The Chair (Mr. James Rajotte (Edmonton—Leduc, CPC)):
I call this meeting to order. This is the 65th meeting of the Standing Committee on Finance. We have two panels this evening, colleagues.
I want to thank our witnesses for waiting for us. I apologize for the vote tonight.
During our first panel, we have five organizations presenting. We have BCE Incorporated and Bell Canada; the Communications, Energy and Paperworkers Union of Canada; Mobilicity; Public Mobile; and Wind Mobile. Welcome to all of you.
You will each have up to five minutes for an opening statement, and then we'll have questions from all members.
We'll start with Bell Canada.
Mr. Mirko Bibic (Executive Vice-President, Chief Legal and Regulatory Officer, BCE Inc. and Bell Canada):
Good evening, Mr. Chairman and members of the committee.
Thank you for this opportunity to present Bell Canada's views on Bill C-38.
The government has said these changes, along with the proposed rules for the next spectrum auction, have three objectives. First, sustained competition in wireless telecommunications services. Second, robust investment and innovation in this sector. And third, availability of advanced services for all Canadians, including those in rural areas, in a timely manner.
Canada's wireless industry is admired around the world. We have three major national carriers with the scale to offer advanced wireless services, including the latest HSPA-plus and LTE technologies, to 97% of Canadians from coast to coast to coast. Counting the new entrants, many of whom are here today, major Canadian cities such as Toronto, Montreal, and Edmonton have no fewer than five wireless providers and up to 11 different brands to choose from. Even the U.S. can't claim such a level of competition, and the same is true of most other countries. In fact, Bell's service plans for the Apple iPhone and the Apple iPad are cheaper than AT&T's.
Another major reason Canada is a world leader is the almost $20 billion in wireless capital expenditures Bell, Rogers, and Telus have invested since 2003, generating more than $40 billion in total economic value annually and employment for almost 300,000 Canadians.
As to coverage, consider this: P.E.I. received 4G high-speed wireless services in 2009, before Chicago. It's no wonder many countries view Canada's wireless industry with envy.
Many countries also have a similar opinion of Canada's banking system, and we now take great pride in that, but there was a time not so long ago when many thought we had serious problems with our banks. Recent history has proven those views incorrect.
The same is true of our wireless industry, so Bill C-38 is a solution in search of a problem. Coupled with aspects of the proposed spectrum auction rules, it opens a Pandora's box of unintended consequences, including negative impacts on Canadian consumers, especially in rural areas.
Under Bill C-38, all foreign ownership restrictions would be lifted on telecom carriers with less than a 10% share of national telecom revenues. This will create a two-tier capital structure in Canada's telecom market, with one set of rules applying only to Bell, Rogers, and Telus, and another applying to all our competitors, including recent domestic entrants or foreign companies seeking to enter. These changes, together with the proposed auction rules, clear the way for any foreign giant to acquire two blocks of prime 700 MHz spectrum, while Canada's national carriers, those that invest billions in all areas of the country, urban and rural, are limited to just one block.
What does Canada get in return? Can you imagine the U.S. government ever allowing Bell Canada to have a more privileged access to the U.S. spectrum than companies like AT&T and Verizon? Can you imagine the U.S. ever implementing a two-tier capital structure that gives special advantages to foreign companies over domestic carriers? I don't think we can—yet that's exactly what Bill C-38 and the auction rules will do here in Canada.
Foreign companies that enter will be able to skim the cream from Canada's largest, most lucrative markets. Will executives in Texas or Germany invest first in Edmonton, Canada's fifth-largest market, or Phoenix, the fifth-largest in the U.S., with twice the population; Hamilton, Canada's eighth-largest market, or San Diego, the eighth-largest market in the U.S., with more than twice the population; or Rimouski, Canada's 72nd largest market, rather than Buffalo, the 70th largest in the U.S., with almost eight times the population?
Worse still, these entrants will have no obligation to serve rural areas.
Mr. David Coles (President, Communications, Energy and Paperworkers Union of Canada):
Thank you very much. I do appreciate the opportunity to present to you.
I'm Dave Coles, the national president of the Communications, Energy and Paperworkers Union. We represent approximately 40,000 workers who work on all aspects of telecommunications for many employers. Our primary message to the government today and to this committee is that we are diametrically opposed to this kind of change to the telecommunications regulations being thrust into an omnibus bill.
You heard the representation from Bell about the amount of capital that's expended. It's a very serious issue. The sale of spectrum is complicated and not easily done. I'll present it to you in five minutes. Unless there's a paragraph or a page or so missing, this is the sum total of what's in the bill: this little piece of paper. That's it. This is far too serious. You need to break it out and deal with this. This is a huge economic driver for our country. It has a great impact on business, the economy, jobs, and culture. A whole wide range of issues can be dealt with, but they can't be dealt with when they're buried inside a bill like this.
When you look at the 10% rule, there are no rules on the 10% rule. What does it mean? Well, MTS is less than 10%. Carlos Slim could buy MTS with pocket change. He's the richest man in the world and he owns many telephone companies. He could buy MTS with all of its integrated services and compete directly against Canadian companies with no restriction. There is no limit on the amount of money. If Bell were to allow it, he could buy the independent company called BellAliant—less than 10% of the market with a full basis of services. A foreign company could buy an entire telephone company in Canada and have no restrictions. If you say there are restrictions, where are they? They're not here. I would just plead with you to break it out, to bring it in as a piece of legislation, and to have a national discussion on what is in the best interest of Canada, the economy, and our culture.
Mr. Gary Wong (Director, Legal Affairs, Data and Audio-Visual Enterprises Wireless Inc., Mobilicity):
Thank you very much for inviting us today. On behalf of Mobilicity I am very pleased to be here to submit this presentation.
I would like to start by giving Mobilicity's perspective on some of the challenges and difficulties of a small carrier starting up in Canada.
As you may know, Mobilicity was one of several new entrants that entered into the market for the supply of wireless telephone, messaging, and data services in Canada. For $243 million, Mobilicity obtained spectrum in the AWS auction in 2008 and its entry ticket to compete in the Canadian wireless industry. Many more millions of dollars and a few years later, Mobilicity now serves Ottawa, Toronto, Vancouver, Calgary, and Edmonton.
Like other startup companies, Mobilicity has had to overcome many challenges before seeing success: misinformed consumers who are locked into legacy contracts with outrageous termination fees; incumbents that create flanker brands or give their existing flanker brands a complete makeover just to avoid competing with us head to head using their main brands; mandatory regulations such as roaming and tower sharing that did not transpire exactly as planned because of mandatory rules, but negotiated terms. That is just to name a few.
Spectrum and capital are two common challenges that wireless startups face. How do we ensure that we acquire enough spectrum to minimize any capacity issues with respect to our customers and enable us to build our own next big thing—commonly known as LTE—the same way the incumbents have already done from the extra spectrum they acquired or were gifted years ago? Indeed, how do we scream above the loud voices of the incumbents who keep telling people they need more spectrum to meet capacity needs, when in fact they already hold more spectrum than most other carriers in the world?
If spectrum is the real estate land that one acquires in order to build a beachfront hotel, then one must raise enough capital to construct and promote this beachfront hotel. Millions of dollars are required to purchase spectrum, build networks and IT systems, and market the brand, just to name a few. I would like to mention that these millions of dollars must all be spent before Mobilicity sees a single dollar of revenue in return. After Mobilicity starts receiving revenue from its customers, millions of additional dollars will be required to purchase more spectrum, expand and build a faster network, improve capabilities of the IT systems, and for more marketing and promotions.
This only illustrates the capital intensiveness of the wireless business and the challenges Mobilicity faces as David battles three Goliaths on a day-to-day basis.
Mobilicity therefore supports, with open arms, the changes to foreign ownership rules. Easing foreign ownership restrictions can potentially make raising capital easier, or decrease some of the costs to capital. These two benefits are almost unique to new entrants when compared with incumbent carriers who already have unfettered access to low-cost capital through their many revenue streams, their bank accounts, or the abundance of lower-risk capital investors domestically.
Indeed, due to the higher risks to new entrants, it is only logical to expect that the costs of borrowing for new entrants are to be higher than for incumbents. If easing foreign ownership can lower the interest of borrowing—or the cost of capital—by one dollar for Mobilicity, this is one extra dollar that Mobilicity can use elsewhere to lower plan costs, improve the network, or bring better quality of services to Canadians.
Thank you for your time.
Mr. Bruce Kirby (Vice-President, Strategy and Business Development, Public Mobile):
Thank you, Mr. Chairman and honourable members. I'll try to be relatively brief.
We're here to support the changes to the legislation that are in Bill C-38.
Capital is critical to building a new wireless company in Canada, as Mr. Wong just said. I can agree with most of what he said. The two key ingredients for creating a competitive environment in the wireless industry are exactly that: capital and spectrum. This is one critical component of improving the situation for capital, to support investment in these companies.
Progress has been made, and I won't get into the debate here on how much has been accomplished on the spectrum side, but certainly in the last auction, through the set-aside, the government created an environment that allowed new entrants. The fact that three of us are sitting here today is an example that that has been an accomplishment. The fact that Vidéotron is operating along with us in Quebec as new entrants is an accomplishment that came about because of that policy.
Capital continues to be important. There's a real challenge in Canada with getting access to risk capital. We have an immature market for capital. It's not just a matter for wireless innovation or wireless investment, but it's a matter of, generally, innovation, the knowledge economy, and IT and broader sectors in Canada. The institutional investors that are very strong in the U.S. and very strong in some other markets are weaker in Canada, for historical reasons. A number of steps are being taken to address that, but a big step that could help in this case, which isn't an issue with some of those other areas, is enabling capital and investment to come in from outside the country, from foreign companies and foreign investors.
That's valuable, because when foreigners invest in new entrants like ours, they invest in Canada. Every single employee of Public Mobile is in Ontario and Quebec. This has nothing to do with the ownership structure. It has to do with the fact that our customers are in Ontario and Quebec, and our networks are in Ontario and Quebec, because that's where our licences are. That will continue independent of who ultimately owns the investment and equity in the company. That's where they're going to stay because that's where our business is and where it happens.
To the extent we're able to attract additional further investment from investors outside the country, that investment is coming in to provide jobs and to build infrastructure in Ontario and Quebec, where we operate today. That is all to the benefit of Canada, independent of who ultimately owns the company. It is something that is not only bringing more competition to Canadians and more choice to Canadian consumers, but is bringing additional jobs and so on to Canada, all of which is a benefit to Canada.
I always find it fascinating when Bell says this is bad because all these scary things will happen. Bell opposed competition in long distance because it would be bad for Canadians. They opposed competition in local because it would be bad for Canadians. They opposed steps to improve Internet access by competition because it would be bad for Canadians. They opposed setting aside spectrum in the last auction because it would be bad for Canadians. They opposed using caps to improve access to spectrum in the auction coming up because it would bad for Canadians. They've opposed better access to foreign capital for small or new entrants because they say it would be bad for Canadians.
In every case they have failed, and ultimately, the outcome has been good for Canadians, in the sense that in all those sectors, there has been more competition, better pricing, more options for Canadians, and, ultimately, more employment with new entrants that have come into these markets.
For all those reasons I think the bill should be supported as it stands.
Mr. Simon Lockie (Chief Regulatory Officer, Wind Mobile):
Mr. Chair, members of the committee, good afternoon, or evening, I suppose, at this point.
I'm not working from prepared material, so I hope you'll accept my apology if I meander a little bit.
I want to acknowledge that we're in support of the bill. We think this is a critical, important precondition to fostering competition in an industry that is in dire need of it. We applaud the government for taking this initiative.
Wind's position in this area, as I'm sure you all know, has been very publicly kicked around for the last few years. We feel we're sort of specially qualified to talk to some of the negative consequences of the existing legislative regime.
The fact that our competitors put us through a regulatory proceeding that ultimately ended in vindication at the Supreme Court level doesn't eliminate the fact that the system allowed that to happen. It has to be acknowledged, as everyone has noted here, that the entirety of fostering competition, apart from some of the other policy initiatives, I'll call them, that have to be undertaken, the AWS set-aside being one example.... The recent spectrum policy that Mr. Bibic spoke to, in our view, actually didn't go far enough. But we don't intend to spend time on that today.
What we're talking about today is a necessary precondition, which is that you need to get capital into this company. It's a critical point just to understand the vast quantities of capital that are required, and also to understand that where that capital comes from should be and is irrelevant to government policy considerations.
The simple reality is that Canadian capital behind a Canadian company is not going to be deployed to roll out LTE in Parry Sound because that's where Bobby Orr is from. They are going to make commercial decisions based on economic factors, just like a corporation does that's funded by foreign capital.
The government has taken a cautious, incremental approach to resolving this issue, but they've done it where it matters most. And that's a conclusion that isn't something that came about in the course of the last couple of months. That's something the TPR came to. That's something the Red Wilson report came to. It is a necessary precondition to allowing the kind of capital to come in.
Let's just be very clear. This is not a magic bullet. This is not going to solve a massive competition issue in this country. You have an oligopoly, with 93% market share, a massive brand presence, a massive retail presence, and huge amounts of capital. They're snapping up all of the content in the country. Everyone recognizes that there is an issue. It's long been recognized. This doesn't solve it. It's a precondition to solving it.
I don't think there's any credible reason to say that we don't want that capital in this country and that we're going to artificially constrain the terms upon which it can be invested. That is a hurdle that simply won't be overcome.
Mr. Mirko Bibic:
I'm going to take a step back. We appreciate and understand the balancing act the government had to put in place here. On the one hand, rules were set up in 2008 to allow for new entry. We have three examples of that here.
The government wants to make sure that can continue, that conditions can continue to be in place so that they can continue to operate. We are looking for a fourth national carrier, as you can tell from Minister Paradis' testimony yesterday at the Senate.
So on the one hand, they thought one way to do that was to lift the foreign ownership rules for small players. If that's the goal, then we say, okay, let's treat all players the same, rather than create the two-tier capital structure. That's one example of asymmetry.
The government also wanted, based on the statements of the minister and the policy, to ensure incumbents could continue to bid on spectrum and continue to invest massively, as we have. That was addressed by allowing us to bid on the upcoming spectrum auctions. We certainly don't quarrel with that.
The third thing the government wanted to accomplish was to make sure there was investment in rural areas.
And I don't quarrel with any of those objectives. But the one gap was the way it was done. If you have 10% or below revenue share, there are no foreign ownership restrictions, which means a company like AT&T, which obviously today has zero revenue share, could come in from scratch. It's a massive organization with—
Mr. Simon Lockie:
Thank you. It's a fair question.
The short answer is that the capital invested at the early stage of this company's history—which is actually Orascom, which has since been acquired by VimpelCom, was intended to be short-term, very expensive capital with a view to bringing on third-party capital. To a limited extent, we've been successful, doing that with vendor financing and so on. The challenge is the terms and the cost of that capital.
It's very simple once you've lived it for a while, but appreciate—you have to understand that the more expensive your capital is, the more challenging it is to make a return on that investment. As that becomes less palatable, you have more trouble bringing in that capital.
The way I would characterize it is that we had a compelling investment proposition at the early stage, given that there is an enormous opportunity in Canada because there has been no competition for so long that is desperate for it, and we want to be that fourth national alternative.
We were able to raise capital on that basis. However, continuing to do so is simply not feasible. We're talking about massive amounts of capital, and that’s the issue.
Mr. Randy Hoback (Prince Albert, CPC):
Thank you, Chair.
Thank you, gentlemen, for being here this evening.
I come from Saskatchewan. SaskTel has a general excitement about this auction because the type of megahertz—the 700 MHz scale, what it can do, how it can penetrate the rural areas of Saskatchewan—is substantial, if not huge.
I know they're very excited in trying to figure out how they can participate in the auction. They're very excited to see this move forward because they want to get established and get moving fairly quickly too.
One things talked about in Mr. Paradis' March 14 speech was the sharing of towers and the sharing of roaming.
I'll start with you, Mr. Bibic.
One of the complaints that I have, coming from Saskatchewan, is that we've seen some companies are more than happy to set up services in large centres, where there's a population, but not so happy to do it in areas where there is less population, but there’s growth because of mining, because of other activities going on in the region.
When it comes to tower sharing, what do you see...?
What steps will you guys be taking to improve the wireless service in rural Canada, and how do you view the tower-sharing policy that's coming forward?
Mr. Bruce Kirby:
There are two issues around getting to any of these rural areas. One is having the capital to build out the network and make the investment, and the second is having the spectrum.
Mr. Bibic keeps talking about how they rolled out HSPA to 94%. They did so on spectrum that Bell received, not through an open auction, without any competitive process whatsoever, which is the 800 MHz spectrum they were granted by virtue of being an incumbent phone monopoly. They can use that because it's this spectrum that allows you to build out efficiently those rural areas.
That's why it's been so critical in this debate around the 700 MHz option, because this is the first time there's an opportunity for a competitor to those incumbents to get hold of spectrum that actually allows you to economically build these rural areas. With the spectrum all of us hold now, you can build into other cities and to some of the suburban areas, the smaller towns, but the actual rural areas you can't build as economically as you can with the spectrum that the incumbents are already using and have had for 25 years.
Mrs. Cathy McLeod (Kamloops—Thompson—Cariboo, CPC):
Thank you, Mr. Chair.
I have to make a quick observation. The back and forth of the smaller and larger proponents is not unlike politics, in terms of what we get to enjoy on a regular basis. It's a very different debate, but I think you're bringing to the table very important perspectives, which I appreciate.
Mr. Coles, I represent a rural riding, but even if you are only representing an urban riding, one of the biggest complaints all the time is the cost. One of the things we're trying to do is move towards competition. I understand that the costs, even in our urban areas, are very significant.
Do you believe Canadians should pay lower prices for their access, and why or why not?
Mr. Simon Lockie:
I don't want to hog the mike, but I'm happy to speak to it.
In my view, you've already started to see the impact of competition. I could sit here and argue that competition creates lower prices and more innovation. I don't think that's even debatable. I think people recognize that, so I won't spend a lot of time on it.
I will say that even with our modest presence in the market since late 2009—we have about 450,000 subscribers and we're in five major urban centres—we're already seeing a dramatic price impact. That is the tip of the iceberg.
On the way it works—and it's very simple to think of it this way—once you've established a real network footprint and a retail presence, the incumbents look at that. They have an ARPU, average revenue per user, at around $57 or $60 per user. Our ARPU is down around the $27 or $28 range. So you do the math. If they want to compete with us once we get a level playing field, they will have to come down in price.
That terrifies them, because every dollar of ARPU they go down costs them about $500 million in enterprise value. There's no amount they won't spend to stop that competition, slow it down, and continue with the kinds of obstacles that have allowed them to establish themselves as an oligopoly. The foreign ownership rules are the primary one.
Ms. Hélène LeBlanc (LaSalle—Émard, NDP):
Thank you very much.
As a member of the Standing Committee on Industry, Science and Technology, I would really like to have heard you speak at that committee, rather than at a finance subcommittee, to do a truly in-depth study of this telecommunications issue.
In the government's deliberations that led to the rules that govern this auction, it would seem that there were issues that, first, as has already been mentioned, were intended to increase competition to lower prices to consumers. That would seem to be one objective.
Also, I think that any good government that represents not just the urban areas, but also the rural areas, must have another objective. The regulations governing the next auction should contain incentives for companies so that they can be deployed not just in rural areas, but remote areas as well.
Do you think the rules that are currently in place attain these two policy objectives?
We could start with Mr. Kirby.
Mr. Simon Lockie:
Very quickly on that, the reality is I don't think that the recently released policy will achieve anything in respect of covering areas that don't already have coverage. That's by definition because the so-called rural build requirement requires you only to cover your existing HSPA Plus footprint. That's just a straightforward description of what the policy does.
I want to be clear that Wind Mobile going up to the policy was on record in the media and when meeting people in Ottawa as being in support of meaningful rural build-out requirements. It's a cost that you incorporate into buying the spectrum. If buying the spectrum required you to set a big pile of money on fire every month, that would be incorporated into the cost of the spectrum, the difference being that it doesn't achieve any policy objectives.
We were on record saying we support those types of restrictions. Now, having said that, I just want to observe that, in my view, it's not the most efficient way to get a rural build going.
This is veering off topic considerably, in my view, from the foreign ownership question, which is about access to capital for smaller companies. That said, what I will say is that the types of measures would be that you require people to do it or you incent them to do it. The policy that was recently announced doesn't do either with respect to areas that don't already have coverage.
Mr. Simon Lockie:
Very quickly on that, I think a lot of people probably wouldn't think it was a bad idea if AT&T did come up here. The simple reality is that what we're talking about, what Mr. Bibic is talking about, is 5 MHz of comparative spectrum. They have close to 400 MHz of spectrum. AT&T is not rubbing its hands together at the prospect of trying to compete against Bell.
The other point I want to make is this. It would take us a long time, but I just want to be very clear. The economics are very different when you already have an oligopoly, when you already have a massive retail presence, when you have a 30-year head start. Just because AT&T has the money does not mean it's stupid enough to bid against Bell, Rogers, and Telus to get the extra block. It simply won't happen. Check it in 2013.
Mr. Mark Adler (York Centre, CPC):
Thank you, Mr. Chair.
I've been listening with great interest to this dialogue. It's a fascinating discussion. I'm reminded of when I was a young boy and I went to the butcher shop with my grandmother. She was going to buy a chicken. She picked out a chicken from behind the glass and told the butcher that was the one she would like to have. The butcher said, “You don't want that one. It has a broken leg.” She said, “I'm going to eat it; I'm not going to dance with it.”
Things aren't always as they appear. What I would like to know—and from the perspective of both Bell and one of the other companies, paint me a picture here, moving forward—is what this means, not as far as your companies are concerned, but for the consumer, in a best-case scenario and a worst-case scenario.
Let's start with Mr. Bibic.
Mr. Mirko Bibic:
The best-case scenario is that each of the national players obtains 700 MHz of spectrum. While my friends talk about how the three national players have a lot of spectrum compared with them.... None of us has 700 MHz, and 700 MHz is what we need to deliver national wireless broadband to all small towns and communities and to the large centres.
So the best-case scenario is that each of the three gets spectrum that they need in order to build national networks and compete against each other and the new entrants. Then—there's additional spectrum on top of that—the new entrants get the additional spectrum and they continue to offer competition. In terms of public policy, hopefully they extend to rural areas, because right now they're not there.
The worst-case scenario is what I indicated concerning unintended consequences in my opening statement, that through the loophole I mentioned, the large behemoths come in with no obligations and an advantage, and then they cream-skim Toronto and Montreal. Bell, Rogers, and Telus are then going to have to deploy all of their resources to compete in Toronto and Montreal and the rural areas are left behind for a very long time.
Mr. Bruce Kirby:
I could say it's the opposite of what he said.
The best-case scenario is that you create an ongoing, vibrant, competitive environment in the wireless industry in Canada.
Mr. Bibic's bogeyman of AT&T coming into Canada isn't bad for Canadian consumers. First of all, AT&T coming in, even if they bought up a whole pile of small players and grew to 10% of the market, would be 10% of the market against 90% for the incumbents. They would still be a tiny player, relatively speaking.
Being big in the U.S. or elsewhere doesn't make them big within this market, and what matters is how big you are within this market. T-Mobile in the U.S. is controlled by Deutsche Telekom, a bigger European carrier. It doesn't make them any bigger in the U.S.; it doesn't make them any more competitive in the U.S. If someone, whether they or anyone else, wanted to come in and make the investment and was able to get a hold of sufficient capital and sufficient 700 MHz spectrum, they would be going out to build up the rural areas, because you're ultimately going to want to have a network that covers those areas and allows you to compete with the incumbents.
The worst case for Canadian consumers is to go back to where we were in 2008, to an environment in which Canada was the only wireless market in the world in which the average price per customer went up. This was because you had three players who were well balanced in a cozy oligopoly and could protect themselves, and who were very careful, in their phrase, to maintain “rational pricing” all of the time.
That's what would happen.
Mr. David Coles:
First, you cannot, in my view, de-link or separate a telephone company from a broadcast company today; they are one and the same.
If there is an issue, for example, around culture, whether involving Newfoundland or Quebec, what would AT&T or any foreign company have as their driver to continue to develop Canadian culture?
So it's the issue about foreign ownership and their view of what Canadian culture or Canadian security is. One has to question, when you have.... They use the word “behemoth”, but in relative terms, Bell and Rogers are not behemoths in the world agenda; they're not the biggest telephone players by any measure. I for one think that for a key cultural issue in Canada, security in Canada, they should be owned by a Canadian company.
Mrs. Shelly Glover (Saint Boniface, CPC):
Thank you, Mr. Chair.
I'm going to try to correct the record as we go along here. Let me start by saying I believe that Mr. Bibic and I met the first time in 2008-09 when we were discussing this very same thing. I met with Telus and Rogers as well. When I first met Mr. Simms on the heritage committee, we were talking about the potential of this happening. I say that just to reiterate what Mr. Van Kesteren is pointing out. This is not a new discussion. This has been studied and studied. I've only been here since 2008.
I appreciate Madam LeBlanc taking part in the finance committee. She wasn't here in 2008, nor was she here in 2003. This is not a new issue. So let's get that straight right off the bat.
Mr. Coles, it doesn't wash when you say we ought to remove this. This has been studied forever.
In fact, the budget was released in March. We're now two months into studying the BIA. It's unheard of to have a private business study something for years and then to have the decision and then to study the decision for months before actually proceeding. So I'm sorry, but that just doesn't wash with us or with Canadians. Let's move on from there and talk about how we've actually effected some benefits for Canadians.
Again, Mr. Coles, you said there's no evidence to suggest that Canadians pay less as a result of the decisions made by the government, and that's who we represent: Canadians. We represent Canadians, and I love to see this competition, because I think it's great for Canadians. The proof is in the pudding. The proof is that there's 10% less being spent by Canadian consumers thanks to what was done by this government in 2008. And that has been studied. There is proof. We have the documents. So competition has proven to be very good for Canadians.
In my five minutes I did want to correct some of those things that were said.
I also have to correct Monsieur Caron, because in fact the rural and remote access was not the only thing that Minister Paradis mentioned. There were three objectives that the government had in moving forward with this. He's mentioned only one, and that was the availability of advanced services for all Canadians, including those in rural areas, in a timely manner. That was one of the objectives. Let me tell you that 98% of Canadians now have access to high-speed wireless services since we made these decisions to open up competition. So 98% is a great number. Again, this is all documented; all proof is available.
The other two objectives that have to be put on the record are that we also expect to have sustained competition in wireless telecommunications services and a robust investment and innovation in this sector. Again, I have to correct these things, because I don't want Canadians watching to be misled by half-explained measures, etc. I want them to get a really good picture.
Now there is one issue that has not been discussed. I know there will be some more questions coming from you later, but I am very interested in your positions on something else that's in this measure. That is the spectrum for public safety. I would like each of you to tell me very quickly whether you think that's the right measure. Do you think we're doing the right thing for Canadians by providing more spectrum to public safety?
Thank you, Mr. Jean.
I'm going to use the rest of Mr. Jean's time. I didn't want to follow up on the cost of capital issue because, as Mr. Van Kesteren said, this issue has been discussed for a long time. Our report of the industry committee back in 2003 recommended lowering it for all. But we have had two reports since then, as has been pointed out by witnesses, in terms of a TPR, and the Red Wilson report, which said we should do exactly what the government is doing in this budget bill.
Mr. Bibic, you referenced not setting up two tiers of capital. The argument of the new entrants, plus the argument of the Red Wilson report and others, is that there is a two-tier capital structure now. Bell, because of its size, and Rogers and Telus have a cost-to-capital structure, and new entrants have a cost-to-capital structure that is higher. So that's the essential argument they are making. That's what the government is acting upon.
If I could, Mr. Bibic, perhaps get you on the record in terms of responding to that, and then maybe Mr. Lockie responding to Mr. Bibic, I would appreciate it.
I call this meeting back to order. I want to thank our witnesses for waiting patiently. There was a slight delay caused by the vote earlier.
We have eight witnesses here, two by video conference. I'll list them in the order they will present.
First of all, we have Professor Len Zedel from Memorial University of Newfoundland. From the Agriculture Union, we have the national president, Bob Kingston. From the C.D. Howe Institute we have someone familiar to us at the finance committee—Philippe Bergevin used to work for our committee. From Consumer Health Products Canada, we have the president, David Skinner. From the Canada Organic Trade Association, we have the executive director, Matthew Holmes. From Nalcor Energy, we have Richard Wright.
By video conference from Anchorage, Alaska, we have Professor Richard Steiner. By video conference from Toronto, from the United Steelworkers, we have economist Erin Weir.
We'll have you present for up to five minutes in the order that I read the names.
We'll start with Professor Zedel, please. You have an audio clip for us, I believe.
Professor Len Zedel (Memorial University of Newfoundland, As an Individual):
Yes. We'll get to that in a second.
Mr. Chairman, committee, thank you for the invitation to present here. By introduction, I'm a physics professor at Memorial University, and my research areas are physical oceanography and sonar systems. My goal is to provide a bit of background to inform the deliberations of this committee.
To describe seismic systems a bit, they use sound to probe beneath the ocean floor. The sound sources are impulsive and loud. They're louder than normal physical sources of sound in the ocean, save perhaps lightning strikes and earthquakes. They're certainly louder than any biological sources—louder than shipping noise.
It's hard to describe what these sounds are like. There are discussions of so many decibels and things like that, so I thought it would be useful to play a recording. This is my little sound bite. This is from the south coast of Newfoundland.
That's a seismic shot. It's from a ship that is about 15 kilometres away from the recording. Seismic surveys like that would go on for weeks at a time, and those shots are fired, nominally every 10 seconds; it depends on the exact details.
I should recognize Dr. Jack Lawson, from DFO, for providing me with that recording.
With regard to the impacts, there are acute impacts on animals from these sound sources. Animals within a hundred metres can suffer physical damage, hearing loss. That effect is restricted to within about a hundred metres or so. So that restricts the overall impact of that kind of effect.
Much more of a concern is the chronic exposure, because that sound will propagate for easily a hundred kilometres in the ocean, both because it's so loud and because sound propagates so well. Whales certainly react to seismic survey vessels. It's recently been demonstrated that they have stress response to chronic noise.
There's also an economic twist to this, because fish catch rates have been noted to decrease in response to seismic surveys. There's anecdotal evidence that crab and shrimp catch rates off Newfoundland have been decreased due to seismic surveys, so that implies an economic consideration here. In Newfoundland, the crab and shrimp market was worth somewhat less than $500 million last year; that's an industry that carries on year after year.
There are mitigations that the industry applies to these systems. Most of them target the acute exposure. They rely on visual observers to spot endangered species within about 500 metres of the survey vessel. Because they rely on that visual observation, they don't work at night. They don't work well in fog or rainy conditions, which are known to occur on the Grand Banks.
Surveys can also be timed to avoid critical times for biological processes, critical migrations, things of that sort, but that happens to occur in the summer in Newfoundland, and that also happens to be the time that's most suitable for seismic surveys.
Mr. Bob Kingston (National President, Agriculture Union):
Good evening. My name is Bob Kingston. I am the national president of the Agriculture Union.
Before going on a leave of absence to serve as an elected union officer, I spent 25 years as a CFIA and Agriculture Canada inspector, including 15 years as a multi-commodity supervisor.
For the Agriculture Union, two themes emerge from the amendments to the Seeds Act and the Health of Animals Act proposed in Bill C-38.
The first can best be summed up by quoting the British statesman and philosopher, Edmund Burke, who once said that those who don't know history are destined to repeat it. Let me explain.
Bill C-38 would amend the Seeds Act to privatize the seeds program, including inspection. The CFIA president will issue and revoke licences for private companies to whom this responsibility is handed off. This presumes that the CFIA will be in a position to set standards for these companies, and enforce those standards through oversight, except as in this case, CFIA often designs systems without considering the resources required to properly monitor the systems they put in place.
For example, we can look at the Maple Leaf Foods listeriosis outbreak in the late summer of 2008. The Prime Minister appointed Sheila Weatherill to find out why the outbreak occurred and to recommend ways to prevent another.
Just before the outbreak, the CFIA had implemented a new inspection system called the compliance verification system, or CVS, a fact that was central in Sheila Weatherill's report. Let me quote what she had to say about CVS. The CVS was “implemented without a detailed assessment of the resources available to take on these new tasks”. She also found that the CVS was flawed and in need of “critical improvements related to its design, planning and implementation”.
Ms. Weatherill recommended that the CFIA make sure that its resources and inspection processes are in alignment; in other words, make sure you know how many inspectors and other resources you need to make your systems work properly.
With all of the positions being cut at CFIA, they simply do not have the resources to take on the oversight required by the proposals in Bill C-38, especially when you consider the other new systems the agency is currently developing, also without regard for available resources.
For example, the agency is putting in place a new regulation to license all food importers. This may or may not result in safer imported food, but without additional resources to monitor compliance and enforce standards, we'll never know. Regulations without enforcement capacity are worse than no regulations, and the new licence system may become little more than an unattended paper exercise.
As Mr. Burke would advise, remember the lessons of the Maple Leaf outbreak when considering new systems at the CFIA. There are many examples like this, but none more serious than what happened at Maple Leaf, which was pretty serious.
However, time is short, so I'll move to the second theme, which is the secrecy around the decisions related to the budget.
Changes at the CFIA arising from the budget were decided in secret. This was unfortunate because many senior managers at the agency have little expertise or experience in the industry they regulate, meaning that the wisdom, knowledge, and experience of their front-line experts would have been invaluable in making those decisions. Without that expertise, decisions were made that could have serious consequences. Let me give you an example.
Because of budget cuts, the agency has decided to close its plant quarantine facility at Saanich on Vancouver Island and move the operation to Summerland, in the heart of the wine and fruit industry in the B.C. interior. If made in the open, this decision would have raised red flags among those involved with plant health or fruit production in B.C. Even the expert industry-government advisory group, the British Columbia Plant Protection Advisory Council, was not consulted, and still hasn't been.
This is a post-entry quarantine station where plants are grown for years while being checked for diseases before being released into the regular production environment. South Vancouver Island is a good place for it because of its natural isolation characteristics. This decision will put potentially diseased plants in the middle of one of Canada's richest agricultural regions.
In addition, the Summerland facility will have to be expanded and land purchased, costs that will offset potential savings. As well, the current site cannot be sold by the government as it is locked up in aboriginal title.
We have other concerns about the proposed amendments to the Health of Animals Act, as well as several other things going on right now in the agency, but time is short, so I guess I'll have to hope there's a question.
Mr. Philippe Bergevin (Senior Policy Analyst, C.D. Howe Institute):
Thank you, Mr. Chair. Thank you for giving me the opportunity to appear before you today.
My name is Philippe Bergevin. I am a senior analyst at the C.D. Howe Institute. My remarks will focus on a slightly different topic, at the committee's request. I have prepared some observations on the Investment Canada Act.
I will be making my presentation in English, but I will be pleased to answer your questions in both French and English.
To start, I'd like to offer some specific comments on the amendments contained in division 28 of Bill C-38, which relate to the Investment Canada Act. Overall, I believe the measures are positive, although perhaps they do not go far enough. The measures that are aimed at facilitating the disclosure information related to the act are definitely welcome steps. Increased transparency enhances predictability in the application of the act, which obviously is positive for both investors and the public at large.
I do, however, see some potential unintended consequences with respect to the proposed powers for the government to accept securities against potential fines imposed on foreign investors. While this amendment will enhance the credibility of the commitments made by foreign investors to the government, I believe they will have, to some extent, a chilling effect on some foreign investors. If they were to become common practice, it would, frankly, perhaps raise some red flags in the case of some investors.
I think that's going to increase the level of transparency further in terms of the act itself. There are still no formal requirements for the minister to disclose publicly the reasoning for rejecting an investment, in particular if and when a foreign investor eventually withdraws their application. It's important for the minister to articulate his or her reasoning when turning down an investment, and even when accepting an investment, because it builds an inventory of decisions that can help clarify the legislation and therefore the understanding of potential investors. Disclosure also helps the notion that the review process is not unduly politicized, but rather based on sound principles.
There are also, in my opinion, further opportunities to clarify aspects of the act through the use of guidelines. The criteria used under the act are inherently subjective and unpredictable in their application, so the increased use of guidelines helps provide more guidance on the government's interpretation of the act.
More fundamentally, however, I would respectfully submit that parliamentarians consider whether the net benefit test is the right question for Canada, in the same spirit as the Red Wilson competition policy review panel report. I think Canada should adopt a national interest test and scrap the current net benefit test. What does that mean in practice? It simply means that you move the burden of proof from the business to the government, so it requires the federal government to invoke important public policy reasons such as national security, or cultural policy, for instance, to block a proposed investment.
There are already some similar concepts in the act, but such public policy reasons would become the main building block of the act under national interest tests. Such an approach would be more consistent with the view that there are positive benefits, on average, associated with foreign investment, while recognizing that in some limited circumstances there are valid public policy reasons that could be invoked to deny a foreign investment proposal.
To conclude, while the amendments before you in regard to enhanced transparency regarding the Investment Canada Act are, in my opinion, positive steps, there's an opportunity to adopt a test that would recognize that in most instances foreign investment is beneficial for the Canadian economy, while making sure that the federal government still has all the latitude to uphold important public policy objectives.
Mr. David Skinner (President, Consumer Health Products Canada):
Thank you, Mr. Chair and members of the committee, for allowing me the opportunity to speak today about Bill C-38, the Jobs, Growth and Long-term Prosperity Act, on behalf of the consumer health products industry.
Consumer Health Products Canada is a national industry association representing manufacturers, marketers, and distributors of consumer health products. The association members, who range from small businesses to large corporations, account for the vast majority of sales in this $4.7 billion market. Our members' sales are equally proportioned between natural health products and other consumer products, including sunscreens, allergy medicines, upset stomach remedies, and so forth. Our association has been the leading advocate for the consumer health products industry and for self-care for more than 115 years.
Division 19 of part 4 of Bill C-38 contains proposed amendments to the Food and Drugs Act that will lead to growth and innovation in our industry. Clauses 413, 414, and 415 would permit the minister to establish a list of prescription drugs and prescription drug classes. This list of drugs would be referenced in the regulations and amended from time to time. Products not on this list would be available to Canadians for self-care. Products for self-care are those that contain an ingredient switched from prescription to consumer health product status. Products that have been switched result in lower costs for publicly funded drug benefit plans, a reduction in physician visits for the purposes of obtaining a prescription, and a corresponding reduction in costs within the health care system.
Today, when an ingredient is switched from prescription to consumer health product status, an application containing the information necessary to demonstrate the safety, quality, and efficacy of the ingredients undergoes a full pre-market scientific review by Health Canada. Bill C-38 would not change this process one bit. Once Health Canada has completed its scientific review and approved the ingredient as a consumer health product, the active ingredient must be removed from schedule F of the food and drug regulations before a product can be marketed under the current system. This has resulted in delays of 14 to 24 months between the time when a decision has been made by Health Canada and the time when the product is available for Canadians to use. What is proposed by Bill C-38 would permit products suitable for self-care to be made available much more quickly to the public. It would provide incentives for the industry to conduct research and introduce innovative products for self-care, thus benefiting Canadians.
Consumer Health Products Canada fully supports the proposed amendments to the Food and Drugs Act contained in division 19 of part 4 of Bill C-38 and urges the Standing Committee on Finance to support these legislative amendments, which will lead to the growth of consumer products and provide health products of benefit to Canadians.
Thank you for your time and consideration of our perspectives. We look forward to answering your questions.
Mr. Matthew Holmes (Executive Director, Canada Organic Trade Association):
Thank you, Mr. Chair and honourable members.
I am very pleased to appear before you this evening as a representative of the organic sector in Canada. The Canada Organic Trade Association is the member-based organization representing the organic value chain, from producers and manufacturers through to retailers and exporters.
The organic sector is relatively new, but it is growing at a tremendous speed. The recently released Statistics Canada census of agriculture data showed that while total farms in Canada have declined by 17% since 2001, the organic farms have increased by 66.5%. So we now have approximately 5,000 certified operators in Canada, including handlers and manufacturers.
Our domestic market is worth over $2.6 billion per year, making Canada the fifth-largest world market for organic. Globally, organic sales are now valued at $59 billion per year.
In 2009, COTA welcomed the government's new regulations for the organic sector, controlling and defining organic claims in the marketplace and making the national standards mandatory. Subsequently, the government established progressive trade agreements through the world's first equivalency arrangements with the United States and the European Union, giving Canadian domestic certification and Canadian producers unparalleled access to 96% of the world market.
Although it's a quickly growing market, the organic sector in Canada still faces many challenges, including supply shortages, especially in seed. It's an impasse in which we are obliged to meet our regulated standards but have no formalized government mechanism or funding to innovate or respond to opportunity in those standards, which is similar to the issue Mr. Kingston raised. A particular risk to our business model is posed by the unmitigated introduction of prohibited genetically engineered products. This can cause our members to lose the organic designation of their product, with loss of market access.
On the current changes proposed in Bill C-38 pertaining to the Seeds Act in division 26, COTA notes that the role and authority of the president of CFIA are increased significantly. The proposed changes would give the president of CFIA the ability to grant licences to any person to perform any activity related to controlling or assuring quality of seeds, including sampling, grading, or labelling. Under the current legislation, the only other role described by the Seeds Act for the president of CFIA is the designation and oversight of inspectors.
It's important to note that the proposed changes, in our opinion, do not remove the powers of the CFIA inspectors, but may provide CFIA with the avenue to outsource review services for specific functions or aspects. That outsourcing could go to industry groups, private enterprise, or individuals, as far as we know.
I should note that the Canada organic regime is delivered via a system of third-party inspectors, accredited certifiers, and conformity verification oversight bodies enforced by CFIA and its inspectors. Therefore, I cannot speak against third-party delivery of certain services and functions that have regulatory oversight. However, without more details, which we don't yet see in Bill C-38, on who would qualify for such licences and how they would be overseen and enforced, it is prudent to caution that there could be an inherent risk due to lack of transparency, accountability, or neutrality. This is dependent on the limits and parameters established by the Governor in Council.
It's also feasible that this new role for the president of CFIA has the potential to enable external criteria or purity standards to come to bear on the introduction of new seed varieties. That could lead, for example, to the introduction of new genetically engineered seed that has been approved by a foreign government but has not been reviewed or assessed for environmental release in Canada.
Such a shift within CFIA and the Seeds Act certainly echoes sentiments expressed by the biotechnology sector calling for a low-level presence policy in Canada to allow unapproved events from genetic engineering appearing in shipments below a certain threshold to enter Canada without action or mitigation. But as you know, seed has a tendency to grow and multiply, so for the organic sector, the introduction of new GE seeds into our environment, without at least the check and balance of due process and review by government agencies, threatens the integrity of our quickly growing and high-value market. And this market, I'll remind you, is directly responsive to consumer preferences and concerns.
Thank you for your invitation to speak and your attention tonight.
Mr. Richard Wright (Manager, Exploration, Oil and Gas, Nalcor Energy):
Mr. Chair and committee members, thank you for the opportunity to speak here today.
I'm representing Nalcor Energy, the provincial energy corporation of Newfoundland and Labrador on the issue of proposed amendments to the Coasting Trade Act, amendments that we support.
We're at a time and place in Atlantic Canada where new exploration is necessary to grow the oil and gas industry and find Canada's future offshore oil fields. The Canadian offshore is under-explored relative to other competitive jurisdictions, leaving us with significant potential for future discoveries.
The exploration for new discoveries of oil and gas is a globally competitive business that is conducted in a highly technical, process-driven fashion. Canada competes for exploration investment against other areas of the world, such as Brazil, West Africa, Australia, the U.S. Gulf of Mexico, and the North Sea, to mention a few. Seismic data acquisition is one of the earliest phases of oil and gas exploration and one that plays a critical role in unlocking presently undiscovered oil and gas resources.
To decide in which region to explore, global oil and gas companies use data—in particular seismic data—to locate highly prospective regions on which to focus their exploration activity. In a global exploration portfolio, companies have the option to explore where appropriate amounts and quality of seismic data can effectively reduce their exploration risk, making high-quality seismic data essential to follow-on exploration activity.
In Newfoundland and Labrador, Nova Scotia, Norway, and many other jurisdictions, strong correlations exist between the amount of 2D seismic data and the amount of exploration drilling. Historically, in Newfoundland and Labrador, seismic data acquisition proportionally results in exploration drilling in the years that follow. This makes sense, because seismic data provides images of the subsurface, much like a CAT scan of the earth, and helps identify prospective targets for oil and gas drilling.
Any impediment to acquiring seismic data directly impacts the number of wells drilled, and consequently the likely number of future discoveries. The existing potential of our offshore industry in Newfoundland and Labrador is substantial. Our offshore sedimentary basin areas are larger than both the offshore United Kingdom and offshore Norway. While our basins are significantly larger, our rate of exploration and appraisal well drilling has been much lower, despite similar success rates per well.
Across the basins, the U.K. has a well density of approximately one well for every 139 square kilometres; Norway, one well per 461 square kilometres. Newfoundland and Labrador has one well for over 4,000 square kilometres. For comparison, the world-class Hibernia oil field, off eastern Newfoundland, is approximately 150 square kilometres, meaning that a number of new fields could exist in our existing sparse well coverage. This low historical exploration level is despite Newfoundland and Labrador's average oil discovered per exploration and appraisal well being in the range of these other jurisdictions.
While it's understood that the intent of the Coasting Trade Act is to protect Canadian interests, in its application on foreign-flagged seismic vessels this process is inadvertently working against Canadian interests by reducing our global competitiveness in exploration. This impacts two key areas of offshore exploration in relation to seismic data.
Many offshore discoveries in Newfoundland and Labrador were initially imaged through multi-client data, where a group of companies get together and share the risk and costs. The number of multi-client surveys conducted offshore of east coast Canada has been reduced significantly, because when objections raised about these surveys by foreign-flagged vessels are sustained, the surveys have rarely proceeded, using the Canadian-flagged vessel offered as a substitute. The cancelled survey means no data is acquired, no resulting wells are drilled, and no additional discoveries are made.
Since 2001, 34% of all seismic surveys by non-Canadian flagged companies have been objected to under the Coasting Trade Act. The objections create uncertainty in our jurisdiction for global seismic companies looking to acquire multi-client data, who then in turn direct their exploration investment activity to more healthy environments in other countries outside Canada.
Cabotage laws in the United Kingdom, Norway, the United States, and Brazil, to mention a few examples, do not impede the importation of foreign-flagged seismic vessels into their countries. The U.S. Jones Act, which requires not only U.S.-flagged vessels but U.S.-built vessels in many marine categories, also recognizes this technologically specific industry and allows for foreign-flagged seismic vessels to conduct surveys.
The value of the offshore development that results from offshore exploration, starting with seismic exploration, is important to Newfoundland and Labrador and to Canada. The nominal value of an average oil field discovered in offshore Newfoundland and Labrador would see about $12 billion returned in taxes on oil sales to Canada's federal government. These figures are based only on the corporate tax on oil sales.
In conclusion, to fully realize Canada's exploration potential, exemption of seismic activity from the Coasting Trade Act as proposed in the budget will help make Canada competitive with other resource jurisdictions around the world in attracting front-end global exploration investment to our country. Based on our past success in drilling and our vast area of under-explored basins, we feel that increased exploration activity will ultimately lead to new discoveries for the benefit of Canadians.
Professor Richard Steiner (Professor, University of Alaska, Conservation and Sustainability Consultant, Oasis Earth Project, As an Individual):
I appreciate the opportunity to provide my comments on that specific provision of Bill C-38 as well, the exemption for foreign-flagged vessels.
On its surface, it's not a bad idea per se, but I would caution with one caveat, and that is you have to have a very good government regulatory environment, plus good enforcement of that regulatory environment, to make sure it's as safe as possible. We had a good experience here in the United States just two years ago with a foreign-flagged, foreign-owned vessel that we thought was under good U.S. control. It's named the Deepwater Horizon. I think we all remember the catastrophic results of that. That vessel was flagged in the Marshall Islands and owned by Transocean. We thought the U.S. government was doing the proper job in regulating it; it wasn't. So we have to have very high controls in the regulatory environment here.
I'll make a couple of very quick, respectful recommendations for the bill or this provision of the bill. Number one, make it explicit in bill language that the exemption does not exempt the vessel from any Canadian existing or future regulations or laws. I think it's important that environmental regulations not be rolled back in any way in this bill. I think this bill is actually an opportunity, a good opportunity, to strengthen Canadian environmental regulation. I think that's in industry's best interest as well, as we found out here in the United States.
Secondly, I think this is an opportunity to improve Canadian standards. By the way, I would offer that in my opinion as a biologist, neither the Canadian standards for seismic mitigation nor the United States' standards are as good as we can do. We need to do better, and we must do better.
Thirdly, I would respectfully recommend that the bill ask the Canadian and U.S. governments to develop a bilateral agreement to make seismic mitigation and monitoring consistent across our borders, in the Atlantic, the Arctic Ocean, and in the Pacific. It makes no sense to have conflicting regulations and monitoring environments.
Finally, I would recommend that the bill suggest that the Canadian administration negotiate a seismic mitigation protocol at the Arctic Council to be trans-Arctic. I think Professor Zedel did very well in going over some of the very brief risks of seismic arrays offshore—and they are very real—so I will not touch on those here. I did provide the committee staff with a copy of notes, and you're all welcome to have those if you would like.
My principal issue is that neither the U.S. system nor the Canadian system are as good as they need to be in managing seismic shoots offshore. I've scanned the statement of Canadian practice on this, and, frankly, a 500-metre safety zone for seismic shoots is in and of itself insufficient. It needs to be a received level, a sound level for cetaceans, pinnipeds, seabirds, and fish. We know that impacts can go out to 50 or 60 kilometres on certain species away from seismic arrays, and the effects can be quite profound, particularly with continuous sound pulses over a long period of time.
There are a number of other things. In the transboundary radiation of sound, even though these guns are pointed down into the seabed, which is where they're targeted, there's a lot of horizontal radiation and propagation of the sound out to several hundred kilometres. If we are, for instance, shooting off the Alaska Arctic coast, the Beaufort Sea off the Canadian Mackenzie Delta is going to be radiated with sound as well. So we have to have some consistency and, I feel, a bilateral agreement to make it as safe as possible.
I think I'll stop at that. There are a number of other issues I touched on in my notes, and I would encourage all of you to take a look at those.
I would be delighted to answer any questions.
Thank you very much.
Mr. Erin Weir (Economist, United Steelworkers):
Thank you very much for having me, and thanks very much for accommodating me via video conference.
I've been asked to speak about changes to the Investment Canada Act in the omnibus budget bill.
My union's perspective on foreign investment has very much been shaped by our recent experiences with multinational corporations. Specifically, we represent the employees of the former Inco, Stelco, and Alcan. All of these Canadian companies were taken over by foreign companies that made Investment Canada Act commitments. Shortly after these takeovers occurred, the new owners, Vale, U.S. Steel, and Rio Tinto, demanded huge concessions and pushed very aggressively for those concessions from their Canadian workers.
I would draw the committee's particular attention to the situation with Rio Tinto, because the former Alcan employees continue to be locked out in Alma, Quebec, as we speak. Rio Tinto is trying to replace them with contractors who would be paid half as much.
The United Steelworkers union is of the view that the current Investment Canada Act is not very effective in ensuring a net benefit for Canadians. We also believe that the Harper government has not been very effective in holding companies to their Investment Canada Act commitments.
Moving on to the omnibus bill itself, the main change it makes to the Investment Canada Act is to allow the minister to disclose reasons for accepting or rejecting proposed foreign takeovers. We believe this increase in transparency is a step in the right direction, but it does not go nearly far enough.
First of all, the act would allow disclosure, but it would not require disclosure. The minister would still have a great deal of discretion to withhold information from the Canadian public. We believe that it's actually quite important to disclose not just the reasons for decisions but also the commitments foreign companies have made to gain approval under the Investment Canada Act. That disclosure would allow Canadians to hold investors to those commitments and to know whether the commitments have been violated.
More fundamentally, we believe that the Investment Canada Act review process needs to be opened up before a decision has been made. It's not just a matter of transparency about a decision after the fact. We need to really open up the process to allow workers and workers organizations that are likely to be affected by these foreign takeovers to actually provide some input and some response to proposed takeovers.
Moving a little bit beyond the omnibus budget bill itself, the government has indicated that it plans to make another change by regulation, and that change is to raise the threshold for proposed takeovers to be reviewed under the Investment Canada Act to $1 billion.
Our concern about this is that we believe recent evidence and recent experience argues for greater scrutiny of proposed foreign takeovers, not less scrutiny. Raising the threshold would basically have the effect of exempting a whole new tranche of foreign takeovers from any scrutiny at all under the Investment Canada Act. We would see this increase in the threshold as a move in the wrong direction.
To summarize, we're very much concerned about foreign takeovers. We believe the omnibus bill takes sort of a baby step in the right direction in the area of transparency but doesn't go nearly far enough in improving the Investment Canada Act. We would also note that outside the omnibus budget bill, the government has stated that by regulation, it intends to make a change that we see as a step in the wrong direction.
I would also like to briefly respond to a point my colleague from the C.D. Howe Institute made about the need—
Ms. Peggy Nash:
Thank you very much to all of the witnesses.
I want to start off by saying to each of you that you're all experts in your field. You're given five minutes to present here tonight, and we each get five minutes of questions to you, including answers. It's a bit jammed.
One of my colleagues on the committee was saying that many of these issues have been studied many times over the years, but in this particular Parliament, for many of the 308 elected members who are now representing Canadians, it is the first time they are dealing with these issues. So to truly represent their constituents...we feel there is so much jammed into this bill.
Tonight, of course, we're dealing with the Coasting Trade Act and offshore seismic surveys, food inspection, Investment Canada, the Food and Drugs Act, the Seeds Act, and of course we've been dealing with many other topics over the last few days.
I regret that we're not able to fully examine each of the areas in which you have expertise, but we do appreciate you being here this evening.
I'd like to begin with Mr. Steiner and your comments. We've heard from Dr. Zedel regarding offshore seismic surveys, and Mr. Steiner, you talked about the Deepwater Horizon and the inadequate regulation that ultimately led to a climate disaster and a disaster for the U.S. economy, and certainly for the environment and for the people who were affected.
Can you give us a sense of the economic impact of that disaster? What kind of regulatory action did the U.S. government take to try to prevent a similar disaster from happening again?
Prof. Richard Steiner:
I appreciate the question. That could take many hours.
We learned our lesson the hard way with Deepwater Horizon, as we did 23 years ago with the Exxon Valdez , right here in Alaska. We got tanker shipping fixed after that, by and large, but we did not fix offshore drilling and the risks imposed by that. We learned the hard way.
We are hoping that Canada does not have to likewise learn the hard way. Seismic exploration can cause a lot of both acute and chronic long-term injury.
You asked about the economic implications of Deepwater Horizon. They were obviously enormous. It was the largest accidental oil spill in human history. BP, I believe, has already paid out something like $30 billion to $40 billion U.S., and they are faced with another $20 billion or so in natural resource damage claims. So it's going to be—before it's all said and done for BP—a $50 billion or $60 billion bill.
I would certainly encourage Canada to review your financial liability statutes with regard to exploratory drilling. It's important to note that the Deepwater Horizon was engaged in exploratory drilling. It was not a production facility. There's a greater risk in deep water exploration.
I hope that's responsive to your question in the short time we have.
Mr. Randy Hoback:
Thank you, Chair.
Again, I'd like to thank the witnesses for coming this evening and being part of this very important process. What you say does have an impact on how we go through...and the implementation of the budget is a very important matter for Canadians as a whole.
I come from the province of Saskatchewan. In the last five years the province of Saskatchewan has gone through tremendous change. It's gone through a tremendous amount of growth. It's seen policies that have created growth. It's the only province in Canada that has balanced its budget. It has a premier who has allowed business to flourish, who has encouraged growth, and who has gone around the world trying to get employees. He was just in Ireland, trying to get employees from Ireland to go there, because we need specific trades; we need people to fill all the jobs that have been created.
In the early 2000s, when I was in Saskatchewan under an NDP government, we saw families moving out of Saskatchewan. Mr. Jean probably enjoyed that year, because in his riding everybody who worked there was either from Newfoundland or Saskatchewan. Now I know a lot of Saskatchewanians are moving back home and joining their families. I find it really interesting.
Mr. Weir, I'm going to direct this to you. You've been quoted as saying that Premier Wall is fanning the flames of western alienation because he dared to speak out against NDP Leader Thomas Mulcair's attack on the Saskatchewan resource sector. I'm just baffled by that. First, Mr. Wall did not start this debate; it was Mr. Mulcair. Mr. Wall was just defending the growth that's happened in Saskatchewan. I'd also like to point out that the growth in Saskatchewan has had tremendous spinoff effects right across Canada.
You can't honestly say we'd be better off without a strong resource sector. Is that what you're saying?
Mr. Randy Hoback:
The reason I ask this, Chair, is when we bring witnesses here we take them very seriously, and their credibility is very important.
I'm looking at this witness and I'm saying this is not a credible witness. This witness is not necessarily speaking on behalf of the economy; he's speaking on behalf of the NDP of Canada or the NDP in Saskatchewan. So how do I take what he tells me and give it credibility when I see garbage in what he's put in previous articles?
When you start talking about the implications of the budget implementation act, how can I stipulate, when I look at your history...? You're criticizing Saskatchewan. You're criticizing the premier of Saskatchewan. You've blamed Saskatchewan's growth for creating unemployment in Ontario, which is totally false.
So how do I take you as being credible when you talk about other aspects of the budget?
Mrs. Cathy McLeod:
Thank you, Madam Chair.
I also would like to thank the witnesses for some great testimony here today.
Mr. Steiner, you said something that I found absolutely fascinating when you were talking about some of the challenges you had in the past. What I also heard you say, in terms of the Exxon Valdez, is how you actually solved that problem. Was that the actual quote, that you had solved the problem in terms of that issue?
Can I tell you a little bit first...and then maybe get your perspective? In this budget, absolutely, the safe movement of oil tankers is really important to the government. What we've included is some new regulations to enhance the existing tanker inspection regime by strengthening vessel inspection requirements. We have created new regulatory frameworks related to oil spills and emergency preparedness and response. We've done a review of handling processes for oil products by an independent international panel of experts—tanker safety experts. We put $35.7 million to further strengthen Canada's tanker safety regime, to support responsible development, and some additional things.
Again, I don't think anything can ever be absolutely 100% risk free, but these are, I would believe, very important measures that will minimize, to the greatest degree possible, the movement of tanker traffic. Would you agree with that?
Prof. Richard Steiner:
It seems, Madam, that everything you mention there is absolutely critical to reducing the environmental risk from tanker transport of hazardous substances such as oil. I would encourage the Government of Canada—and I think you have done this in many ways—to look at additional measures for prevention of tanker casualties. That's where we got it right in Prince William Sound, Alaska, where I lived for 15 years, both before and during the Exxon Valdez
Basically, you look at the adequacy of the ship. In OPA 90 we made the double-haul tanker requirement in the United States. I believe the IMO has done that globally. The adequacy of the crew and the adequacy of vessel traffic systems and monitoring are important. We have twin-tug escorts escorting every laden tanker out to the ocean entrance.
There are many things that can be done to reduce the risk. You're right, we can't get it to zero, but we can get it down as low as possible by incorporating the best available and safest technology.
I would encourage the entire committee to come visit us in Prince William Sound, Alaska, to see the tanker transport system that's in place there.
Mrs. Cathy McLeod:
Actually, that sounds like a great idea.
Thank you. I appreciate it, because it sounds like you have really had to deal with it right upfront and have recognized how much can be done to really mitigate it to almost nothing.
With the little bit of time I have left, I want to maybe focus in on Mr. Skinner. I was actually part of the red tape reduction commission that travelled across the country. We heard a number of stories, in terms of all sorts of issues that small businesses face, but certainly in this bill we've addressed some of the issues you're talking about today.
For the benefit of some of the people on the committee, could you actually give us specific examples? I was witness to specific examples of what was happening. Can you talk about a couple of products? It might resonate with the folks who didn't get to hear those examples.
Mr. David Skinner:
Sure. One of the most common ones that almost everybody would know about happens to be a natural health product. It's nicotine replacement therapy—nicotine patches and gums. It took years for the government to gather enough information about the safety, quality, and efficacy to make a decision on whether a doctor's prescription was really needed each time or whether lower doses could be made available for consumer use.
Just that switch alone—there's lots of data in Canada and elsewhere. In fact, the U.S. just did a study on the economic impact: $2 billion in annual savings to the health care system because consumers can now use this product without having to see a doctor. It reduces morbidity and mortality in terms of smoking. The impact on chronic disease is incredible. It's a strong public health outcome.
If we had had this measure in place at the time that natural health products like nicotine replacement therapies were going through, consumers would have seen it two years earlier. The savings to the system would have accrued two years earlier. It would have been a tremendous boon.
In the most recent data, the 2011 health care costs, take a simple ailment like the common cold that people say is minor but still see a doctor for. If only 16% of those with a minor cold were actually doing something more for themselves, the savings cost would be enough to give 500,000 Canadians access to a primary care physician that they don't have right now. The impact of self-care is huge.
Mr. Wayne Marston:
Mr. Kingston, are you now or have you ever been a member of the NDP? I'm just kidding. I just couldn't resist that one. We have to lighten up.
The problem is that we have a wealth of expertise here that we can't begin to tap into even when we're not squabbling among ourselves.
Sir, the president of the CFIA is going to have the power to issue licences to external people.
Mr. Holmes, you might want to get in on this, too.
We're concerned about what impact that could have. Do you have a sense of the types of qualifications that should be there? Is there any evidence that they are there to protect our environment and our crops?
Mr. Matthew Holmes:
Thank you for the opportunity.
As I said in my remarks, we don't have a position against third-party delivery per se, but I think there's quite a strong onus in the regulatory support structure that comes after this act, to actually put in place roles, responsibilities, oversight, enforcement, all of the actors involved, what form of accreditation or ISO they must meet in order to play that role, and specifically what they're there to do. I think Mr. Kingston's points of maintenance and the funding to maintain the standards and the oversight system, and the oversight and enforcement efficacy of that, are very essential in this.
Mr. Dave Van Kesteren:
Thank you, Chair.
Thank you, everybody, for appearing and staying so long.
Mr. Kingston, I have a question. I'm going to ask for an answer, and I'll ask the chair if it's appropriate or if I'm following procedure if I do this.
In Ontario, and I think it would probably be safe to say in Canada, we have a small abattoir crisis. The little guys tell me they can no longer compete. There is so much red tape. There are so many regulations they have to follow.
I'm not going to sit here and suggest that we don't have safe...but the ironic thing is that the problems seem to crop up—and I think Maple Leaf is an example of that—in the larger abattoirs that can handle all the red tape. They have armies of people to help them with that, so they can do what's required. The little guy simply finally throws his hands up.
I guess the question I want to ask—and I have to ask it through the chair, if it's appropriate. We are actually asking you about the budget. We are a government. We are always looking for solutions. In your position, do you have some solutions for this government? I understand that it's not only federal; there's provincial jurisdiction there as well.
Chair, is it appropriate to ask for that, so we can have some—
Mr. Dave Van Kesteren:
That's all I'm going to ask you, to give this government some direction to save the small abattoir. What can we do as a government? Because it really is serious.
As I said, in my riding alone I can think of about three right off the top of my head, and there are probably more that have closed.
Maybe you could do that for me.
If I could shift, maybe I'll go to Mr. Steiner and to Mr. Zedel.
We're learning a lot about the oceans. I don't think there's a person in this world who watches our nature programs, sees those things, and isn't shocked by some of the abuses that we've inflicted on the animals in the ocean.
In a perfect world, would you allow seismic testing?
That question is for both of you. I'll let Mr. Zedel start because he's looking at me, and then we'll switch over to Mr. Steiner.
Prof. Richard Steiner:
I would say, as a biologist, that in a perfect world we would not allow seismic surveys in offshore marine ecosystems simply because these are extremely loud sound sources, 230 to 250 decibels, which are in the order of magnitude louder than being a metre away from a 747 engine on takeoff, if you can imagine.
These are extremely loud. They propagate for hundreds of kilometres. We know it has behavioural, physiological, and injurious effects on cetaceans, pinnipeds, birds, fish, etc. So in a perfect world we wouldn't. But I think my colleague, Professor Zedel, framed it correctly. This is not a perfect world. This is a real world, and that's the world the Canadian Parliament and government, and the U.S. government, have to deal with.
We use oil and gas. The question is, as consumers...the consumer is starting to ask to produce this product, explore for it, transport it, refine it, and use it in the most responsible way possible. That means there are some areas that should be left off limits, and the highest, best available technology standards should be applied to where and how we do this. We're not there, quite frankly, either in the United States or Canada.
Mr. Bob Kingston:
There are many aspects of what's going on with this particular budget that may, and probably will, affect consumers.
For example, the question was asked in CFIA that if we're not doing something for all other products, why should we do it for meat. It was about monitoring and targeting problem suppliers. The answer was simple, except they presumed there was no answer, so they went on to just cut it.
The answer is that meat is huge in volume and huge in risk. There's no food commodity that poses a more serious risk to humans than meat does. It's as simple as that. The program that was in place, which has been disbanded now, was never the subject of consultation with anybody, not to mention the Canadian public. That is one that puts Canadians at risk.
There is the issue of label verification, nutrition facts, etc. If you in any way need that information, for example, if you're diabetic or a celiac and you rely on that information for life and death decisions every day—those programs are all being cut.
I've heard them say they're not being cut, that they're still doing that, but if you talk to the inspectors, they haven't been doing it for two years. They were told to stop doing this two years ago, pending the evolution of this budget, which would can it forever. Again, it was not subject to public debate.
There are big concerns.
I'm not sure that the people who made the decision understand what they decided on. In fact, I reported recently about totally conflicting viewpoints between the minister and senior executives in CFIA. If what the minister said was correct, that's great, because he believed that these things weren't being touched. The senior executives of CFIA were going around the country telling all the staff the exact opposite as they were cutting them.
That's an issue. It's one of the reasons we asked for a meeting with the minister. I think he needs to know this stuff.
Mrs. Shelly Glover:
Thank you, Mr. Chair.
I would also like to thank all the witnesses. As Ms. Nash said, we are tired. We have been working on this for a number of days.
I would like to correct the record again. That's kind of my job here.
A couple of things that have been said by Mr. Kingston don't really portray the complete picture.
For example, the Canadian Food Inspection Agency has recently posted their annual update of staff numbers on their website. It shows clearly that there has been an increase of 32 people over the last year. Since 2006, when we took office, there's been an increase of 700 people.
Just as quite often another party in this place says 750,000 net new jobs somehow is a cut in jobs in this country, the math does not add up. I do have to correct Mr. Kingston because I think it's unfair when the whole picture is not portrayed.
Federal CFIA inspectors were doing provincial inspections, and now they are being transferred to be provincial employees. That is not a cut, which is what Mr. Kingston is suggesting in his numbers. That is a transfer of responsibility. There has been no change other than the transfer of responsibility. The federal CFIA inspectors are going to be provincial employees doing exactly the same job. That is not a cut. That is a transfer.
Aside from that, there has also got to be consideration for the fact that the export food safety certificates, which Mr. Kingston failed to explain, are as a result of a deal between Canada and the United States. We have accredited inspectors who do exactly the same work, who do exactly the same monitoring, who are accredited the same way. They both issue those certificates. One hundred per cent of the imports on either side are inspected exactly the same way by qualified personnel. Unfortunately, it's very misleading what Mr. Kingston has said.
Having said all of that, I thought it was very, very important when he said that money is important. I want to remind Canadians when it comes to the CFIA that $100 million was provided in the last budget for food safety, which unfortunately the opposition parties voted against. This year there's an increase of $51 million for food safety. We already have an indication that the opposition parties are going to be voting against that.
I did want to very clearly correct the record because it is not fair when only half the picture is portrayed.
I do want to talk about high-risk inspections as well, which is very important. When we're talking about meat, this government has done a lot of work to make sure that this is looked at. When it comes to inspections, they are risk based. That is how they are done.
A higher risk area, like meat, absolutely is going to have some clear and consistent and regular checking. In every slaughterhouse every single day there are inspectors. Not only that, inspectors were doing a check every day and then a veterinarian was double-checking, duplicating to sign it off. This government believes we ought to reduce some duplication, but we are going to ensure that those high-risk areas are continually monitored.
Then we have the low-risk areas, for example, when we're talking about dried, processed or canned foods, that kind of thing. They probably don't require the same extent of inspection as the meat.
Mrs. Shelly Glover:
It's important that I clarify this because that's the problem with people who have outside interests. I just ask that we be very clear about both sides of the story.
When we talk about third-party delivery, I appreciate that Mr. Bergevin said he doesn't take issue with that, as long as there are rules. The rules are there. The inspectors are accredited. There are no two ways about it. That is clear.
I also want to correct the record with regard to the size of the budget bill. Let's get to the facts. Bill C-10, which was Budget 2009, was bigger than this one. Bill C-9, Budget 2010, BIA number two, was 880 pages. Bill C-13, Budget 2011, BIA number one, was 644 pages. They were all bigger than this one. This is not unusual in any way, shape or form.
These studies are done over years. One of the witnesses mentioned that. I just want to make that clear so Canadians understand the full picture on some of these issues.
Mr. Brian Jean:
I think it's great too, to be honest, but it's great to have them in Alberta. It's really good to have a country in which we can have workers go back and forth between all the provinces and work with red seal certification, and in which they can take lots of money back home. I think that's awesome.
I would like to ask a couple of questions of Mr. Steiner, or at least confirm some things with him.
I had the opportunity to work on the environment committee here. I also believed in a perfect world at one time, and I almost finished my master's degree in environmental law until reality got hold of me and I ran out of money. I was planning on saving the world with things that I could do. Since that time I've realized that the reality is that we can have responsible development and protect our environment and wildlife as well. I want to let you know that from my time on the transport committee I learned that Canada has, in my mind, the best laws in the world to protect tanker traffic. I'd like you to comment on this, after I tell you some of the things.
The Canada Shipping Act, of course, is something that deals with it. We have three particular pieces of legislation that deal with it: the Arctic Waters Pollution Prevention Act; the International Maritime Organization, which of course we're a signatory to; and we have a requirement now that all large ships have to be double-hulled. I know that Mr. Weir would appreciate that, because of course they're made of steel and they take a lot more money and work and employ a lot more workers.
Including the double-hulled requirement, I want you to know that we have mandatory pilotage zones, especially on the west coast. We have professional pilots who are required to not only bring their own GPS and navigation systems but their charts as well. You know, of course, from what happened with the Exxon Valdez, that they had a broken radar for over a year, which is not acceptable. I think even the United States, in their new Oil Pollution Act of 1990, saw what was there, and they changed the laws tremendously.
But I want to tell you that we also require two tugs, front and back; we have a requirement to go at no more than 10 knots in certain areas; we have the strictest ballast laws in the world; we have a national oil spill preparedness with four different agencies that come forward in response when required; and we have a national aerial surveillance program that spots oil leaks. We also have agencies that follow those oil leaks and arrest the ships, be they foreign or otherwise. We require an annual inspection of domestic ships and also have a port state control inspection of foreign ships, which has to be done yearly as well, when they enter our area.
I just want to let you know that from my perspective, this and my background would indicate to me that this would be one of the safest areas in the world to transport ships.
Would you agree with me, based on the information I've provided to you and that Ms. McLeod has provided to you before?
I mean, nothing's perfect, but....
Thank you, Mr. Jean.
I want to follow up with one brief question with respect to division 38. I think both Mr. Jean and Mr. Adler have done a good job in terms of identifying the positives of division 38.
Mr. Steiner, I very much appreciate your respectful recommendations to our committee, and, Mr. Zedel, yours as well, that while you are not opposed to the division, you're saying that obviously we have to ensure that these vessels adhere to very good Canadian guidelines.
I have a quick question to Mr. Wright. Mr. Steiner has proposed that Canada and the U.S. develop a bilateral agreement and negotiate a seismic mitigation protocol. My view is that they would almost be separate from this legislation, but they are things the Canadian government could certainly pursue.
Are you in favour of these, Mr. Wright?