, and to be able to claim that we have in fact a comprehensive framework to support and enable electronic commerce by mid-1999.
In terms of the benefits, we have to encourage growth. We can have the best policy framework in the world, but if companies do not take it up and if citizens are not comfortable with it, it is not going to happen in Canada. Other countries -- notably our biggest trading partner, the United States -- are moving aggressively in this regard. We have heard a lot about the retail end -- Amazon.com, for example. There are some Canadian examples, but the take-up is certainly not as swift, nor as impressive. However, we can build from strength. We have some of the lowest Internet access costs. We have a high penetration rate in Internet use.
As to financial institutions, which I understand you are interested in, there is a strong pattern in Canada of the use of technology on the part of citizens. In 1997, some 12.5 million Canadians conducted about 1 billion debit-card transactions valued at $44 billion via Interac. That is the highest per capita use in the world.
We also have a fairly aggressive financial institution take-up of electronic activities. We also have a fairly significant growth rate potential in terms of Internet use. We have gone beyond the early adopter. We are now on the threshold of the mass market.
Forrester Research has developed an approach to calculating what is known as the hypergrowth phase. Canada still remains second behind the United States. The difference between the top potential growth and the regular growth is based, as part of Forrester's analysis, on whether governments and the private sector work together to achieve growth in electronic commerce. We think we have the right ingredients in Canada to benefit from that.
In terms of the growth strategy, we have some early adopters, as I indicated. The financial services sector has done fairly extensive take-up on this front, as have telecommunications companies. The automotive sector has organized itself into an extended type of EDI activity called the automotive network exchange. There are, however, some remaining opportunities that have not yet been tapped into, so the government's next phase, after its focus on policy development, will be to encourage take-up among the private sector Canadian companies, both on the supplier end, to develop new applications, and users, to accelerate use and growth.
Our tasks for the next few months of the task force will be to develop a greater knowledge base on the take-up of electronic commerce among Canadian companies, to determine what the barriers and the positive elements are. We will consistently increase awareness and promote electronic commerce, not just to business, but also to citizens, using our community access program and other means.
We are going to use and work directly with CANARIE, which is the consortium of private and public sector companies, to accelerate the development of applications for networks, because networks really are the key for electronic commerce use. We will make electronic commerce a focus of our trade and investment activities, and we will be working with researchers at schools and universities to accelerate the understanding of the electronic commerce. To that end, you may have read recently that Dalhousie University has set up a granting program on electronic commerce.
Our view is that we do have a potential, if government and the private sector work together. If we get ECom right, we can grow the portion of electronic commerce in Canada to about $33 billion by 2002. If we do nothing, it will reach about 13 billion. I will end there.
The Chairman: That raises many questions, but we will let all of the witnesses get their statements on the record first.
Mr. Robert Crow, Vice-President, Policy, Information Technology Association of Canada: We are grateful for the opportunity to contribute the views of Canada's information and communication technology industry to this important session. With me today is Bill Munson, and we will share our opening remarks this morning. I also bring greetings from our president and chief executive, who is away on trade matters in Asia. He is sorry to miss today's session.
To place us in context, ITAC is the voice of Canada's information and communication technology industry. Together with our partner organizations across the country, we represent more than 1,300 companies in the computing and telecommunications hardware, software, services and electronic content sectors. Our network of companies accounts for more than 80 per cent of the 418,000 jobs; $70 billion in annual revenue; $3 billion in R&D expenditure; and $21 billion in annual exports that IT contributes to the Canadian economy.
Like our subject this morning, e-commerce, our association is a product of the convergence of computing, communications and content. In fact, from origins in the 1950s as an association of business equipment manufacturers and furniture suppliers to the business community, ITAC first grew by joining computer manufacturers with telecommunications manufacturers and service providers and then subsequently merged with an association of software and computer service organizations. More recently, ITAC has welcomed into its membership leaders of the new media, wireless and other electronic content communities.
We view electronic commerce as a significant opportunity for Canada to achieve and enjoy a disproportionate share of an important and growing world market. Indeed, we are already demonstrating significant leadership in electronic commerce, manifest in our international major international policy work that Ms d'Auray outlined earlier, such as the OECD ministerial work, and so on. It is also manifest in electronic activity. International Data Corporation of Canada, which does the survey of the Canadian e-commerce market, estimates that Canada's share of the $13 billion global e-commerce market in 1997 was about 5.3 per cent -- more than double our share of world GDP. We would like to grow that multiple as much as possible.
We have competition, and that competition is very good. For example, last Thursday I visited IBM's technical support operation in the Republic of Ireland. It is a state-of-the-art facility that delivers worldwide technical support for key IBM products. In that facility, highly skilled and well-trained and educated people -- 600 at a time -- solve customer problems on line and by phone from around the world, 24 hours a day, seven days a week. The good news is that that centre, at present, is twinned with IBM Canada's call centre in North York. In fact, it is so joined -- and this is the world of electronic commerce -- that if the response times in one centre become too long, calls are automatically directed to the calling centre five time zones away. That is e-commerce for you on a global stage.
I want you to know that we Canadians are proudly there and are competing very much. However, the bad news is that IBM's newest tech support-call centre, which I visited last week, is not located in North York; it is in Dublin, Ireland. In fact, it is a big addition to the existing centre in the Dublin suburbs. There are several reasons why that centre is there; some of those are beyond our control, but others we can and must control, if we are to maintain and grow our share are of the global e-commerce market place.
Ms d'Auray has already outlined four thematic approaches, or key initiatives, and in a moment I will ask Mr. Munson to review the "going forward" agenda items that we have on that as well.
The cooperation between government, business and consumers in building an e-commerce regulatory environment has been unprecedented in scope and in its achievements over time. We are very proud to be here with our partners with whom we are building this important environment. That being said, I would add a fifth structural pillar to Canada's positioning in e-commerce, namely, that the broader environment for investment is simply not where it needs to be to support our position.
By some estimates, we have now become a world leader in taxing the business services sector. Frankly, what we do to our skilled IT workforce in terms of personal taxation is also well documented. Our declining share of global foreign investment is one testament to this unfortunate positioning and the loss of too many of our skilled people to other jurisdictions is another. E-commerce is a service business and we see it as a tremendous opportunity. Unless we chase them away, we have the people to get the job done. We certainly have the technology and we are working very hard with our partners in government and in the consumer movement on building an appropriate regulatory framework.
Please, let us not kill the goose before the golden egg is even laid. With the budget now balanced, we are asking you and others to help us put corporate and personal tax reform on the agenda so that we can add the fifth pillar that is needed for the development of electronic commerce and the rest of our economy.
I will now ask Mr. Munson to comment on the "going forward" agenda.
Mr. Bill Munson, Director, Policy, Information Technology Association of Canada : First, I hope you will find before you copies of two reports that ITAC has produced in the past two years, namely, "Overcoming Barriers to Electronic Commerce" and "Maximizing the Benefits of Electronic Commerce." Each of those reports was done prior to an OECD e-commerce event, the first being held in Finland a couple of years ago and the second being held in Ottawa just last fall. We were very pleased to contribute to those events.
When I was coming up here on the train yesterday, I thought back to the mid-sixties, when I was nine or 10 years old. That Christmas, I got a Guinness Book of World Records. Being young and thorough, I spent a lot of time looking through that book of records for Canadian records. There was not a lot listed for Canada, but one thing I discovered was that at that time we were -- and have remained so for several decades -- the people who talked the most on earth. We spent more time on the phone per capita than anyone in the globe. That indicates that we had a strong infrastructure at that time and that we also had many services that were offered and customers who were happy to use those services.
These pillars of what you could now call "electronic commerce" are still necessary. We still need strong infrastructure and buyers and sellers of quality services. By and large, we have them.
Both Ms d'Auray and Mr. Crow have discussed the developments that have taken place and the need for us to keep in the forefront; perhaps we do not have to be the most computer-using people on the face of the globe per capita, but we certainly need to be close to it.
To maintain our infrastructure position, our industry and our country need several things. Obviously, we need technologies; and we need to develop those domestically, using R&D in this country. We also need access to foreign technologies without any hindrances -- either regulatory hindrances or tariff hindrances. That is an important factor. We are entering WTO and FTAA negotiations looking to remove even further tariff barriers that our industry and others face.
We need money, so we need a taxation structure that rewards innovation. We need access to foreign investment to keep our infrastructure up to date. We need a lot of money. That money is not available in the capital markets of Canada with so many others looking around for the same money. We do need that access to foreign capital. That has been a problem in this country over time.
We need skilled people. We must have the people who can build and run these systems that we need. Mr. Crow mentioned that as well.
The other side of the equation is the buyers and sellers of services. We obviously need buyers and sellers who have access to this infrastructure. Statistics show that Canada has a tremendously high penetration rate for telephones and also for cable television. We at ITAC feel that, by and large, the market will ensure that top-quality services are provided to Canadians at an affordable cost. We have said that in situations where that is not the case -- in other words, in order to service remote areas or otherwise disadvantaged areas -- we recognize that some subsidization may be appropriate. In any event, at the buyers and sellers end, we need skills.
We need skilled operators, developers of services, and operators of services. We also need a skilled public, one that is comfortable in accessing the technologies and accessing the services via electronic commerce technologies.
Perhaps the most important thing we need right now is a regulatory regime that builds trust. We have mentioned the OECD conference that took place last October. I attended it and was absolutely astounded by the currency of the need to build trust. Just about everyone -- business, consumer groups, industry, keynote addresses, seminars -- talked about the need to build and maintain trust. If electronic commerce is to take off, we must ensure that potential consumers trust it.
Consumer protection guidelines are important for this country and internationally. We at ITAC are very pleased to be part of the group that is putting together the consumer protection principles for Canada. We are also proud to have been among the first industry groups in this country to call for privacy legislation. We recognize that, fundamentally, Canadians need to know that their interests are protected, and, to ensure that, strong privacy legislation is necessary. We are part of the group that put together the CSA model code on which Bill C-54 is founded. We will be appearing before the Industry Committee of the House of Commons later this week to discuss our support for the bill, and we will be happy to discuss that and other aspects of the trust agenda with yourselves, either later today or in future.
Building trust is certainly foremost on our agenda. I left two general documents with you. However, we have prepared more specific documents, as briefs to government on cryptography, on privacy, and on a number of other matters connected with electronic commerce, and we would be happy to share those with you.
Ms Philippa Lawson, Public Interest Advocacy Centre: The Public Interest Advocacy Centre is a federally incorporated, non-profit organization that has been representing the residential consumer interests in telecommunications and other areas since the mid-1970s. We have, in the last year or two, been putting a lot of effort into the issues arising out of electronic commerce, privacy being a key one.
You will probably not find a lot of disagreement among the witnesses this morning, at least on the general issues. We certainly are very supportive of the government's initiatives in this area, and in particular in what I think are the three main areas of consumer concern here.
The first is access. Ms d'Auray talked about the government's agenda of connecting Canada to the various programs in place to try to improve access to the Internet. I think we all know we have a problem, a widening gap between rich and poor, and there is a real danger that increasing reliance on technology and computers for communications and for service delivery will just widen that gap further. It is therefore absolutely essential that we redouble our efforts to get access points for people who cannot afford to have a computer and Internet access from home. Presently, I think 20 per cent of Canadian households have Internet access from the home. It is important that those people who do not have in-home Internet access have places to go in the community to take advantage of that. We are seeing, in the telecommunications area, rising rates for basic service, and we know that that is creating problems for low-income Canadians. We may be seeing more families without basic telephone service, let alone Internet access.
The second main area of concern is privacy, and here we are very supportive of the government's initiative, Bill C-54, although we think it can be improved in a number of respects. It is absolutely critical that legislation protecting the personal information of individuals, in the private sector as well as in the public sector, be on the books. That is an area where self-regulation simply will not work.
The third main area is general consumer protection. I will run through some key areas of consumer protection where we think action is needed in a moment.
Generally, electronic commerce holds great promise for consumers and for Canadians -- more information, more choice, better deals, greater convenience. This is great, and Canadians are showing that they are willing to engage in electronic commerce. I think we are early adapters on the global scene. However, it is not going to happen if, as the other speakers have said, consumers do not have confidence, if they keep hearing horror stories through the media of problems and of personal information being used and abused without their knowledge. We must therefore get a solid policy framework in place, to protect consumers against the marketplace abuses that can occur through electronic commerce.
Consumers need to be confident that their personal information will be protected from abuse; as well, they will not be willing to engage in electronic commerce if they continue to be inundated with unsolicited e-mails -- "spam" as it is called. Industry and consumers are in agreement that serious action needs to be taken. We are all suffering from that kind of abuse of the Internet.
Let me just run through eight key consumer concerns, most of which are reflected in a set of principles for consumer protection in electronic commerce that Industry Canada's Office of Consumer Affairs has developed in conjunction with a multi-stakeholder round table, including ITAC and many other industry and consumer representatives.
The first one is full, accurate and timely information. Electronic commerce is different from other forms of commerce, in the sense that the consumer has no direct contact with the vendor. It is difficult to judge the veracity, the reliability or integrity of the person you are dealing with on the Net. How can you be sure that the information they are providing you is correct? There is this saying that no one knows you are a dog on the Internet. We think we need clear rules in place stating that anyone selling on the Net has to provide, right up front, information on who they are and where they are located. They need to provide full and accurate information on the product or service they are selling, and a clear, complete list of terms and conditions of the contract that they are inviting the consumer to engage in. They need to separate the promotional advertising information from the contractual provisions.
Consumers need to get a copy of the contract at the time of the transaction, so that later they can say, "I thought we agreed to $10 for this." You need to have proof of that. We need to get those kinds of rules in place.
The second area is certainty of, and control over, contract formation. Here again, electronic commerce is fundamentally different because it is so easy to make a mistake with that mouse. You might click on the box and then realize you did not mean to do that. You may not realize that you accepted a contract to buy a service. We are suggesting that vendors be required to use a multi-step confirmation process on line, to be absolutely certain that the consumer intended what he or she had done. There would be a triple-click process. First, the consumer would confirm his interest in buying; next, he would click to confirm the specific terms and conditions of the contract; and finally, he would separately confirm that, yes, indeed, he wants to buy the particular product. If that process is not adhered to, then you need to have a reasonable cancellation period, given the potential for error.
The third main area is privacy, which I have touched on already. This is a serious concern in the marketplace generally but nowhere more so than in the electronic world, given the powerful computer technologies and how easy and costless it now is to collect, manipulate, and trade in personal data.
As I said earlier, Bill C-54 is truly a welcome and, in our view, overdue initiative in this respect.
I wish to address the point that self-regulation is really a non-starter. ITAC is not disagreeing with the legislation, but we know that in the United States there are serious problems. The approach there is very different. They do not seem to want to pass legislation in this area.
From the consumer perspective, consumers are faced all the time with standard form contracts: "Either sign this or, if you are not going sign this and agree to give away your personal information, we will not give you the service." Consumers are often wrongly assured by vendors that their information will not be disclosed or used for other purposes. In many cases, they are simply not informed at all of the subsequent uses to which their personal information will be put. They simply do not know enough to complain or refuse.
Finally, there will always be bad hackers. Even if you get the majority of business to sign on to some kind of self-regulatory code, there will always be bad ones out there who find it in their short-term business interests to take advantage of individual privacy.
The fourth main area is security of transactions. Bill C-54 addresses many of these questions. We are very supportive of the government's cryptography policy that Ms d'Auray mentioned, giving consumers more control over maintaining their privacy and security.
The fifth area is the protection against liability for unauthorized transactions. As I said earlier, with electronic commerce you do not know with whom you are dealing. There is a danger here of children, for example, getting their parents' credit cards and entering into transactions. It is important that there be an onus on the vendor to take the necessary steps to ensure that the person with whom they are dealing is the actual person who is being represented to them on line.
The sixth area is consumer redress. Here, again, electronic commerce is different from most other forms of commerce because of the tremendous potential for fraud. In the telemarketing field, for instance, it is estimated that about 10 per cent of telemarketing is fraudulent.
There is also great potential for misleading marketing practices. Even businesses that are well-intentioned may, by using the Internet, easily overextend themselves in advertising something. Suddenly, it is advertised all over the world. The business may suddenly be inundated with orders that it simply cannot fill.
Therefore, we must have procedures in place for consumers to get redress when their transactions are not satisfied, and we are looking for inexpensive, alternative dispute resolutions that can be used across borders in the event of disputes.
The last two areas of concern are controversial. They deal with the applicable law and forum in the event of disputes between consumers and vendors in different jurisdictions.
The principles for consumer protection to which I referred earlier have been agreed upon by both industry, consumers and government and will soon be drafted; indeed, we are hoping that they will made public in the next month or so. However, we had to ignore them. We simply left this issue out because we could not agree upon it from the consumer perspective.
We are saying that electronic commerce will lead to an increase in cross-border transactions and in distance sales. Therefore, we will see an increase in cross-border disputes and problems; but who is to say which law or court will apply in the event that the consumers must take a dispute to court? Our position is that, given their relative vulnerability, consumers should not be deprived of the protections offered by their own laws or of the competency of their own legal forums in the event of a dispute; however, that will not be enough unless we have mutual enforcement agreements between jurisdictions.
We are also looking for cooperation among different jurisdictions in the enforcement of judgments.
In conclusion, we are all in agreement on some general guiding principles here that appear in the document to which I have referred, which should be out soon. One principle is that consumers in electronic commerce should have the same protection as they have in other forms of commerce. There needs to be both harmonization of consumer protection laws across jurisdictions and international consistency.
The final area that the principles document addresses is that of consumer awareness and the roles of government, industry and consumers themselves in informing the public and the marketplace about the kinds of risks, the measures that can be taken to minimize those risks, and the bad actors who are out there. That is to say, as a consumer, what should you avoid and how can you make informed purchasing decisions and safe purchasing decisions on line?
I will leave it at that and hope that we will engage in discussion later.
Mr. Bob Binns, Vice-President, Public Sector, Cebra Inc.: Thank you for the opportunity to speak with you this morning. The good news about going in this position as a witness is that you hear what issues are on other people's minds. The bad news is that you find out that the issues are pretty common across the table. My ability to add a great deal to the debate is therefore somewhat constrained. However, I do have some prepared remarks that I will put on the table and then we can advance to questions.
I am responsible for our global public sector initiatives. Personally, I have participated in a number of aspects of innovation in the information industry across North America over the last 20 years. From my experience, none has been as compelling as the emergence of the Internet and this new commerce we are now experiencing. For those of you who do not know Cebra, we are an e-commerce company focused primarily on business-to-business using the Internet. We are a wholly-owned subsidiary of the Bank of Montreal. I represent over 150 employees at Cebra who are in the heartland of e-commerce in Canada.
Our clients include many governments, and most governments across Canada, through our national electronic tendering service, which is one of the three advanced open-electronic procurement systems in the world. We are also working with Canada Post to bring a new Internet service to all Canadians in business, where users will be able to select the type of mail they wish to receive in their cyber mailbox and will be able to conduct bill payment and settlement transactions right from their electronic post office box. One way in which we are able to address the issues raised regarding e-mail spam and unwanted mail solicitation is through consumer choice. We also have clients in the insurance and financial services sectors, with a number of Web-based businesses providing those services.
The Canadian electronic commerce strategy is, I find, quite comprehensive. It represents a point in time where industry, government and policymakers really have come together with an enormous amount of convergence around an issue. I am pleased to see that the strategy as laid out could lead to world leadership -- that is, if we are able to execute and execute quickly, because, as people have said, speed and time are of the essence. If we can do that, then we will be well on our way to world leadership.
I should like to focus my attention on three areas in order to provide some additional context, and then we can move on to questioning.
My first point has been made before, but it needs to be reinforced: Canadian businesses and governments at all levels have the ability to position themselves very well through closer collaboration and innovative public-private partnerships. I think we are well on our way to doing that. We are already a leader in creating innovative public-private partnerships through new procurement models. The recent OECD conference is an excellent example of collaboration.
On a world scale, where we can advance the issues related to e-commerce, MERX, which is close to my heart, is the result of a new benefits-driven procurement approach with the private sector that makes the capital investments. Governments grant the right to use the information and the users of the system pay for the service via transaction fees.
One of the benefits that can be accrued from these sorts of initiatives is a broad access to vast information for individuals and businesses alike. These initiatives save a shocking amount of money -- literally billions of dollars -- for both private and public sectors, when they are done in collaboration. Streamlined processes and cutting down of administrative red tape makes government all that more accessible.
These initiatives also provide quantum improvements in efficiencies, as opposed to incremental or organic improvements, and I believe that we can protect the public interest during the formative stages if we collaborate early in the process.
The second way to become leaders in e-commerce is to leverage our public infrastructure, for both business and consumers alike. I implore governments to pass privacy and protection legislation quickly -- hence, Bill C-54.
I will diverge, though, and offer that there are some who believe that the most effective way of delivering protective technology is to allow the user to define access and the rights of use to their information, where the user may receive increasing levels of protection if they are able to provide increasing levels of authentication. That would take us into the world of biometrics, which I am not particularly suggesting, but there is a whole school of thought that needs to be explored in that area.
We need to encourage trusted third-party certification authorities so that identities and intentions can be validated in advance. I would argue that most of our national public and private institutions have a critical role to both sell and create the trust factors in order to address the public's basic mistrust in this area. We need to provide consumers with a system of recourse for misuse of personal data. We also have to find ways to quickly alert consumers to be aware of fraudulent activities, the latest scams. We have a facility to make people more aware. It has been said that the e-commerce facility is an immediate reach into the community, and we can use it as an early warning device as well.
This has been said before, but governments need to adopt a stance of tax neutrality and, I say, resist taxation which goes beyond that which is applied in the non-cyberworld.
What worries me is how quickly we can be ready. Our competitors are writing the rules. The U.S. is not particularly active in writing legislation. My concern is that this world of e-commerce and the Internet is ubiquitous. All of a sudden, the laws, and the question of which laws apply to which transaction, become very important. If we are passing legislation, my worry is whether we will be able to enforce it.
I also worry about competitors I cannot see today. I do not know what the solution is in terms of legislation, but I cannot imagine that three years ago any of us would have believed that a Dutch bank could enter Canada and capture a meaningful share of Canadian deposits by offering a 1-800 number and a one-percentage-point difference in savings, and they have been able to do that. We were not anticipating that and I now lie awake at night worrying about who is out there that I do not know.
The third way to become leaders is to ensure that, when we are writing policy and the resulting legislation, we find simple rules that work. To that end, I believe that working together to facilitate universal access to the networks is critical. We need to ensure that networks are interoperable, and we need to have standards set quickly. The time for debate is over. The time to set the standards is now.
We need to foster corridors of information. Far too often we hear of Silicon Valley North. Why do we not just hear about the valley that it is? We need to provide some incentives to business to favour Canada as a centre of electronic commerce. If you read the material, you will see that we have an enormous competitive advantage. I have just launched a service in the United States that provides an enormous leverage opportunity. We have revenues that are in foreign currency on a Canadian cost base, and our Canadian cost base gives us an enormous advantage when we take these export opportunities.
We need to create alliances with other countries to promote international cooperation. The OECD conference was a wonderful step in that direction. I will point at Canada Post's secure electronic courier service as an interesting initiative that binds the Canadian postal service, the U.S. postal service and the French postal service, providing cyber courier services in a very secured way.
We need to put in place strong intellectual property legislation to protect our inventors and their ideas. I am participating internationally in the Far East also, and we are seeing the reality of software piracy and the devastating effects that it can have on our bottom line. Our business models include international sales, and if we are not able to capture that revenue, then our business models will suffer.
If we do these things that have been put on the table this morning, I believe Canada will be in a wonderful position. We are known as innovators, where I travel. I am constantly hearing that Canadian innovation leads the way. First to market with a reasonable offering is a winner, and I think Canada has that opportunity.
I just want to offer one other thought, which is with regard to our ability to compete despite our size or location. This point has to be emphasized. It is not so much a question of scale. Cebra, participating in North American and international markets, is having considerable success, beyond our scale. We are a small company, but the effects of e-commerce and the Internet are allowing us to compete with firms literally 100 times our size. They have locations all over the world, and yet we are winning some of those battles. It is encouraging to us.
If we move quickly, I think we are also able to offer our Canadian ingenuity through some of the new and interesting ways by which we are doing business, both in the public and private sectors. We need to encourage that.
The Chairman: Thank you all for a fascinating, if not overwhelming, outline of the issues.
Senator Angus: One does not really know where to begin, it is so overwhelming, and I am really sorry the media are not here to have heard the issues encapsulated in such a succinct way. You have tied together the public and private sectors and consumer interest elements of the electronic highway, and have shown how Canada, by getting out there into the so-called race early, has positioned itself to advantage. What I have taken from your collective comments is that Canada positioned itself beautifully to win the race -- we have an infrastructure in place that is unparalleled -- and yet we are starting to run face-to-face into the old Canadian problem.
Pretty well everyone who has come before our committee in the last few years has talked of the need to restructure our economy and to re-engineer the way we do things and to become something other than hewers of wood and drawers of water. This industry is a classic case of how a government initiative, the original task force, has led to something wonderful.
This committee is basically an interface between government and business, so we really are -- I think I speak for all my colleagues here -- fascinated with the problems you have raised. We often hear how we have a hostile tax environment, and how we lack the necessary capital to allow this particular type of industry to develop users and suppliers.
I am hearing, especially from the last two speakers, that there is a risk of over-regulating. We have to position ourselves to develop the users and suppliers in Canada, to make this part of our industrial growth, because we are in a position to do so, rather than have it all disappear as a result of a brain drain and as a result of a U.S. or Irish or Dutch takeover.
Are there two or three things that you could outline for us that government could do to make the environment in this sector more welcoming?
Ms Lawson: There is a lot government can do that does not involve legislating and regulating. Government can assist business by helping to create, for example, alternative dispute resolution mechanisms outside the court system, or by helping business to develop Canadian logos or certification-type bodies that certify to the consumer that "This is a business that will respect your privacy and will abide by basic consumer protection rules," et cetera.
The other area is informing consumers -- that is, providing consumers with information on the scams that exist so that they can shop carefully on line.
Senator Angus: Ms Lawson, the points you have raised are common to all countries. Everyone is facing the issue of security, the danger of their communication going down a black hole and all of the other risky things that exist, and they are racing to find a solution. I am hearing about the concerns of the government, the private sector and your group, too. The consumers that you represent also have those concerns, but we should like to deal with Canadians. We should love to know that we have a good Canadian industry there. Is there something particularly Canadian that we can do to encourage the industry to capitalize here in Canada?
Mr. Munson: You mentioned Dr. David Johnston earlier. He has worn a number of hats over the years, but the one that you mentioned was chairman of IHAC. He was also the Minister of Industry's special advisor on electronic commerce and he may still be on the books in that position.
I heard Dr. Johnston speak a number of times. He was always positive about what he called "the traditional Canadian approach" and how it was so successful in electronic commerce. That involved the government, industry and consumer groups sitting together. I think that government, industry and consumer groups all work very well together. There is a lot of respect for each other's positions. The time for demonization has long gone by. If anything is typically Canadian, that is. That will stand us in good stead in the future as well as in the present.
Mr. Binns: That is an extremely difficult question to answer because there is so much work to do. We are talking about a fundamental shift in capacity from traditional business into e-business, if you will. I would offer a couple of things here.
First, you said that every country is worried about the same things. Let us pick the things that Canadians worry about more. Let us address the things that matter to Canadians if we want to foster a unique Canadian advantage. Second, let us set a timetable. It is already too late to do or to contemplate some things.
We should have Canadian portals. Why are Amazon.com, Excite and Lycos all the portals into the Internet? For example, MERX is a portal into the procurement space in the Internet and it could be on a grand and global scale.
My concern is timing. Let us put some dates beside the action plan. A role for government would be to take on the leadership of committing to those dates and making certain activities happen by those particular dates. Let me remind you that three months is just a quarter in the business world but in the Internet world it is truly a year. Things happen dramatically in that space of time. I have had MERX in the business now for a year and a half.
Senator Hervieux-Payette: Could you explain what a portal is? You have talked about it for five minutes and my colleague and I should like you to explain it to us.
Mr. Binns: A portal is a window into a community on the Internet. For example, Amazon.com is a window into the buying and selling of books on the Internet. Lands End could be a portal into a particular clothing community on the Internet. A portal is a way to address a community of interest or a community of individuals or businesses on the Internet. Essentially, it is a way in. That is what a portal means. Is that clear?
Senator Hervieux-Payette: Is it like a regular phone book for each sector?
Mr. Binns: Yes. That is a good way to think of it.
The final thing is to set the time frame, key dates and milestones, and make those dates happen.
Mr. Crow: This is a tough problem but if the objective is for Canada to participate disproportionately to its size in this endeavour, then that has two sides. It means that Canadians must participate disproportionately. That means that they must have access, trust, the tools and the confidence. We have spoken about that side of the agenda being addressed.
The other side is that a disproportionate set of "destinations" in the electronic marketplace must be resident in Canada. That is when the fundamental economic climate that we present to investors becomes an important part of the equation.
Senator Angus: How do we get to that point?
Mr. Crow: I hate to do my pre-budget already. It comes back to fundamentals about the choices that need to be made as we go forward with our situation.
Senator Austin: I want to add my thanks to the five of you for the interesting presentation this morning. The committee is just getting into the topic in a systematic way. Therefore, our learning curve is at an early stage.
While you will find a great deal of enthusiasm in the committee for e-commerce and its potential, it behooves the committee also to examine some of the public concerns that you have mentioned and some others. I should like to ask a few questions in that direction.
First, I want to look at the word "tools," which one of you used, and the impact of e-commerce on our socio-economic system. One concern is that it creates an even wider dichotomy amongst the economic communities that make up Canada. There are those who can afford the tools and the training and those who will be left out of the system by virtue of their economic position; or, perhaps, their cultural position is a barrier. Do you have any suggestions about how to make the tool universal? For example, to be only a tiny bit facetious, the laundromat brought the services of that technology to the public. The public telephone brought the services of that system to the public.
Can you foresee the provision of a public access system so that the 30 or 40 per cent of our population who cannot afford the required equipment can become educated about and consumers in the e-commerce world?
Ms d'Auray: There are a number of programs, activities and initiatives underway, in partnership with the federal government, the provincial governments and the private sector, to provide public access -- the equivalent to the phone booth, if you will -- to the Internet.
The Community Access Program is one of those. It started off with 5,000 public access points to the Internet in rural and remote communities. The next phase of CAP is to bring the Internet to more disenfranchised neighbourhoods in urban areas, so an extra 5,000 sites will be developed in urban areas.
We have also connected to the Internet, again in partnership, all the schools and public libraries in Canada. We have launched a program called Volnet, which will connect 10,000 voluntary organizations to the Internet to create a new type of web of voluntary organizations to allow them to exchange information and build communities of interest.
One of the most exciting initiatives is the Smart Communities concept. What happens when you bridge the digital divide within a community and link all the key partners -- social and economic -- within it? What happens in terms of the power of the information and the ability to develop economic and social tools and services? It does not bridge the total digital divide across Canada in every instance, but it is a great step forward and it is indicative of the power of that partnership, which is in fact truly Canadian, between the public and the private sector. It is a position envied around the world, including by the United States. In fact, it has been so successful that we have launched something called NetCorps to take the concept to developing countries.
Senator Austin: How have we funded these outreach programs in Canada?
Ms d'Auray: They have been funded directly by allocations to Industry Canada through the budget, as well as through funding and services provided in kind by telecommunications and cable companies as well as satellite services.
We have also benefited from the donations of used computers. Through the Computers for Schools Program and the Telephone Pioneers of Canada, we have set up a network of warehouses where people can donate their used computers, which are then refurbished and donated to schools that do not have the means to purchase equipment.
Senator Austin: Is this program shared with the provinces financially as well as technically?
Ms d'Auray: SchoolNet also has provincial contributions. We have agreements with most provinces on this. The urban component of the Community Access Program is also a federal-provincial-private sector initiative.
Senator Austin: What percentage of the Canadian school population is being reached by these programs today?
Ms d'Auray: By the end of this month, all the schools will be connected.
Senator Austin: Is that elementary and secondary schools?
Ms d'Auray: All schools that wish to be connected. Some schools have refused connections. All those that have agreed to be connected will be connected.
Senator Austin: Is that more than half the schools?
Ms d'Auray: There are 16,500 schools, and about 98 per cent of them will be connected. That includes First Nations schools, although about 75 First Nations schools did not want to be connected.
Senator Austin: I want to ask you about transaction fees. This is also a general question.
Is there any need for government regulation of the fee structure? It is one thing to point out the fact that the Internet and e-commerce are considerably lower-cost services, but is there the potential for a cost structure that would be limiting to the public, or are there potential profits that would be seen as excessive in terms of the service provided to the public? In other words, do we need a public utility regulator in this area, to ensure that the public is protected against either improper costs or excesses in charging?
Ms Lawson: I would say no. If you are looking at ISP access, we currently have pretty vibrant competition. The issue will be maintaining that competition. We must keep a very close eye on that.
In response to your last question, senator, there are different aspects or elements of the problem. Just having a telephone line is the first step, and that is where we continue to have monopoly provision -- a public utility providing the service and the CRTC regulating it. However, my clients are becoming extremely concerned about the level to which those prices are rising. Then there is the cost of the Internet service provider. As I said, I think it is sufficiently competitive now, but that does not mean it always will be. We must keep a close eye on it. There is also the cost of hardware and software to consider. That is more of a global issue, but there is an issue of competition there, too.
Senator Austin: It is one of the features of business that high levels of cash flow attract consolidation. Large capital pools have the buying power to purchase cash flow, to eliminate the number of people providing, and those in the system cash out because they cannot compete. So I am hearing you say that at one point we may well need a regulator in terms of the service charges.
Ms Lawson: I think we need to monitor the situation very closely, yes.
Senator Austin: Finally, I believe that with respect to cryptology the United States has quite a different approach from the one that Canada is taking. Certain U.S. governmental services are not prepared to concede non-access. Is that inhibiting U.S. competition? Is that to our advantage? I understand that we are prepared to give cryptology a complete defence in terms of the service we provide.
Ms d'Auray: The policy that we issued allows domestically for the use of any strength cryptogophy. Between Canada and the U.S., there are no restrictions for exchange or trade in cryptographic products. The U.S. does have some domestic challenges and, in fact, has capped some of the levels of domestic use. It has a tendency to prefer key recovery products. We do not have such a preference, although we encourage key recovery as a good business practice.
The Chairman: Would you please define key recovery.
Ms d'Auray: There is a philosophy that when a key or a set of numbers is used to encode and decode information, you should park your key, not just with yourself but with a trusted third party so that, if there is a problem, there is a capacity to decode. That is generally a request of law enforcement because they would prefer to have all the keys located in one place so that if there is a problem and they need to access the information, they can do so directly.
Senator Austin: They can go to a court and ask for an order to unkey certain transmissions. They have to demonstrate to a judge that they have reasonable cause for that request.
The Chairman: As with the wire tap provisions.
Senator Austin: Yes, whereas in our system in Canada, we are not requiring that key to be deposited.
Ms d'Auray: That is correct. We have looked at the business case for this. Where most businesses will be using cryptographic products, they will have backup keys and they will make them available under warrant because they have a business interest in not losing all their encrypted information. However, we did not see the need for every individual using cryptographic products to park their keys with a trusted third party. If I am sending e-mail to my brother and using encryption because I do not want my mother to read it, then I do not see the point of my parking my cryptographic key with a trusted third party. It does not make any business sense. If the transaction does not work, if for some reason there is a glitch, then I will just send the e-mail again.
Senator Austin: It allows the transmission of, for example, pornographic material between parties without anyone being able to read it, so, as my old philosophy professor used to say, by a parody of reasoning, you can completely subvert society's rules about standards of behaviour. Hate materials, pornographic materials, other materials that threaten social stability, materials that could, for example, foster the organization by terrorists of their own plans, could be completely defended by cryptography. You have identified those problems, and I am not exploring them for the first time. My question is this: Should we not have a system that allows society to protect its interests?
Ms d'Auray: In large part we already do. We have discussed this on a number of occasions during the shaping of cryptography policy. That involved 12 departments and agencies, which included law enforcement and the national security agencies, so this does not come only as a result of an effort of Industry Canada. It is the fruit of an 18-month discussion among the agencies.
The short answer -- which might appear facetious -- is that pornographers and money launderers will not park their keys. They will not use a trusted third party if they are contravening the law and they do so knowledgeably.
Senator Austin: But you could require anyone who requested the service from any service provider to park a key. That could be a rule of the system. You might say that it is not to our economic advantage to request it, but it might be to our societal advantage to request it.
Ms d'Auray: The United States has, to a certain extent, preferred that option but it has not stopped the transmission of unlawful materials, nor has it stopped the transmission of money laundering or such activity. However, it forces those activities offshore and makes it even more challenging to try to tap into what is happening, because there are a number of countries that do not share, among law enforcement agencies, the information and the patterns that can be devised without having access to the cryptographic or encrypted information.
On that front, weighing the pluses and minuses, Canada came out on the economic development aspects recognizing that we have fairly good cooperation among telecommunications providers and producers of cryptographic materials, as well as fairly solid business practices, which would enable law enforcement agencies to have access to the information they require within the appropriate time frame.
Senator Austin: I appreciate the information you have given us. This subject can be explored for a long time without coming to any specific conclusion.
The Chairman: We will have lots of time to do that during our study of Bill C-54.
Senator Tkachuk: I am a little less enamoured of the technology. The only good thing about getting old is that you remember things from long ago. I remember when television was going to destroy the film industry, was going to replace teachers in the classroom, and was going make people smarter. I think that, if you removed the TV set from the home, it would not make people culturally or socially deprived. They might even be better off. I see the Internet as probably the most sophisticated direct marketing tool and the fastest courier service in the world. Perhaps I am missing something here, perhaps you all know about this stuff and I am a little less knowledgeable about it, but can you tell me what the difference is between advertising on CNN to sell a product, such as books or records, worldwide and doing it on the Web?
Ms Lawson: Just briefly, the Web does require some initiative on the part of the consumer -- at least right now. Technology could change so that it is much more like television, but television is a passive activity. The consumer just sits there.
Senator Tkachuk: But why do we care that the consumer would initiate a consuming activity on the Web?
Ms Lawson: Do you mean why do we want to promote this? That was a concern of our group from the beginning: Is the government promoting one form of commerce over another, and is that appropriate? If you are just looking at the commercial aspect of this, then we are not suggesting that it be promoted from the consumer perspective, but the Internet is much more than commerce. At the first task force on the information highway, the idea was the provision and exchange of information between citizens. Therefore, we are putting a great deal of effort into ensuring there is non-commercial public space on the Internet. That is a separate issue and I am sorry if I am going off topic.
Mr. Crow: I fundamentally agree. The term electronic commerce is simply a moniker, a bit of a handle, a short form, if you will, for a much wider range of activities that involve the transfer of value. The transfer of value may be the sharing of community by people who are separated by continents, the sharing of community by families who perhaps get together through e-mail, as mine does, over our own net across several countries and many time zones.
Right now, of course, advantages of this form of communication are being explored in terms of its use for teletriage and medical care. It allows us to transcend the problems of time and distance in a vast land. I certainly see that the commercial side has some aspects, and I agree that advertising is advertising in every medium, with the proviso that has been made. The Internet is there as an active activity and is therefore probably closer to the informing medium that it is sometimes purported to be.
Senator Tkachuk: Let me use the example of the travel agency business. The travel agencies were really built by the airlines. They invested in infrastructure and they hired people. The airlines are now cutting back on commissions to save money, and they are saying people can go on the Net. I go on the Net, I do all the work, I get the ticket, and it costs the airline $1. Before, the airline used to pay the agency $100 or $200 or $300. I see no benefit, and yet I am doing all of the work.
It is much like the banking industry, where everything has become electronic and it was going to be of such great benefit to consumers. The only thing about electronic banking has been that I can get cash when the banks close. Frankly, the rest of it has not changed in my lifetime whatsoever. It has not made it easier or faster. I do not get better information. As a matter of fact, they are taking information away from me by saying, "You cannot have that cheque because we want you to give this little piece of paper. It will be better for you," which it is not. You now have 50 pieces of paper rather than a nice big envelope at the end of the month.
What benefit is it to any of us? I know we should be concerned, but what benefit is it to the consumer? How has electronic commerce made life better for the ordinary person working downtown?
Mr. Crow: There is a wider range of choices of supplier and a wider change of forms.
Senator Tkachuk: Like TV?
Mr. Crow: You can still walk into the travel agent down the street if you wish. No one is mandating that you use the Internet. It is still possible to visit your travel agent. You have a choice -- certainly the choice of the time in which you wish to do business. A civil society that does not want its people working 24 hours a day may well wish to allow certain people to talk to machines instead of to people at off hours.
Senator Austin: We find it a bit contradictory -- at least I do -- that we are pursuing all sorts of programs to foster small and medium enterprise. The answer you are giving involves a discussion that we have had amongst ourselves, namely, that e-commerce will create a huge competitive advantage for volume suppliers. Volume suppliers are those people who can buy in bulk and deliver -- which means people with larger capital pools -- and people with the ability to present themselves nationally and globally. This is an area in which we need help. We see two Industry Canada policies heading off in opposite directions.
Ms d'Auray: On that front, one of the interesting developments we have seen is the rate of adoption of the Internet and electronic commerce transactions or applications by small and medium-sized enterprises. In fact, it has been done a lot faster and a lot more innovative than large business.
A recent survey was conducted by IDC on the rate of adoption in Canada. We face a challenge in the adoption rate of medium to large businesses, not small businesses. In fact, small businesses have had a 52 per cent increase in Internet access and positioning from 1997 to 1998, which is a huge leap. They see their own businesses being able to reach around the world from their own small base as opposed to having to create an infrastructure, where the challenge lies in large business, and in transforming their business operations to meet the challenges of dealing with on-time delivery, distribution, and reaching out to market.
Returning to Senator Angus' comments about what the government could do to assist business, I would say that what business could do to help itself is increase its rate of technology adoption. If we look at the rate of adoption of Canadian companies versus U.S. companies, we have a 30 per cent lag. That is a big difference. We have ridden on the productivity scale with our low dollar, but we are now facing a competitive environment that is technology-based, and Canadian companies are not keeping up the pace.
There are some benefits to companies of aggressively moving on line. We have seen many Canadian companies, such as Canadian Tire, Nygard International in Winnipeg setting up a major distribution production centre just in time, the Automotive Network Exchange, where Canadian companies are hooked in, and Pratt and Whitney, which has almost all of its design facilities now on line. There are some significant savings that can also be passed on in terms of competitiveness around the world.
Mr. Crow: From our industry's standpoint, we are not only participants in electronic commerce as merchants, retailers, and so on, but also as suppliers of the technology, of the systems, and of the infrastructure that is required for this business. In fact, quite a vibrant small and medium-sized enterprise is growing up in this country and elsewhere. I think we are doing well in Canada around the provision of web sites and the various tools for that.
Senator Austin: Is the hardware made in Canada for e-commerce largely made in Canada hardware?
Mr. Crow: No. Much of the application software can be procured from Canadian vendors.
Senator Austin: The hardware is largely imported, though?
Mr. Crow: Yes. It is a commodity now.
Ms d'Auray: Part of the hardware includes the network switching, which is Canadian. There is software, which are applications, but there is the network switching equipment that is embedded now in the hardware, which is largely Canadian.
Senator Tkachuk: I am not an anti-technology person; I think there are tremendous economic opportunities. As a country, we are concentrating on infrastructure, among other things. I think a lot of those things will look after themselves. I must commend the Canadian government on what it has done to date.
The biggest problem that we will face is one on which the government must focus but refuses to do so, namely, where the population has become smarter through technology. The government must not be afraid to move. By creating all of these trade zones, electronic commerce, the ability of children to keep in touch with their parents by e-mail and the ability of parents to send pictures of their kids, and so on, it is like you are next door. However, in our country, by not addressing some of the major issues, we are losing our best and our brightest. There is competition for these people, and they are not afraid to go wherever they can get the best buck. There is no economic advantage for a person who has a high IQ and who is very knowledgeable about this industry to remain in Canada when he or she can make 20 per cent more -- and in some cases 30 per cent more -- living in the United States, even after you take into account paid health care and all the rest of it. That is the largest issue facing this country. People used move away to other provinces to earn a good living; now they are moving away to other countries.
I do not want to sound like an old rail on this, but we if lose those people, all the rest of this stuff will not matter. In fact, none of it will matter because there will not be the industry here that we could have. Rather, we will have accomplished what we have done in a whole bunch of other industries: We will lose them to our competitors across the border. Do you all agree with that?
Mr. Crow: Absolutely.
Senator Tkachuk: What can we do about it?
Mr. Crow: Next February, we should choose differently.
Senator Tkachuk: The next election, perhaps.
Senator Hervieux-Payette: Thank you for coming here to complete our education.
The first time I was initiated to EDI was through the organization in Montreal, which has done a lot of work. I am a bit surprised they are not here this morning, but I was introduced to them in 1993-94, so five or six years have passed.
After our conversation and reading all the material that was submitted, I have some difficulty here because it seems that we have enlarged the definition of "e-commerce." As far as I am concerned, "e-commerce" has always meant "a commercial operation," meaning a transaction, and that you must be in the business sector. When it comes to schools, education, R&D and virtual laboratories throughout the country, that does not sound like "commerce." It sounds like something else.
If we, as legislators, are to examine this question, we should know what we are examining. When it comes to changing the rules -- whether for taxation purposes, for the GST, or whatever -- this is associated more with the real commercial aspect of the application. Perhaps I am the only one confused, but when e-commerce was initiated in 1993-94, it was related to conducting the transactions involved with buying and selling over wires, saving much paper, time and money. Perhaps you could explain the evolution to me.
After the electronic highway study, I thought that the federal government concentrated on helping to build the highway and on supporting hardware development and that there was a role for the provinces in software with regard to education, et cetera.
My third point is that, although we seem to have too much money in our pension fund and have to invest it abroad, you are telling me that you have to go abroad for capital. We either have too much or not enough. Could you cite some examples of projects that did not proceed due to lack of money? I have not seen any so far.
[Translation]
Ms d'Auray: We have links with the director general of the EDI Institute, now known as Institut sur le commerce électronique, in Montreal. It's simply a matter of how adequately represented the organizations around the table are. I am not referring to the organization's activities.
Schools have been connected to electronic commerce because there are commercial transactions on open networks. A transaction does not necessarily have to include a payment. It can be an exchange, a contract or some other activity.
That being said, the reason why I mention schools and community access sites, is that we are facing the challenge of providing Internet access to a wider selection of Canadian citizens. If Canada wants to benefit from opportunities offered by electronic commerce, and especially to consumers, people must have access to the Internet on one hand and, on the other hand, they must be able to get good information on the best Internet practices, on what works and what does not work and on the way we do things, and this involves connecting schools and setting up public access sites.
I did not want to confuse commercial operations with the operation of connecting the public, but both activities are interrelated if we want to ensure the growth of electronic commerce in Canada.
Now I am coming to your second question regarding what the federal and provincial governments are doing. As we developed policies, we mainly worked together with the provinces, in the context of the Canadian Privacy Protection Code and the development of the legislation. All provinces obviously do not agree on the way that Bill C-54 has evolved. As regards commercial measures, the discussions were carried on either in conferences or federal-provincial debates, or with the Uniform Law Conference of Canada, the ULCC. There is really a great deal of work to be done.
Regarding the growth of the enterprise per se, we cannot make such a clear-cut distinction between the software or the package going to the provinces and the equipment meant for the federal. There is a great deal of work being done by the federal in collaboration with the provinces to increase the capacity of Canadian companies to supply software.
Governments are also great users, so we are especially collaborating on the public infrastructure. With such an infrastructure across Canada, it would be good to have some degree of inter-operability. If a citizen wants to deal with a given level of government, he must be able to do this with several levels of government at the same time.
Is our collaboration perfect? It is not. Does it happen at all levels? It does not. Should more be done? Absolutely.
In the cutting edge sectors, there is a great deal of collaboration but I should say that there is even more collaboration when it comes to marketing Canadian goods and services abroad. We are working together very well on investments as well as the promotion of exports.
[English]
Senator Hervieux-Payette: Will you address my last question on foreign capital?
Mr. Crow: There are two sides to that question. One is a larger question that has been around for a long time: the problem of getting capital into small and medium-sized technology-oriented companies that are growing in Canada. We are getting better at that. The budget provided new opportunities for labour-sponsored funds in order to encourage those funds to move there.
Foreign capital is foreign direct investment, in which case the cost structure faced in Canada becomes decided. The capital is there. The question is whether it will choose Canada as its destination.
Senator Hervieux-Payette: Are you referring to the limitation of the percentage of ownership for the telecommunications companies, the rule of 80-20? Is that what is bothering you, or is it something else?
Mr. Crow: Depending on how our standing is measured, our corporate taxation on business services is first, second or third in the world, and that is discouraging foreign investment in activities like this.
Senator Callbeck: I come from a small province with a small population and I am thinking about infrastructure costs. The lines are already in place. Does that mean that the province should not be concerned about infrastructure costs, or will there come a time when those lines will have to be expanded?
Mr. Crow: Are you speaking of the telecom network lines?
Senator Callbeck: Yes.
Mr. Crow: The big lines that connect provinces and major centres are two phenomena. First, we are using more optical technology in those lines. Second, through advances in engineering, we are learning how to use the capacity in the lines more efficiently and intensively.
From that standpoint, as long as we have good programs for moving those higher capacity lines out into our communities, as we have had for the last decade, we are not in terribly bad shape in that regard. We have problems, however, when we have a small community at quite a distance. At that point, wireless technologies become attractive. Indeed, a great deal of research is being done on developing new products around what are known as third-generation wireless services that may well be able to bring much of what we are talking about today to any spot on the earth within a very short time.
Ms d'Auray: Part of the solution is wireless and satellite technology. P.E.I. is currently one of the most networked provinces. A couple of very interesting pilot project are going on there, through a community access program, connecting a group of communities and piloting a smart card. Thus, a small province is potentially at the forefront of a number of those interesting developments.
Senator Callbeck: I realize that. However, will there come a time, due to the number of people using the Internet, that the infrastructure will have to be expanded?
Ms Lawson: It may just happen naturally. The CRTC has established a framework for competition in local telecommunications services that is meant to encourage facilities-based competition, be it wire line or wireless. I do not know what cable TV penetration is in Prince Edward Island, but that is a second set of lines to the home for many households.
The costs in this industry continue to decline. The hope is that there will not be situations of uneconomic duplication of facilities if competition proceeds as everyone expects.
Senator Callbeck: My other question also deals with costs and pertains to small business. There has been some discussion this morning about how the Internet is good for small business. Do you see any developments coming down the road that could make it costly for small businesses to use the Internet?
Ms d'Auray: There is one such development now. Because the assets of virtual businesses are deemed to be virtual as opposed to real, those merchants who are strictly on line pay slightly higher costs for merchant numbers and credit card access.
Yes, there are some differentiating costs now on the horizon, and there may be others.
Senator Meighen: I should like to follow along from a line of questioning started by Senator Angus. I notice that the ubiquitous Bill Gates commented late last week that he believes in and supports electronic commerce as a very important element of the WTO talks. I arrived late this morning, and perhaps you dealt with that subject already. Those talks will be held in Seattle in the fall. We seem to have had a little trouble getting square with WTO policy of late in this country. Are there any particular areas to which we should be paying attention at the WTO talks? What position should Canada take? Are we concerned about just the areas that you have discussed this morning, namely consumer interests, taxation, tariffs, et cetera, or is there something in particular that we want to ensure we protect or avoid?
Mr. Munson: A Canada Gazette notice released early this month called for comment by Canadians on the WTO and FTAA talks. It cited a number of categories of issues that would be open or might be in the negotiations, including electronic commerce specifically. Electronic commerce would also fall under a number of the other items, including electronic property and the existing information technology agreements that cover products. There is an existing WTO agreement on financial services, telecom services and consulting services, which would also come into play in the field of electronic commerce.
Whoever put the notice together certainly recognized that a number of those items are very important for Canada. They are certainly important for our industry. I do not know that it is necessary to have a bucket in the WTO talks called "electronic commerce," but we have to keep in mind that many of those categories are important for electronic commerce. In my remarks I mentioned access to technology and the continued need for movement toward zero tariffs so that we can import the kind of machinery we need to turn a buck. I am not referring just to our industry but to our entire country. That pertains to all sectors, not just the IT sector. It is important in forestry, lumber and mining, all of which benefit greatly from the application of information technologies.
Ms d'Auray: The Government of Canada is involved in a review of all of the existing obligations and agreements under the WTO, GATT and other organizations. The WTO has launched a work program on electronic commerce. They have asked countries to examine existing agreements to see whether or not everything that could be covered under existing agreements is in those agreements or whether there are some issues that need to be dealt with separately. It is asking whether some activities need to be liberalized further to enable electronic commerce. The position that we have taken to date in looking at the agreements -- although we have not completed our review -- is to say, "What does Canada require in a global environment to enable electronic commerce? What barriers exist that we should like to have removed? What issues that do not fall under the existing agreements and obligations need to be treated?"
Most would argue that almost all of the existing agreements and obligations allow us to say that there is global electronic commerce. One or two barriers may remain but the push should be on the enablement of electronic commerce, not to start recreating barriers that 10 years from now we will have to remove.
The most challenging aspect within the WTO context is the understanding that we have to bring to developing countries that see this as a potential threat. They have an automatic inclination to start erecting barriers and to stop the flow of information and of technology.
Canada has been working directly with those countries to give them a better understanding of what the potential could be. They do not necessarily have to go directly to a wire line-based service: they could use wireless. In fact, some interesting examples have developed that show progress. Not only can they deliver quite interesting services but they can also build services and activities within those countries to sell to the rest of the world.
Senator Meighen: Who do you think will be the dominant player, or will the industry be fragmented? Will the dominant player be a Microsoft of the world, a financial institution or institutions, or will it vary from country to country or area to area?
Ms Lawson: If we do not put in place the appropriate consumer privacy protections across the board, then we will see a trend where consumers rely on services from brand names that they already trust. The real promise of electronic commerce, for the non-brand names, the small guys, the new upstarts to expand business, will not happen. In fact, it has been suggested that that is the real reason the United States is so opposed to regulation of privacy. It is because they have brand incumbency.
Mr. Crow: I second that as well. I do not see dominance in an economic sense where we are worried about dominance and abuse of economic power. I think that there will be large and larger players in this area. However, as I see it, it is a very fluid environment where one can be nowhere one day and then be in an important place, if you will, very quickly thereafter.
Senator Meighen: The challenge would be to keep it fluid, presumably.
Mr. Crow: Yes. It may be inherently fluid.
The Chairman: I should like to thank you all for coming. It has been a terrific two hours in the start of what will be an ongoing process for this committee.
I have asked the staff to work with you to develop a good summary of today's session that will deal with all of the issues you have raised. We would then circulate that not only to members of this committee but to all of our colleagues in the Senate.
I should like to put on the record five or six questions that I would have asked had we had the time.
Ms Lawson, I am always intrigued when people come before us and say that they really like a bill but that there are some things that they would like improved. You repeatedly talked about how much you like Bill C-54. I am more interested in what you did not say about what should have been done to make it better.
My next question is directed to Mr. Binns.
Since I am an old marketer who believes in brand names, I am stunned that a Canadian bank would go into this field and not use the value of the brand name of a major Canadian bank. I leave that with you.
As you know, this committee has been dealing with financial services. Everyone talks about how expensive it is to use a teller and how wonderful it would be if we could only get people to go to ATMs. I am expecting some time in the next 12 months to have someone from a bank say how expensive it is to use an ATM, and would it not be wonderful if we could move everyone over to the Internet or telephone banking.
I would like some rough cost estimates of the transactions across the spectrum of service. Tellers are at one end, but what is the other end? Where do you see this going?
If we look at the data Michelle d'Auray put before us on Canadians being early adapters of all this new technology, markets research results within the last decade show that telephone banking was an absolute non-starter. Not a soul out there was interested in it. Now, three or four years after its introduction, all kinds of people are using it, including people who categorically said they would not touch it. Where does your industry, collectively, see that segment of the financial services sector going?
When I first heard Mr. Munson's comments on investment and tax issues, I thought perhaps I was turning a little cynical in saying that everyone is looking for a special break again. However, your subsequent answers made me move back to a position that you have some solid points to make.
With respect to the level of generalities you dealt with on the taxation question today, what do you really want done, as opposed to giving me notions of general motherhood?
You should know that, in conjunction with the Department of Industry, this committee is undertaking a study of what government programs, if any, are required to get equity investment into small and medium-sized businesses. You may want to roll part of your answer into that. In fact, we may well call you as a witness.
Senator Meighen: Or what programs can be removed.
The Chairman: I have some questions for Ms d'Auray.
In one of your slides, you talked about the Government of Canada committing to offer all services on line where appropriate. I suspect you have an up-to-date summary of where that stands and where it is going. You are good at putting out timetables and sticking to them for other things. I would like to know where that stands.
In July 1997, the United States put out a framework for global electronic commerce along with a presidential directive on electronic commerce, which differs from your e-commerce strategy paper. I presume you have a document that does a comparison, which would be helpful for us to have.
On page 13 of your e-commerce strategy paper, you refer to a table, which raises a number of issues. It is the table where you talk about business-to-business issues, et cetera. I presume you are keeping up to date on what progress is being made on each of the boxes on that table, and we might like to talk to you about that.
Finally, and I say this half in jest to all of you, the latest buzzword in business and government relationships now is "partnership." Everything that you do not know how to describe is called a public-private sector partnership. Everyone is scrupulously careful not to define it so it can mean to the speaker and to the receiver whatever they want it to mean.
This committee is used to a number of phrases like that. "Level playing field" is another. A playing field is level if it works to your advantage; it is unlevel if it does not. Whether it works for you or against you is of mixed views. What is fair and unfair?
Except for Ms Lawson, I noticed that you all used the phrase "public-private sector partnership" repeatedly, but in different contexts. It might be interesting and curious to see if we could get some common understanding of what that means. Is it simply gloss and therefore people like us can discount it?
With those few issues to be looked at down the road, I wish to thank all of our witnesses for appearing today. It has been an interesting morning. I feel that we have made one small step down the road in terms of making progress.
The committee adjourned.