CROSS-BORDER
SHOPPING
UNITED FOOD AND COMMERCIAL WORKERS INTERNATIONAL UNION
CANADIAN COUNCIL OF GROCERY DISTRIBUTORS
ONTARIO BORDER COMMUNITIES MAYORS' TASK FORCE ON CROSS-BORDER AND SUNDAY SHOPPING
CONTENTS
Thursday 18 April 1991
Cross-border shopping
United Food and Commercial Workers International Union
Ontario Chamber of Commerce
Afternoon sitting
Canadian Council of Grocery Distributors
Ontario Border Communities Mayors' Task Force on Cross-Border and Sunday Shopping
Adjournment
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair: Wiseman, Jim (Durham West NDP)
Vice-Chair: Hansen, Ron (Lincoln NDP)
Christopherson, David (Hamilton Centre NDP)
Jamison, Norm (Norfolk NDP)
Kwinter, Monte (Wilson Heights L)
Phillips, Gerry (Scarborough-Agincourt L)
Sterling, Norman W. (Carleton PC)
Stockwell, Chris (Etobicoke West PC)
Sullivan, Barbara (Halton Centre L)
Sutherland, Kimble (Oxford NDP)
Ward, Brad (Brantford NDP)
Ward, Margery (Don Mills NDP)
Substitutions:
Dadamo, George (Windsor-Sandwich NDP) for Mr B. Ward
Harrington, Margaret H. (Niagara Falls NDP) for Mr Christopherson
Wilson, Jim (Simcoe West PC) for Mr Stockwell
Also taking part: Murdock, Sharon (Sudbury NDP)
Clerk: Decker, Todd
Staff:
Anderson, Anne, Research Officer, Legislative Research Service
Rampersad, David, Research Officer, Legislative Research Service
The committee met at 1008 in committee room 1.
CROSS-BORDER SHOPPING
UNITED FOOD AND COMMERCIAL WORKERS INTERNATIONAL UNION
The Chair: We will begin with the United Food and Commercial Workers International Union. Tom Kukovica and Tim Catherwood, if you would begin please.
Mr Kukovica: Thank you very much. You have a kit in front of you where on one side is our presentation and on the other side you have a photocopy of John Winter's survey which was done in May 1990. And there are some articles from newspapers. At the same time, we have given you a copy of a campaign which our union is doing right now with companies in British Columbia.
The United Food and Commercial Workers International Union is pleased to have an opportunity to appear before the standing committee on finance and economic affairs to present our union's views on cross-border shopping.
UFCW Canada is Canada's largest private-sector union, representing some 180,000 members in this country. UFCW members are employed in more than 20 sectors of the economy, including the retail, service, meatpacking, food processing, brewing and beverage production, fishing, general merchandising, health care, shoe and leather and banking industries. UFCW presents more than 70,000 men and women in Ontario.
Our union is very concerned about the dramatic increase in cross-border shopping that has occurred in recent months; not just in Ontario, but all across Canada. We are concerned about the damage this is causing to the economy and the long-term harm that will be caused if this tide cannot be stemmed.
Cross-border shopping is causing the loss of billions of dollars of economic activity for Canadian businesses -- sales for retailers, orders for manufacturers and business for service companies coming from both consumers and other companies. Many thousands of Canadian jobs have been lost in the retail, manufacturing and service sectors and countless other jobs are threatened. Buying in the United States is reducing the revenues of governments at all levels, placing new pressures on the already strained fiscal condition of these governments.
There are several reasons for the increase in cross-border shopping:
The recession that has hit this country and is forcing Canadians to seek the lowest possible price for the goods they consume;
The high level of the Canadian dollar, particularly against the US dollar;
High taxes in Canada, especially federal taxes;
The introduction of the GST;
The promise of cheaper goods and easy border transit that was put forward by the federal government to boost the Canada-US free trade agreement, particularly during the 1988 election campaign;
Reduced duties on US-made goods under the FTA;
Lower prices in the US resulting from economies of scale, razor-thin profit margins, currency advantages, lower taxes, restricted social programs and the absence of regulations, lower labour costs and lower energy costs;
Lower gasoline prices;
Reduced enforcement of Canadian laws and collection of duties and taxes at the border;
Reduced confidence in Canada by many Canadians and US investment and advertising designed to attract Canadian shoppers.
The increase in the number of Canadians shopping in the US has been monumental. This has occurred all across Canada at border points from east to west.
In December 1990 alone, 5.5 million Canadians crossed the US border, an increase of 24% or one million people over the same month a year previously. Of these crossings, 4.5 million were one-day trips.
At the Ambassador Bridge and Windsor-Detroit Tunnel, the number of persons paying duty on goods coming into Canada has increased 500% over the past three years from April 1988 to March 1991. Fifteen thousand vehicles now cross the border in the Niagara region daily.
In British Columbia, cross-border shopping trips increased 400% between 1987 and 1991. Statistics Canada reports a 15.2% increase in shopping in the US in January 1991 over the same month in 1990. Sources in US border towns are reporting an 8% to 10% increase in sales per month. And to see the effect that this is having on Canadian sales, one could look at January 1991 when a snowstorm hit the lower mainland, all but stopping cross-border shopping. During this shutdown, Canadian milk sales jumped 15% to 20%.
It is hard to calculate how many Canadian jobs have been lost because of cross-border shopping. In trying to measure these losses, the recession, the FTA and the many other causes of job loss in Canada must be considered. Losses must be also measured in terms of direct losses and indirect losses which occur in related or service companies and sectors.
In January 1991, the Canadian Council of Grocery Distributors estimated that Ontario alone was losing $3 million per week to the US in grocery sales, and this is translated to 1,000 full-time and part-time jobs lost.
UFCW knows that between June and November 1990, 202 full-time jobs disappeared at A&P in Ontario. At Loblaws, the total number of hours worked decreased by 3.14% in the period June to December 1990. In both cases, these losses occurred in spite of the brief advent of Sunday shopping.
To these job losses can be added many hundreds of workers who have suffered and will yet suffer from lost hours of work. In many retail food stores and throughout the service sector, workers, often part-time and largely female, are seeing the number of hours of work available to them lowered by 50% to 75%.
You have to understand that in the service sector, 75% of all the jobs are held by part-time people. So it is very hard to measure how many layoffs there are because part-timers do not get laid off. The part-timers lose hours of work, from 20 to 18 to 15 to 10 and finally to a minimum of maybe 4 a week. So it is not necessarily layoffs, but it is hours lost.
Beer sales in Ontario have been hard hit, particularly in border towns, where there has been a sales decline of up to 50%. We represent all the Brewers Retail stores in the province of Ontario. The brewing industry is, however, an important one to Canada. It provides good employment and strong benefits to a number of other sectors, as well as significant revenues to government.
The job losses and reduced hours are causing lost business and employment in related and service sectors. For every job lost in the retail sector, at least one other job will be lost in manufacturing, wholesaling, farming etc. For example, the Canadian Council of Grocery Distributors has reported that in addition to 1,000 grocery industry jobs being lost, another 1,000 jobs have been lost as of January 1991 in the distribution and farming sectors.
We must all be concerned that the job losses that have occurred so far will increase and multiply as the GST's full impact is felt, the recession continues, unemployment rises and the lost business works its way through the economy into the manufacturing and service sectors. More job losses and many plant closures can, unfortunately, be expected unless action is taken to stem the flow of Canadian dollars to the US.
In terms of volume of sales lost, the story is a disaster and getting worse. In British Columbia, the loss of business due to cross-border shopping is expected to exceed $1 billion in 1991. The figures for Ontario will be far greater, perhaps more than $2 billion.
The major areas of loss are in food, gasoline, liquor, beer, shoes, clothing and electronics, with food appearing to be about half of the total spent in the US.
In terms of gasoline, figures from the Niagara region show that sales fell from 400 million litres in 1988 to 300 million litres in 1990. It is estimated that more than 50% of the 100 million litres of gas used yearly in Sault Ste Marie is now purchased in the States.
The major causes of cross-border shopping have been created by the federal government. The federal government's policies have destroyed Canadian industry and caused the loss of thousands of Canadian jobs. Throughout, the government in Ottawa has worked to shift the burden for the changes they are forcing upon the economy squarely on to working men and women and their families. Canadians today are facing enormous pressures because of unemployment, uncertainty over their financial security, reduced incomes, increased taxes, the GST and continued high interest rates.
Canadian businesses have also suffered from federal government policies. A combination of policies have served to reduce their competitiveness and make them vulnerable. These policies include high interest rates, the high value of the Canadian dollar, the lack of any form of industrial strategy, the lack of Canadian research and development, problems created by the imposition of new policies, notably the GST, reduced tariffs under the free trade agreement and the removal of federal assistance or subsidies with no new programs to allow Canadian businesses to gear up to compete in the global marketplace.
The economic policies of the federal government have been a disaster for business, for workers, for the entire country.
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Many Canadians have, unfortunately, lost confidence in Canada. Many Canadians now feel that they must fend for themselves and they are displaying less concern about their neighbours, their community, and the state of their country. They are being led to abandon what has been built in this country and to look away from the bright future that once was ours. In the process, Canadian jobs and industry and the tax base at all levels are being damaged. In the long term, Canadian social programs and services and indeed our standard of living are threatened.
The uncertainty and loss of confidence that have been created have served to push consumers towards lower prices or at least what they perceive to be lower prices. In particular, older consumers, families with restricted incomes, and persons who have become unemployed, are all under pressure to buy where the prices seem lowest.
Where it could once be said that the propensity to shop across the border could be related to distance, many people in Ontario now appear willing to travel further and more frequently in search of better bargains. This has made much of Ontario, in fact, a border community.
The federal government's 1988 free trade campaign, and particularly the promise of lower prices resulting from the agreement, served to raise the awareness and expectations of Canadians with regard to prices. It served to highlight the possibility of lower prices in the US and removed Canadian consumers' guilt about cross-border shopping.
The new psychology was, to an extent, reinforced by the appreciation of the Canadian dollar vis-à-vis the US dollar that occurred in 1988 to 1990. The appreciation in effect gave Canadian consumers a new discount for shopping in the US. In the recent months, the continued high value of the Canadian dollar has led many consumers to treat the dollar as being at parity with the American dollar. This viewpoint would not exist with a more realistic Canadian dollar value.
Sunday shopping has nothing to do with cross-border shopping. Canadians are going to the United States in record numbers and these numbers continued to grow even during the period when stores were open in Ontario on Sundays. In British Columbia, where Sunday shopping has existed for a number of years, the existence of open Canadian stores has not slowed traffic to the US. Canadians have tended to make their trips to the US on Friday to Sunday -- the traditional weekend -- or on one of these days, all in search of better prices, not Sunday shopping. To illustrate this point, in a Windsor telephone survey in May of 1990, John Winter Associates Ltd, asked the following question: "In the near future, do you think your shopping in the United States will likely increase, decrease or remain the same? Why?" Not one person responded that Sunday openings or closings would increase or decrease shopping in the US.
Under these circumstances, Sunday store openings in Ontario have no value and merely serve to increase Ontario retailers' costs and disrupt and erode the lives of workers and their families.
The pricing systems for retailers in Ontario and the United States are very different and seriously impact on the ability of Canadian stores to compete with many prices in the US. It is difficult to understand why suppliers charge Ontario retailers more than American retailers for the same product, including identical brand-name products. It is, however, easy to see that such a differential, which can be two to three times the US price, has an effect on the ability of Canadian retail firms to compete. This differential represents a bigger problem than higher taxes which are in turn used to support valued social programs and government services.
In the area of agricultural pricing, American support for farmers comes through taxpayer subsidies, while the Canadian system works on the basis of supply-management programs. The result is that the American approach does not tend to affect the shelf price of products, while Canadian prices are directly affected by marketing board actions. This differential is a major reason why turkeys in the US, for example, can cost as little as one third of the price of Canadian turkeys.
Canadians are proud of the standard of living that has been achieved in this country and wish to see it maintained. We are proud that many serious social problems that exist south of the border have not become serious concerns in Canada. We are also anxious to see important and valued Canadian social programs and government services, municipal, provincial and federal, maintained.
Canadians who shop in the United States should consider the kind of society that exists south of the border and ask themselves, "Is this what I want in Canada?" Do Canadians favour a society where one in four children under the age of 12, or some 17 million children, go hungry; 32 million people live below the poverty line, which is set at $6,200 per year for a single person and $12,675 for a family of four; and three million people are homeless, including some one million children?
Canada is a country with admirable and desirable strengths in municipal, provincial and federal services, health care, social programs and standards of living. These strengths do not, unfortunately, count in the price of the product, but without them, the enjoyment Canadians get while using products will not be the same. We do not believe Canadians want to give up these benefits, but at the same time, they must realize that it is not possible to have the cake and eat it too.
Every dollar spent in the US represents one less dollar to be spent in Canada, one less dollar to employ a Canadian worker, keep a Canadian business operating, pay for a service and keep a community strong and vibrant. While we understand what has caused cross-border shopping, we none the less say it cannot continue. If it does, Canadians must realize what the price will be in terms of employment, services and programs and our standard of living.
While it is essential to stop or at least slow the flow of cross-border shopping as quickly as possible, it is also important not to develop Band-Aid solutions or quick fixes that will not last. In this regard, UFCW Canada is prepared to work with the government of Ontario to develop and implement lasting workable solutions to this problem which will strengthen the economy of this province and benefit all the people of Ontario. We believe there are a number of solutions to the problem of cross-border shopping that should be examined.
In our view, most of the solutions required to address the cross-border shopping problem only the federal government can bring about. This includes reduced interest rates, a realistic dollar value, elimination of the GST, policies that promote fair taxation for Canadian workers and policies that promote full employment and development of the economic potential of Canada's regions.
In addition, only the federal government can take steps to ensure that Canadian laws are enforced and taxes and duties are collected at border crossings. Clearly, the resources committed to this tax are woefully inadequate, and in spite of the best efforts of customs employees only a portion of the duty and taxes due are being collected.
UFCW Canada supports the efforts of the customs and excise union of the Public Service Alliance of Canada that are aimed at securing more border personnel and enforcing better collection of duties and taxes. It is estimated that 1,000 new personnel are needed to adequately deal with the flow of cross-border traffic. Revenue Canada, Customs and Excise, has in fact acknowledged this by requesting resources along these lines from Treasury Board.
Unfortunately, the resources needed are not likely to be committed by the federal government. The Minister of National Revenue appears to be more interested in smooth traffic flow than in addressing the problems of lost revenue and smuggling, let alone the loss of Canadian jobs and industry.
Consideration should be given to developing a new border levy for shoppers crossing the border. Just as persons involved in airline travel and commercial traffic to the US pay for customs service, so too should cross-border shoppers.
It is important that tourists coming to Canada not be impeded by cross-border traffic nor be charged any fee for border transit. We should do everything possible to encourage Americans to visit Canada through express lanes at the border and special promotions or advertising.
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The government of Ontario has recognized the seriousness of cross-border shopping and is anxious to work with labour and business to find solutions to this problem. Given the province's limited jurisdiction in this area and the difficult economic and fiscal conditions in Ontario, the provincial government has limited room to manoeuvre.
The provincial sales tax must be collected on all goods bought by Ontarians in the US. The province should also explore the feasibility of applying special charges on goods brought over the border, especially by same-day shoppers. If we are to lose revenue to cross-border shopping that will impact on Ontario jobs, business and government programs, this revenue should be largely recovered.
The best answer to cross-border shopping may be to have the province join with labour and business to convince shoppers to stay home and put their money to work in Ontario to create Ontario jobs, Ontario industry and a strong economy in the province.
A strong campaign should be launched that will explain in clear terms what is at stake and what is lost when Canadians shop in the US. This campaign should reach every worker and every household to explain that while cross-border shopping may produce short-term savings, it is irreparably damaging the province's economy, causing the loss of jobs and threatening our ability to provide valued, quality social services and programs.
The labour movement has a key role to play in such a campaign. Unions should communicate with their members to encourage them to stay home and buy in Ontario. Employers and business should use their resources to promote a "Buy Ontario -- Stay at Home" campaign. Companies could advertise, tie their involvement in the campaign to promotions and discounts and do what they can to set fair and stable prices.
The provincial government can be the catalyst for this joint venture campaign. The province can provide leadership and work to draw labour, business, the municipalities and community and social groups together. The government could commit resources to advertising and to developing information materials for distribution.
Together, the partners in this campaign, who must also be partners in building a better future for the province, must pressure the federal government to join with them in the campaign and to take the immediate steps required to reduce the pressures that are behind cross-border shopping. We must stem the flow of goods across the border.
Cross-border shopping is a critical problem that must be addressed quickly for the benefit of everyone. A great deal is at stake: jobs, economic activity, the ability of governments to sustain programs and services and, in the end, our standard of living.
UFCW Canada stands prepared to work with the provincial government, business, the municipalities and community and social groups. Together we can beat this problem, and in the process build a stronger future for Ontario and Canada.
Let me just make two other comments. One is that yesterday Statistics Canada reported that same-day trips to the US went up by 27.3%, and 3.9 million people went over the border in February 1991, which was an increase from 3.1 million a year ago.
The other thing I want to add is that there is a perception by consumers, by everybody, I guess, that going on one-day trips and shopping in the US is legal, which is a very false perception because it is totally illegal unless you pay duties and taxes. There are a lot of consumers who think they are allowed to buy milk and meat in the States and bring it across. It is totally illegal. You are not allowed to bring meat across the border. It is against customs regulations. But what is the federal government doing? Absolutely nothing. There is no campaign to tell customers they are not allowed to buy some of the products, that it is illegal.
I had never been across the border in Niagara Falls in my life. I went there two weeks ago. Let me tell you my experience: I went over the border, and when I came back the same day at 6 o'clock, I got a slip of paper saying, "What did you buy?" I bought exactly $202 worth. So they said, "Go to customs, and please pay." I went to customs. I had to wait an hour and a half to get a number, and I had to wait another half-hour to pay; I paid $56.25 duty and GST. What I saw amazed me. I saw customs people asking customers with the same slip as me, "How much do you have on your slip?" Anybody who had below $105 was told: "Don't bother. Please don't go inside and get a number. Don't pay, just go on." That is what is happening in cross-border shopping.
Mr Jamison: I have a couple of questions, but my first one is if you could expand on your proposed border levy for cross-border shoppers.
Mr Catherwood: I am not exactly sure of the details but the idea would be that, just as your airplane ticket has a customs charge built in or truckers are charged as they go across the border, some sort of fee should be put on same-day shoppers, $5 or $10, just to make the point that when they go across and back there is a cost involved, just to act as somewhat of a deterrent.
Mr Kukovica: I guess the other point is that if you know the law, that you are not allowed to shop in the States the same day without declaring -- you have to be outside the country 24 hours to bring in $20 worth.
Mr Kwinter: You have to be outside 24 hours to bring in $100 worth, but you can be out for the day and bring --
Mr Kukovica: Sorry, it is $20 the same day, $100 for 24 or 48 hours, and $300 once a year, after seven days. The perception is that you are allowed to shop at any time and bring back anything you want.
Mr Jamison: We have been told by other groups that when the GST was actually implemented there was a recognizable jump in cross-border shopping. Some groups have indicated the increase was as high as 15% or 20% with the advent of that tax. Have you any background on that, anything to add?
Mr Catherwood: The numbers we have are probably the same as you have heard. For example, in British Columbia it went up 15% the first month, in January, and sales across the border stayed at that level. I do not think there is any doubt that consumers are more conscious of the price of things they are buying nowadays because of the GST, that sales on this side of the border are down and people are going across there to avoid the GST.
We have seen ads out of American border towns where they flaunt the fact that if you buy down there, there is no GST. Somebody told me a story about being in Florida at a baseball game, and the world's best salesman was there. When he came up the aisle to sell cold beer, and he knew the place was full of Canadians, he yelled, "Cold beer, no GST," and he sold more than he ever had before. People really are aware of the fact that the GST exists here and it does not exist down there.
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Mr Jamison: You also cite the high level of the Canadian dollar as a major factor -- almost a par situation. What are your opinions on that?
Mr Catherwood: The problem has been twofold, in our view. First of all, the Canadian dollar went up quite a bit against the American dollar over the period 1988-90. It went from around 75 cents at one point to about 88 or 89 cents. People saw that as a discount: suddenly you can buy American goods, and our dollar is stronger. That has levelled off. People now view the dollar as nearly being at par because there is only a 13-cent difference, and often if you go across to Buffalo or Detroit they accept the dollar at par.
The problem is that you cannot just dramatically drop the value of the Canadian dollar or you will create inflation and a lot of other problems. But certainly the dollar should be at a more reasonable level, and whether or not you do that over time, that is probably the way to go.
We have got ourselves into a situation where we do not have just one or two problems; we have a whole lot of problems that have compounded themselves. We must work our way out of it by lowering interest rates, lowering the dollar to a reasonable level and trying to get rid of the GST. It is a monumental mess, we recognize that, but I think unless you start to pinpoint what the problems are and say, "We're all going to work together to find the solutions," we are going to continue on this downward spiral.
Mr Jamison: I have just one final question.
The Chair: I am going to start restricting people to one question, and go through the list again if we get to it.
Mr Jamison: I understand that, Mr Chairman, but I am going on past experience here. I have jotted down four questions, and I have one --
The Chair: I will put you on it to get your questions in.
Mr Jamison: The last one, really, is the one I would like answered.
The Chair: Quickly.
Mr Jamison: There is a reference in your document to a difference in the price for which the retailer can purchase similar or the same products. That has been brought to this committee in other reports. Have you any further background or examples to offer?
Mr Catherwood: Our stuff is largely anecdotal. You hear about these things virtually everywhere you go. Any time you sit down to have a conversation about the problem of cross-border shopping, somebody comes up with an example. I will use one the Canadian director uses, as he is the boss. He is talking about a coffee filter that is made in Scarborough -- I do not know the name of it, but I could find out for you -- that can be bought up here for $1.29 in stores. The same thing, apparently, is available in Buffalo at four for a dollar. I do not know how that happens. You have to ask yourself questions about it. Maybe this is one thing the committee should be looking at, doing a study of why we are having these different kinds of problems. For our members, that is a direct problem. People do not buy coffee filters in our stores up here for $1.29 if they know they can get four --
Mr Kwinter: Are you saying that a product that is manufactured in Scarborough is being sold in the United States for four for a dollar and it is sold here for $1.25?
Mr Catherwood: Yes, $1.29.
Mr Kwinter: I would challenge that. I do not know anything about it, but they would be dumping if they did that. You cannot do that. It is one thing to have a comparable product. You cannot sell a product in another market below what you sell it for in your own market. That is called dumping and the people who manufacture it in the United States would be jumping all over them and charging them with dumping.
As I say, I have no information whatsoever, but I would challenge that.
Mr Catherwood: I do not doubt that you are right, it is dumping. I am just telling you this is an example that we have heard of, and if you like I will go back and find out precisely the name of the product and precisely the reference and I could get that information back to you. If that kind of stuff is going on, it is not only hurting Canadians, it is going to hurt us in our relations with the Americans too.
Mr Kukovica: I just wanted to add a comment. I think the problem in pricing is not with the retailer. From our experience, we think that it is the with distribution, and if you want to make a study of it, I think you should check the suppliers.
Let me give you a good example. Why is a Polaroid film from the same US production line, without any import duties, three times more expensive here? Toronto is the fifth largest market in North America. Why are the wholesale prices higher? Why?
We do not understand. We do not know, I do not know why, but that is the question you should be asking yourself. I think it is the suppliers. If you were going to do a study or commission any research, you should look into the suppliers, what they are charging the Ontario retailers versus what they charge US retailers. That is our thinking.
The Chair: Okay, to make sure that everybody gets a chance for their questions in 15 minutes, we will restrict it to one each. Mr Hansen, please?
Mr Hansen: I read on page 4 here, decline of beer sales up to 50% and I think what we have to look at is not just people living in border towns, but people living in Toronto who are employed in the brewery industry. A lot of people say, "Oh, that's a problem down at the border," but it is actually affecting people who live away from the border.
I agree with this report. We do have some problems with the federal government, especially coming to an agreement that a lot of these problems we cannot solve without a partnership between the federal government, the provincial government and the communities along the border.
There was an article here, "Savings Ontario." That was something I brought in a while ago, and I think that it is working to a certain point. We have to educate people on how cross-border shopping affects people here in Canada or in Ontario. As it comes out in the report, it is immediate savings you are getting now, but down the road it is going to be a loss of income to a lot of people here in Ontario.
What do you feel is the one most important thing we should do? What would be your number 1 priority? We have seen your conclusions, we have seen some of your things, but what would you say would be the first thing for the Ontario government to do in this situation?
Mr Kukovica: Let me combine that with enforcement, strict enforcement.
Mr Hansen: That is number 1.
Mr Kukovica: I have seen it with my own eyes. I could not believe it. Strict enforcement and education, a good campaign to educate the whole population about buying in Ontario and what exactly they should be doing. Those are my two things: strict enforcement and educating the people.
Mr Kwinter: I only have one question?
The Chair: And a short preamble too.
Mr Kwinter: Okay, there is one issue I would like to address. In two different places in your presentation you talk about the reasons for cross-border shopping and you say "reduced duties on US-made goods under the FTA." Before the FTA went into effect, 80% of all goods and services in Canada were duty-free. The 20% that were still subject to duty had an average of between 7% and 10% and that is going to be reduced over the next 10 years. We have been two years into the free trade agreement, so, if anything, that 7% to 10% that is still in place has come down at most 2% -- at most. Could you give me an example of one product that is bought by Canadians over in the United States that has been reduced because of the free trade agreement?
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Mr Kukovica: That has been reduced or thoroughly eliminated, that there is no duty?
Mr Kwinter: That had a duty before and does not have a duty now.
Mr Kukovica: Yes, crystal, the best example. I was in a store in Niagara Falls, NY, and let me tell you how they advertise. They advertise duty-free, "Crystal is duty-free now and you won't pay any duty." It is in the store. It was a crystal store, strictly selling crystal and glass and things like that. It was marked duty-free.
The best example I can tell you, I went to Black and Decker --
Mr Kwinter: Well, let's stick with crystal.
Mr Kukovica: Let me give you the other example. Black and Decker: On each product it said, "This is duty-free. There is no duty on this because it is produced in Canada." Their signs read, "Here is 6%, here is 10%," each product in this Black and Decker warehouse had the exact duty you had to pay: They were advertising it strictly for Canadians, saying, "This is the duty you have to pay but here it is duty-free because it is produced in Canada.
Mr Kwinter: With all due respect, whether you had a free trade agreement or not, if you bought a product in the United States that was made in Canada and brought it back you could claim back the duty if you had paid it, because there is no duty bringing a product that comes out of the country back into the country.
But what I want to get to is your crystal. You see, the concern I have -- and I do not want to give you a tough time -- is that a lot of your stuff is anecdotal, "I was in the store and I saw this and I feel this and as a result I think this is important." The point I am making is that I do not know if there are, other than Steuben, very many companies in the United States that manufacture crystal.
You have to understand that tariffs are there to protect Canadian producers who, because of economies of scale, cannot compete, so the government puts up a protective tariff.
Now, I do not know of anybody in Canada producing crystal. I just do not know. There may be, but I do not know of any. As a result, I again suggest to you that there is no duty on crystal. Now, some hotshot retailer just like your beer salesman will say, "Buy my beer with no GST." They could put a sign in the window to attract gullible Canadians saying, "Here is your crystal duty-free" or "Duty-free shop," but there was no duty on it to begin with.
What I would really like is, give me a product that has changed dramatically as a result of the free trade agreement. Again, I am not trying to give you a tough time, but I think -- and if I had the time I would go through several of the other things that you have said that I do not agree with -- that we have to zero in on the root cause of the problem, and I think it is your number 1 issue. Prices are cheaper there, period. That is the reason people are going there, because they can save some money. I just wanted to see if we can zero in on the basic problems.
Mr Kukovica: Okay. Let me give you a couple of examples of what you are saying is not true. Prices are not cheaper necessarily. I will give you another example, and I can document it. Price Club in Toronto and Price Club across this province sell Nintendo Action for $116 Canadian. It is $114 in Buffalo. So what the hell is the difference? So they are not cheaper. You know, for $2 you are not going to go and buy Nintendo, because you are going to pay --
Mr Kwinter: Yes, but you are going on the assumption that everybody lives or dies with a Nintendo set.
Mr Kukovica: No, but you are talking about prices being cheaper everywhere. Prices are not necessarily cheaper.
Mr Kwinter: But you made the whole argument about why there are lower prices and now you are saying that it is not true that there are lower prices.
Mr Kukovica: No, what I am saying to you is the problem is with the suppliers and not with the retailers. Look at the suppliers; why are they charging more for the same product, the same line? I give you again Polaroid. Why is Polaroid film -- which is manufactured in the same place, comes out of the same line, no duty, nowhere, nothing -- why are they selling it two to three times higher in Ontario?
Mr Kwinter: I agree with you, but I am saying in the meantime they are selling it three or four times more expensively and that is why people are going to the States. I think we have to address that.
Interjection.
Mr Kwinter: All right. Sorry.
Mrs Sullivan: I am going to be following the same line of questioning as Mr Kwinter, because I have problems with some of the conclusions you have reached in your brief.
For instance, you have indicated that you believe there is far more of a federal responsibility to deal with these issues and less of a provincial responsibility. However, one of the proposals that you put forward relating to provincial responsibilities discounts Sunday shopping. As an issue, we have certainly heard other testimony before the committee and analysis that indicates that the availability of Sunday shopping is in fact a factor.
We have also heard you put forward a proposal suggesting a new provincial levy or tax on products at the border -- clearly countervailing, clearly in opposition to arrangements under GATT. There would be very serious problems with this kind of effort. I wonder if you have looked at those things.
Once again, because you have concentrated a lot on the question of duties, I want to go back to the fact your analysis all the way through talks about prices. In fact, frequently the prices of goods -- and 99% or 98%, whatever the studies tell us, of consumers who are shopping in the United States are shopping because of price -- those prices, including duty, are lower than they are in Ontario.
I think I would like to hear more of your views, first of all relating to what I believe would be a countervailing action that you have suggested for the province to take, and second relating to the price factor.
Mr Catherwood: It may well be that something like that, depending on the type of charge that you put on it, could be subject to countervail, but at the same time I think we have to have concern in moving forward like the federal government. They talked about creating evenness on both sides of the border. We have got a lot of people --
Mrs Sullivan: You have mentioned a limited action area for the province. I want you to zero in on the action that you have suggested that the province take. Leave the feds out of it for now and talk about the province.
Mr Catherwood: I am doing that. What I am saying is that we do not have a situation where fair ball is being played on either side of the border and that has to be a concern to us.
I am not sure what such a charge would be. The reason we propose a special charge is because I am not an international trade lawyer and we do not happen to have one on staff, but the idea of having some way of recouping the revenue is something that the province, we think, should explore. If it is not possible and it is going to get us into problems with countervail, then that is an idea that has been thrown out and discounted. But if one does not raise ideas, one is not going to come up with solutions. It is that simple. I mean, we are making as many suggestions as we can.
We are also saying, "Hey, listen, we'll pitch in and do everything we can," not only just because we have got retail members but because we have got manufacturing members, we have got service members, we have got people who are taxpayers. We are a responsible labour organization in this province and we want to see a better future. We do not think this game is being played fairly, and the people who have got us into this mess -- and maybe we have got to do some things ourselves -- we have all got to find a way to work together to get out of it.
I cannot argue with you and Mr Kwinter on international trade law, because I just do not understand it. I cannot be a specialist in those things. But I do know that where there is a problem, we should try to find the solution.
Mr Sutherland: You state that you are the largest private sector union in the country. You also make some comment in terms of educating your own members and you provided some information on British Columbia. I was wondering what you thought about the efforts of the labour movement in the province as a whole, in other sectors outside the retail and service sector, whether you feel that many of their members are aware of this issue and aware of the impact. Some of them are obviously doing some cross-border shopping. I do not think we can exclude them. I was wondering what you see labour movements, both provincially and federally, doing on this issue, and particularly trade union members.
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Mr Kukovica: There is no question that the labour movement has to do its part, and we would definitely be willing to run a campaign with the Ontario Federation of Labour in educating our membership, the whole membership of the OFL and in general about cross-border shopping and the problems that it creates. There is no question that some of our members are crossing to the other side, not only UFCW but all the other shoppers. We would work jointly with the Canadian Labour Congress at the same time across the country.
The best example I can give you is what we are doing right now in BC. It is our union. We have taken the initiative. Nobody else wanted to do anything about it. The government did not want to do anything about it there. We went to management, the employers, and asked them to join with us in a campaign to educate the membership, to educate everybody there about the problem of cross-border shopping. We are running a major advertising campaign of education, between UFCW and the employers that are mostly affected, the retailers, some of the suppliers, and all of the others. So I think, yes, the labour movement has a role to play in educating the membership, no question about it, and I still believe that is one of the biggest problems, enforcement and education of the population in general.
Ms Harrington: Just a couple of brief comments. After I heard your discussion, I thought, would you like to come down to our local radio station in Niagara Falls on a talk show.
Mr Kukovica: No problem. Any time.
Ms Harrington: No problem? Okay.
The Chair: Is that your question?
Ms Harrington: Not quite.
The Chair: It is 11 o'clock.
Ms Harrington: I do thank you for your excellent brief Can I use it back in Niagara Falls?
Mr Kukovica: Sure.
Ms Harrington: I want to dwell on a couple of things. First of all, I believe you are right about strict enforcement. I think we have to do that, and also education. The labour movement and everybody else has to get into this. We as politicians cannot stand up and say, "No, no, no." I think it has to come from the grass roots as to how it is affecting them.
You mentioned that it is people of low income, etc, who really need to get those bargains, and I can understand people -- they are in my community -- going over there every day to do their shopping. My problem, I think, is that there are a lot of middle-income people, people with good recession-proof jobs, upper-middle-income people, who go over there for big shopping trips, and I have a concern with that. In fact, I just spoke with people from the Ontario Secondary School Teachers' Federation a couple of days ago here at Queen's Park, saying: "Isn't there any way we can work together" -- that is, the OSSTF -- "and try to educate us? What are we really doing to ourselves?" So I think that is the way to go.
I agree with you that the Sunday shopping issue is a different issue. That is from my perspective in Niagara Falls.
I wanted to get back to a proposal that was made to me last weekend about changing the gas taxes in concentric circles close to the border. Do you think there is any merit in that?
Mr Kukovica: We personally believe not, because where do you stop? What is it, is it 15 miles, is it 20 miles? Where does it stop finally is the problem. I do not know. I come from Quebec and I lived 30 years there. Why do you not look at the experience of Quebec when they introduced the gasoline tax credit and see what that did? I remember, I was there. We had a fight about a month after they introduced it and said it was only a 10-mile radius. The people who were just on the other side said, "Well, we want it too."
Ms Harrington: You do not think it has been effective?
Mr Kukovica: I am not so sure it has been effective. I do not have the stats, but you would have to look at that.
Mr Phillips: You have provided I think some of the most compelling testimony, for me anyway. I think you said two weeks ago you went shopping in the US.
Mr Kukovica: Specifically for that.
Mr Phillips: It struck me as really odd that you were in the US. We have got a really major job; you are coming before the committee; I suspect it is going to be relatively difficult to tell people, "Be a good citizen," and what not, because you yourself head over to the US. I suspect that if you did any study of who is crossing over, it is a pretty broad cross-section of people. But my question really is, have you considered that maybe we have a different way of living here in Canada? As I think you have pointed out in your brief, we have different social values. Maybe we have to accept a different standard of living because we distribute our wealth in a different way. I do not know whether that has occurred to your union or not, whether you have looked at it.
Listen, maybe we are going to have to -- all of us; I do not mean just your workers but all of us -- accept that we cannot look at our counterparts across the border and say we need exactly that standard of living if we are going to do the things you talk about in your brief, to deal with poverty, to deal with housing problems. I am just wondering whether that enters your discussions or not, that maybe in negotiations we are not going to be able to see exactly the same remuneration as our counterparts across the border because a portion of ours will go to looking after people who are less fortunate. That is my basic question: Do you compare yourself to the US, or should we be looking at perhaps a little different standard of living here in Canada?
Mr Kukovica: I negotiate. That is my job, to negotiate across the country from coast to coast. Let me tell you we do not compare ourselves to the States at all. In British Columbia -- the best example I can give you -- in the retail food industry we have the best collective agreements in North America, so we do not follow the trends of the States.
Mr Phillips: Best in North America?
Mr Kukovica: Best in North America. The best collective agreement in North America is in BC.
Mr Phillips: You do not look at the US?
Mr Kukovica: It is with Local 1518 UFCW and the Retail Council of Canada, so we do not look at all at the US in that sense, because we create patterns in the retail food industry, at least in the collective agreements. Years ago it used to be the reverse. No question about it, years ago -- I mean, we are an international union -- when north and south California negotiated the retail contracts for 110,000 members, that was the strict North American pattern in the retail food contracts. But now it is the reverse, it is BC that sets the pattern across North America. I have not personally come across any analysis or anybody who has come to us and said, "We have to have a concern in negotiations because of cross-border shopping."
Mr Phillips: Just to follow that up, if I might --
The Chair: No, sorry, because we are way over time and we have two more questioners.
Mr Phillips: That is the best in North America?
Mr Catherwood: I want to add just a tiny bit to that. What we said in the brief, Mr Phillips, is no different than what we will say to our membership. I think people here have to seriously look at what we are doing and where we want to go in this country. We have to say:
"Do we want to be like the Americans and what we see on television all the time or do we want to recognize that what we have built in this country is second to none anywhere in the world? And if we want to maintain it, then we're going to have to fight for it, we're going to have to fight together, we're going to have to work together to do it."
It could be that as these changes are occurring in the economy -- and you know as well as I do there are all kinds of reasons why the economy is changing, society is changing, the labour market is changing -- as these things work their way through, it may be that our standard of living is going to change. But we should be thinking about that and we should be making some conscious decisions. We should not just be jumping across the border to save 10 cents on a pint of milk or something without thinking about what that does to us in the long term.
This is the message that we are going to take to our membership. Maybe we will not send Tom out the first week but we will take this message to our membership. I think it is not just our union that will do it, but through the OFL and the CLC we will do it to all union people and try and reach them in their homes and in the workplaces. We have got some fundamental decisions to make in Canada about where we are going and unless we have some constructive dialogue, the kind that we are suggesting here where you are prepared to throw ideas out and have them bear down and try again, I do not think that we are going to solve this problem which, to me, has reached a crisis.
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Mr Dadamo: I wonder how many cars have crossed the Ambassador Bridge in Windsor while I waited to ask you these questions. Let me say that I could talk to you about this subject for many hours. I have lived in Windsor all my life. The Ambassador Bridge is in the riding that I represent and I have heard all the stories, so what you are telling me here today is really nothing new, but I thank you for the brief anyway.
I feel compelled to say that it is not fair for the provincial government to be reacting to a Prime Minister who has put us into this predicament. Now the provincial government has to work out some of the solutions and try to do the best we can. After all, they have given us the GST and free trade, etc.
I also want to say that my wife is a customs officer at the Ambassador Bridge, I have many friends there, I have heard all the stories. You mentioned earlier about the customs workload, that we need many more people to work there, they are not well enough equipped to handle the flow. Yes, you are exactly right when you say that they wave people through on $20, $50 and $100 because they just cannot keep up. That is exactly right, and that answer has to come from the federal government, not the provincial government. You are right on that point. I also want to say that we should be hiring people there and trying to get them through the best way we can.
But there is also another point in trying to collect the provincial portion of the taxes. It sounds good, everybody has been saying we should be collecting the provincial taxes, but we also have to realize that along the way it is a bureaucracy, it is another bureaucracy that we may not need, and it is going to take a lot of money to set it up. But I think the idea should be explored in the next little while.
I guess I am making more comments questions, but you had mentioned 40 pounds of meat, or a certain number of pounds of meat. You can bring, I think, 40 pounds of meat over at any given time. I have known people who have done that. It is either 40 or 42.
Mr Kukovica: My understanding is that meat is prohibited because of health regulations, not because of pounds or the amount of money. It is a question of health regulations. It is the same thing that you are not allowed to bring some fruit products into the country, and I am trying right now to get a list of exactly the fruit products that you are not allowed to bring in. No matter what the price is, it is a question of health regulations; it has nothing to do with the pricing.
Mr Kwinter: If I could just interject, it is the food and drug administration. I do not know if you have been to Pearson lately, but about two months ago for the first time, as the stuff was coming off the carousels, there was what I thought was a customs officer with a dog, a bloodhound. He was sniffing around. I thought he was sniffing around for drugs and I thought, "Wow, I've never seen that before." He was wearing a little coat, the dog, and it said, "Department of Agriculture, Canada." I said to the officer, "What are you doing?" He says, "Oh, we're looking for food products, meat products and things that are illegal." So it has nothing to do with the duty; it has to do with food and drug banning certain products.
Mr Kukovica: That is my information too, that is exactly what it is.
The Chair: Mr Wilson, last question.
Mr J. Wilson: I guess what disturbs me about your brief -- it has a number of good points, but it is the same thing that disturbs me about the government from time to time -- is that both the free trade agreement and the GST are in place. As the provincial PC Party we agreed with one, the FTA, and the GST we did not agree with. But none the less, they are in place. This government spends every day blaming those two factors principally for increases in cross-border shopping and loss of productivity in Canada, and yet I never hear other premiers, other leaders of other provinces, complaining about the free trade agreement, for instance, because they have done things to take advantage of that agreement. In fact, in the first 21 months of the free trade agreement, US imports remained static and the net increase in Canadian exports is $4 billion. So there is a success story to be told.
But I would argue that in Ontario, because of politics, you have simply continued to blame that agreement for all kinds of things, whether or not it had anything to do with many of the things that it gets blamed for. And when you say that the federal government has no economic strategy, I would argue that the province of Ontario has no economic strategy, or at least none that we can point to.
Mr Dadamo: Go back to bed, Jim.
Mr J. Wilson: No, I think it is the propagation of myths.
The Chair: Excuse me, do you have a question here?
Mr J. Wilson: Sure do, Mr Chairman.
The Chair: Could we get to it? Because we are already overdue with the next presenter.
Mr J. Wilson: Sure, but I think my party deserves a proportionate amount of time, given all the other people here asking questions.
Propagation of myths, I think, hinders my constituents and hinders people who are unemployed. The GST, for instance, because it is in place, you are not going to change it. The federal government is not going to change its mind on these things. Maybe you want to stress that we should be collecting both PST and GST. You say it would be another bureaucracy. I suggest that if you rolled the provincial sales tax collection system into the collection of the GST you would save more than enough bodies to put them on the border to collect that joint tax and you would save a significant amount of money in the sense that we would not have two sets of auditors and two sets of books kept by businesses.
I would argue that taxes are high. I was in Fort Frances last weekend where municipal and business taxes on the Canadian side of the border are five times higher than right across the border at International Falls. Retail rents, for instance -- all these things drive up the shelf price of our goods -- are 50% higher; just two examples.
My question, I suppose, is, we are trying to get a figure on the exact extent of the problem of cross-border shopping. Your figures are from John Winter's report, in which he says about $1 billion in 1991 and about $2 billion nationally. Have you done any other studies that might give us a better handle on that? I think the problem is far more extensive than that and I think it has a lot to do with taxes in Ontario.
Mr Kukovica: No, we have not done any other study than that. It is very difficult, I think, to get any other handle on those figures. Let me respond to two of your comments. First, when you talk about GST, the Angus Reid Group survey that was done in March -- if you think the GST has nothing to do with shopping and everything else in the economy --
Mr J. Wilson: No, I agree it has. I agree it has a psychological effect on people, but if the myths were not propagated we might be able to get over that.
Mr Kukovica: It is not a myth.
Mr J. Wilson: And if we collected the PST at the border with the GST, I think that would be a real deterrent.
Mr Kukovica: It is not a myth. There was a survey done across Canada in March of this year, 1991. The survey shows that 41% of the people in Atlantic Canada cut their spending because of the GST. The question that was asked was: "How has your household reacted to the new 7% GST? Have you cut back purchases, increased purchases, or other?" In this survey, which was done across Canada, Ontario was the highest where they cut, with 48%. It is real; it is not myths.
The second point I want to make is that right now the federal government, your party, has said that it will hold consultations between the federal level, the provincial and the municipalities. If the labour movement were invited, maybe we would have a very positive dialogue about how to stop the cross-border shopping and come up with some ideas. But the labour movement again was ignored, we are not yet invited to those talks. We hope that we will be.
Mr J. Wilson: Great. I just want to make one response to that, on your question of the GST. Let me make it clear. We were not in favour of it either in the Ontario PC Party, but it is in place. When you talk of the "new" GST, it is a myth: It is a replacement tax. Governments across Canada would be helpful -- I mean, it is in place, folks, so why keep hammering away at it? We should not stress "new tax," which it is not -- it is a replacement tax -- and Canadians would be better off if we all understood that.
The Chair: I do have an added piece of information the researcher has given me, the Peace Arch Crossing Entry Project Participant's Guide. "Limitations: The following lists the limitations on commodities which are most commonly imported. The limits shown are applicable to each individual." This is going out to the people at the border who are enforcing. "Meat, 20 kilograms. Poultry: turkey, one whole one; turkey parts, 10 kilograms; chicken, 9 kilograms; fish, 11.3 kilograms. Eggs, two dozen. Dairy products, C$20." So it looks like meat is allowed.
Thank you very much for your presentation. Ladies and gentlemen, if we could move the talk out into the hall, I would like to move on with the next presentation.
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ONTARIO CHAMBER OF COMMERCE
The Chair: Please come forward. I cannot guarantee anything at this point. If there is a vote in the House, then the bells will ring and we will all have to go. We will do what we can, but thank you very much for coming. I am sorry it is taking a little bit more time.
Mrs Matthews: No, that is quite all right. In fact, it will relieve the members of the committee to know that we have a very short presentation to make and, depending on your questions, we may even be able to get you back on schedule.
The Chair: It is not a question of schedule. It is a question of what is happening in the House with private members' bills.
Mrs Matthews: Yes, I understand that as well, Mr Chairman.
If I might take a moment and introduce my colleagues and myself to the committee, my name is Linda Matthews. I am chairman of the board of the Ontario Chamber of Commerce. With me today on my left is Mike Cristofaro, a member of our economic policy committee, and Elaine Rehor, the assistant general manager of the Ontario Chamber of Commerce.
I would like to take a moment and ensure that the members have an understanding of the Ontario chamber and our membership. We have 165 local chambers of commerce and boards of trade in the province and our combined membership is approximately 65,000 members. We are a very diverse group. We represent not only large business, but also small owners and medium-size companies, every sector -- manufacturing, retailing, financial services -- and of course we represent the total province with membership in Thunder Bay and Ottawa, the north, the south, the east, the west. Also, that obviously includes the border communities.
You have already heard from many of our representatives from border chambers and their participation in the Ontario Border Communities Task Force on Cross-Border Shopping, so we do not intend to go over the documentation they supplied to the committee. That would be a waste of your time, but certainly a couple of points I think have been raised: In listening to your last discussion, the reference to the $1 billion in potential retail sales that could be lost this year, impacting our retailers here in Ontario -- and although the gentleman from Windsor is no longer with us, that is a prime example of a border community where in fact retailers have had to close shop and there have been resultant job losses in those communities.
We recognize the seriousness of the problem and that it is not just a cross-border shopping issue. It is an issue of importance to all of Ontario. Even local members from Toronto have admitted going across the border. We recognize, too, that the issue of cross-border shopping is really just a symptom of our larger problem in the province: the issue of competitiveness. The retail sector is on the front line at the moment, but this issue of competitiveness goes to our manufacturing sector and other sectors as well and has very long-term serious consequences for all business in Ontario.
We are here today to discuss some ideas that the Ontario chamber has with respect to short-term and, we hope, longer-term solutions. I would like to ask my colleague from the economic policy committee, Mike Cristofaro, to outline these hopefully constructive solutions to you.
Mr Cristofaro: Thank you, Linda. There are a number of proposals that have been put forward to alleviate the problem for border retailers. We support those who recommend that the GST and PST be harmonized so the PST can be collected at the border. It has been suggested that the provincial government will lose revenues of over $50 million -- I have heard numbers as high as $100 million -- as a result of its inability to collect PST at the border. Currently, there is a legal and moral requirement to pay the 8% PST on imported goods, but the lack of a collection mechanism is giving imported goods an unfair advantage. We believe this could be easily rectified by harmonizing the GST and PST. We recommend that there be some negotiations held with the federal government on this issue.
There is also the issue of gasoline. There is a cost differential between the US and Canada and it has been described as a loss leader that brings Ontario shoppers into the US. Much of this cost differential is attributed to the federal and provincial taxes on gasoline. The Ontario Border Communities Mayors Task Force on Cross-Border Shopping has proposed that a series of reduced tax zones be implemented for gas stations between a zero- and 50-kilometre distance from the border. It is their contention that a reduction in gasoline tax through a zoning formula will realize the same level of taxation revenue for both the provincial and federal governments, while eroding the loss leader status of US gas prices.
Enforcement of laws at the border has also been a focus for discussions. We believe this is appropriate, but we also caution that in doing so it should be remembered that penalizing US shoppers and tourists who wish to visit and shop in Ontario through slow-moving lines and so forth would exacerbate the problems of Ontario retailers. We should also note that the costs of increased enforcement through a larger number of inspections should not be permitted to outweigh their advantages.
Small Business Ontario, a branch of the Ministry of Industry, Trade and Technology, has provided assistance to Ontario border communities in the form of a marketing strategy framework to assist those communities in keeping their shoppers at home and, of equal if not greater importance, to bring back American tourists who have been staying away from Ontario.
In these difficult economic times, price becomes quite important for many people in determining whether they are going to purchase here or in the States. While it is easy to say that Ontarians should shop in Ontario to keep jobs in the province and support the government services we benefit from, that argument must seem very academic to an unemployed worker who can buy gas, milk and bread cheaper in the US. When we look at the extent of cross-border shopping, it does raise the question of whether the cost of our social programs has exceeded our willingness to pay for them. We need a strong tax base to support our social programs and this relationship seems to be out of sync. We need to redress the balance between a viable tax base and the costs of our social programs.
Collecting PST at the border, introducing gasoline tax zones, enforcing our border regulations and improving the marketing of our communities should all have a beneficial effect for border retailers and government revenues. They are, however, surface solutions and do not address fundamental competitiveness issues in the province.
I would like to talk about some of the long-term solutions. The question that needs to be addressed is: What does Ontario need to do to be competitive? The answer to this question lies with business, labour and government and is in our view the single most important issue facing Ontario. We urge that the mandate and membership of the Premier's Council be expanded and that it address this issue as a top priority.
If a partnership is established to focus on competitiveness, the Ontario government might consider its role in the competitiveness or non-competitiveness of Ontario's goods and services. High levels of provincial personal income tax leave fewer dollars in the hands of consumers and contribute to making price for many the top criterion in a purchasing decision.
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The PST at 8% is two percentage points higher than the New York sales tax and again gives the US retailer an edge. In an Ernst and Young study of cross-border shopping for the Sault Ste Marie Chamber of Commerce, 82% of respondents believed US prices were better.
Direct and indirect taxes on business also have their impact. Corporate taxes, fuel taxes, pay equity, workers' compensation, hours of work and pensions are all costs of business that flow through to the consumer in the form of higher prices for goods and services. This is not to say that any one of these initiatives is wrong, but they are costly in themselves and have a major impact on a cumulative basis. The Fair Tax Commission as it undertakes its study of taxation in Ontario should bear this in mind.
The question then asked is: If government revenues are decreased to make our products more competitive, how do we pay for the services we enjoy and do not want to give up? First, in a growing healthy economy, there would be less call on these services, and second, many inefficiencies can be found in the delivery of these services, particularly in the area of duplication of government services. One example here would be the duplicated collection system for GST and PST. A further example would be the need to concentrate our health care resources more on prevention and less on cure.
Business needs to re-examine its contribution to competitiveness as well, to improve both quality and cost to the consumer. Labour too needs to evaluate its role in competitiveness. We all need to work to accelerate positive change in the province.
In order for partnerships to work we must all stop seeking a bigger share of a shrinking pie before only crumbs are left to pick at. The cross-border shopping crisis will have served us well if it can be used as a springboard from which a new partnership can be launched with a healthy economy as its target.
Mrs Matthews: That ends our formal comments. I am sure there will be a multitude of questions on our presentation.
Mr Sutherland: First of all, just one point of information. You mentioned on page 4 the expansion of the mandate and membership of the Premier's Council. There are several Premier's councils; which one were you referring to?
Mrs Matthews: It would be the Premier's Council on the Economy and Quality of Life. I think they have a three-volume report currently.
Mr Sutherland: Okay. Thank you. You talked about the issue of competitiveness and the impact on retailers and how we all need to do a better job. I believe one of the surveys done by Mr Winter noted that people felt they were getting better service in the United States in some of the stores. He also thought there were friendlier people in the States, but I seem to be the only one surprised by that.
Do you have any numbers in terms of how much retailers are spending on staff training, that type of thing, product knowledge? I worked in the retail sector in a grocery store for seven years and was always concerned about how we hired people and just threw them in there without any training, or just assumed that they knew how to treat people and how to solve problems that may have come up and how to deal with consumer complaints. I am just wondering, from a retailer's standpoint, whether there is any dollar figure or any surveys you have made of your membership to get a percentage figure that they spend on that area.
Mrs Matthews: Specifically, Mr Sutherland, we do not have a dollar figure. A number of our members, through local chambers, have been involved in co-operative training ventures with the community colleges in order to give their staff that training edge and relate to tourism in particular, but a specific dollar figure or time figure I do not have.
Mrs Sullivan: I too am very interested in your comments relating to the Premier's Council. I think yours is the first organization that has suggested that the Premier's Council move from discussion of technological competitiveness on the international scene to the goods and services area.
In that area, would you see the Premier's Council looking at, for instance, the identification of new marketing trends, niche marketing or the identification of international trends, for example, in retailing and in marketing generally, where Ontario retailers can in fact be in the forefront rather than behind international trends? I think that in the past we have seen, for example, the warehouse operation, such as the Price Club, starting somewhere else, or the combined retail outlet-manufacturing operation, such as Ikea or Habitat, starting elsewhere. Do you see a role for the Premier's Council in those kinds of marketing focus studies, or how would you see the Premier's Council attacking this?
Second, yours is not the first group to talk about the gas tax and its variegated implementation based on distance from the border. That is done in Quebec with a very different kind of community, in terms of population concentration and so on, moving away from the border. One of the things I see as a problem here is that, for example, Thunder Bay identifies itself as a border community and yet is 200 miles away from the border. In my community, which includes Oakville, Burlington and Milton, retailers are certainly affected, in their view, by cross-border shopping. Metropolitan Toronto is clearly adding more to that market. How do you define levels of distance from the border that do not include the entire province?
Mr Cristofaro: Let me answer the question on gasoline. The speaker before us addressed that. He is from Quebec; so am I. There are in Quebec these gradual tax zones. The system was set up so that it would not be advantageous, if you are a resident of Oakville, for example, to drive down to Buffalo to gas up because, no matter what the price was, it would cost you more to get there and back than any savings you are going to achieve at the gas pump.
So you have a system in place that does it gradually, whereby if you save $3 by going from zone A to the United States, you would give a credit to those retailers that would enable them to compete with the US.
Mrs Sullivan: Could I just interrupt for a second? The other problem then becomes: What happens in the local market when the guy from Mississauga comes to Oakville? The gas service stations in Mississauga are affected by that kind of fuel tax reduction in a community right next door within the same province. You cannot stop people from Mississauga.
Mr Cristofaro: But, Mrs Sullivan, if you do it gradually, whereby you have a price that, next door to the border is 45 cents a litre and then you have got 46, 47, 48, it will not be advantageous for you to travel the extra 10 miles just to gas up and save one cent. I grant you, you cannot have a perfect system in place, but you can get a system that is a lot better than we have right now.
Mrs Matthews: On your earlier question, certainly there would be support for that kind of activity. Out of the original councils came a number of reports and studies talking about a need to restructure core businesses. I do not think I would limit the council to the two or three that you have suggested. Certainly there is a multitude of competitive issues that the council would have to address. Really what we are supporting is the need for business, labour and government co-operation in order to find those solutions for all of Ontario.
Mr Jamison: I notice that you broached the subject of the PST and the GST, and you have said it would be advantageous for business to have those taxes combined. Obviously you understand that this government chose not to increase taxes by doing that, because there is an increase of about one half a per cent once you do that, and by doing so, has left $500 million in the pockets of the consumers of the province.
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But I am having some difficulty in understanding -- on one hand you are talking about various tax levels and then you are suggesting a measure that would in fact increase taxes collected by approximately half a per cent again.
Mrs Matthews: If it was harmonized, sir, and you were collecting the 15% to begin with -- the reason you are saving $500 million is because you did not stack it, not because it is not harmonized.
Mr Jamison: We are not saving $500 million; the consumer is.
Mrs Matthews: But it is a different issue.
Mr Jamison: Yes.
Mrs Matthews: One was charging 7% on top of 8%, and that is where the additional money came in. The other is, put them together and charge 15% once.
Mr Jamison: What exactly is the chamber doing province-wide at this point to react to this particular situation? I ask that for this particular reason: so that we in government can understand where we can co-ordinate our efforts, because I believe the previous group was very correct in saying that this is an issue that various groups cannot deal with effectively in isolation. I would be very interested to hear what you have been doing to this point.
Mrs Matthews: We have made presentations at the provincial level, and our Canadian chamber colleagues have made presentations at the federal level, with respect to harmonization, because the other thing that impacts the business community on that particular issue is duplication, the bureaucracy and the paperwork and the complications for the small retailer to have to collect two taxes; so there is the workload impact as well as the revenue side of it. We have made presentations at both the provincial and the federal levels, encouraging both levels of government to come back to the table and to harmonize those taxes into one.
Mr Jamison: But my understanding is that where in fact the provinces have done that, it has really not solved the problem. There is no collection of GST at either of those provinces' border crossings.
Mrs Matthews: I think that is an addendum to the discussions. First you have to harmonize and then you have to agree on the collection.
Mr Jamison: But they have. They have, and those taxes, to my knowledge, are not being collected at the border crossings.
Interjection.
Mrs Matthews: Yes, I was going to say, if they are collecting the federal tax they would automatically be collecting the provincial tax, through the harmonization, not previously.
Mr Jamison: Is that happening in Quebec and in Saskatchewan? It is not happening at this point, to my understanding.
Mrs Matthews: My understanding is that it would be part of the process, but I do not have a piece of paper that says that.
Mr Kwinter: I would like to make an observation and then just ask a question. On this gas thing and the various zones that are in effect in Quebec, there is even some question whether they are working there, but the reason they do not have a hope of working there is that there are no great population centres right at the border of Quebec and the United States which have any real impact on the economy. You have to travel quite a distance, so there is nobody who would be travelling to the border to save on gasoline because, as it was suggested, it would take too long to get there in Quebec. So what they are really saying is that if you are coming from Montreal and you are crossing at Burlington, Vermont or Plattsburg, New York -- wherever it is -- you have got to travel 70, 80 miles to get there, or whatever it is; but before you get to the border, if they have these zones, they will let you buy some gas so you do not have to fill up in the US and the money stays here.
But in Ontario, we have many major population centres that are within easy driving distance. If they are not within easy driving distance to the United States, they would be within very easy driving distance to where these zones are, so you would have a system that I do not think could work because of that. We are just too close to the border and we have got too much population that close to the border.
The thing that I really wanted to ask about is that I see all of your recommendations -- and I agree with most, if not all, of them -- as being long-term restructuring of the way we do business. I do not see it happening tomorrow; I do not see it happening next year; I do not see it happening for maybe five or ten, if it happens at all, whereas, we are talking now about a retailing problem. The other things affect our competitiveness in world trade; they affect our competitiveness in attracting investment, but what we are talking about basically is a retailers' problem, which eventually impacts all the way down the line, because it then impacts on the manufacturers and on the service sector. But right today, what you have is a shopper who, even in Toronto, sees a purchase and says, "I can go over to Buffalo and buy it, pay the duty and everything else, and still save a lot of money." How do you address that? In the short term, what are your solutions?
Mrs Matthews: I guess, Mr Kwinter, in the short term we make four proposals: harmonization of PST and GST to take away that cost advantage in going south, because you are going to pay the extra tax when you --
Mr Kwinter: Could I just ask you a question about that? Right now, there is no question that, given the economies of scale, there is a cost advantage on many items in the United States. With the dollar today at 87 --
Mrs Matthews: Just under 87 cents.
Mr Kwinter: Okay, it is around 87 cents. When you combine the PST and the GST you have 15%, which just about makes it neutral. In other words, any advantage or disadvantage of having to pay the PST and the GST is more than offset by the value of the dollar. So what I am saying is that, even if you do that, you still have to address the basic problem of economies of scale, efficiency of distribution, and all those things. There is no question that all these things you are suggesting are going to help, but are they going to be enough to change the pattern?
Mrs Matthews: I think, Mr Kwinter, that is probably why we characterize them as short-term solutions. We would not disagree with your analysis of gas zones and problems that there may be in implementation. I think it is the problem of what you can do in the short term for business people and communities that are really hurting in these border areas. I think they need the long-term solution, but many of them are not going to be around when we find the solution, unless we can have some short-term assistance for them. Gas zones have enormous problems in their application. It may just move the problem to Burlington or Oakville, but it will offer some help and short-term assistance to people who really are on the edge in terms of the viability of their businesses.
It is very hard to suggest that, although this is a retailers' problem at the moment, it is the inputs as well as their own practices, and the responses of citizens in hard times who want to find the lowest price, that are really combining to make it a retailers' problem, and we are viewing it that way. But until we look at the whole production-distribution system, we really cannot give the retailers a long-term answer.
Ms Harrington: I sat on our chamber of commerce in Niagara Falls for a couple of years, and I would like to tell you I am very impressed with the amount of interest they have in so many issues, provincial issues and local issues. They are really, genuinely concerned about the community.
I wanted to tell you what some of the merchants told me last weekend, that when the difference in filling up your gasoline tank is only $5, as opposed to $10, people will think twice about going across the border; people who are busy, who do not feel that it is that much of an advantage. So I am thinking that would be good to consider, because once you get over there, you are tempted to look around at the other things, and you leave your money over there.
I arranged a meeting between our local chamber of commerce representative and Premier Rae at the beginning of March; we proposed this issue to him and we had a fairly full discussion. Our local chamber is involved with the "Shop Ontario" campaign, which is trying to do some marketing about what is competitive and a good buy in our local area.
It is difficult for them, I admit, and the thing that I have found, after speaking with them, is that some of the merchants lack interest in fully participating in this aggressive type of marketing campaign, and really getting involved in this issue instead of just sitting back and saying, "Well, we can blame everybody, the federal government and X, Y and Z." They should be saying, "What can we do, personally, to educate" -- of course, they do not like pointing the finger at consumers and saying, "You should not be going across the border." That is not what they want to do, that is not what we want to do, but we do want to have some more positive way of dealing with it. Promotional; your organization at a provincial level, is there any way you can see to get local, small merchants more involved with promotion?
Mrs Matthews: That is a tough one. I would hope all those merchants are members of their local chamber of commerce as well. I made reference to one of the co-operative training ventures with local chambers and community colleges. Obviously it is a difficult problem. I am not sure that you can force them to do anything other than pointing out their best interests. So I am not sure I have an answer to that one, Ms Harrington.
Ms Harrington: You mentioned having the government and the unions, I think it was, as well as --
Mrs Matthews: Business, labour, government, working together, yes.
Ms Harrington: -- working together. I certainly agree with that. I am saying that before we can really do a lot, we need to have it come from the merchants, the small business people, from the grass roots, so that we can work together.
Mrs Matthews: I thought that is what you were hearing at these hearings, especially with the border communities and chambers of commerce making presentations. I think the willingness is there.
Mr J. Wilson: Just a preamble: Perhaps I did not make myself clear in my last comments when I talked about taxation. I note that the Ontario Chamber of Commerce points that out as one of the primary problems.
You indicated to me off the record, Mr Chairman, that the Canadian Federation of Independent Business had presented contrary evidence, and Mr Sutherland agreed with you. I can only suggest that you re-read this. It has the point in spades that Ontario's competitiveness is one of the primary reasons -- in fact, in conclusion, that is what they deal with and the charts indicate --
The Chair: Your comment was International Falls compared to Fort Frances; the closest comparison that document deals with is Duluth with Thunder Bay, and the chart clearly indicates that the tax differential in Thunder Bay to --
Mr J. Wilson: Is less.
The Chair: -- is around 15%, and at one point, I think, as high as 21%, but your comments ran to three to five times the amount.
Mr J. Wilson: I apologize if that was your specific comment. We agree there is a significant tax differential. Whether that ranges from 10% in the case of Thunder Bay versus Duluth -- it is significantly higher, as much as, I think, 40%, I was just reading, between Toronto and Buffalo -- my argument is, strictly from my experience last weekend in Fort Frances, that you might find examples there if the study were to be done by the government or otherwise, of over 50% differential based on the taxes paid on the Fort Frances side, versus the International Falls side.
Just a simple question, obviously. We agree; we have never met before, but we have come to independent conclusions that taxes are a major part of the long-term problem. The solution that this government has put forward has been to defer many of these matters to the Fair Tax Commission. I am just wondering whether your organization and the people you represent, the small businesses in Ontario, the people who actually create the jobs in our communities, can wait for the report of the Fair Tax Commission and subsequent action it may take. It may be three years, and I would argue that many, many businesses cannot afford to wait until that commission comes forward with recommendations. Any comment on that?
Mrs Matthews: We agree, Mr Wilson. I guess we came in today with hopeful suggestions on the short-term basis, things that could help until the longer-term solutions are found. We know businesses cannot wait two or three years for anything to happen. They need something in the short term and then working towards longer-term solutions.
The Chair: I would like to thank you for your presentation. Those are the bells that I was warning you about.
Mrs Matthews: Yes. That was very good timing, sir.
The Chair: Thank you.
The committee recessed at 1155.
AFTERNOON SITTING
The committee resumed at 1552.
The Chair: I call the committee to order. We got a little hung up and started late, but that should not interrupt the time we have to hear your presentation.
CANADIAN COUNCIL OF GROCERY DISTRIBUTORS
The Chair: We have the Canadian Council of Grocery Distributors. Perhaps the spokesperson will introduce those present.
Mr Carter: Before I begin, I will ask you if it is all right to make a short presentation of our brief and then our contingent is happy to discuss the issue and answer questions wherever that is useful.
The Chair: That is good.
Mr Carter: Thank you. Let me introduce my associates. Kevin Ryan is vice-president, store operations, of National Grocers/Loblaws, which includes Zehr's and sells to Mr Grocer, which is a franchise operation. Jonathon Wolfe is president and chief operating officer of the Oshawa Group. In this area you may know some of its stores: it operates under the name of Food City, a little further away is Dutch Boy, and it wholesales to the IGA group in this part of Ontario. Bob Winstanley is director of public affairs of A&P, Dominion and Miracle Food Mart. I am Tim Carter and I am with the Canadian Council of Grocery Distributors.
We have a submission which we would like to put before the committee and I gave copies to the clerk. With your indulgence, I would like to briefly refer to it, starting at the first page.
Let me first of all say that we appreciate very much having the opportunity to come before this committee, because this issue is of major importance to food distributors in the province. Some years ago when it started, to us it was important, but since then the sales loss and financial drainage have accelerated to the point where we put this issue at the top of our list of items that are important to us for discussion with government.
Our document is divided into seven sections. We have listed those at the bottom of page 1, and I would like to refer to them briefly now.
The association, which we call grocery council, is a trade association representing food wholesalers and retailers. This is a national trade association. Within the membership we have food distributors that do over 80% of the country's business. In Ontario that percentage is about the same. I might say that the members in Ontario operate stores right across the province with staff that exceeds 80,000 employees. This is the major trade association for food distribution, which is wholesale and retail.
Maybe I could start with the size of the financial loss that we attribute to cross-border shopping. You have probably had a number of estimates placed before you. We would like to deal specifically with food.
Food retailers, individual grocers, will estimate their sales loss and gain from various competitors. It is hard to pull together these numbers on an individual trading area basis. What we tried to do is give you more of a macro look at the province overall. On 4 April you had before you John Winter and Associates, who estimated that in this year there would be a loss from Ontario of about $1 billion in sales to US retailers. My look at these figures concludes that about one quarter of that, or about $5 million per week, would be the food retail loss.
Translating that into jobs is particularly suitable for a food retailing exercise, because food retailers guide their operations by sales per labour hour, very closely. Labour is 60% of the cost of running a food store, so they are quite meticulous in measuring the sales per labour hour. When we apply that to the sales loss, we come up with a figure in the neighbourhood of 1,700 jobs lost in the food retailing sector from that sales loss of about $5 million per week. This is both part- and full-time employees.
That is just food retail. We believe the worst point at which an economy can lose jobs is at the retail level, because at this point when you lose a sale you lose it all the way back through the system. A retailer losing a sale to the United States does not buy subsequently from the manufacturer, who does not buy from the farmer for the raw material, who does not buy from the package manufacturer and so forth. So the whole chain or all the levels within food distribution lose.
This then means that the 1,700 jobs you lose at retail are compounded by whatever you lose further back in the system. Moving over to page 4, we have made no estimate for what you lose in the food system beyond retail. We notice that the representatives who appeared before the committee this morning did so. We have no argument with their figures, but it shows that there is a loss through the whole system.
One thing we have not done as well, which you may want to look at, is the job loss in the non-food section. We have just looked at food. Of course, when you lose retail sales in clothing, appliances, liquor and all those other places, you are going to have a job loss at retail that is followed up with a job loss further back in the distribution chain.
We have concluded that the aggregate loss to the province in jobs and sales is of alarming proportions. We have also concluded that it is going up, and going up steeply. We look at the figures presented by the government showing the same-day trips. They have gone up for the last three years at the rate of 20% to 25% per year. We think our sales losses are going up at the same rate, so it is growing.
One of the things I probably should add, Mr Chairman, is that we have noticed that the retail industry and some other industries are coming forth and talking to you. But when the retail industry adjusts, because it is losing sales seriously, and the stores either close or downsize, the noise will drop down. At that time, whether it is one, two, five, however many years that is, that will suggest the haemorrhaging has stopped, but it will not have stopped, because you will still be losing the sales from the manufacturing sector, from the farming sector. That will go on, even though the sound and the racket the retailers are making currently may die down. That is an important point for people in public policy to see, that it is a total economy problem.
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On page 5, we talk a little about the causes. We believe the cause of the shopping migration to the United States is driven by lower prices primarily. This is particularly due to the fact that over the past little while we have been in recession. Our own research shows that Canadian shoppers are particularly sensitized to low prices, and they have shown no reluctance at shifting brands, shifting stores, and shifting countries.
US retailers, targeting the Ontario market, are using specific tactics to attract Ontario shoppers. I have brought some flyers with us that you have probably seen -- maybe they have even been delivered to your homes -- that show the kinds of features they are offering to Ontario shoppers. Oft-times, they are things the Ontario retailer cannot match. Here is one that is interesting. That is beer, Molson Golden in a supermarket, sold in New York state at half the price you would pay for it in a store here. We cannot even sell beer, let alone our own beer. They are dropping those flyers in southern Ontario. Here are eggs at 28 cents. Supermarkets cannot buy eggs here for their own sale at 28 cents.
They put in maps, as you can see, on how to cross the border and get to the supermarkets. They offer Canadian credit card service and, of course, they are open seven days a week. They go after us in ways that are very hard for Canadians to match.
They have done so in ways that are not just found in the flyers in Ontario. They have changed their stores. We see a lot of stores opening in the neighbouring states which are dependent upon attracting Ontario shoppers. We do licence plate counts in the parking lots of US supermarkets and we know that a major proportion of their shoppers are from Ontario, so they have a dependency upon Ontario shoppers. We put in the results of one bit of research on page 6.
We look at pricing comparison, because pricing is the major attraction. You have probably had a number of studies presented to you on pricing differences. We have received a number of them and would be pleased to comment during the question period, if you want to ask us about the pricing level differences we observed.
I am on page 7, talking about the reasons we believe the pricing levels are different between Canada and the United States. We know the obvious ones, including the size of the country and the climatic conditions. We have a smaller population base, which damages the economies of scale. We also have large differences that increase the cost of freighting around the country. The northern location of the country puts a premium on single-crop production, and the hazards of crop damage in that kind of situation.
You probably can get, if you like, testimony from the manufacturing sector about these areas, which they are better equipped to talk about than we. They could also talk about the rate of profitability between Canada and the United States. We can simply mention to you that the retail level profitability in Canada is less than it is in the United States. In the US it is 0.86%, which is less than 1% on the dollar. In Canada it is 0.57%, which is half of 1% on the dollar or of one cent on the dollar. Even if we were the same level, it would not account for the huge price differences. We are dealing with less than a cent on the dollar.
One of the things we would like to talk about this morning is the role of government in the price differences, and to tell you about some of the answers which retailers operating in border areas have given to their trade association. For today and other presentations we have asked them to comment on these things, and they have suggested that one of the factors contributing to the differences are the costs of government, both direct and indirect, in affecting pricing levels.
At the federal level, I would like to simply mention the difference in the input costs of some items. Those items are the industries regulated by supply management marketing boards. We see the biggest price gaps between Canada and the United States in those items: turkey, chicken, eggs, dairy items. This, to a large degree, we think, is because of the difference between Canada and the United States in the way the producers are subsidized. We tend to do it through the pricing mechanism as well as the production, which pushes up prices. The United States does it through the Treasury, which is a different form, so that at the border it makes the gap that much greater.
The Chair: Is that how they can put eggs on the market at 28 cents a dozen?
Mr Carter: We think so.
The Chair: Is that a loss leader?
Mr Carter: That suggests the retail loss leader. What we are talking about here is the government approach to helping the farming community. It is very different between Canada and the United States. Here, egg production is controlled in quantity and price. There is a cost of production formula that allows farmers to be subsidized through the pricing mechanism, which goes right through to the consumer, so it pushes up the price of eggs in Canada, as opposed to having the taxpayer do it heavily here, as is the case in the United States.
The Chair: Do you have any comparative analysis of how much the federal Treasury in the United States puts into its subsidies at the other end, which would then give you an idea of what the real price of their egg production is?
Mr Carter: Sure. I do not have them with me, but let me tell you where I think they are easy to come by. In the recent round of GATT negotiations, every country had to put in its method and its quantity of subsidizing the agricultural sector, so these figures are available. You would go to the sectoral advisory group on international trade; it is the Department of External Affairs.
We are working with Agriculture Canada on the subject of the federal government's approach to a second generation of marketing boards. It is a subject which does concern us and does push up the price gap.
At the provincial level, there are areas which we think cost us, and we would like to mention those. Some of them are direct and some are more indirect. On the direct side, we have those which relate to labour costs, such as pay equity and minimum wage differences and workers' compensation, to mention a few just as illustrations.
On the marketing restriction part, we have noticed that US retailers are quick to exploit advantages which they enjoy. We mentioned the flyers and the credit cards, and the beer and wine. We did not mention Sunday shopping. This is an obvious advantage and one we would like to mention. There are others, which I have referred to on page 10, and we can get into them at question period if that is of interest.
Moving over to the conclusion on page 11, we would like to simply mention that we think the loss in cross-border sales is symptomatic of the larger issue, which is the competitiveness of Canadian or Ontario industry in facing international competition. The fact that the retailers are losing business to the United States we do not think has been influenced by the free trade deal at the retail level, but as trade liberalization continues through that deal, certainly other sectors of our industry are going to face, increasingly, international competition, and they will need to look towards being competitive. This is our supply community.
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We do not believe sealing the borders is the answer. We think what we need to do is look at operational disparities and move towards correcting them. This is within our own operations as well as the government aspect of public policy.
We think the starting point is for the government to recognize its role in affecting the outcome of the economic struggle and the regulatory burden which it places on local industry. We think this should be viewed alongside the regulatory burden which is placed on competitive industries. In our case, it is food retailers operating across the border. In the supply industry, it is either that which is placed on companies that sell into Ontario or in the markets to which Ontario companies wish to export.
We think the public sector or government is very much a part of our competitive team and we would like to work together to preserve markets, as we know that it is through our joint work that we will be successful, ultimately, in the competitive struggle.
Our first recommendation, on page 13, is to suggest that the government accept its role as part of our competitive unit and do an assessment in much the same way as we know they do at the federal level on new bits of regulations. They look at it in socioeconomic impact studies. We notice them as well on the assessment of environmental factors.
What we would suggest happening, in advance of implementation of legislation or regulation planned, is that it be assessed in terms of the competitiveness of Ontario industry. A benchmark study would be useful to look right now at the competitiveness and the regulatory burden that we and other parts of the economy face, as a benchmark, and we would be pleased to co-operate if that would be useful.
The federal government, on Monday 22 April, will be announcing a benchmark study which we suggested it do. It will not be on food, but they will be announcing it in Niagara Falls. In that city, there will be a meeting of about 20 industrial groups on the subject of cross-border shopping. If the committee wanted to send a representative, I would think that would be very welcome. There will be a number of papers presented, one by Industry, Science and Technology on a study it is doing on the regulatory burden.
However, they have said that budgetary restrictions will preclude their doing more work in this area, so I think any encouragement which the province could give them to get back into it would be most worth while.
The federal government has released a document on customs and excise dealing with Customs 2000 and its approach to running inspection points at border crossings. It is concentrating on facilitating traffic flow. We went before the minister suggesting to him that the emphasis should be on preserving the integrity of the border. We thought they were going in a direction that was fine, but they should place their emphasis primarily on looking after their primary role, maintaining the rules of importation. We would like to make sure they do not swerve on that and I think any help we could get from the province would be appreciated.
They are also looking at a fast-track proposal to have one lane at border points available for frequent travellers. At these points, these travellers would voluntarily make out forms and get billed for their duties by mail. This will allow them to go across the border more quickly.
We suggested at the time that they do a proper study of this involving the retail industry so that we could put in pre- and post-figures to assess the impact on cross-border shopping. We do not think this idea has been taken on board and any help you can give us in that would be very worth while.
It is important, before they expand this notion across the country, to understand the impact. We do not think it is going to be a good one on sales and it should be looked at carefully.
Our last recommendation, on page 17, deals with tax collection at the border. We think it reasonable that the provincial sales tax be collected when the GST is being collected there. We think an agreement between the province and the federal government is a good idea. Of course, we could not say that without advocating, as retailers, that the two tax systems be harmonized. It certainly would help our operation, as it would the collection at border points.
That is the substance of our presentation. Thank you for letting us present it. We stand ready to answer questions.
Mr Kwinter: Mr Chairman, am I restricted to one question? Okay, I have one question with several parts of that all related to the main question.
The Chair: You guys do that all the time any way. Why do you even ask?
Mr Kwinter: Number one, do you have any figures as to those who cross-border shop, what percentage of their shopping is done in grocery products?
Mr Carter: I have some figures that are limited. One of the things we know is that people change their basket according to the distance from the border, among other things. So people who live right in the same town where the border is may do more incidental shopping like food, whereas people who live in Toronto may do less food and more appliances and clothing and some of the big-ticket items. So it will change. We have one modest study, at least I do; maybe my friends have other ones. In Fort Frances the proportion was quite high, but it does change.
We have, as you will notice in our brief, taken a position alongside Mr Winter's study of about 25%.
The Chair: This is part B, I guess?
Interjection: Port customs, Mr Chair.
Mr Kwinter: Part B, yes. I would assume that, given the size certainly of the representatives here, from a buying capacity, you would have the ability to buy as well as, say, Tops. I am talking about certainly the members sitting here. I would think that A&P and Miracle, or the Oshawa Group or Loblaws would certainly be in a position to buy as well. Is that a fair assumption?
Mr Carter: I would think so.
Mr Kwinter: I am not talking about items that are controlled by market suppliers or supply management. The point I am trying to get at is that if a box of Kellogg's Corn Flakes is being sold in the United States and in Canada, what are the factors that would make it more expensive in Canada that it would in the United States?
Mr Carter: You first of all have the cost at which the wholesaler has to buy it. Kellogg's probably will not sell it at the same price in Canada as it will in the United States. They have a whole lot of different regulations to live with, they have different costs, they produce it in Canada so their economies of scale in their production are going to be different. Their distribution costs are going to be different, so the price to the wholesaler will be different.
Kellogg's is probably the best one to give you the reasons for its difference in pricing levels. We know, from talking to the suppliers, that those who have a high component of supply-management products as part of their costs are having difficulty facing at the process level the imported products. Kellogg's has grains in it. That is not one where there is a great difference, but certainly for milk there would be and some of the other products. Maybe my friends would like to get in to comment. You might want to call Kellogg's.
The Chair: My understanding is that for Kellogg's, the actual content of the box is seven cents.
Mr Carter: The actual content difference is seven cents.
The Chair: No, no. That is what it costs.
Mr Carter: That is how much weight is in there.
Mr Winstanley: I believe that figure was mentioned without any scientific background at all, as well. That is just something somebody threw out on an estimate.
The Chair: Do you have a better number?
Mr Winstanley: I quite concur with Mr Carter. I think you could get in touch with Kellogg's. They could probably give you a better answer.
Mr Kwinter: What I am trying to arrive at is that we have heard ever since we have had these hearings, "How come, when a product that is sold in the United States and an identical product is sold here, there is such a disparity in the price?" All I am trying to do is to get confirmation from the major retailers as to exactly the point you have made. So, obviously, you are not buying even though you have the buying power that would be comparable to a Tops or even more, you still cannot buy as cheaply as they can at your level, at the product purchase level.
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Mr Carter: I do not think it has a lot to do with buying power because they are in a completely different market. Within that market, they will be buying whatever the rules are within that market.
Mr Winstanley: Tim, perhaps the answer is more closely that we would buy Kellogg's Corn Flakes from Kellogg's, which is in London, Ontario. Tops, which is part of Topco, which is an enormous operation, buys from Kellogg's in Battle Creek, Michigan. So it is really apples and apples. Although the package looks close to the same, we are not buying from the same sources at all. That is why I suggest to Mr Chairman that he is best to get that representative answer. We are buying for two separate issues here.
The Chair: You also have a second problem here that maybe makes the Kellogg's Corn Flakes from Ontario more expensive than in Michigan. I brought information to the committee just last week that one of the representatives in my riding, who is a branch plant of a multinational, is told that they cannot compete with the parent company in the United States in terms of pricing and putting a product into the market.
Free trade was supposed to give us the chance for economies of scale, which I think a lot of people assumed meant that all the companies in Canada would be able to compete with whatever is going on in the United States. That, in this one instance that I can certify as being accurate, does not seem to be the case. I am wondering if that might also translate into other costs.
Mr Winstanley: That could be, Mr Chair. However, it is all anecdotal. The issue we are trying to get across in our presentation is that the price we are paying and we are vending it at is enough that it allows us, based on our cost containment, a lesser margin by about 60% than the US is able to make.
The Chair: I think that is something that we as a committee have to understand and get to the roots of: why the prices are higher and why the prices are different.
Mr Carter: I think that is a very useful exercise and you might do it on a number of commodities. The ones that have the biggest gap are the ones we mentioned, such as turkey, chicken, eggs and dairy, and they are all over 50%. The ones that are a lot more similar deal with things like pork and beef and some of the grains. The condiments, where you have a lot of American manufacturers that are in both countries, you will find the difference is quite high. We will be happy to give your research staff what we know at the retail level, but we are only at the retail and wholesale levels. As you work your way through it, the retail component, as you can see, is less profitable here than it is in the United States.
The Chair: I think those numbers would be very interesting for the committee to see. If you could send them along, we would appreciate that.
Mr Kwinter: I am still on point C, or maybe D. It is my understanding, and I may be wrong, but I heard somewhere when I was a minister that the number one product in volume that is sold in a supermarket is soft drinks. But the number one sort of attraction, the one that people are most price-sensitive to, is milk. Is that something you would agree with? If you do not, then there is no sense in my pursuing the question. I was just wondering, do you as merchandisers find that?
Mr Carter: I would ask my friends to comment on whether soft drinks are the largest one, but I can tell you that the ratio of sales of milk to the total company store in border towns is half what it is in non-border towns, which suggests to us that Canadians who live in border towns buy as much milk in the United States as they do at home.
Mr J. Wilson: But they buy a lot of everything else too.
Mr Winstanley: Yes, once they purchase milk. By the way, that same analysis was presented last May in Halifax by David Sobey, who had the study of his stores in New Brunswick that were near the border. I believe that is probably where you got the numbers as well as the numbers here in Ontario. The situation is identical there. But milk, I think you are probably right, sitting here with my competitors, is probably the driver. I do not think there is any question about it. It is consumed daily. You know, it is a fairly simple equation: If you want to drive business, find something that is consumed daily.
Mr Kwinter: The whole purpose of my question is that maybe we have been hearing about the wrong thing to address. Maybe instead of worrying about the price of gasoline we should be addressing the price of milk, if that is the number one driver as opposed to the price of gasoline.
Mr Carter: I think what we understand is that when people go to the United States they do not just buy one item. They buy a basket and it will have gasoline in it or beer and some food items and milk. It is the totality of it. I would think milk would be a good one to chase down. You might want to find out what is in that basket and the item that is most frequently there per transaction is one that certainly is a driving force. I think it would be a very worthwhile thing to draw statistics on.
Mr Sutherland: Speaking of that issue, food, and talking about baskets, one of the presentations said their group did an analysis in Niagara Falls, one of the studies down there. When they looked at a basket of groceries on both sides they found that the differential was not that much. I am wondering whether you feel that in some cases, maybe even in your industry, we are possibly not selling properly, we are not retailing-marketing properly, if there is evidence to suggest that, and that in some ways their part of the thing is that yes, on items like milk there is the big saving, but that overall the savings are not as great as people are led to believe and that we are being outmarketed or outadvertised.
Mr Carter: I do not accept the fact that the savings are not great. Some items are an awful lot higher. We just talked about the ones that are and they are over 50% higher, so it is worth your time, if you are going down to the States, to buy those alone on a per-hour basis. You can justify that because gasoline is so much cheaper that it is considered free. If you buy a basket, of course you will negate some of that value, but you do not have to do that. People go down there. We learned about milk. They are hitting milk. They do not have to buy the full range of what they are doing. If you ate nothing but grains, like pasta, and you ate pork and a little bit of beef, it probably would not be worth while, in what we see, going to the States. That is not what they are doing. They are hitting the items where they can make a huge saving and make it worth while.
Let me shut up and ask my friends if they want to add anything.
Mr Ryan: I have read the concern that we may be outmarketed, but I do not believe that, based certainly on our experience. We have a representative from A&P here who does business on both sides of the border. I do not believe that would be the case at all. Loblaws does business on both sides of the border. If you went down to Louisiana or St Louis and you were to see the National Tea Co stores, you would see stores down there that look very much like Loblaws stores. We export the technology or the store design to that market.
Our corporate brand program is exported to that market philosophically. I am not talking about products, I am talking about the philosophical approach. In our particular case we have put large supermarkets into border communities. In Windsor, we put in two large supermarkets recently. In Sarnia, we put in large supermarkets, the 100,000- to 120,000-square-foot variety, large units, well staffed, well stocked. To presume we are being outmarketed, if that were a thought, I do not believe that is the case. I believe people who work in our stores and the marketers in Ontario are as good as any place in North America.
Mr Sutherland: I have two other questions. One, I want to talk about the issue of training and development of staff. We heard from Mr Winter that in a couple of the surveys people found they were getting better service as one of the reasons, not the principal reason but one of them, and it has a percentage factor. I worked in a grocery store, actually, for the Zehr's people and they did a very good job of finding a niche in the marketplace in southern Ontario in terms of service. But I was constantly surprised at how much lack of training and development there was of the staff. I am just wondering whether you could comment in terms of whether there are industry standards on that basis, or do you just assume that, you know, people you hire off the street are going to know how to deal with people?
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Mr Ryan: Speaking specifically of Zehr's, Zehr's and the United Food and Commercial Workers have a joint program and they have a joint training centre that they work at together to accomplish exactly that particular objective. I cannot speak to the time that you refer to, but certainly that issue is being addressed on an ongoing basis to provide the type of service that customers are looking for.
Mr Sutherland: I was also under the impression that you set aside a certain percentage of your sales budget or a percentage of your budget for community involvement, community support. I was wondering if you can give us an idea, is there a standard and could you give us some idea as to how much money you are putting into these communities, maybe in the communities of Ontario altogether, in terms of supporting minor ball teams, hockey teams, Big Brothers, hospital campaigns.
Mr Carter: I am going to ask them all if they would think about that. One of the things that is hard to estimate is giving to a food bank, or at what level do you do it. They may have different ways of calculating that. Some things you do when you distribute things and pick up in your trucks. Not everything will be able to be caught in a balance sheet, but I might ask them to comment. I know they all are involved in different things within the community. As a percentage of sales, that may be tough, but they all are involved.
Mr Ryan: We certainly would not have that number with us today, but there is not a segment of the grocery business that is not actively involved. Certainly from our standpoint, with the large franchise component of over 200 stores, there is a tremendous local involvement in small-town Ontario and large-town Ontario.
Mr Carter: A lot of this is done by the franchised dealers. Kevin is with National Grocers, Jonathan is with the Oshawa Group, and the independent grocer will be involved in what is going on in his community. As far as the collective side is concerned with our trade association with the members, there are a number of things going on right now that are community. You may have noticed Cash for Kids, which helps Variety Village and the telethon and they have all been involved in that. You may have noticed the Kids Help Phone, which is to help children, which is a new item, and of course Computers for Kids where we are trying to raise money for the elementary schools. There is a lot going on.
But I would like to get back to one of your questions, if I could, that talks about the service in the United States. When you have to hit a certain sales per labour hour, in this case it is $116, and your cost of labour goes up, because we have a higher minimum wage here than in New York state, it cuts down on the availability, so it is harder to have as many labour hours available. So when you face a competitor across the line who has got a lower cost, it is easier for him to have more service.
Mr J. Wilson: As I am a member of the Conservative caucus, it will not surprise you that I am pleased with most of your recommendations and comments in your brief.
You identify competitiveness as the overall underlying problem. We are constantly frustrated day after day that the government continues to blame free trade, and I think you said in your oral submission that you did not really feel the FTA had any effect on retail prices. That could be somewhat true and could be argued a bit, I guess.
You identify the importance of pricing and the price advantage enjoyed by the United States. We have had a real problem convincing this government that that is what is driving people across the border, the price advantage.
Having said all that, I am interested in the topic of Sunday shopping. We had about eight months' experience of open Sunday shopping. Could you comment, please, on what the effects were on your stores. The Premier very clearly today, in response to a question in the House, said Sunday shopping had absolutely nothing to do with cross-border shopping. Perhaps you could just comment a bit on that.
Mr Carter: I would like to ask my friends to do that, but I would like to just correct one thing, if I could. We said that the free trade agreement, at retail, had nothing to do, not with prices but with the shopping exodus. That was going on before that came in and we think it would have been going on anyway. What is going on as far as the migration is concerned had really nothing to do with that.
Mr J. Wilson: Because it is price-driven.
Mr Carter: Yes, that is true. I would like to ask my associates here to comment on the effect of Sunday shopping on cross-border shopping, if they could.
Mr Wolfe: No one in this room will have trouble with the concept that some time late last spring and early last summer the Ontario economy went into a tailspin. It began a tailspin and has continued in that direction since then. Coincidentally and concurrently with that drop was the court decision that allowed Sunday shopping.
I do not think anyone in this room could statistically verify which of those two events was the cause of the sales trend that has developed in this province since then, but I think as a retailer I can indicate that of those two concurrent activities, one had a mitigating impact on the other. The fact that the Sunday shopping became available in June, in our view, slowed the decline of retail sales.
I would suggest that to pretend that Sunday shopping is not related to a border issue is perhaps wishful thinking. We closed our store in Fort Frances, Ontario, as a direct result of our inability to compete on Sunday, and this happened before Sunday shopping was legalized in the province last June. This happened in early spring last year when we noticed our customers travelling en masse to International Falls, and we merely had no option after asking the municipal authorities for permission to compete on Sunday. They denied us that permission. We closed the store -- it was a UFCW store -- and felt we could no longer compete. That of course is an anecdotal example. There are more and there clearly will be more. To deny it is wishful thinking.
Mr J. Wilson: I notice your final recommendation is joint collection of the PST and the GST. I am going to ask you a political question. Given the politics of this, with the government in Ontario now, how realistic is your expectation or hope that you will see those systems merge?
Mr Carter: Our estimate is that harmonization would be good for the Treasury in Ontario. It would actually increase income to the Treasury. I do not know if that is a good thing politically or a bad thing. I will not comment on that.
Mr J. Wilson: It is good if you are the government and you can get away with it.
Mr Carter: But you have to present your budget next week.
It will also make life easier at the retail level, because harmonization -- as has happened in Quebec and other provinces; they have looked towards harmonizing -- makes sense from a mechanical systems side. We would hope they would look at it. I would not comment on it politically. I think some day, myself personally, it will happen because it makes so much sense.
Mr Dadamo: Has the industry ever thought of doing an analysis of some products that are available in both the US and in Canada, and sort of go on a comparison campaign and go on a media blitz for a short time to tell people that it is costing duty and taxes, travelling time, gasoline, etc, and could you possibly make a case to show them that it would be much cheaper to buy a batch of products here as opposed to going over there?
Clearly, where I come from -- as I mentioned this morning, Windsor is my riding; the Ambassador Bridge is in the riding -- we know that people are going in hordes to the Pace Warehouse, and we know that they are going because of course they can buy in bulk. I know that Farmer Jack's has tried doing the bulk thing in Windsor and it just does not work, because they cannot sell that case of whatever cheaper than Pace can.
So my point is a comparison campaign. Has it ever been thought of? I think it would be worth your while. I spent many years working in that industry, by the way, with Dominion Stores, since we are name-dropping, but years ago. Run those full-page ads.
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Mr Carter: One of the things that retailers do, and you probably notice it in Windsor, is that they will pick out those items where they can compete, and there is a whole pile of them -- we talked about them earlier, the pork and then the beef and the grain items -- and they will bang those. So some of that is going on. If you tried to say, "Don't go to the States to buy poultry and eggs and milk," you will lose, because it makes sense, particularly when you throw in gasoline and cigarettes are half the price, as beer is, and so forth. So you have got to be careful when you do a comparison. If they are going after those items, your mathematics will fall apart. But the retailers do push those items where they can compete.
Let me ask my associates here: Farmer Jack's?
Mr Winstanley: We operate Farmer Jack's on both sides of the border, and the reality is that normally when you get into a situation like that you encourage retaliation, and that is retaliation that is suicidal, and you do not get into suicidal marketing games. So that is really the end of it.
Mr Dadamo: But if you are running stores on both sides of the border, and I presume that you are buying from, say, one central warehouse someplace.
Mr Winstanley: No. You cannot do that. Maybe the presentation has not made it very clear, and if it has not, I apologize on behalf of our committee.
Mr Dadamo: No, that is okay. I walked in halfway through. I apologize to you. I may have missed it.
Mr Winstanley: Okay, I am sorry. If I could just respond, though, you can just pick up the Globe and Mail and you can take a look at what the price of market order on chicken is between the two countries, and it is less than half the price, and dairy, and go through all of those issues. We do not get into manufactured items. We have got items that we are growing, raising, harvesting right here in the province that we can deal with, and I think it has to become the will to deal with those issues and to remove us from the jeopardy that we now find ourselves in. I have 28 stores in this jeopardy right now.
Mr Dadamo: Mr Kwinter was talking about Kellogg's earlier, and I had heard not long ago that the box costs more to manufacture than the actual contents over there.
Mr Winstanley: We covered that one earlier.
Mr Carter: I would recommend that you get Kellogg's in and ask them a little bit about that. But if you get Kellogg's in, you probably should go right back, because you have suggested, or at least I thought you did, where you would trace it right back through the system. I think that is a very worthwhile exercise, when you can get not only their business input cost right back, but the regulatory input cost. We do not know what is going to come out of this study the feds are going to present on Monday, but you might send an observer down, maybe from your research side, to see if that may be a model to do it. I think it would be very useful to do that, and you could take a look at poultry going back through it, and then the process. It is interesting that you find pricing comparisons show that fresh fruit and vegetables between Canada and the United States are a lot closer in price than the process side. That would be an interesting one to follow through as well.
The Chair: Okay, I am going to terminate this presentation at a quarter to. That would have given them an hour, and I have two more questions, one from Mr Hansen and one from Mr Ward.
Mr Hansen: I grew up in the grocery business. When I was in high school I worked for Loblaws and then I worked for Dominion. What I saw earlier in my life was small grocery stores on the corner. Then came Loblaws with their large stores, so this was a new type of marketing in grocery stores. Then later on, at Loblaws at one time they had Toronto prices and Niagara prices. In order to be more competitive they took the Toronto price, so the price was the same in the Niagara area as it was in Toronto. Then we came along with different type of grocery stores again, Commisso's, where they put the whole case on the shelf where there is just a price there, a code and everything else, so that is another type.
Do you think we are going through another phase of marketing in the grocery store business, that it is distribution, it is a whole lot of things that we have seen here? We have listened to submissions here since January in different areas for the finance committee here, and it seems like everything is changing. And as we have this cross-border shopping, we have to become competitive, and I know I have only one question, so I am going to try to put it all in, if you can comment on it.
The other thing is, Mr Wilson, subbing in today -- I do not know if he has read all the reports, but on the Sunday shopping issue --
Mr J. Wilson: I have read the sectoral reports, you might know, also.
Mr Hansen: Okay. One report that came in said 65% of the people were shopping in the United States because of price; 1.9% was because it was open on Sunday. It depends on where you stand to take the survey. If you stand at the bridge on a Sunday and ask, "Why are you going to the States?" they say, "Because the stores are open," possibly. But in this whole list, from 65% down, and it got right down to 0.03% because they like the margin, there were quite a few different elements involved in why they were shopping in the States.
I have already heard some of your comments on the Sunday shopping, but perhaps you could give me some comments on the grocery industry. You feel this is an area that we have to move on as a different type of marketing and distribution?
Mr Winstanley: Let me answer that in this way. Yes, you are absolutely right. You have had the entry of people into Ontario like Price Club, which has three locations now and will end up with seven. They do over $2 million a week. Their labour costs are fractional. They are non-union and they are open Sunday. By the way, they open Sunday without regard to your current ruling. They pay no attention to you. So they do that and they take a lot of our business, and they are non-union.
They bring in a lot of products that we cannot sell. We have raised the issue about before, the single-language product --
Mr Carter: You might say illegal product.
Mr Winstanley: I am not going to use the word "illegal."
Mr Carter: If it is one language, it is.
Mr Winstanley: Yes, single-language product and that. So there are lots of other things going on. There are lots of people finding ways that are open and available to them, and yes, and I have 27,000 employees and they operate a store with very, very few and they do over $2 million a week. So, yes, you are absolutely right in your estimate.
Mr Carter: I detected at least two parts to your question and I would like to refer to them. The second one dealt with the research, when you asked people why they went to the States. Was it because of low prices or Sunday shopping? That type of research is most difficult to get a proper answer on because it may be because of both. It may be because a bunch of other things. I would suspect that is not the perfect forum to find out which is the dominant part. Our own research and observation lead us to believe that low price is the driving thing, and then if you can do it on a Sunday, it may take a little bit longer. You cannot go down the street, you have to cross the border, so you need a little bit more time. Sunday is a perfect time to do it. It allows you a little more time, so it is a combination of those factors.
The other part about the changing market, the market is very dynamic. You may have noticed the difference. You talked about the format changes in stores. It is changing a lot. It is also changing in terms of the composition between independent operators and chain store operators.
Nationally, the share of market devoted to independents is going up. No place in the country is it going up faster than it is in Ontario. A lot of that is due to the increased labour costs. They have to face lower labour cost independents with pricing advantages which they enjoy. It is very dynamic.
Mr B. Ward: You are as harsh as the other Chairman when he is in the seat.
The Chair: He is teaching me the brutal ways of being a chairman.
Mr B. Ward: Just one quick question, and it deals with the pricing of the base commodities, which I would call milk, turkey, ham, etc. We have been told throughout our committee sittings by some organizations -- not all, but some -- that there is an apparent massive American subsidization of the agricultural sector in America. Primarily, this subsidization has led to some pricing policies that some could construe to be artificial in the sense that milk is costed at a below market price because of the amount of subsidization by the American government.
Until I heard this, I was led to believe that in America it was primarily a free enterprise system. Apparently it is not. Has your group done any research into the pricing of American commodities and the amount of subsidization of American tax dollars into that sector? If you have, would you recommend that perhaps our federal government should be looking at increasing the subsidy of our commodities to match their subsidy, if that is possible? I understand it is very massive.
Mr Carter: You bet. I am going to ask Mr Wolfe to get in, but just before he does, you are quite right. The United States does subsidize its agricultural sector. It received a lot of publicity in the recent Uruguay round in the GATT negotiations. Each of the countries participating was asked to fill out forms talking about its subsidization and the method of subsidization. It is really the method that is of particular interest here. The United States places a lot of emphasis on grain and dairy subsidization. It comes through the Treasury, the tax dollar. The Canadian groups tend to do it both through taxes but, primarily in those four commodity groups, through higher prices, which go through to the consumer. It is the difference that we see at the border.
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Mr Wolfe: Mr Carter's comments are dead on the mark. The real issue is not that the American government subsidizes its farmers more or less than we subsidize the farming community in Canada. It is the way in which it is done. It is done in Canada at the retail level. Our consumers pay that subsidy. In the United States it is the taxpayer who pays the subsidy and the consumer benefits from a lower retail price. So I do not think it would be fair to accuse the Americans of unfair subsidization --
Mr B. Ward: I did not say that.
Mr Wolfe: Oh no, I am not suggesting that either. I think it would be very beneficial if provincial authorities took note of the differences in methods of subsidization and took an initiative to speak with their federal counterparts.
Mr Carter: I might add that it is particularly difficult in Ontario because Ontario has grown more rapidly than other parts of the country since the supply-management marketing boards were created some years ago. You may remember that they fixed the division of the national production quotas according to that time period. Ontario now gets short shrift because we have grown more than other parts of the country, which compounds the problem here.
Mr Wolfe: In effect we have less quota on a national basis than other provinces, which translates into a shortage of available product in this province, and that by definition raises the price to our consumers.
Mr Carter: If you are looking at things to follow up on we would like to put this on the list because it particularly disadvantages Ontario consumers. If you are writing this down you might take a look at the new report that came out from the poultry task force which recommended opening the quota assignments that were set for supply and management. If Ontario supported this it would certainly help. It is the first time this has happened and that was an all-sector committee that recommended it; it had farmers on that committee.
The Chair: Okay, I would like to thank you for your presentation this afternoon. It has been very helpful, and the hints and directions and guideposts that you gave us will also allow us to do some more research and will probably help us come to some kind of recommendation. We do not know exactly where we are going yet with the recommendations, but thank you for your presentation.
Mr Carter: Thank you, Mr Chairman. We stand ready to help in the future if that is useful to you and with research or to reappear. We would like to emphasize that this is about the most important issue we have got so we are at your disposal. Thank you.
ONTARIO BORDER COMMUNITIES MAYORS' TASK FORCE ON CROSS-BORDER AND SUNDAY SHOPPING
The Chair: Our next presentation is the Ontario Border Communities Mayors' Task Force on Cross-Border and Sunday Shopping. They are going to do a grand entrance. Thank you for bringing your signs. It is a good test of whether I need glasses or not from this distance. Please introduce yourselves.
Mr Fratesi: I am Mayor Joe Fratesi from Sault Ste Marie.
Mr Bradley: Mike Bradley, city of Sarnia-Clearwater.
Mr Millson: John Millson, mayor of Windsor.
Mrs Lawn: Sandra Lawn, mayor of Prescott.
Mr Lyons: Dick Lyons, mayor of Fort Frances.
Mr Hardy: Roland Hardy, mayor of Welland.
The Chair: Okay. Begin your presentation, please.
Mr Millson: Thank you very much. I certainly appreciate the opportunity to make this presentation to you today. I will just begin by stating how the procedure began for this group of individuals to get together.
Back about three weeks ago the Premier was in the city of Windsor and was at a head table with myself and minister Dave Cooke and we were talking about various issues, cross-border shopping and Sunday issues, and it was suggested that possibly the border communities might get together to discuss the Sunday shopping issue. That was on a Friday. On Monday morning I was interviewed and of course I began receiving phone calls from mayors all over the province of Ontario suggesting that they wanted to be on this committee as well.
By Monday afternoon I had unanimous support from 14 border communities to meet the following Wednesday to discuss the issue. We assembled in downtown Toronto. Actually, we used the Association of Municipalities of Ontario office for convenience. The group met. The Sunday shopping issue took 15 minutes; the rest of the three hours was totally delving into the cross-border shopping issue. I do not think that there is a single issue that we have in our community right now that is of greater concern to us than cross-border shopping. I might say that as a country and as a proud member of this province, I do not think the province has a greater issue than the unemployment that is presently happening in this province and across this country, and we feel and I hope we are able to demonstrate slightly in our presentation that many of the things you are seeing in the retail sector right now are just the tip of the iceberg, and in fact the problems that have created cross-border shopping are the same problems that have created the tremendous erosion in our manufacturing base.
I will just begin, as well, by indicating that the different figures that I have used have been comparisons of the city of Windsor in some instances between last year and this year, only because I would not want to bring forward figures from another community that might be inaccurate and I know the accuracy of the city of Windsor's.
Windsor's unemployment rate has soared from 9.2% in March of 1990 to 16.4% in 1991. Unemployment rates across Canada, as you can see, have risen to a level that almost parallels the recession of the early 1980s but is very unique in that it is continuing to grow.
Welfare levels: Now these figures are not entirely accurate, but I can tell you that the increase in welfare rolls is one of the reasons which have tremendously brought this group of mayors and the municipal level of government to the table, to react to this terrible dilemma that we find ourselves in. The previous slide showed unemployment levels on the rise. We all know what is going to happen to the bulk of those unemployment figures next year unless we see a major increase in manufacturing. The fact is that those people are going to be off unemployment and on to the welfare rolls, which impact negatively on our property tax base, and we as mayors are concerned about that.
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The cost of cross-border shopping: $2.3 billion a year nationally, $1 billion alone in Ontario annually. We have with us, as well, John Winter, who is back here, who has been very generous in allowing us to pick his brain and also is here today as a resource individual. Many of you are aware of the report that he has put together dealing with cross-border shopping. We consider him to be an expert, and as you can see by the arrow, his suggestion is very clear that through the figures we have seen last month, cross-border shopping is increasing in numbers hourly.
Employment loss in Windsor in 1990 is 7,200 and across the country is 430,000. As it was reported in our Windsor Star by Richard Brennan, who is of course an expert on reporting accurately, he indicated that in the province of Ontario there are some 1,500 jobs per day being lost just in the manufacturing sector alone, which causes great concern for us all.
One of the issues that this committee has been able to identify as reasons on a national level that have created this dilemma in our country and things that have to be dealt with is to reduce the deficit. We are suggesting that the GST be put specifically against the deficit to bring it down to a level to bring our economy back into a resemblance of what a country should have for an economy.
Reduction of interest rates is in fact taking place, but we do not see the reduction in the dollar. There are many of us who feel that the dollar has been artificially set at a limit over the last two years that is too high and has not allowed our country to be an export country, of which we have been very proud for a number of years, and in sectors such as Windsor and other border communities has impeded our ability to be a manufacturing centre in the global market.
We are suggesting to deregulate or reduce regulations. We are looking at the marketing board there as one of the main areas that should be addressed in our concern over food prices and spiralling food prices.
To investigate the wholesale monopolies, there are many cases, very clear evidence that in fact there are wholesalers on top of wholesalers on top of wholesalers in this country that inflate the retail price. I can give you an example also of a monopoly, where a set of coffee fiIters that were purchased by a local restaurant organization in Windsor for the last 20 years had been purchased from Detroit for $1.50. Now, all of a sudden, he went to buy them, was not allowed to, was told that there was now a Canadian distributor in Hamilton. He went to Hamilton to purchase them. The same package was now up to $8, which of course impacts negatively on our community and our ability to retail and of course drives people over to the States even quicker.
Greater border enforcement: We feel there are taxes that must be collected at the border. As well, in order to meet the demand to ensure that the traffic is flowing through our borders quickly and efficiently there has to be greater border enforcement, either more staff or whatever, but the difficulty that many of us have -- for instance, in the city of Windsor I have more hotel rooms in my downtown area of Windsor than there are in downtown Detroit. Downtown Detroit has the largest convention facility in North America, which attracts literally hundreds of thousands, if not millions, of visitors to the Detroit-Windsor area, many of them staying in our hotels, helping our Canadian economy. Presently the conventioneers are not able to get back and forth across the border in an efficient manner because they are tied up in traffic on the bridge for three and four hours at a time, which makes our brand-new convention facility, which will open in November, a very hard place to market, and of course our hotels are feeling the pinch right now.
Finally, we have asked that a graded tax system for border communities be looked at. This is not something that is unique. It happens in communities such as Quebec and I think in Alberta, where there is a graded tax system looking specifically at gasoline tax. We feel, as well, this is an issue that goes far beyond just levels of government but has to include all of the other sectors of our community from business, industry and labour.
We are asking that this group as well sit together to create innovative services and cost-effectiveness, to begin a marketing scheme, a marketing plan to market their products better, an educational campaign to help in comparative, and also the social cost has to be educated to the public: the fact that their tax dollars are going to the United States and not to support projects in our own country. A coalition of labour and business is necessary to pull this all together.
We have asked, and today I am very pleased to tell you, that Mr Pilkey, your Minister of Industry, Trade and Technology, has agreed to be available for this committee structure. We have asked that a blue-ribbon task force be put together to deal with national issues. This task force, we anticipate, will be of high-level ministers at the federal, provincial and also at the municipal level. As well, national presidents of business, industry and labour groups that are affected by cross-border shopping will come to a one-day symposium that will allow us the opportunity to hang our political stripes at the door, walk in as a team would, almost as a Team Canada, to be able to work through the various problems that we have identified here and to develop strategies on how we might deal with those.
I would encourage that the members of that task force would then leave that meeting at the end of the day, go back to their respective jurisdictions and attempt to have legislation and programs passed at the various levels to expedite the way that we can once again become competitive and gain our business back.
A statistic out of the Globe and Mail two weeks ago showed that the year-long recession is wiping out jobs in Ontario twice as fast as it did in the 1981-82 recession. That is what Statscan says.
This is just another familiar sight of what you see every day in the city of Windsor, where literally tens of thousands of people are lined up on the border. I can tell you that they have a very aggressive sales approach. This is our Windsor newspaper. This is the Detroit advertisement flyer that goes in our Windsor newspaper. We will not tell Richard that, of course, there is an article in here about how it is bad to shop in Detroit -- we would not embarrass him like this -- but this is a double-page ad of a United States' lumberyard that is advertising in our newspaper, trying to get people over. The Americans know they have a captive audience right now, and I am telling you we are losing not only jobs but millions and millions of dollars in tax revenue to this province and to this country: tax revenue that you should be collecting.
With that, I would just ask very briefly the other members of this task force who have drawn together as a group, as a team, to bring this to this level and also to the national level as well, to attempt to get both levels of government and the community as a whole to work together on this dilemma that faces us today. Joe?
Mr Fratesi: Thank you, John. Mr Chairman and committee members, on behalf of my community I would like to express appreciation for the opportunity to talk to you about what is a serious problem for all of us who have come here today.
This delegation, unlike many others that you may have heard, is not an existing group with another cause. This is a group that was put together in the last couple of weeks out of a sense of urgency because we in our community share a very common problem. Unlike many other delegations that come to the provincial government or to the federal government, we are not here asking for help from Big Brother. We are here trying to convince you that you must, as a provincial government, and the federal government must become owners to a problem that affects us all. It is not just the consumer whom we can point our finger to and say we have got to solve that problem by talking to him. Waving the flag is not going to work in the economy, especially when it is a tough economy and the consumer is just trying to do his best and stretch his dollar. I think all of us who live in a border city will vouch for that.
The problem is one that all of us have to buy into; all three levels of government, labour, the merchant and the consumer. This does not just affect Sault Ste Marie or Sarnia or Windsor or Cornwall; it affects everyone, and we all lose. If the provincial government or the federal government were to quantify how much money it is losing in retail sales tax or gasoline tax or income tax or how much money is being put out on assistance to deal with unemployment because of this problem, we think all levels of government would very readily want to become part of the solution.
I come from a community, as you well know, that is suffering not only from the recession but Algoma Steel with its uncertainty, after having come out of a four-month labour dispute. The community now has another problem to deal with which is a mounting problem: the loss of probably $150 million per year to a very small sister American city, something that has been calculated to be in excess of 1,000 jobs and with increases that we are told are coming in at over 30% per month. I think there are things that all of us have to accept that we cannot do easily and that we cannot do quickly to help ourselves out of these problems when we talk about a North American recession and we talk about a global economy, but there are some things we can do if we work together to deal with this problem, if we accept ownership of it. I, too, would like to fall behind John and express appreciation for his leadership in encouraging the three levels of government, in a serious way, to come together in a committed way to deal with the problem and to do so with a sense of urgency, the urgency that this problem deserves. Thank you.
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Mrs Lawn: Mr Chairman, I am Sandra Lawn, the mayor of the town of Prescott. We are a small community, and perhaps as a small community we can see at a glance the effect that this kind of issue is having in our community. We also feel very appreciative of the leadership that Mayor Millson has shown, and we hope that our Ontario government and federal government, along with the municipal leaders of our province, as well as business, labour and industry, can come together and recognize that this is an opportunity that we have at this moment and not, I would say, for a very long time. The window is open, but it is open for a relatively short space of time because if we do lose a lot of this aspect of our retail sector, it could very well be lost for ever. It does have a tremendous effect on all of our communities.
If we can work together as three levels of government with business and labour, I think this will set an example to the rest of the country on a whole lot of other issues as well. Where in the past the local level has not been involved in discussions having to do with local economies, we do a tremendous amount of work to try to improve the economy of our area, and we need to have the opportunity of working in partnership with the federal and provincial governments and the business and labour leaders of our country.
We hope you will listen carefully to this message that we are bringing. It is not a message of blame, but rather it is an opportunity for everyone to work together on something that is affecting each and every one of us as Canadians, whether we live 100 miles from the border, as most of us do, or whether we live in the most northern parts of our country, where manufacturing and processing and the development of our natural resources are so critical. This is a very serious matter, and it is also an opportunity to show what we as Canadians can do to affect our own futures. I am sorry I have to leave.
Mr Lyons: Mr Chairman, thank you very much for allowing us to speak to you today. Just to tell you where I am coming from, I am from Fort Frances, which is a 9,000-population community just north of International Falls, Minnesota. We are separated by a bridge that is only two blocks long. We are 150 miles from Duluth.
We have identified that we are losing 25% of our possible sales annually; we lost that in 1990. It has been predicted that we will lose 50% in two years. We now know, the way it has been escalating, we will probably lose 50% within a year. I think this is a problem that is not only a problem of the border communities; it is a problem of the whole province and Canada as well.
We have to get together, as suggested, the three levels of government, and come up with some type of idea to get some relief from this, and I think the most important thing here is the urgency of it. We are being devastated and we are being devastated fast. It is happening very quickly. Thank you.
Mr Hardy: I am not from a border town, but we are only about 20 minutes away from Niagara Falls, New York, and half an hour from Buffalo. People are going to the States in droves. They are buying in the States because of the cost. They can go down there and get a gallon of gas for $1 or $1.20. In Ontario right now gasoline is 55 cents a litre. I do not know where we are going to be in years to come. If we keep going up with our merchandise and they keep going down, it is going to get worse.
I thank the mayor of Windsor for organizing this and I hope that the government of Ontario will support us.
Mr Bradley: Mr Chairman, I am Mike Bradley, the mayor of Sarnia-Clearwater. I think all the other speakers have summarized the same points that affect Sarnia-Clearwater. There are a couple of points I want to make to you, and it comes back to the time issue. We, I think, as a group, were very reluctant to come forward on this issue. We recognized the danger of coming forward, that we highlight the issue, that we through the media again identify the pricing. Last year I felt that way.
I want to just let you know what has happened at the Bluewater Bridge between Sarnia and Port Huron since 1 January and the imposition of the goods and services tax. There were 23,000 more cars this January than last January. In February, 34,000 more cars, and the figures I received yesterday in March 1991 over March 1990, almost 50,000 more cars. That is telling you the story. There is a tax revolt and it is a tax revolt where people in border communities could exercise another route to, I guess, throw back their anger at governments at all three levels.
The difficulty now is that it is becoming an Ontario problem, not just a border-city problem. I want to give you an example. Sarnia manufactures gasoline for most of this province and for a great deal of this country. Some of that same gasoline is shipped to Port Huron, Michigan. In our case there is 23 cents more in taxation versus what is happening in Michigan. The people of Sarnia are buying the gasoline they make across the bridge. When we talk about a graduated system for taxation on gasoline, we are simply asking you to recapture, not to give out money, but to recapture what you are losing. The fact is, Ontario lost $34 million in taxation as it relates to gasoline by the best estimates we have.
So the problem is not just municipal and not just provincial, and certainly not just federal. I hope you will trust that we are being sincere. We really feel this is a non-partisan, non-finger-pointing exercise. We do not want that. We cannot afford that right now. If we have the opportunity to sit down for a day or two and resolve the issues, we believe that we will go back and do what we can within our jurisdictions and that same school of thought should apply also to the other two levels of government.
I come back to what I said originally: if you were to review our respective downtowns, you would understand why we are talking about the urgency of time. It is impacting so quickly and so severely that if this is not solved by the end of this year you will not have to worry about the Algoma Steels, you will not have to worry about the automobile plants or the refineries in our communities, because we simply will not have a retail base. Sadly, the jobs that are being lost in the retail base are jobs that we cannot recreate in these other industries. We are losing employment in an area where the people's only other option is to head to the social assistance rolls.
So we are here from all political stripes. Sault Ste Marie has Sunday shopping; Sarnia-Clearwater does not. That is not the issue. The issue is trying to stop this haemorrhaging of the Canadian market before we have to finally shut down our retail industry.
One final point: The mayor of Fort Frances did not mention it but a week or two ago there was published by the business community there an obituary for their business community. It named all the grieving parties. It is not overstating the issue. We are in serious trouble and we need not just assistance, we need leadership and we need co-operation. Thank you very much, Mr Chairman.
The Chair: Turning to questions. Mr Sutherland.
Mr Sutherland: Thank you for coming before the committee. It is interesting, it is a serious situation and I am alarmed that in my riding, the Woodstock area, how many more people are taking weekend trips across the border and doing it on a more regular and more consistent basis.
I guess I want to bring in a couple of points. Mayor Fratesi mentioned that you cannot wave the flag on this one; that is not going to do it. Mayor Millson in the presentation talked about investigating wholesale monopolies and he used the example that if we could source from other places, such as outside the country, as this particular retailer was doing, that is one way of reducing the prices. You also talked about supply-management systems, but all of those have a cost in other areas in the economy in terms of if you are sourcing, as I believe Mr Kwinter has mentioned before, out of the country, then you are cutting jobs somewhere else. Supply management -- if that is not there then our farmers are going to hurt even more than they already are.
Mr Bradley said it was a tax revolt, but really have we got a situation here where Canadians are simply saying they do not want to pay the price to be Canadian any more? They want the quality of life, but they are not willing to pay a price to be Canadian.
Mr Millson: That is totally false. What every Canadian is saying to you directly, the provincial and the federal governments, is that we will compete, we will compete with the best of them and we will give you the best damned product for the best damned price possible. Let us do it on a level playing field. I can tell you that Ford in Windsor is investing $150 million in my community right now.
They are doing that for one reason, because of the quality of the workforce. They know they can compete on a world basis with the quality of workforce. My tool and die industries could be competing as well if the dollar was not set at the level it is at right now of 87 cents. If it was 72 cents, they could be doing something.
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Once again, all I am doing is stating the problem of the value of the Canadian dollar. For whatever reason over the last two years, it has gone up an unprecedented amount of money. All they are asking for is to be allowed the opportunity to have a level playing field.
Mr Sutherland: If I can make one more point on that, you mentioned regulations. We have some very good occupational health and safety in comparison, we have good environmental standards in comparison. You could debate that they can certainly be improved, but in comparison they are very good. I look at that type of thing, people who are taking the benefits of that. There is no doubt they add an extra cost to doing business. But what do you say to the same people who are still working, who are enjoying those types of benefits, those extra standards and those extra costs, yet still feel that they should be going across the border, still feel that it is no problem to go across the border to get things at a cheaper price? How do you rationalize with those people? What logic do you throw back to those people that they should not do that?
Mr Bradley: First of all, I want to make it very clear to you, we are not here today, I guess, to debate every individual issue. What we are saying to you is, there is a multitude of issues and we just simply want to have you as part of the process of finding solutions. But I will tell you what has happened in the last few weeks in my community, since this became a national issue. People are looking for a reason to stay here. They want to shop here, but they also have to look after their pocketbooks in a recession. All of us are facing double-digit unemployment in our communities.
I will give you an example of a retailer who came to me yesterday knowing I was making this trip. He is in the furniture business and was looking at an order of $5,000 to $7,000 in the furniture business. An American can meet that. They are level and they continue to be level. He is willing to compete, he is willing to bring down his gross profit margin. Where he runs out of luck is that he cannot address the 7% provincial sales tax that is not being collected at the border crossing.
So what we are saying to you on these other issues is, if we even had those issues dealt with -- I believe the province lost $90 million last year in uncollected revenue on provincial sales tax. If we had the laws of this province being enforced, if we had these other issues being addressed through the process that Mayor Millson has been requesting, which is an attempt to sit down and resolve the issue, then we believe we can at least stop the haemorrhaging. We know we are not going to cure the problem, but we think we can do that by not today focusing on the individual issues, but saying, "Help us make this a national issue and find a national solution." We need to do it literally within weeks. We cannot afford months. We need it now.
Mr Kwinter: I just want to congratulate Mayor Millson and his group for their initiative in putting together this task force and I wish them well on their blue-ribbon task force if it gets going.
It is a serious problem. I have said this before. I think that we are in danger of seeing the loss of our retail base, and by extension it is going to impact on the decommercialization, the deindustrialization of the province. When I look at your national issues, in every case, virtually, for every action there is going to be a reaction. I do not have a solution to it, but I will give you an idea.
John, you were talking, I assume, about the Renaissance Center, Cobo Hall in Detroit as being the largest convention centre in North America and that people would normally come over to Windsor to occupy the more hotel rooms there than there are in downtown Detroit. You are decrying the fact that they are not doing that. They are not doing that because it takes too long to get across the border. In the next breath, you are saying, "We think there should be greater enforcement and we think one of the solutions is that we've got to stop everybody and make sure everybody who should be paying is paying," which means it is like pushing down here and it pops up there.
By addressing that problem and saying, "Okay, we're going to put more people in there. We're going to stop everybody. We're going to search cars, we're going to do the whole thing," instead of it being two hours, it is going to be two days. As I say, if you have ever travelled through some of the countries in Europe, trucks that are going through checkpoints or through cross-border points are literally lined up for days. You see them there, the fellas say, "Well, it's going to take me two days to get through this point." So it is a problem. As I say, with every one of these problems, the solution creates another problem. I am not being critical. I am not saying that we should not pursue it. I am just saying that if there were a simple solution, we would have had it.
Mr Millson: Mr Kwinter, there is a simple solution actually, and in fact that analogy that you used is an easy example, but if governments and people went to a local A&P, they could probably find the solution right there in front of them. If I have a Saturday afternoon, I have got people lined up all over the place. All of a sudden there is somebody with a cart of 20 items and somebody with a cart of two items. So, what did the merchant do? He decided, "We'll have a lane specifically for people with a limited amount of goods." In customs, it would be called something similar to a red-door/green-door approach that would say people who have goods to declare should in fact be in this lane. Other people, be it Canadians, Americans, tourists, whatever, conventioneers, should line up in this lane and be drawn through. That is a very simple solution. It is just a mere traffic control problem.
While those people are queued on the bridge, one businessman -- or business person -- might say: "Why am I letting 50% of that money just wave through? Why am I letting that go?" I would think if there was an opportunity there to collect federal and provincial taxes, it would say to me, instead of waving one person through, I will hire one more staff person to put on duty to collect that tax, so that they are not lined up on the bridge. In fact, if you just segregated the people and ensured that there was ample staff on hand to do the job, you could collect all your taxes and you could make sure there was no waiting on the bridges or in the tunnels, and everyone would be happy and you would be collecting more taxes than you are collecting right now.
Once again, I think on both of those analogies that you used, a simple trip to a grocery store would probably show you how private industry would have handled the situation.
Mr Kwinter: I just want to follow up on that. I am sure you do not have the exact number, because nobody does. Could you give me an idea, present day, how many people go over and shop -- same-day shopping -- on cross-border, and come back and declare it, regardless of what level of shopping they have done?
Mr Millson: Mr Winter might have that. He indicates that he does not have that figure.
Mr Kwinter: Okay. I have a suggestion. I have no way of knowing, but I would suggest that the number of people who say they have nothing to -- I should put it the other way around. The number of people who declare is an infinitesimal number of the people who should be declaring.
Mr Millson: That is right.
Mr Kwinter: And what I am suggesting is that whether you have a green lane or a red lane, the guys going through the green lane are going to keep going through the green lane. They are going to have their trunks full of merchandise, and they are going to say, "I have nothing to declare, thank you very much," and away they go.
Mr Millson: The answer to that, Mr Kwinter, is very simple again. There are rules. There are penalties for not abiding by those rules. Right now, our customs individuals were quoted in the newspaper several weeks ago as indicating they were waving through 60% right now. I will just indicate to you that if in fact an individual was to abuse that lineup of a green-door system, go through and indicate that they had nothing to declare and that in fact they were inspected, which is a normal process of inspection, to go to secondary inspection, I will tell you that customs have the right and the ability to confiscate the car, confiscate the goods, and never allow them back into the United States again. Those kind of penalties, if enforced, would in fact deter anyone from lying to Revenue Canada.
Mr Kwinter: I had to jump into that.
Mr Fratesi: I would just add to that, if I may, Mr Chairman. A good place to start might be to just add -- and it might be this simple -- another little box on the form for someone who has already stopped, who is already going in to pay federal tax and federal GST, duty, at the border and have the provincial sales tax picked up. That is not going to cost anybody anything. It is not going to make the lineup bigger. It is just one more box and one more amount that has to be added to the calculated amount. But that requires some co-operation between two levels of government that, for some reason or other, is not there yet. Getting to this trilevel-type meeting would put those kinds of issues on the table so that at least starts are made on finding some of the solutions, because I do not think any of us expect that we are collectively -- as government together with merchants and everyone else -- going to make prices equal. All we have got to do is make them closer, and then, and only then, will waving the flag work so that Canadians who are not seeing half-price gasoline but are seeing gasoline for perhaps five cents a litre cheaper on the other side of the bridge going to stay home and stay in Canada, because then they feel patriotic. There are ways, if we just sit down and start talking about them.
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Mr J. Wilson: I have more of a comment than a question, because I gather today really we probably do not want to get into specifics on the numerous issues and problems contributing to this problem, but just to let you know, Mayor Lyons, I was in Fort Frances over the weekend and it seemed to me I heard a lot about taxes from tourism operators as the PC Tourism and Recreation critic. Nice place, but you are absolutely right, it was a little quiet there on Saturday in the downtown core and yet the bridge was extremely busy. I did not go across, by the way.
None the less, if our party can be helpful in having people attend the blue-ribbon panel, I think it is a good idea. My only reservation with these things is that they do tend to raise public expectations. You want to make sure the groundwork is done ahead of time so that there can be some agreement there, I would hope, and, second, encourage the tourism ministers to attend. Also we have been saying to the government something we think that they can move on right away, because certainly the federal government would like to see it, trying to convince the government: "Look, the GST isn't going to go away. You should harmonize your tax collection systems. Take the extra bodies that that would save throughout the province in terms of auditors and that and use those person-years for border collection." I was happy to hear the mayor of Sarnia indicate a joint collection at the border, anyway. You did not quite indicate a full harmonization of the systems, but we feel that would be very helpful.
Mr Bradley: Just the point I was trying to make is that right now the provincial tax is not being picked up and there seems to be a jurisdictional dispute between the province and the federal government and there are tradeoffs, I guess, that are not happening, but it is a very clear example of where the only people in the crossfire, the losers, are the taxpayers. But I do not have any difficulty with raising expectations, because if we do not, our community is going to be in a position where it will be a tragedy.
Mr J. Wilson: I do have one more comment. I appreciate the answer. We just heard from the Canadian Council of Grocery Distributors. They indicated to us that Sunday shopping was part of this issue. I think it boiled down to the fact that shopping in the US takes a bit more time and Sunday affords people normally more time to shop, because they are not working. Is there consensus among you? I gathered from the presentation that Sunday shopping has nothing to with it. Have you come to that conclusion, or would you like to comment further on it?
Mr Fratesi: I come from a community that has had Sunday shopping for four years, grocery stores included. My community has as big a cross-border shopping problem as anyone else. I would hate to see Sunday shopping taken out of my community as a feature. It has become a way of life. It would simply give another reason to shop in the Michigan Sault on a Sunday, but Sunday shopping and the ability to have Sunday shopping in my community may be a very small factor in this cross-border issue. It certainly is not a significant factor.
Mrs Sullivan: Thank you for a very interesting presentation. One of the things that I found interesting in the discussions that have occurred to this point with the committee relates to the fact that the issue of cross-border shopping has also come to the fore at a time of recession in the province and in the country. I would be interested in knowing if AMO or if you as individual mayors have done any kind of representative comparison with non-border towns relating to declining retail sales. We know, by example, if we look at the third-quarter report from the Treasurer, that the expected retail sales tax income is going to be down $672 million at the end of this fiscal year. The fuel tax is estimated to be down $19 million in this fiscal year.
Much of that will not be a result of the cross-border shopping issue but will be a result of trends in shopping that have been created by the recession. I wonder if you have looked at other communities to determine in fact what proportion of your retail loss is a direct result of cross-border shopping or may reflect a recessionary impact.
Mr Millson: Mr Winter has done a tremendous report for various communities and is what I would consider an expert on the field.
Mr Winter: You just have to look at the market shares that some of our communities are losing: Fort Frances, for instance, 30% in gasoline share; in the Niagara area, 15% to 20% of the clothing dollar is going across the border. These market shares are rising relatively rapidly. The problem is how much damage are we willing to accommodate. It is going up rapidly.
Mr Millson: Eighty per cent of the population is within Mr Winter's circles, I think, referring to what you would purchase 15 minutes away from a border, how much would you purchase from an hour away, an hour and a half, two hours away. With that kind of population growth so close to the border, unfortunately all of your retail trade basically is cross-border-related.
When you speak about other mayors, as you can see, the provincial members from the province of Ontario have certainly rallied behind and endorsed this. I attended in Montreal last week the mayors of the large cities across Canada associated with the Federation of Canadian Municipalities. That group of individuals thoroughly endorsed this full presentation unanimously and encouraged us to continue on. In fact, where they had border communities in their provinces, they wanted to be actively involved at the national level.
Mrs Sullivan: Your response leads me to the next question. That is the definition of a border town. I represent Oakville, Burlington and Milton. I am told by retailers in my community that cross-border shopping has had an impact on their operations. You have suggested a gas tax that is graduated from the border to another point. I have two problems with that.
I am not sure how you would do it. It might work in Fort Frances or some place like that, but if you are moving, say, from the Buffalo area through to Toronto, how do you place a tax that does not change retailing patterns within Ontario from community to community? In fact, with the majority of the population of our province, and of all of Canada, within the limited area close to the border of, say 200 miles, Thunder Bay describes itself as a border community. It is 200 miles from the border. In fact, I think you are closer to Duluth, are you not? Where do you draw the line of how a graduation in that kind of tax could work, and even in the definition of what a border town is?
Mr Bradley: It is a very valid question. Even among us, there are two different types of individuals representing communities. There are the actual border communities that have direct connections to the US and then there are other communities that are impacted further back. I have here a report which I could file with the committee which is from the federal Department of Finance -- it was released a day or two ago -- dealing with the cross-border purchases of gasoline. I will be honest with you. The report is saying that it is a very difficult process to implement. The questions you raise are legitimate. However, I think it has been written with that type of mandate to come up with all the reasons why not. We recognize that it would be very difficult.
We also recognize, though, that the problem is as you go further back in, if you are graduating the gasoline from Sarnia back through, say, to London, all you are trying to do through the different zones -- we have looked at zones 10 to 20 kilometres, etc, and a similar reduction as you move back -- is to take away the incentive to purchase gasoline. And we think it can be addressed.
We do not believe it is that easy, but on the other hand it is in place between Quebec and Vermont, it is in place in other jurisdictions. You are not capturing any of that revenue at the present time. Why would you not try to recapture some of it? We are more than willing to work on implementing the zones and implementing the process. We recognize it is difficult, but it can be done. What you are really trying to do is take away the incentive as you move further into Ontario. We believe that is workable and it is the solution.
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Just to go back to when all the mayors met about two weeks ago, we all had our disagreements on Sunday shopping and some of the other issues. We all agreed on the one issue -- gasoline. It is the product that takes them across there in the border communities and then the other purchasing builds from that. In our community gasoline went to 41 cents per litre just 10 days ago. The gas station owners were telling me they were seeing people they had not seen in over a year, because it kept them, it took away the primary incentive to travel to the US. That is in a town that makes the gasoline.
Ms Harrington: I want to thank you for coming all the way here from all across Ontario. It really is impressive, because you are making a very strong statement. I must admit to you that I represent the city of Niagara Falls, so I know exactly what you are speaking about.
As a consumer myself, and having to shop and feed my family -- that is, up until September; now my husband does it -- I understand what it is like to be there and I would agree with Mayor Fratesi when he is saying that at least if the prices were closer then things, I am sure, would work out better. I believe also, to agree with you, that gasoline has a lot to do with it, with that temptation to go across that bridge. Myself, I take into account the time it takes, the aggravation and all those things, and it is not worth going across.
If we could get more people to consider the other factors that are involved in it -- we mentioned the people in a recession who do not have the money and therefore are going across because of their budgets. Certainly, it is a free country and we cannot point fingers at people like that, but we have to, I believe, educate people to think about what they are doing and also be realistic about looking for all kinds of solutions. There is a whole range of them. I certainly have looked at a lot of them and we have to do something.
I would like to tell you that a month ago I did ask Premier Rae to meet with our local mayor about this issue and some other people from our community as well. He told us that he was open to local solutions, so I am saying that I believe -- this is the first day I have been with this committee -- it is this committee's responsibility to carry forward all the recommendations that come before us, to make sure that they are heard and to make sure that there is some kind of action. I think that is our responsibility. As well, you were talking about a task force, so I certainly would endorse that.
I wanted to ask you a couple of questions. In our community we had an initiative from the merchants themselves which was called Shop Ontario. I would like to ask if any of you have been involved in that and whether or not that is going to do anything to help. Second, you said -- and I am trying to quote here -- that the same problems cause the loss of manufacturing jobs as cause cross-border shopping. I was hoping you would explain that a little bit more. I have those two questions for you, Mr Millson.
Mr Millson: On the first issue, with regard to the various merchants and the various plans and the provincial report that came out to, as you call it, Shop Ontario --
Ms Harrington: That is it.
Mr Millson: -- that has been reviewed by ourselves of course, and it has also been reviewed by the chambers of commerce, I know, not only in Windsor but in many communities across the province. In fact, they find it a very useful tool. The chamber in the city of Windsor has adopted that and is attempting to work at the grass-roots level to get the various retailers together to be part of that program. They have initiated joint advertising dollars, and I will say that my municipality, the government, the municipality itself, has involved itself financially in many of those joint advertising campaigns. I hesitate to mention that, because I am not sure whether it is really legal under the Municipal Act, but we nevertheless have joined forces, through our tourist and convention bureau, to put money into the coffers of the chamber of commerce to jointly put together self-financing ads running in Detroit papers and also to compete locally, so that our merchants can compete and educate the community itself on prices in our community.
I am sorry, the second question?
Ms Harrington: You said that the loss of manufacturing jobs and the cross-border shopping had the same root cause. I wonder if you could go through that.
Mr Millson: Right. Well, very simply put, one of the reasons that many Canadians go to the United States to shop is of course the price, the competitive nature brought about because of a dollar that is not where we as manufacturers probably think the dollar should be. Therefore, the manufacturing sector, over the last two years, has been fighting this same kind of competitiveness that the retailers are facing right now.
Therefore, many of the tool and die industries, many of the manufacturers, have not been able to compete. As we see, the coming in of the free trade agreement with Mexico is another fear that in fact we could very well be losing once again. Every single day we all pick up newspapers that show more plants closing. Since your government has taken power, there was a report the other day, there have been 260,000 jobs lost in the province of Ontario.
Once again, many of those jobs are gone for good, which is much different than what we saw in the 1981-82 recession. Once again, I am saying to you that a lot of that dilemma has come about because of fiscal policies, monetary policies that this country has adopted and carried forward for the last several years. Those are items that have to be addressed, that are just now being seen at the retail sector but actually started at the manufacturing sector earlier.
Mr B. Ward: I think, when you look at the problem of cross-border shopping, primarily it is price. I do not think anyone could deny that. Primarily, the consumer is trying to get the best value for his or her dollar, especially during tough times. If things appear to be cheaper in America obviously that is where that individual is going to go.
You have made some recommendations. I think part of the problem is that we have two different systems or societies. America has its society and we have ours. America has toll-booths -- we have road construction out of general revenue -- toll-booths to pay primarily for their road construction or maintenance. Municipalities in America have the ability, it is my understanding, to defer property taxes or to defer some taxes. In Canada and in Ontario, you do not.
In America, they do not have an adequate medicare system. In Ontario and in Canada, we do. There are a number of philosophical differences between the two countries as far as social policies are concerned. In America, if they face a financial crunch, as Detroit did not too long ago, they lay off 300 policemen or they shut down the transit system, as they did in Buffalo. In Ontario, we ensure that we have stability by having adequate revenues through property tax and/or transfer payments from the province and the federal government.
Have you examined that aspect of the situation? I think we have to get to the meat of the question. Do you suggest that perhaps Ontario and Canada should be heading towards a more American-type system? By American system, I mean their tax system and the resultant impact that would have on some of our philosophical policies. Or do you feel that out of the task force recommendations perhaps a number of solutions or recommendations could be suggested so that we could avoid that? I mean the idea of Sunday shopping, the idea of the tax zones for gasoline, the idea of stricter border inspection. Sometimes I think we do things backwards. They are trying an express lane in British Columbia for Canadians and perhaps that should be for Americans, to encourage them to come to our country.
Philosophically, do you think that perhaps, in your opinion, we are doing things wrong as a society, or do you feel that there is a solution to be found by implementing a number of recommendations so that we can avoid heading into the American tax system?
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Mr Millson: Anybody want to tackle that one?
The Chair: When you start to answer that, I want to make sure you know that every word is going to be recorded.
Mr Fratesi: I think as long as it is lawful, as long as it is convenient and as long as it results in a bargain to shop on the American side, we all have to recognize who our competition is. It is a fact. We are competing with the American merchant -- and when I say "we," I mean me as a municipality and you as a provincial government and the federal government as well as the merchant -- for dollars, whether they be tax dollars or they be dollars that are in the till. And no, I do not think any one of us wants to Americanize our system, but we have to recognize that is whom we are competing with as long as our borders are the way they are.
No one is suggesting that they should be shut down, because that would be regressive, but that is who the competition is. And yes, to your last question, should we be sitting down and talking about this, that and the other thing and putting together a package of things. When I talked about waving the flag before, I was not just appealing to someone's sense of patriotism. I was talking about trying then, and only then, when things get closer, to talk to him about how important our system is because it funds the medical system, because it pays for the roads. He will listen to it when we close the gap, but he certainly is not going to listen to it when he is paying double the price here and it is lawful, it is convenient and it is something that is available for him to stretch his dollar in an economy.
So yes, you suggested there were things that we could sit down and talk about. "We" has to include all levels of government. "We" has to include a merchant who might have to smile longer or with a bigger smile because the American competitor is offering price only. All sorts of things have to be done, but it has to involve everyone, not just you as one level of government or me as another level of government. And not just the consumer, to appeal to him that our system is much different. As long as we remain in a competitive position with Americans, we have to recognize that we are competing. We do what we must. That is what this is all about, putting together what we must.
Mr Bradley: A very impressive list of comparisons. I always like to use one when I am in Michigan speaking: that they have organized crime and we have the Liquor Control Board of Ontario.
The Chair: Is that a comparison or a contrast?
Mr Bradley: I say that with all respect. The former member for Sarnia has now gone to that great heaven.
I would just very quickly make the point that of any group of people in this country, we have managed to resist becoming Americanized. We are very proud of being Canadian, and we know we can compete, as the mayor of Windsor indicated. We recognize there is a substantial difference. There is a substantial difference in municipal taxes. But we respect the benefits we get out of that.
What we are just trying to do is, again, move the playing field to a level where at least they have a fighting chance. That is all we are asking for out of this whole exercise.
Mr Millson: Just in conclusion on that, Brad, in the last couple of days did you not just lose 350 employees in your community?
Mr B. Ward: It seemed like we were losing a plant a week for about the last six months.
Mr Millson: I guess that is probably my point. Nobody wants to go to the American system. It is a great place to vacation once in a while but, you know, do you want to live there type of routine. But the difficulty we all are facing right now is as you are experiencing today in your community. You lost 350 employees. Who in the hell is going to start paying these bills? Who is the one who is putting the money into the coffers of this province and of this country to give us the hospitalization? You say that you are collecting taxes, and I am saying to you that there is not going to be anybody able to pay the taxes any more. That is where we are at and that is why these border communities have this problem.
Mr Hansen: Mr Kwinter had stated earlier that it is like a snowball; it is growing. I agree with him on that and I hope it melts pretty quick.
I see a lot of other social costs involved, like in Sault Ste Marie just recently, the money that came from the province for the development of the park. That park will be free for people in Ontario and to attract tourists to come from the United States. But it seems that when you go to the States and you go to a park, you have to pay to get in, you have to pay to park your car. So we have a different fabric here in Ontario completely.
Mr Winter described Fort Frances also. The police department is, I think, double the size in Fort Frances of what it is in International Falls. Not only that but there is a full-time fire department, which is safer in Fort Frances than it is in International Falls. So when you start comparing these social costs that are protection to your family, even the fact that people felt safer shopping in Fort Frances than in International Falls, people have to compare all these things, and what do they want in the end?
This is a short-term gain; they are gaining right now by going across the border. But what we have to do is take a look at the long term. I am glad that this task force started before we even had a chance to ask you, because this was one of our objectives that we have been going along, a partnership between the federal government, the provincial government and the local municipalities. You are just one step ahead of us. I think we said this about three weeks ago and I do not know whether you heard it on the radio or TV, but this is an area that we are coming to.
We have sat through most of these hearings; we have some that are subbing in here today. But the other thing is that I look after a rural area, which is Lincoln. I can see that in the municipality, with the tax base, if we are paying more for welfare cases, and it is going to grow, then we have to cut in certain areas. So most likely for the ball diamond down the street you say, "Sorry, we do not have money in our budget for the parks department this particular year."
Not only that, but the corner store or the small shop will say, "I do not have the money this year to sponsor your baseball team." So I think you are going to find that it is going to change the whole fabric here in Ontario if we do not solve this problem right away.
I have talked to the Minister of Revenue already. They are taking a look at the tax situation in New York state. I brought to her attention that you go to the States and buy pool and lawn furniture and have it shipped over here and they tell you that you do not have to pay state tax because it is going out of the state. They tell you on the telephone that you do not have to pay provincial tax; it is up to you to do it. All you have to do is pay 8.3% duty and 7% GST and they will drop it in your driveway.
So these are new ways that the competition is trying to get in that back door. We have to close that back door and maybe lock it a little bit. Thank you.
The Chair: I would like to thank you for coming. I know you have travelled a long distance. I think the fact that this committee is having these hearings and has invited as many people as it can to them is an indication of the degree to which we take this as being a very serious issue. We are seeking to try to find solutions and recommendations that we can give to the Premier and to the government.
Mr Millson: Thank you, Mr Wiseman. Thank you, members, very much.
The Chair: We have one piece of business as a committee before we break. On Monday there is the meeting of the government's and private sector representatives on the cross-border issue at the Ramada Renaissance hotel. It is at 10 o'clock in the morning and it goes until 2 o'clock in the afternoon. Obviously, if you can make it -- that would be on your own -- that would be great. As a committee, I do not think we can go because of the time. It has been suggested that perhaps we should send the clerk and Anne or David to this meeting, but we need to have direction from the committee to do that.
Ms Harrington: That is Monday morning, 10 o'clock, in Niagara Falls?
The Chair: Yes, from 10 until 2 o'clock.
Mr J. Wilson: I do not know whether Mr Sterling would have a problem with that or not.
Mr Hansen: Monte, do you have a problem with that?
Mr Kwinter: I have no problem with that.
The Chair: In the past we have discussed the whole idea of travelling as a committee. Travelling as a committee, in this circumstance, I do not think is possible, and I know that Mr Sterling would not agree with that.
Ms Harrington: It is the first time I have heard about it, but I would like to check and see if there is any possibility of my being able to go for at least the morning.
The Chair: You can do that on your own, but this is to send two members of the research staff.
Mr Kwinter: Oh, just to send them?
Mr J. Wilson: We have no problem with that, no.
The Chair: Okay.
Mr J. Wilson: I thought you wanted to send Norm.
The Chair: It is agreed. Okay. No, just that you are filling in for Norm.
Mr J. Wilson: We can get rid of him for a day, sure.
The Chair: Okay, so we can decide who is going to go. This committee is adjourned until 10 o'clock Thursday.
The committee adjourned at 1801.