Industry Committee on Oct. 17th, 2011

[Dr. Michael Geist]

On the cultural issue, with something like books, I understand the arguments for retaining some of those rules on publishers and stuff, although I think you could have a good debate on this topic. But the notion that the nationality of the owner matters with respect to the bookseller strikes me as positively absurd. It makes no sense to suggest that the country of origin of a bookseller is going to make a significant difference in the number of books sold in Canada. Canadian authors are readily available, and booksellers will sell the books that people want. I don't think it matters much where their shareholders are located.

On the telecom side, this is hotly debated. I find myself, especially as we move towards a new spectrum auction, of the view that we need to tear down the barriers.

Capital is difficult to obtain for some of the Canadian-owned new entrants. If we want to have the robust competition and the sorts of things that we've heard from the manufacturers arguing for open access, we need to open the doors to some of the international giants. They can provide a more robust and competitive environment.

[The Chair, Conservative, David Sweet]

Thanks, Mr. Geist.

Now to Mr. Julian.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you very much, Mr. Chair.

Thank you also to our witnesses. I would like to start with Mr. St-Amant.

You spoke about the legislative framework that exists in other countries, including the United States, the European Union and Australia. But you didn't give any details. What legislative aspects characterize the measures adopted by those three jurisdictions that are different from what we currently have in Canada?

[Jacques St-Amant]

I'll answer briefly because it is a broad subject.

Australia, for example, quite recently adopted a coherent code on electronic payments for retail sales. Actually, an update was made to a code that already existed. It's a code that establishes the rights and obligations of consumers, including users who make electronic payments, for example.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

In other words, it's to protect consumers.

[Jacques St-Amant]

Yes. We have nothing comparable in Canada. For years now, Australia has been considering the matter. For example, there was a consultation this summer on innovation in the payment sector and how to encourage the concerted work of the various stakeholders. It is quite fascinating to see the depth of the research and breadth of thought in the study papers and discussion papers produced in Australia. Unfortunately, we're not there yet in Canada.

In the European Union, two directives have been put forward in recent years: one on electronic payments in general, and another on the suppliers of electronic money. So, prudential monitoring was established, adapted to both large suppliers, such as banks, and to smaller competitors that do not pose the same risks to the system, but that still require concerted and organized supervision.

In Australia, as in the United States and Europe, they have looked into issues related to interchange fees and payments costs for credit cards imposed on merchants. These costs are actually much higher in Canada than in Australia, but we know that credit card issuers in Australia are doing fairly well financially.

These are very complicated issues. But there are also general measures in place. Even though these measures cannot all be applied to Canada, they can at least inspire some serious thought. The conclusions of the Task Force for the Payments System Review should be available by the end of the year and will probably be interesting. I personally think it is essential to establish a regulatory framework that will give everybody an opportunity, that will allow increased competition and that will sufficiently protect the interests of everyone involved, which is not currently the case.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

I have one last question on this subject. I think Australia puts a limit on the percentage of administration fees that can be charged to small retailers and to large businesses that use the—

[Jacques St-Amant]

Roughly, this percentage varies around 0.5%. It corresponds to about one third or one quarter of what is imposed in Canada. There are variations in some areas of activity, and taxes need to be taken into account, and so on. But as for size, there is a huge gap.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you.

[Jacques St-Amant]

And it has been that way for almost 10 years.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you.

I'd like to come to another question. This is something that the parliamentary secretary—I'm sorry he's not here at the moment—and I have had a friendly debate on, and that is Canada's direct government funding of R and D. I just want to quote from a report from science and tech last year. This is a government report:

Canada’s direct government funding of business enterprise expenditure on research and development was the lowest of all Organisation for Economic Co-operation and Development countries

Now this is something that is well known. It comes from a government report. It should be well known to the government.

I'm wondering whether our witnesses see that as having an impact on the development of e-commerce here in Canada--the fact that Canada is last among OECD countries in research and development.

I'd like to start with the Canadian Manufacturers and Exporters, because you raised R and D as an important component.

[Martin Lavoie, Director, Manufacturing Competitiveness and Innovation Policy, Canadian Manufacturers and Exporters]

Even if you look at indirect funding, which Canada is supposedly very good at, investment in ICT is not necessarily included in the SR and ED, for example. What is included in terms of a tax credit for acquisition of ICT is the capital cost allowance. So you may get an accelerated capital cost allowance depreciation on some of the ICT equipment you buy as a business.

You were referring to skills development. Quebec and Ontario, for example, have some tax credits for that, but there isn't one at the federal level. That's something you may want to explore as well.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Mr. Geist, do you have any comments on that?

[Dr. Michael Geist]

Not really, but my understanding is that a new report just came out today on that issue.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Yes, it raises other concerns.

Mr. Forzley, you raised administrative costs for businesses as a major problem. We've just seen from Monsieur St-Amant's testimony that in other jurisdictions there's a cap on charges that can go to businesses. Is that something Canada should be looking at? If we don't have a framework for e-commerce now and we are behind other countries in putting together that legislative and administrative framework, do you feel it is important to address that issue of administrative costs for small and medium businesses?

[Samer Forzley]

There are two sides to this. The first part is the lack of access by other providers. In the U.S., if you are an alternative payment provider you can provide fees to a merchant as low as 1%—I know that's what we charged—compared to 2%, or compared to Canada at 3.5% or 4%. So there are many competitors. In the alternative payments space alone, I can easily list 20 competitors, so this is very competitive. That's one part. Access should be opened up to allow more people to compete.

On the second part, in the U.S., with the Durbin Amendment that just recently passed, they are limiting the ability of the banks to charge debit card fees. Debit cards used to be at par with credit cards. Now they are no longer allowed to do that. You go from 2% to whatever, and now you're in the pennies, because there are different risks and issues associated with debit cards.

There is room for both in Canada. Unfortunately, we have limited access and limited regulations, as far as the amount of fees that can be applied.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Julian.

Now we'll go over to Mr. Carmichael for seven minutes.

[John Carmichael, Conservative, Don Valley West, ON]

Thank you, Mr. Chair, and thank you to our guests today.

There was an interesting comment in opening the debate.

Mr. Wilson, I made notes on your comments. You talked about the scale of business investment in ICT. You said it was about a third, which is a significant investment for a business in the cost of doing business. You also talked about Canadian businesses lagging behind the U.S. in ICT investment since 1992.

I come from the business world and I know the cost of doing business. I come from small business, and we actually celebrate small business this week and all the great things it does in this country.

I wonder if you could elaborate a bit on the cost side of this, in terms of ICT, and talk about why we are lagging behind the U.S. Is it strictly a scale issue, or is it an opportunity issue?

[Mathew Wilson]

It's probably a little bit of both. I would say one of the biggest factors historically, though, has been the length of time it takes to write off the capital equipment you're investing in, ICT or otherwise. Until a few years ago, we didn't have an accelerated system, so it was taking upwards of 13 years to write off investment in new equipment. If you're talking about ICT technology, that's a long time to go before you can write off and then reinvest in technology. In the U.S. they had a much shorter cycle on that, and it allowed them to accelerate. So that probably would have a significant investment.

Maybe Martin could correct me on this. I haven't seen data over the last couple of years since Canada introduced its temporary ACCA writeoffs for a two-year window. I'll be really interested to see whether or not, over the last four years since that has been in place, there has been a shrinking of that window. I think that will be pretty critical once we see some of that data come out.

[John Carmichael, Conservative, Don Valley West, ON]

It's that much of an incentive.

[Mathew Wilson]

Shrinking that writeoff from thirteen years to two years has boosted the ability of companies to invest a significant amount, and that should mean a closing of that gap. At least I hope it would mean that.

[John Carmichael, Conservative, Don Valley West, ON]

Mr. Geist, would you be able to comment further on that?

[Dr. Michael Geist]

I'm going to take a slightly contrary position. I know e-commerce can have a very broad umbrella, but I think we do the issues a bit of a disservice if we're focused to a large degree on buying equipment as if doing so is going to fuel e-commerce. I frankly don't think that's the case. In fact, if anything, what we're seeing right now in the marketplace is a shift in the other direction, such that small or medium-sized businesses use cloud-based services, whether for software, infrastructure, or any of a range of other things, thereby actually removing the need for many of those SMEs to make some of that big ICT investment.

So rather than focusing on how we get people to buy more boxes, by and large, of stuff that isn't manufactured in this country and from which the profits don't hit here, perhaps we ought to be thinking a bit more about how we attract large cloud-based services, for which there is a strong movement right now. I think Canada has the opportunity to actually be a global leader when it comes to cloud-based services and establishing large server farms that are more energy efficient. These actually take care of some of the concerns with putting a lot of your personal data in the cloud, because you know it's being protected by some of Canada's privacy rules. There's actually a global opportunity, and countries are beginning to compete as a location or host for these cloud-based services.

So let's not think that getting people to buy boxes is actually going to solve some of the sorts of issues we're hearing about. I don't think it is.

[John Carmichael, Conservative, Don Valley West, ON]

That's a great point. I know in my world, with my business background, I've seen a lot of movement to that type of an environment just because of the sheer cost of investing. Small and medium businesses just don't have the ability to jump in at that level.

So it comes back to buying that big technology at more affordable prices and then applying the training and development. In Budget 2011 we announced an $80 million pilot project aimed at colleges and small business to develop and accelerate the adoption of information and communications technology. I'm wondering if you have any comments.

Do any of the speakers have comments on some of the programs we've already introduced? Are they working? Are they going to work? Are they going to make a difference?

At Ryerson there is the “digital zone”, as an example of development. That looks pretty interesting to me, and I think that's where we need to see more investment.

Mr. Geist, why don't you start? You open it, and we'll move it down the table as people have interest.

[Dr. Michael Geist]

As I mentioned off the top, my focus is largely on the policy side. Certainly some of the things that were in, let's say, the throne speech I think are important. Last time round, anti-spam legislation was passed, which is currently going through the regulations phase. I think it's worth noting that a number of groups were perhaps not paying enough attention back when that bill was being passed, and they're seeking to use the regulation-making phase to undo the kind of structure the government put in place. I think it did a good job on that front.

I think the reintroduction of the privacy legislation is another example of a very positive step forward.

Even with regard to copyright, which I spent a lot of time talking about, I think there are a lot of good things in that bill that will help develop some of the things we're talking about. As I mentioned off the top, though, the digital lock rules aren't among them. In fact it's worth distinguishing between providing flexibility through fair dealing, with such things as a fair use provision, and implementing digital lock rules, for which there is no legal risk at the moment. The fair use provision presents a legal risk for companies in Canada, though not for those in the United States. If you implement digital lock rules, all we're talking about is a potential business risk. I think there's a pretty significant difference between what will be facilitated through creating more flexibility versus moving more towards the lock approach.