Assemblée législative de l'Ontario

CROSS-BORDER SHOPPING
BUFFALO ADVERTISING INC

AFTERNOON SITTING

LIQUOR CONTROL BOARD OF ONTARIO

STONEY CREEK FURNITURE

CONTENTS

Thursday 25 April 1991

Cross-border shopping

Buffalo Advertising Inc

Canadian Shoe Retailers' Association

Afternoon sitting

Liquor Control Board of Ontario

Stoney Creek Furniture

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)

Substitution:

Harrington, Margaret H. (Niagara Falls NDP) for Mr Christopherson

Also taking part: Turnbull, David (York Mills PC)

Clerk: Decker, Todd

Staff:

Anderson, Anne, Research Officer, Legislative Research Service

Rampersad, David, Research Officer, Legislative Research Service

The committee met at 1010 in committee room 1.

CROSS-BORDER SHOPPING
BUFFALO ADVERTISING INC

The Chair: We have a quorum now, if Mark Adler of Buffalo Bargains could come forward, please. Thank you for coming to the committee.

Mr Adler: I am glad to take my place before you this morning as a proud Canadian and as a resident of the province of Ontario. As the Chairman said, my name is Mark Adler. I own an international company, Buffalo Advertising Inc. I am also an international author. I published a book entitled Buffalo Bargains, which was released last September, and within the first three weeks of its release it became a Canadian best seller. I was very pleased with the progress of the book and the sales. To date, Buffalo Bargains has sold over 25,000 copies, making it not only a Canadian best seller but a best seller in the United States as well.

My company is also in the business of providing shopping directories not only for Canadians who live in southern Ontario but also for Canadians who live right across the country. I am publishing books for Bellingham, Washington, for Montrealers who head to Burlington, Vermont, and for people who live in Atlantic Canada who shop in the northeastern United States.

Although I have not gotten much ink on this aspect of my business, I also provide shopping directories for Canadians shopping in Canada, but the more popular side of my business these days seems to be for those Canadians who are heading to the United States to do cross-border shopping, as it has become known.

I come before you today really to talk about ordinary people, ordinary Canadians. I am talking about the single mother of two who has to go to Buffalo to provide milk for her children, where she can buy it at 69 cents for a half-gallon as opposed to paying $3.18 here in Toronto; the single mother of two who has to go to Buffalo to buy her vegetable soup, where it is only 49 cents as opposed to $1.09 here in Toronto.

I have some comments by ordinary Canadians which have appeared in the press, some of which I would like to share with you. It is a reflection really of how Canadians and southern Ontarians feel about having to shop here, having to pay the high prices here and rising taxes.

I have one quote here from an article that appeared in the Toronto Sun last November, from a 33-year-old civil servant. It does not say whether or not he is employed, or what level of government, but he says: "Everything is cheaper, kids' clothing, groceries, toys and shoes. And there's also tremendous deals on shoes. A pair of boots I bought here for $15 are $60 at home. Cowboy boots I bought here for $22 are $75 at home." He goes on to say: "It's our crazy government's fault. Prices in Toronto are outrageous. We're paying so much because of all their taxes and that's why we have to come here." They go on to say that they hope -- this was during the wintertime -- that there would be a blizzard so they would have to stay over longer, so they could legally bring back more goods to Canada.

From an article in the Globe and Mail, we have another ordinary Canadian. These are people who live in Thunder Bay who shop in Duluth, Minnesota. We have one resident saying: "Retailers in Thunder Bay have ripped us off for so damned long and now it's catching up to them. My brother saved $700 on a refrigerator. At these prices I can't afford to be loyal to Canada." He goes on to say: "No way I feel guilty. I could care less. It's cheaper in the US, staff are friendlier and there's better selection."

Let me just finish off with one quote I found rather humorous. This is a butcher in a Super Duper market in Buffalo, where he is telling one Canadian consumer that turkey costs 75 cents a pound. This is compared to $1.49 a pound in Toronto, and he says to the Canadian consumer, "Guess you guys are the real turkeys."

Let me put the human face to cross-border shopping, how it affects people, why people are going, why Canadians are hopping in their cars and taking the hour-and-a-half drive from Toronto or from Oshawa, or the 20-minute drive from wherever it may be, St Catharines, to head down to Buffalo and shop. Something must be wrong if a resident of northwestern Ontario can go down to Duluth, Minnesota, a 200-mile drive, buy lumber that was cut down in his own backyard, bring it back to Canada and, after all the duties and taxes are paid, find it cheaper, on a $6,000 purchase in one instance. This is from a call that I received, and I receive lots of calls from people all across the province who tell me their stories or their small victories. This person, by paying $6,000 for a pine door, or a number of doors, saved over $1,100. This is after duties and taxes were paid on wood that was cut down in his own backyard, from his own forest.

Something must be wrong when a Canadian student can purchase Pierre Berton's books, the history of his own country, the history of Canada, for $6.35 in the United States and $8.54 in Canada.

Now we are in a major recession. We have unemployment seasonally unadjusted at 10.5% in this province. People are being laid off all the time. More Canadians are on social assistance than ever before in the history of our country. Again, these are data, but they are stark data and they tell a story. Behind each statistic is a human, a face. These people are fighting a war against rising prices and high taxes in the best way they know how. They do not hold meetings in secret. They do not need task forces and they do not need committee hearings to know that they can get eggs for 39 cents a dozen in Buffalo, as opposed to $1.29 here in Canada.

My office fields calls from Canadians every single day, telling me and my staff of their small victories, of being able to purchase eggs and soup and bread and groceries, just the bare essentials of life. These people are not heading down to Buffalo to buy frivolous items, although some do, but a lot of people are heading down there to buy the bare necessities, to feed, to clothe and to put fuel into their own automobiles.

These people are proud Canadians and it is wrong to point an accusatory finger at them and tell them that it is their fault the Canadian economy is in such poor shape. These people are not unpatriotic. They have really reached a threshold. They feel that they have been taxed too much, that prices are too high, and they are fighting back in the best way and the only way they know how. Rather than pointing an accusatory finger and condemning them, I give them credit.

Now the term "cross-border shopping" itself is really a misnomer. It has become synonymous with the people who, as I say, hop into their cars and head to Buffalo and load up on jeans and groceries and soda pop and all those types of items. But cross-border shopping is much wider than that. It is not really useful to focus on one minor part of cross-border shopping. I would be engaging in cross-border shopping if I headed off to Hong Kong or Europe and purchased items. I would be cross-border shopping if I were a Canadian land developer purchasing land in the United States. Robert Campeau was probably the best example of a cross-border shopper. Thank goodness for many in our retail sector perhaps, he was a cross-border shopper and did not buy a Canadian retailing concern.

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Should we be allowing our airlines to fly Canadians outside Canada to buy goods and services that they can buy here? Perhaps we should set up a government tribunal which would evaluate the usefulness of Canadians flying abroad. If their trip is not of any economic benefit to Canada, then perhaps we should not let them go.

In all these instances, money is leaving Canada. It is a form of cross-border shopping. So when we talk about cross-border shopping, we should include every facet and not just the single mother of two, or the family that heads out to Buffalo, or the family that crosses from Sault Ste Marie for the day to buy some groceries or some gasoline. That is wrong. What is considered shrewd for the Canadian businessman is considered to be unpatriotic for the ordinary Canadian, and I say that is wrong.

In my submission I put forth some statistics. For example, if a Canadian were to buy a condominium in Florida -- I take the case of Boca Raton, for no particular reason. Take a $250,000 condominium that a Canadian purchases in Florida. If we agree that $150 is the average spent by a family or an individual across the border on any given shopping trip, this works out to about 1,700 such shopping trips until the amount spent in Buffalo equals the amount spent by the Canadian on his Florida condominium. With Robert Campeau spending $7 billion on Federated Department Stores a couple of years ago, this equals 46 million such trips by Canadians.

Why the double standard? Why is it wrong for Canadians to shop in the United States, to engage in cross-border shopping to buy jeans, to buy a Walkman, to buy groceries, to buy gasoline, yet it is right -- and I am not saying that it is wrong -- for business people to go and scour the world for bargains, for land deals and for things that really are not available to the ordinary Canadian?

A reason why a lot of Canadians are shopping in US border communities is because they cannot believe the cost. They cannot believe that some goods that are made in Canada sell for less in the United States than they do here. We heard a couple of weeks ago, maybe it was last week, of some coffee filters that are made in Scarborough, Ontario, that sell for, I believe it was $1.29 or $1.59 here in Toronto and they were available for four for $1 in Buffalo. Unfortunately, I do not have the name, but I have been told that by many people, that they have bought these coffee filters.

Unfortunately, as I say, I do not have the name of the filters, but I do have one particular item. It is a hand lotion called Complex 15. A friend of mine picked this up in Freddie's Pharmacy in Buffalo. It retails there for $3.35. It is manufactured in Canada, and here in Toronto -- I priced it yesterday at two drugstores -- it sells for $10.99. Why? With this sort of incident, people begin to feel they are being ripped off in Canada, and it makes Canadians determined more and more to shop in the United States. That is an issue that has to be dealt with.

I mentioned before that taxes are another big reason why Canadians are shopping in the United States. They feel that their threshold has been breached. Canadians accept that they have to pay taxes, they know that government provides them with wonderful social services that they can take advantage of, but they also know that when taxes influence a person's purchasing decisions the taxes have gone too far, they are too intrusive into the lives of individuals. They feel that the way to fight back is to avoid paying the taxes, and to do so they are shopping in places like Buffalo.

Canadians also find that they get better service in US stores. They find the service is friendlier, the staff are more knowledgeable. I am sure I am not the only one who, when he walks into a department store here in Canada, finds it very difficult to get some sales help. Whenever I am in a department store and I want to make a purchase, when I want to find a sales person I just look behind the largest merchandise stand and no doubt I would find them there. But in the US stores, when you walk in they make you feel like you are at home. They want to give you any kind of assistance they possibly can and they are knowledgeable about their products. A lot of stores here in Canada do not provide that service. We had one of the members mention a couple of weeks ago that when he worked in a supermarket there was a lack of training provided.

In US stores there is a sort of corporate culture created. Trained staff are told to be friendly, staff are made knowledgeable of the products that they are selling, and consumers appreciate this. All of this is part of a consumer-driven philosophy that is really lacking in Canada but which we should work to develop here if we want to keep Canadian consumers shopping in our own country.

Another reason, I found, why Canadians are shopping: Shopping has become a form of entertainment for a lot of people. They find that arts and sporting events have become much too expensive for them to enjoy at their leisure and so shopping has become an inexpensive substitute for these people. They find they can go out and spend the afternoon at the mall in what has become temporarily known as a period of bonding for the family. They can spend some time together. They do not have to purchase anything, but it is an opportunity to spend some time together. This is basically what the whole Sunday shopping issue is all about, but I do not want to get into that. It is a whole can of worms in itself.

Now, a figure that has been suggested as to sales lost to the Ontario economy is in the neighbourhood of $1 billion. That seems to be an accepted figure. However, the figures are a bit misleading. Let me point out why I think they are. They are misleading because of a basic economic principle, and I get into this in my brief, but basically what I am saying is, rather than a principle of diminishing marginal utility, which is offered by economics 1 courses, I refer to the "Wow, I can't believe it's so cheap" principle. Basically what is behind this is that Canadians who go there and want to spend their disposable income find that because goods are cheap, they are willing to buy more items then they would normally have bought, because the goods are more expensive in Canada.

So if somebody were to go there, for example, to buy aluminum foil -- I do not know what the price is here in Canada, but I would say it sells for $1 a roll here and in Buffalo it sells for, let's say, 50 cents a roll. In Canada, when they go out and purchase it, the person who is in charge of purchasing this in the household would purchase perhaps two or three rolls, or as much as they need. When they go to Buffalo, however, because it is so inexpensive, they are willing to purchase more; so they have more utility, more use for goods, because they are less expensive than they find here. And because they will find more, the total basket value of their goods increases, and hence we get a larger number of total sales that are projected to be lost to the Ontario economy than really are.

Another reason why the $1-billion figure has been offered is that there is more variety in the United States. People are buying goods there that are not available here. So to say that $1 billion is being spent in New York or in Michigan, in the Ontario border states -- it is not necessarily true that the same $1 billion would have been spent here, although I am not arguing that none of it would have been. Of course, probably a majority of that figure would have been, but we would have found other uses for the remainder amount of money.

Now, we have heard about the decrease in retail sales tax revenues and gasoline tax revenues. If we look at the Treasurer's third-quarter report, we find that they are down by almost $1 billion, but it does not show where exactly these revenues are down and in what communities they are down. Obviously people who live in Niagara Falls are more inclined to purchase their gasoline across the border than is somebody who lives in North Bay or the farthest points of northern Ontario, but we do not know exactly where the figures are down and where they may be up. So it is misleading to suggest that merely because sales tax revenues are down, and gasoline and retail sales, that indeed they are down because of cross-border shopping. There are so many other reasons why, including recessionary pressures, declining consumer confidence due to the Persian Gulf war, energy conservation and, of course, cross-border shopping, I am not denying it. All these translate into lost sales tax and gasoline tax revenues.

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It has also been argued that department store sales are down across Canada. This too has been attributed to cross-border shopping. But if we look at communities that are not affected by cross-border shopping -- take the provinces of Quebec, Manitoba, Alberta and Newfoundland, which are not affected by cross-border shopping one iota -- we also find that retail sales are down. In fact, in some of these communities they are down more than they are in Ontario and British Columbia. By the same token, no one would suggest that because retail sales increased l.5% from last month, there has been a decrease in cross-border shopping. So the argument works both ways.

Another figure that has been offered as to the popularity of cross-border shopping is the number of trips taken by Canadians, whether they be one day, two days, three days or whatever. These are raw figures and again they do not break down why these people are going across the border. They may be going across the border to visit Aunt Jean. They may be going across the border to go to school, to go to work. Not everyone is going across the border to shop. So to suggest that these people are merely shopping across the border, merely disposing of their hard-earned Canadian dollars in the United States, again is misleading.

Another suggestion as to how we can curb the phenomenon of cross-border shopping is to devalue the dollar. I do not want to get into this too much. For the sake of simplicity, I am just mentioning it. But I know that devaluation of the dollar involves very many repercussions. It may be advantageous to the business community if we had a lower dollar vis-à-vis the American, but again it certainly would not help those people who are least able to pay, because Canada, being a net importer of goods, would find itself in an inflationary spiral and the people who were least able to pay would be affected most by such an action.

We have a free trade agreement with the United States. We were told by our federal politicians and by advocates of free trade that we would enjoy lower prices. We were told to look beyond our national boundaries, to look beyond our local community, to reach out and go into the global marketplace. We should not be walking around with blinders on.

Ordinary Canadians have taken a lesson from the free trade agreement. Their minds were set for lower prices. We were promised lower prices. But lower prices were not forthcoming. So ordinary Canadians took a lesson from the advocates of free trade and they too are looking to the global market. It is merely a question of survival for these Canadians. They want to survive, they want to be competitive, just like business wants to.

These are people who are looking beyond their local communities to survive, to purchase milk at 69 cents a half-gallon. The bigger threat to the Canadian economy is not so much the drain, the leakage from Canadian shoppers heading across the border to buy a pair of jeans or a bag of milk; it is more from the high=tech drain and from the brain drain. It is from companies like Northern Telecom, which jumped across the border into the United States with moneys that it got from Bell Canada's monopoly to set up research and development facilities in the United States and not in Canada. That is the real problem. That is where the haemorrhage is occurring. It is not occurring because Canadians are shopping across the border to buy a pair of jeans. I am not saying that this is not a problem. It certainly is and it creates a leakage of valuable money that we could probably use here. But it is not the only problem and it is funny that cross-border shopping has brought to light, really, the competitive problem faced by Canadians in the world economy.

Also what is ironic is that a lot of groups that appeared before this very standing committee, although the faces have changed and the names are different, three short years ago many of the same groups argued in favour of the free trade agreement. They said we need free trade to become competitive, we need free trade to look to the global marketplace, to force Canada to be streamlined, to be competitive in the world marketplace. Now these same groups appear before you when free trade is working for the consumer and they find that these Canadians should not be taking in free trade and somehow are wrong.

Let me conclude by saying that we have been told nationalism no longer has any place in the global marketplace. Appeals to nationalism will no longer keep Canadians shopping at home. We were told by our federal politicians, by the advocates of free trade, to expect lower prices, to expect Canada to become more competitive. That did not happen, so Canadians are merely using free trade, using the tools that were given to them by the people who worked for the implementation of the free trade agreement that we now have in this country. They are now taking advantage of it, and somehow they are wrong.

Members of the committee, it is really a travesty that ordinary Canadians, who merely want the same privileges as the business community, are denied them. They want value for their money. It is merely an issue of survival. Thank you.

The Chair: Thank you. I have Mr Jamison, Mrs Sullivan, Mr Sutherland, Mr Hansen, Mr Ward, Mr Kwinter and Mr Phillips. If we could make these questions short and have one from each, then perhaps we can get through the list a couple of times if we need to.

Mr Jamison: One question that I would like to ask at this point is, from your experience, what is the position of cross-border shopping in the United States retailers' minds? What is the US retailers' marketing strategy at this point? What are they doing in particular that is different or promoting in a greater sense the ongoing ability to attract the Canadian consumer? What exactly are they doing, in your opinion?

Mr Adler: I have a great deal of contact with a great many retail outlets, particularly in the western New York area; owners of shopping malls and stores and that sort of thing. They are very aggressive retailers. They know an opportunity when they see it. They can see the trend. They are very astute business people. They see the numbers of Canadians flooding down through the borders, over the bridges to the United States, and every retailer down there wants a piece of the action. They all want a piece of the Canadian consumer pie.

There are various vehicles they have taken. They have taken advertising on TV, they have taken advertising in the newspapers. There are a lot of newspapers in the southern Ontario area which take flyers from United States retailers. A lot of supermarkets send, I believe it is, 60,000 flyers into southern Ontario every week. Buffalo Bargains, the concept that I came up with, has offered these US retailing outlets a more inexpensive way of reaching Canadian consumers, a more direct, sort of hard-core market group or market segment that they could take advantage of.

But to answer your question, United States retailers recognize a trend and they recognize a flow of Canadians coming in. They do not want to miss out. In the Burlington, Vermont, area, for example, staff are trained to learn French to accommodate the Montreal consumer. A lot of the items available in the Burlington, Vermont, stores are brought in from Europe or manufactured in a European style because they know that the people of Montreal or people in Quebec prefer a more European style, as opposed to what is available in other places in the United States for Canadians to purchase. So they are accommodating, they are reaching out, they are attempting to find out what the consumers want and they are making a concerted effort to do so. You really have to give them credit.

But I may add that it is not totally restricted to US retailers. There are some Canadian companies that are also doing the same thing and we have to be fair. You know, we cannot just say that US retailers know what they are doing and Canadian retailers do not. There is one Canadian retailer who was mentioned in the Buffalo News last year. It is a family-run fur business in Fort Erie. "`Each of us is fitted with the equipment for survival,' the owner says. He provides excellent service, knowledgeable staff, friendly and courteous service at reasonable prices and he is very successful in the Fort Erie area." He is attracting Americans. He is attracting Canadians.

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So it is having your finger on the pulse of consumers and exactly what they want, whether they be Canadian or American. There is no reason why Toronto retailers cannot attract Americans to come shop here. There is no reason why not. But the point is they should have their finger really on the pulse. Many retail analysts and marketing consultants are paid mega bucks to figure out how to do that. I am not in that business; I would, perhaps, have some solutions to the retailing situation here in Canada, but again, I am not in that business and I do not pretend to be an expert in the area.

Mrs Sullivan: Mr Adler, I find your presentation interesting. I am particularly interested in the fact that you have couched your view relating to the publication of Buffalo Bargains in the context of social good when in fact what we are really looking at here is a young, bright entrepreneur who has taken some risks to put together a publication that sells advertising to American retailers to reach the Canadian market. Social good may or may not have anything to do with it. I suspect that it had nothing to do with your original thinking about going into this. Your thinking was entrepreneurial.

You have, in the course of your presentation, indicated many of the competitive factors which have been placed before us in previous hearings of the committee: price, service, variety, product knowledge, selection, entertainment and the aggressive marketing that the US retailer puts forward. I am going to ask you two questions about your publications and I may have to leave before you are completed -- but I will look at the record -- because I have to go to the House.

First of all, do you include in your Buffalo or other American publications an indication that there are differences in the products which are purchased; whether, for example, in white goods, these are CSA standards or energy efficiency levels, or whether there is a difference in warranties and so on. Do you provide that kind of information?

Second, I note that your economic analysis of the effect of cross-border shopping describes only impact on retail sales; you have assumed that the $1-billion figure, which is accepted as the figure of the economic effect, is relating to sales. Indeed, that is not what that figure relates to. It relates to the entire economic effect of lost sales, closed stores, the manufacturing-distribution-marketing chain and the impact on revenues, not only gas tax, but on corporate and personal income tax, retail sales tax, and so on. So I disagree with your argument about the impact on the economy.

The other thing that I was wondering was, in your Shopping in Canada book, which I understand you also publish, do you take into account the competitive factors that you have named? Do you also sell ads to Canadian retailers through that publication, and where do you see the retailers who are included in the Shopping in Canada book in terms of their competitive situation with those who are listed in your Buffalo book?

Mr Hansen: One question?

Mr B. Ward: A point of clarification, Mr Chairman: Was that one question with three parts in it?

Mrs Sullivan: It was a well-rounded single question.

The Chair: If we all have questions like that, we will be here until 7 o'clock tonight.

Mrs Sullivan: Start with the last one first, maybe.

Mr Adler: Okay, that is what I was going to do. I was going to approach your one question from bottom to top. In terms of my Canadian publication, which is currently in the works, it has not been released yet. I have had a great deal of difficulty convincing Canadian retailers to come on board and to demonstrate to Canadians and to others that this would be a good vehicle for them to advertise and to reach out to potential consumers.

The sell is unquestionably a lot easier in Buffalo. I have no difficulty whatsoever walking into a store, showing a retailer what I have -- because nine times out of 10 they have heard of it, they have read about it in the newspapers, they have seen it on TV -- and they are willing to go, first time around, an unknown commodity, with a half-page ad.

With the Canadian retailer, however, I find I have a much more difficult sell and a lot more of a salesmanship job to do. When you ask me to comment on why I have a much more difficult sell here, there are reasons perhaps to do with the recession, their advertising budgets are down. But recession is not really isolated to this area of North America; there is recession in Buffalo too, but the fact is that they recognize an opportunity in Buffalo whereas here they are a bit sluggish and a bit slow to come on board and take advantage of an opportunity.

So in terms of the competitive structure vis-à-vis Canadian retailers and American retailers, it is comparing apples to oranges. Because I am a sort of international marketer, I am an international company, I look globally, and I do not want to exclude the Canadian retailer from participating in what has proven to be a successful vehicle for getting a point across to a potential consumer.

The second point that Mrs Sullivan made was regarding warranties and CSA standards and the like. The fact is that a lot of items have international warranties. A lot do not; a lot cannot be serviced in Canada, and that is a problem. But again, when you buy a TV or a VCR across the border, how many of us really have real problems with a VCR that we purchase? It lasts four or five years and then we dispense with it and buy a new one, those of us who can.

That does not seem to be a concern for the Canadian consumer who shops in the United States. They are not questioning whether or not the goods are going to be covered by warranty or guarantee here in Canada when they bring it back and something goes wrong with it. In fact, a lot of retailers here, even though they should not be fixing it because of CSA standards, they are -- and repair people have told me this -- repairing goods that are made in the United States, and I know they should not be doing that and the like, but they are in fact doing it.

As for couching my presentation in social good, I do not have any less or more of a social conscience than any businessman perhaps. I am here providing a service for Canadians, and I am flattered that Mrs Sullivan thinks my book has created this massive groundswell of Canadians wanting to shop in the United States. I am flattered that she would say that, but I really cannot take all the credit for it. After all, it was our federal government that gave us free trade, that told us to look globally, told us to look beyond the local economic community, and that is essentially what I have done.

Mr Sutherland: First of all, I want to say it is a sad commentary on our society if shopping is a great family activity in this day and age. I have problems with the premises you are using to justify your argument. You have commented that it is cheap entertainment and that these people cannot afford the other types of entertainment, whether it is sports, theatre, whatever. You have also said it is survival.

Granted, for those people who are going across the border and shopping for basic food items like milk and eggs and cheese, I can understand that. But if it is really survival, Mr Adler, how do you explain the fact that people are going over and buying VCRs and stereo systems? Surely those things are not for people concerned with survival, and we have already had evidence before this committee which indicates the higher your income, the more likely you are to do cross-border shopping. So I have problems with that.

You also mention that this is all consumer-driven. But are not these consumers who are going across the border also consumers of the health care system, community services, consumers of our better environmental standards, our better occupational health and safety standards? I guess what I am saying is, they are being selective about what they think they are being consumers about.

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Mr Adler: Absolutely. Thank you for that question. To deal with the first one, about the form of entertainment, why should it be a sad commentary on our society when people want to spend their leisure time shopping or window shopping? People have told me that they feel the government has become too intrusive into their lives and they should not be told whether or not they should be allowed to shop on Sunday. But again, it is not an issue I want to get into, it is an issue that should be dealt with perhaps by this committee at some other point, but I am not here to talk about Sunday shopping. It provides an inexpensive alternative for ordinary people to do something with an afternoon.

Mr Sutherland: But, if I may, you said, "And they may not buy anything." But all the stats prove that they are not just window shopping. There are actually people buying, and buying big-ticket items.

Mr Adler: Not everybody is buying big-ticket items. The only study that provides data that suggest that higher-income people are shopping in Buffalo is a study that was done for the Toronto area alone, not a study that was done for Niagara Falls. This study did not encompass Niagara Falls, did not encompass St Catharines or Welland or that area on the Niagara Peninsula. The study that you are referring to was a study done for the Toronto area alone.

I would agree with you that the people from Toronto who tend to go to Niagara Falls, because they are in that sort of echelon, that geographic area that was given to this committee before, sort of in the VCR-TV area where they would purchase items, perhaps they would go there to buy VCRs and higher-ticket items. But the people whom I have met, the people whom I have dealt with, the calls I get from people -- I have not had any calls from people who are telling me that they are going down to buy fax machines, that they are going down to buy 40-inch colour television sets. People are telling me that they are buying milk, that they are buying cheese, that they are buying bread for four for a dollar. This is what people are buying. Not everybody is going down to buy VCRs and television sets, contrary to your suggestion.

To deal with social services, yes, they do take advantage of social services, and they pay for their social services. These social services are not provided by the government free of charge. The money comes from the taxpayers. These people are paying for their social services.

Again, it is a double standard. Let's be fair to everybody. The Canadian businessman who sends his manufacturing operations overseas, that is also a loss of productive capital that could be applied here in Canada, and as a New Democrat you should be aware of that and you should know that and you should agree with that, as I see you are.

Mr Sutherland: I am.

Mr Adler: But let's be fair. You are all politicians, you are all supposed to take into account the considerations of all the people you serve, so let's be fair and let's put blame where blame is due, and not blame, like I say, the single mother of two who may want to go down to buy milk or vegetable soup to give to her children. Let's just be fair about the whole issue and not just take isolated cases and say that they are going down for VCRs, they are going for luxury items, because of conspicuous consumption; in some cases they are, but in many cases they are not. Let's just be fair about it.

Mr Hansen: The single mother, I do not know whether she is on mother's allowance or not, but at least one thing we have here in Ontario, we do not hand out food stamps, we do not make people wait for handouts, so it is quite a different living style here in Ontario. The provincial governments in the past and present are looking at a different standard of living there.

You talk about gas prices. There is no comparison between Ontario and, let's say, New York state where there are toll roads. A few years ago the last toll came off at Burlington, so when you drive from Toronto all the way down to the border there are no toll roads. I do not know of any toll road in Ontario. If we are talking gasoline prices, there is a difference in gasoline prices in those areas also.

I know you were talking about basic groceries, but I heard at the very beginning that they were all items that had sin taxes on them, that these products were not essential products; people were buying cigarettes and liquor and that.

Mr Kwinter: They are essential to a smoker.

Mr Hansen: Yes, that is correct. The other thing is, I had one person call me -- and I live in the Niagara Peninsula also -- who wanted to buy a gas stove. She checked with Consumers Gas, and they said, "Well, if you put this, this, this and this on, we'll hook it up, but if it doesn't have these safeguards, we're not hooking it up." By the time she checked into safeguards, it was going to double the price of the gas stove. So what we are doing with our regulations is looking after her.

I do not know where you go to see your doctor, in Buffalo or in Toronto. You say you are a Canadian, but I do not know where you are shopping on that. But my question is, you have no indication why there is a difference in the price of that, what was it, hand lotion, that you bought for $3.35, which costs $10 here? I think if you want to go back to the source of that other question, the filters that were made in Monte's riding -- was it your riding? -- you brought that up a while ago. Can you give me any indication why there is a difference and where would you rather live?

Mr Adler: I will deal with the last part first. Where would I rather live? I have sat in on many of the hearings and read all the transcripts of all the witnesses and what they have had to say, and what all the members have had to say, and I do not know of any witness so far who has been sort of personally attacked in such a way.

I am a Canadian. I choose to live in Canada. I am a businessman who is taking advantage of a free trade agreement that was implemented by our elected officials. I have taken the advice of those people who have told me to look globally, I started an international company. I live here, I pay taxes here, I pay income tax, I pay corporate tax. I pay for the services that I reap. I see my doctor here in Canada. Like I said, I pay my taxes like other Canadians who choose to live in Canada, they too pay their taxes and it is wrong to call them unpatriotic merely because they are going across the border to buy a pair of jeans or to buy a stove or whatever. It is wrong to call it unpatriotic.

Again, let's not have this double standard. Let's call it what it is. These Canadians are going across the border for survival. They are going across because our federal government gave us a free trade agreement. It told us to expect lower prices and yet these lower prices did not come. People want value for their dollar. They want to stretch their dollar as far as they can get it today. Why is that wrong for Canadians to do that? You applaud a businessman for doing it. He is called shrewd, he is called a good businessman, yet when an ordinary Canadian consumer tries to do it, he is labelled unpatriotic and an accusatory finger is pointed at him to say, "Who do you think pays for your social services?" Canadians pay taxes and they accept the fact that they have to pay taxes, but what they are telling me is that their taxes are too high, they just cannot withstand the tax burden they are under and that is why they are just seeking tax avoidance activities, which in this case happens to be shopping in Buffalo, and there are other ways of doing it.

It was your party a few years ago which referred to corporate welfare bums and these corporations do not pay taxes. Let's deal with what is fair and let's not point an accusatory finger at the ordinary Canadian for doing what he has to do or she has to do to survive. Let's just be fair again.

Mr B. Ward: I hope you do not interpret these questions as personal attacks, Mr Adler. It is just trying to get an idea of how you are thinking. The tone of your brief to me was that you more or less feel cross-border shopping is part of the free enterprise system where freedom of choice should be allowed, and I think you are the first one who has more or less taken that tone. Every other group has suggested we should be doing something as a government to prevent cross-border shopping.

First of all, I appreciate you taking the time to present your brief. I think you are a smart individual. You recognized a business opportunity and took advantage of it and we should encourage that. I am assuming that when your first book came out there was a lot of legwork on your part to get the advertisement dollars to pay for the book, to make it profitable. You probably wore out more than one pair of shoes in the process. That is something we should be encouraging, for young business people to take a risk in this province in an effort to turn a profit, because that is how you create wealth. So I have no problem with what you are doing from a business perspective.

There is no denying that cross-border shopping is having a devastating economic impact on the retail sectors of our border towns, Windsor, Sault Ste Marie, Niagara Falls, Fort Erie, Cornwall, and other small towns in between. When you drive through those areas -- and I am not saying you travel throughout Ontario; probably your main focus would be Niagara Falls, possibly Fort Erie -- and you see the impact that it is having on those particular retail sectors and the stores that are being forced to close -- some are very long-term, family-operated retail stores forced to close because of the lack of consumer traffic and consumer spending in Ontario -- are you suggesting that is just part of the free-enterprise system and government should not be attempting to implement policies to prevent it or intrude in that free-enterprise aspect of consumer choice, and that we should be writing off the retail sectors of the border towns? Or do you think that perhaps we should be doing something in a policy sense so that some of that consumer dollar stays in Ontario? Perhaps in the future you would be developing a book on Canadian bargains and selling it in America. I just want your feelings, your points of view on that.

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Mr Adler: I thank you very much for those comments and for applauding me for recognizing opportunity in the marketplace and taking advantage of it.

The fact that retailers and a lot of business establishments that have been in operation for many, many years, particularly in the Niagara frontier, which is the area of the province I am most familiar with, have to close their doors because they cannot compete with the American retailer is a horrible thing. I hope I did not come across as a sort of proponent of Thatcherism, that we just leave everything open to the free market and free enterprise, total laissez-faire.

I do believe that rather than taking the suggestions of a lot of the groups who have appeared before this committee and others who have been involved in the issue -- they all propose Band-Aid treatments. They have suggested imposing a fee on Canadians heading across the border. They have suggested devaluing the dollar. There has been a plethora of what they call solutions to the problem, but those are not really solutions. They are not going to solve the problem of high prices, rising prices and high taxes in Canada. It is more, really. Canadians are avoiding high prices, but they are protesting at the same time. Canadians do not go into Toronto harbour and hop on a ship and throw tea overboard. We are not like that. We protest in silent ways, in other ways.

Yes, the problem with our retailing sector, the problem that we see with shopkeepers closing -- when I drive to Buffalo, I do not just get on the Queen Elizabeth Way and drive straight to Buffalo. I stop off in the Canadian communities, in the border cities on the Canadian side. I look around and I see the devastation and what is happening to a lot of these Canadian centres. It is a horrible thing. People who have been employed, people who have had businesses for years, find themselves out of work, and no future. These same retailers have called me. They do not blame me for what I have done by any means. They do not suggest what I have done is un-Canadian or wrong. Like you, they applaud me for my initiative. But they also tell me that they find they have no future in Canada because of government policy and the tax burden, the business environment they find themselves having to work in. They just cannot compete with American retailers on the other side.

I suggest to you, when you draw your conclusions and make recommendations to the Legislature from this committee on the issue of cross-border shopping, that suggestions are made that we do not apply Band-Aid treatments to this, because Canada is really in need of radical surgery. It does not need a tourniquet. There is a haemorrhage. I agree there is a haemorrhage occurring, but you cannot apply a Band-Aid to it. Canada needs radical surgery. You politicians, members of the committee, members of the Legislature, are all physicians. You are chosen by the people, you have asked for a mandate from the people, you have been given this mandate to perform radical surgery on Canada to make us more competitive, to solve the problem of cross-border shopping, to stop the outflow of massive amounts of Canadian dollars to US retailing outlets. Let's perform this surgery. Canada is the patient, you people are the physicians. Perform the surgery, make Canada competitive because, as I say, I am an international businessman, I own an international company. I am just as happy to write a book about getting bargains in Canada. My only problem with that is I wish it would be easier for me to attract Canadian retailers to advertise in my directory. As I said, I find it easy for US retailers to do so, but I would love to see Americans come up to Canada. I love to see Canadians go down to the US. It works both ways.

People have always travelled around the world and brought back goods, and Canadians have gone to other parts of the world. We want to attract people from other countries; it is a good thing. We learn from other cultures, we learn from other societies. Let us, as I say, just perform that surgery and make Canada competitive and relieve us from that oppressive tax burden. Let the Canadian retailer compete on a level playing field, which was promised to us with the free trade agreement and by the advocates of free trade.

The Chair: I have three left: Mr Kwinter, Mr Phillips and Mr Sterling. In fairness to the next deputation, we should try and wrap this up within the next five minutes or so.

Mr Kwinter: Maybe we can get some information that might be useful to us on the distribution of your publication. One of the first things I would like to know is what does it mean by saying, "This is the official shopping and entertainment directory for western New York." Official, like sanctioned by whom?

Mr Adler: Sanctioned by all those Canadians who went out and made it a Canadian best seller. This book is the comprehensive shopping directory for --

Mr Kwinter: It is not official. I am not trying to be facetious; I just thought that maybe western New York said, "We are going to give you the authority to put this thing out," and this is the official shopping guide of western New York.

Mr Adler: No, that is not the case.

Mr Kwinter: This is your official buying guide?

Mr Adler: This is official, as deemed by the title I gave to it, and that has been sanctioned by the many Canadians who have made it a Canadian best seller. Just getting back to the point, I did not seek the support of any chambers of commerce down there. I notified them of what I was doing, but I did not ask for any money from them or anything of that sort.

Mr Kwinter: No. As I say, I am not trying to be facetious, I just want to find out if this is being sanctioned by somebody.

Mr Adler: No.

Mr Kwinter: This is not something where organizations have said, "We want you to do this for us and then we will consider this our official directory."

Mr Adler: No.

Mr Kwinter: Okay. The other thing I would really like to know, the main part of the question, is do you have any idea, statistically, of the distribution of the people, the thousands, or numbers, who are buying this book, and where are they located?

Mr Adler: I receive the statements from the various booksellers and distributors, just to see, for my own interest, where the books are selling best. It varies. There are pockets. The sales are less in the Niagara Peninsula than they are, say, from Stoney Creek east.

There is a very simple reason for that. The people who live in Niagara Falls and in Welland-St Catharines have been shopping for many, many years in the western New York area and they know, really, where to shop. They do not need to be told where to get a coat for half price, or whatever. They know where to go; they know where to buy their groceries. But because of the spread of cross-border shopping and the trend that I recognized because it was moving around the horseshoe -- and this is borne out by the sales of the book -- the book is selling much better in the northern half of Lake Ontario and the greater Toronto area and in the Hamilton and Burlington area than it is, really, in the area of the Niagara Peninsula. The hottest sales are coming from the greater Toronto area, in answer to your question, essentially.

Mr Phillips: I am trying to salvage some useful thing out of this hour we have spent. I guess, first, the committee would reject one of your arguments, which is that this is not as big a problem as some people think. We think it is a big problem, and we are going to deal with it on that basis.

Second, we all know that we have a competitive problem, so we appreciate the advice. I guess my own last observation on the question is that it is difficult, as you might appreciate, for us to accept the objectivity of your advice because you have a major vested interest in the book.

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My question is this: Assuming for a moment, if you would, that it is a big problem -- an assumption which you do not accept, but which we believe -- can you give us one suggestion on what we can be doing to help our Canadian retailers minimize the impact of cross-border shopping over the next two or three years, beyond improving service?

Mr Adler: First of all, Mr Phillips, I think it is unfortunate that you do not think the views of average and ordinary Canadians are useful to this committee. I really find that unfortunate. The fact that I do not have an objective viewpoint -- I made it clear earlier that I am an international businessman whose international company provides shopping guides for Canadians to shop in the US, and am in the process of preparing a shopping guide for Americans to come shop here in Canada. Why should my objectivity be questioned, and that of other various interest groups that have appeared before this committee not be questioned? Again, it is very unfortunate that you attribute those motives to me.

To deal with your query on what I think Canadian retailers should be doing: As I said earlier, there are a lot of marketing analysts out there. You had one before you a short while back, I believe, who suggested what Canadian retailers could do to become more competitive. I know this committee thinks it is a serious problem, a serious issue to be dealt with. I think it is a serious issue to be dealt with; so do many other Canadians out there. It is not fair to claim, with an élitist sort of attitude, that ordinary Canadians do not appreciate the fact that they have to haul down to Buffalo to buy their tomato soup or their loaves of bread or whatever.

But to suggest a possible solution to this problem which you perceive to be a problem for Canadian business, and I do agree it is a problem for them: Again, I am not a paid expert in the area. I do not want to suggest any possible solutions for the Canadian retailer. There are experts out there. You have had them before this committee. You have asked them these questions and they have made suggestions to you.

I am not here to present solutions to the Canadian retailer. It is not my area of expertise. My forte is what I have provided for you today, the information I have put before you. I suggest if you want possible solutions, that as a committee -- I gather that at the end of this you will caucus and come up with certain recommendations which you will take to the Legislature and which will prove useful to the Canadian retailer. I have complete confidence in your abilities as elected officials, and in your taking into account all the recommendations and submissions that have been presented before this committee.

Mr Sterling: Is your publication weekly or bimonthly or monthly or --

Mr Adler: The title would suggest that it is annual, but the major revision is done yearly, and it is updated every few months as I accumulate more coupons and advertising to offer to Canadians.

Mr Sterling: So you offer advertising, etc, and that is one of the major sources of revenue for you?

Mr Adler: Right.

Mr Sterling: I understand that if I wanted to start Toronto Bargains as an opposing magazine, if I wanted to promote Toronto stores, there would be a major difference in what the retailers would have to pay for their advertising. Is it correct that if an American store, for instance, advertises in your paper and they pay $100 for an ad, they do not have to pay GST?

Mr Adler: That is correct.

Mr Sterling: But if I put out Toronto Bargains Directory and the retailer took out an ad for $100, he would have to pay $107, is that correct?

Mr Adler: That is correct.

Mr Sterling: Do you think that is fair?

Mr Adler: No, I do not.

Mr Sterling: So therefore you would suggest that this committee, assuming we are going to maintain the GST, recommend in our report that we tax American advertising where the major distribution is here in Canada?

Mr Adler: For American retailers to take out an ad in a book such as mine?

Mr Sterling: Yes.

Mr Adler: The suggestions that your committee makes are entirely up to you; I do not offer any possible suggestions that you can make to the Legislature. But as elected politicians, you have a responsibility to your electorate and to the people who have sent you here. How you set up the tax structure and payment and that sort of fee structure is entirely up to you.

Mr Sterling: But you would not consider it unfair if we taxed your publication 7% of the advertising revenue that you got from American sources?

Mr Adler: I work within the rules of the game, and if you people establish a rule that I have to remit taxes --

Mr Sterling: Okay. Thank you very much.

The Chair: Thank you, Mr Adler, for coming to the committee today.

CANADIAN SHOE RETAILERS' ASSOCIATION

The Chair: Our next presentation is by the Canadian Shoe Retailers' Association, Sharon Maloney, president.

Ms Maloney: Good morning, Mr Chairman and members of this committee. My name is Sharon Maloney. I am the president of the Canadian Shoe Retailers' Association. In that capacity, I am responsible for the overall operations of the association, including liaising with members of the footwear retail industry and representatives of all other sectors of the industry.

A significant portion of my responsibilities includes tracking general retail trends, speaking with members of the public about issues of concern to the industry, and dialoguing with footwear retailers on a variety of subjects which impact their businesses.

The Canadian Shoe Retailers' Association is a national trade association of the footwear retail industry. Our membership represents a national retail sales volume of $183 million. Members are predominantly footwear-specific, and include family shoe chains, specialty chains, and owner-operated independent businesses. The majority of our membership trades in the women's footwear segment, which includes dress, casual, comfort, athletic and fashion. The Canadian Shoe Retailers' Association does not represent discounters, large department stores or athletic shoe stores. The largest portion of our members is located in Ontario, followed by western Canada and the Atlantic provinces.

The goal of the Canadian Shoe Retailers' Association is to promote the interests of the footwear industry and the Canadian consumer. Footwear in Canada has been subject to quota and anti-dumping duties for over 20 years. Footwear retailers have operated for less than two years in an environment where supply of product was not artificially controlled. The effect of quota on the retail trade has been dramatic. Those retailers who had quota were restricted in the amount of imported product they could provide for their customers. Those retailers who did not have quota, most often independents, were generally unable to obtain any, and were thereby severely disadvantaged in providing the type and range of footwear which their customers demanded. Moreover, the independent retailer was forced to compete against large chains and department stores for supply of domestic product. The regime thereby lessened competition for those participants already in the trade and effectively barred new entrants who could see no future if they were not able to obtain quota.

Market share by independent retailers consistently dropped from the initiation of the quota regime in 1978 to its removal in 1988. The quota regime also hurt retail trade in that Canadian consumers were forced to pay more for less choice and variety. As pointed out in the submission of the director of investigation and research under the then Combines Investigation Act, holders of quota were reluctant to use it to acquire cheaper types of footwear. This resulted in more expensive types of footwear being imported so as to properly utilize quota allocation. Scarcity of imported product also inflated the prices of footwear.

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The quota regime was dismantled in 1988, and by 1989, a dumping complaint was filed before the Canadian International Trade Tribunal against Brazil, China, Yugoslavia, Poland, Taiwan and Romania. Despite submissions from the retail community that the imposition of dumping duties would hurt consumers and therefore retailers and would force consumers to look elsewhere for their footwear, the CITT found in favour of the complainant. The result was the imposition of dumping duties ranging from 25% to 90%, depending on the subject country and product.

The advent of this finding posed immediate and dramatic problems for the footwear retail community and did little to sustain the existence of domestic suppliers other than to increase prices. Footwear retailers who had had a quota regime for over 20 years and who were just beginning to emerge into a more competitive environment were immediately stymied by this decision. They were presented with four immediate problems: (1) increases in footwear prices from sources upon which they relied; (2) additional administrative costs in locating new sources, both within and without the countries faced with dump charges; (3) unwillingness of traditional sources to deal with the headaches and costs created by the new regime; and (4) fierce and immediate differentials in price and product selection vis-à-vis their American counterparts.

All sectors of the industry were impacted by this. The least able to respond and the most vulnerable were independent retailers who did not have the buying clout to buy direct or get the attention of major Canadian importers.

For over 25 years, footwear retailers have not had the ability to compete because of market intervention based on the rationale that it will protect Canadian suppliers. In the meantime, Canadian suppliers, especially in women's casual footwear, are virtually non-existent and consumers are voting with their feet and shopping in the USA.

CSRA does not know how frequently footwear is brought across the border. Footwear is a commodity which is easily -- and, we believe, frequently -- transported. We do know:

1. Canadian footwear has a tariff of 22%; American footwear has a tariff of 10%.

2. Dumping duties are not enforced at the border as it is virtually impossible to identify where the footwear is made, what factory it is from, and therefore what duty it is subject to.

3. The free trade agreement is not a significant factor in that only 80% of the American footwear market is dominated by domestic product. That being said, there are some American high-end producers in men's and ladies' footwear that have made significant inroads in the Canadian marketplace.

4. There are few, if any, low-end producers of Canadian casual footwear that can distinguish themselves vis-à-vis American products, be they imported or otherwise.

5. There are Canadian domestic producers of high-end and mid-priced ladies' shoes and boots that have brand recognition and can distinguish themselves in both the Canadian and American marketplaces. This, though, is a narrow field which may be further diminished because of higher operating costs in Canada and lack of operational and consumer trend information for Canadian independent footwear retailers.

The following is a list of suggested actions:

1. The elimination of tariffs protecting those commodities in the footwear sector where there is nominal, if any, competition with Canadian producers -- for example, athletic footwear.

2. The reduction to comparable American levels of tariffs in all other footwear sectors.

3. The review of the CITT decision as it relates to the impact on domestic suppliers, retailers and, more important, consumers.

4. Immediate implementation of collection of provincial sales tax at the border. Our communities can no longer afford to be caught in a battle of wills between the provincial and federal governments. We need action and we need it now,

6. The utilization of the existing requirement of an economic impact study in the province of Ontario upon the implementation of any provincial program which increases the regulatory burden on small businesses or consumers.

7. The finalization of any agreements between the United States, the federal and provincial governments prior to the implementation of border projects such as the Peace Arch Customs Entry program. We understand that the PACE program was introduced prior to the sister program in the United States being implemented. Likewise, the PACE program was introduced prior to agreements being reached with the border states for collection of provincial sales tax in those jurisdictions.

8. The creation and implementation of a Shop Ontario or Shop Canada program which addresses our pluses rather than our minuses. Competition does not mean that we have to be the same. It does mean that we have to offer the Canadian customers perceived value for their hard-earned and diminishing dollars.

We must emphasize and deliver good service, good return policies, personalized service and better guarantees. This program must also emphasize that we are price-competitive when these items are brought into the equation, and also on a straight exchange basis, on a variety of commodities.

9. The recognition of every Canadian, including politicians, bureaucrats, retailers, consumers and workers, that we are all part of this problem. The issues we are facing go to the very heart of how this country has operated for over 50 years. We cannot hope to sustain the standard of living we have enjoyed, let alone the political will to act as a nation, if we continue to erode the tax base, increase the burden on those already paying and operate as if our individual decisions do not have an effect on the overall ability of our community to be competitive.

10. The Premier's Council for economic renewal should be seized with the responsibility of addressing the competitiveness of the province, with specific attention being paid to the issue of cross-border shopping.

11. The creation of a committee of provincial and federal ministries which are responsible for the issues impacting on cross-border shopping, including Revenue, Finance, the Ministry of Industry, Trade and Technology, and Industry, Science and Technology Canada. We cannot afford reactive measures such as the PACE program. What is required is proper strategic planning and co-ordination coming from the highest levels of our bureaucracies. To complement this initiative and/or form part of it, a similar committee should be composed, consisting of all three levels of government -- federal, provincial and municipal -- big business, labour and small business.

12. The provincial government should participate in the proposed expansion of the study, commissioned by ISTC and conducted by Ernst and Young, on the competitiveness of the retail sector. The first study is limited in nature, comparing a small number of commodities and not addressing issues such as taxation and regulatory burdens.

The current situation, especially for border communities, needs immediate action. Concrete steps must be taken to stem the tide of cross-border shopping. That being said, there are deep and substantive problems in our current economic structure and process which must be addressed. In our view, the phenomenon of cross-border shopping is a reflection of a deeper malaise existing in the Canadian economy, that being a lack of competitiveness.

Canadian taxpayers/consumers are rightfully in the driver's seat on this issue. This trend can only be reversed by offering good value for money received. This equation must be operative, not just for the retail sector but for government as well. We urge you to recognize and accept the primacy of this statement and to act accordingly.

Mr Sterling: I would like to thank you, Ms Maloney. I think that is one of the most impressive briefs we have had presented to this committee, in terms of representing an interest, but also, in my view, in terms of looking at it in a realistic manner and presenting arguments which cover not only your sector but also many sectors.

Ms Maloney: Thank you.

Mr Sterling: I have a couple of brief questions. One is, I do not know what PACE is. What is it?

Ms Maloney: PACE is a program that the federal government introduced in Vancouver, the fast-paced program for crossing at the border in Vancouver.

Mr Sterling: Oh, I see.

Mr Kwinter: The express line.

Ms Maloney: The express line. That is right.

Mr Sterling: Okay. I just did not know what PACE meant.

The Chair: What acronym they were using.

Mr Sterling: Yes.

One of the suggestions that has been made by other groups deals with the collection of provincial sales tax and the ease with which that sales tax is collected. One of the suggestions, or one of the attractive options, is to harmonize the PST and the GST. Some of the footwear now is exempt from PST in Ontario. If there were a harmonization and that tax were put on -- I am not even sure which shoes are exempt.

Ms Maloney: It is very small. It is only $30 in Ontario.

Mr Sterling: Under $30.

Ms Maloney: Yes.

Mr Sterling: It is not the first $30, but it is under $30?

Ms Maloney: Under $30 it is tax-exempt, and thereafter it is subject to tax.

Mr Sterling: Would that have a significant effect on sales if there were harmonization?

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Ms Maloney: In my view, it would not. However, I recognize the problem in terms of the collection of taxes without harmonization. I think if harmonization were to be introduced, it would be introduced with the recognition that there should be an overall decrease in the combined tax, rather than combining the taxes and getting rid of all of the exemptions. I think it would be far more palatable, certainly, to our membership as well as to consumers, if it were addressed that way.

Mr Sterling: I do not know what the figures are on it, but I would expect that if harmonization took place and they added -- I think there are two or three or four exemptions that were raised by the Minister of Revenue when she was here -- you would not even really make up a point, though. I do not know if that is possible or not.

Mr Kwinter: I want to congratulate you on your presentation.

I think it is the first presentation we have had that really crystallizes the problem we are dealing with. It is quite interesting. We have an association arguing that Canadian manufacturers should not be protected as well as they are and that we should be allowing more imported goods to come into the country so we can compete. This, as I say, is a rather strange kind of presentation when we are looking at how we can protect our Canadian jobs and Canadian manufacturers. That is the problem. It is a realization that China, Yugoslavia, Brazil, Poland, Taiwan and Romania at least are producing shoes much more cheaply than we possibly can. Why are we denying our consumers the opportunity of buying these at the best prices for the sheer sake of protecting our Canadian manufacturers?

Ms Maloney: In a nutshell, yes.

Mr Kwinter: That, in a nutshell, is what it is. Here we are trying to do just the reverse. We are saying we cannot have these imported goods coming in. They are not being imported, but they are being carried by Canadian consumers walking across the border and importing them individually and we are saying this is not a good thing.

Ms Maloney: I think part of the difficulty has been, and it is not just in our sector, if you look at the sectors including footwear and apparel, which are more fashion-driven sectors, we have always worked on the assumption that we should be protecting our domestic suppliers. In our view, it is not that we do not want a domestic base here; we very much do want a domestic base and in fact I think it is one of the ways of addressing this problem. It is how you arrive at affording that protection. In our view, what steps have been taken are negative and really have not enhanced the opportunity and the ability to compete.

But I think it has been crystallized very clearly right now because Canadian consumers, and particularly women consumers, have been paying for this for 20 years and they have paid for it because they did not have any alternative. It is very clear to them now that they do have alternatives and they are operating on that assumption and exercising their right to find that alternative.

I do not believe we can stem that tide by making it more difficult for them to do that or by trying to protect a sector of the industry which, for whatever reasons, has not been able to address those marketing needs. That is not the way to find a solution to the problem.

Mr Kwinter: If I can just carry on for one more minute, what we have is a situation where in virtually every one of these cases we have low-wage countries turning out shoes in what is really a handicraft operation.

Ms Maloney: That is right.

Mr Kwinter: We are saying we should take advantage of that opportunity and forget about our industry because we have labourers who demand too much money for doing those kinds of jobs where they can be done a lot more cheaply somewhere else.

Ms Maloney: It depends on the sector you are dealing with, too, in terms of the domestic suppliers. Where the greatest gap has been created, really, is in women's casual shoes. We do have a healthy industry as far as boots are concerned and a very competitive industry, a tremendously competitive industry -- well made, well designed. They have tremendous standards in terms of the product they produce and it is a more labour-intensive type of product as well, whereas ladies' footwear is not. I really do not believe, in the nature of the economy and the standard of living we have in this country, that we are ever going to be able to produce a shoe as cheaply and as well as, say, the Brazilians, the Chinese or the Taiwanese produce a shoe.

Again, it depends on the type of footwear you are talking about and that is another part of the problem. A lot of this legislation, especially the dumping legislation and the quota legislation, may be sufficient when you are dealing with ball bearings, but it is not sufficient when you are dealing with commodities as subject to subjective assessment as footwear is and clothing is. You cannot parcel out those countries and their ability to compete and their ability to be fashion-driven from the Canadian marketplace. Canadian consumers can see just by turning on their televisions what is available to them all over the world. If they cannot find it in their stores here, they will find it somewhere else. They are not going to buy it here just because they have to have it. They are going to wait and find it somewhere else.

Mr Sutherland: If I could just ask one question of clarification. I have not been familiar with your organization. You say that members are predominantly family shoe chains, speciality chains, owner-operated. Are we talking about names like Naturalizer, Julia, Agnew, those types of stores?

Ms Maloney: That is right; all of those. The only people we do not include in our membership are department stores and very large discounters.

Mr Sutherland: Right. And there would be good odds that the owner of the shoe store in my small town is likely a member too?

Ms Maloney: That is right. Yes. In fact, our core membership for what I would call the true independent, which is a single store, is located outside Toronto or outside the main centres and generally located in many of the communities we are taking about, smaller communities closer to the border where there has been a tradition of people supporting their local businesses.

Mr Sutherland: In the action plan, you talked in number 8 about what competition means and that we do not have to be the same. But you go on to say, "It does mean that we have to offer the Canadian customers perceived value for their hard-earned and diminishing dollars." I find it interesting that you used the word "perceived" because of the past presentation and some of the issues in terms of perception of what is real value across the border and what is not, whether it is the examples that Mr Hansen used about gas stoves or even shoe wear. I was wondering, do you feel that there is some problem with perception out there, that people do not feel that Canadian shoes are of good value or that they are getting good value here, or are they just perceived to be of better value in the US?

Ms Maloney: Yes, I do. I think there are problems. I think that as an industry, especially in this type of commodity and in the apparel industry -- and you are talking about the largest segment, which again is the ladies' sector -- for whatever reasons, I do not believe we have enhanced our image as well as we could as retailers. There are a lot of reasons for that. I think within the local communities, certainly with a large portion of our membership, they are not being impacted to the same extent in some communities as in others because they have been able to maintain that relationship.

When you get into the larger communities and especially when you get into the border communities, it becomes more difficult, especially when you look at the fact that if you are a Canadian independent and you are buying brand footwear and you have been using that to enhance your image with your customers, and they look across the border and see a $60 difference, you run into a real problem there because you are not distinguishing yourself any more from your American counterpart, especially if what you were basing your distinguishing factors on was a particular product which is much cheaper there.

It is a combination of having a diversity of product that is somewhat different from what is being offered south of the border as well as having people perceive that when they pay X dollars, the product they get is going to give them some longevity, that there are guarantees in place and that they are going to be treated properly when they go back into the store and so on and so forth.

1140

Mr B. Ward: I will be brief. I appreciate your taking the time to give us this presentation. I think this picture could be taken two ways. The federal government probably, through the briefs from the organizations of shoe manufacturers, could have said that there would not have been an employee in the shoe manufacturing industry without the dumping duties. That could have been their argument. I am not here to debate that.

Ms Maloney: There are always two sides to every issue. I might say, though, that there are only about 6,000....

Mr B. Ward: Without a job, they could not afford to purchase a pair of shoes.

Ms Maloney: I agree with you, but I must say there are only 6,000 people in the supply side of the footwear industry.

Mr B. Ward: That was not my question, Mr Chairman. That was a comment. I am not saying what the federal government did was right or wrong. I would like to focus on the suggestion that the PST be collected at the border.

It is my understanding that your organization has no problem with the PST being expanded to all shoes. I thought I heard you say there are currently some exemptions and you felt it would not add that much to the cost if the PST were expanded into the areas that are currently being exempted.

Ms Maloney: With a very important caveat, which was that there be an overall reduction in the combined retail sales tax and GST.

Mr B. Ward: Yes. Is your focus -- because I would not want to suggest that the PST be expanded into areas of exemption if the GST is a temporary tax and will be modified in the future, depending on the will of the Canadian electorate -- that this committee should be making recommendations to the government to explore all avenues of how the PST can be collected at the border, of which harmonization of tax would be just one?

Ms Maloney: Certainly.

Mr B. Ward: Because we would not want to enter into areas of exemption of the PST -- I do not think that is what you are saying -- unless the harmonization aspect is one. But you would not necessarily agree that the PST should be extended to the exemption areas; the prime focus is that the PST should be collected at the border and all avenues of how it is collected should be explored.

Ms Maloney: Absolutely. We are not saying the only avenue is harmonization. What we are saying is, we do understand some of the difficulties, given the fact that we are talking about a national program with the GST, and if you do have harmonization, you are most probably looking at harmonization for 10 different jurisdictions. So we understand that there can be difficulties because every jurisdiction has different exemptions. That being said, we are also of the view that there is the capacity to implement collection of the PST with exemptions, not having to go through a complete rationalization or harmonization of the program.

Mr B. Ward: Are you suggesting that should be explored very strenuously, to collect the PST at the border?

Ms Maloney: That is right.

Mr B. Ward: Okay. I wanted to make sure that was clear in my mind.

Mr Sterling: This is sort of a supplementary coming out of some of the other questions, and you partially answered it when you were responding to Mr Ward. You mentioned that there were about 6,000 people in the supply side of the shoe industry, and I had a brief discussion with one of my colleagues, Mr Kwinter here. We were talking about Thomas Bata, who is a native Ontarian and the largest shoe manufacturer in the world, and why we cannot compete when we have the entrepreneur of all entrepreneurs within our own province.

I guess the problem relates to the high labour content associated with shoe making; it can only be automated to a certain level. So I guess the extension of the argument is that we do not want those jobs in the bottom line because if they are high labour content we are never going to be able to justify a high hourly wage for the people in those jobs.

If we took your brief and said, "Okay, we agree with everything you have put forward," so that the marginal manufacturers would drop off, what would it go to, in your estimation, from 6,000 people on the supply side?

Ms Maloney: Down to?

Mr Sterling: Yes. You talked about the boot industry being very strong and being able to compete. They have found a niche in the market.

Ms Maloney: I very much think it would not be that dramatic, because the figures I am quoting were made available to us at the time of the dumping complaint. I hate to take figures out of a hat but I think you might be looking at a 25% drop in employees, because what is emerging is that, as the stronger suppliers are becoming more aggressive and going into the United States and being more focused in what it is they are producing, they are in fact expanding. They are picking up some of the smaller organizations that have failed and expanding their base and their ability to compete by doing that.

So what is occurring is a rationalization within the supply industry to be competitive in this -- I hate to use the word -- global environment that we are operating in.

Mr Sterling: One other brief question, if I can. I have been reading some articles on competitiveness in the Globe and Mail this week, in the business section. Some of them are pretty good. One of them relates to the levels of distribution. Are there too many levels of distribution in your industry?

Ms Maloney: It is interesting. If you compare the Canadian marketplace with the American marketplace, I think one of the most staggering items to me is that the shoe industry is considered among the top five major industries in the United States, whereas you cannot say that in Canada.

In the United States, certainly because of the size of the market they have, there are a number of very, very large retailers who are able to source directly from offshore manufacturers as well as domestic manufacturers. Therefore there is a relatively smaller wholesale industry in the United States, whereas in Canada we do have, not a large import or wholesale community, in terms of numbers, but a stronger wholesale community operating here, which of course adds to the cost.

There is always the possibility that American exporters could come into the Canadian market and pass on to independents the economies of scale in their purchasing power when they purchase offshore. Their suppliers are not interested in the Canadian marketplace. They are interested in the American marketplace and we are secondary. We are fitted in as is necessary.

With the intrusion of dumping duties, those exporters find it really quite difficult to come into the Canadian market. They do not want to have to deal with the issues and the problems that they are faced with at the Canadian border. So there is an opportunity which could be made available to Canadian retailers but which they really cannot take advantage of because of the dumping duty regime that is in place.

Mr Sterling: I am sorry; another question has sprung to mind. If I import a pair of shoes into Canada from the United States, what is the duty now?

Ms Maloney: It depends. If you are bringing in a shoe that is --

Mr Sterling: It was made in the United States.

Ms Maloney: If it meets the requirements of origin there is a graduating diminishment of the tariff. I am not sure what rate it is at now, but it diminishes, so you are not subject to the tariff. But what has happened, interestingly enough, is that a number of American producers make the main body of the shoe, the upper, and they make it domestically in the United States; then they may take that shoe and ship it to Mexico to have stitching done on it. Immediately the opinion is formed at our border, "This no longer qualifies as being an American product and therefore subject to the diminishment of tariffs," and retailers are immediately hit with severe dump charges or increased tariff on that product.

So the problem with the footwear industry, much like the apparel industry, is that it is not something where the complete product is made in one region or part of a region. Different parts may be made all over the world and you cannot stop that kind of migration of product.

1150

Mr Sterling: Of the 6,000 jobs, how many are in Ontario?

Ms Maloney: I would say probably half, a little bit less than half. It is really split between Quebec and Ontario.

Mr Sutherland: I want to come back to the issue of retailing, because we have heard several presenters talk about the reasons people are going across, that they do not get as good service or the staff are not as knowledgeable. I was wondering if you could give us some indication of the amount of money that is spent on training staff, on making sure they are knowledgeable, and on customer relations and customer service, and then maybe a little more in terms of what support you provide in terms of retailing incentives and initiatives.

Ms Maloney: Let me start with the latter part of your question first. We do provide training. We are in fact the only group that has a product knowledge program available to footwear retailers. As well, we provide a sales training program, which we have been able to secure from the United States, as a matter of fact, for distribution to our members.

The first part of your question is difficult. In my view, there is not sufficient training happening.

Mr Sutherland: If I could just ask, the product knowledge thing, is that solely for the managers of the stores or is that for salespeople as well?

Ms Maloney: No, it is for everybody. In my estimation, there is not sufficient training going on in these industries, and I think there is a variety of reasons. For example, we do not in this country, let alone in this province, have access to what I would describe as good, solid consumer trend information. We used to have that. Unfortunately, the federal agency that was running it decided it was no longer appropriate, for a variety of reasons. I suppose one of the reasons was that it was not being embraced as quickly as they would have liked. The result is that large segments of our community are not obtaining Canadian consumer trend information. That is significant, because if you are going to market yourself you should know what the trends are.

Second, there is no operational survey of the Canadian footwear industry. We are in the process of trying to create such a survey so that people can compare what their margins are and their operating costs and so on and so forth.

Third, there is not really too much opportunity for these people to take advantage of training because usually they are sole operators and there may be one or two people in the stores, so they are very reluctant to go to a seminar. What they need really are programs, either audiovisual or people who come into their stores, to give them training. I think programs which were made to address the particular needs of that community would certainly be very well received and would be very successful and helpful, because I think there are skills in selling and customer service that have been neglected.

Mr Sutherland: If I may just ask -- and you may not be the appropriate person, but I am sure you deal with other sections of retailing -- about the comment you made about consumer trend information; and I believe you are the first one to make that comment. From your relations with these other organizations, what would your sense be of how that fits retailing in general; do retailers in general seem to have enough consumer trend information, or quickly enough, to respond?

Ms Maloney: No, in my view they do not. I think they are not trained sufficiently even to do their own surveying. I have to commend MITT on the strategy report it prepared and made available to retailers. That kind of information, with the skills it provided to people so that they could actually read it and take some steps, was very, very positive, because generally that information is not available, certainly, to the independent community. The larger operators, larger retailers have access to that information but generally it is not available. There is very little consumer trend information. As far as I know, there has never been a focus group. In fact, we are probably going to be the first organization that does a focus group on footwear and why people buy footwear. Generally that information is just not available.

Ms M. Ward: You represent small independent retailers. On the other side of the border --

The Chair: Excuse me, we have a 5-minute bell for a vote in the House.

Can you ask your question very quickly?

Ms M. Ward: How do they compare? Are those large department stores that people are going to shop at as opposed to small retailers on the other side?

Ms Maloney: Yes. In fact, there are real differences in the product that they are selling as well. In most cases, I do not think the product is as high-quality as is being sold in the border communities, but they are traditionally from larger stores and malls as opposed to sole operators on street locations.

The Chair: This is called abruptly. We have to go to the House for a vote. Thank you for your presentation. It is very helpful.

The committee recessed at 1156.

AFTERNOON SITTING

The committee resumed at 1540.

The Chair: As we begin this afternoon's proceedings, we do not have any members from the Liberal Party, but I am sure they will show up. We do have a quorum.

LIQUOR CONTROL BOARD OF ONTARIO

The Chair: I would like to begin the afternoon with the Liquor Control Board of Ontario, Andy Brandt, chairman and chief executive officer. Welcome, Mr Brandt. I have a hint that you might understand how this works.

Mr Brandt: Thank you very much, Mr Chairman. I know if I have any difficulties procedurally, you are there to help me every step of the way. I want you to know that I am delighted to be here and be back in a place that I called home for a great many years. So I am looking forward to having an opportunity to address the committee.

Is it appropriate that I begin at this time? I am extending my hand, looking for some assistance at this early point. If you would like me to begin, I can so do.

The Chair: Yes, I would like you to begin. We are just going to turn down the House monitor so that we do not have any distractions.

Mr Brandt: I have never allowed legislative debates to interfere with my line of thought in the past. I do not know why it should happen now.

The Chair: Perhaps some of the members in the gallery have not trained their thought processes as diligently as you have.

Mr Brandt: If I might, with the permission of the Chairman and the committee, I would like to introduce some members of the LCBO staff who are here with me as well. Cheryl Parry, who is the executive assistant to my office and as well serves in the capacity of secretary to the board of directors of the LCBO; Mark Synnott, vice-president of finance and administration; Rob Dutton, who is director of economic policy and planning and works directly with Mr Synnott's staff. Chris Layton, who is with our press and media department at the LCBO, is with us as well.

With just a couple of brief opening remarks I would like to get into my presentation, and certainly will leave more than adequate time for all the members of the committee to address any questions they wish, either to myself or to members of the staff.

I am delighted to have the opportunity to address what is an extremely important and critical economic issue for the people of this province. I will not be dealing with the issue in a global sense -- although all of us, I know, have views on it -- but more specifically the impact of cross-border shopping on the liquor control board, and by extension, on the province of Ontario.

It is an issue that is a very personal one in many respects to me, as it is to many members of this committee, because I come from a border community. I have eyewitness accounts really of the impact of cross-border shopping virtually every time I go back home. So it is a problem that has impacted very severely on my community, on most border communities throughout the province and certainly even, by extension, inland communities.

If I might set the stage and give you some statistics, I will not bore you with a lot of them. But in 1986, on average, 1.7 cents of every consumer dollar or every dollar of household spending was spent on beverage alcohol of the type that is sold by the liquor control board, either at a store or at a licensed outlet, a hotel, a restaurant or a legal, appropriately licensed outlet that sells alcoholic beverages. What that 1.7 cents out of every dollar translates into in terms of impact on the province is a total revenue of $2 billion, of which in the range of a third, or specifically, some $650 million, is transferred to the Treasury of the province of Ontario.

Now, let me put that in some perspective for the members of the Legislature, many of whom I know are new to the provincial Legislature. The $650 million is in excess of the total transfer of revenue from all of the lottery funding in total, which is something in the range of about $500 million. So it is considerably below what the LCBO transfers, and I think if you take a look at other items in the budget like land transfer taxes, you will see that the $650 million is again a figure that is well in excess of some other very substantial revenue items and ones of great importance to Mr Laughren, the Treasurer of Ontario.

Now I know that a number of other organizations have appeared to give this committee some indication of the rather critical and devastating effects of cross-border shopping on their business or their specific area of activity. The message I have is somewhat different from the standpoint of the analysis we have taken at the liquor control board.

The impact of cross-border shopping on the LCBO has not been nearly as great as it has on other retailers, and I would like to point out during the course of my remarks why that is so. Beverage alcohol sales generally have been declining, going down over the past couple of years, for a variety of reasons. Some of those reasons include changing social attitudes among the people of this province, many of whom are turning away from distilled spirits to lighter alcohol products, or are reforming entirely and not using alcohol products of any kind. Drinking and driving measures that have been introduced by the province of Ontario today and over the course of the past number of years have persuaded people not to indulge in alcohol beverages when they are driving, and price also is a factor. The price of alcoholic beverages in this province and generally throughout Canada is relatively high compared with the competition south of the border.

Now overall, that decline, for a number of reasons -- and perhaps more recently we could throw in the current recession that we are experiencing in the province -- has resulted last year in a net decline of sales of some 3%. It is an important figure because I want to pick up the impact on cross-border shopping in just a moment.

Three per cent is the global number, the total of lost revenue to the province for a series of reasons. We can all make certain guesses as to what those reasons might be, but I have given you some for your consideration. However, in border communities, and we have analysed the border communities in a very specific and detailed way to try to determine what the impact of cross-border shopping is at the moment, we find that decline to be only slightly higher at 4%.

So to put the figures into perspective again, Mr Chairman, 3% across the province and 4%, somewhat more intense and a more rapid decline, in border communities.

We are finding, however, that in those same border communities there are again a series of problems that are causing a difficulty with respect to those communities. As an example, the recent shutdowns in Windsor have impacted very directly on the economy of that community. The Algoma situation in Sault Ste Marie, another border community, is the same kind of thing. There were closings of Fiberglas and Holmes Foundry in my own community, again an economic downturn in a border community. And if you look at the border communities there seems to be, aside from cross-border shopping, a more sharp decline in economic activity than in some of the inland communities. I know you can get into trouble with generalizations, but that seems to be one of the things that came out as a result of our study.

To provide a little perspective on how large border communities are in terms of the study that we took, the cross-border shopping area, which is the catchment area closest in to the US border, represents about 10% of all of our stores. There are 622 LCBO stores in Ontario, so for purposes of coming to a number with respect to the border operations, they would number something in the range of about 60 stores. They also account for about seven and a half per cent of the gross sales of that $2 billion I mentioned earlier that is marketed by the Liquor Control Board of Ontario.

1550

Now, why are we here? I mean, if our problem is a 1% problem effectively, you have looked at our sales, they are down slightly, what is the purpose in the LCBO coming to make a presentation to you -- and I assure you, it is not to waste your time, sir.

What we are finding is that there is an accelerated loss starting to set in. In many of the communities where the present numbers are not critical or devastating, there appears to be a trend line which, if projected outward to 1991-92, 1992-93, would seem to point to a continuing erosion of sales in some of these communities that are already being minimally impacted and will appear to be impacted in a much more major way in the not-too-distant future.

For example, in the Niagara region five years ago sales were growing at a rate of about 4.5% over the previous year. That was compounded and that growth was fairly predictable on a year-to-year basis. If you compare that with 1990-91, the sales in that same Niagara region have declined by some 5%. That is not in conflict with the other numbers that I mentioned, the 3% across the province, 4% border communities. This community is a little more heavily hit, in that the decline there is 5%, and that could be attributable, certainly attributable in part, to cross-border shopping. But I think it is attributable as well to the fact that there is rather intense advertising going on out of New York state which is flooding that geographic area in a much more competitive way than perhaps other parts of the province.

However, in the Niagara region, this is the third consecutive year that we have witnessed a decline in sales in that particular market. In my own area, the Windsor-Sarnia area, a similar situation has occurred. The sales, which increased slightly based on the demographics of the area and natural population increases, those sales have declined in 1990-91 by close to 7%. So you can see there is an erosion occurring, and that erosion, as I said -- and excuse me for repeating myself -- appears to be accelerating.

The LCBO, in an attempt to provide you with some information that would be helpful, looked at a couple of examples in order to come to a very specific determination as to whether or not cross-border sales were really the fault of this declining situation. What we did was compare a couple of communities in Ontario, a border community of approximately the same population as a more inland community. One of the first ones we took, for no apparent reason, was Sarnia and Peterborough. In taking Sarnia and Peterborough, we took a community that was on the border, impacted by US sales, and a community like Peterborough, which is some distance from the US border and would likely be less impacted.

Within the last two years, Sarnia has begun for the first time to trail Peterborough in LCBO sales. In the last fiscal year, both areas recorded drops in sales, again our overall decline being 3%, so Peterborough was impacted by that. The difference is that while Peterborough fell only 2%, Sarnia went down by about 7.5%. So you can take those two communities as an example of where that accelerating process seems to be taking hold.

Two other communities that we looked at were Sudbury and St Catharines, again attempting to come to a comparison that would be reasonable, and communities that were approximately the same size.

For the last three years, while Sudbury was showing growth in 1988-89, which was as high as 6.5% in increased sales, St Catharines has been declining by roughly 2.5%, 4%, and about 4.5% over the last three years. Again, a very direct indication that cross-border shopping is starting to impact on areas like Sarnia, St Catharines, and other border communities.

I would like to mention as well for your information that Brewers' Retail sales are being impacted far more dramatically than sales at the liquor control board. The magnitude of loss and declines at the Brewers' Retail is in the range of some 12% to 15%, so it is much larger than the decline that I mentioned earlier, before Mr Kwinter arrived, namely some 3%.

If you contrast the difference between Brewers' Retail and the LCBO, you will find, if you refer to the Ernst and Young study on cross-border shopping, that the purchase of an LCBO product or a distilled spirit product is relatively well down the list as an item that people cross the border to search out. At the top of the list in the Ernst and Young study was gasoline and second came groceries and then following groceries came clothing, and the fourth or fifth item down the list representing the actual product that people went to shop for, and that was about a 4% factor I think, was a product that would be handled by the LCBO. So that is one of the reasons why I do not believe our sales are impacted nearly as critically as department stores, grocery stores, Brewers' Retail, gasoline retail outlets, because their products seem to be higher up on the popularity list for purposes of cross-border shopping than is the case with the LCBO.

The other factor is that for years the Ontario public has become rather accustomed to the fact that our prices are higher than they are in the United States. This is not some factor which has come into play in the last year or the last two years or in the last half a dozen years. Traditionally our prices have been higher in Ontario because we have taken an attitude that in order to keep a semblance of control on the question of social responsibility as it relates to the consumption of alcohol products, price was a key factor. If you made the product really cheap, it would encourage some people to drink considerably more. So price was a balancing factor and always has been, I believe, with all parties in this Legislature, irrespective of their political stripe, because the belief was that it was an important element in terms of our social responsibility as legislators.

The second item that is important with respect to the difference in price is the fact that the Ontario public has historically and traditionally received a great deal of benefit from that $650 million in transfers to the provincial Treasury that is not realized, obviously, by the American consumer or by the American citizen, namely our health services, our community and social services. A whole host of educational services are provided as a result of that $650 million being available. Obviously the downside is that there are some people who will make a decision to take advantage of a price in the United States, forgetting completely about the fact that our tax structure is such that we build in a lot of programs that we offer to people and that does result in a product being slightly higher. I will refer to a few specific products because I think it is important that we have those as well.

Over the course of the past few years, however, since this question of cross-border shopping has become somewhat more critical and obviously has intensified rather dramatically as an item for concern by the members of the assembly, it is interesting to note that there has actually been a slight reduction in the gap between the price charged in the United States and the price charged in Ontario. In other words, the differential -- and I am not going to try to convince you it is dramatic, it is very small, but a very noticeable decline in the difference between the price you pay over there and the price you would pay here in our own jurisdiction. What I am saying is that it is not as a result of galloping price increases on the part of the government of Ontario and/or the LCBO that is causing people to buy in another jurisdiction. In fact, it is more of an incentive for them to come back home again and buy here, because our price difference is slightly smaller than it was.

1600

If you were to take our most competitive products, by and large they would be the premium brands. In the premium brands of the LCBO product lines, we are rather competitive with the United States. As an example, and not with the intent of advertising a particular product, a Scotch by the name of Johnnie Walker Red Label in a one-litre container would sell in the United States between a low of $23.80 to a high of $28.31. Those are translated into Canadian dollars and those are in various US border cities. The same product at the LCBO in Ontario sells for $28.53. I think arguably that is a competitive price. Although we are slightly higher, it is not so dramatic that it would encourage someone to go across the border.

Here is where we have a bit of a problem. That is in lower-priced products like Smirnoff vodka, not that any of you would be familiar with that particular product, but I mention it only in passing because you may have seen it on a shelf somewhere. Our prices are not nearly as competitive. The US price ranges from a low of $12.81 to about $15. The Ontario price is $24.33.

Again, the position taken by Ontario is that whether it is a bottle of Scotch, a bottle of vodka, a bottle of rye, looking at it from the standpoint of attempting to bring about an attitude of social responsibility in alcohol consumption in this province, we do not want to deeply discount a product which will encourage overconsumption of a vodka product, so our vodka is priced at approximately the same price as the Scotches.

Let me move on quickly here, because I know you may want to get to some questions. The current loss situation, to put it into perspective, is important to us, although not critical. What is critical, however, if left unchecked and if the growth continues, as some observers have suggested, with respect to cross-border shopping and if these revenue losses continue -- it could become much more significant.

I know there have been some comments made and certainly some very critical observations have been offered with respect to the GST. I want to say that the federal GST is revenue-neutral, price-neutral in so far as liquor products are concerned. It had no impact on our business. I know it had considerable impact on other products that one might purchase, but it in some instances provided even a slight price reduction in some beverage alcohol products.

In the Ernst and Young study that I mentioned earlier, one of the findings was that some 36% of the respondents' shopping dollars was spent on gasoline, which was the number one sort of attraction in going south of the border. Some 68% indicated that the variance in gas prices was the chief reason that they had -- I mean, more than two thirds of all the people who crossed the border have indicated that gas prices were the main reason they went over there. Now, the reason that a lot of liquor purchases are not being made in the United States, based on our best information, is that it is an ancillary purchase, it is not the main purchase. It is fourth or fifth down the list of reasons why a person crosses the bridge or goes through a tunnel to go over to the United States. So again, although it seems to be increasing, it is not increasing dramatically as yet.

Let me give you some ideas as to what might be done with respect to the liquor control board and from, obviously, our vantage point in this entire debate as to how we think some of this erosion could be stopped. One of the things that we could do, obviously, is reduce prices.

If we reduced prices and if we were more competitive and if we cut back on the amount of money that was transferred to the provincial Treasury, that would have a very significant impact on any sales that were being made south of the border, but I want to caution you that in so doing, it has a very dramatic impact on the Treasurer's revenue base. It would erode substantially the $650 million that the Treasurer anticipates receiving from the liquor control board and there would in all probability be an erosion of certain programs like health, education and other programs that are paid for at least in part from dollars which are generated through the liquor control board.

We could continue, as a second alternative, to pursue liquor control board retailing initiatives. For the benefit of the members of the committee, I would like to refer to the Chairman's own riding, where we recently opened a new store which I would hope the Chairman would agree is a very attractive, modern, entirely different kind of merchandising concept in the liquor control board from what we have used before. It is not an irresponsible method of merchandising liquid refreshments, but in fact provides better consumer services. Our modernized stores include such things as trained, knowledgeable staff, a wider choice of products and, I might add, something that we should all be very proud of: the world's most exacting quality control standards. We are looked upon in the laboratories at the liquor control board as being the leader, certainly across Canada and by many US jurisdictions as well, as the jurisdiction that keeps a very tight control on the quality of the products that we allow for sale within our operations.

One of the areas that I have felt for some years could be improved upon in order to make a considerable difference with respect to the erosion of some of our retail dollars into the US market is for some improvement in customs enforcement. If we could encourage the federal government, as an example, to do one thing -- to collect provincial sales taxes at the US border -- if a deal could be made between the Minister of Revenue of Ontario and Otto Jelinek at the federal level, and if he could just ask, without adding more staff, without any administrative changes that would be dramatic or would be particularly costly, if they would simply collect the applicable 8% provincial sales tax on items that are simply being waived at the moment, a couple of things would happen.

Number one, the people would quickly come to an understanding of what the true cost of that purchase really is, because they are in fact evading taxes by not paying the 8%. By the way, you are supposed to pay the 8% on a voluntary basis, and I could ask for a show of hands by any of you who know of any volunteers who have paid that 8%. Oh, I know that you would, Mr Sterling. I was not speaking on a personal basis but rather on --

The Chair: Most of the members of this committee do not shop in the United States.

Mr Brandt: At least over the course of the last few weeks.

Some enforcement improvements and/or collection combined with that of the provincial sales tax, in my view, would help us recoup some of our lost revenues. More specifically, it would help the provincial Treasurer, because those revenues would be directed to sources obviously that he is in need of.

We could begin a more aggressive marketing strategy to encourage US shoppers to come north, to purchase from the liquor control board, by comparing some of our very competitive prices -- and we are competitive, as I showed you, in certain lines. But we also happen to have premium products and a far wider range of products than American stores normally carry.

Those were a couple of ideas that I wanted to throw out for your consideration, Mr Chairman.

In closing, let me just say that Ontarians must come to understand that the money that we raise from the LCBO goes to pay for some very critical services, which you as legislators and we as the Ontario public at times take for granted, benefits that flow directly to our communities and the activities that are paid for as a result of revenues generated by the liquor control board. That $650-million net transfer is a significant amount of money. It is one of the largest sources of outside revenue which comes directly to the provincial Treasurer.

So I would just say to this committee that we are concerned about the current erosion. We are more concerned about what we see to be a growth or an acceleration of that erosion, and we think it can be at least slowed down, if not stopped, if some measures are taken to combat it such as I have outlined in my brief remarks to you this afternoon.

Thank you very much for your attention and patience. I would respond to any questions that you might have.

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The Chair: I have seven questioners. If we could limit it to one question each and if those questions could not be multiple-part questions with a long intro, please, Mr Jamison, you are first.

Mr Jamison: By the way, that was a very good presentation. I think it gave a very good overview of the board and its purpose and I would like to thank you for taking the time to come here and be with us.

When we talk about the price differences in brands, of course, you pointed out clearly that the premium brands are competitive in price. What I would like you to do for the purpose of the committee is to expand on what you are doing as a liquor board to really promote the board itself customer service-wise, what kinds of benefits we have in having the stores under the one banner of the LCBO and the kind of training and programs. I know there is such a thing as point of sale that is looming on the horizon. What does that mean? And again, I know that the public awareness programs are of great benefit. If you could expand, just for the sake of the committee, I think that is an area in particular where again it speaks of keeping the public's confidence in the way that liquor is distributed within the province. I think that is a major responsibility of yours, and also relates to the funds in the end result.

Mr Brandt: We have attempted to merchandise in a more modern way, because obviously the LCBO had to change, as did many other retailers over the course of the past few years. To respond to Mr Jamison's question, if you look at a typical LCBO store today, it bears very little resemblance to what you saw 10 or 20 years ago.

One of the things we have added to our stores in terms of features is the Vintages stores, which now cater really to those in our communities who have an affection for wine and food and by any argument that one could raise are not abusers of alcohol products but have a refined taste and want to enjoy better wines from virtually all over the world. We have experts on staff who are trained who I will compare with any employees of any similar kind of operation anywhere in North America, who can provide advice on the wines of the world, if you will, in addition to Ontario wines, those that we purchase from France or Germany or Italy or any of the other countries that we import wine from. So our Vintages stores as well as the Vintages section of some stores are a major step up in terms of service.

We provide services like French-language services in our stores, which are not provided, obviously, by many other jurisdictions. Any of the information that is available in LCBO outlets is available in quite the same way as it is here at the Legislative Assembly. We provide a direct hotline information service if you have a special function, if you have a wedding celebration or some kind of family celebration that you require some liquid refreshments and you want advice on how to get a licence or how to purchase the product or whatever. We handle something in the order -- and I am guessing at this number -- of 7,000 calls a month on just questions relating to our store operations, perhaps a question as simple as what kind of wine goes best with a particular type of food product.

The liquor control board, in addition, has as one of its mandates a very important function economically that Mr Kwinter will be aware of in his former role as Minister of Industry and Trade, and that is the support of the Ontario wine industry and the grape growers. That has an agricultural component to it, but we do our level best to promote Ontario products within our operations, because I need not tell you, it is an employment question as well as a question of trying to expand and to enhance an indigenous Ontario industry which is vitally important. You can see the kind of advertising campaign that the wine industry is involved with at the moment where they have a new slogan, "We're Ready When You Are," trying to encourage people to not buy an imported product but to buy a local Ontario product. We become part of those kinds of efforts, if you will, in order to sell those particular types of products.

We have a no-hassle return policy. If you are not happy with an LCBO product, you can bring it back. That is just not available in a US jurisdiction in most instances, but if you buy a product from us, you can bring it back. We would rather you did not, but if you do, we will give you the cash back for it.

Those are the kinds of things that we are involved with, and I would maybe bring Mark Synnott forward, if you would for a moment, Mark, if you would join me here and perhaps expand on the point of sale, which is part of our new computerized and modernized upscaling of some of our stores. Mr Synnott, who heads up finance with my staff, would be able to respond to that, I believe.

Mr Synnott: The primary objective behind this kind of sales system is to improve customer service at the checkout counter. It gives things such as the automatic call-up of price so that the customer is processed in a shorter time period across the counter. It is also intended to provide better access to and knowledge of what inventory is available so that if the customer wants to inquire about a product, he can get immediate access as to what is in that store. It is also designed, in the long run, to help us manage our inventories more effectively so that we can make more effective use of the province's dollars that are invested in the LCBO.

Mr Brandt: Just to expand briefly on that, about a third of our 622 stores have now been equipped with this more sophisticated type of checkout system, and we are doing a few of those every week. Eventually, the entire system will be placed on that particular point-of-sale computer system. So that is what we are moving towards and I hope it responds to your question.

Mr Sutherland: I wanted to ask about duty-free stores, because liquor products you can purchase at duty-free stores but beer you cannot purchase. Can you just explain how that arrangement works and what revenue LCBO gets from that?

Mr Brandt: We get a slightly reduced revenue because of the competitive nature of a duty-free store, but your observation with respect to beer not being available is in fact not correct.

Mr Sutherland: Is that right? I have not been over to a duty-free in a while.

Mr Brandt: I know that you probably would not be a consumer of that product.

Mr Sutherland: No comment.

Mr Brandt: So I just want to mention to you that the products of the two major breweries in Ontario are available. I do not believe any of the microbrewery products are available. If they are, they are very limited.

Mr Sutherland: Is a wide selection of beer products available?

Mr Brandt: No, just the two majors, Labatt's and Molson's.

Mr Sutherland: I mean all of Labatt's products, all of Molson's.

Mr Brandt: Not usually. It is limited.

Mr Sutherland: Could you just clarify?

Mr Brandt: It is limited not because of anything we do as a board, it is limited because of space limitations within the geography of the store itself. But I think your question is more directed at the pricing situation. In order to be competitive with the United States, and recognizing that this is a product which is exported and never seen again in terms of Ontario -- in other words, it is driven out of the country and is consumed somewhere other than Ontario -- we have to be somewhat more competitive price-wise. So that is how those products are marketed in duty-free shops.

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Mr B. Ward: First of all, I would like to congratulate you on your appointment. I think you are doing a fine job and I would hope that you can continue on in a successful manner.

We are here primarily to talk about cross-border shopping and the problems that our border communities are experiencing with the consumers going across the border into America to purchase a number of items. There have been a number of suggestions made by various groups on methods that we could use to discourage that type of endeavour.

One suggestion has been to reduce the amount of tax on gasoline along the border areas. The one concern I have with that, and I do not know if it is shared with everyone in this room, is that unless you control the direct cost, there is no guarantee that savings of any tax reduction will be passed on to the consumer, simply because you do not control the cost. Those are private sector initiatives, and they will charge whatever the market will bear.

However, under the LCBO we do have a monopoly that is controlled by the government. I think that part of the selling point of going to America is the so-called cheap booze. In America in fact some stores sell certain brands at a loss to encourage you to go in and perhaps buy milk or eggs or whatever along with it. From an administration standpoint, and I do not know if you can answer this or not, is it possible for us to have a reduction in price of alcohol -- and I am talking on a broad basis of our LCBO outlets -- in the border communities, just from an administration standpoint, and would that cut drastically into the amount of revenue that the LCBO takes, recognizing that there seems to be an accelerating decrease in volume of sales along our border? I do not know if you can answer that.

Mr Brandt: Administratively we could do it. There is no question that we could do it in one store, we could do it in 100 stores, in 622 stores. Whatever the government wanted we could do in terms of drawing the line.

Let me revisit for a moment the numbers we are talking about; 10% of our stores would be in the geographical area that you are identifying, by definition a border store. They represent about 7.5% of sales. Wherever you draw the line in doing this kind of thing, whether it be gasoline, whether it be alcoholic beverages or whether it be bread, somebody is going to be able to drive across the line and buy it --

Mr B. Ward: Yes, we are aware of that.

Mr Brandt: -- from an expensive jurisdiction, like perhaps London, Ontario, compared to an inexpensive jurisdiction like Sarnia, or wherever. So that is a problem, and I do not know how you overcome that. But if your question specifically is, can we administer that, I am saying yes. Mr Synnott will probably say it would be difficult, but it certainly would not be impossible.

Mr B. Ward: It is possible. We are exploring all sources of opportunities that we can think of as a committee and as groups are presenting them to us to attempt to come to some type of solution to this problem. So thank you very much. It is possible. It may be some work but it is possible.

Mr Brandt: Yes.

The Chair: Did you want to make a comment on that?

Mr Synnott: The current act requires national pricing across Ontario.

Mr Brandt: Uniformity.

Mr Synnott: Uniformity in pricing.

Mr Sterling: I was interested in your example about Sarnia, Andy, and when you said that the sales were dropping in Sarnia, one of my colleagues said to me he had not heard that you had moved down to Toronto.

Mr Brandt: I want to assure you, the impact of my consumption would not reflect itself in any statistical aberrations up or down, Mr Sterling, but I do appreciate your bringing it to my attention.

Mr Sterling: The importation of liquor from the United States: While in answer to Mr Sutherland's question you talked about the outflow, I was more interested in the inflow. I understood that you had to be out of the country for a certain period of time before you could bring in 40 ounces or whatever or one case of beer or whatever it is. Can you bring in more than that and just pay duty on it?

Mr Brandt: Yes.

Mr Sterling: Is the duty exorbitant so that you would never do that?

Mr Brandt: No, it is not. It is rather competitive. In some instances you can buy a product in the United States, come back, pay full duty -- I am talking everything from PST, GST; add up all of the taxes -- and you may still bring a product in for slightly less than what it would cost in Ontario. That kind of aberration is something that I want to look at, because if I had more time to prepare the response to the question Mr Sterling has raised, I might have had a suggestion to make along those lines. But I think it is wrong that somebody can do the sort of thing that you are getting at, namely, buy a product over there and do everything that is legal, bring it back into the province and it still costs a little bit less than what we would charge for it in Ontario. That is a bit of a quirk or an aberration that I think should be cleared up, but it is possible.

Mr Sterling: The question of collecting provincial sales tax has been made by other people as well. My question is, you are suggesting that we collect it on what product that is being brought in, the one being declared because you have been there for more than 24 hours?

Mr Brandt: Where the federal government is already collecting the federal taxes, they have a person physically in an area where they have filled out a form and that form requires a certain collection of the federal taxation which is applicable to that product. It also carries with it that voluntary element which is obviously not being pursued too aggressively by Ontario consumers, namely, the 8% sales tax.

I am saying that they could add a line to a form, a simple piece of paper, collect the 8% sales tax and Mr Jelinek could simply transfer that back to Mr Laughren here and say, "This is what we collected on your behalf." It is not unusual that one level of government would do this kind of thing as a courtesy for another level of government.

This kind of cross-relationship in a co-operative sense goes on, as we all know, in a great number of programs. But the loss to Ontario -- can you imagine for a moment if we had a voluntary income tax program, and said to people, "Send in voluntarily what you think you owe us."

Mr Sterling: Okay. I know you do not get out very often, Andy, but I would like to get --

Mr Brandt: How many questions do you get?

Mr Sterling: I would like to get brief answers to my questions but --

Mr Brandt: I am trying to give you brief answers.

Mr Sterling: At any rate, the $23.50, the Johnnie Walker bottle, if somebody bought that at the duty-free shop, would they get it for less than $23.50 in the US?

Mr Brandt: At a duty-free shop, yes.

Mr Sterling: So there is no way that you can compete or compare with that kind of thing.

Mr Synnott: You are taking all the federal markups out of the price.

Mr Sterling: Their federal markups?

Mr Synnott: Their federal markups.

Mr Sterling: So it would be considerably less than $23.50.

Mr Brandt: Our comparison is on a retail-to-retail basis and sometimes you will see price comparisons that may not fit directly with what I have shared with you this afternoon, but that is because of what I think Mr Ward said. Someone indicated that they will sometimes deep-discount a particular product as a loss leader or as a come-on. That is a form of merchandising in the US which we cannot use in Ontario because, quite obviously, our prices are uniform across the province.

We do discount occasionally when we are closing out a product or if we have a slow-moving product and we need it out of the inventory or whatever. That product will be made available uniformly, to the extent that one can, in a number of different stores of the LCBO. So we do occasionally clear out a product that may not be repeated for our inventory purposes.

Mr Hansen: Mr Brandt, you answered most of the questions I was writing down here throughout.

A lot of people wait until the well goes dry, and with the cross-border shopping, that is exactly what is happening with the revenues declining here in Ontario.

I remember the beer strike that we had, I think it was 1988 or 1987. At that time it was $2 more a case than you could buy it here in Ontario by going across to the US. With the beer strike on, the beer drinkers still went across and paid all the duty to come back. I think you are right in that sense that it should be a level playing field if you are importing. It should cost the same as here in Ontario.

The only other thing a lot of people do not see by reducing the price is that your health costs can go up if you wind up with a higher consumption. You are not really saving any money, you are spending it someplace else.

My one question, coming from Lincoln where the grapes grow, is that I have had a lot of concern from the grape growers and the wine industry down there that the domestic wines are not treated, I have been told, the same as the foreign wines. One instance: The display on shelves is less. The other issue is the purchase of the wines, when the wine is paid for. On domestic wines it is paid when it is sold or has gone to the LCBO store, whereas foreign wines are paid up front, so they are telling me that it is a larger cost up front.

I have not written to you, I have not put this question before you, and it would be a very simple answer, if I could have it now to take back, because sometimes you do not get all the facts or sometimes they are misconstrued.

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Mr Brandt: Let me answer in part, and I am going to let the number cruncher who is here with me, Mr Synnott, perhaps respond to part of the question. First of all, every advantage legally under GATT that we can give to our Ontario producers is given. Keep in mind that we are a party to the General Agreement on Tariffs and Trade; we have to be in compliance with the GATT regulations. There is a constant stream of complaints that are quite the opposite of the coin from those that you have offered today, sir, from other producers in France and elsewhere, who think that we are unfair. To give you one example, there are roughly 225 Ontario wine stores in this province. There is not one foreign wine outlet anywhere. Legally, we are on reasonably safe grounds in that we grandfathered those stores in as outlets for Ontario product, but we have literally frozen out the foreign competition by saying, "Thou shalt not have any stores in Ontario."

Second, the day I went with Mr Wiseman to open up the new Ajax store, my second trip that day was to Pickering. If you went to the Pickering store, which is one of our new, modern stores, you would see a very substantial -- in fact, quite huge -- display of Ontario products which are well identified and, from the standpoint of shelf space, take up far more room than any of the foreign products. In terms of sales, Ontario products represent, through our operations, about 30% of the total wines sold. No question, the market is declining for domestic Ontario wine. It represents about 40% of all wine consumed in Ontario, the Ontario wine industry -- the additional 10% is made up of the products sold outside of an LCBO outlet, namely an Ontario wine store, either a Brights store, you have seen them, the Chateau-Gai, Andres, and those kinds of stores. So we give every conceivable advantage to the Ontario wine industry.

Let me tell you how frequently I meet with them. I met with them yesterday, I met with them again today and I will probably meet them on some other issue tomorrow. We meet constantly to try to find ways to market their products in such a way as to make sure that we enhance Ontario sales, Ontario products, Ontario employment and all of those other things.

I wonder if Mr Synnott could respond to the --

The Chair: I did not think there were any numbers left to crunch.

Mr Brandt: Yes, there are. There are some serious ones that I want to share with Mr Hansen, and I left those all for Mr Synnott.

Mr Synnott: The payment terms for Ontario wines are 30 days from receipt at our warehouse. The payment date for import wines is 30 to 60 days from the date of receipt at our warehouse. Generally, that means it is something like 100 days by the time it comes from Bordeaux, by the time they receive payment back in Paris, so there are very preferential settlement terms with the Ontario wine industry.

Mr Kwinter: The LCBO case is a classic business case. If every business in Ontario was like it, we could solve this problem very easily, if we had the political will. The LCBO is a monopoly. When I was the minister responsible for it, it was the largest single purchaser of alcoholic beverages in the world.

Mr Brandt: It still is.

Mr Kwinter: It still is, which means that economies of scale certainly do not get into it. They can buy as cheaply as anyone anywhere in the world. They have the state of the art as far as a warehouse that is totally automated. Again, that opened during my administration, with some pains, but it did open, and I assume it is working.

Mr Brandt: Yes.

Mr Kwinter: It is spectacular and it was conceived, as a matter of fact --

The Chair: It is going to be a long question.

Mr Kwinter: No, the point I am making, and I think it is really important, is that all of the things we are going to have to address, hardly any of them, with one exception, apply to the LCBO. You cannot say the distribution is lousy. They have 622 stores, it is a monopoly, and it is all done automatically. It is all sent out, so there is no wastage there. They buy as well as anybody can possibly buy, so there is no wastage there. All the changes that they are making are not really to help them make money; they are to help address the consumers and their problems. They used to have to go in, write it out and get a little brown bag and sneak it out of the store because it was a no-no to be seen in a liquor store. So they are doing all of those things. Again, when you talk about competitiveness, the number-one-selling whisky in the United States is Seagram's 7 Crown, so we are competitive. It is the one area where we can do all of those things.

The one problem that we have is in the beer industry. In the beer industry, because of our interprovincial trade barriers, every single brewer has to have a brewery in every province in Canada, with the exception of PEI because it is too small. So you have provinces with a population of 700,000 or 600,000 and they have to have a brewery. That is why the cost of our beer is so high at the manufacturing level. There is a plant, and I do not know -- Andy, you may know -- that is in mothballs in the United States. It probably still is. It has enough capacity in that one plant to supply all of Canada with all the beer it will ever drink and can do it very, very cheaply. So that is the one area.

So the problem that we have and the basis for the discrepancy in the liquor prices is strictly taxes -- we tax differently -- and the monopoly. The first question I have for you is, do you think it is a serious problem, the problem of purchasing alcoholic beverages across the border? Is that a serious problem that could be addressed by either breaking up the monopoly of the LCBO and changing its name so that it no longer reflects the puritanical idea of control? Second, should we allow competition so that the people can go out and compete on a one-on-one basis in the free market system?

Mr Brandt: The component which results in a higher cost for the Ontario product is taxation. Let's face it, that is where it is at. It has nothing to do with our distribution costs, the efficiency of our operation. If you take a look at the liquor control board, look at its laid-in price for a case of product, we can compete effectively with virtually any jurisdiction in the world. We buy better than some. We are large enough, because we are the largest purchaser of alcoholic beverages in the world. As a result of that, we do get preferential treatment in certain instances, so we put our size to work on behalf of the Ontario consumer.

But if the bottom line of your question is how do we become more competitive, how do we sell if the interest of the Legislative Assembly ultimately was to sell a $24 bottle of Smirnoff in Ontario for $12 to compete with New York state, it is totally taxes. You will not squeeze nickels and dimes out of the other end. In other words, the total component that goes into the cost of delivering the product is all taxation.

Mr Kwinter: That was the point I was trying to make, that it really is not the problem with the LCBO. If you want to get a lean, mean, clean organization that has the economies of scale, that has distribution, that has everything, they are it. All you have to do is move the taxes. Unfortunately, we can apply that to hardly any other sector of the economy.

Mr Brandt: That is right.

The Chair: You mean you are not inferring that we should monopolize all the other stores?

Mr Kwinter: No, the point I am making is that there is no sense in doing it. That is an easy one. All you have to do is have the will to say, "We're going to cut the taxes," and we can be competitive, but you cannot apply that anywhere else.

Mr Phillips: I appreciate the presentation. I kind of miss your sense of humour in the place, too.

The message I got, and then I will get to the question, I was actually surprised that it does not seem to me that cross-border shopping has had a major impact on your operation. I was surprised by that. The only caveat on it is that maybe it is because it has been there for so long in liquor that it is already built in. If you have 10.5% of your stores doing 7.5% of your business, does that mean anything? If 10.5% represents population and 7.5% is sales, then maybe they have already, years ago, been shopping across it. But if that is not the case --

Mr Brandt: If I may interrupt you, that is an accurate observation. Part of the erosion was already built in, so part of the decline, which is slower and less dramatic today, is as a result of what we believe to be practices that have been established for a long number of years. That is an excellent observation. I should have mentioned it, but it is a fact.

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Mr Phillips: Thank you. I need that every once in a while. My question, though, I guess is to take advantage of your experience -- I mean this sincerely -- of (a) living in a cross-border area; (b) the Legislature; and (c) now running this operation. I think you have given us one piece of advice and that is, "Look at the provincial sales tax collection." Have you any other advice, with your broader hat on, for the committee, recognizing, as some other members have said, that our goal here is to try and find something that at least over the next 12 to 24 months can help particularly our Canadian retailers survive?

Mr Brandt: Short of trying to go head to head with American competition, which would be very difficult for a lot of other reasons -- economies of scale, methods of merchandising, costs of doing business, that are built in, that are sort of an intrinsic part of the way of doing business in Ontario and in Canada as opposed to the United States and would make it very difficult for us to compete one to one on a great number of products -- I think some educating of the Ontario consumer would probably go at least some distance. I do not suggest to you that this is the entire solution, but I think there are a lot of people who think they are simply getting something cheaper, without recognizing that the quid pro quo on the other side of the ledger is that you may erode the availability of health services, you may not have an expansion of educational services and facilities, you may not be able to get some of the social welfare benefits that are available in our society, if you continue to allow this to happen.

I know that in a small way some of this is occurring. There are some retailers who are fighting back now in border communities who are advertising extensively, saying: "This is what you get when you buy a gallon of gas in Ontario. You receive certain benefits that are paid for out of that tax money." I think we can maybe reach some people from an emotional standpoint and maybe they will be somewhat more self-conscious about going across the border to purchase when they realize it is not just a question of getting a bargain, because that bargain may whipsaw back and result, over a period of time, in erosion of the very services that they voted for in one fashion or another over the years.

The second thing I think that we could consider, and I am not just speaking of the LCBO by any stretch of the imagination with reference to this comment, but the increase in control at the border points I think has got to be something that is taken more seriously by the federal government. I do not like to be critical of another level of government, but I think that if you are going to collect the revenues which legitimately belong to a particular government, then you have got to either provide the manpower or the resources or enter into the co-operative undertakings between two levels of government to make sure that those resources are collected. I think that would perhaps dissuade certain people from making a purchase in another jurisdiction if they knew they had to pay the 8%. Technically, you are supposed to voluntarily send it in now. We know it does not happen and I think it is nonsense to even suggest that people are going to do it voluntarily. Very few taxes are paid voluntarily.

So those are a couple of ideas. I know it does not go far enough to answer all of the problems that you have to address in this committee.

Ms Harrington: Thank you very much for promoting wines in Ontario. I represent Niagara Falls. I hope you were down to Niagara Falls for the Grande Cuvée last month, for the competition of Ontario wines.

Mr Brandt: I was not. Some of my staff were there. I was not able to be there, but I understand it was a big success and one that will be expanded as the years go on.

Ms Harrington: You mentioned education awareness in the last little while. I believe that is something that we are all responsible to do, as to how our whole way of life here is wrapped up with this issue. You also mentioned increased control, which is paying the 8% tax, and I do believe that is important.

Living in Niagara Falls, I know exactly what the situation is and why people go over. I do not go over for liquor, but certainly one is tempted to go over for gasoline, and I believe that is the crucial thing. It was number 1 on your list as well. So what I wanted to ask you was, briefly -- I know it is not your area of expertise, but you were here for quite some time, so I think you may have an opinion -- do you feel that having the concentric circles of reduced taxation on gasoline would be a workable solution?

Mr Brandt: Personally I do not, because I think that it will simply spill over to different types of circles with different types of buying patterns, but I think you have either got to do it uniformly or forget it, because I just do not know how you could break this province up into some kind of pricing zone.

In responding to the question earlier, I personally do not think it is workable. That is an opinion. I have no proof of this. But as I said before, wherever you draw the line there is going to be someone on the wrong side of the line who is simply going to slip over to what he sees as being an area that is more economically attractive. Ultimately, then, if the purchaser in London, Ontario, further away from the border finds that gas is cheaper if he drives to Strathroy or if Strathroy find the gas is cheaper if they migrate over to the great community of Sarnia, they are simply going to go to the community where it is cheapest. That is why they are going from Windsor to Detroit, from Niagara Falls to Buffalo and from Sarnia to Port Huron. That is why it is happening. They are simply jumping the line.

The same thing, I would respectfully suggest, would happen if you tried to do it within Ontario itself, and I know that some of the mayors have asked for some consideration with respect to this kind of thing. I would like to know more about their proposal, because on the surface I hesitate to say that I think it is workable.

The Chair: Thank you, Mr Brandt, for your presentation this afternoon. I would like to thank you on behalf of the committee for coming.

Mr Brandt: Thank you very much. I enjoyed it, and I am delighted to be back for a few minutes.

The Chair: If you have any further analyses that you think the committee could use in its deliberations, we would appreciate them being sent along.

Mr Brandt: I might add, Mr Chairman, any of the statistical data that we have been able to put together and research that our staff has done with respect to comparisons between communities, between regions and so forth, we would be delighted to make that available to you if it is of any use to this committee. We have a great deal of material that I was not able, because of time limitations, to share with you today, but I would be delighted to make it available to the committee or to the clerk, Mr Decker, if he would like to have it so you could refer to it. I do not want to load you up with paper. Heaven knows you have got enough, but we have it available.

The Chair: I think that at least one copy to the researchers would be appreciated. Thank you.

Mr Brandt: I will see that is done. Thank you.

1650

STONEY CREEK FURNITURE

The Chair: Our next presenter is Jim Carruthers, the general manager of the Stoney Creek Furniture store.

Mr Carruthers: I did bring some paper.

The Chair: If you would like to begin.

Mr Carruthers: Sure. I am not totally familiar with your rules and procedures, but I am sure the Chairman will interrupt me if I do something wrong.

I appreciate the opportunity to sit before you today and perhaps bring to light some of the situations we are facing closer to the border down the Niagara Peninsula.

In that little package that I just distributed, it gives you some background information on Stoney Creek Furniture, our company in Fruitland, Ontario.

A couple of positioning statements in terms of the core values of our company: the fact that in 1989 we won the Outstanding Business Achievement Award; in 1990 we won the Corporate Citizen of the Year award.

There are a lot of statistics in there, some paper you have already seen from the Retail Council of Canada and the Canadian Federation of Independent Business. In my submission I am trying to stay away from percentages, numbers and facts. You have got all that, and I am sure you have digested it at your leisure.

I would like to give you just a little bit of background on who we are and the problems that we are facing. I sit before you here today wearing a few hats. I am a Canadian citizen. I am a Canadian consumer. I am general manager of Stoney Creek Furniture, representing a group of 46 dedicated staff members. I am also a former board member of the Canadian Home Furnishings Association and I still am actively involved as a member, so you will forgive me if I flip from first person singular to plural once in a while.

As Canadian citizens, my family and I have decided not to utilize our buying power in border cities. It is a personal decision. I fear we are really in the minority. We reached this decision not because we have a lot of money and we can afford to be patriotic. We figure that at some point in time, as revenues evaporate, the provincial Treasurer is going to come after us and get some more somehow.

A good number of my staff at Stoney Creek Furniture do shop in northern New York. It is their effort to stretch their after-tax dollar. It is a personal decision, and they look at it as, everybody is doing it. I make no judgement. If you walked into our cafeteria and opened the fridge, you would see label after label of Tops Friendly Markets. As Mr Brandt was saying, most of them buy their booze in the States.

I also come before you representing one of the best teams in furniture retailing in North America. I do not mean that to be an arrogant statement. It is a statement of fact recognized in many international trade publications. You have, within the package in front of you, testaments as to our accomplishments on a local level. However, we are recognized at the international level as a star in our industry. We are a successful company. We are an innovative group of people. We are a profitable company, and we have an extremely dedicated team.

But guess what? We cannot compete. Twelve to 24 months from now, unless the rules are changed, we will not be around. We can compete for the consumer dollar locally, but we cannot compete across the border. The cost of doing business in upstate New York, it is in those reports you have in front of you, is low, and there is nothing we can do about that. We are very good at our jobs, and no, we cannot compete.

We belong to the Canadian Home Furnishings Association, to a buying group and to the American-based National Home Furnishings Association. Within that umbrella group, we are able to exchange a lot of information, quite a bit of it financial, and we see that we are one of the best at managing our assets, a great group of people, and we cannot compete, and it is frustrating.

We manage our expenses carefully, but it is the overheads that we cannot control that are doing us in. We do not come before you looking for dollars, handouts. We know we will never really get a level playing field. For the comprehensive programs that are available to Ontarians, we realize there is a cost, but we do want more. We want leadership. We want you to cross your party lines. We want you to negotiate with the municipalities. We want you to show some leadership to our federal government. One of the levels of government must decide to lead and the time for action is now.

Almost every day of the week, my staff is challenged by a customer to beat a competitive price from south of the border. It is not profitable for us to take that order and try and meet that price. However, our direction is exactly that. That is what we do. We then remind the customer that it is his or her responsibility to report a purchase made in upstate New York and pay the provincial sales tax. You know what the answer is: "No way."

We try to meet the price and then we have to collect and remit the provincial sales tax. Their response, without exception, is the same: "Eat the tax. We are not going to pay it."

Furniture stores average a 2% profit in North America. The numbers are fairly consistent in Canada. We do much better, but we cannot afford to swallow 8%. Profit dollars fuel everything we do. Investment in product, investment in people, investment in physical assets and a return of investment to our community. We must be profitable to grow and we must grow if we are going to survive. Given the current set of rules, more and more of our customers will turn to the United States to take advantage of lower overheads and cheaper prices. Please be reminded that the retailers south of the border do not buy anything cheaper. They are not better merchants that we are. It is simple: Their cost of doing business is less.

The trickle of consumers migrating to the United States has become a flood. They will not be deterred by traffic jams and long lineups. Our customers are not trying to save a few dollars on eggs, gasoline, shirts or a bottle of Smirnoff. They will put up with the hassle because when they go down there to buy furniture, they are saving hundreds and, in some cases, thousands and thousands of dollars on big-ticket purchases.

Our industry research indicates the cost of doing business just south of the border, just across the border from us in Niagara Falls, is about 40% less than southern Ontario. I believe that is referred in one of the handouts I gave you. Our wages, our property values, our benefits, taxes, interest rates are higher and beyond our ability to control. We are an efficient company, but we cannot compete.

The goods and services tax is not the culprit. The elimination of the federal sales tax on furniture has resulted in a net saving to the consumer. Artificially high interest rates are not the culprit either. It is a waste, it is a nuisance; however, we personally manage our assets well and have actually reduced our borrowing costs in the past year.

A lower Canadian dollar is not the answer. Free trade has devastated the Canadian furniture manufacturing industry to such an extent that we import 70% of the products we sell from the United States. If the dollar depreciates, our costs go up.

Lowering wages is not the solution. Our staff earn every dollar they make and they deserve more. Sunday shopping alone will not stem the flow of traffic south of the border; however, it would eliminate a competitive disadvantage.

1700

The list goes on -- problems without solutions, questions without answers. Fundamental changes are required to allow Canadian business to compete, most beyond the power of this provincial government. But one power you do have and one change which is required immediately is the power to collect the 8% provincial sales tax at the border. This action is required without delay. It is a competitive disadvantage we can no longer tolerate and survive even in the short term.

I do not expect the members of this committee will lose a moment's sleep tonight over the loss of 45 retail jobs at Stoney Creek Furniture. It will not happen tomorrow, and it will not happen next week. Unless the rules change, it will happen. We will not go bankrupt. We will simply close in Canada and we will open in the United States. And guess what? It is a great team. We will be very successful. The fact that I hope you will find particularly chilling is, we will be one of the last to go and thousands will have gone before us.

Mr B. Ward: Thank you very much for your presentation from a business person who is trying to survive in these tough times. You mentioned that the prime concern would be the collection of the PST at the border, from your perspective. Recognizing that the government has to watch every dollar we spend, do you feel it would be a wise expenditure for the provincial government to establish the administration that is necessary to collect the PST at the border points? Do you think that would be a wise expenditure on this government's part?

Mr Carruthers: I see no reason why the money cannot be collected. The GST is being collected at the border. I see no reason why the federal government cannot act as an agent for the provincial government.

Mr B. Ward: But if they are not willing to co-operate with us, do you think that would be a wise expenditure for this government to undertake?

Mr Carruthers: Is the general public aware of that?

Mr B. Ward: I am not sure if they are or not. But my other question is dealing with the taxes in America. We all know why we are taxed the way we are, but why do you think the tax levels in America are the way they are?

Mr Carruthers: There are a variety of services that we receive as Canadians, and my family lives here and we would like to stay here. We enjoy this country. We enjoy the services that are offered. We know why the tax base is different in Canada.

Mr B. Ward: I am not talking about Canada. Why do you think it is the way it is in America?

Mr Carruthers: The cost of living has a lot to do with it. The tax structure is just totally different than it is in Canada. My driver makes $14.50. The driver for --

Mr B. Ward: That does not have anything to do with taxes.

Mr Carruthers: I am just answering the question, because it has to do with after-tax income. The driver for my competitor in Buffalo makes $8.50 and enjoys a fairly good standard of living, pays less personal income tax than my staff members do or I do as an individual.

Mr B. Ward: Okay, but why? Why are the taxes lower in America?

Mr Carruthers: I would assume that it is more efficient. We have three levels of government taxing us to death as business people. Our municipal taxes have gone from $98,000 to $216,000 in three years. Our business taxes are up.

Mr B. Ward: Okay, so you are suggesting that their taxes in America -- I am trying to clarify -- are lower simply because you feel their governments are more efficient, not because of the service they provide or the way they operate as far as government entities is concerned.

Mr Carruthers: You are probably asking me a question that is a little bit out of my scope, and I have to be able to refer to this.

Mr B. Ward: Okay. So you are not sure then.

Mr Carruthers: No.

Mr B. Ward: Okay, good.

The Chair: I can give you one point. In the United States, especially in the southern United States, the average salary for a master's degree teacher is $14,000. The average salary for an Ontario teacher with a master's degree, at 15 or 16 years of service, is $60,000.

Mr Kwinter: My wife is a schoolteacher. She makes more money than I do.

Mr Phillips: The big money is in the pension. The teachers have a pension, second only to ours, in the world.

Mr Sutherland: I wanted to ask you a couple of questions, because some of the evidence you put forward is a different opinion than what we have heard. Before I do that, I want to compliment you first on your sincere dedication in terms of trying to make an operation go here and the very innovative ways that you have been operating.

You said that American merchants are not better than Canadian merchants, yet we have heard there is evidence to suggest that people's perception is out there. We had a presentation earlier this morning that said that people are cross-border shopping to survive, and you certainly indicated your staff in terms of going over the border for basic commodities, food items, that type of thing, trying to stretch their dollar. But how do you explain furniture items, VCRs, electronics, if people are going across the border to survive? How do you explain the big-ticket items and luxury items like VCRs and electronics? I mean, the argument that people are going across the border to survive and they are buying VCRs and electronics, it does not really wash with me.

Mr Carruthers: I do not think I was making the argument that people are going across the border to shop --

Mr Sutherland: No, someone else did and I was just wondering whether you separate the two, from going for food to going for the other items.

Mr Carruthers: No, I do not look at it and I have never had it explained to me by anybody I have met who shops across the border that he looks at it as survival. They look at it as stretching their dollar, more bang for the buck.

In the case of durable goods, in the case of big-ticket items, it has not been all that well publicized that it is happening. But once it is and you see the big dollars that are involved, not that you are saving 50 cents on a dozen eggs -- a $10,000 dining room in my store can be purchased for $7,000 in Buffalo, and we are operating on exactly the same gross margin.

Mr Sutherland: Could you comment then on the retailing aspects, the merchandising aspects of Canadian retailers versus American?

Mr Carruthers: I would like to first put on my Stoney Creek hat and answer that from our perspective. Okay? We are good merchants. I made the point I did not want to sound arrogant, but sometimes we are.

The American retailers in our industry were up here in January at a conference -- and I think this might put it in perspective for you -- at the Bristol Place Hotel, by the airport here in Toronto. They had heard so much about our store they wanted to come out and see it. There was a blinding snowstorm. It took us two and a half hours to get to Stoney Creek to show them the store. I did a little head count. Those retailers who went through that blizzard to come and see Stoney Creek Furniture were responsible for over $2.5 billion retail in furniture. They wanted to come and see how we did things because they had heard so much about us.

It is very difficult for me to comment on other furniture retailers. There are some very good ones. I have been involved with other retail companies, survivors, profitable companies that do a heck of a job, very good merchants, and there are some out there that are borderline. It is like any other industry.

1710

Ms M. Ward: Are you simply retail? I had the impression at first that you were furniture makers also.

Mr Carruthers: No.

Ms M. Ward: I was thinking it is different than all the other presentations we have heard, because one of the things that really bothers me is, I cannot go to the store and buy a Canadian product very often. As a matter of fact, I am without a vacuum cleaner right now because I have not found a Canadian one. I thought you were --

Mr Carruthers: I used to be a furniture manufacturer, but I saw the writing on the wall and I got out.

Ms M. Ward: Okay. Anyway, I had that impression, but you have cleared it up now. Thanks.

I just wanted to ask you to expand on something you said. You were saying to us that we should show some leadership to the feds and to negotiate with the municipalities. Did you have any specific recommendations there?

Mr Carruthers: It stems back, I guess, to a comment the Chairman made to me before the meeting, that you are not getting a lot of co-operation at the federal level. I made the comment earlier, is the general public aware that we are trying to harmonize the taxes? But looking at the cost structures, in business, in trying to compete, I look at these reports that you have seen before and you know what taxes we pay. You know what our competitor is paying. The three levels of government have to work in co-operation if they want us to stay in business in Canada.

Ms M. Ward: So it is taxation you are speaking of mainly.

By the way, where does your furniture come from?

Mr Carruthers: Seventy per cent of it is from the United States.

Ms M. Ward: There have been several companies lost, have there not, in the last few years in the furniture manufacturing business?

Mr Carruthers: About 40% of the industry is gone.

Mr Phillips: You have sort of painted a doomsday scenario for us here, I think, as I listened to it. I have some sympathy with what you are saying. I think many think a lower Canadian dollar will be a panacea for our challenges, and get the interest rates down a little bit and it will all go away. I think we have got some long-term economic issues.

I am looking for short-term solutions, though, because things that you are talking about are very long-term and will take a long while to work their way through, if ever.

But your short-term solution is the collection of the provincial sales tax. In fairness to the federal government, I think what it might say when it is at the table is it is anxious to harmonize the two taxes. But I think the government does not want to do that.

Mr B. Ward: As a clarification, they have refused to collect that tax unless we harmonize.

Mr Phillips: No, I am just saying that they said, "Listen, can't we get together and collect provincial and the GST together?" and I think the government said: "No, we won't do that. We have no intention of doing that."

Mr B. Ward: But they can still collect at the border.

Mr Phillips: I am saying it is very difficult for this government to say, "In 98% of the cases, we don't want to be involved with you, but in the one case where it's in our interest, please harmonize." I have no brief with the federal government. I am just saying if they were sitting here, they would say to you people: "Wait a minute. In the 99 or 999 cases where we want to be more efficient and work with you to collect it together you say no, but in the one case you want, for other reasons, to harmonize it." I think you may have to make your minds up on that one. I am just saying that therefore you suffer because of squabbles between two levels of government.

Mr Hansen: Mr Chairman, may I interject something? In New Brunswick, where the government is willing to collect the GST together, still at the border it is not being collected.

The Chair: Saskatchewan.

Mr Hansen: Saskatchewan? So we just cannot take a look at Ontario and other provinces.

Mr Phillips: That is one recommendation, the provincial sales tax.

Mr Carruthers: That is a short-term solution.

Mr Phillips: The long-term ones are competitiveness and all those things that are going to be long-term, but how else can we help organizations like yours survive until the long-term one sorts itself out?

Mr Carruthers: I do not really have a suggestion for you. I do not think you want to artificially prop up merchants. The retail community has to be very liquid. It has to be able to move and shift with changing situations. As a general rule, Canadians are pretty good at that. I am taken aback a little bit by one of the comments I heard earlier, that somebody had sat in front of this committee and said, "Canadians aren't very good merchants." There are several examples of very good merchants here. The strong will survive in a free market system, but we need more of a level playing field. Those Canadian merchants who are good will survive and they will demonstrate to everybody that, given a level playing field, they will compete with the best.

Mr Phillips: But the short-term one is the provincial sales tax.

Mr Carruthers: In the short-term situation there is the provincial sales tax. And we have to stem the flow of people going down to the border on Sundays, so we have to have Sunday shopping as well.

Mr Phillips: How far Sunday shopping? I assume you are in Stoney Creek? That seems like a bizarre thing to say.

Mr Carruthers: Actually, I live in Thornhill; I work in Stoney Creek. During the week, and I mentioned this to the Chairman before, it takes me an hour to drive to work. When we were open on Sundays, it took me an hour and three quarters, and that is strictly all the people leaving Ontario heading for Niagara Falls and Buffalo to go and spend money. You are not getting any revenue from those people because they are spending it in upstate New York.

Mr Hansen: Are you finding a problem with merchants or stores in New York state shipping furniture in, or are the consumers bringing back the furniture themselves?

Mr Carruthers: Both.

Mr Hansen: So actually when it comes down it, then, the firm that could be in New York state would be reducing the 4% -- I believe it is 4% -- New York sales tax. They are rebating that, plus you are not paying the 8%, so you are talking about 12% savings by shopping in New York state.

Mr Carruthers: It is even more than that. We have shopped the stores in the Falls and Buffalo quite extensively. Basically what it is, and what we would call it in Canada, is predatory pricing. They have shopped southern Ontario stores quite extensively as well. They know what our prices are, they know what our margins are, they know what our costs are with the material cost of the product because in a lot of cases it is exactly the same.

Mr Hansen: Is it the same product that is being purchased over there, the same manufacturer?

Mr Carruthers: I think a lot of it is.

Mr Hansen: Because we have been told that a lot of products that are coming into the border towns are "scratch and dent" items also and lower quality.

Mr Carruthers: Those retailers who are doing that will find out very rapidly that Canadians will not accept it. Canadians want a better-quality product. That is a generalization which I try to stay away from, but I have been in both ball games and I can speak from experience. Some of the lower-end product that is produced in Mississippi and Louisiana just will not wash in Ontario; it is not what we are used to. Now what we have is a situation where the same product is on a retailer's floor in the Falls, US, as at Stoney Creek Furniture. We try as much as we can to differentiate ourselves and eliminate that type of situation. I have shopped those stores. I have gone in. They do not know who I am. "What is the price on that sofa?" They give me the price. Then, upon being informed that I am a Canadian, they go get the sales manager and they have an inside price for Canadians. It is found money to them; it is increased market share.

If you tried that at the manufacturing level, we could put a stop to it because it is called dumping. At the retail level there is no legislation -- we have checked it out -- that covers it.

Mr Hansen: This is what I am saying. On top of that they are saving the New York state sales tax, plus if it is being shipped in by that particular company they are saving 8% at the border, so you have got, say, another 12% to add on top of that. That is where you have lost your competitive edge. This is what we are looking for, exactly all these areas -- that they are discounted because you are Canadian, plus all these tax savings -- so it winds up they will freeze you out sooner or later. This is what it looks like we are seeing here.

Mr Carruthers: If you take it one step further than that and you say that the person driving that truck, delivering that furniture out of upstate New York is making $8.50 an hour, I think we would all agree that you really could not enjoy a very good standard of living in Ontario at $8.50. That truck is also full of gas that was purchased at $1.20 a gallon. I have six trucks on the road today from Stoney Creek Furniture and they were all at 55 cents a litre. That happens every day of the week.

Mr Hansen: And the one problem is that the fellow driving the truck does not want to get sick and go in the hospital in New York state either.

Mr Carruthers: True.

Mr Sutherland: When you are talking about the retailing costs being a cheaper rate in Buffalo, have you gone further inland in the US to do any comparison there?

Mr Carruthers: Oh, sure.

Mr Sutherland: Is it equivalent or is it just selective, aggressive retailing and discounting at the border?

Mr Carruthers: I asked the merchandise manager for Flanagan and Raymour. They have 26 stores in upstate New York. I met him in North Carolina last Sunday. He said: "Jim, we're exploiting a competitive advantage. That's all we're doing. It's business. It's not personal." The farther you go south, as a matter of fact, the cheaper the prices get down into the Carolinas.

Ms M. Ward: Is there still a duty on furniture? If so, what is it? Is it one of the ones that is reducing?

Mr Carruthers: It is 6% and it will be phased out over the next two years.

Ms M. Ward: What was it originally?

Mr Carruthers: It was 15%. Basically, what it meant to us as retailers three years ago was that we would not receive a price increase from American manufacturers for five years, assuming that their price increases would be around the 3% level, which has been fairly consistent, so that has been one of the reasons for the demise of the Canadian manufacturer. I do not think our inflation has been running at zero for the last five years.

Mr B. Ward: The manufacturing taxes too.

Mr Hansen: I have one other question. You were saying earlier that if the American dollar went down, that would hurt your business even more. But the other thing, looking at it, is that possibly a Canadian product could come back on the market produced here in Canada to compete with American furniture. Would you see that price-wise?

Mr Carruthers: No. As a Canadian I would like to see that, but my experience is that that would not happen. The margins that are available in manufacturing and the manufacturing industry do not justify going back into the business, spending all of that money, all that high technology that is available. It would be very expensive.

Mr Hansen: That 40% of the Canadian market, I do not know what is covering all furniture lines. If the Canadian dollar did drop, there is a possibility you could get an increase in Canadian sales. People would not be shopping across the border as much because of the lower Canadian dollar. The other thing is that they would be more likely to purchase a Canadian product because it would be a lower price than the competitive American product coming into your store.

Mr Carruthers: I doubt that. Again, I would like to see that but I would doubt it because the capacity would not be there in the Canadian industry to meet the demand. And once again, the economies of scale at the manufacturing level are quite different from those at the retail level, where you have open-shop states and a fabric cutter is making $6.75 to $7 an hour versus an upholsterer in Concord, Ontario, who is trying to hire at $23 and he cannot get anybody.

The Chair: Thank you for your presentation.

Mr Carruthers: I promised the fellows back at the store I would bring one other thing to your attention, and I hope you will take the message back with you with the sincerity in which it is delivered. I walked in this morning and looked in my mailbox. Before the drivers and helpers had gone out on the road this morning they had left a little petition. I am sorry I left it back in my office. It is signed by everyone and it says: "Jim, do your best. We'd like to stay in Canada." Thank you very much.

Mr Phillips: Well done.

The Chair: Okay. Should we ask the Treasurer to come in and do a post-budget presentation next Thursday?

Mr Phillips: Agreed.

The Chair: It is a normal activity for this committee to ask the Treasurer to come in, since we did the pre-budget consultations.

Clerk of the Committee: We have no more witnesses scheduled on this.

The Chair: We actually have no more witnesses scheduled, so we can have the Treasurer come in next week to discuss the budget. It can be either in the morning or in the afternoon. In the other time slot we should discuss some of the recommendations and perhaps give direction to research and have those drawn up for us.

This committee is adjourned till next Thursday, 10 o'clock.

The committee adjourned at 1725.