I have a bit of a unique presentation for you today. Some of the themes my colleagues have raised also run through it.
When you look at cosmetics in Canada, we are a net importer of cosmetics and personal care products, but we are also a major manufacturer. That dichotomy presents some issues that I think many other consumer product industries have been struggling with, issues that government really has not had a focus on, though I think perhaps it's time that it did.
The reason for that dichotomy of being a major importer but also a significant exporter is rather simple. In the world of consumer products generally, in order to achieve economies of scale in production, you need to have a large volume. One of the disadvantages of Canada compared to the United States or the European Union or China is that we have 35 million people. The reality is that in the case of many products, to employ the best technology, to be able to get the economies of scale, and to have the production runs you need to be competitive, you cannot rely on just the Canadian marketplace.
Particularly for our industry, most of those facilities or manufacturing sites—I think there are 18 independent custom manufacturers, and several major brands that operate facilities in Canada—depend on getting a large enough volume through exports to be competitive. We have to understand that interest. It is in our interests, as a country larger than the Americas or Europe, to be able to move the products from those factories across borders into other jurisdictions in order to support those economies of scale. We must not only be competitive as manufacturers but must also have greater access to those markets than do our competitors in the U.S. and the European Union.
I want to focus for a moment on a very interesting area. I'm not here to ask for tariff reductions or other general policy requirements. If anything, what I'm asking you to consider is the role of regulation.
We're not talking about regulation to prevent safety. In fact, it's not about reducing standards at all. We're talking about alignment, because there are hosts of requirements.
Personal care and cosmetic products are regulated everywhere in the world. Every jurisdiction has some regulation to ensure safety, to review cosmetic ingredients as part of chemical management plans. We have those in Canada. We're regulated under the Food and Drugs Act under Health Canada, by the Environmental Protection Act under part of the Chemicals Management Plan, and by the Competition Bureau, etc. The jurisdictions we're exporting into also have their own regulatory requirements. Our difficulty comes in understanding that those safety departments are also market access departments. How they choose to regulate can make a big difference as to whether or not it's easy to move a product across the border.
Again, I'm not here to say we need a lessening of standards. Actually, it's quite the contrary. I'm saying we need an alignment of those rules. I've included some examples in the presentation.
It took us, on an international basis, over two years to get a common standard for lead contaminants of 10 parts per million, because we discovered that many Asian countries measure their ingredients as opposed to measuring the finished product that we measure in Europe, Canada, and the United States. If your regulators are measuring two different things, how do you align those standards? How do you produce for those markets?
Getting regulators to decide if we're going to measure inputs or finished products had to be resolved. Similarly, are we going to measure in centimetres or inches? The standard definitions that we apply to nanotechnology or any of these things become a fundamental basis of getting that alignment.
We looked at other things, including a simple thing like ingredient nomenclature. We have mandatory ingredient labelling for cosmetics virtually across the world. We use an international nomenclature language called INCI. The Americans have not accepted 57 out of some 10,000 terms that are in the INCI dictionary, one of which is water. The international word or INCI term for water is aqua. If you put aqua on your label, it's accepted everywhere except in the United States.
These little things can result in literally millions of dollars in extra cost in just trying to adjust labelling or trying to achieve common labelling, which means a common inventory management. Inventory management is really the cost for an exporter, because the United States is the only country in the world that insists on the word water, where everyone else requires aqua.
We've been trying to get the Americans to change that for more than 10 years, and it just goes nowhere. It's a simple little thing like that. Again, if someone doesn't know that aqua is water, it's not a health risk, but it adds millions of dollars in labelling costs.
There are other issues. Slight differences in labelling sunscreen warnings, for example, can make it more difficult to produce a product in Canada and export that package into the United States.
In terms of classifying products, in Canada we classify sunscreens as drugs or natural health products. We impose a host of drug rules. In the European Union they classify them as cosmetics with appropriate rules. This has led to a whole bunch of really unintended and unnecessary issues on moving sunscreen products across borders, again to the disadvantage of the Canadian manufacturer.
Manufacturing facilities and licensing are other areas. If you're making a therapeutic claim for a product in Canada, you're a drug. In the United States, you're an over-the-counter, OTC, product. Both jurisdictions require the inspection of your manufacturing facility.
That means Health Canada and the FDA have to come to your factory. They don't necessarily have the same inspection requirements. They don't have the same inspection schedules, and we can take you to facility after facility in Canada where they're being reinspected by two different jurisdictions with all the attendant costs of time, etc. If you're the Canadian manufacturer, you're bearing a much greater percentage of that cost in your product because you're exporting so much more.
These are the kinds of things that we believe governments have to make a priority. They have to find that alignment to make it easier for manufacturers in Canada to be able to move those products across borders.
There are a couple of other aspects that I'll flag for you in manufacturing today.
Modern manufacturing is really internationally integrated. If you're making cosmetics at a factory in Quebec and a factory in Ontario, you're moving ingredients from different jurisdictions. Sometimes it's your packaging. Perhaps it's a unique bottle or container from a different jurisdiction and you are assembling it here in Canada. You're buying your ingredients from different places, yet our consumers bureau still has a definition of “manufacturer” that is dependent not only on the last major transformation but on 51% in value, which can vary on exchange rates at any given time.
Yes, you don't have to put “made in Canada” on the product, but you do if you export it. In many supply chains a product made in Knowlton, Quebec, will get into the supply chain in the U.S. and re-emerge in western Canada, because that's the way the supply chain works. Rules of origin labelling can make it very difficult to be able to do that when, quite frankly, there's no need.
If you're that manufacturer and you're exporting 90% of your product, why would you stay in Canada if you can avoid some of that by moving across the border? These are the kinds of real unintended consequences of not thinking through our regulatory systems.
The last comment I would like to make that touches on this issue is that this is the age of the international consumer. The day when we regulated just for our country because we live here is gone. Canadians buy their sunscreen products when they're on holiday. They buy them in Canada. They can order cosmetics, sunscreens, or anything else from anywhere around the world.
There is no reason that regulators cannot align their regulations. Consumers are ahead of governments because they expect the product to be safe no matter where it's made. Whether they buy it Florida or Toronto or online, they expect it to be equally safe.
We would suggest to this committee that it's not just government policy to say that we need to align trade; it has to get down into the culture of our market access departments, such as Health Canada, Environment Canada, and the consumers bureau. At the end of the day, when some mid-level person in the department is talking to their colleagues at the FDA or the European Commission or in China or wherever, and they're discussing how they align regulations, they have to know that it's in the interests of Canada to have that alignment. It has to be a priority.
Thank you very much, Mr. Chair.