Finance Committee on May 30th, 2012
A video is available from Parliament.
On the agenda
- Mirko Bibic Executive Vice-President, Chief Legal and Regulatory Officer, BCE Inc. and Bell Canada
- David Coles President, Communications, Energy and Paperworkers Union of Canada
- Gary Wong Director, Legal Affairs, Data and Audio-Visual Enterprises Wireless Inc., Mobilicity
- Bruce Kirby Vice-President, Strategy and Business Development, Public Mobile
- Simon Lockie Chief Regulatory Officer, Wind Mobile
- Len Zedel Memorial University of Newfoundland, As an Individual
- Bob Kingston National President, Agriculture Union
- Philippe Bergevin Senior Policy Analyst, C.D. Howe Institute
- David Skinner President, Consumer Health Products Canada
- Matthew Holmes Executive Director, Canada Organic Trade Association
- Richard Wright Manager, Exploration, Oil and Gas, Nalcor Energy
- Richard Steiner Professor, University of Alaska, Conservation and Sustainability Consultant, Oasis Earth Project, As an Individual
- Erin Weir Economist, United Steelworkers
Bob Kingston National President, Agriculture Union
Good evening. My name is Bob Kingston. I am the national president of the Agriculture Union.
Before going on a leave of absence to serve as an elected union officer, I spent 25 years as a CFIA and Agriculture Canada inspector, including 15 years as a multi-commodity supervisor.
For the Agriculture Union, two themes emerge from the amendments to the Seeds Act and the Health of Animals Act proposed in Bill C-38.
The first can best be summed up by quoting the British statesman and philosopher, Edmund Burke, who once said that those who don't know history are destined to repeat it. Let me explain.
Bill C-38 would amend the Seeds Act to privatize the seeds program, including inspection. The CFIA president will issue and revoke licences for private companies to whom this responsibility is handed off. This presumes that the CFIA will be in a position to set standards for these companies, and enforce those standards through oversight, except as in this case, CFIA often designs systems without considering the resources required to properly monitor the systems they put in place.
For example, we can look at the Maple Leaf Foods listeriosis outbreak in the late summer of 2008. The Prime Minister appointed Sheila Weatherill to find out why the outbreak occurred and to recommend ways to prevent another.
Just before the outbreak, the CFIA had implemented a new inspection system called the compliance verification system, or CVS, a fact that was central in Sheila Weatherill's report. Let me quote what she had to say about CVS. The CVS was “implemented without a detailed assessment of the resources available to take on these new tasks”. She also found that the CVS was flawed and in need of “critical improvements related to its design, planning and implementation”.
Ms. Weatherill recommended that the CFIA make sure that its resources and inspection processes are in alignment; in other words, make sure you know how many inspectors and other resources you need to make your systems work properly.
With all of the positions being cut at CFIA, they simply do not have the resources to take on the oversight required by the proposals in Bill C-38, especially when you consider the other new systems the agency is currently developing, also without regard for available resources.
For example, the agency is putting in place a new regulation to license all food importers. This may or may not result in safer imported food, but without additional resources to monitor compliance and enforce standards, we'll never know. Regulations without enforcement capacity are worse than no regulations, and the new licence system may become little more than an unattended paper exercise.
As Mr. Burke would advise, remember the lessons of the Maple Leaf outbreak when considering new systems at the CFIA. There are many examples like this, but none more serious than what happened at Maple Leaf, which was pretty serious.
However, time is short, so I'll move to the second theme, which is the secrecy around the decisions related to the budget.
Changes at the CFIA arising from the budget were decided in secret. This was unfortunate because many senior managers at the agency have little expertise or experience in the industry they regulate, meaning that the wisdom, knowledge, and experience of their front-line experts would have been invaluable in making those decisions. Without that expertise, decisions were made that could have serious consequences. Let me give you an example.
Because of budget cuts, the agency has decided to close its plant quarantine facility at Saanich on Vancouver Island and move the operation to Summerland, in the heart of the wine and fruit industry in the B.C. interior. If made in the open, this decision would have raised red flags among those involved with plant health or fruit production in B.C. Even the expert industry-government advisory group, the British Columbia Plant Protection Advisory Council, was not consulted, and still hasn't been.
This is a post-entry quarantine station where plants are grown for years while being checked for diseases before being released into the regular production environment. South Vancouver Island is a good place for it because of its natural isolation characteristics. This decision will put potentially diseased plants in the middle of one of Canada's richest agricultural regions.
In addition, the Summerland facility will have to be expanded and land purchased, costs that will offset potential savings. As well, the current site cannot be sold by the government as it is locked up in aboriginal title.
We have other concerns about the proposed amendments to the Health of Animals Act, as well as several other things going on right now in the agency, but time is short, so I guess I'll have to hope there's a question.
The Chair James Rajotte
Thank you, Mr. Kingston.
Mr. Bergevin, you have five minutes.
Philippe Bergevin Senior Policy Analyst, C.D. Howe Institute
Thank you, Mr. Chair. Thank you for giving me the opportunity to appear before you today.
My name is Philippe Bergevin. I am a senior analyst at the C.D. Howe Institute. My remarks will focus on a slightly different topic, at the committee's request. I have prepared some observations on the Investment Canada Act.
I will be making my presentation in English, but I will be pleased to answer your questions in both French and English.
To start, I'd like to offer some specific comments on the amendments contained in division 28 of Bill C-38, which relate to the Investment Canada Act. Overall, I believe the measures are positive, although perhaps they do not go far enough. The measures that are aimed at facilitating the disclosure information related to the act are definitely welcome steps. Increased transparency enhances predictability in the application of the act, which obviously is positive for both investors and the public at large.
I do, however, see some potential unintended consequences with respect to the proposed powers for the government to accept securities against potential fines imposed on foreign investors. While this amendment will enhance the credibility of the commitments made by foreign investors to the government, I believe they will have, to some extent, a chilling effect on some foreign investors. If they were to become common practice, it would, frankly, perhaps raise some red flags in the case of some investors.
I think that's going to increase the level of transparency further in terms of the act itself. There are still no formal requirements for the minister to disclose publicly the reasoning for rejecting an investment, in particular if and when a foreign investor eventually withdraws their application. It's important for the minister to articulate his or her reasoning when turning down an investment, and even when accepting an investment, because it builds an inventory of decisions that can help clarify the legislation and therefore the understanding of potential investors. Disclosure also helps the notion that the review process is not unduly politicized, but rather based on sound principles.
There are also, in my opinion, further opportunities to clarify aspects of the act through the use of guidelines. The criteria used under the act are inherently subjective and unpredictable in their application, so the increased use of guidelines helps provide more guidance on the government's interpretation of the act.
More fundamentally, however, I would respectfully submit that parliamentarians consider whether the net benefit test is the right question for Canada, in the same spirit as the Red Wilson competition policy review panel report. I think Canada should adopt a national interest test and scrap the current net benefit test. What does that mean in practice? It simply means that you move the burden of proof from the business to the government, so it requires the federal government to invoke important public policy reasons such as national security, or cultural policy, for instance, to block a proposed investment.
There are already some similar concepts in the act, but such public policy reasons would become the main building block of the act under national interest tests. Such an approach would be more consistent with the view that there are positive benefits, on average, associated with foreign investment, while recognizing that in some limited circumstances there are valid public policy reasons that could be invoked to deny a foreign investment proposal.
To conclude, while the amendments before you in regard to enhanced transparency regarding the Investment Canada Act are, in my opinion, positive steps, there's an opportunity to adopt a test that would recognize that in most instances foreign investment is beneficial for the Canadian economy, while making sure that the federal government still has all the latitude to uphold important public policy objectives.
The Chair James Rajotte
Thank you very much.
We'll hear from Mr. Skinner, now, please.
David Skinner President, Consumer Health Products Canada
Thank you, Mr. Chair and members of the committee, for allowing me the opportunity to speak today about Bill C-38, the Jobs, Growth and Long-term Prosperity Act, on behalf of the consumer health products industry.
Consumer Health Products Canada is a national industry association representing manufacturers, marketers, and distributors of consumer health products. The association members, who range from small businesses to large corporations, account for the vast majority of sales in this $4.7 billion market. Our members' sales are equally proportioned between natural health products and other consumer products, including sunscreens, allergy medicines, upset stomach remedies, and so forth. Our association has been the leading advocate for the consumer health products industry and for self-care for more than 115 years.
Division 19 of part 4 of Bill C-38 contains proposed amendments to the Food and Drugs Act that will lead to growth and innovation in our industry. Clauses 413, 414, and 415 would permit the minister to establish a list of prescription drugs and prescription drug classes. This list of drugs would be referenced in the regulations and amended from time to time. Products not on this list would be available to Canadians for self-care. Products for self-care are those that contain an ingredient switched from prescription to consumer health product status. Products that have been switched result in lower costs for publicly funded drug benefit plans, a reduction in physician visits for the purposes of obtaining a prescription, and a corresponding reduction in costs within the health care system.
Today, when an ingredient is switched from prescription to consumer health product status, an application containing the information necessary to demonstrate the safety, quality, and efficacy of the ingredients undergoes a full pre-market scientific review by Health Canada. Bill C-38 would not change this process one bit. Once Health Canada has completed its scientific review and approved the ingredient as a consumer health product, the active ingredient must be removed from schedule F of the food and drug regulations before a product can be marketed under the current system. This has resulted in delays of 14 to 24 months between the time when a decision has been made by Health Canada and the time when the product is available for Canadians to use. What is proposed by Bill C-38 would permit products suitable for self-care to be made available much more quickly to the public. It would provide incentives for the industry to conduct research and introduce innovative products for self-care, thus benefiting Canadians.
Consumer Health Products Canada fully supports the proposed amendments to the Food and Drugs Act contained in division 19 of part 4 of Bill C-38 and urges the Standing Committee on Finance to support these legislative amendments, which will lead to the growth of consumer products and provide health products of benefit to Canadians.
Thank you for your time and consideration of our perspectives. We look forward to answering your questions.
The Chair James Rajotte
Thank you, Mr. Skinner.
We'll now hear from Mr. Holmes.
Matthew Holmes Executive Director, Canada Organic Trade Association
Thank you, Mr. Chair and honourable members.
I am very pleased to appear before you this evening as a representative of the organic sector in Canada. The Canada Organic Trade Association is the member-based organization representing the organic value chain, from producers and manufacturers through to retailers and exporters.
The organic sector is relatively new, but it is growing at a tremendous speed. The recently released Statistics Canada census of agriculture data showed that while total farms in Canada have declined by 17% since 2001, the organic farms have increased by 66.5%. So we now have approximately 5,000 certified operators in Canada, including handlers and manufacturers.
Our domestic market is worth over $2.6 billion per year, making Canada the fifth-largest world market for organic. Globally, organic sales are now valued at $59 billion per year.
In 2009, COTA welcomed the government's new regulations for the organic sector, controlling and defining organic claims in the marketplace and making the national standards mandatory. Subsequently, the government established progressive trade agreements through the world's first equivalency arrangements with the United States and the European Union, giving Canadian domestic certification and Canadian producers unparalleled access to 96% of the world market.
Although it's a quickly growing market, the organic sector in Canada still faces many challenges, including supply shortages, especially in seed. It's an impasse in which we are obliged to meet our regulated standards but have no formalized government mechanism or funding to innovate or respond to opportunity in those standards, which is similar to the issue Mr. Kingston raised. A particular risk to our business model is posed by the unmitigated introduction of prohibited genetically engineered products. This can cause our members to lose the organic designation of their product, with loss of market access.
On the current changes proposed in Bill C-38 pertaining to the Seeds Act in division 26, COTA notes that the role and authority of the president of CFIA are increased significantly. The proposed changes would give the president of CFIA the ability to grant licences to any person to perform any activity related to controlling or assuring quality of seeds, including sampling, grading, or labelling. Under the current legislation, the only other role described by the Seeds Act for the president of CFIA is the designation and oversight of inspectors.
It's important to note that the proposed changes, in our opinion, do not remove the powers of the CFIA inspectors, but may provide CFIA with the avenue to outsource review services for specific functions or aspects. That outsourcing could go to industry groups, private enterprise, or individuals, as far as we know.
I should note that the Canada organic regime is delivered via a system of third-party inspectors, accredited certifiers, and conformity verification oversight bodies enforced by CFIA and its inspectors. Therefore, I cannot speak against third-party delivery of certain services and functions that have regulatory oversight. However, without more details, which we don't yet see in Bill C-38, on who would qualify for such licences and how they would be overseen and enforced, it is prudent to caution that there could be an inherent risk due to lack of transparency, accountability, or neutrality. This is dependent on the limits and parameters established by the Governor in Council.
It's also feasible that this new role for the president of CFIA has the potential to enable external criteria or purity standards to come to bear on the introduction of new seed varieties. That could lead, for example, to the introduction of new genetically engineered seed that has been approved by a foreign government but has not been reviewed or assessed for environmental release in Canada.
Such a shift within CFIA and the Seeds Act certainly echoes sentiments expressed by the biotechnology sector calling for a low-level presence policy in Canada to allow unapproved events from genetic engineering appearing in shipments below a certain threshold to enter Canada without action or mitigation. But as you know, seed has a tendency to grow and multiply, so for the organic sector, the introduction of new GE seeds into our environment, without at least the check and balance of due process and review by government agencies, threatens the integrity of our quickly growing and high-value market. And this market, I'll remind you, is directly responsive to consumer preferences and concerns.
Thank you for your invitation to speak and your attention tonight.
The Chair James Rajotte
Thank you very much, Mr. Holmes.
We'll now hear from Mr. Wright, please.
Richard Wright Manager, Exploration, Oil and Gas, Nalcor Energy
Mr. Chair and committee members, thank you for the opportunity to speak here today.
I'm representing Nalcor Energy, the provincial energy corporation of Newfoundland and Labrador on the issue of proposed amendments to the Coasting Trade Act, amendments that we support.
We're at a time and place in Atlantic Canada where new exploration is necessary to grow the oil and gas industry and find Canada's future offshore oil fields. The Canadian offshore is under-explored relative to other competitive jurisdictions, leaving us with significant potential for future discoveries.
The exploration for new discoveries of oil and gas is a globally competitive business that is conducted in a highly technical, process-driven fashion. Canada competes for exploration investment against other areas of the world, such as Brazil, West Africa, Australia, the U.S. Gulf of Mexico, and the North Sea, to mention a few. Seismic data acquisition is one of the earliest phases of oil and gas exploration and one that plays a critical role in unlocking presently undiscovered oil and gas resources.
To decide in which region to explore, global oil and gas companies use data—in particular seismic data—to locate highly prospective regions on which to focus their exploration activity. In a global exploration portfolio, companies have the option to explore where appropriate amounts and quality of seismic data can effectively reduce their exploration risk, making high-quality seismic data essential to follow-on exploration activity.
In Newfoundland and Labrador, Nova Scotia, Norway, and many other jurisdictions, strong correlations exist between the amount of 2D seismic data and the amount of exploration drilling. Historically, in Newfoundland and Labrador, seismic data acquisition proportionally results in exploration drilling in the years that follow. This makes sense, because seismic data provides images of the subsurface, much like a CAT scan of the earth, and helps identify prospective targets for oil and gas drilling.
Any impediment to acquiring seismic data directly impacts the number of wells drilled, and consequently the likely number of future discoveries. The existing potential of our offshore industry in Newfoundland and Labrador is substantial. Our offshore sedimentary basin areas are larger than both the offshore United Kingdom and offshore Norway. While our basins are significantly larger, our rate of exploration and appraisal well drilling has been much lower, despite similar success rates per well.
Across the basins, the U.K. has a well density of approximately one well for every 139 square kilometres; Norway, one well per 461 square kilometres. Newfoundland and Labrador has one well for over 4,000 square kilometres. For comparison, the world-class Hibernia oil field, off eastern Newfoundland, is approximately 150 square kilometres, meaning that a number of new fields could exist in our existing sparse well coverage. This low historical exploration level is despite Newfoundland and Labrador's average oil discovered per exploration and appraisal well being in the range of these other jurisdictions.
While it's understood that the intent of the Coasting Trade Act is to protect Canadian interests, in its application on foreign-flagged seismic vessels this process is inadvertently working against Canadian interests by reducing our global competitiveness in exploration. This impacts two key areas of offshore exploration in relation to seismic data.
Many offshore discoveries in Newfoundland and Labrador were initially imaged through multi-client data, where a group of companies get together and share the risk and costs. The number of multi-client surveys conducted offshore of east coast Canada has been reduced significantly, because when objections raised about these surveys by foreign-flagged vessels are sustained, the surveys have rarely proceeded, using the Canadian-flagged vessel offered as a substitute. The cancelled survey means no data is acquired, no resulting wells are drilled, and no additional discoveries are made.
Since 2001, 34% of all seismic surveys by non-Canadian flagged companies have been objected to under the Coasting Trade Act. The objections create uncertainty in our jurisdiction for global seismic companies looking to acquire multi-client data, who then in turn direct their exploration investment activity to more healthy environments in other countries outside Canada.
Cabotage laws in the United Kingdom, Norway, the United States, and Brazil, to mention a few examples, do not impede the importation of foreign-flagged seismic vessels into their countries. The U.S. Jones Act, which requires not only U.S.-flagged vessels but U.S.-built vessels in many marine categories, also recognizes this technologically specific industry and allows for foreign-flagged seismic vessels to conduct surveys.
The value of the offshore development that results from offshore exploration, starting with seismic exploration, is important to Newfoundland and Labrador and to Canada. The nominal value of an average oil field discovered in offshore Newfoundland and Labrador would see about $12 billion returned in taxes on oil sales to Canada's federal government. These figures are based only on the corporate tax on oil sales.
In conclusion, to fully realize Canada's exploration potential, exemption of seismic activity from the Coasting Trade Act as proposed in the budget will help make Canada competitive with other resource jurisdictions around the world in attracting front-end global exploration investment to our country. Based on our past success in drilling and our vast area of under-explored basins, we feel that increased exploration activity will ultimately lead to new discoveries for the benefit of Canadians.
The Chair James Rajotte
Thank you for your presentation.
We'll now hear from Professor Steiner, please.
Professor Richard Steiner Professor, University of Alaska, Conservation and Sustainability Consultant, Oasis Earth Project, As an Individual
I appreciate the opportunity to provide my comments on that specific provision of Bill C-38 as well, the exemption for foreign-flagged vessels.
On its surface, it's not a bad idea per se, but I would caution with one caveat, and that is you have to have a very good government regulatory environment, plus good enforcement of that regulatory environment, to make sure it's as safe as possible. We had a good experience here in the United States just two years ago with a foreign-flagged, foreign-owned vessel that we thought was under good U.S. control. It's named the Deepwater Horizon. I think we all remember the catastrophic results of that. That vessel was flagged in the Marshall Islands and owned by Transocean. We thought the U.S. government was doing the proper job in regulating it; it wasn't. So we have to have very high controls in the regulatory environment here.
I'll make a couple of very quick, respectful recommendations for the bill or this provision of the bill. Number one, make it explicit in bill language that the exemption does not exempt the vessel from any Canadian existing or future regulations or laws. I think it's important that environmental regulations not be rolled back in any way in this bill. I think this bill is actually an opportunity, a good opportunity, to strengthen Canadian environmental regulation. I think that's in industry's best interest as well, as we found out here in the United States.
Secondly, I think this is an opportunity to improve Canadian standards. By the way, I would offer that in my opinion as a biologist, neither the Canadian standards for seismic mitigation nor the United States' standards are as good as we can do. We need to do better, and we must do better.
Thirdly, I would respectfully recommend that the bill ask the Canadian and U.S. governments to develop a bilateral agreement to make seismic mitigation and monitoring consistent across our borders, in the Atlantic, the Arctic Ocean, and in the Pacific. It makes no sense to have conflicting regulations and monitoring environments.
Finally, I would recommend that the bill suggest that the Canadian administration negotiate a seismic mitigation protocol at the Arctic Council to be trans-Arctic. I think Professor Zedel did very well in going over some of the very brief risks of seismic arrays offshore—and they are very real—so I will not touch on those here. I did provide the committee staff with a copy of notes, and you're all welcome to have those if you would like.
My principal issue is that neither the U.S. system nor the Canadian system are as good as they need to be in managing seismic shoots offshore. I've scanned the statement of Canadian practice on this, and, frankly, a 500-metre safety zone for seismic shoots is in and of itself insufficient. It needs to be a received level, a sound level for cetaceans, pinnipeds, seabirds, and fish. We know that impacts can go out to 50 or 60 kilometres on certain species away from seismic arrays, and the effects can be quite profound, particularly with continuous sound pulses over a long period of time.
There are a number of other things. In the transboundary radiation of sound, even though these guns are pointed down into the seabed, which is where they're targeted, there's a lot of horizontal radiation and propagation of the sound out to several hundred kilometres. If we are, for instance, shooting off the Alaska Arctic coast, the Beaufort Sea off the Canadian Mackenzie Delta is going to be radiated with sound as well. So we have to have some consistency and, I feel, a bilateral agreement to make it as safe as possible.
I think I'll stop at that. There are a number of other issues I touched on in my notes, and I would encourage all of you to take a look at those.
I would be delighted to answer any questions.
Thank you very much.
The Chair James Rajotte
Thank you very much, Mr. Steiner.
We'll now hear from Mr. Weir for our final presentation tonight.
May 30th, 2012 / 8:25 p.m.
Erin Weir Economist, United Steelworkers
Thank you very much for having me, and thanks very much for accommodating me via video conference.
I've been asked to speak about changes to the Investment Canada Act in the omnibus budget bill.
My union's perspective on foreign investment has very much been shaped by our recent experiences with multinational corporations. Specifically, we represent the employees of the former Inco, Stelco, and Alcan. All of these Canadian companies were taken over by foreign companies that made Investment Canada Act commitments. Shortly after these takeovers occurred, the new owners, Vale, U.S. Steel, and Rio Tinto, demanded huge concessions and pushed very aggressively for those concessions from their Canadian workers.
I would draw the committee's particular attention to the situation with Rio Tinto, because the former Alcan employees continue to be locked out in Alma, Quebec, as we speak. Rio Tinto is trying to replace them with contractors who would be paid half as much.
The United Steelworkers union is of the view that the current Investment Canada Act is not very effective in ensuring a net benefit for Canadians. We also believe that the Harper government has not been very effective in holding companies to their Investment Canada Act commitments.
Moving on to the omnibus bill itself, the main change it makes to the Investment Canada Act is to allow the minister to disclose reasons for accepting or rejecting proposed foreign takeovers. We believe this increase in transparency is a step in the right direction, but it does not go nearly far enough.
First of all, the act would allow disclosure, but it would not require disclosure. The minister would still have a great deal of discretion to withhold information from the Canadian public. We believe that it's actually quite important to disclose not just the reasons for decisions but also the commitments foreign companies have made to gain approval under the Investment Canada Act. That disclosure would allow Canadians to hold investors to those commitments and to know whether the commitments have been violated.
More fundamentally, we believe that the Investment Canada Act review process needs to be opened up before a decision has been made. It's not just a matter of transparency about a decision after the fact. We need to really open up the process to allow workers and workers organizations that are likely to be affected by these foreign takeovers to actually provide some input and some response to proposed takeovers.
Moving a little bit beyond the omnibus budget bill itself, the government has indicated that it plans to make another change by regulation, and that change is to raise the threshold for proposed takeovers to be reviewed under the Investment Canada Act to $1 billion.
Our concern about this is that we believe recent evidence and recent experience argues for greater scrutiny of proposed foreign takeovers, not less scrutiny. Raising the threshold would basically have the effect of exempting a whole new tranche of foreign takeovers from any scrutiny at all under the Investment Canada Act. We would see this increase in the threshold as a move in the wrong direction.
To summarize, we're very much concerned about foreign takeovers. We believe the omnibus bill takes sort of a baby step in the right direction in the area of transparency but doesn't go nearly far enough in improving the Investment Canada Act. We would also note that outside the omnibus budget bill, the government has stated that by regulation, it intends to make a change that we see as a step in the wrong direction.
I would also like to briefly respond to a point my colleague from the C.D. Howe Institute made about the need—
The Chair James Rajotte
Mr. Weir, just give a brief summary, please, because you have about 30 seconds left. You can summarize, and then we'll go on to questions.
Economist, United Steelworkers
Yes, no problem.
My colleague from the C.D. Howe Institute was just suggesting that we need to put the onus on government to prove why a takeover should be stopped. I would note that since the Investment Canada Act was passed in 1985, we've had thousands of foreign takeovers, and only two of them have actually been blocked. I don't think we need to put any more onus on the government to justify blocking takeovers, because that's something that has almost never happened in practice.
Thanks very much for your time.