STANDING COMMITTEE ON INDUSTRY, SCIENCE AND TECHNOLOGY

COMITÉ PERMANENT DE L'INDUSTRIE, DES SCIENCES ET DE LA TECHNOLOGIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, November 6, 2001

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[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I now call the meeting to order on Bill C-23, an act to amend the Competition Act and the Competition Tribunal Act.

We're very pleased to welcome with us Professor Allan Fels, the chairman of the Australian Competition and Consumer Commission.

Mr. Fels, we want to apologize for our delay in starting. We had a vote in the House, and we have this new process, so I do apologize. But we're here now and we'd love to hear your opening comments, and then we have a number of questions for you.

Professor Allan Fels (Chairman, Australian Competition and Consumer Commission): Thank you very much, Madam Chair. It's a great pleasure and honour to be allowed to speak to you. Thank you for having me on video, because it has saved a few minutes on a plane trip over there.

I haven't any views on what Canada should do, but I can tell you about the position in Australia, and of course I do have views on the way in which Australia approaches this topic of private actions.

Let me outline the law in general terms, and then I'll say something about Australian attitudes toward it, something about how much private actions are used and by whom—small business, big business, and so on—and a few issues. I'll probably take about 10 to 12 minutes on this opening statement.

Our modern law began in 1974, and from the start it has had provision for private actions to be taken, both in relation to the competition provisions and in relation to the consumer protection provisions.

With regard to the competition provisions, we have a standard menu of competition law. That's matters like prohibition on price-fixing, misuse of market power, exclusive dealing that's anti competitive, mergers, and so on. We don't have criminal sanctions. That's one difference from Canada, but basically we have a fairly standard menu for competition law.

What has happened from the very start of this law is that there is a right of private action as well as a right of action by the public enforcement agency, the ACCC, which is very similar to your Competition Bureau. That means that anyone who has some kind of standing in a case can take action and can seek, in the Federal Court of Australia, orders in relation to alleged anti-competitive behaviour—that is, they can get an injunction to stop it, they can get damages, and they can get other sorts of orders. The main order that they can't get is fines or penalties. That's obviously left in the hands of the public body.

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There's just one other point I want to make about the Australian law. Regarding mergers and acquisitions, the position is a little different there, and in very broad terms, there's no right of private action to get an injunction to stop a merger. Only the public agency, the Australian Competition and Consumer Commission, can get an injunction to halt a merger.

If you were interested in the merger question at all, perhaps you could come back to that, because there are yet further complications in regard to mergers. There are some private rights of action. But for normal unlawful anti-competitive behaviour, it's possible for private individuals, whether they be consumers or business, to take action in the courts to block the behaviour, to stop it, and to get damages or other orders.

I should also mention that a very important factor in the background to this is the cost rules of the courts. Under our cost rules, if someone takes a private action and loses the case, they have to pay not only their own costs but the costs of the other side. The loser pays the costs of the winning side, and that of course has major effects on deterring people from taking frivolous actions.

We also do not have, in general terms, a system of contingency fees, so the incentives for lawyers are somewhat different given that if they win or lose the case, they get paid, but they don't get paid anything conditional on winning the case. That's broadly the position in Australia.

The other point to make is that we don't have the American system of treble damages. We just have ordinary damages, not in multiples.

That's a very basic outline of the Australian law.

Regarding attitudes toward this matter in Australia, it is simply not a controversial issue. The fact that this private right of action exists is not a contentious issue. There are many contentious issues, hotly argued about, in relation to our competition law.

If any of you care to sit next to me on a plane ride from Canada to Australia, I could fill the entire travel time with a litany of the complaints and concerns you hear from business people, big and small, from consumers, from farmers, from bureaucrats, from politicians, and yet others, about our competition law, but never once would the issue of the private right of action come up. It is simply accepted in Australia.

Just to back me up on that point, the Australian competition law has been raked over time and time again by inquiry after inquiry, in particular by a number of parliamentary inquiries. As well, we face each year the estimates committee, where everything about the act comes up. We also have a committee that reviews our activities during the year. The House of Representatives standing committee looks at us about once a year, and so on.

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None of the parliamentary inquiries has ever raised this question, has ever raised any concerns about the private right of action. Again, there have been some important official independent inquiries into the private right of action.

There's the Hilmer inquiry, the national competition policy review, which was extremely comprehensive. It did not question the right of private action. To the best of my memory, all the previous independent inquiries have not questioned the private right of action, let alone propose changing the matter.

Again, if I talk about the various interest groups that are constantly making suggestions for changing the law, none of them suggests we should get rid of private rights of action.

The biggest business lobby, the Business Council of Australia—that's for big business—the Australian Chamber of Commerce and Industry, the Council of Small Business Organisations of Australia, and countless others do not raise a question of the right of private action. They raise numerous other issues.

Again, if you talk to business people, they do not oppose the private right of action. So it has long been accepted as a normal part of the scene and one of the features of the act that people do not believe works badly. I believe they in fact think it works fairly well.

Let me say a few things about the use of the private right of action in Australia. Perhaps I could make a couple of preliminary comments to clear the ground in case you do get further information about the act.

There are, I'm sure, a couple of areas in which private rights of action are used in Australia that would be of little or no immediate concern to your committee, but they do have an effect on our statistics.

One of them is that Australia has some special laws in its competition law about trade unions. There's a prohibition on secondary boycotts. There is quite heavy use of the private right of action in regard to trade unions and secondary boycotts. Normally, if you're doing statistics on this subject, you exclude the quite numerous private actions that are taken in relation to trade union secondary boycotts.

I'm a little comforted in that remark by the fact that I've just consulted one of the few statistical sources of information on this subject, and I notice that the writer there excludes secondary boycotts.

I want to mention that the law is used quite a lot there. Also, it's used quite a lot in relation to the consumer protection provisions of our law in regard to misleading and deceptive conduct. Sometimes consumers, but more often businesses, will take action against one another for misleading and deceptive conduct. For example, supposing one business makes false comparisons between its prices and products and those of a competitor and they're wrong. Quite often there'd be private action.

Today I want to concentrate on the competition provisions. I can tell you that the law is used quite a lot. It is used by both big and small businesses. It's not just big business that uses this law, by any means. Indeed, the single, most important case in Australian competition law history was undertaken by a very small firm.

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If you open for ten seconds any book on Australian competition law, you would find that the most important case concerned Queensland Wire Industries versus BHP.

BHP is our big steel supplier. Basically, it cut off supplies. It refused to supply certain products for this very small retail competitor, so the retail competitor took BHP to court. It lost in the lowest court, it lost on appeal to the appeal court, but the matter went through to the high court. It won the case in the high court and established some extremely important precedents about the whole operation of this law in regard to refusal to supply, and when it was anti-competitive and unlawful and when it was not.

The only role the ACCC played was to make a submission to the high court about the case, but it was a private action.

The second most important case, probably, in Australian competition law just occurred in the last year. It was called the Melway case. This was quite an important decision, again, about a refusal to supply.

This particular business, Melway, supplies street maps and street directories in Melbourne. It has perhaps 80% of the supply of street maps in Melbourne.

It had five or six distributors. It cut off supply to one of those distributors and that person challenged the decision, and it was the reverse of the previous case. They won in the first court. It was appealed to the appeal court and they won there. The matter went through to the high court and they upheld the right of Melway to cut off supply to this particular distributor.

That is, again, widely seen as one of the leading cases in this area. And I know about that case.

We didn't hear anything about it. The person did not come to us with the issue. He went straight to the court, for his own reasons, and he didn't even seek our help, other than when it went into the high court. We were asked to make a submission as a friend of the court on some of the issues.

So the fact is that the law is used by businesses of all sizes, including small businesses, from time to time.

Regarding the Australian Competition and Consumer Commission, we are actually fairly active in enforcing and applying the competition law. I suppose after having heard those two stories, you might think, what do we do?

Actually, we have a reputation for being vigorous enforcers of the law or being more than happy to go to court and pursue litigation on all aspects of the Trade Practices Act.

We have had fairly reasonable budgeting over the years, but of course we are most interested in matters where we see there being some public concern. We are not very keen to spend money on cases, that is to say, public money, where we perceive the issue to be a private dispute between big businesses.

I will give you another case. About two years ago there was a major dispute between our two major media proprietors in Australia, News Limited, that's Mr. Murdoch, and PBL, that's Mr. Packer.

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These are very big businesses and both firms are very experienced litigators.

They had a major dispute about football, about who had the rights to run football competitions, in effect. They had a private case fought out between them in the Federal Court. Both parties were more than able to defend their interests, to apply all their resources to get all the evidence, and so on. And it seemed totally inappropriate for the commission to be spending public money to help such big businesses.

Likewise, our two biggest telecommunication companies had a very big fight over certain access questions, which I suppose you could also call them refusal to supply. Telstra is Australia's biggest company along with News Limited, our telecommunications former monopoly, and Optus is a giant multinational-owned company, and again, these two businesses were more than able to protect their own interests.

There were some fairly important public interest questions involved in both of those cases about the football competitions; obviously, nothing's more important than that. And then with regard to telecommunications, there were very important issues at stake between these two parties.

We also felt at the commission that the public interest questions would be more than adequately ventilated without us being involved, but we did have the right to make an intervention in these cases if we wanted to bring public interest questions to the attention of the court.

In light of that, one of the reasons why there is support for private actions in Australia is that they actually make the competition law more effective. We think it's important that there should be full compliance with competition law for the benefit of the public.

We don't believe business should be allowed to engage in any competitive behaviour. We believe that having a private right of action makes the law far more effective and achieves much better compliance, and ultimately achieves better results for consumers and for the many business customers who may otherwise be on the receiving end of anti-competitive behaviour. That factor is especially important at times when there are budgetary cutbacks.

There may be times when governments cut the budget for competition law. There may be times they do that to in some way punish them, or as a result of representations from business. Or it may just be that there are resource pressures on the agency, and so on. It's having the private right of action that keeps the law alive in those situations.

In addition, it does seem to us that the private right of action is very suitable for a lot of private matters. There are quite a few private disputes between substantial businesses, where one is being damaged by the anti-competitive behaviour of another. Yet our agency feels the matter is best seen, principally, as a private matter that can be resolved by the parties taking action against one another.

Of course, let me add that if there's an imbalance between the parties and one of them is very big and the other is very small and doesn't have resources, then we are prepared to take action on their behalf. And there are quite a number of cases where we have done that.

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Sometimes we will take the action, but there are quite a few cases where, even though it is known that our commission will take a private action, nevertheless, the parties prefer to take the action themselves. There are a couple of reasons for that. One is that often they are quicker to move than we are. Often they know exactly what they are complaining about, and they can get together the evidence and get into court much more quickly than we can. For this and other reasons, sometimes they believe they can protect their legal rights better through a private action. All of this gives the act something of a self-enforcing quality.

I should mention that sometimes these private actions do lead to very important public outcomes. As I have said to you, sometimes we think of a dispute as being pretty much a private one, but involving some form of unlawful behaviour. We keep out of it. The matter goes through the courts and an important precedent is established that is of real value to the public and business in understanding what the law is.

Frankly, there have also been some cases where our commission didn't get involved because it judged there wasn't a good case, and it turned out we misjudged the matter. We had another football case in Australia not so long ago called the South Sydney case. These are all, as you can imagine, national front-page headline matters compared to mere business topics. We believed the football team that was challenging the rules didn't have a case. They proceeded with the case, and to our slight surprise, so far they have been successful. So you can get experimentation, precedence, and correction for errors by the regulator.

Just to sum up this part of what I've said—and I'll wind up in just a minute—this part of the law is used fairly substantially, including by small business from time to time. There are many other cases when small businesses can't afford to take action.

On the question of whether you get nuisance actions, this is not the reputation of our law. We do not get sheer nuisance or vexatious matters. There are strong incentives not to take a case in Australia, because of the cost rules if you lose. But there is some technical use of private actions in order to affect the behaviour of the person on the receiving end. Maybe that's enough.

There's only one thing I kept in that locker that I'm saving up. I have a few numbers for you, a bit later on, if you like.

The Chair: Chairman Fels, we have a number of questions for you this afternoon. Just so you know the procedure, we'll have a question from a member—he'll have about five minutes for a question and answer—and then we'll move to another member of the committee.

We do appreciate you getting up this early in the morning in Australia to be with us this afternoon. You're a day ahead of us, so we believe you have a little bit of extra wisdom there for us in light of what's happening in this world.

Mr. Rajotte would like to have a question.

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thank you, Madam Chair.

Thank you, Professor Fels. I want to thank you very much for what you've done here.

There are two main concerns we hear at the committee about allowing private access. The first is that it will be used for strategic litigation purposes and will lead to excessive litigation, as it has in the States—even though what we're studying here in Canada is something slightly different.

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I was wondering if you could explain what safeguards are in place in Australia to prevent excessive litigation.

The second concern is that the cost for business in terms of employing the private right of access is prohibitive; therefore, it will certainly harm small businesses more to employ this than it would large businesses.

Could you address those two concerns from your perspective?

Prof. Allan Fels: Yes. Thank you.

On the first question about strategic litigation, excessive litigation, and what safeguards there are, there are a couple of safeguards, particularly in comparison with the United States, which you mentioned in your question.

The first is that the cost rules in the courts are a major deterrent to action. Unlike in the United States, if you institute a case and you lose it, it is costly. You pay not only your own costs, but also the costs of the winning side. So if you're a small business and you take on a big business and you lose, you pay the costs of all their lawyers.

There are some other incentives in the United States that are not present in Australia. We do not have treble damages. Also, generally speaking, we don't have contingency fees. As you know, in a contingency fee system, if you run a case and win it, your lawyer gets paid extra. If you lose it, the lawyer gets paid nothing. That probably encourages a lot of litigation in the United States.

Generally speaking, we don't have a contingency fee system in Australia. So again, if you lose the case, you have to pay the costs of your own lawyers, as well as those of the lawyers on the other side. Those things naturally ration cases.

The other matter is that if someone brings a vexatious case to court for tactical reasons, our judges see through that. They're not likely going to sit there and waste the time of the courts and public money listening to a case that clearly has no merit. So we have not had a history with private actions under our competition law of vexatious or ridiculous litigation.

Of course, I do not deny that from time to time you can accuse someone of running strategic litigation. I mean, all litigation is in a sense strategic; it's intended to affect behaviour. But it does so in the framework of a public law about competition. In other words, we don't think strategic use of litigation is necessarily that harmful in most cases, because it has the good effect of ensuring the competition law works, is applied properly, and is complied with.

The other issue you raised concerns whether the cost of the process is so prohibitive that small business won't get any benefit from it and big business might gang up against it.

In general, under the competition law you do not find big business litigation against small business for the simple reason that small business, being small, rarely engages in behaviour that is anti-competitive in the first place. The main source of anti-competitive behaviour is big business. So not surprisingly, you'll get some actions against big business, most often by us, but sometimes by small business, and not much action against small business by big business, because there is no unlawful behaviour. Occasionally it happens, but for the most part, the way the competition law works is if you're small, your behaviour would not equate to a lessening of competition.

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As I mentioned in my remarks, whatever you say about the law, the simple fact is that in Australia it is used by small business at least to some degree. There are plenty of cases where small business won't use the law because of the costs involved, but there have been important cases where they have used it.

The Chair: Thank you very much, Mr. Rajotte.

We're now going to turn to Mr. Lastewka, please.

Mr. Walt Lastewka (St. Catharines, Lib.): Thank you very much.

We really appreciate you being with us today.

I want to hear more about your experiences with private access, especially comparisons between small business and large business and between large business and large business. Roughly, what are the percentages? Of the successful challenges by using the privacy litigation, what were some of the typical examples for private access?

Prof. Allan Fels: I will take the chance you've given me to give you a few statistics, which, I must admit, I rehearsed just last night, and I might send them to you in written form.

There's a recent study of private actions from the period 1988 to 1998, and the number of private actions is about the same as the number of actions we at our agency instituted. There are 91 cases by us and 90 private actions in that 10-year period. As I've said, I've excluded the trade union secondary boycotts. Of the 90 private actions, only 36 went to final hearing. Where those matters did go to a hearing, six out of 36 were successful. So of the 90 matters instituted in court, 36 went to final hearing and six yielded a success rate.

I'm sure you can draw some conclusions from that, but the difficulty is drawing the correct conclusion. I think what happens is that once an action is launched, there is some kind of attempt to resolve the matter out of court. My own experience of these resolutions is that by and large the outcome that is agreed on out of court is more or less based on an attempt by the two parties to figure out what the court would have done and then to reach some kind of outcome that takes account of that. With regard to the ones that go to final hearing, that's where the parties obviously disagree about the law or want to fight it out and so on.

The second point I'd make on the statistical side is that in Australia, which is a touch different from Canada, we don't have a criminal law and so on applying across the spectrum of anti-competitive behaviour, price-fixing agreements, anti-competitive agreements, horizontal anti-competitive behaviour, and so on and so forth.

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The main area in which private actions occur is monopolistic behaviour, such as abuse of dominance, abuse of market power, particularly refusal to supply, and, occasionally, predatory behaviour and price fixing.

So what are a couple of leading examples? I mentioned to you the BHP-Queensland Wire case. The biggest steel producer in Australia used to retail wire fences to farmers. The little competitor was just a retailer of these fences. The steel monopolist cut off the supply of fencing posts to these little people and they no longer were effective suppliers. So I gather the farmer would say, we have some wire for your fences but we don't have any posts you can stick them through. But BHP continued to offer its own posts and at the same time the wires, and this had a devastating effect on the small guy. It was unable to import any supplies, and it was really dependent on what was in effect a steel monopoly. So that would be a classic case.

Distribution cut-offs are where someone is using a distributor but decides to discontinue their use. If they do so for an anti-competitive purpose, then that's prohibited under our law.

In the secondary boycott matters, it's heavily used by small business where unions engage in secondary boycott action.

You asked me about the differences in comparisons between small business and big business and between big business and big business. It is fairly often used by big business against big business because there are no resourcing problems. It is less often used by small business. But sometimes they are desperate to run a case. Sometimes they are desperate to move very quickly and not wait for the public agency to take action.

Mr. Walt Lastewka: Thank you very much.

You mentioned that 90 used the private access and that so many were agreed on out of court and 36 went on.

In Canada we have a situation where if six people complain about an item, then the commissioner has to investigate the situation. Is that the same in Australia?

Prof. Allan Fels: We don't have to investigate but we normally investigate. If six people were to come to us, we'd have an investigation as to whether or not we'd investigate, if you know what I mean. If we were to judge that there was a serious matter, then we would take action. But there are some occasions when we'll say, this is not a good use of resources.

I have been asked by parliamentary committees here about our resource position. Our resource position is fairly good. We've never failed to take what I'd call a serious case, but there are some cases where we say, this is just a commercial matter that can be sorted out between these two people in court, if they like, rather than tie up public money where there's no important issue of public policy apparently involved.

Mr. Walt Lastewka: Thanks very much.

The Chair: Thank you very much, Mr. Lastewka.

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[Translation]

Mr. Bergeron, do you have any questions?

Mr. Stéphane Bergeron (Verchères—Les-Patriotes, BQ): Yes, Madam Chair. Thank you very much, Mr. Fels, for having accepted our invitation to participle in this study or review of the Competition Act.

You said that one of the reasons why Australians favour private access is that this provision increases the efficiency of the Act. Strangely enough, here, since the beginning of our review, most of the time, the large businesses are quite reluctant, if not hostile, to the idea of integrating private access to the Canadian law. By the way, several of these multinationals operate in countries which, like yours, allow private access.

They pretend that such a measure would create backlogs in the courts, impose extremely heavy costs on small businesses that would have to defend themselves.

That's where things are strange because the big enterprises often say that it would be too costly for small businesses while, generally speaking, small and medium businesses seem rather in favour of the introduction of private access.

How do you explain that reluctance from large businesses, several of them operating in countries like yours where private access is accepted? How would you define that reluctance from the part of large companies to private access in Canada while small and medium businesses seem to be much more open to the idea of introducing private access in the law?

[English]

Prof. Allan Fels: I think in Australia it's always been part of the system and they've accepted it. But our experience in Australia is that any attempt to change the competition law is resisted by big business, no matter how good. Big business in Australia, whether Australia-owned or multinational, has opposed having a competition law from the start. Every time an attempt is made to change it or strengthen it, they oppose it mindlessly.

They do not have the public interest in mind. They have a very shortsighted approach, and what they often press for is against the interests of the business community as a whole, because the business community actually stands to gain from having a competitive economy, underpinned by strong and effective competition laws. Quite often, the fears of these multinational companies are whipped up in excessive fashion by those in the legal profession, who tell scare stories.

The fact is that in the U.S. there's not a great deal of opposition to private action as such. It's always been part of the system. The things that go wrong with it are not replicated in Australia, in terms of the cost rules and so on. So I'm not surprised that big business is against it. I'm not surprised that large parts of the legal community are against it.

The history of the legal profession in Australia is that they've opposed most reforms to competition law because they represent big multinational businesses, so they represent the interests of their clients.

I must say that in Australia, over the last 10 years, Parliament has recognized that the legal profession should be discounted for some of the things they say about changing the law, having regard for their client lists.

[Translation]

Mr. Stéphane Bergeron: Don't you think that small and medium businesses are still disadvantaged in a system like yours where when they lose their case, they have to pay all costs of the trial. One way or the other, even if they are right away in favour of the introduction of private access, aren't they...?

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Please proceed.

[English]

Prof. Allan Fels: That's fine. I think I understand.

The bottom line is that small businesses favour private actions. For the reasons I've given and the points you have just raised, they can't use the private right of action as much as they would like. They would obviously prefer for these purposes, if the cost rules were different, having contingency fees and not having to pay the costs.

Other things being equal, they would prefer a greater ability to take private action than they have in Australia. So you as a legislator might feel that having these cost rules and restrictions imposes a natural restraint on excessive use of private actions.

Remember that small business in general is not on the receiving end of actions under this law. It's not as if the law issue is about big business against it. Small business is neither anti-competitive, exclusive-dealing, or anti-competitive refusal to supply. So they're not attacked by big business using these laws, as a rule. It just brings a benefit to those who can afford to use the system. If someone were raising the question of whether they would use it more if we had different cost rules, the answer would be yes, they would use it more if the cost rules were less prohibitive. But they still use it.

The Chair: Thank you.

Thank you very much, Mr. Bergeron.

I have to move on to Mr. McTeague, please.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Mr. Fels, thank you very much for taking the time this morning.

Obviously we were anticipating your presentation here, given that much of what we're looking at follows—as you quite rightly pointed out, sir—not only the U.S. model, but other models. Of course, every country wants to be a little different, and Canada is no different.

We are, however, impressed with the fact that your system of private rights of access has been in existence since 1974, and the damages one can claim at least since 1976.

We have proposed here to consider the question of private access in the very confined and limited areas of refusal to deal—the equivalent of your refusal to supply—exclusivity, tied selling, and market restriction. We're also without damages, but there are summary disposition powers that have been suggested, as well as cost awards in certain cases. So we'll be flying without the opportunity of damages.

There has been some concern expressed that damages could undermine the credibility of what we're trying to do here because it would look like the American system. Others suggest that without damages and private access being more available in areas of abuse of dominance, what we're proposing falls somewhat short of the intended goal of enhancing the competitive process.

How abusive has the issue of damages been, with respect to those who have brought claims before your courts or undertaken actions as a result of the lure of damages? I don't think any of us here have excluded the idea of damages within this piece of legislation.

Prof. Allan Fels: I don't have any numbers on this; I only have impressions. If I change my mind after consulting people on this, I'll let you know.

My general impression of private actions in Australia is that more often than not they are about getting injunctions to stop something or mandamuses to require something.

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For example, if there is a refusal to deal, it's to get a court order putting an injunction or a requirement to deal on the party.

In the first case I mentioned about the wire fences, damages weren't paid, as far as I know. The main thing was to get an order and then a decision from the court on what terms and conditions they should be dealing with. So very often people are less interested in getting damages than in stopping certain unlawful behaviour.

On the actual damages, I can't think of any cases where there have been spectacular numbers involved, or anything like that. Maybe there have been some payments out of court, but I think the main emphasis has not been so much on damages as on stopping behaviour. But there would be some actions seeking damages.

Mr. Dan McTeague: Can you imagine a system that would remove the right of private access in your country and what the fallout would be if, for instance, you were to turn the clock back and not have this system? How would you govern competition law in Australia without what I suspect is a body of law that has emerged from the various cases and examples you've cited.

Prof. Allan Fels: It would severely weaken the law. Businesses would know they were safe from private action. There are many instances where businesses would like to come to us, the public agency, and get some kind of feeling that we're not going to apply the law to them.

Everyone knows that with our right of private action we can't give them a comfort pass. We can't benevolently say, “Look, on this bit of unlawful behaviour don't you worry, because we're the public agency; we've got other things to do with our lives”. They know there might be a private right of action, and it has a powerful effect on business behaviour. They're all acutely aware that there could be this backup to what we're doing, by people who are better informed than we might be.

The other thing is that if the private right of action were removed, I'm afraid we would need to go to the government of the day for a huge increase in our resources. We would be saying to the government there was a public expectation that these laws would be fully given effect to, and if the private right of action were withdrawn, the demand for us to take action would skyrocket overnight. Not only would there be consumer disappointment, but there would be huge small business concerns.

Small business, in this hypothetical—and in Australia, unimaginable—scenario would be knocking at the door far more and telling the government they should step up very heavily on the resources of the public agency, to guarantee them some protection from refusal to deal and exclusive dealing.

Mr. Dan McTeague: May I ask a final question?

The Chair: Final question, please, Mr. McTeague.

Mr. Dan McTeague: Mr. Fels, I appreciate the comments you've made. I'm just wondering if you could tell me whether or not the bar in Australia, as a result of private access since 1974, tends to be pro-plaintiff as well as pro-defence. Do you find it on one side of the fence and wire—to use your example—more than the other?

Prof. Allan Fels: In Australia, we draw a sharp distinction between a barrister who represents people in court and a solicitor who works in the office.

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In regard to the bar, I would regard it as fairly neutral. In regard to solicitors, the big law firms are on the side of big business, by and large, and that tends to come through in their attitudes and in their representations to government.

The Chair: Thank you.

Thank you very much, Mr. McTeague.

We want to thank you very much for being with us, Chairman Fels. We appreciate your time and you getting up this early to join us. We do appreciate the comments, questions, and answers you've been able to provide us. Again, we apologize for our late start.

We know you have another place to go as well, and we have other witnesses to hear from, but I'm sure we could keep you here for many more minutes. Did you have a parting comment for us?

Prof. Allan Fels: One thing is that I have just turned up in the last day or so a bit of data on the subject and also an article. I'll try to get them over to you as quickly as I can. Indeed, if your staff is in a big hurry, maybe they could contact me about my sources.

Thank you for listening to me. It has been a great pleasure. I always prefer to be in Canada, because I have many friends there, but unfortunately this time I've had to do this by video.

The Chair: Thank you very much.

We're now going to suspend for a few minutes.

• 1637

• 1643

The Chair: I'm going to call the meeting back to order, so I'd ask members to resume their seats, please.

We're actually moving to a different topic here, back to the subject matter of last week, at which time we were discussing the economic impact on Canada since September 11.

With that, I'm going to introduce Mr. Peter Woolford, the senior vice-president, policy, from the Retail Council of Canada. Mr. Woolford, please.

Mr. Peter Woolford (Senior Vice-President, Policy, Retail Council of Canada): Thank you, Madam Chair. It's a pleasure to be back here again so soon. I hope I don't wear out my welcome.

[Translation]

We did not prepare a written submission because the situation is very fluid. In fact, we have entered in a detailed discussion with our members on the effects of September 11 in retailing and I would like to talk about the experiences of our members this afternoon.

First, a bit of history. Before September 11, we had registered a growth in sales slightly weaker for 2001 than for last year. Approximately 3 per cent this year.

The immediate effect of the attacks was a sudden fall in all stores and all types of goods. The figures for September 11 will be the worst ever and the third quarter was very difficult for our members.

[English]

I'd now like to walk the members through in some detail the kind of experience our members are seeing in their stores, because it is a very complex picture and I think that might help the committee understand what's actually happening out there.

What we have heard from our members is that the recovery back to normal, the relatively softer sales, occurred quite quickly for most retailers. Most reported that sales were back to a normal level within a week or so after the attacks of September 11. Some took longer, effectively until October, to return to their normal levels, but by and large, on the surface, there appeared to be a complete recovery of sales. That would suggest initially that the effects of September 11 were really just a blip, that if you look at the surface numbers, things more or less have returned to normal.

• 1645

But our members are seeing a number of signs, as you drill down into consumer behaviour, that suggest that consumers are becoming more cautious and their behaviour is dramatically different from what we have seen before or in preceding periods leading up to a recession.

I'd like to walk through some of those. In the view of our members, this is a new phenomenon that is different from previous recessions. The pattern of recovery from September 11 has been highly varied by where you look in the sector. I'd like to walk through that.

First is shifts in merchandise. We are seeing that non-discretionary consumable items continue to do reasonably well and are posting relatively modest gains over last year. Those are the day-to-day things we buy in our daily lives.

Discretionary items generally are moving much more slowly and have taken a bigger hit since September 11, but even within that the picture is quite complex. It's not by price point or by type of merchandise. For example, music is doing relatively poorly, according to our members. Part of that may well be the impact of the Internet, but even with that, they're saying that music has been very soft post-September 11. Fashion and clothing is very soft. On the other hand, entertainment items are doing well. The consumer electronics that we would use in our home are doing quite well. So it is a very complex picture, even at the level of discretionary items.

We see the consumer trading down in terms of store type and in terms of merchandise. So they're looking for value in their purchasing. Consumers are more price conscious. The Canadian consumer always has been very price conscious in his or her behaviour, but we're seeing that even more so now—buying on sale, buying for value.

With respect to sales, consumers are cherry-picking the sale items. Traditionally, retailers hope that when the customer comes into a store, they will buy the sale items but will also purchase other items in the store that are not on sale. That's the normal pattern. What our members are seeing now is that the consumer comes in, plucks out the sale items, and leaves.

There are a couple of exceptions to the picture I've given. Furniture and major appliances are still doing very well, and our members are not quite sure why. Part of it may be the continuing boom in housing starts, because you need to fill the house with a number of items like that. But whatever the reason, our members believe that this strong performance will not sustain itself over the medium term.

There are some shifts in terms of how consumers are shopping. Store counts are down. The number of customers who walk into a store is down, and in many cases quite significantly, double digits. Yet at the same time, while we are seeing fewer customers shopping in the store, when they do come into the store in many cases the average ticket is up. So we're shopping less often, but when we do shop it's a big shop. So we're going out less frequently, but when we do it we are spending more money on the average set of transactions.

We're seeing that retail days are choppy, what our members call choppy sales. You'll get a couple of good days and a bad day, a bad weekend followed by a good weekend. This is again a sign of a customer who is in the marketplace, is still shopping, but is showing a lot of signs of concern and loss of confidence.

We are also hearing that directly from our members in terms of the comments they're hearing back from sales associates and from customers themselves: a lot of open expression of concern about confidence in the economy and in what I would call the geopolitical situation. Consumers are concerned about where Canada is going, where the North American continent is going. It's more than simply whether I will have a job and whether the income will continue to come into our household.

The second thing is that our members report that both consumers and sales associates are showing signs of conservative behaviour even though they may not be in a situation that in strict economic sense would require them to be conservative in their practices. So a sales associate who can be reasonably confident that he or she will continue to have a job with that retailer will be expressing concerns about confidence and security. Again, it's the much larger picture caused by the terrorist attacks, which our members believe are driving that.

What's the impact on retail? What it means is that the sales at the retail end are holding up more or less at the level we saw prior to September 11—although that was softening over the course of the year—but margins are quite clearly down and profitability is off.

Our members are continuing to invest in stores and are opening stores. You've seen a number of announcements to that effect in the last few weeks. But the fading profitability probably will curtail that investment fairly soon. If sales do decline much further, we will see less employment in the trade—maybe not layoffs so much as fewer hours for employees.

• 1650

Turning to the supply chain just for a moment, our members did report some border problems immediately after September 11, but they feel those have been largely looked after to this point. Certainly moving merchandise across the Canada-U.S. border is slower now than it was. Our members remain quite concerned about consistency of supply leading into the holiday period. They are very nervous that if anything further happens or if there are any bumps around the world, we will run into some problems of supply at a very critical time of year for retailers.

Most of our members believe they have their inventories under control and will not have to engage in massive sell-offs or be forced to eat large amounts of merchandise, but this will very much depend upon the holiday season. If I may, I would just like to look ahead to what we expect for the holiday season.

[Translation]

It is very difficult to predict what the holiday season will be. We are in unchartered territory. The key is consumers confidence and the events of September 11, as I said, have caused concerns which are quite different from normal fears related to a period of economic downturn.

International and political events are extremely important for the client. Obviously, we also have to recognize that it will be difficult to do better than we did last year during the holiday season.

[English]

Madam Chair, those are the opening comments. My understanding was that you wanted to get a picture of what's happening out there and I've tried to give you one. We presented a somewhat similar picture to the finance committee last week and followed up with our pre-budget advice. I don't know if you want me to go through it. I would be happy to answer questions in that regard.

Looking forward to 2002, it is essentially a similar picture and with the same cautions. We really are in a period where it's very hard to know what's going to happen and how the consumer will react. A number of our members have pointed out that governments and businesses understand how to work with the consumer and the citizen in a period of economic weakness, but we are in very different circumstances now and the normal tools may not apply.

Our members do believe the recovery will be slow. They feel the first half of 2002 will be flat, with only a relatively slow recovery in the second half. As confidence returns, then we will see the economy pick up. They do believe 2003 will see strong growth.

Those are my opening comments. I would be glad to take any questions.

The Chair: Thank you very much, Mr. Woolford. I'm going to start with Mr. Rajotte first.

Mr. Rajotte.

Mr. James Rajotte: Thank you, Madam Chair, and thank you, Mr. Woolford, for coming today and giving us an overview of the retail sector.

I have a general question. This committee is studying how the different sectors and industries are doing, but we also want to make recommendations. Could you highlight two or three recommendations as to what the government should or should not do that would affect your sector in particular at this time?

Mr. Peter Woolford: I should probably repeat the advice we gave last week.

First of all, we do not feel the government should go into deficit in order to fight any effects of the downturn or the outfall from the terrorist attacks. In the view of our members, Canadians sacrificed an enormous amount in the 1990s to bring our public finances back into order, and this should not be sacrificed at this point.

Having said that, if there is some fiscal capacity within the government to sustain consumer confidence and consumer incomes, we feel that's where it should be used. As I've said in my opening remarks, consumer confidence really is key as we go forward from here. If there are measures the government can take to support consumer incomes at a time when they're weak, we would certainly support those.

The other side that we're really not competent to give you detailed policy advice on is this confidence issue. In our view, governments do need to reassure citizens that they understand the situation, they have a plan for dealing with it, and they will take the necessary measures and are prepared to act.

It's difficult for us as the representatives of retailers to go much beyond this in terms of policy prescriptions. But to the extent Canadians can have confidence in their government to be on top of the issue, working on it and knowing what to do, it will help enormously in terms of reassuring them with respect to the degree of confidence they can have about personal security and safety, about the health of their economy, and about the safety of our country as a whole.

• 1655

I'm sorry, I'm jumping around a bit. Flipping back to the consumer spending side, we suggested two measures for the budget. One is a reduction in payroll taxes through a yearly basic exemption for the employment insurance program. And the second, if the fiscal capacity is there, would be a permanent reduction in the GST.

We are very aware that this would cost a lot of money, and it simply may not be possible for Mr. Martin at this point. We would not support a temporary reduction in the GST. In our view, this would simply buy sales forward, disrupt the supply chain dramatically, and have very little benefit for the loss of a fair amount of federal funds.

The Chair: Thank you very much, Mr. Rajotte.

Mr. Lastewka.

Mr. Walt Lastewka: Thank you very much. I really appreciate the fact that you were very clear and concise and gave us an overview of the retail area.

I, too, want to ask about the GST, because I've heard it over and over, and people have come forward and I keep shooting it down. Having been in the automotive business for 30 years and having seen what happens when you remove a tax for a while, I know that all you do is move your customers. The problem doesn't go away. I'm glad you brought that out.

I want to talk a little bit on the consumer confidence issue. What have your people been hearing and what should we do to provide consumer confidence? Could you just repeat this again?

Mr. Peter Woolford: Can I address the GST?

One other point I didn't make and something commentators don't always remember is that the GST is a value-added tax. Retailers are accustomed and able to vary the base and the rate on a moment's notice. We do it almost every year when some minor changes are made to it.

It is much more difficult for suppliers to change it because they're not operating in the consumer end of the marketplace. All of the importers, wholesalers, and manufacturers have systems nowhere near as nimble as the retailers. When you talk about making temporary changes in a value-added tax, it has an impact on the whole logistics chain that is not tuned to making changes the way the retailer is. Here's another reason why we would be very nervous about going with a GST temporary change.

With respect to consumer confidence, the best advice we can give you is that—and we're very conscious that it doesn't take you very far—government needs to give Canadians a reason to believe it understands the situation, it has a plan for dealing with it, it has the resources for dealing with it, and it is prepared to act. The government needs to be prepared to be decisive and to move ahead and implement an agenda of measures it believes will assure Canadians of their safety and security.

As I say, as retailers it's beyond our members to say to you what the elements of this security and safety package should look like. Our members believe that if Canadians can be assured their government is looking out for their best interests in this area, they will feel more confident. They will be inclined to go out and go shopping, which is our interest, of course. They will be prepared to take some additional steps to continue their consumption patterns.

Mr. Walt Lastewka: One more question, Madam Chair, and it concerns supply—supply coming from other countries.

Have we had any situations where the retail people have not been able to get supply from other countries? Are there any signals coming? I know sometimes it tends to happen all of a sudden, when people are cutting back and making adjustments, Canada gets kind of left out and we get delayed supply, rather than the supply required at the time. Have you heard anything on this?

Mr. Peter Woolford: I haven't heard anything at this point, and we are talking to our members almost daily. I had the most recent conversation with a member at noon hour today.

I haven't heard anything about foreign suppliers cutting back on their shipments to retailers. If anything, there is probably an excess of supply at the manufacturing level at this point. I don't think there would be any difficulty there.

• 1700

It may occur if there are any hold-ups at the border due to the additional security or immigration measures, where the merchandise is there at the border but it's having trouble getting across.

Again, as I said, we see some continued slowness at the border in terms of getting merchandise through, but at this point no major problems getting merchandise. Because it's the key time of year for our members, retailers are concerned that the border flow smoothly and evenly, because like many other sectors today, we are effectively in a just-in-time inventory system.

When retailers sell you or me a shirt or a towel or a blouse, they automatically reorder it and expect that it will come through the system pretty seamlessly and quickly, but borders can get in the way of this and could cause some problems of supply if we run into additional significant delays at the border.

The Chair: Thank you very much, Mr. Lastewka.

I'm reminding members that we do have another witness, so we should try to keep our preambles a bit shorter.

[Translation]

Mr. Bergeron, please.

Mr. Stéphane Bergeron: Madam Chair, I will be very brief because I was going to ask a question on the same subject as Mr. Lastewka raised. It concerns supply.

I imagine that right after September 11, there was a cut-off in supply, mainly from the United States. You talk about delays caused by the security measures implemented at the border. Do these delays in supply generate costs that your industry can quantify?

Mr. Peter Woolford: Probably not. We think that the effects of the delays after September 11 are quite substantial but they were quite short. Our members told us that things came back to normal at the border after a few days and that goods were delivered rapidly enough afterwards.

In terms of costs, given the level of competition on the Canadian market, I imagine that they will be absorbed by the merchant. I haven't heard anything from our members on the major costs related to this tragedy. If I hear something, I could inform the Committee but at this stage, I haven't heard anything. So I must conclude at this point in time that costs are minimal enough not to affect neither the company nor prices.

[English]

The Chair: Thank you very much, Mr. Bergeron.

Mr. McTeague, please.

Mr. Dan McTeague: I, too, thank you and I will try to be brief.

Your industry has seen significant growth over the past few years, both in terms of profitability and in terms of employment. I noted one of the recommendations you made was to deal with the employee payroll deductions and payroll taxes.

Could you give an illustration to this committee of the inevitable reduction in the number of employees you're anticipating in the industry and how long you think this situation will continue? You have alluded to this.

Mr. Peter Woolford: I must start by saying that, again, we are in uncharted territory. The short answer is I don't know. We do not know at this point how the holiday season will be because we don't know how consumers will react. We don't know how next year will be.

Based on our members' best guess, we expect Christmas to be still showing some very modest growth over last year, and for the first half of next year to be essentially flat. In this circumstance our members would probably shed some hours, rather than employees. A retailer works from an employment pool. You will have, even in a relatively small store, a fairly long list of employees who work on a part-time basis and are called in as needed.

The story in retail is you're as good as last week's sales. Retailers will set their employment levels for the current week on the basis of how sales were last week. If indeed Christmas is soft and the first half of 2002 is soft, I would expect we might see some loss of employment in the form probably of fewer hours for those who are working in the industry. That might well also lead to some retailers either laying off part-time staff or essentially not calling them in for an extended period of time. It's very hard to know just how that will play out in the marketplace.

• 1705

Looking to the second half of 2002, our members are hopeful. Retailers are natural-born optimists. Our members are hopeful the consumer will come back into the marketplace and we will see some growth. Our guess, realistically, is that this would not drive employment growth upwards probably until the holiday season next year; that they would probably again work with the labour pool they have today. You might see a few more hours coming back into the marketplace as we get into, let's say, the back-to-school season next year, then building gradually after that.

If in fact all the stimulus in the U.S. economy makes its presence felt; if the stimulus the feds have already put in and, for example, Ontario and Quebec have announced have their normal effect, we could see recovery resume very strongly towards the end of next year or into the beginning of 2003. That could lead to a surge in employment, because again, if sales ramp up, retailers will ramp up their employment.

Mr. Dan McTeague: Thank you.

The Chair: Thank you, Mr. McTeague.

We want to thank you very much, Mr. Woolford, for being here. We think it's a very serious issue and we appreciate your taking time to join us. We look forward to meeting with you again in the future.

Mr. Peter Woolford: Thank you very much.

The Chair: We're now going to change witnesses and invite Mr. Serge Charette, national president of the Customs Excise Union, to join us at the table.

And Mr. Lastewka, yes, we're finished at 5:30 p.m. We were going to try to go in camera for a little discussion about this topic, but maybe we can do that later in the week.

Mr. Stéphane Bergeron: What were we supposed to do in camera?

The Chair: We were supposed to talk about the report on the border and its economic impact.

Now, Mr. Charette has speaking notes that we are going to distribute. But I would prefer, Mr. Charette, instead of reading, that you summarize your speaking notes. We'll have them distributed, but if you could summarize we can get to questions.

Mr. Serge Charette (National President, Customs Excise Union): Okay, I'll go to the more relevant points rather directly, and if you have the documents, maybe you'll be able to follow as well.

Thank you, Madam Chair and members of the committee, for hearing our testimony during what must be a very busy time for you. We certainly appreciate the opportunity. This is an extremely important topic, not only for us but I think for Canadians in general. My presentation will attempt to demonstrate what we consider to be a very significant concern on the part of the Americans and a reaction we see as potentially extremely negative for the Canadian economy.

If you'll bear with me, I'll just go through the specific points I think are important in the written presentation.

America is preparing to put up barricades at the border. I think everybody has heard they are investing $609 million U.S., which is basically $1 billion Canadian, to more or less triple the number of customs inspectors they have at the border. They're also going to spend about half of that money on new equipment.

My understanding is they've also decided to implement a piece of legislation that has been on the books for about five years, and that starting next year—well, that's my understanding, Madam Chair—starting in April of next year everybody who enters the United States will be registered both when they go in and when they come out.

The Chair: Absolutely false.

Mr. Serge Charette: Well, it may be false, but that's the information I've been provided, Madam Chair, and I feel it's important to share it with this committee so you can verify whether it is factual or not.

Our concern is that these measures, though portrayed as necessary to ensure American security, could in fact turn out to be an extremely damaging non-tariff barrier if they significantly increase border processing times. We all know that many investments in Canada rely on the fact that our country has quick and easy access to the American market. If this status is compromised in any way, it follows that at least some of these investments will be made on the American side of the border.

• 1710

It is also a fact that this will force American companies to reconsider their dealings with Canadian suppliers. We believe the recent plunge in the Canadian dollar demonstrates vividly that this is already taking place. We have no choice, Madam Chair, but to immediately implement initiatives that will rebuild the trust the Americans have lost in our security systems at the border.

They were obviously expecting Canada to increase its border security, probably with the same measures as theirs, but in fact what we did was quite different. Aside from a few more questions, and more ID checks at the border, and setting up a command centre at headquarters, we didn't do much more. More customs officers were needed but none were hired. We simply called on the existing staff to work long hours of overtime. In Canada these events were seen as little more than a bump in the road.

The immediate reaction from Canadian officials was that the situation would return to normal very quickly. What is even more surprising is that some still believe this is the case.

September 11 was a seminal moment for the Americans. It should have been for Canadians as well. The events of that day totally redefined American priorities. Clearly, from their perspective we represent the weakest link in their border security. Homeland security is now their highest priority and their number one concern. Unless we implement measures that demonstrate we share their concern, current barricades will become fortifications, and people and goods will continue to receive increased attention on the U.S. side of the border both as they enter and as they leave the United States.

In our estimation, to stave off further deterioration and to start improving the Canadian perception of the security at our borders and bring border delays down again, Canada will need to commit to increased border enforcement. The key here is to find ways of doing more enforcement without affecting facilitation. The current view is that enforcement actions and reduced border delays are incompatible and you cannot modify one without immediately having an equal and opposite effect on the other. However, this is only true if one assumes that the number of resources available remains static. In our estimation, a number of measures need to be implemented with the objective of improving security at the border.

Once this is done, Americans may be lobbied to demonstrate that we in fact are as committed as they are to border security. This is a case where action will speak louder than words. The current state of affairs requires that Canada make the loudest statement possible.

The measures that we believe will be acceptable and will create a change in the American attitudes are as follows.

One, we believe Canada must commit to more enforcement measures and increased monitoring. The only way to do this will be to do as the Americans have done and hire new customs officers, RCMP officers, immigration officers, and others as well.

Two, we believe special lanes for returning Canadians—or some other common denominator, such as people with passports—should be implemented at the border. That would greatly assist in doing a pre-selection, or a predetermination, if you will, of which type of client you're dealing with.

Three, we feel Canada must consider arming its customs officers. Though they seldom use their weapons, the Americans consider them as an effective deterrent and a necessary tool for any self-respecting peace officer. Not arming our customs officers sends the message that Canada is not enforcement-minded when it comes to border matters. This would, in and of itself, send a clear message to the Americans that Canadian customs is becoming more serious about border protection.

Four, Customs should be a 24-hour operation all across the border. We all remember seeing the senator standing up in committee with his orange cone, basically stating to everybody, “This is our protection after 10 p.m.” Obviously that is engraved in the minds of a lot of viewers, and the only way we can address it would be to have 24-hour border operations across the entire border.

Five, another way to demonstrate commitment to border security would be for Canada to have two officers at all border crossings at all times. I understand there's a great deal of reluctance to do this because there's a concern that these officers would not be productive. First of all, we feel that when part of your job is to provide for the security of others, your presence is what is required, not what you do while on duty. However, with the proper equipment, that could easily be resolved. These officers could be used to review commercial packages submitted electronically. It's being done at the larger facilities now, so why not divert some of that to those smaller facilities and achieve both goals at the same time: you'll clear the backlog faster and you'll also provide additional security for the staff.

• 1715

Six, customs should demonstrate its commitment to enforcement by equipping and training more customs officers to operate on flexible response teams.

Seven, we believe it would be in the interests both of Canadians and Americans to invest in the construction and operation of international customs commercial clearing centres. Those would be large facilities that would basically be used by both countries, and they'd be fully equipped with the most modern equipment and state-of-the-art facilities that would make it easier to look at the actual goods and to repackage everything after the examination is done. These would be built not too far from the border, and these facilities could house a number of different experts as well. We could have people from agriculture; we could have people from a variety of specialties who could be available at these sites to assist in ensuring that the goods can be released as quickly as possible. Obviously, these facilities would only be built at high-volume points of entry. We suggest six, but there could be others, or there could be even fewer.

Other advantages also flow from this proposal. Border facilities would be adapted to deal with more travellers because you would take the commercial end of the processing and you'd move it off-site, maybe five or ten kilometres down the road.

Another benefit would be that commercial traffic would not be impeded as the trucks are lining up to be looked at and the truckers wait for their electronic packages to be submitted.

Finally, we suggest taking a fresh look at a proposal that was made some years ago that would have seen Customs and other enforcement groups regrouped in a single agency or department. We believe this would greatly assist, because of the enforcement mindset, and also the fact that all of the other departments could contribute to determine how best to examine the goods and under what circumstances.

That said, facilitation should not be reduced but be achieved in ways that will not compromise security. Achieving a proper level of interdiction, while maintaining facilitation, is likely to require the injection of far more resources or the added checks will slow the flow of goods and people and ultimately impact our economy.

That said, the choice seems clear. Americans, and Canadians as well, want greater security. Business expects, and frankly needs, facilitation. We believe our proposed solutions are the only ones that satisfy both groups.

The Chair: Thank you very much, Mr. Charette. That was pretty concise.

We're going to try to move to questions. I'm going to remind members that we only have about ten minutes left before 5:30 p.m., so you should be brief.

Mr. Rajotte.

Mr. James Rajotte: Thank you, Madam Chair.

Thank you, Mr. Charette, for your presentation today. I have just two brief questions.

Have you any idea, or have you done an estimation, of how many more personnel would be required at the border if you follow through on your recommendations?

Secondly, in your final paragraph, you talk about a proposal where you regroup Customs and other enforcement groups in a single agency or department. I wonder if you could expand on that as well.

Mr. Serge Charette: In our estimation, we need approximately 1,200 additional customs officers on the travellers' stream and 400 on the commercial stream. The 1,200 would also serve to replace 200 students. So, roughly, you're talking about an increase of 1,000 on the travellers' stream and 400 on the commercial stream. The cost for that would be approximately $80 million, at an estimate of approximately $50,000 per individual.

• 1720

What we mean by regrouping all the enforcement groups into one agency.... For example, there was another committee meeting this morning on immigration. The immigration people feel there's a need for them to be more involved in what happens at the border because customs officers perform the preliminary, or what we call the primary, questioning at the border for or on behalf of Immigration. But they have very little input, and they don't really do any monitoring of how we do it and what we do, and they'd like to be in a position to have more input. That's what we mean by having a single enforcement agency with all of the people regrouped together. Then all the points of view could be brought in and all of the concerns and considerations could be dealt with at once.

Mr. James Rajotte: Thank you, Chair.

The Chair: Thank you very much, Mr. Rajotte.

Mr. Lastewka.

Mr. Walt Lastewka: I want to go over some of the comments you made on how the Americans have strengthened their borders and so forth. I think you mentioned they've added more dollars, they are going to add more people, and they are going to be more secure.

Do you think the U.S. is going to be at a higher level now?

Mr. Serge Charette: My understanding is they have already brought 100 customs officers from the U.S.-Mexico border up to the Canada-U.S. border, and that within the next three to four months they will start staffing additional positions. Their goal is to triple the number of customs inspectors they have at the border at this point in time.

Obviously, if they are going to mass those people at the border they won't have them sitting on their hands. They'll be doing some work, and we've been told that some of the work they will be doing will be northbound checks, which means they will be looking at goods and passengers, or travellers, who are coming to Canada, as well as those entering the United States, because they don't have the confidence that we're doing the job to the extent that they would like to see it done on our side of the border.

Mr. Walt Lastewka: I know. They've made a lot of accusations.

The Chair: Mr. Lastewka, if you don't mind, I want to have something clarified for me. If I understand correctly, though, the ratio right now is that we actually have three to one the number of officers they have. For example, on the Windsor border, we have three times as many on the Windsor border crossing as they do in the United States. Is that not correct?

Mr. Serge Charette: That's correct to a certain extent. What they do is they have joint monitoring of the border on the U.S. side, which means their customs inspectors and their immigration officers monitor the border equally.

The Chair: They are dual trained. Yes, they are. We were told that yesterday.

Mr. Serge Charette: They are dual trained on the immigration side as well as on the customs side, but when you are talking about customs inspectors, they are the ones we are referring to.

I think if you look at the total number of people—

The Chair: They are dual trained. We were informed of that yesterday in Detroit by the head of their agency. They are dual trained in customs and immigration. I recognize our system does operate differently, but my understanding is that when you add the total numbers that they have and that we have, we actually do have a far greater number right now at the borders than they do. That is correct.

Mr. Serge Charette: It's a possibility in Windsor. I would have to verify that. I don't know.

The Chair: Sorry, Mr. Lastewka.

Mr. Walt Lastewka: You stole my thunder.

I'm going to go on the track of doing more with less. If the United States is going to be, I was going to say on a par with us, because they are far fewer, and they are going to have a much more secure U.S. border, maybe we in Canada should be looking at having fewer international points—and the international points we have do better job—such that we're not increasing budget or spending dollars.

I look at it this way. If the United States is going to be that much better, then we should be able to do more with less, and if we had fewer international points, we could do a better job with the ones we declare as international points.

I would like to hear your comments.

Mr. Serge Charette: I'm not sure that is what the Americans intend to do.

First of all, I should point out that we do a lot of work at the border for departments other than Revenue Canada. A lot of the things that we verify the Americans would not be concerned about on northbound checks.

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For example, it's legal to have weapons in the United States, in many of the states where you enter Canada, so they wouldn't be looking at whether or not you have a permit for that weapon. They may even look at whether you have a permit, but they wouldn't have an objection to you crossing the border with that weapon. We would have an objection on our side.

Their definition and what is acceptable as a definition of pornography in their society and what is objectionable in our society is different. So again they would look at something and wouldn't see any problem with it. We would have to stop it at the Canadian border because it's objectionable on our side of the border.

There are several issues like that.

For example, a used tractor coming from a farm in the United States, that a Canadian would have purchased, that is coming in with mud on its tires...they wouldn't object to that, because it's leaving their country. We would object to it, because we have to know which state that tractor comes from, and they have an obligation to clean it as much as possible to ensure that none of the bacteria, and so on, that may be present in the earth and on those tires would cause any problems for the Canadian agricultural industry.

I understand what you're saying. They're going to be doing a greater amount of work on their side, but they're going to be doing it on specific issues that are of concern to them. That doesn't mean we can relax what we're doing on our side. It simply means we'll have to duplicate to make sure that what they verified is the same thing as we need to verify.

Mr. Walt Lastewka: Okay.

The Chair: Thanks.

Mr. St. Denis.

Mr. Brent St. Denis (Algoma—Manitoulin, Lib.): Thank you, Madam Chair, and thank you, Mr. Charette.

I'll ask three very short questions. I'll be brief, because I know we have to leave here momentarily.

My northern Ontario riding is adjacent to Sault Ste. Marie, where we have a border crossing, as you know. A couple of workers who worked on the Soo-Michigan side told me they were having trouble getting there and back, and it was in fact taking longer to come back to Canada than to go into the States. Have you heard reports of that? Have things gotten better, as far as you know? A short answer will be good enough. Are things back to normal as far as cross-border workers are concerned?

Mr. Serge Charette: Things are not back to normal. As I said, they just brought 100 more from the Mexican border. So they are doing more checks on the American side.

Mr. Brent St. Denis: But it's slower coming back to Canada. The worker going into Soo-Michigan—this was a nurse—was having a longer time getting back home than going into the U.S.

Mr. Serge Charette: Yes. Probably the reason for that is because they had to stop on the American side of the border and were questioned there, and then they had to stop again on the Canadian side and be questioned for a second time.

Mr. Brent St. Denis: Okay, that's good enough. Actually it was longer on the Canadian side.

Mr. Serge Charette: That could be.

Mr. Brent St. Denis: The other issue was remote access points, such as on the Great Lakes for boats, or remote airports. I understand the CANPASS system is still not yet fully functional.

Mr. Serge Charette: No. They suspended CANPASS for every mode except marine as of September 11.

Mr. Brent St. Denis: Do you have any idea what will happen with, say, snowmobilers coming across the Great Lakes during the winter? Do you forecast a normalized situation, say, by January for tourists?

Mr. Serge Charette: I don't see the situation going back to normal, from an American perspective, for a number of years.

Mr. Brent St. Denis: I mean coming this way.

Mr. Serge Charette: Coming this way, I think we will probably see CANPASS reactivated shortly. At least those are the messages we're getting from the agency.

Mr. Brent St. Denis: Thank you.

The Chair: Thank you.

Mr. Charette, I want to ask you a couple of questions. You spoke about the use of a passport for dedicated lanes. Would it not be more technologically advanced to go to something that would include some type of biometrics, such as a facial scan, a palm print, or an iris scan?

Mr. Serge Charette: Yes. That's included in Bill S-23. Proposals have been made, and those will be coming. The problem is that those will be coming mainly in the high-volume areas such as Toronto airport or in Windsor, but they won't be available at all the sites. That technology is very costly, and like most of the other technologies we implement, we use them mainly at the high-volume sites, not at all our sites.

The Chair: Maybe over time that would be where we would have to go at the different sites, to use that type of enhanced technology to ensure security.

Mr. Serge Charette: I agree. That type of equipment would definitely be a welcome addition.

The Chair: I have one other quick question, with regard to the processing of commercial vehicles and trucks. Already we have a number of goods that are pre-cleared.

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There was a suggestion made yesterday in Detroit, on the American side, that they would like to purchase an X-ray scanner that would scan the entire truck, so that you wouldn't have to unload the truck, which would save hours of time and people and resources. Do we have anything like that in Canada already?

Mr. Serge Charette: No. As I understand, the Americans have five of those, but we don't have any. They're extremely costly.

The Chair: Okay.

Lastly, you mentioned international centres. I don't think that deals with the security issue of the infrastructure and the fear factor that some people have with crossing the border right now, because that would only be done on one side of the border, if I understand your proposal correctly.

Mr. Serge Charette: The proposal is for both the Canadians and the Americans to use that, at the same time.

The Chair: But that would be on one side of the border.

Mr. Serge Charette: The facility would have to be located on one side of the border, and it would be—

The Chair: So it wouldn't address what I am calling the infrastructure, the security of the infrastructure, such as bridges and tunnels. It may work very well at land border crossings where there are no bridges or tunnels, but when we're talking about an infrastructure, it wouldn't work, obviously.

Mr. Serge Charette: I think it would work well, in particular in Windsor, for example, where there's always a very long lineup of trucks. That would successfully move it from the bridge or from the tunnel down to—

The Chair: Mr. Charette, with all due respect, the secondary off-site at the bridge is already kilometres away from the bridge. So I do think there needs to be another look at that particular border crossing for your scenario, because it already is away from the bridge that they do the secondary inspections. They don't do them at the bridge on the Canadian side.

But I do appreciate your comments. We may have some more questions for you as we move forward. Our goal is to try to work with everyone to resolve the situation surrounding September 11. I think it's very important that you offer your suggestions and be involved in the process, as you have the workers on the front line.

We do want to say thank you to your workers, because we know they are working long hours. Many vacations and holidays and days off have been cancelled, and many have worked many hours of overtime to ensure that goods and people have been able to move across our borders, and we do appreciate that. Please pass that message on to your union members. We hope we can together find a solution to this. Thank you very much.

Mr. Serge Charette: Thank you.

The Chair: The meeting is now adjourned.