International Trade Committee on Oct. 25th, 2017

[The Chair, Liberal, Mark Eyking]

Good afternoon. We will continue with this very important study on progressive Canadian enterprises and SMEs through electronic commerce. This is our second meeting. We had a very productive and informative last meeting on Monday. We're looking forward to having another one, and we're very happy to have with us today eBay Canada Limited, La Maison Simons Inc., and of course Michael Geist, who always comes when we need him.

Good to see you here, sir.

If it's the first time for anyone here on the panel, if you would try to do your opening remarks in five minutes or less, we would appreciate it. If you see my red light coming on, it just means you're running out of time. If you have any further ideas, you can them incorporate them when we have dialogue with the MPs.

Without any further ado, I think we're going to get started, and we're going to start with eBay Canada Limited, Ms. Andrea Stairs.

Go ahead, you have the floor.

[Andrea Stairs, Managing Director, eBay Canada Limited]

Thank you, Mr. Chair, and good afternoon.

On behalf of eBay Canada, thank you for the opportunity to present before the Standing Committee on International Trade. Before I dive in, I'd like to provide some background about eBay in Canada. Enabling small business to get online and participate in international trade is at the heart of our business model.

eBay is one of the world's largest online marketplaces. Launched 17 years ago in Canada, eBay remains the top e-commerce destination, enabling more than $1.5 billion of trade by Canadians annually. Each month our platform receives nine million unique Canadian visitors, nearly one-third of the Canadian online population.

In addition to changing how consumers buy, e-commerce has also changed the ways in which we sell. In fact, Canadians on eBay sell more than one million items each month. E-commerce is also levelling the playing field for rural retailers. By leveraging part of the Internet, platforms like eBay have effectively decoupled entrepreneurial success from the need to locate in population centres. Take for instance, Christine Deslauriers, who has been able to create a thriving sports apparel business in the tiny town of Blezard Valley, Ontario. This is due largely to the sales her eBay store receives.

eBay's platform is also one in which even the smallest business can engage in international trade. In fact, 99% of Canadian commercial sellers on eBay export internationally, which stands in stark contrast to the export rate of traditional SMEs at less than 15%, and these businesses reach vastly more markets than their traditional peers—18 countries for eBay sellers versus 2.5 countries on average per year for traditional SMEs. Finally, our data finds that, for eBay commercial sellers who export, more than half of their sales come from international buyers. These sellers are in fact micro-multinationals.

It's important to note that Internet-enabled trade differs significantly from traditional trade. Exporters don't forward deploy inventory or enter into foreign distribution agreements; rather, platforms like eBay drive demand in foreign markets and create the connection and the trust between consumers and retailers. Unlike traditional export, this trade occurs via individual orders criss-crossing the globe, with shipments clearing borders via consumer channels rather than commercial ones.

Given eBay's role in working with these micro-multinationals, my team and I are acutely aware of the frictions associated with this trade and the federal actions that could address them. Specifically, I'd like to recommend a change to the Canadian de minimis threshold to empower Canadian small and medium-sized businesses to thrive in the global economy. As you're aware, the de minimis threshold is the value above which goods shipped into the country can be assessed for duties and taxes. The $20 threshold was originally set in 1985, prior to the birth of e-commerce. In fact, had it simply been increased with inflation, Canada's de minimis threshold would now stand at almost $45. Instead, Canada's de minimis is the lowest in the industrialized world and among the lowest globally.

This low de minimis level causes major friction for Canadian small business. It negatively impacts their ability to access low-value international supply chains and creates red tape when purchases are returned from foreign buyers. In fact, a report from the C.D. Howe Institute found that an increase in the de minimis level from $20 to $80 would benefit Canadian businesses by more than $100 million in reduced red tape and other costs.

Furthermore, Canada's low de minimis threshold does not support what the Canadian consumer wants: fairness and choice. E-commerce gives rural Canadians or Canadians with physical limitations access to goods that are otherwise hard to find. It's not hard to understand why a poll conducted by Nanos research found that 76% of Canadians were supportive of a modest increase in the de minimis threshold.

Finally, an increase in the de minimis threshold would improve government efficiencies. The same C.D. Howe Institute report found that the Government of Canada is spending $166 million to collect just $39 million in duty and taxes on goods valued between $20 and $80. As taxpayers, we should all be concerned that the cost of enforcing the de minimis threshold dramatically exceeds the revenues collected on low-value purchases.

As a platform for small business, eBay respectfully requests that the committee consider an increase to Canada's outdated de minimis threshold through its review of ways to support progressive Canadian enterprise through electronic commerce.

I look forward to your questions.

[The Chair, Liberal, Mark Eyking]

Thank you, Madam Stairs.

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

Mr. Simons, you have the oldest family enterprise in Canada. You were founded in 1840. Congratulations to you and your family on your success.

You have the floor, sir.

[Peter Simons, Chief Executive Officer, La Maison Simons Inc.]

Thank you.

Thank you to the committee for the opportunity today to express my ideas regarding this issue. As you mentioned, we're the oldest family private business operating in Canada. I think it gives us a unique view of the evolution of a variety of technologies that are starting to impact our economy, be they automation, AI, or the refinement of applied mathematics in managing our business.

As a national retailer, we're at the forefront of these changes. It has given us unique insight into how this third industrial revolution is going to impact our economy and our country, but more importantly, how it's impacting our values as a family business and our values as Canadians.

Today, I'm not here to lobby with a narrow vision for the retail industry or another egocentric, narrow constituency. I would like to speak today as a citizen, as the father of two children, as a technophile—I want to underline that—and as a proud Canadian with dreams of the potential for this great nation.

My thesis, my objective today is to impress upon our political establishment the necessity for courageous, visionary change, to ensure not only fiscal equity in the future but also our ability as a country to build our communities around the values and projects that we aspire to. That is what is at stake here.

Despite the awesome potential that technological change offers us, it's negative impact will cause enormous social turmoil, even upheaval, if we continue to address these changes with archaic fiscal legislation created a 100 years ago. An ad hoc approach of piecemeal actions that focus on easy change will not suffice, in my mind. Our government's efforts will appear arbitrary, and impossible to explain or defend, leading to further social inequality and instability. Ultimately, as a country, as a nation, we will be unable to afford the very values that define our project as a country.

We are in the early stages of a revolution. I'm on the forefront of it in retail. As McAfee wrote in The Second Machine Age, we're on the second half of the chessboard. This is a point where geometric acceleration will both outline and underline the potential and the dangers that await us. As a businessman, I have one foot in the old economy with stores, and one foot in the new economy with the second largest website in Quebec, one of the top 10 in our category in the country.

I want to bring to you today a view from the battlefield of what's going on. There has to exist a sense of crisis and urgency. In my mind, we need thoughtful action, or else we will no longer control our destiny. Ultimately, this revolution will arrive right here in Ottawa, at your doorstep. You will find yourselves facing eroding tax bases and the inability to offer adequate essential services such as education and health care, as well as the inability to effect essential change, for example to a more sustainable, low-emissions economy.

Until we clearly identify the problems and causality, we will find ourselves, I believe, in a cycle of austerity, then budget cuts, followed by a temporary surplus, and then austerity again. That is the direction until we identify the causes and modernize the legislation.

Quickly, I think, if you have this sense of urgency that I bring here today, the government has to look at a number of things.

First, if we believe in a global trading system, companies and citizens must accept that there's a new global fiscal framework to be put in place. We must engage with an emerging group of nations, such as France, Germany, and Australia, who are not only lobbying for their particular interests but are beginning to reflect on a 21st-century global consensus for fiscal equity. Access to open global trade networks is not a right. It is a privilege that has been built by hard work over the past decades. It comes with responsibilities. A refusal to engage transparently in the new global initiatives should be met very severely.

Second, we must understand that it is citizens who require services, and thus taxation must be accrued at the points of consumption. Without this fundamental principle, smaller, less populace regions will always be able to profit from the ability of individuals and organizations to transfer activities to less populace, more fiscally advantageous countries.

Third, tangible and intangible products must be taxed in the same manner. The reality is that most products today are a combination of both. In a restaurant, 25% is actual, physical food; the other 75% is experience. To imagine that we can separate these two, or consider them differently, is just nonsensical. It will lead to a massive erosion of our tax base as the economy continues to dematerialize, and this is going to impact our cities and our ability to evolve.

Fourth, governments must avoid focusing on small, limited actions, until a broader platform of ideas and directions are in place. This is, in my mind, a crisis. To focus on little items, such as employee discounts for the young woman who works 15 hours at Simons, which was an issue a couple of weeks ago, just doesn't have any vision to it at all. It will be seen as arbitrary by citizens, and consequently, change will be impossible to effect.

Fifth, sales tax in Canada must be collected on all products, both tangible and intangible. We must find a way to collect it at the point of sale, and accumulate it at the point of consumption.

Sixth, de minimis levels must be set at zero. I find it difficult to believe we continue to have this. I am for thin borders, easy trade. I'm a free trader. However, to not set de minimis levels at zero is basically destroying the idea of localizing tax collection at the point of consumption. Operating in Canada is a privilege. Companies must transparently and honestly accept the responsibilities accompanied with that privilege. Higher de minimis levels will decouple the connection between fiscality and the locality of consumption.

Seventh, governments must rethink industrial job creation policies and subsidies. That's where we're at. The core to the future is education, both university and technical.

Eighth, Canada must participate in a movement to redefine corporate taxation based on where actual sales, consumption, employees, citizens, and physical assets are located.

Ninth, I believe Canada must push—

[The Chair, Liberal, Mark Eyking]

I'm sorry, you're going to have to wrap up.

[Peter Simons]

Those are nine points of action that are essential to this change.

[The Chair, Liberal, Mark Eyking]

Thank you, sir, and thanks for your frank presentation. It was good.

Mr. Geist, you have the floor.

[Dr. Michael Geist, Canada Research Chair in Internet and E-commerce Law, Faculty of Law, University of Ottawa, As an Individual]

Thanks very much. Good afternoon.

My name is Michael Geist. I'm a law professor at the University of Ottawa, where I hold the Canada research chair in Internet and e-commerce law. As always, I appear today in a personal capacity representing only my own views.

While there are many Canadian e-commerce success stories, often started small—everything from e-commerce platforms such as Shopify to services such as Hootsuite and retailers such as Clearly Contacts—there are also, as we've just heard, many smaller businesses that use a combination of e-commerce, social media, and online platforms to raise awareness and foster customer loyalty.

In my view, the question for this committee is what, if anything, the government should be doing to further facilitate e-commerce in Canada. Are there current regulatory or legal barriers? Are there opportunities for the government to help support e-commerce growth? Are there instances of an uneven playing field that disadvantages Canadian online businesses? I believe the answer is yes, and I'd like to quickly focus on five such instances.

I'll start with access as the first of these. It may be stating the obvious, but universal, affordable Internet access is the foundation for e-commerce. If Canadians are not online, they are not buying online. Minister Navdeep Bains was right when he said earlier this year:

We need every Canadian to be innovation ready—ready to spot opportunities, imagine possibilities, discover new ideas, start new businesses, and create new jobs. All Canadians need access to high-speed Internet, regardless of their income level or postal code. Until we bridge this digital divide, Canadians will not reach their full potential.

There is still much to be done to bridge this digital divide. Too many Canadians still do not have affordable access, and our pricing, particularly for wireless services, remains among the highest in the developed world. We need public investment to support universal, affordable access, and policy measures designed to foster enhanced mobile competition. Moreover, proposals such as the committee heard earlier this week calling for an Internet service provider tax and Internet tax, which by the advocate's own estimates would add more than $100 million a year to the costs of consumer Internet access, should be rejected.

Second is consumer trust and confidence. Even if Canadians are online, their willingness to engage depends on trust—trust that their information will be used appropriately and trust that online sellers will deliver what is promised. The need to foster trust has a government policy dimension.

For example, concerns associated with fraudulent spam undermine the potential success of all e-commerce activities. The industry committee is currently reviewing CASL, the anti-spam legislation, and there are business groups criticizing the law as overbroad, yet it is having a positive impact, with some studies finding that there's a 37% reduction in spam originating from Canada and a reduction of spam into Canadians' inboxes.

It is essential that Canada have a tough anti-spam law to help facilitate online trust. Further, we need to ensure that long-overdue security breach disclosure rules come into effect as quickly as possible, ensuring that our privacy legislation keeps pace with global standards, particularly those emerging out of the European Union.

Third is intermediary liability. If you were to canvass many of the biggest digital-first businesses today—social media and companies and other online services—about the relative legal risks in Canada as opposed to in the United States, many would likely point to the absence of safe harbour rules for content and the contributions of third parties in Canada.

That's an issue that remains largely hidden to the general public, but in the United States, Internet giants such as Google, Facebook, Amazon, and indeed eBay, as well as small companies that invite feedback comments and user participation, are protected from liability for the content of third parties through a statute known as the Communications Decency Act, the CDA, which provides that an intermediary is not liable for the third party content it hosts but does not actively review.

The standard makes sense. In a world in which platforms may have millions or even billions of users, placing editorial responsibility on the site is a recipe for disaster, with users going elsewhere.

Canada does not have a statutory equivalent. In practice what this means is that sites either relocate to the United States, where they have that safe harbour, or they simply remove content—often perfectly lawful content—for fear of liability. If we want to compete on the global e-commerce stage, we need laws that do not place Canadian businesses at a competitive disadvantage.

Fourth is intellectual property laws. As I mentioned in my last appearance before this committee, on NAFTA, Canadian companies, particularly those active in the digital environment, may be at a disadvantage with our restrictive IP laws as compared with some of the more flexible rules found in the United States. For example, the availability of “fair use” in copyright in the U.S. represents a significant competitive advantage for U.S. businesses and creators.

Similarly, Canada's anti-circumvention provisions, often referred to as digital lock rules, are among the most restrictive in the world and create unnecessary limits on innovation.

Finally, fifth, the committee has heard as recently as earlier this week about the need for an e-commerce or digital trade chapter in our trade agreements. I think there is some value there, but we should be wary of provisions that undermine legitimate public policy interests, including privacy and security. For example, the U.S. has identified restrictions on local data storage, often called data localization, as one of its objectives. The Canadian government should resist those efforts within NAFTA, or within the restarted TPP 11, to limit the ability of federal or provincial governments to establish legitimate privacy and security safeguards through data localization requirements.

Limitations on data transfer restrictions, which mandate the free flow of information on networks across borders, can raise similar concerns. The U.S. has been seeking a ban on data transfer restrictions, and I think we ought to ensure that our privacy and security rules aren't superceded by trade agreements such as NAFTA or the TPP 11.

In sum, we're succeeding in e-commerce, but we can do better and there is a role for the federal government to help make it happen.

I welcome your questions.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

That wraps up the panellists' presentations. We're going to go right into dialogue with the MPs, starting with the Conservative Party.

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

[Dean Allison, Conservative, Niagara West, ON]

Thank you very much, Mr. Chair, and to the witnesses, thank you for being here today.

One of our witnesses earlier this week, Startup Canada, was talking about how difficult it is for start-ups. I shouldn't say “difficult”, but how it's more challenging in terms of understanding what they can do to export and how they can figure that stuff out. Obviously, larger companies have the capacity to bring it in house, or they grow over time and they figure that stuff out.

Ms. Stairs, my first question is to you. You stated the fact that, if you're selling on eBay, there is a big export component to that. Talk to us about some of the challenges that smaller companies have in trying to figure that out and some of the things you guys take care of to help them manage that piece.

[Andrea Stairs]

The good news is that it's getting easier. Both getting online and using the Internet to enable exports is getting a lot easier now with platforms such as Shopify, effectively pay-as-you-go, and it can scale with the business. You don't have to have massive upfront infrastructure investments, software investments, in order to get online and to start exporting.

Certainly what we see is that small businesses might start somewhere, even start on eBay, and use that as a way to test the waters. It's a very low-risk way to dip your toe into exports, and eBay is creating a trust, it is facilitating the transaction, and it's providing guarantees on both sides.

That said, when we talk to the small businesses that trade on eBay, they are not as aware as they should be of all the programs and benefits that are open to them, to get them going.

We've had round tables with both the current Minister of International Trade and the minister from the previous government, and in both cases our sellers were asked, “What government programs have you availed yourselves of?” The answer was, effectively, “None”. There needs to be much better communication and much better, for lack of a better word, marketing to small businesses to let them know what's available to them.

Certainly getting online with eBay and similar platforms can take a lot of the heavy lifting out, because those platforms are able to immediately connect them with demand in any number of countries.

[Dean Allison, Conservative, Niagara West, ON]

How would you do that? I realize that's a problem for start-ups, not always knowing what's out there and what's available. What would that marketing piece look like, or how would that happen?

There are good programs that the government offers, and you're right, people are not necessarily aware of what they are.

[Andrea Stairs]

I totally agree. There are some great programs.

We need to create programs that respond to this new version of Internet-enabled trade, because a lot of the programs react to an old model of trade where you need distribution agreements in foreign markets and you need to have contacts there, and the trade commissioner will facilitate that.

That said, having a one-stop shop, being able to advertise where the businesses are, which is in social media, and using platforms such as eBay to bridge that gap are all good ideas.

[Dean Allison, Conservative, Niagara West, ON]

Mr. Geist, you talked about the chapter on e-commerce, etc., and you did mention a couple of things. Obviously, there is privacy and security, but what are some of the other things that we need to be looking at, as we negotiate and upgrade this NAFTA chapter, to deal with this whole chapter on e-commerce and digital?

[Dr. Michael Geist]

I think we've done a good job domestically, generally speaking, in establishing e-commerce-related rules. We have fairly high standards when it comes to privacy. We have consumer protection rules that could still be improved, but we do fairly well. We have the anti-spam law that I made reference to as well.

I thought that one of the problems with the TPP 12, the original TPP, is that it established a really low standard. In fact, on many of those issues, Canada was content to have provisions that didn't come close to the kinds of things that we've established here. If we're looking for level playing fields and if we're looking for Canadian businesses to have the opportunity to take advantages in other jurisdictions and to see them grow elsewhere, then I think we ought to be looking for a higher-level standard.

A good example would be in the TPP 11 agreement. For example, it's the U.S. that sought to lower the standard when it came to privacy in TPP. Given that they are now out of those TPP 11 discussions, there might be an opportunity for Canada to advocate for a higher-level standard when it comes to some of the privacy provisions in that chapter.

[Dean Allison, Conservative, Niagara West, ON]

Thank you very much.

[The Chair, Liberal, Mark Eyking]

Thank you, sir. You're right on time. You must have a stopwatch over there. Good show.

We're going to move over to the Liberals now.

Madame Lapointe, you have the floor.

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

Thank you very much, Mr. Chair.

Dear witnesses, I am so pleased to see you all here today. Thank you for your presence.

My questions are for Mr. Simons.

Mr. Simons, you appeared on the very popular Quebec program, Tout le monde en parle, which has 2 million viewers. On the program, you talked about trade and competition.

Do you think it is possible to compete fairly with electronics companies, whether they are to the south of Canada or in Asia?

[Peter Simons]

Yes, definitely.

For my part, I invest here, in Quebec, and I plan on continuing to do so. That being said, I do not think all players are on an equal footing. That is why I raise the issue of a zero de minimis threshold. We could certainly discuss it, since we will get there eventually.

Once all the players are on an equal footing, we will be able to compete with the others. Right now, we are considering a world-class investment in robotics and distribution, with a de minimis threshold of $800. All the financial partners and shareholders in the project want to sit down and talk about it, because these issues have to be examined carefully.

In my opinion, we must ensure that all players are on an equal footing, and then let companies compete with each other. I think we can do that.

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

You are saying it will be possible if you are on an equal footing. Earlier, you mentioned bringing the tax system...

[Peter Simons]

We are certainly not on an equal footing right now, because of the whole issue of customs and sales taxes being collected or not. There is obviously uncertainty about the de minimis threshold, which worries us.

Even when that is all in place, there will still be major challenges. I think we will be able to meet them nonetheless since we have the technological knowledge and the teams to do so. It will be a completely different story though if we start out with the disadvantage of paying 18% in customs duties, 15% taxes, and a $800 de minimis threshold.

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

You suggested that taxes should be collected where there are physical sales and employees. You also mentioned that taxes should be brought into line with the location where the products are consumed.

Have you thought about how that could be done?

[Peter Simons]

Actually, I do not have a team that can come up with a structure for that.

[Linda Lapointe, Liberal, Rivière-des-Mille-Îles, QC]

Do you have any suggestions?

[Peter Simons]

Essentially, when companies refuse to collect sales tax for technological reasons, for example, we must not be naive. If there are driverless cars in Los Angeles, we can certainly collect sales tax.

It will of course require international coordination. I would be very pleased to see Canada engage more proactively in the consensus that is slowly forming. You might think I am being utopian, but ultimately we can get there, either by going through a crisis or by being visionary. I would rather see Canada engaged with countries such as France and Germany. Australia has already given a lot of thought to this as well. I think coordination is beginning on these issues.