Industry Committee on April 15th, 2021

[The Chair, Liberal, Sherry Romanado]

Good morning, everyone. I call the meeting to order.

Welcome to meeting number 31 of the House of Commons Standing Committee on Industry, Science and Technology. Today's meeting is taking place in a hybrid format pursuant to the House order of January 25. The proceedings will be made available via the House of Commons website, and as usual the webcast will only show the person speaking rather than the entire committee.

To ensure an orderly meeting, I'd like to outline a few rules to follow.

Members and witnesses, you may speak in the official language of your choice. Interpretation services are available for this meeting. You have the choice at the bottom of your screen of the floor, English or French. Please select your preference now.

As a reminder, all comments by members and witnesses should be addressed through the chair. Before speaking, please wait until I recognize you by name, and when you are not speaking, please make sure your microphone is on mute. For the purpose of interpretation, please do not speak over each other so that the interpreters can do their work. Most importantly, as is my normal practice, I will hold up a yellow card for when you have 30 seconds left in your intervention, and a red card when your time for questions has expired. Please keep your screen in gallery view so that you can see the cards when I hold them up, and please respect the time available so we can make sure that everyone has a chance to ask questions.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on February 23, the House of Commons Standing Committee on Industry, Science and Technology is meeting today to continue its study on competitiveness in Canada.

I'd now like to welcome our witnesses. Today we have Vass Bednar, executive director of the master of public policy in digital society program at McMaster University; Ritesh Kotak, technology entrepreneur and strategist; and Ellis Ross, member for Skeena in the Legislative Assembly of British Columbia. We also have, from the Canadian Media Concentration Research Project, Dwayne Winseck, director, Carleton University, and Ben Klass, senior research associate; and from the First Nations Tax Commission, C.T. (Manny) Jules, chief commissioner.

Welcome, everyone. Each witness will present for up to five minutes, to be followed by rounds of questions.

We will start with Vass Bednar. You have the floor for five minutes.

[Vass Bednar, Executive Director, Master of Public Policy in Digital Society Program, McMaster University, As an Individual]

Thank you, Madam Chair.

My name is Vass Bednar. I'm the executive director of McMaster University's new master of public policy in digital society program.

As I'm the co-author of a forthcoming white paper on the state of competition policy in Canada, I'm going to focus my remarks on the potential for reform of the Competition Act, particularly as it relates to the digital economy. I'll also commit to circulating that paper to members of this committee when it's published in the coming days.

When I started researching competition policy in Canada, I was struck by the lack of scholarship on the subject. Most publications come either directly from government officials or from private actors. There's not a whole lot of material that sits in a neutral middle ground, so I’d love to see more of that. I also observe a striking amount of capture in the sector. I’m not sure precisely how that contributes to any policy inertia, but I do sense the Canadian public is increasingly impatient with the legislation’s facilitation and maintenance of oligopolies in our economy. If we want to give our own companies a chance to compete, and protect consumers from new forms of online harm, we should proceed with a thoughtful review of the act.

It has been said that Canada doesn't treat competition policy seriously and that we tolerate high corporate concentration in an effort to be competitive internationally. In fact, former competition commissioner John Pecman has lamented that the bureau lacks the kind of independence that could make it more effective. To my mind, what it comes down to is that there are structural limitations in our legislation that hinder our ability to curb anti-competitive practices, especially for today’s digital economy. This puts us at a disadvantage compared to other countries.

One quick example is the seemingly arbitrary threshold for a merger review. This leads the bureau to potentially overlook anti-competitive mergers.

Another example is fines. The current commissioner, Matthew Boswell, has acknowledged that the maximum penalties for anti-competitive behaviour lack the teeth necessary to deter anti-competitive behaviour.

There's also this bigger question: Should Canada even make an effort to emulate either the American or the European approach to competition policy? Look, we're likely to benefit from the historic antitrust investigations into global tech firms just due to natural spillover effects, but other competition authorities are not going to scrutinize troubling digital competition issues in our own backyard. That's why it's important to me that we act as more anticipatory regulators that can spot harms on the horizon and act accordingly.

Consider a company that has admitted to fixing the price of bread and may have been colluding on wages with other grocers in the pandemic: Loblaw. Now as a case study, just think about their deepening across the financial space with PC Financial; health, with Shoppers Drug Mart and the PC Health app powered by League; insurance and the grocery spaces. This is a case study of the market power that can be achieved through detailed targeted ads and reduced privacy as they refine their proprietary advertising platform, Loblaw Media, emulating a playbook refined by Facebook and Amazon. While this may impact competition, it can also harm consumers by constraining their ability to access everyday essentials at a cheaper price, while Loblaw grows market share.

Right now, Canadian competition policy is silent on such Orwellian activities because the legislation and current guidelines do not adequately comprehend or even stop to consider whether and how data creates a competitive advantage, yet issues on data collection and processing are at the centre of current antitrust cases all around the world. Put simply, Canada’s Competition Bureau does not have the tool kit for a digital economy.

As part of any modernization, we're going to have to critically think about how we can redefine “dominance” via volume and maybe even richness of data, and also understand the competitive harms that can flow from dominant firms that hold large volumes of information. Maybe one of the most important lessons that Canadian policy-makers can learn from the U.S.’s recent work investigating past activity from Facebook, Amazon and Google, and also by China’s efforts with Alibaba is that it's difficult and might even seem disingenuous to retroactively change the policy environment in order to rationalize investigations against massive digital firms.

To my mind, Canada’s competition policy no longer serves our best interests, and digital markets are fundamentally different from traditional ones. This alone warrants modernizing the act alongside more robust privacy legislation in order to better manage these abuses and truly promote dynamism; otherwise, companies that pump up prices on bread for single moms can continue to trade on that same mother's personal information.

It's time for our legislation to catch up.

Thank you.

[The Chair, Liberal, Sherry Romanado]

Perfect timing. Thank you so much.

We will now go to Mr. Kotak for five minutes.

[Ritesh Kotak, Technology Entrepreneur and Strategist, As an Individual]

Good morning, Madam Chair.

I would like to start by thanking the committee for inviting me to share my thoughts on how Canada could become more competitive.

My name is Ritesh Kotak, and I work with organizations to help them transform their operations digitally. I've studied and worked on this issue globally for the last decade, but my journey started a lot earlier. I grew up in a small business. To be more specific, my crib was in a store. My grandparents and parents had a community grocery store, which over the years has transformed into a food manufacturing company that employs about 20 individuals, imports and exports products, and is continuously trying to innovate.

When the pandemic started, many businesses had to find alternative ways to remain competitive. The natural move was to transfer operations to an e-commerce platform, my parents included. The general consensus was that it is as simple as creating an account, adding your products and you can begin shipping to customers around the world. In theory this is correct. However, in practice it is much more complex.

I would like to take my time to break down three categories of issues that are major barriers to businesses and hinder our competitiveness. I share my thoughts from a strategic and also a practical perspective.

Number one, you are building on something existing and not on something new; number two, unclear guidelines; number three, access to a knowledge base.

The first major barrier is that many initiatives make a detrimental assumption that because they have a website, it will allow businesses to migrate their operations online. However, if you are a traditional bricks and mortar establishment, you have existing systems. Upgrading those systems is complex and expensive. I've seen frustrated business owners maintain two independent systems, which is just not economical. If you want to integrate, it requires additional software and expertise. This can cost thousands of dollars, be time consuming and complex, and many people are simply unaware of this additional investment. This can also be very stressful.

To add to the complexity, we wouldn't normally think of all of the labour challenges from a granular level, such as adding hundreds of products, descriptions, images, to shipping the product to the customer—also known as the last mile. With shipping in particular, business owners may end up covering large costs out of pocket, as major carriers base rates on weight, not volume. I can elaborate further on this point during the Q and A.

It is also extremely difficult for small businesses to compete, as shipping rates are significantly higher for small businesses compared with established big box companies. A package may cost a local business $14 to ship; the same package will cost an established business $4. That's three and a half times higher. This dissuades customers from completing a transaction. We see this through the number of abandoned shopping carts. Shipping companies won't give you a better rate unless you have volume, and you won't have volume if you don't offer competitive rates. Given low margins in certain industries, it makes this an impossible proposition—a catch-22.

To put a hard number to the amount of effort required, I have technical abilities and understand the different factors and complexities. It took me approximately 300 hours to figure this out. I empathize with all of the small business owners who don't have access to these skills and as a last resort have spent up to $30,000 on consultants—money that they didn't even budget for.

The second category of issues is that there are unclear guidelines. I'll use my example of the food industry. Many retailers are unaware that shipping to other countries, especially to the U.S., has its challenges. Since CUSMA increased the de minimis value under section 321 from $200 to $800 for e-commerce, many organizations are unsure how this applies.

From my conversations, I found that different agencies are used to helping businesses with B2B trade, but not B2C trade. I could not find a single resource that aggregated all the necessary information, from registration and labelling requirements, to other considerations such as advertising restrictions and data protection. Businesses are expected to comply, but are unaware. I even found federal agencies who really wanted to help and answer my questions, but were just unsure on how best to address my inquiries. This is a major barrier to our competitiveness.

Finally, more needs to be done to physically help these businesses digitally transform their operations. We cannot simply put money towards the problem, as they require physical expertise and a helping hand.

As mentioned, it took me 300 hours. I have volunteered my time to assist many organizations digitize, because I truly believe that we are all in this together. There need to be more individuals who have built these hybrid businesses assisting other businesses, because personal usage is a precondition to comprehension.

There is plenty more I would like to discuss such as how we can achieve this, barriers to accessibility and other factors that impact our competitiveness.

I thank you for this opportunity and welcome your questions.

[The Chair, Liberal, Sherry Romanado]

That's perfect timing. Thank you very much.

We now go to Mr. Ross.

You have the floor for five minutes.

[Ellis Ross, Member of the Legislative Assembly of British Columbia, Skeena, As an Individual]

Thank you.

My comments come from 17 years of reviewing projects in detail from different directions in terms of their viability and process. I believe this is great context for understanding how to build and sustain an economy, which leads to the topic of competitiveness. I also understand the working end of environmental assessments at both the federal and provincial levels and the permitting regimes under the different ministries.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Madam Chair, the interpretation is not working.

[The Chair, Liberal, Sherry Romanado]

Mr. Ross, wait one moment, please. We are having problems with translation. I will stop the clock. I'm just going to turn to the clerk to double-check.

[The Clerk of the Committee, Mr. Mark D'Amore]

Mr. Ross, would you be able to unplug and replug your headset?

[Pierre Poilievre, Conservative, Carleton, ON]

On a point of order, Madam Chair, I just want to put on the record that all members of the committee have the right to hear every word of testimony in English and in French, and the problem seems to be that there's poor audio for our translators. I wonder if we might spend some time between now and the next meeting on that, perhaps with other committees as well, because I hear Mr. Ross and I've heard other witnesses who apparently the translators can't hear, but there is this recurring problem where, for some reason, they can't get the audio that everyone else is getting.

[The Chair, Liberal, Sherry Romanado]

Thank you very much, Mr. Poilievre.

Actually the audio requirements to be able to translate must be much higher than what you and I would normally be able to work with. It's something that's being looked at by the Liaison Committee as well, and we've made a point of trying to make sure that when we are scheduling witnesses, we ship them headsets that our translators have approved for use.

So it has been duly noted, but we're working as well as we can to make sure that our translators and interpreters are able to do the work they need to do.

Mark, if it's possible for IT to work with Mr. Ross, maybe we can go to the next witness, because we are delayed. If that's a possibility, would that be okay?

[The Clerk]

Yes.

[The Chair, Liberal, Sherry Romanado]

That's perfect.

We'll go to the Canadian Media Concentration Research Project. I believe Mr. Winseck is going to present, and in the interim we'll work with Mr. Ross offline to see if we can get better quality.

I turn it over to you, Mr. Winseck. You have five minutes.

[Dr. Dwayne Winseck, Director, Carleton University, Canadian Media Concentration Research Project]

Thank you very much. I will lead the discussion and hand it over at the end to my colleague Ben Klass.

Good morning and thank you for inviting us to appear before your committee. Our research at the Canadian Media Concentration Research Project examines the evolution of everything from mobile wireless Internet access and cable TV services to the quickly evolving digital media delivered over the Internet such as online video services like Netflix and Crave, Internet advertising, social media and newspapers.

In the 1990s and early 2000s, it was commonly believed that the advent of digital media and the Internet would usher in more competitive and diverse communications and media markets. However, in his summary of the results of a recent 30-country study, Columbia University professor Eli Noam concludes that concentration levels in mobile wireless, broadband Internet access and other communications markets continue to be “astonishingly high”. While the data for content media is mixed, the trend is in an upward direction.

Moreover, in the last decade, a handful of global Internet giants have remade the Internet in their image—a centralized Internet ruled by a few search engines, social media services and digital media content aggregation platforms. These conditions generally apply to Canada as well.

Where Canada does stand out, however—and not in a good way—is in its sky-high levels of vertical and diagonal integration. The figure distributed to the committee provides a snapshot of where things stand as of 2019 based on HHI measures of concentration—a point I hope we can discuss during the question and discussion period.

If the proposed mega-merger between Canada's second-largest and fourth-largest communications and media conglomerates, Rogers and Shaw, is approved, it would have four major implications. It would overturn a decade and a half of policies by successive Conservative and Liberal governments alike to foster a fourth maverick mobile operator in regions across the country. It would significantly lessen competition for the mobile wireless market at the national and provincial levels and for the national Internet access and cable television markets. It would reduce the number of doors that TV and film producers have to knock on from four to three when seeking a national distribution deal and from three to two in English-language regions of Canada. Moreover, with data combined from 18.2 million Canadians integrated across Rogers' and Shaw's multiple platforms, this deal raises substantial questions about the link between big data, market power, and privacy and data protection.

The proposed Rogers and Shaw merger is an excellent opportunity to see whether the Competition Bureau can use its existing tools to full effect and hold the line on current policies. It is also an excellent opportunity for it to turn its professed interest in the link between big data, market power, and privacy and data protection into action. This is also in sync with the recent report by the ETHI committee, “Democracy Under Threat”.

Competition policy should also go beyond assessing consolidations solely in terms of price to consider, for example, standards of data and privacy protection. For example, Facebook loudly touted its respect for people's expectations about trust and privacy when it competed with tens of other rivals during the competitive era for social media. Since taking over Instagram and WhatsApp in 2012 and 2014 and consolidating control over social media, however, it has systematically degraded the standards of privacy and data protection that it offers.

Price is, obviously, still a concern. Consider that in the oligopolistic mobile wireless industry in Canada, Bell, Rogers and Telus have been able to persistently charge high prices that are significantly higher than in comparable countries while offering mobile wireless plans with stingy data allowances that constrain how people use their phones and the mobile Internet. As a result, mobile data usage in Canada is about half the OECD average and a third of what it is in the U.S.

There is also a need to restore a focus on the broader effects of concentration on competition—for example, the creation of kill zones—as well as how the massive economy of scale, scope and network effects that are common to digital services are used to buttress dominant market positions, undercut rivals and expand into new markets.

The focus should also be on limiting the threat that concentrated corporate power poses not just to markets but to policy; society; the evolution, design and use of technology; and democracy.

Four principles drawn from the history of communications regulation should serve as guides for what a new generation of regulation for communications, the Internet and the digital economy could look like: structural separation, line of business restrictions, public obligations and public alternatives.

I'll now turn it over to Ben. I hope you can indulge him for half a minute.

[Ben Klass, Senior Research Associate, Canadian Media Concentration Research Project]

I'll just add two points to what Dwayne had to say. They are observations that I've made on the basis of the Competition Bureau's and CRTC's appearances here last week.

I was struck by the competition commissioner's telling this committee that they don't enforce mergers after the fact. I think that that's like a surgeon saying he doesn't care what happens to the patient after the operation. I can't see why approving real mergers with imaginary remedies is a good policy for Canada.

Thank you. I look forward to your questions.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

We will go to Mr. Jules first, and then we will go back to Mr. Ross.

Mr. Jules, you have the floor for five minutes.

[C.T., Manny) Jules (Chief Commissioner, First Nations Tax Commission]

Madam Chair, I will take six and a half minutes. I hope you will indulge me.

[The Chair, Liberal, Sherry Romanado]

Mr. Jules, I need to you be as close to five minutes as possible, as we have a lot of witnesses and are delayed.

Please go ahead.

[C.T. (Manny) Jules]

Good morning, honourable members.

My name is Manny Jules. I am the chief commissioner of the First Nations Tax Commission, which is one of three institutions created by the First Nations Fiscal Management Act, or FMA. I was also chief of the Kamloops Indian Band from 1984 to 2000.

Thank you for this opportunity to address this committee as part of your study on competitiveness in Canada.

Canada's productivity challenge is real and COVID-19 has made it acute. Meeting this challenge will determine whether or not we can maintain or improve our living standards, lift first nations out of poverty, and continue to fund our social infrastructure. Despite immigration, Canada is an aging society. Service costs like health care will rise sharply. We are going to have trouble maintaining services, particularly at the provincial level, unless we can improve productivity.

There are a few factors that determine productivity. I'm going to focus on just one, which is improving the first nations' investment climate.

First nations are a younger and faster growing population than Canada as a whole. We have higher unemployment, lower pay and, often, unproductive land. Too many of our children grow up without being exposed to work opportunities and the role models those create. This puts them at a disadvantage for the rest of their lives. That is not good for Canada's competitiveness.

I have spent most of my career turning this around. I have concluded that the root of our problem is the way we are viewed.

You see a social problem that needs to be fixed with government programs. I have a different philosophy. I think our disparities are fundamentally economic. Our economic issues are a result of first nations being systematically legislated out of the economy. Government oversight has prevented investment from happening on our lands. Social problems are a result of that.

How can we fix this? We need to focus on removing the things that have taken us out of the economy. We talk about the costs of interprovincial trade barriers, and rightfully so. We also need to talk about the investment barriers that have been put up around first nation lands.

We have identified a successful, three-part formula to build a stronger first nation investment climate. It is based on putting decision-making power in first nation hands, so they can respond to opportunities. First, develop legislation that recognizes first nation jurisdiction and provides an orderly process to occupy it. Second, establish first nation institutions to provide support and standards, so that first nations implement their jurisdiction in a manner that grows their economies and enhances the economic union of Canada. Third, provide training and capacity development to first nation administrations, so they know what to do.

This approach has worked. The First Nation Fiscal Management Act is the most successful first nation-led legislative initiative in Canadian history. This committee should build on that success by supporting four proposals to improve the act.

First, first nations need more sustainable economic infrastructure. In the last year, we have worked closely with the federal government to develop the legislation for a first nation infrastructure institute. The rapid implementation of this institute will ensure that we have the foundation to compete in a competitive investment climate.

Second, we need to provide tax and decision-making power to first nations. You cannot have government decision-making power if you are entirely funded by a contribution agreement. Fiscal powers give us a strong incentive for economic success. It reward good policies in a way that program funding never will. It allows us to implement our jurisdictions so we can, in my dad's words, move at the speed of business.

This can start with two easily implemented fiscal powers: a sales tax on fuel, alcohol, tobacco, and cannabis—the FACT tax—and FACT excise tax sharing. I must note that on Monday, the Government of New Brunswick unilaterally cancelled the tax-sharing agreement with first nations in that province. The fiscal math of Canada is unrelenting. First nations need new legislated tax powers.

Third, we need to improve our resource economy competitiveness. First nations are often the only governments in a region that don't receive direct fiscal benefits from major resource projects in their territories. This makes it difficult to get our participation and support, and that means resource investment has fallen off relative to our competitors. Hundreds of billions of dollars have been diverted to other countries. We can fix this with a resource charge, supported with an offsetting federal tax credit. This would create transparent, standardized and stable first nation fiscal benefits from resource development. It could coordinate with federal and provincial tax systems.

The FNTC would support its implementation and coordination. This would provide many rural and remote first nations with economic opportunities and break the cycle of poverty that disadvantages so many children from an early age.

[The Chair, Liberal, Sherry Romanado]

Mr. Jules.

[C.T. (Manny) Jules]

Fourth, we need to expand the work of the FMA institutions and the Tulo Centre of Indigenous Economics to support these initiatives, and one day—

[The Chair, Liberal, Sherry Romanado]

Mr. Jules.

[C.T. (Manny) Jules]

—they should be supported by a—

[The Chair, Liberal, Sherry Romanado]

Unfortunately, Mr. Jules, I need you to wrap it up. You're way over time.

[C.T. (Manny) Jules]

I will.

One day they should be supported by a real land title registry system.

In 1910, my ancestors made a request of Canada for tax powers, better infrastructure, and a land title system so we could provide health care for our members and compete in the economy.

Today, I am making a similar request. I urge this committee to support these proposals. I am not asking for special rights. I am simply asking that first nations that want a chance to succeed be given a chance to do so.

Thank you.