Industry Committee on May 30th, 2007

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Mr. Chair, with all due respect, could the minister answer the question, as opposed to yourself?

[Maxime Bernier, Conservative, Beauce, QC]

I'm sorry, I said 15 minutes because I have other commitments, but I'll be pleased to receive your question, and we will answer it as soon as possible.

I want to thank everybody for the support they've given me. We will be in touch in the near future. I can assure you that all the work you are doing here is important for me as minister and it's important for all Canadians. I want to thank you again for the work you did on the manufacturing file and the report you issued. Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you, Minister.

We will suspend just very briefly, and then we will have the witnesses from the Canadian Tourism Commission and the Department of Industry. I believe Mr. Dicerni will be able to stay with us for that second session as well.

We'll just suspend for a couple of minutes.

[The Chair, Conservative, James Rajotte]

Members, let's find our chairs here and we'll get quickly back to the estimates.

For the second part of our estimates meeting today we have, first, from the Canadian Tourism Commission, Ms. Michele McKenzie, the president and chief executive officer. Welcome back, Ms. McKenzie.

Secondly, we have Ms. Karin Zabel, vice-president and chief financial officer.

From the Department of Industry, I believe Mr. Richard Dicerni is staying with us. Also, we have Mr. Guy Leclaire, the director general, automotive and transportation industries.

I believe we have five-minute opening statements for each, for the Department of Industry and for the CTC.

We will start with Ms. McKenzie, for five minutes.

[Michele McKenzie, President and Chief Executive Officer, Canadian Tourism Commission]

Thank you, Mr. Chair, and thank you once again for inviting us to appear before you today.

The Canadian Tourism Commission is a crown corporation of the Government of Canada. We are in the business of marketing Canada as a tourism destination. The CTC does this in collaboration with industry and all levels of government.

Our ultimate goal is to create wealth for the Canadian economy by attracting foreign exchange from tourism sources--in other words, to grow tourism export revenues.

To this end, we operate in nine international countries where we get the highest return on Canada's investment, and we are succeeding. Together with the industry and provincial partners, whose partnership investments with CTC exceed CTC's investments, marketing messages transmitted abroad to come and explore Canada helped generate $17 billion in foreign exchange for Canada last year.

Tourism marketing provides an immediate return on investment. Our conversion studies show that every $1 we spend on marketing can earn Canada as much as $11 in international tourism spending. And Canadians benefit from their investment. Out of every tourist dollar spent by Canadians or international visitors in Canada, 30¢ goes directly to government. The federal government's share alone amounted to $9.9 billion last year.

As you may know, CTC's annual report for 2006 was tabled in Parliament earlier this month by the Honourable Maxime Bernier. Together with our partners we delivered some impressive marketing and sales results last year. With Canada's tourism brand as the base, and industry partnerships, cutting-edge research, and the world's most advanced e-marketing techniques, we are attempting to improve Canada's standings in the global tourism rankings. These advances are timely and sorely needed.

Tourism revenues may have amounted to $67.1 billion in 2006, up 7.1% over 2005, but not all is as positive as it seems. A closer look shows that three-quarters of this number comes from domestic tourism--Canadians themselves taking advantage of their robust economy. This proportion has grown from two-thirds to three-quarters in just five years.

International travellers, the tourism industry's most lucrative customers and the main source of foreign exchange for Canada, came in fewer numbers last year. This decline is almost entirely due to declines from the U.S. market, which accounts for 77% of Canada's overnight visitation and 55% of revenues.

While many other international markets are experiencing strong growth--especially China, Mexico, and South Korea--and are thus key priorities for CTC, we cannot take our eye off the ball in the U.S. So among the many issues that have plagued Canada from the U.S. market these past few years, it is heightened global competition that preoccupies us the most.

The 2006 numbers aren't in, but between 2002 and 2005, Canada dropped from seventh to twelfth in the rankings of world tourism arrivals. Hong Kong, Malaysia, and China, meanwhile, have each taken up residence in the rankings in the top ten in the past decade or so.

The forecast doesn't look much better for the world's traditional destinations. For the next 15 years it is expected that Asia, Africa, and the Middle East will continue to post strong gains at the expense of Europe and the Americas. By 2020, Europe and the Americas together will barely crest a billion international arrivals. Asia, Africa, and the Middle East together will easily hit 1.6 billion.

I can assure this committee that the CTC will take the budget it has and focus on those markets where Canada can get the highest return on investment, including, of course, the important U.S. market.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. McKenzie.

We'll now go to Mr. Leclaire, please.

[Guy Leclaire, Director General, Automotive and Transportation Industries, Department of Industry]

Thank you, Mr. Chairman.

Let me begin by thanking you for your invitation to speak to the Committee. I understand that the Committee is interested in examining the impact on Canadian automotive production of the Vehicle Efficiency Initiative, or VEI, introduced in Budget 2007.

The Vehicle Efficiency Initiative, which came into effect on March 20, 2007, has two distinct components: a performance-based program known as the ecoAUTO rebate, administered by Transport Canada, and an excise tax, known as the Green Levy, administered by the Canada Revenue Agency.

The first element, the ecoAUTO rebate program, offers an incentive of up to $2,000 to consumers who purchase a new fuel-efficient vehicle. Initially, new passenger cars with a combined fuel consumption rating of 6.5 litres per 100 kilometres or less and minivans, sport utility vehicles, and other light trucks with fuel consumption of 8.3 litres per 100 kilometres or less will be eligible for a rebate. Current models qualifying for the rebate include hybrid vehicles, conventional fuel-efficient vehicles, and the most efficient of the E85 flex-fuel vehicles.

The second element of the vehicle efficiency initiative is the green levy on fuel-inefficient vehicles. This levy will be payable by the manufacturer or importer when vehicles are delivered into the Canadian market. The levy will start at $1,000 for passenger vehicles with a fuel efficiency rating of 13 litres per 100 kilometres and increase in $1,000 increments for each full litre per 100-kilometre increase in fuel-efficiency ratings, to a maximum of $4,000. Trucks and commercial vehicles are exempt from this levy.

The automotive vehicle and parts manufacturing industry is Canada's largest manufacturing sector. In 2006, this sector represented 12 per cent of manufacturing GDP and employed 158,300 workers. The five major auto assemblers operated 12 different assembly plants, produced 28 different vehicle models, in many variations,—with different engines, transmissions, body styles and other options—and, together, assembled 2.5 million light vehicles.

Canada is the world's third-largest exporter of automotive products, following Japan and the U.S. About 83% of Canadian-built vehicles were exported in 2006, primarily to the U.S. The Canada–U.S. auto trade totals $130.5 billion, with a Canadian surplus of $17.5 billion in 2006.

Canada continues to maintain a 16% share of North American light-vehicle production. Analysts forecast that Canada's share of vehicles produced in North America will increase to more than 18% over the next few years as new product mandates are introduced.

The two measures of the vehicle efficiency initiative taken together apply to approximately 8% of the new vehicle sales in Canada. Of this 8% of sales, only a very small proportion are vehicles produced in Canada.

For the 2007 model year, there are more than 800 variants of vehicle models available for sale in Canada. While Canadian production data is available at the basic model level for each of these vehicles, Industry Canada does not compile the detailed breakout of this information on the basis of engine size, transmission type, E85 or hybrid capability, which would be necessary to conduct a detailed analysis.

In the absence of detailed information, it is, however, possible to estimate some of the data, and make a number of observations based on the structure and output of the Canadian industry.

As a starting point, it is important to recall that the vehicle efficiency initiative applies only to vehicles sold in Canada. For vehicles produced in Canada, the program applies only to those vehicle models that are both produced and sold in Canada. Canada exports approximately 83% of all vehicles produced here. This of course varies by model and ranges from a low of about 60% for some models to close to 99% for others. Of the 2.5 million vehicles produced by assembly plants in Canada in 2006, 2.1 million were exported and 17%, or 416,000 vehicles, were actually sold in Canada. These represent about 26% of the 1.6 million vehicles purchased by Canadians in 2006. Of these vehicles built and sold in Canada, there are three models eligible for rebates under the “eco” program. They're the Toyota Corolla 5-speed, built in Cambridge, and the GM E85 Impala and E85 Monte Carlo, both built in Oshawa.

In 2006, Toyota produced 16,000 Corolla 5-speeds and sold about 4,400 of these in Canada. GM produced approximately 210,000 Chevrolet Impalas and 15,000 E85 Monte Carlos and sold about 13,900 and 700, respectively, of these in Canada. Taken together, 19,000 vehicles or 0.76% of Canadian production would be eligible for the eco incentive.

Canadian-made vehicles subject to the green levy are mainly three Chrysler models of SRT8s, which are limited-production, high-performance models. About 1,000 of these were sold in Canada, representing 0.04% of total Canadian vehicle production. So, in total, there are about 20,000 units, or about 0.8% of total Canadian annual light-vehicle production, affected by the vehicle incentive program. So 19,000 are eligible for the rebates while 1,000 would be subject to the levy.

We will, of course, be watching Canadian sales data to see if changing consumer purchasing patterns are having an effect on production in Canada. At this point, with only one month of sales data since the program was announced in March, it is too early to draw any conclusions.

However, any analysis would need to separate out the various effects that would have come into play in determining the profile of sales for this or any other month. Several factors, including the rebate and the levy, would influence purchasing decisions, but also among them would be the extent to which producers and dealers are seen to pass along the benefits of the cost of the program to consumers, the incentives and financing options offered by competitors, and the impact of gas prices, which have risen over the past quarter. It will take some months before enough data are available to allow an assessment of the ecoAUTO rebate program on productions and sales in Canada.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Leclaire.

We'll go to Mr. Byrne for six minutes.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Thank you very much.

Ms. McKenzie, you've provided a very insightful snapshot of the Canadian tourism industry. You had indicated that the Canadian Tourism Commission does extensive study and analysis of the Canadian tourism sector both domestically and abroad, our international product. One of the things that you highlighted was that there is a growing concern within Canada, within the Canadian tourism industry, that our international competitiveness may be put in jeopardy because of emerging markets. The Canadian competitiveness, our Advantage Canada, as it were, is rapidly being eroded. In fact, I understand the figures are that while domestic travel within the country itself is up significantly, about 10%, internationally we're down almost 2.5% over last year, and the prospects are not looking very good.

In fact, what you really indicated was that for every dollar we spend on marketing and promotion, and I'll use that envelope of “promotion” very broadly, we get a huge payback. In fact, your presentation was almost an infomercial about the negative impact of cancelling the GST visitor rebate program. That program seemed to me and to the tourism industry a very substantial incentive, a competitiveness factor for the Canadian industry to be able to attract tourists.

Now we understand that there was a flip-flop on that particular initiative. In the budget of 2006 the federal government did announce the complete reduction or elimination of that particular program. However, they did indicate in Budget 2007 that they would go back to the table, and they announced a program specifically for organized tour operators and conventions. The ones left out of this were the independent operators who were attracting international visitors. Specifically, Madam McKenzie, in my riding of Humber—St. Barbe—Baie Verte, Newfoundland and Labrador, we have a large number of commercial big-game outfitters and eco-tourism operators who can no longer avail themselves of this particular program and are really feeling the sting of this.

Has the Canadian Tourism Commission commissioned any studies or impact assessments that you can speak of today of the impact of that particular decision and the elimination of the GST rebate specifically for non-institutional tour operators and convention operators?

[Michele McKenzie]

Thank you for the question.

The visitor rebate program comprised two major components. One was rebate to individual travellers and the other was an exemption that existed for tour operators and meetings and convention planners. The piece that we believe, when it was eliminated, was going to impact our competitiveness the most was the elimination of the exemption. The new incentive program was put in place to address the loss of that exemption. From a competitiveness point of view, they believe that the right policy objective will be achieved through the new program. Indeed, that was the feedback we were getting from the market.

As far as the individual operator goes, and in the case of the individual operator you mentioned, they will still be able to benefit from the incentive program to the extent to which they distribute their products through tour operators. That tends to be the most competitive aspect of the business, in terms of how the business ultimately gets priced.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

So, in other words, they have to establish a middleman for their marketing initiatives in, say, Europe or the U.S. Quite frankly, most operators in my region do not do that. They've established effective, solid marketing campaigns. They market independently, they broadcast to the world via the Internet and trade shows, and they do not require the additional cost of a middleman marketing agency to be able to do that. In order for them to avail themselves of this program, that's exactly the prescription you're suggesting would be available to them.

[Michele McKenzie]

The program is available to tour operators, be they based in Canada or internationally, as long as they're selling in the international market and there is proof that the ultimate sale was to an international visitor.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

So it has to be a middle person, in other words; they cannot do it directly. That's a real issue because of course it cuts in on margins.

I find it a little bit confusing as to why you would promote the fact that we spend so much money on marketing and creating a competitive advantage for Canadian industry, while this particular element of the industry is somewhat discounted in your advice to the government as to which policy direction it should take. While the GST rebate is a relatively small revenue loss to the government, it seems very significant in terms of the competitiveness issue. But the position of the Canadian Tourism Commission is that the individual rebate available before was not consequential, not important, and that we've hit the mark with the current policy.

Is that correct?

[Michele McKenzie]

The role of the CTC is not to advocate to government about government policy. We certainly work with our partners in markets and work with Canadian tourism operators to take the policy framework we have and best implement it in selling Canada for tourism purposes.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

But if you were to provide advice, would it be that the elimination of the GST rebate to individual suppliers of tourism products is a competitive disadvantage to those suppliers?

[Michele McKenzie]

The industry took the position that the biggest competitive disadvantage created by the elimination of the rebate was the elimination of the exemption. That was the piece for tour operators and meetings and convention planners. That was the position of the industry.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. McKenzie.

Thank you, Mr. Byrne.

We go now to Madame Brunelle, please.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Good afternoon, ladies and gentlemen.

Ms. McKenzie, you talked about the importance of international travellers, which represent the most lucrative clientele. That being the case, I am wondering about the impact of the current strength of the Canadian dollar and the lack of support for major festivals, such as the Montreal International Jazz Festival. I know that in that specific case, many of the clients are Americans. As regards other cultural activities, we are also seeing that there is not much support available. In Europe, and many other countries as well, they rely heavily on their museums and cultural activities to attract tourists.

Have you attempted to estimate what the impact on international tourism here in Canada will be in the coming months of the new passport requirement?

[Michele McKenzie]

We have figures for the impact on Canadian tourism with respect to the passport initiative, which of course is a U.S. initiative. We know that initiative will impact tourism receipts by about $3.6 billion over the period 2005 to 2010. So we're responding to that with campaigns in the U.S. to make sure people have a clear idea of what is required. Of course, at this point, a passport is not required to drive back into the U.S. from Canada.

From a festivals and events point of view, we work with tourism organizations in each of these cities. In the case of Montreal, it would be Tourism Montreal, or elsewhere, Tourism Calgary, or the various tourism organizations. Many of them have room levies in place, which can help with the promotion of events specifically. They tend to be a very strong partner for CTC. We focus very much on events as part of our marketing strategy, and we attract people to Canada for that reason.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Could the Canadian Tourism Commission use its powers of persuasion with the Minister of Canadian Heritage and the Status of Women to move things along a little more quickly? This is a very hot topic nowadays, which has given rise to many questions being asked in the House of Commons, particularly by members of the Bloc Québécois. We wanted to find out more about the budget that has been promised as a replacement for the Sponsorship Program, which was not very popular. However, budgets apparently will not be available until fall. That is a major problem for the festivals. Do you have the power to make recommendations? It seems to me this will have a major impact on tourism.

[Michele McKenzie]

We have full access to the minister, and in fact, Minister Ritz has been providing access to tourism operators from across the country to provide input on priorities, and that access has been provided to the Canadian Tourism Commission as well.

To answer your question, yes, we certainly can provide that advice.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

I encourage you to do so.

Do I have any time left, Mr. Chairman?

[The Chair, Conservative, James Rajotte]

Yes.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Mr. Leclaire, I am surprised. I had not taken much of an interest in this program. I have a Honda Accord and its gas consumption is a little high; also, as the saying goes, I have somewhat of a lead foot.

Looking at the figures you have presented, I see that this program will only affect 19,000 vehicles. How much will it cost us? In terms of the Green Levy, the amount we will be receiving will surely be larger. Will the vehicle efficiency program pay dividends for Canada?

[Guy Leclaire]

I would first like to say that the 19,000 vehicles I referred to are only vehicles built in Canada.