International Trade Committee on Sept. 20th, 2017

[The Chair, Liberal, Mark Eyking]

Good afternoon, everyone.

We're going to have a busy afternoon. We have a lot on our agenda. We have some future business and we have some wonderful guests here today making submissions.

We're continuing with our study on the bilateral and trilateral trade in North America Between Canada, the United States, and Mexico. It looks like we have all the MPs here. We also have the witnesses from Rogers Communications, BCE, and Alberta Barley. Welcome, folks.

For those who are here for the first time, we appreciate it if you can keep presentations to around five minutes or shorter. Don't worry, there'll be lots of room for dialogue later on in the questions and answers portion.

Without further ado, we'll get started and start off with Rogers Communication. Pamela Dinsmore, please go ahead. You have the floor.

[Pam Dinsmore, Vice-President, Regulatory, Cable, Rogers Communications Inc.]

Thank you.

Good afternoon, members of the committee. My name is Pam Dinsmore and I'm the vice-president of regulatory cable for Rogers Communications.

Thank you for the invitation to outline Rogers' views regarding the ongoing North American Free Trade Agreement renegotiations.

Rogers is one of the largest Canadian telecommunications and media companies. We provide Internet and telecommunication services on both a wireline and wireless basis. We are also creators and distributors of content. We operate two over-the-air local television stations, City and OMNI, a number of speciality channels, including Sportsnet and FX, 55 radio stations, a suite of digital publishing brands, including Maclean's and Chatelaine, and cable systems in Ontario and Atlantic Canada. We employ over 25,000 Canadians. We have a broad perspective and a profound interest in the outcome of these trade negotiations.

In my remarks today, I will address three key areas: copyright, telecommunications, and the cultural exception. I will start with copyright.

A number of issues emerged out of the United States trade representative's process, with recommendations that Canada be required to make changes to its copyright legislation through the NAFTA renegotiation. We are concerned that the scope of the renegotiations could be broadened to include copyright issues that were not addressed in the existing agreement. These issues include replacing the made-in-Canada “notice and notice” infringement complaints system with a “notice and take down” regime, providing U.S. over-the-air broadcasters with exclusive retransmission rights over their freely available signals, repealing or amending the Copyright Modernization Act's personal use and intermediary exceptions, and/or taking away the protections granted to Internet intermediaries, such as ISPs and search engines.

The 2012 Copyright Modernization Act was carefully developed by Parliament over many years and is designed to serve the interests of all Canadians in its balance between rights holders and users of copyrighted works. We are concerned that a trade renegotiation, where copyright issues are used as bargaining chips, could endanger this delicate balance. In our view, any changes to our domestic copyright laws should be made through the upcoming five-year review of the Copyright Modernization Act, not through the NAFTA renegotiation.

In the area of telecommunications, I would like to comment on two of the USTR's objectives for the telecommunications sector set out on July 17. The first is the objective to promote a competitive supply of telecommunication services by facilitating market entry through transparent regulation and an independent regulator. Canada has an independent regulatory agency, the CRTC, which is transparent in both its rules and its decision-making processes. In fact, its processes and procedures are very similar in nature to those exercised by the Federal Communications Commission in the U.S.

Also, the current Canadian foreign ownership rules already permit market entry by foreign firms into the telecommunications sector. Canada's Telecommunications Act exempts companies with less than 10% of the Canadian telecommunications market from foreign investment restrictions measured by revenue. The U.S. and other foreign companies can enter Canada today, either as a start-up or through acquisition. As an example, the Zayo Group acquired Allstream in early 2016. If the rules were changed to permit U.S. companies to acquire Bell, Telus, or Rogers, this would not promote a more competitive supply of telecommunication services, but instead would simply replace one large provider with another.

The second objective I will comment on is the desire of the USTR to secure commitments to provide reasonable network access for telecommunication suppliers through interconnection and access to physical facilities and scarce resources. This regime is already in place. The CRTC has implemented well-established rules of regulated access, including mandated tariffs for telecommunication suppliers to interconnection services, as well as access to essential physical facilities. This regime is used today by literally hundreds of foreign and domestic telecom service providers operating in Canada. Zayo is an example of a U.S. company that uses these rules and has participated in their formulation by the CRTC.

Lastly, I would like to voice Rogers' support for the emphasis the minister for Global Affairs Canada is placing on the maintenance of the cultural exception in NAFTA. Some parties in the USTR process called for the liberalization of foreign ownership rules as they pertain to broadcasting, as well as modifications to section 19.1 of the Income Tax Act.

Others went further and asked that the cultural exception be modified to improve market access for U.S. goods or be eliminated altogether. In our view, section 19.1 of the Income Tax Act, as well as the foreign ownership rules that flow from the direction to the CRTC regarding ineligibility of non-Canadians, are important components of the cultural exception. The foreign ownership rules exist in part to ensure that, as section 3 of the Broadcasting Act stipulates, “the Canadian broadcasting system shall be effectively owned and controlled by Canadians”. This enables the various players who contribute to the health and success of the system to fulfill cultural policy goals for the benefit of all Canadians.

With respect to section 19.1 of the Income Tax Act, we believe it should be strengthened to also apply to foreign digital players, not eliminated.

[The Chair, Liberal, Mark Eyking]

Excuse me. Are you almost wrapping up?

[Pam Dinsmore]

Yes.

It provides important leverage for Canadian content creators when competing with the U.S. multinationals for digital advertising dollars.

Thank you for your time. I am happy to take your questions.

[The Chair, Liberal, Mark Eyking]

Thank you.

We're going to move over to BCE Inc., and we have the senior vice-president of regulatory affairs, Mr. Malcolmson.

You have the floor. Go ahead, sir.

[Rob Malcolmson, Senior Vice-President, Regulatory Affairs, BCE Inc.]

Good afternoon, Mr. Chairman and honourable members of the committee. My name is Robert Malcolmson. I'm senior vice-president, regulatory affairs, at BCE. Thank you for your invitation to provide Bell's views on NAFTA.

Bell is Canada's largest communications company, employing over 50,000 Canadians and investing over $4 billion annually in advanced networks and media content alone. These investments allow us to provide services that form the backbone of Canada's digital and innovation economy, including the country's fastest high-speed Internet and wireless networks that are among the fastest in the world.

Our world-class telecommunications system has been built through facilities-based competition among domestic players overseen by an independent regulator, the CRTC. We urge you to keep in mind that, in renegotiating NAFTA, we should not jeopardize what's been achieved by agreeing to trade outcomes that reduce the discretion of the independent regulator or grant subsidized access to our networks to foreign players.

Instead, the focus should continue to be on facilities-based competition. Bell is equally a key supporter of Canada's cultural and democratic system, investing more than any other broadcaster in Canadian content, and operating the largest networks of both local TV and local radio stations across the country, ensuring there are reporters with boots on the ground everywhere.

Again, as you navigate the waters of a new NAFTA, it is essential that our cultural sovereignty be preserved and supported.

There is no doubt that our system is in a time of transition. As content from all over the world becomes available, audiences fragment and activity moves online. We are responding. At Bell Media, we've launched CraveTV, a made-in-Canada, over-the-top service that delivers premium TV content to anyone in Canada for just $7.99 a month. Meanwhile, Bell TV has launched Fibe Alt TV, an application-based TV service that delivers all the content consumers have come to expect from a traditional cable service without the need for a traditional receiver.

We're also investing in a new era of Canadian content with award-winning Canadian programs like Letterkenny, which was produced exclusively for CraveTV and is its most watched show, and Cardinal, which is one of the top new programs in Canada, averaging more than a million viewers each week, and is now broadcast in markets around the world.

As the Canadian broadcasting system reorients itself toward online and global markets, we urge the government not to lose sight of this framework, reflected both in the original free trade agreement and subsequently in NAFTA, that has led to our success so far.

We have three specific proposals on how to make NAFTA work better for Canadian culture in the digital economy.

The first is tax and regulatory fairness for online services and digital advertising platforms. Canadian-owned services like Crave collect and remit HST on behalf of the government, but foreign video providers like Netflix and foreign digital advertising platforms like Google and Facebook, despite competing in Canada and earning millions of dollars in revenue from Canadians every month, pay no sales tax at all. This is obviously not tax fairness. Canada must maintain the ability to address this inequity with new modernized tax laws. In negotiating NAFTA, the government should ensure its ability to apply the same regulatory rules to all online services.

The second is copyright enforcement. U.S. interests have long complained that widespread online copyright infringement here in Canada is limiting the growth of the digital economy. In fact, many of the most prominent global players in the piracy ecosystem operate out of Canada as a relative safe harbour. Canadians made 1.88 billion visits to piracy sites last year. We recommend that the government commit to stronger intellectual property enforcement by having an administrative agency dedicated to such enforcement and by prioritizing enforcement against digital pirates.

Canada should also create a criminal provision for any infringement of copyright, including facilitating and enabling piracy where it's undertaken for a commercial purpose.

Finally, Mr. Chairman, there's local television. There is no doubt that local TV continues to face a crisis in Canada. Private local TV stations produce more than 900 hours of local programming every week and remain among the most popular TV stations in the country. Yet despite the success in serving Canadians, private local TV stations have lost more than $500 million in the last two years. Despite their valuable content, local TV stations cannot charge subscription fees because of section 31 of the Copyright Act. In renegotiating NAFTA, Canada should preserve its ability to address the crisis in local TV either by removing section 31 of the Copyright Act or making a second revenue stream available to local Canadian stations.

Finally, it's also essential that Canada commit to preserving simultaneous substitution. Simultaneous substitution enables U.S. copyright holders to receive value for their copyright and it protects the integrity of the exclusive program rights that Canadian broadcasters purchase. Simultaneous substitution and other domestic measures should continue to be protected under NAFTA's existing cultural industries exemption.

Thank you for the opportunity to provide our views. We're happy to answer your questions.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

We're going to move over to Jason Lenz, the chairman of Alberta Barley. Welcome, you have the floor.

[Jason Lenz, Chairman, Alberta Barley]

Thank you, Mr. Chair, and members of the committee.

Good afternoon, and thank you for the invitation to appear today. I am here on behalf of Alberta Barley's 11,000-plus members to offer our support for the modernization of the NAFTA and to provide our views on what we believe the negotiations need to achieve.

Barley is an excellent example of how integrated the North American agricultural market is. Together, the U.S. and Mexico accounted for 21% of Alberta's barley exports in 2016. Every year Alberta exports more than 190 million dollars' worth of barley and value-added products to the U.S. Most of that is for malt and for meat, both of which are value-added barley products.

Western Canada produces the highest-quality malting barley in the world. Thanks in part to NAFTA, Alberta farmers grow malting barley and have it trucked to malt houses on the Prairies where it's processed and then shipped into the U.S. There it is used by large-scale and craft brewers alike to produce a beer that satisfies the U.S. consumer's thirst for quality craft and adjunct beer.

Apart from the malting sales, Alberta farmers sell the majority of their barley as feed to livestock producers. The beef industry is a core customer for Alberta barley, and we need Canadian beef ranchers and processors to have that seamless border with the critical U.S. market in order for the demand for our feed barley to stay strong.

Like the vast majority of Canadian farmers, Alberta barley growers rely on open markets for a positive bottom line. In comparison with other barley-growing regions in the world, Alberta's barley growers have benefited significantly from the NAFTA through tariff-free trading. Canada's volume share of barley imports into the U.S. is over 90%. Our priority for the renegotiation is to make sure that this competitive advantage is not eroded in any way.

We encourage negotiators to keep most of the agreement intact, including the existing duty-free access, the treatment of non-tariff barriers in chapter 9, and the text on rules of origin. We also see great potential to make improvements related to the non-tariff barriers. Alberta Barley recommends that a modernized NAFTA contain the following items, which I will expand on momentarily. Our list includes an improved chapter on sanitary and phytosanitary, or SPS, rules; measures to more closely harmonize pesticide regulations and to remove maximum residue limits related to trade barriers; an agreement on the treatment of new plant-breeding techniques; and a mechanism for co-operation on plant biotechnology in the low-level presence policy.

While NAFTA's SPS chapter provides a good foundation, a renegotiated NAFTA should include stronger SPS measures in line with other recently negotiated free trade agreements, or FTAs. The trans-Pacific partnership SPS chapter serves as a very useful example and should be a starting point for the negotiations.

On MRLs, or maximum residue limits, the NAFTA renegotiation presents a unique opportunity for Canada, Mexico, and the U.S. to come together to completely remove trade barriers related to pesticides and crop inputs. Including text on a harmonized or trade-facilitating approach to pesticide regulations will reduce barriers at the border and be a useful model to carry forward in other negotiations.

A framework to manage the new plant-breeding techniques emerging across North America would also be of tremendous value. We would ask that negotiators put forward text within the agreement to facilitate the approval and trade of new plant-breeding techniques among NAFTA partners.

Finally, Canada, the U.S., and Mexico have a long-standing collaboration for removing biotech-related barriers to trade. The fact that no new biotech trait in plant products has ever been approved by one NAFTA partner regulator and then rejected by another underscores the need to formally recognize one another's approvals. At the very least, a common, low-level presence policy should be a fallback objective for negotiators in a modernized NAFTA.

Growers are in the middle of harvest right now, and our collective thoughts are focused on realizing a successful year for our businesses and families. I hope my presence here demonstrates how critical we barley farmers believe the NAFTA talks are to our livelihood. We ask that this committee seek to enhance our market access and trade-related regulatory collaboration with the U.S. and Mexico through its recommendations on these negotiations.

Thank you, and I look forward to answering any questions you may have.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

Before we go to dialogue with the MPs, I have a couple of quick questions for you. You mentioned that you're into harvest. How are the volumes and how is the harvest going and how are the prices? Those are the three questions I guess you ask as a farmer.

[Jason Lenz]

That's a three-part question, but the most important is certainly weather-wise. Harvest in Alberta is under way. It's very dry in southern Alberta, so their harvest is just about wrapped up. As you move north, harvest is probably—I'm going to guess—50%. Most of the wheats and barley are off, and canola has yet to come. It's raining there today. One thing that's out of our control is the weather, and it's always the biggest factor.

Prices have been pretty decent over the last year.

[The Chair, Liberal, Mark Eyking]

So everything is looking good. Great.

We're going to start with the MPs, with the Conservatives, and we have Mr. Carrie.

You have the floor for five minutes, go ahead.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair.

I'm going to try not to talk very much, because in five minutes I have so many questions for you guys.

First, would you say there's a need for dedicated enforcement with respect to digital piracy? What would be the best course of action?

Second, there are all these new technologies. When NAFTA was originally negotiated, who would have foreseen things like Netflix and things along those lines? How do you proactively address these new technological innovations through NAFTA, and how do you address those who wish to circumvent paying for content?

We'll start with Mr. Malcolmson on that one.

[Rob Malcolmson]

Dealing with the second part of your question first, on how we improve attempts to circumvent digital locks, I think that can be a bit of a rabbit hole in the sense that as soon as you come up with one technological improvement, another way to circumvent arises.

From our perspective—and we've looked at the issue of piracy quite seriously because it's affecting our business—It's affecting our cable distribution business much in the same way as it is Ms. Dinsmore's because people are leaving the regulated system, not just because they want to watch Netflix but because they want to watch free content. Unfortunately in the world we live in piracy has become ubiquitous.

Set-top boxes are being sold in any electronics store on virtually every corner in a city where you can buy something called a Kodi box that comes preloaded with content we and Rogers own the copyright in. You can buy that for $50 and you can watch live TV for free.

Our view on how we solve the piracy problem is not coming up with new technological measures. It's blocking access to piracy. How do you do that? We would like to see measures put in place whereby all Internet service providers are required to block consumer access to pirated websites. In our view, that's the only way to stop it. You would mandate all ISPs across the country to essentially block access to a blacklist of egregious piracy sites. That would be job number one.

[Colin Carrie, Conservative, Oshawa, ON]

Ms. Dinsmore, do you concur?

[Pam Dinsmore]

We're looking at a variety of options to deal with this streaming phenomenon that Rob is addressing, which has arisen very quickly since our own Copyright Act came into place. I think where we might differ is that we consider any option that we might look at here in Canada as something we should give careful consideration to under the auspices of the Copyright Modernization Act review, which is going to kick off in two months.

Rather than look into NAFTA to have this imposed on us by a trade agreement, where this could be a bargaining chip that we agree to in exchange for something else, we think it has to be done holistically, given the careful balance that was arrived at in our Copyright Act between users and rights holders. Rather than dealing with it as a one-off in this exchange where this negotiation is moving very quickly, and even the negotiators will tell you they don't have a lot of time to think between rounds, there will be lots of time to consider these sorts of options in our own domestic forum. We think that's where this discussion belongs.

[Colin Carrie, Conservative, Oshawa, ON]

You're saying you don't think NAFTA is the place to be looking at this?

[Pam Dinsmore]

We don't think the proper place is in NAFTA but in our own domestic review.

[Colin Carrie, Conservative, Oshawa, ON]

All right.

I hear this all the time, how Canadians pay the highest prices in the world. I think it's said Canada has the highest basic cellphone service. The average Canadian pays $96 in comparison to $42 in the U.K. We know the Americans want to open up this market. Wouldn't that encourage competition and lower prices for consumers?

[Pam Dinsmore]

I can take this one.

That's not necessarily so. As you know, right now we have the 10% cap on foreign telecom providers coming into Canada. Today, Verizon could come in, as could any start-up. What they can't do is buy Rogers, Bell, or Telus, because they can't buy an existing player that has greater than 10% of the overall revenue, which all three companies do.

Verizon could come in today, if they wished to, with less than 10% market share and they could build up their business here. They could offer that type of plan, but what they can't do is take over an existing player.

The idea that an existing player would come into Canada and necessarily provide the same type of pricing that they do in the U.S. is probably flawed for a number of reasons. The first is that we have very different geography than the United States. It's very densely populated down there, whereas we have a very large country to cover with our networks, which allows them potentially to provide lower prices than we do up here. Secondly, we have very high-quality networks, so if any of these providers come up here, they're going to have to maintain those networks and maintain the quality that Canadians have come to expect.

We do offer low-cost options. Rogers has a $10 talk and text plan and a $25 talk, text, and data plan, so we already are providing options at the lower end of the spectrum that are affordable for Canadians.

On the face of it, it looks very attractive. However, first, these players haven't come, and they can. Second, if they did, we don't think they'd offer the same low-cost offers that they offer in the U.S.

[The Chair, Liberal, Mark Eyking]

Thank you. We're kind of over time, but that's fine. It was good dialogue.

We're going to move over to Mr. Dhaliwal.

You have the floor, sir, for five minutes.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Thank you, Mr. Chair, and welcome to the presenters.

Mr. Malcolmson, you mentioned cultural sovereignty and the democratic system, and you also mentioned that local TV faces a crisis in Canada. I'm certain that at least colleagues on this side, and some on the other side, will agree that local TV and local radio is critical to preserving cultural sovereignty, as well as the democratic system.

Could you explain what can be done to support and enhance local TV so they're able to not only survive, but in fact thrive and employ more Canadians?

[Rob Malcolmson]

The reason we brought it up in the context of NAFTA is that this is actually an issue where Canadian interests and U.S. interests can be somewhat aligned. By that I mean, you've seen the submissions from some of the U.S. broadcast groups, such as the National Association of Broadcasters, who represent U.S. over-the-air border stations that spill into Canada. They've long complained that they're carried by cable distribution systems in Canada for free, so they're not paid for their signal in Canada.

Similarly, we operate over-the-air stations in Canada, and cable companies can pick them up and distribute them and we're not paid for that content. That's completely unlike other channels. If you take, for example, TSN or Sportsnet, those channels have two sources of revenue. They have advertising revenue and they have subscription revenue. Every cable subscriber in Canada pays a fee to their cable provider, and a portion of that goes back to TSN or to Sportsnet. It's not true for over-the-air television stations, all of which are carried on cable.

The reason that oddity exists is section 31 of our Copyright Act, which gives cable systems the right to retransmit over-the-air signals for free. We could solve the U.S. problem and the Canadian problem if we eliminated section 31 of the Copyright Act and simply allowed over-the-air stations to negotiate with cable companies the fair value of their signal.

That regime exists in the U.S. It's called a “retransmission consent regime”. NBC Buffalo negotiates with the local Buffalo cable company and they come to an agreement. If they don't come to an agreement, the signal isn't carried. We would like that opportunity for our stations in Canada. That will give us access to the same revenue stream that our competitor channels have and it would give us fair remuneration for what's a very valuable product to Canadians and allow us to continue to fund local news and employ Canadians in local markets.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

Ms. Dinsmore, do you have anything further to add?

[Pam Dinsmore]

Yes. We've set out in our opening remarks that we are very concerned about a retransmission consent regime. Certainly, it is what the NAB asked for in this process and it would mean a major outflow, in that context, of monies down south of the border. We've been carrying the ABC, CBS, Fox, and NBC for 70 years under the current regime. It's not a regime that has been extended to Canadian broadcasters. We do have a retransmission regime, but that compensates the underlying program suppliers when their signals are carried out of market. That was the underpinning of our having a copyright board. We think there are other ways to go at this. We think that some of the suggestions we provided to Madame Joly in her consultation, which may be reflected next week when we hear from her, would be a better way to address this and wouldn't result necessarily in these costs being passed on to consumers, which is what you're going to have in any retransmission consent regime. It's simply going to increase the cost of cable.

Some of the other suggestions are looking at the proceeds of the 600 MHz auction, to allocate some of those proceeds to local television. Equally, as we've talked about, expanding section 19.1 of the Income Tax Act to digital advertising is another way we could repatriate dollars that could be then put into the system.

There are other more creative ways, we think, that would not have the same customer impacts as what was outlined by Mr. Malcolmson.

[Sukh Dhaliwal, Liberal, Surrey—Newton, BC]

When it comes to online radio providers, how can we cause more Canadian content to be in those media?