Evidence of meeting #87 for International Trade in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was post.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Shannon Glenn  Assistant Vice-President, Government Relations, Business Development Bank of Canada
Rod Hart  Vice-President, Parcels, Canada Post Corporation
Dennis Howlett  Executive Director, Canadians for Tax Fairness
Todd Winterhalt  Vice-President, Global Trade, Export Development Canada
Dennis Jarvis  General Manager, International Product Management, Canada Post Corporation

4:05 p.m.

Dennis Jarvis General Manager, International Product Management, Canada Post Corporation

There's quite a bit of history with regard to the relationships between the different posts and how they're compensated. In the past there were products designed for letters, such as registered mail, for example, or packets, and the posts would pay each other compensation that would be reflective of a letter. There's been a lot of work going on at the Universal Postal Union to change that compensation model.

Canada Post, working with others, has been working hard to change that. Effective in 2018, the compensation that China pays industrialized countries will increase by a factor of about 100%, depending on the product.

To build on that, though, those products are really not well suited to e-commerce. They were designed with letters in mind. The e-commerce world is evolving to the point where delivery confirmation and tracking is a standard requirement. The e-commerce platforms are requiring that of their sellers. The products that were used by those sellers in China and were very inexpensive don't provide that basic need for the market.

It's interesting that what we've seen at Canada Post over the last year or so is a tremendous growth in a product that we introduced a few years ago that includes tracking. There has been a flattening and actually a slight decline in the volume of the untracked services. Those sellers are voting with their wallets, if you will, in terms of how they're moving to attract service.

We would expect that to continue. As a result, we would very much expect that it will become less of an issue over time, because the markets do require the features that come with the more expensive products, and those are the types of products that Canadian e-commerce sellers use as well.

4:10 p.m.

NDP

Pierre-Luc Dusseault NDP Sherbrooke, QC

I'll take that as a yes.

A Chinese seller pays just 99¢ to send a package to Canada. Conversely, a Canadian seller has to pay $10 or more, depending on how much the product weighs, to send a package to a neighbour with the same postal code. As I see it, that's a huge problem. At least, you recognized it was an issue that required the Universal Postal Union's attention.

I hope it does change. You mentioned the compensation model between posts, but I don't think that's enough. I'd like the committee to study the issue at some point, given how blatantly unfair it is.

Now I'd like to turn to another unfair situation. Mr. Howlett, you talked about how companies are treated from a tax standpoint. We can use my China example again, although where the company is registered matters little. Whether companies are registered in the Cayman Islands or Barbados, they are treated differently than merchants on Wellington Street, in Sherbrooke, say, since those businesses have to pay taxes. In a town like Sherbrooke, or any other Canadian city, merchants have to pay taxes, rent, and all the other overhead costs that go along with running a brick-and-mortar business.

Can you give us an example of measures other countries have taken to rectify that problem, things we could do to make e-commerce companies play by the same tax rules as Canadian companies? What actions did they take to make sure the point of sale was taken into account, as opposed to the foreign location where the transaction was conducted?

4:10 p.m.

Liberal

The Chair Liberal Mark Eyking

It will be a quick answer.

4:10 p.m.

Executive Director, Canadians for Tax Fairness

Dennis Howlett

The key problem here is not so much where goods are being shipped, because usually sales taxes are applied there. It's where there are services or things such as software, movie rentals, e-books, and so on that the biggest unfair competition takes place. Those services—advertising is the other huge one—are not being taxed, and that provides unfair competition.

You're quite correct that part of the whole thing that's going on here is that Netflix, Google, Amazon, and Facebook are setting up many parts of their businesses in tax havens, thereby avoiding even U.S. taxes, so it's even worse in terms of unfair competition, because they're not paying anything at all in many cases.

4:10 p.m.

Liberal

The Chair Liberal Mark Eyking

Thank you, sir.

We're going to move to the Liberals now. Madam Lapointe, you have the floor.

4:10 p.m.

Liberal

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

Thank you, Mr. Chair.

Good afternoon everyone. Thank you for being here today. Your participation is appreciated.

Mr. Winterhalt, you said that you provide insurance to companies that export goods, to ensure they are covered in the case of non-payment. Do you offer that kind of insurance for electronic products and services?

4:15 p.m.

Vice-President, Global Trade, Export Development Canada

Todd Winterhalt

Today we are just starting to get into that space, to recognize the change. For 75 years we have focused on traditional goods and services exports. As we move into software as a service, for example, the needs in that segment are changing. That's an area where I'm very happy to say we partner with our sister crown, BDC, in terms of looking at how we can help in particular the smaller companies to successfully either finance or insure the sale of software as a service. We're just starting to get into that space.

We already have products today that work, for example, when a Canadian company sells an actual good or service to a major platform in China, such as JD.com. Traditional export is still very much taking place there. There's a product or service that gets shipped to China, and there's an e-platform that has to pay for that product or service. There's currently an accounts receivable insurance product that can be used to support that.

4:15 p.m.

Liberal

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

I know of a company that wants to provide services and sell knowledge-based products.

How could it manage its accounts receivable in relation to the sale of knowledge-based products?

Is that the direction you are moving in?

4:15 p.m.

Vice-President, Global Trade, Export Development Canada

4:15 p.m.

Liberal

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

Very well.

You said earlier that only 30 Canadian companies were selling their products on Alibaba. What improvements are needed to help companies join the platform and take advantage of the opportunities available to them?

4:15 p.m.

Vice-President, Global Trade, Export Development Canada

Todd Winterhalt

Thank you.

I again think it comes back to awareness of the opportunities that are present. Because most of the companies that we're talking about are small or medium-sized exporters, there's a lack of understanding, first of all, for what the opportunities are, what the risks are, secondarily, and then what's available to help mitigate some of those risks.

This is where I think we see some real application in terms of the broader federal family coming together, partnering through Global Affairs Canada, the trade commissioner service, BDC, and EDC to make the knowledge and the opportunities much more available to mitigate some of those risks, almost as a package solution in a sense.

Today it is still very much up to an individual company to do their own investigation and hopefully find what they need to be successful. By working together, I think we can mitigate a lot of that awareness gap that is present today, as well as make our products and services more available to Canadian exporters.

4:15 p.m.

Liberal

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

Thank you.

Against the backdrop of the new free-trade agreement with Europe, how would you work with companies to make sure they could take advantage of the opportunities available to them?

4:15 p.m.

Vice-President, Global Trade, Export Development Canada

Todd Winterhalt

Again, it's perhaps a very similar response to the Asian opportunities that are present.

A little bit closer to home for many companies, we certainly see, in terms of Canadian export trends, about 30% of new Canadian companies that have never exported choose a free trade market as their first market. About 60% to 65% choose the United States still, but about 30% would take the leap to go to a free trade market such as CETA would now offer as an opportunity for us.

We certainly are counselling and advising Canadian companies that are interested in diversifying their markets and are looking beyond the United States or even a local market that Europe is a great opportunity for them. Quite simply, CETA will lower tariffs on 98% of all goods from day one. That is in contrast to an old NAFTA model, if you want to go back a bit in the past, under which about 24% of all goods had an immediate reduction to zero. I think this is very persuasive. Canadian companies see that pretty much any product or service they may have would have a significant preferential treatment in Europe. That would include things that are delivered electronically or through an e-commerce platform.

4:15 p.m.

Liberal

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

Do I have another 30 seconds?

4:15 p.m.

Liberal

The Chair Liberal Mark Eyking

No, I think it's getting too late to get one in there.

4:15 p.m.

Liberal

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

Thank you.

4:15 p.m.

Liberal

The Chair Liberal Mark Eyking

That ends our first round, and we're going to start our second round off with the Liberals.

Mr. Fonseca, you have the floor. Go ahead, sir.

4:15 p.m.

Liberal

Peter Fonseca Liberal Mississauga East—Cooksville, ON

Thank you very much, Mr. Chair.

Thank you to the presenters.

I want to follow up a little on what Mr. Dusseault was asking of Canada Post.

One of the things I'd like to know is on this 99¢. It looks like we are then subsidizing all these products coming from countries like China, and I guess other transitional countries. How much would that cost Canada Post a year?

4:15 p.m.

General Manager, International Product Management, Canada Post Corporation

Dennis Jarvis

On the 99¢, the compensation model between posts is based on the product that's sent, and it's based on generally both a piece rate and a per-kilogram rate. We could come up with a lot of different numbers, depending on what the weight of the item was.

4:20 p.m.

Liberal

Peter Fonseca Liberal Mississauga East—Cooksville, ON

Just aggregate, have you crunched the numbers? How much does Canada Post lose every year by providing this preferential service to all of these countries that are shipping stuff into Canada and then being able to distribute it through Canada Post?

4:20 p.m.

Vice-President, Parcels, Canada Post Corporation

Rod Hart

We don't have those numbers to be able to provide them to you right now.

I think the most important thing is that we're not providing these preferred rates willingly. They're established rates within the Universal Postal Union, and these rates were intended to be used more for letter-type services. Those prices are starting to catch up.

I think the solutions that Mr. Jarvis was talking about—

4:20 p.m.

Liberal

Peter Fonseca Liberal Mississauga East—Cooksville, ON

Mr. Hart, I'm sorry to interrupt, but I understand that. I'm just trying to find out....

I'm surprised that Canada Post has not figured out just how much it's losing on all these products. I understand it's changing, but that would be a good thing to know, to measure, to have a good understanding.

I have the biggest Canada Post distribution centre in my riding, Gateway. I went there to tour the facility, and there were thousands and thousands of packages pouring in from China. All I heard from employees and others is how much money Canada Post is losing in having to deliver this service. We're basically subsidizing China, or subsidizing other countries like China, through these products, and I think that hurts our business here.

We're here to work for Canadians and for their benefit, so I hope that will get changed, and changed quickly. I'd like to know how much we are losing by providing that service.

I know you have no control over that.

4:20 p.m.

Vice-President, Parcels, Canada Post Corporation

Rod Hart

We also desperately want to see that changed as well, and we're very active on that front, Mr. Fonseca.

4:20 p.m.

Liberal

Peter Fonseca Liberal Mississauga East—Cooksville, ON

Thank you.

Mr. Howlett, with regard to Uber, you were saying that they cap people at $30,000, or those who are driving for Uber stop so that they don't pay any taxes. Uber doesn't allow that. I know they offshore their money.

With regard to Airbnb, that wouldn't be the case, right? You can get up to a certain amount of money. What would you do to level the playing field with Airbnb? I understand they have a tax haven in Ireland. What would you do to level the playing field?

4:20 p.m.

Executive Director, Canadians for Tax Fairness

Dennis Howlett

We can't really impose the differential rules on foreign-based e-commerce that we enforce on Canada, but we need to have the same rules.

If an Airbnb operation is below the threshold for having to collect and remit GST/HST, then fine, they don't have to. However, more and more Airbnb operations are now businesses, and they're making more than $30,000 a year. I can't remember exactly what the latest GST threshold is, but if that's the case, then they should collect and remit GST.

In the case of Airbnb and Uber, some of these global companies have been quite willing to accommodate, and they've accommodated in other countries. Even in Canada, Airbnb has agreed to pay some of the municipal hotel taxes and so on, in Montreal, and that's being considered in Toronto now and elsewhere.

The government needs to say, “Hey, guys, you have to play by the same rules that Canadian companies play by”, and I'm sure they will do so.

There is an issue, though, with Airbnb. In some big cities, such as Toronto and Vancouver, it is squeezing out some of the rental housing and low-income housing, so it is having some adverse effects for Canadians in that way.