Industry Committee on Feb. 19th, 2019

[The Chair, Liberal, Dan Ruimy]

Good morning, everybody, on this fine, fresh, not-Monday morning. It's Tuesday.

Welcome to meeting 149 of the Standing Committee on Industry, Science and Technology. We are continuing our study on the impacts of Canada’s regulatory structure on small business.

Today we have two panels with us.

The first panel is from the Department of Industry. We have Frances McRae, assistant deputy minister, small business and marketplace services; Stephen Fertuck, senior director, portfolio and intergovernmental engagement secretariat; and Darcy DeMarsico, director, industry sector, economic strategy tables bureau.

From the Department of Foreign Affairs, Trade and Development, we have Matthew Smith, director, technical barriers and regulations.

I believe that only the Department of Industry has a presentation, and we'll get into questions from there.

Thank you very much for coming.

We're going to start with Frances McRae.

You have seven minutes.

[Frances McRae, Assistant Deputy Minister, Small Business and Marketplace Services, Department of Industry]

Thank you very much.

Thank you for inviting us to appear today.

We're really pleased to be here before the committee to discuss the impacts of Canada’s regulatory structure on small business.

My colleagues and I are here to answer your questions primarily, so what I have to say will be quite short.

I'd like to begin by speaking about the importance of small businesses in Canada. As you may know, small businesses are the backbone of our economy and vital contributors to growth. Let me clarify that, according to Statistics Canada, small businesses are firms that have fewer than 100 employees, while medium-sized businesses have between 100 and 499 employees. There are over one million small and medium-sized businesses in Canada, and they make up 98% of all Canadian businesses. Moreover, 11.4% of small businesses export goods and services. As a whole, the sector employs over eight million Canadians and generates 42% of the private sector gross domestic product.

I will turn to the responsibilities of our department and our role in supporting small businesses, which range from very small, main street shops that provide us with service and high-quality products locally, to high-growth firms that create many jobs across Canada. They innovate and pioneer new technologies, products and services. This is a wide range of companies.

Our department, ISED, or Innovation, Science and Economic Development, plays a vital role in strengthening Canada's economic competitiveness. We work with Canadians in all areas of the economy to improve conditions for investment, enhance Canada's innovation performance, increase Canada's share of global trade and build a fair, efficient and competitive marketplace.

Our department has frequent interactions with members of the business community who have reinforced with us that a strong regulatory environment is a critical platform for helping businesses to compete and expand. In fact, our department recently published a report from Canada's economic strategy tables, which Darcy could tell you more about. It's a new model for industry-government collaboration that underscored the urgency for Canada to improve conditions for competitiveness, innovation, trade and investment in today's global economy.

One of the economic strategy tables' most significant priorities was the call for Canada to develop an agile regulatory system that ranks within the top quartile globally, and that's conducive to innovation, creates public trust and attracts investment. We know that our regulatory system has to be able to keep pace with advances in technology and innovation and reduce regulatory burden while continuing to protect the health, security and safety of Canadians and the environment.

A number of recommendations came from the economic strategy tables. One is to establish a charter on regulatory agility with built-in reviews and accounting for the cumulative impact of regulations and competitiveness. Other recommendations include establishing an innovative and competitive regulations council for high-growth sectors, and establishing pilot projects to keep innovation going, supported by a hub to develop and share best practices.

In the 2018 fall economic statement, these recommendations were cited as a rationale for the creation of a dedicated external advisory committee on regulatory competitiveness and a centre for regulatory innovation. In fact, economic strategy table members that we collaborated with were quoted to make the case for why this was needed.

It is important for me to touch on our own department's specific role on the broader regulatory system.

ISED and its portfolio entities have important regulatory functions. We cover over 50 acts and over 100 sets of regulations related to areas such as bankruptcy, consumer affairs, copyright, investment, patents, telecommunications, and weights and measures. As a department, we're committed to taking steps to ensure efficient and effective federal regulations. We actively seek to ensure that our regulatory approaches remain flexible to allow innovation to thrive.

You have heard from the Treasury Board Secretariat. Our department has been working very closely with the Treasury Board Secretariat as they develop their plans to deliver on the initiatives announced in the the 2018 fall economic statement that I mentioned.

Another key initiative being undertaken by the Treasury Board Secretariat is the development of an e-regulation system. The system is an online platform to encourage Canadians to participate in regulatory development in order to improve the transparency and efficiency of the process. This is in addition to the new cabinet directive on regulation, which was announced in fall 2018. All regulations will now undergo a small business lens analysis. This approach is different from the approaches that we've seen in the past. It will help reduce the regulatory burden on small businesses, increase transparency and create a more predictable regulatory system.

We firmly believe that the initiatives led by the Treasury Board Secretariat and that we're working on with them are well placed to strengthen Canada's regulatory framework while addressing rules, requirements and processes that are outdated and unduly burdensome for businesses.

I should also add that other federal government departments and agencies are also working to transform their service delivery into a more modern, timely and integrated experience for business. This is important when we talk about reducing burden for small businesses, especially those small businesses that are not the kinds of businesses that would have a legal department or an accountant full time and would have to do this work themselves.

With Canada Revenue Agency improving client services related to telephone services, digital services and information technology infrastructure, Employment and Social Development Canada is modernizing its service delivery beginning with employment insurance. Public Services and Procurement Canada's efforts to transform the way it serves small business through a new electronic procurement platform will help small businesses and entrepreneurs better access opportunities to work for government.

There are a number of things that our department is also leading to reduce the burden for small businesses. I'll touch on those briefly and then we can turn to some questions.

We know that digital services for businesses making them client-centric really help introduce operational efficiencies not just for businesses but also for us as a government. We are working on communicating better, explaining and streamlining our processes and services in a different way.

One of the things that I wanted to point out to you is the new platform that we have for small businesses called Innovation Canada. That platform actually enables entrepreneurs to be matched with the right programs and services not just from the federal government but also from other governments in provinces and territories.

We're also making it easier to register a company through registration in our multi-jurisdictional registry access system. Right now, if you operate a company in British Columbia and you want to expand into Alberta, you have to register separately in Alberta through the registrar of corporations in Alberta. What we're working on with the provinces and territories is a system that will allow the information in any of the registries to be leveraged by the other registries.

That work is under way. That will also allow for robust business searches across the registries. It will streamline extra-provincial corporate registration and reporting. You may be aware that this is one of the top 10 irritants that the Canadian Federation of Independent Business talks about: multiple corporate registries.

We're also working on making it easier to protect intellectual property which is very important for small businesses as they look into exporting. You may be aware that Minister Bains announced an intellectual property strategy last year to do that.

In closing, we're committed to making the Canadian regulatory system more agile, transparent and responsive so that small businesses across the country have the resources and support they need to grow. That said, we understand that we must make additional progress.

We welcome your insights and advice as the committee does its work.

Thank you.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

Now we go to Matthew Smith.

I know you don't have a presentation for us but maybe you could take a couple of minutes to tell us about your department and what you do.

[Matthew Smith, Director, Technical Barriers and Regulations, Department of Foreign Affairs, Trade and Development]

Thank you, Mr. Chair.

I'm pleased to be here today. I'll start by talking about the mandate of Global Affairs Canada and the relationship between our free trade agreements and regulations. This issue is relevant to the topic of the meeting.

In terms of the type of work we do in the department in my area related to trade negotiations and regulation, we have a number of initiatives as part of our free trade negotiation and our trade agreement negotiation strategies. We try to complement those improvements in access to markets that are achieved through the reduction of tariffs to make sure that regulatory barriers don't present obstacles that are insurmountable for our businesses in order for them to then take advantage of these new markets.

There's a dedicated series of units within the department that work full time on that sort of issue, on non-tariff barriers to trade, and as part of our free trade agreements we have a chapter on technical barriers to trade. That is essentially referring to those types of regulations that can have high compliance costs or that can in fact form a complete barrier to entry to a market for Canadian business.

We also negotiate chapters in more recent agreements, which we call good regulatory practice chapters, and those are to set out the types of rules and procedures that we find are common here in Canada and are built into the cabinet directive on regulation, which, as Ms. McRae just mentioned, was updated in the fall of 2018. This is to try to bring that kind of discipline in regulatory development and new regulation-making to our major trading partners.

In the case of large trading partners, such as the European Union, we in fact have in our trade agreements like the CETA formal arrangements on co-operation between regulatory authorities. That is designed to ensure that as new regulations are developed that are going to be important for trade between us and our partners, they can be done together and with a view to trying to avoid unnecessary differences.

That's the type of framework that we try to put in place to help to complement the reductions in tariffs.

Thank you.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We're going to start our questions with you, Mr. Baylis. You have seven minutes.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Thank you, Mr. Chair.

I'd like to focus on regulators when it comes to market access.

I've developed some product that I want to get onto the market and I have to go through a regulator. Now, coming from the department of ISED, you want to promote innovation, and that's great. Also, the Treasury Board is very much behind having agile regulations, because if we put agile regulations together, it allows us to have innovation. If I turn to the regulators, such as Health Canada, Transport Canada and Agriculture, which are the main regulators for market access, they don't have that interest. How do you propose that we get them on board?

[Frances McRae]

I guess I'll take a crack at that and then maybe see if we have any comments from the interdepartmental perspective.

You're right. Our mandate as a department is innovation. It's promoting economic development.

I would say that, overall, the regulatory process is one in which we do work together. I mentioned the cabinet directive on regulation earlier, and I think this is really important. The department at Treasury Board Secretariat just renewed and revised the cabinet directive on regulation, and that cabinet directive really applies to every single department that regulates, every single organization that regulates.

It used to be that if you were a regulator and you assessed the impact on small businesses of a regulation to be less than $1 million, you would not have to do a small business assessment, essentially, if you had less than $1 million of economic impact.

That has changed. The new directive requires every single regulation to go through a small business assessment, so it doesn't matter, that dollar value. It can be zero dollar value. I think this is really important in ensuring that the signal is sent that it's critical that the impact on businesses be assessed, whether they're small businesses or large businesses.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

That would be for financials, and I understand that for financials. If I'm the regulator for, say, Health Canada or Transport Canada, I'm regulating for security, not innovation—just security. Now, that's not the case, say, in Europe or in the United States, where you have to regulate for security but also innovation. That's in their mandate.

We don't have that. I understand that from ISED you say, “Rah, rah, let's do innovation.” Then you go to them and they say, “My mandate is security, period.” Should we be looking at changing that to include—like the Europeans and the Americans—innovation in the mandate of that regulator—not the ISED mandate but, say, for Health Canada, Transport Canada, Agriculture....

[Frances McRae]

It's an interesting question and it's an interesting idea. Maybe I'll turn to Stephen for comment, and Darcy might have some views on how the economic strategy tables saw that specific question.

[Stephen Fertuck, Senior Director, Portfolio and Intergovernmental Engagement Secretariat, Department of Industry]

You raise a very important question when it comes to regulators themselves. Often in their departmental legislation it might not be specified that you shall regulate in the interests of economic efficiency, and so on. However, as Ms. McRae noted, the requirement for this cabinet directive in fact applies to all of those regulators, irrespective of whether in their specific legislation there is a mandate.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

I understand that. Would it be worthwhile for us to go to the departments and put it into their mandate as well?

[Stephen Fertuck]

That's certainly a choice that could be entertained. In the fall economic statement, I think there is even a thought given to that, that the Government of Canada shall consider whether there is merit in mainstreaming that requirement as part of an overarching piece of legislation, rather than being part of a cabinet directive, so—

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

The cabinet directive sits here, but I sit here, and as a regulator, we're saying to be innovative this way. However, in terms of their own mandate, they don't have that. Would it be valuable for us to have that written into the mandate of those departments, that you must take not simply economic impacts into consideration, but also innovations, specifically innovation to drive agility?

[Stephen Fertuck]

It's certainly a viable option to go into each department's legislation to consider that. An alternative, of course, would be to have an overarching piece of government legislation that would achieve the same effect. Therefore, it could be potentially done through several avenues.

[Darcy DeMarsico, Director, Industry Sector, Economic Strategy Tables Bureau, Department of Industry]

The only thing I want to add is that in the context of the economic strategy tables, we've talked about how that's an industry-led initiative of 90 CEOs, but it was also deputy ministers and an interdepartmental initiative as well. In fact, we had several departments, such as Health Canada, AAFC and NRCan, who were all at the table, departments with regulatory responsibilities who are also committing to this discussion on competitiveness and economic growth. That's also a very valuable type of initiative where you're twinning those two concepts and moving the discussion forward.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

I agree, so the economic table and the people at the table said, “Yes, we're open-minded,” and all that. Tomorrow, God forbid the government changes and someone else steps up there and looks at their actual mandate. Putting economic study aside, it does not say in their mandate to be innovative. It's great that we've done that, but should we not drive something right into the department's mandate that would have to be taken out to take away this drive for innovation?

[Frances McRae]

It's an option the committee has. If you are hearing from a number of sources that this is an obstacle, the government would welcome your insights. I know that when Treasury Board Secretariat spoke to you, they did talk about this issue, which is not an unfamiliar one to them.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Another thing I like in terms of trying to drive changes is the concept of piloting, which you mentioned, or sandboxing, to try new regulations, especially as there are so many innovations. What are your thoughts on that?

[Frances McRae]

Do you mean regulatory sandboxes?

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Yes.

[Frances McRae]

We think this is really an important area. Essentially, sandboxes really are places for innovation. Testing and trying new things is part of what we do as a department, and our industry members.

Maybe I'll turn to Darcy briefly, because this was a significant recommendation from the regulatory discussions that the economic strategy tables had.

[Darcy DeMarsico]

On that point, the economic strategy tables talked about the importance of agile regulations from three perspectives: The first was how they drive innovation, the second, investment, and the third, growth. In that context, sandboxes stood out as being a very vital way to deal with novel issues and the issues that come up in an innovation context, because you need to find a safe way to experiment. A sandbox is a great way to do that.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We're going to move to Mr. Chong.

You have seven minutes, sir.

[Michael Chong, Wellington—Halton Hills, CPC]

Thank you, Mr. Chair, and thank you to our witnesses for appearing.

I have a couple of questions. First, do you actually have an assessment of how many regulations we have in Canada across the different orders of government? In some of the reading I've been doing, there doesn't appear to be any total number in terms of regulations we have across the different orders of government. Do you have those figures?

[Frances McRae]

We do have an assessment, the federal regulatory system assessment. I do not believe there is a comprehensive federal-provincial-territorial one, but we do have it on the federal side.