Finance Committee on Nov. 21st, 2007

[Pierre Laliberté, Political Advisor, Fédération des travailleurs et travailleuses du Québec]

Thank you, Mr. Chairman.

I am replacing Henri Massé, who was unable to be here because of a bald cold. Given the state of the manufacturing sector, he would have liked to be here to speak to you in person.

As we speak, the repercussions of the dollar's appreciation have been significant and devastating. Yesterday, you heard other witnesses from the labour movement, and probably also export manufacturers, who corroborated that view. Therefore, I will not go into detail, but I would like to point out that in Quebec, 130,000 jobs have been lost since the dollar began to appreciate. As a result, over the past four years, one out of five jobs in the manufacturing sector has been lost. The situation is even more dire than it was during the last two recessions, when the manufacturing sector went through a major crisis.

What is our position on this? Even if it was somewhat of a last-minute thing, we are very pleased that you are holding this discussion, because we feel that the federal government has been complacent and almost criminally negligent in this regard. It is downplaying the problem because the employment rate is reasonable compared to past years, but it is failing to take into account the crux of the matter, that is, the structuring effect of the manufacturing sector on the Canadian's economy.

Currently, businesses are extremely reluctant to invest. I can say this as an union representative and as an employee of a trade union confederation that is partnered with a major investment fund in Quebec. Canada and Quebec already had a challenge to meet even before the dollar reached its current level. They had to renew their technological facilities and upgrade their equipment in order to respond to increase competition, particularly from Asia.

The appreciation of the dollar has made this task almost impossible. Our currency soared from 62 cents to over one dollar in US funds, and therein lies a big part of the problem. People are unable to predict when the volatility will end or how high the dollar will rise, making any kind of reasonable planning very difficult. Even with all kinds of tax credits or accelerated investment write-offs, measures which should help in principle, planning would still be very difficult.

The basic message that I want to convey to you today is that we need to address the issue for the monetary system and the value of the dollar. As an anchor of the economy, our dollar, in terms of productivity and unit labour costs, is worth about 70 cents or 75 cents US. In terms of purchasing power parity, it is valued at between 80 cents and 85 cents US. Clearly, our dollar will continue to be worth more than the US dollar for sometime, mainly for reasons relating to the natural resource industry, particularly the oil industry.

We have nothing against those industries that are doing well. However, you must keep in mind that the oil boom is causing what the Pentagon would call collateral damage, and that the Canadian government as well as the Bank of Canada are directly responsible for finding ways to curb those increases.

We have seen the government pass the buck to the Bank of Canada, which responded that, under its mandate, it had to keep inflation under 2%. The problem of a 2% or 2.5% inflation rate is quite minor compared with that of an over-valued dollar. I would be pleased to go into the details with you and share some avenues that we believe could be pursued.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move on. We have Option consommateurs.

Michel Arnold, the floor is yours for five minutes, please.

[Michel Arnold, Executive Director, Option consommateurs]

Thank you, Mr. Chairman.

I had not been notified that the committee's work schedule had been moved up, which is why I arrived late. I sincerely apologize for that. The wrong person had been notified.

Mr. Chairman, members of the committee, I would like to thank you for giving us this opportunity to share with you our comments on the impact of a surging Canadian dollar.

Option consommateurs is a non-profit organization that promotes and defends the rights and interests of Canadian consumers, and ensures they are respected. Our organization was founded in 1983. It includes a legal department, budget services and a news service, and also conducts research into the agrifood, energy and financial services sectors in order to properly understand the needs of consumers and adequately defend their rights.

We have been doing work in the financial services sector for a number of years. Among other things, we took part in the debate that led to the adoption of the latest legislative amendments to the banking sector. We are currently helping to make changes to a number of administrative rules at the Canadian Payments Association, and we will soon be engaged in drawing up the code of conduct for the electronic transfer of funds.

As you are no doubt aware, the Canadian dollar has risen by over 50% compared to a number of other currencies. Whether it be the American dollar, the Japanese yen, the Hong Kong dollar, the Mexican peso or other currencies traded on the international currency market, all have lost value compared to our dollar. Given that those countries are our largest trading partners, Canadian consumers should normally pay less than in the past for shoes imported from China, US automobiles, Mexican tires, imported CDs, DVDs and books, as well as electronic goods. And yet, according to our research, that is not the case. In fact, the steady rise in value of the Canadian dollar over the past five years has not led to a drop in prices for consumers, far from it.

According to Bank of Montreal economist Douglas Porter, the 50% increase in value of the Canadian dollar over the past five years has had almost no effect on retail prices. To make his point, Mr. Porter compared the prices of some of the same products sold in Canada and the United States. He uses the following examples: greeting cards, the Honda Accord and the BlackBerry 8100. Those items cost respectively 20%, 14% and 10% more in Canada.

Following the publication of this article, Option consommateurs also began monitoring changes in the prices of a number of goods sold both in Canada and the United States. We have been doing that since last June. We are now seeing that the prices of certain goods are between 3% and 40% higher in Canada. Strangely enough, Canadians are paying more for the 2008 Honda Civic Coupe, even though it is built and assembled in Ontario. We have also noted that the prices of the items we are tracking have changed very little in the past two months. Of the 11 products that we are monitoring, only two have seen their prices drop. However, those decreases were not enough to make the products less expensive in Canada than in the United States.

In light of this, consumers are getting impatient and feel like they are being taken advantage of. To a certain extent, they can understand that imported goods would cost more here than they do in their countries of origin: after all, we have to pay shipping on those goods. However, Canadian consumers want to benefit from the rising dollar, which is lowering the relative price of goods. As well, Canadians cannot accept the fact that an identical product can be sold for as much as 56% more in Canada than it is outside the country.

Another interesting study, this time from the US, is the Federal Reserve Board study of cross-border consumer prices. It shows that the price difference between products sold in Canada and those sold in the United States is not based on rational economics. According to the study, shipping costs alone cannot account for the price differences. An unexplained “border effect” is causing a sudden increase in the price of products coming through the Canadian border. We have also noted that the retail trade market is increasingly less competitive, and that big box stores are taking up more and more market share.

All the same, we would like to make three recommendations. In any case, you will receive my speaking notes, which will provide additional details to back up our recommendations.

Our first recommendation is that the government conduct a review of the Competition Act in order to, among other things, make the Competition Tribunal more effective.

We also recommend that the government provide SMEs with additional assistance given the over-concentration in retail trade brought on by the big-box stores. The mission and mandate of the Economic Development Agency of Canada for the regions of Quebec could be adapted to that context.

Finally, we recommend that the government ensure that the concentration of financial institutions not impede the development of new businesses. Our institutions have to act to prevent the vast majority of Canadians from being short-changed.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move on to Mr. St-Cyr. Are you taking all eight minutes, or are you splitting?

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

I thank you for being here this afternoon. I apologize to those who were notified too late and who did not know that we had move our agenda forward slightly.

I would like to come back to the manufacturing sector. There is a fundamental difference in philosophy among the various Canadian economic stakeholders. The following question is not asked that often: are we abandoning the manufacturing industry? That is more or less what the government is doing. Today, we heard from members of a previous panel that if there are no more jobs in the manufacturing sector, all people have to do is to move to Alberta, because that's where jobs are.

On the one hand, you have the laisser-faire approach. This is the approach adopted by the government, which has decided to cut taxes. Mr. Laliberté clearly explained that lowering taxes in no way helps companies that are not profitable and are facing problems.

On the other hand, the Bloc Québécois believes that manufacturing remains at the heart of our economy. If we do not want our economy to collapse in 10 or 15 years, once the oil boom has passed and our natural resources have been depleted, we have to act now. Yesterday, the representatives of the Quebec Federation of Chambers of Commerce used the example of the Dutch disease effect. That is exactly what happened. When oil was discovered, the country rushed headlong into its extraction, and the manufacturing sector was left to self-destruct.

Mr. Laliberté, you said that you might have some potential solutions to propose to those who want to truly defend, develop and protect our manufacturing sector. What would you suggest to committee members?

[Pierre Laliberté]

I believe we have to act on a number of fronts.

First of all, we absolutely have to deal with workforce adjustment. Clearly, some industries are expanding. We have to make sure that the people who will be transferred from one industry to another receive the necessary training. That said, there simply are no resources. Even in these times of economic growth and budget surpluses, they do not exist. Or at least there should be more plentiful than there are.

Second, we have to develop strategies. Clearly there has to be a repositioning of the manufacturing sector in Canada. We cannot produce low-end commodities in the current global context. That might change, but such a strategy is not sustainable at this point in time. However, there are promising sectors in each industry. Information is needed to develop them, and businesses, especially the SMEs that are under equipped for technology watch and market intelligence, must have access to direct services that can help them reposition themselves and modernize their equipment.

Third, Canada has to deal with macroeconomic conditions. Today, the fact that our dollar is worth more than the US dollar is a disaster in waiting. The situation is due in large part to the boom in resources and to currency speculation. People want to buy into the boom.

That is a perfect description of Dutch disease. Our economy could be in for a rough landing because of very strong growth in one sector. In that regard, we suggest that dealing with the currency level be part of the Bank of Canada's mandate. We cannot afford to be as careless as we are now. As well...

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

I would like to stop you for a few seconds.

I do not know whether the Conservative members are as interested in the French-language testimonies as we are, but...

[Pierre Laliberté]

It appears not, but that doesn't matter.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

...could you please keep it down?

[The Chair, Conservative, Rob Merrifield]

Just carry on.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

If not, you can do so outside.

[Rick Dykstra, Conservative, St. Catharines, ON]

Just do your work--

[The Chair, Conservative, Rob Merrifield]

Order!

Mr. Dykstra....

Carry on.

[Pierre Laliberté]

That was the first thing.

Second, measures can be adopted. In fact, once speculation or short-term capital flows have been identified as a source of the problem, Canada's monetary authorities can act in a number of ways to slow or stem the phenomenon. All that is needed is the will and the imagination to implement these measures. Some emerging Asian countries have used similar measures extensively in the past, precisely to lend some leeway to their macroeconomic policy.

Third—and I think this is one of the biggest pitfalls we face—China has a competitive advantage over us that is completely unfair, on the one hand because it is manipulating its exchange rate and, on the other, because it has pegged its currency to the US dollar, which is in free-fall. Under the free trade agreements that we signed at the WTO, there is nothing that prevents us, Mr. Chairman, from adopting countervailing tariffs to stem that unfair competition. The Americans have raised that issue, but we are caving in as usual. I think that Canada and other countries will have to start making the case that this monetary disorder simply cannot work.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Okay.

Mr. Crête, you have the rest of the time. It's a little less than two minutes.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Mr. Arnold, with respect to the price difference between Canada and the US, do you think it would be a good idea to give the Commissioner of Competition the ministerial mandate to launch a joint inquiry on the matter with her US counterpart? Doesn't the current legislation—and I know it's amendable—allow for a short-term study? Wouldn't this be something worth exploring since it would give us an accurate picture of what is currently going on, specifically with respect to real competition?

[Michel Arnold]

Absolutely. I think it would be a good idea to go even further by demanding a review the Competition Act. In fact, 60% of retail trade is in the hands of four major companies: Wal-Mart, HBC, Sears, and a fourth company who's name I have forgotten. They're all listed in my notes. These four companies effectively control 60% of the market. So yes, I think there are grounds to look into why prices have not been adjusted at a time when the dollar's value is appreciating. Why is it that competition has not been factored into the equation?

[Diane Brisebois]

I need to add something here, because it's fascinating that they want the Competition Bureau to be involved, yet at the same time I'm hearing there should be more tariffs to protect us against China.

In fact, if Option consommateurs had been doing its homework, it would know that the great majority of the products sold through, supposedly, those very big retailers--about which your figures are wrong, by the way; there's been an increase in independent merchant growth, both in Quebec and across Canada--are set by multinational firms. I think you may want to ask maybe the Gillettes, the Proctor and Gambles, the Hondas, and all of those--

[The Chair, Conservative, Rob Merrifield]

If you'd just address him through the chair, Ms. Brisebois, it would be better.

[Diane Brisebois]

I think we need clarification here. I just could not sit and listen to all of that misinformation about the retail sector in Canada.

Thank you, Mr. Chairman.

[The Chair, Conservative, Rob Merrifield]

Thank you for that information. That is the end of the questioning.

We'll now move on to Mr. Dykstra.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you, Mr. Chair.

That was actually the conversation we were having over here, so we were paying very close attention to Pierre's comments, and I appreciate....

Diane, did you have anything else to add to this? I have a little bit of time, and I sure would like to hear a bit more of the countervailing arguments to what we're hearing from our other two presenters.

[Diane Brisebois]

It's appropriate to use the word countervailing.

The only thing I would add is that it would be a disservice to this committee not to double-check information that's provided. To simply say that four merchants in this country represent over 60% of the market is quite amazing. Second, to say that there is no growth in the market is also amazing. Third, to say that it's the retail community in Canada that sets these high prices to make sure people don't shop in their stores is also quite amazing.

I would suggest we ensure that we provide the right information so that we can discuss the Canadian dollar in an appropriate way.

[Rick Dykstra, Conservative, St. Catharines, ON]

Thank you very much, I appreciate the clarification.

Mr. Beatty, I know it seems like such a long time ago since we started our committee meeting, but you raised a very interesting point with respect to interprovincial trade barriers. I wanted to get your thoughts on the British Columbia-Alberta Trade, Investment and Labour Mobility Agreement, which was signed between those two provinces last year.

One of the objectives that we believe in--I think the government is on track with it, and the minister has stated this--is that these interprovincial trade barriers need to come down. Those types of issues need to be resolved. And most clearly indicative of the effect of these barriers is that our North American free trade act actually positions us better to deal with the United States and Mexico than provinces can deal with other provinces.

I wanted to just get your thoughts on that from a small business perspective.

[Perrin Beatty]

Mr. Chairman, I was part of the government that brought in the Canada-U.S. Free Trade Agreement twenty years ago, and if anybody had said to me twenty years ago that we would be having free trade with the United States and Mexico but not within Canada, nobody would have believed it. What we've done by putting barriers in place that balkanize our domestic economy is we've driven up the cost of doing business in Canada. We've cost ourselves jobs, we've put our Canadian industry at a disadvantage relative to foreign competitors.

TILMA represents an important step forward, but this is a two-province initiative that's being taken. We need to extend that. We need to put teeth into procedures and we need to see action taken by the private sector, by provinces, by the federal government to knock down internal barriers to trade in Canada. Consumers and business and governments alike will benefit from that, but we need leadership.