INDU Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, June 6, 2000

• 0908

[English]

The Vice-Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): I'm going to call this meeting to order pursuant to Standing Order 108(2), consideration of business lending to small and medium-sized enterprises. Today we welcome people from the Canadian Bankers Association. I apologize for having to start late, but we'll get on with it right away.

Lynda Brochu is chair of independent business and vice-president of small and medium-sized enterprises, Bank of Montreal. Welcome. Ron Laursen is vice-chair of the independent business committee and senior vice-president of small and medium sized-business, Bank of Nova Scotia. Peter Drake is vice-president and deputy chief economist for TD Financial. Alan Young is vice-president of policy for the CBA, and Caroline Hubberstey is the adviser for small business. Welcome.

We'll begin. Have we decided who's going to go first? Alan, you're going to open. Thank you.

Mr. Alan Young (Vice-President, Policy, Canadian Bankers Association): Mr. Chairman and members of the committee, thank you for the invitation and the opportunity to continue our longstanding dialogue with you about the Canadian banking industry's support for Canada's small and medium-sized business sector.

We will cover a number of topics with you this morning, including those associated with SME financing and skills development. We'll provide an update on the CBA small business programming initiatives. Peter Drake has joined us to discuss the economic environment in which small businesses are operating.

• 0910

I would now like to ask Lynda Brochu and Ron Laursen to conduct the formal part of our presentation this morning.

Ms. Lynda Brochu (Chair, Independent Business Committee, Canadian Bankers Association): Thank you, Alan, and good morning, everyone.

Mr. Chairman and members of the committee, as Alan has indicated, we'll be covering a number of topics today. You'll find that our comments build on and reflect themes that we have introduced during our previous appearances before this committee. Frankly, a great deal has changed since we first started to meet.

It's our belief that over the past few years, this committee and Canada's banks have built a better understanding about issues facing small and medium-sized businesses and have developed a proactive approach to dealing with the diverse and emerging needs of our small and medium-sized business community. We've also come to realize that the health and growth of Canada's small business sector is the responsibility of many stakeholders. As we move forward, we hope this discussion will continue to broaden and that many of the other stakeholders will join us at this table to discuss the numerous issues and challenges confronting Canada's small business community.

One of the things we're hearing about more often is the importance of access to information. We're seeing hard evidence that knowledge and information are core components of a successful business foundation.

Small business owners wear many hats in their efforts to build good, solid businesses. Think about the different challenges facing business owners. They need to know about e-commerce, marketing, financing, business planning, customer relations, and employee management, and that's just the tip of the iceberg. We are living in an environment that rarely experiences a moment of calm. Things are always changing.

In today's complex world, small changes in the way business is done can affect a company's image, its merchandising style, its pricing, its staff morale, its sales policy. It sometimes means the difference between success and failure. That's why it's even more important for a business owner to have the skills, the knowledge, the tools, and the resources to be able to manage and cope with day-to-day business operations, to be able to understand the effect of that one small change and then to turn it to the business owner's advantage.

Banks are learning about where we can add value in helping entrepreneurs manage their diverse and changing needs. It's a unique challenge and an ongoing process. When we can't meet those needs on our own, we work collaboratively with other stakeholders in the private sector associations and in government.

Banks have direct contact with a large segment of Canada's small business community. We recognize our ability to deliver information and to assist customers on many aspects of small business operations, and we contribute to business skills developments on many fronts.

First, we have a wealth of information that small business owners and would-be entrepreneurs can access in person, over the phone, and over our individual websites. Canada's banks support entrepreneurial study programs at many post-secondary institutions across Canada in an effort to help budding entrepreneurs and business owners develop the skills and knowledge base they need to manage the challenges of a rapidly changing world.

As well, the banking industry, through the CBA and as a result of the efforts of this committee, has been successful in helping to educate young people about the importance of good money management skills. Our program, “There's Something about Money”, has been very well received in communities across Canada.

We worked with you to help Canada's small businesses as they prepared for the Y2K challenge, and we will be working with you in the coming months to help SMEs develop a better understanding of e-commerce. Later in this presentation, Mr. Laursen will provide you with an update on our small business programming initiatives.

As we've discussed over the years, access to financing is a key component of operating a business. In fact, access to bank debt financing was the prime motivator for starting these regular discussions in 1995. From better products and services to a better understanding about the diversity of the SME financing market, it's also an area where we have seen a great deal of positive change.

In today's increasingly competitive capital marketplace, we know our responsiveness to the needs of the small business sector is important. The banks are continuing to implement new and innovative initiatives to attract new business and to better serve our existing small business customers.

• 0915

It may interest you to know that approximately 55% of the banks' business borrowing clients have authorizations of less than $50,000. As a result of technological advances, many banks now offer more diverse product lines that improve small business owners' ability to access smaller amounts of credit, particularly for amounts less than $50,000.

Banks have also simplified the application process for smaller amounts of credit—for example, by using one-page application forms. As well, we're forming strategic alliances and are working cooperatively with other stakeholders to enhance financing options.

We're also keenly aware that it's important to understand what's happening in the SME financing marketplace. That's why, since the fourth quarter of 1995, we've provided detailed information regarding the amount of credit provided by the banks to SMEs in Canada. Our industry has also supplemented this reporting with annual national surveys of small business owners.

The most recent statistics, which cover the period ending fourth quarter 1999, show that the seven major banks are authorizing $71.5 billion in credit to SMEs in Canada. This represents an increase of almost $5 billion since the fourth quarter of 1995, when we first started to report.

Our small and medium-sized business borrowing client base is also expanding. There are approximately 777,000 SME customers borrowing from the seven major banks. This is a 10.9% increase since we first reported.

With better financial strength, our business borrowing customers appear to be seeking smaller amounts of debt capital and are showing moderate credit usage. So since fourth quarter 1995, the amount of credit actually used by SMEs has increased by $1.8 billion, and now stands at $47.9 billion.

I would like to ask my colleague, Ron Laursen, to discuss our views regarding the government's data collection project and to provide you with an update on our small business programming initiatives.

Ron.

Mr. Ron Laursen (Vice-Chair, Independent Business Committee, Canadian Bankers Association): Thank you, Lynda.

The quarterly data provided by the banks is very comprehensive. However, as we have discussed here many times, the information collected by the CBA represents only about one-half of the debt financing picture for SMEs.

The government has now acknowledged that although solid progress has been made in the collection of bank data, more information is needed with other suppliers of credit and about other types of financing. The importance of collecting this additional information reflects both the rapidly changing capital marketplace we're living in and the diversity of the SME customers' debt and equity financing options. We echo the government's statement that in the absence of additional information, the ability of policy-makers and stakeholders to properly understand and act on the financing needs of SMEs is severely limited.

We fully support the government's decision to have Statistics Canada work in cooperation with Industry Canada to collect and publish data on the supply of debt and equity financing from all suppliers of SME financing. Expanding the program to include data from the increasingly broad range of SME financing providers will not only assist in developing a better understanding of the SME marketplace but will also help to enhance SMEs' knowledge of financing issues and awareness of financing sources.

We also support the government's consultation process, which was launched in late February 2000, to involve stakeholders in the development phases of the SME financing data collection project. It is appreciated, and as we've stated on many occasions, we will actively participate, and in fact have, throughout the process to ensure the project's success.

Ultimately, we look forward to the day when all providers of SME financing join us at this table to discuss their role in helping to ensure the financial health of Canada's small and medium-sized business sector.

As noted earlier, we believe our collective work with this committee has resulted in a proactive and positive approach to dealing with the diverse and emerging needs of small business. This committee's active support of the CBA's national “Preparing Business for the Year 2000” and “There's Something about Money” seminars are good examples of this.

We're pleased to report that over 11,000 students have benefited from attending a session of “There's Something about Money”.

• 0920

Once the first round is finished, which will be in June, we will provide committee members here with a written report summarizing all of our efforts with this seminar. In advance, though, we can tell you that the response to the program from students, teachers, parents, and your parliamentary colleagues has been outstanding. Over 95% of the students are rating the seminar as good to excellent, and adults are unanimous in saying “I wish I would have had this when I was in school.”

It was interesting to read, from last week's committee hearing with Industry Canada, the remarks made by a member of this committee concerning the importance of building a good credit rating. In fact, as members may know, section four of the “There's Something about Money” seminar deals with understanding credit and pays particular attention to the credit rating issue. We know from the student evaluations that the message about the importance of building a good credit rating is hitting home. We hope to continue to have this type of positive impact as the seminar starts up again in the fall.

We also know that probably more than one in five of those students will start a small business at some point in the future, and we all know the importance of their personal credit rating as well as they move into starting that new business. So I think the link is strong as we move forward.

The positive response to the seminar is also reflected in the traffic we're receiving on the accompanying website. Since its launch last year, we've now had well over three million hits. The average uptime on the website is 20 minutes, so they're not just cruising through.

While we are teaching students and would-be entrepreneurs about the importance of developing good money management skills, we are also addressing a new issue facing small and medium-sized business in Canada, and that is the rapid rise of e-commerce. E-commerce, as we know, is transforming the way business functions and the traditional models of competition and market expansion for big and small business. It's particularly important for small business.

Recognizing the importance of this issue, the banking industry, through the efforts of the CBA and its independent business committee, which we sit on, decided to spearhead a new seminar initiative to help small business build a better understanding about e-commerce and what they need to do to win in it. The seminar, entitled “Preparing Your Business for the E-commerce Age”, is designed specifically to meet the e-commerce information needs of small and medium-sized enterprises. The seminar will inform participants on trends in electronic business, current business uses on the Internet, future business opportunities, some of the inhibitors they might face to global economic business, and how to ensure success.

The CBA is undertaking this national initiative in cooperation with the Canadian Institute of Chartered Accountants and the Canadian Chamber of Commerce. By working together to raise awareness of the importance of e-commerce—and, more importantly, how to succeed as a Canadian business in e-commerce—we believe our collaborative efforts will help to ensure that Canadian small businesses are well prepared to face the challenges of our changing global economy.

As we roll out this seminar in June, September, and October, we invite you to work with us to inform small and medium-sized businesses about this program and to encourage their participation. So far we've actually had, I think, three of these sessions in addition to the kickoff in Ottawa. I know we've already made some changes that we think will be even more powerful for communicating the message down to small businesses as to what they need to do. Reception has been very strong, and the number of small businesses turning out is very strong.

In summary, we want to reinforce that Canada's banks believe in Canada's entrepreneurs. They make an important, invaluable contribution to our economy, and we support their efforts. We want them to succeed. All stakeholders have a role to play in ensuring that Canada's small business owners are well prepared and have a solid foundation in place to face the challenges of the changing global economy.

Independently and working with others in the private sector, associations, and government, Canada's banks are committed to working to fulfil their role. We're all taking very different strategic approaches, and we're offering different services, but I think you can see that there has been a whole lot of focus, time, effort, and resources put into the small business market, probably more so than any other individual market that a bank could identify.

We look forward to responding to your questions at the conclusion of our presentation, but I now would like to ask Mr. Drake to address the committee.

• 0925

Mr. Peter Drake (Vice-President and Deputy Chief Economist, TD Financial Group): Thank you very much.

Mr. Chairman, I'll spend a few minutes on the economic outlook and I will make reference to the handout that we have provided for you and the other members of the committee.

I'd like to start very briefly with the international context, which is extremely important for our economic well-being in Canada. The chart in the upper left on page 1 shows you quite a number of years of history of global economic growth, our estimate for 1999, since we don't have full data yet, and our forecast for 2000 and 2001. I think the exhibit makes it quite clear that the global economic environment has improved very markedly, especially since the dark and uncertain days of 1998, of the Asian crisis and the concern about a potential crisis in Latin America.

In terms of the 4%, or the 4% plus, world economic growth that we're expecting this year, I might mention that we're expecting the so-called Asian crisis economies, the ones that were in crisis a couple of years ago, to probably be the fastest growing part of the global economy. Japan is still struggling. It's undergoing structural reform. That is a slow and painful process, so I think Japanese economic growth will continue to be around the 1% area.

Latin America is much improved. We're expecting growth in the order of 3.5%. A number of pieces of progress of structural reform have been made in Latin America. Many of the elections have gone smoothly and not been disruptive to the economy. One obvious exception is Peru, which the Organization of American States was dealing with yesterday.

The outlook for Europe is quite encouraging. We're expecting short-term economic growth in the 3% range. In fact, we've even seen the troubled Euro begin to recover in the last few days. So the international context in which Canada operates is very encouraging.

Obviously the most important part of the international context for Canada is the United States. Ironically our concern when we look to the United States is not so much to look for faster growth but to look for slower growth because of the fact that the U.S. economy has been pushing up against its capacity limitations.

I think we will probably see that. And with a little bit of luck we will see growth this year of more than 4%. But I think we will see some signs of slowing down in the second half of the year and growth more in the order of what the U.S. is capable of over the long term, say of 3%, next year.

The chart in the upper right-hand corner provides some historical perspective to growth rates, showing the average growth rates for the U.S. and Canada for the 1970s, the 1980s, and the 1990s. We have a couple of forecast bars for this year and next year.

I might mention that we at TD economics are in the process of revising our forecasts in view of the national accounts numbers that came out the other day. So if you look at those two bars you will see that they would show expectations of growth over the two years averaging about 3.6%. It will probably be higher, more in the order of 3% and 3.75%.

I think the real key to the economic outlook at the moment is not so much the annual numbers but what happens in the interim. If we see a slowdown in U.S. economic growth, clearly we will see fewer in the way of interest rate increases in the U.S. The fewer the interest rate increases, certainly the better the outcome will be for Canada.

In the meantime, it became apparent from the last set of quarterly national income and accounts that the Canadian economy is in a very strong position. There were virtually no weak spots in the economic performance in the first quarter. So while we do expect to see some modest slowdown in economic growth in Canada this year, partly reflecting that which will be happening in the United States, I think we're still going to see strong and balanced economic growth. In that sense, I think it's an extremely positive outlook.

The chart in the lower left-hand corner of the front page shows some historical growth rates of productivity, or one measure of productivity, in Canada and the United States. Particularly the right-hand side of that chart reminds us of the longer-term productivity challenge.

I can't realistically suggest to the committee that I think Canada is going to catch up or surpass economic or productivity growth in the United States in the very near term. But the fact that we are seeing a good deal of strength in business investment suggests to us that our productivity performance will be improving this year and certainly next year.

• 0930

The chart in the lower right-hand corner is one of the key charts in terms of looking at the short-term economic outlook. It contains the U.S. federal funds rate and the Bank of Canada rate, which are of course the policy rates set by the two central banks. These are the main indicators of changes that they make in monetary policy.

We did get some news last week in terms of the May U.S. labour market report, combined with a number of other indicators earlier in the week, which may be the first signs that we are finally seeing some slowdown in economic growth. I think it's too early to make that conclusion with certainty, but certainly the combined evidence of earlier in the week and the labour market numbers does give us some hope that we are finally seeing some results of the interest rate increases that we are seeing so far.

Our best guess from here forward is that we will see the U.S. federal funds rate rise by another 50 basis points between now and the end of the summer and probably the Bank of Canada rate raised by another 25 basis points.

Quite clearly, one of the major risks of this forecast is that if in fact the evidence that we think we've seen of a slowdown is not indicative of a long-term slowdown...if the U.S. economy refuses to slow down gracefully, then you will see more aggressive action on the part of the U.S. Federal Reserve, and you then have a higher potential for a more significant economic slowdown.

The chart in the upper left-hand corner of page 2 gives you an historical picture of the level of pre-tax corporation profits in Canada and also pre-tax profits as a percentage of gross domestic product. You can see that over the 1990s there was a fairly significant recovery in profits, and you can also see that we're fairly optimistic about profits going forward. This has a rather important connection to the chart on productivity, because one of the factors in improving the productivity performance will be private sector investment, and that is quite clearly enhanced by a healthy profit picture.

The chart in the upper right-hand corner gives you our view of the provincial economic performances. I won't go into these in any detail, but I think the overall picture you get is a distinct improvement in the economic performance, economic output, of the western provinces. That is very much a result of the improvement in world commodity prices that we saw virtually throughout all of 1999. Commodity price trends have been a little bit more spotty this year, but clearly that, along with the improvement in the Asian economies, which has clearly helped the B.C. economy, means that all of the western provinces are expected to do better in terms of economic growth this year than they did last year.

We do expect some slowdown in economic growth in Ontario simply because Ontario's key market is the United States, especially the market for manufactured goods, and most especially motor vehicles and parts. If we are at all correct in our expectations that we will see somewhat slower economic growth as the year progresses, we would expect that to be reflected in Ontario.

I should point out to the committee that while the bars that are on that chart show Ontario as the leading growth province this year and the year 2000, because we have lumped the Atlantic provinces together, it hides the fact that actually we expect Newfoundland to be the fastest growing province, with growth of about 5.9%.

Finally, Mr. Chairman, I'll make a comment on industry growth in Canada. The two charts at the bottom of the page show the performance of 15 major industries in terms of output growth in 1999, and the chart on the right shows our expectations for that same set of industries in 2000. I'll comment on three or four of them.

We expect the communications industry, which has been the growth leader by a wide margin for quite some time, to continue to be the growth leader this year, and we expect business services to be a fairly close second. Among the major changes in terms of industry ranking, mining is the most spectacular. It was in 15th place last year, with actually a decline in output because it was still suffering the effects of the low commodity prices, and we expect it to be in third place this year. We expect construction to improve this year. Accommodations and food services we expect to move up the growth rankings fairly significantly. We're certainly expecting with the low Canadian dollar a very strong tourist season in Canada, not only from visitors but also because Canadians have more income to spend and are likely to spend more of it on vacations this year.

• 0935

The final comment I'll make about the industry rankings is that while education services and health and social services, both quasi-public-sector groups, are still at the bottom of the list, you will note that rather than their output declining or remaining static, as it did last year, we are expecting some improvement this year.

I'll conclude on that note. I would be happy to try to answer any questions the committee may have.

The Chair (Ms. Susan Whelan (Essex, Lib.)): Thank you very much, Mr. Drake.

I'm not sure if anyone—perhaps Ms. Hubberstey?—was going to add anything. No. Then we'll move to questions.

Mr. Charlie Penson (Peace River, Canadian Alliance): Thank you, and welcome to the committee this morning.

I'd like clarification on your presentation from page 3, where you talk about.... I think it's about the fifth paragraph down. You say:

The most recent statistics, which cover the period ending Q4, 1999 show that the seven major banks are authorizing $71.5 billion in credit to SMEs in Canada.

I go to the back page with the charts in that same presentation, and authorizations there say that Canada's seven major banks are authorizing $33 billion in credit to SMEs in Canada. Is there a problem there or am I misreading it?

Ms. Caroline Hubberstey (Adviser, Small Business, Canadian Bankers Association): There are two charts actually at the back. One is SMEs and one represents small business.

Mr. Charlie Penson: Sorry.

Ms. Caroline Hubberstey: There should be two charts at the back of the presentation, one for the amount the banks are lending, on outstandings, and the number of customers, for small and medium-sized enterprises, and a second set of charts for small businesses.

Do you only have one chart at the back?

The Chair: There's only one page attached.

Ms. Caroline Hubberstey: Sorry, there should be two.

Mr. Charlie Penson: Anyway, I guess you can explain it to us. So the $79 billion is the correct number. Is that right?

Ms. Lynda Brochu: It is. It represents loans of $1 million or less to small and medium-sized enterprises. The chart you're looking at is loans $250,000 and less to much smaller businesses.

Mr. Charlie Penson: Thank you. Thanks for that clarification.

Ms. Brochu, I see in the presentation you told us that you're working cooperatively with other groups, such as the Government of Canada, to try to provide services to small and medium-sized enterprises in terms of credit. I wonder what would happen if a government were in place in this country that withdrew from the credit agencies in small and medium-sized businesses. Would your banks be able to provide those services for them?

Ms. Lynda Brochu: Yes, I believe so, because I think collectively we look at any opportunity facing us. The current government provides opportunities that we can take advantage of, but we also look to the private sector and to other sectors of the economy. So in the absence of one we'll look to others.

Mr. Charlie Penson: My understanding is that through the Small Business Loans Act and banks like the Business Development Bank...the Business Development Bank will also take equity positions. Is that—

Ms. Lynda Brochu: I can't comment on the Business Development Bank.

Mr. Charlie Penson: But in any case that is not a position that your banks would take. You're not looking to buy equity or take equity in small business.

Ms. Lynda Brochu: Some of the major banks have subsidiaries that deal in mezzanine finance, so quasi-equity. We will get involved in that respect, so it depends.

Mr. Charlie Penson: What is the reason why you're not in that business now, so that the government, through the Small Business Loans Act, has to provide that service? Or do they have to provide it?

Ms. Lynda Brochu: The banks operate on a certain risk plane. We offer low-risk debt, and within that risk plane we'll price for risk. But that's our main core business, and we find that there's enough business in Canada and it occupies enough of our time that it's what we should be spending our time on. If a niche market opens, and for some banks it has, in quasi-equity financing, we'll set up a subsidiary. I think you're referring to the Small Business Loans Act or the CSBFA. We see that as a levelling or a sharing of risk that enables us to lend debt to businesses that may not otherwise be able to participate in the debt market. Again, because the current government offers that, we take advantage of that opportunity. If they didn't, we would find different ways to get to that market.

• 0940

Mr. Charlie Penson: Yes, and as you know, there is a certain cost to government to provide that service, in that there's a fair amount of money being written off—taxpayers' money.

So if government weren't offering that service, you would assess the person coming in asking for that loan based on the risk of the loan. Is that not true?

Ms. Lynda Brochu: Right, and if it fit the risk profile that we were prepared to entertain—because we are lending our depositors' money—we would do the loan, and if it didn't, we wouldn't. Each loan would be assessed on its own merit.

Mr. Charlie Penson: In addition to that, you have shareholders that are looking for a certain level of return. Is that right?

Ms. Lynda Brochu: Right.

Mr. Charlie Penson: And if you made too risky a loan, your return level would be lower. Is that a reasonable assessment?

Ms. Lynda Brochu: Yes.

Mr. Charlie Penson: What I'm getting at is that if government were not in the business, the banking industry would look at those applications as they came forward and assess them based on the risk to your shareholders and also to your depositors.

Ms. Lynda Brochu: Right.

I'll turn this over to Ron.

Mr. Ron Laursen: I just wanted to add that in fact what we're doing now with the small business loans, with the SBLA and the CSBFA, is looking at those credits for our own book in the bank, and we're assessing the risk just as we do for any other type of loan that comes in. It's only at the point where it's determined that for the rate we can charge as low-risk lenders and the risk associated with the debt that we will then look to the CSBFA in terms of a vehicle for financing.

I think the history has shown that we have in fact been able to expand the financing from the low-risk financing debt that the bank would traditionally offer into many other small businesses, and many of those—thousands of those—have been very successful. So I think there is an expansion of credit that's happening, absolutely, but we do look at the risk for our own book and we follow the underwriting criteria of the respective banks in looking at those loans.

Mr. Alan Young: If I could just add—

Mr. Charlie Penson: I understand that, and just before you do that, Mr. Young, I just wanted to introduce one more element here, and that is, there is a certain amount—I don't have the figure in front of me—that the Government of Canada writes off for bad loans under the Small Business Loans Act every year. Therefore, there is some inherent risk in the government offering that service, as there would be with a bank. So in this case, instead of the bank losing it and having to answer to their shareholders, it's the Government of Canada that is losing taxpayers' money to a certain level.

Ms. Caroline Hubberstey: This is a shared risk program. The government shares part of the risk and the 1,500 lenders who are part of the program share the other part of the risk.

The default rate under the CSBFA in Canada is actually about 6%. The vast majority of the loans—94%—are repaid. It's actually a very productive, very efficient partnership arrangement between the lenders and the government. We looked to a lot of other OECD countries around the world that have loan guarantee programs they offer to small businesses. They're all quite different, but certainly there has traditionally always been within these countries a need to have such a program.

Mr. Charlie Penson: I'm suggesting to you that I don't think there is a need. I'm asking that the banks pick up that slack and assess them on their merit.

I can tell you now that there will be some parties that would not continue those kinds of programs. We would be looking to the banking industry to provide those services based on the risk that's out there, because there is a cost to taxpayers right now. I can get the numbers. I think it's something like upwards of a $100 million cost to the treasury in some cases, per year, for the Small Business Loans Act. So there is some risk. That's the point I wanted to make.

Mr. Young, do you have anything more?

Mr. Alan Young: Yes, if I could just add that there's another very important body that is part of the equation here. You've mentioned shareholders and you've mentioned depositors, but we should also mention the Superintendent of Financial Institutions.

We're a highly regulated industry, as members well know. The Superintendent of Financial Institutions pays very close attention to the lending activities of the banks and requires that provisions be set aside for loans. It's very important that we don't lose sight of the fact that we're also heavily regulated and that the superintendent pays very close attention to this issue. We have to be very mindful of that.

• 0945

The Chair: Thank you very much, Mr. Penson.

Mr. Lastewka.

Mr. Walt Lastewka: Maybe to carry on a little with that last dialogue, the CSBFA basically provides backing for higher-risk loans. Some of those loans would not be made if they weren't partnered with the government.

I didn't want to make any mistake here, but Miss Brochu said something along the lines of how they would find alternate ways to do the loan. I'm not sure that's accurate. If it's the CSBFA, because of its higher risk and partnering of the risk between the banks and the government, some of those higher-risk loans would not be made. Am I correct?

Ms. Lynda Brochu: Yes, you're correct. My first statement was wrong.

Mr. Walt Lastewka: Okay. I just wanted to make sure of that.

Mr. Alan Young: I think what she said was that there's a certain risk band that banks operate in—

Mr. Walt Lastewka: Absolutely.

Mr. Alan Young: —and if there are loans that would be outside that risk band, they wouldn't be made.

Mr. Walt Lastewka: They would not be made...? Okay, maybe I misunderstood that.

I want to go to this: 55% of the banks' business borrowing clients have authorizations under $50,000. I know that a lot are much less than $50,000. Each of the banks pretty well base their loans for that 55% on the credit rating of the individual. In fact, some of the banks have moved from $50,000 to $100,000 in the last three or four months.

My question always is this: are we doing enough to promote the importance of credit rating to individuals? I've been very cognizant of this for the last two years, since I've done so many bank workshops. It seems to me that at the end of the workshops all the discussion is on credit rating, not on banks. Maybe you could expand on what the CBA and maybe some of the banks are doing to get the message out very clearly on credit rating, on the importance of credit rating, on how you challenge your credit rating—because that has been an area that I've been involved with lately, it seems, as to how you do things.

Mr. Ron Laursen: Maybe I could just start on that, Walt.

We did talk about “There's Something about Money” and I think starting at an early age. Let's not miss the boat on it. I think that is critical. We've covered that in that seminar. I think that probably is the most critical part of that seminar, although it's all critical. So starting at an early age....

But I think you'll notice, if you pick up a lot of the material that the banks have out now at the point of sale and point of access for small business customers, that there is a dialogue ongoing, through both written and verbal communication, about the fact that your credit rating will play a role. It may not play the entire role, but it will play a critical role in determining whether or not money is granted or in most of those situations you're referring to. They're actually asked if they have or know of any reason why there might be an error on their credit rating; they're asked to check it out.

Providing them with numbers.... From our bank's perspective we provide them with what we call a loan answer book, which says, “Here are the credit bureau numbers and we really recommend that you check it out.” I think a similar thing is done in most of the other banks.

In every branch, we're encouraging our people who deal with personal credit as well as business credit and understand the importance of a personal credit bureau.... They are, I think, doing a very good job of getting that across to people, but you're right, very often at first blush it's not understood by people that the credit rating is.... First of all, many don't know what it is. Secondly, they don't understand quite how important it is.

I think we have to keep going at it, but starting at an early age is important. Also important, I think, at the point of sale when people are coming in, whether it's on the Internet or whether it's in one of our branches, is letting them know that this is an extremely important piece of information for them, that it is extremely important to make sure it's up to date and correct, and that if there are any problems they should disclose them, because honesty is the better part of valour in this case.

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Ms. Caroline Hubberstey: In the other programs offered by the CBA, the “Building a Better Understanding” program and our consumer education program, the issue of credit rating is addressed and the need to check it, protect it, and make sure it's in good standing.

Mr. Walt Lastewka: Mr. Drake, you touched on the economic forecast. You mentioned the Ontario differential being more in the auto industry because of some softening in the U.S., which then reflects very quickly in Ontario. Could you expand on that? For Newfoundland you talked about 5.9% What is the gap in the Atlantic provinces? What is causing that?

Mr. Peter Drake: Newfoundland has had two or three years of spectacularly good growth. In the case of Newfoundland, it is benefiting very significantly from the start-up of oil production, which started from zero not very long ago, and from some continued development. I think it's a case not so much that the other Atlantic provinces are doing poorly as that Newfoundland is doing spectacularly well in terms of its economic output. I don't want to leave you with the impression that the fact that Newfoundland's output is growing so strongly means that all of that province's economic issues are dealt with. There is still a very high level of unemployment and a number of other issues. But it's largely the fact that it is benefiting very strongly from oil development.

In contrast, the particular success of Ontario is very much driven by its manufacturing industries, and I mentioned motor vehicles and parts specifically, and the fact that it has this very major market next door in the form of the United States. That has been helping it.

So the drivers of the two have been rather different. I think in the very near term we're more likely to see some softening in terms of demand from the United States simply because of expectations that U.S. economic growth will slow. I think the greater effect in the near term is likely to be in Ontario rather than in Newfoundland.

Mr. Walt Lastewka: But if Newfoundland hadn't been at the 5.9%, from the 1999-2000 forecast, the gap in the Atlantic provinces would have been lower, which would have meant a bigger gap from year to year. My question is, what's happening in that year-to-year forecast?

Mr. Peter Drake: I think much of what is driving the forecast from Ontario east, with the exception of Newfoundland, as I mentioned, is the fact that we are expecting to see somewhat slower growth in the United States.

I think there are some individual issues in some of the provinces. I think we're probably seeing a little less growth in some of the large construction projects in a province such as P.E.I., although that will be partially offset, I think, by a fairly strong tourist performance.

I think I mentioned earlier that we saw a fairly spectacular recovery in commodity prices generally in 1999, not just oil and gas. We're seeing much less of that, and to the extent that some of the other Atlantic provinces are more dependent on the non-oil and gas commodities, that's an issue in somewhat slower growth. I think in the case of Nova Scotia, again, there's something of a pause in the oil and gas development just for a year or so.

Mr. Walt Lastewka: Thank you. Thank you, Madam Chair.

The Chair: Thank you very much, Mr. Lastewka.

[Translation]

Mr. Brien, do you have any questions?

Mr. Pierre Brien (Témiscamingue, BQ): I would like to continue questioning Mr. Drake. Two variables are missing from your economic perspectives sheets. You do not speak about predictions for interest rates nor for the value of the dollar. Have you brought something along relating to this?

[English]

Mr. Peter Drake: We do have a chart on interest rates on the front page in the lower right-hand corner. You're quite right that we have not put a forecast in there for those particular rates, though I will be happy to tell you what our expectations are. It is something that we are debating quite regularly and trying to assess. The key thing, of course, for short-term interest rates is whether in fact we are now seeing the beginning of a slowdown in U.S. economic growth. As I mentioned, we did see, it seemed, a stronger piece of evidence last week than we have seen in some time.

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If we are seeing the beginning of that slowdown, we would still expect some increases in short-term interest rates by the U.S. Federal Reserve, but clearly less than if this huge expansion keeps going forward. So our best guess, our base forecast, if you will, is that with what we have seen in terms of an economic slowdown in the U.S. and with what we expect to see over the next month or so, we will see the U.S. Federal Reserve raise its federal funds rate by another 50 basis points, or half a percentage point, between now and the end of August.

Perhaps I should explain that timeframe. There will be two meetings of the Federal Open Market Committee, which sets policy: one is June 27 to 28, and the other one is August 22. The reason our horizon for this is between now and the end of the summer is because I believe the U.S. Federal Reserve would prefer to remain on the sidelines during the U.S. election campaign this fall. If circumstances were such that the Federal Reserve had to change interest rates during that period, there's no question that it would. But it would prefer to be out of the picture and to appear to be neutral, so that whatever it's going to do, we think it would probably like to do it by the end of the summer.

So we think there will be some further increase in interest rates, but we think 50 basis points, half a percentage point, by the Federal Reserve will probably do it.

We would then, I think, expect a pause in interest rate changes by the Federal Reserve for perhaps even six months, until we see precisely where this U.S. economy is going. If we're right that it will be moving down to a growth rate of about 3%, that's much closer to the sustainable speed, and so I think we might see stability in interest rates out of the U.S. for some time.

In terms of what will happen in Canada, our argument would be that despite the fact that the Canadian economy is doing extremely well, it is not bumping up against capacity in the same way and to the same extent as in the U.S. Therefore, smaller increases in interest rates would be appropriate in Canada. So our expectation is that we will see an increase of 25 basis points, or a quarter of a percentage point, by the Bank of Canada.

You mentioned the Canadian dollar, and in a sense that is the wild card in assessing what the Bank of Canada may or may not have to do. We believe the Canadian dollar is undervalued when we look at any of the economic fundamentals. If in fact the Canadian dollar remains reasonably stable, then our expectation that the Bank of Canada will raise it by 25 basis points will, I think, remain valid. The concern about the Canadian dollar that the Bank of Canada has at the moment is not so much one of instability, but a sharply lower Canadian dollar would be stimulative to the Canadian economy, not something you want to have happen when the Canadian economy is either at or very close to capacity.

If we are right that we will see more signs of slowing in the U.S., that will take some pressure off the Canadian dollar. A very good illustration of that was last Friday when we got some weak U.S. economic data and the Canadian dollar rose. So our best hope is that we will see some evidence of slowing in the U.S. That will take pressure off the Canadian dollar, and it will allow the Bank of Canada to concentrate on domestic economic conditions, rather than having to consider the possibility of stronger interest rate increases in order to keep the dollar from declining a good deal.

This has been a tough one to forecast, I might add. Our expectation is that by this time next year we will be in the 70¢ range for the Canadian dollar.

[Translation]

Mr. Pierre Brien: Very well. In answer to my sub-question on the value of the dollar, you stated that productivity was going to improve because of the strength of the investment made by businesses last year and this year, but that this growth in productivity had not yet translated into a rise in the value of the dollar. Do you believe that such is the case because our dollar is undervalued?

[English]

Mr. Peter Drake: There's no question that forecasting the value of the dollar has been a very frustrating process recently. I do expect improvements in productivity, and that along with other things that have been happening should certainly improve the value of the dollar.

But I think it's very important to remember that there are a large number of things that affect the value of the currency. For example, despite the fact that government finances had improved and we had a low rate of inflation, in 1998 the dollar fell very sharply because of the very sharp fall in world commodity prices and I think because of the movement of some money to the safe haven of the U.S.

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More recently, I think the weakness in the dollar has been the concern on the part of foreign currency markets that the U.S. Fed would be required to act more aggressively in tightening monetary policy and raising interest rates than the Bank of Canada would.

So it seems despite the fact that we are improving our economic fundamentals in Canada and that there's no question these should help the Canadian dollar, we keep getting hit with these other short-term issues, a number of them external.

As I said, if we're right that this present concern of divergence and action between the U.S. and Canadian central banks goes away, then I would expect to see the economic fundamentals coming into play, and I would expect to see a better performing Canadian currency.

[Translation]

Mr. Pierre Brien: I would like to ask one final question of Mr. Drake relating to the last two paragraphs on page 2, where the various types of industries are classified according to their performance level. We see that whereas mines were ranked last in 1999, they moved up to third rank in the year 2000, despite the fact that the prices of raw materials do not seem to me to have risen spectacularly. How do you explain this important change in this area?

[English]

Mr. Peter Drake: The main reason for the improvement in the output of the mining industry relates to oil and natural gas, and more specifically to exploration and development activity. What happened when commodity prices were falling so spectacularly in the second part of 1997 and throughout 1998 is that much of the exploration and development work simply dried up because of the low prices for the product. As commodity prices improved, that reversed itself. I believe, in fact, Alberta is expecting close to record activity in exploration and development work. And that's a very important part of the output of this sector.

Obviously the production of crude oil and natural gas, and other mining—base metals and precious metals and so on—is an important part of this, but the fact is the actual exploration and development activity does make up a significant component of the total output. So I think the explanation for that very sharp change in ranking among Canadian industries is largely the improvement in commodity, the improvement in oil and gas prices last year—and the natural gas prices more recently—and the resulting positive effects on exploration and development for these commodities.

The Chair: Thank you.

Merci beaucoup, monsieur Brien.

Mr. Pickard, please.

Mr. Jerry Pickard (Chatham—Kent Essex, Lib.): Thank you very much, Madam Chairman.

First, I just want to make a comment to Ms. Hubberstey and Ms. Brochu. The program, “There's Something about Money” is an excellent program, and I have to say I have to give you a tremendous amount of credit, number one, for doing the promotion. I know you've been very active in doing the promotion right across Canada with various groups. Number two, I think because the program is so user friendly, anyone who has some basic economic ideas can pick the program up and deliver a pretty strong message to the people it's designed to serve.

It's very creative in bringing in discussions around various topics. I'll give you just a very quick example. The person who was to do the presentation in the high school I was at was unable to get there, so the teacher, the representative from the bankers' institute, and I took over the discussion. The students got involved, and it became a very stimulating conversation for the students. It was very well done because of the materials you had. So I have to comment on that as something very positive, and I encourage all my colleagues or anyone else who would get involved to follow that through. It's a super program.

Second, I would like to direct a question to Peter.

Your Ontario forecast for the year 2000 seems to drop a bit. I was talking to representatives from the Chrysler corporation and the Ford corporation who were looking at their forecasts in auto production and sales here in Ontario, Canada—the U.S. as well. They anticipate that because of the pent-up consumer demand, their sales will not drop. They will probably maintain very high levels, I guess peaking this year, next year, and possibly afterward. But they don't see a drop in it. Does that conflict in any way with your forecast?

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Mr. Peter Drake: Quite frankly, I think it does, but I think I should also perhaps clarify a point.

What we are looking at here is continued growth, but slower growth. So it's entirely possible, particularly on an individual company basis, that they may well see higher sales this year.

We certainly are expecting slower growth. Not only are we expecting slower growth, but we're actually hoping for slower growth, because the alternative, we feel, is that the U.S. Federal Reserve would have to be much more aggressive in raising interest rates. The difficulty with that—remembering the fact that monetary policy is still a combination of art and science—is that the more a central bank raises interest rates, the higher the risk that it will overshoot. If it overshoots, it means you don't just get a slowdown or a so-called soft landing; what you get is perhaps a stoppage of economic growth, and if it goes further and the economy shrinks, you get a recession.

It may be that we are a little less optimistic than the auto manufacturers. I certainly would expect some softening, certainly much slower growth in terms of auto sales and motor vehicle sales in the U.S. this year, and quite frankly, I wouldn't be surprised to see no growth at all. If there's going to be growth, I think the key thing is it will be less.

Mr. Jerry Pickard: The second issue I wanted to touch base on is small business loans. There was a question about risk factors in small business loans, and certainly that's very obvious.

I think there are also other elements to making small business loans, for example, education and support beyond the risk factors, that is, the advice and time advisers can give to make sure those small businesses understand exactly what they're into and the best procedures to go forward. I think government support programs in a way possibly do cushion people in the banks, but at the same time they allow a little latitude in allowing the banks to be more careful about the advice they give to possibly higher-risk clients.

I know that FBDB, the Federal Business Development Bank, hinges much of its credibility on the basis that it can take a small business, go through all of the planning, all of the structure it requires, set targets, and do a lot of things that are far beyond just the risk factors. They're there to bring that small business along at a pace, with a support background beyond the financial that is going to help increase the probability of success.

When I look at higher risk, I think with proper advice, proper management, and proper inputs—which cost more money to do.... And I'm sure it costs more for the Federal Business Development Bank to operate some of their loans. But the bank itself...I would think if we're into federal supports, we're also into more time spent, more advice given—more support to those clients who need that extra support.

Is that accurate, or could you comment on that? Because I think when you get a little higher-risk client, you need to put more resources behind that client to make them successful.

Ms. Lynda Brochu: It has to be a customer choice as to how much information or advice they want to access from a bank. Each bank has a number of avenues where customers can come forward to us for this advice—self-service, telephone, face-to-face.

In situations where our customers need a little more of a helping hand, say if the risk is deteriorating, each of us have turnaround units or units of people who will work with that small business, will hold its hand and will bring in consultants. We work with other partners in the industry to make sure that small business has a fighting chance to stay viable and keep going. The worst thing for us is for a business to go down. We want them to stay viable and keep going so that we can continue to lend them money and continue to get repaid.

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So I would agree with you 100%.

Mr. Ron Laursen: I just might add it's the worst thing for the small business customer as well. So we are focusing a lot more. If you remember, I talked about the time, money, and effort that was being put into small business. It is not all just in the area of lending money.

When I speak on behalf of the banks, it's around skill development. A tenet of the Canadian Bankers Association, and the banks in total, is getting skills right first—making sure there are skills, equity and financing, in terms of debt. If one of them is missing, and if it's the skills at the foundation, nothing very good is going to happen.

We are very much in favour of that, and I think you'll see a lot of advisory-type business plan writers out there from the banks, to help you understand worst-case/best-case scenarios on profit planning and cash resources, because the worst mistake small business can make is to underestimate the first eight months of cashflow.

So a lot of skill development is going into a lot of the bank programs, and I would say it's probably even more important at the outset that it be there than financing alone.

Mr. Jerry Pickard: I just didn't want to leave the point that risk factor and personal credit are not the only issues involved. It seems to me there is a set of skills the bank is responsible for helping the client with. That includes the development of business plans, short-term/long-term goals, what you do with manpower in the small business—all the structural advice and recommendations required. From my point of view, that's possibly where government has a role as well, and that's where the business development bank has a role in the finance area.

If it were just hard and fast—bang, you have good credit, you get money; if you don't have good credit, you're done—then we would go nowhere. We'd be a very hard, uncaring society, in my view. I have some concerns about all of that.

That's the visualization people may have had of banks 20 years ago. If you can't get the money, then you can go to a credit union or somewhere else. They're easier to get money from. But the changing role is very important.

You talked about the undervalued Canadian dollar, Mr. Drake. When we look at the undervalued Canadian dollar, what do you see? That potentially means there's a pent-up value that is not being recognized, in my view. Therefore, if that value really is there, eventually it must come equal to other components.

Do you have any idea of a timeline in which that will happen? I know forecasting is terrible in the short term, let alone the long term. Secondly, what do you see that doing to the Canadian economy, if the value of the dollar rises to a higher factor against other currencies in the world?

Mr. Peter Drake: Given the fact that the so-called economic fundamentals are in place that would certainly seem to suggest a higher dollar, once these other short-term considerations move away, there should be nothing to stop the dollar from rising.

I mentioned the current concern about potential divergence between U.S. Fed policy and the Bank of Canada policy. Prior to that it was commodity prices. If you move back to 1995, we got caught in the Mexican peso crisis. There seemed to be a continual stream of these, and most of them were largely unpredictable.

If we're at all correct in our expectations of seeing continued evidence of slower U.S. economic growth over the next couple of months, that should remove from foreign currency markets the concern of potential divergence between Fed policy and Bank of Canada policy. At that point, we would expect to see a stronger Canadian dollar. I mentioned earlier that even by the end of the year, you could see it moving toward the 70¢ level. I think I mentioned 70¢ a year from now. Beyond that, I think you may well see it rise to the 72¢ to 73¢ level over the next couple of years. That's the best I can explain it to you in terms of a timeline.

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Your next question was, “What will that do to the Canadian economy?” It's a very important question because the issue is the extent to which the lower dollar has been a key factor in our export success—and our export success has been quite spectacular. In answer to your question, if we see the dollar rise to the 70¢, 72¢, or 73¢ level, a few companies will probably get hurt, but I am convinced that far fewer companies will be hurt by such a rise than would have been the case 10 or 20 years ago. And there are a couple of reasons for that.

First, certainly the composition of our exports has changed. We are less dependent on commodities. We're still very dependent on commodities, but less than we used to be. That's because we're much more into so-called value-added exports, manufacturing exports, and so on. The difference is that if you're producing these things, even if the currency changes, there are other things you can do to enhance your sales. You can try to improve your productivity, which is a very basic thing. Even if your costs are going up, you can try to improve your quality, service, or something else, to make customers stay with you.

The other thing I would point out is other companies in other parts of the world have had to learn to deal with fluctuating currencies. When I go out and speak to industry organizations these days, I often run into someone who will say they run a small business and 80% of their sales are export sales. I wouldn't have met those people 20 years ago because I don't think very many of them existed.

So I think there's a much stronger ability—and I realize this is anecdotal evidence, not statistical evidence—by exporting firms in Canada to understand the fact that currencies do fluctuate, and even though the Canadian dollar has been weak, there's every potential for it to go up and to learn to manage that. I'm not saying there'll be no effect, but I think it is certainly possible for them to manage that.

I would just like to go back to your earlier question, because I realize I should have made more of a difference between our outlook for the United States and Canada. Certainly, consumer demand has been much slower to develop and expand in Canada than in the United States, so we are much more optimistic that we will see a very substantial increase in consumer demand and consumer spending in Canada this year than in the United States, where that demand has been going on for quite some time.

Mr. Jerry Pickard: Thank you very much.

Thank you, Madam Chair.

The Chair: Thank you very much, Mr. Pickard.

Mr. Murray, please.

Mr. Ian Murray (Lanark—Carleton, Lib.): Thanks, Madam Chair.

I can't help but reflect on the fact that I've been on this committee so long that I've seen a whole new generation of bankers come to visit. It's almost as if it's become a rite of passage for people in the banks to come before this committee and talk about lending to small business.

When this started about five years ago, both the nature and I think the tenor of the questioning was quite different from what it has been today. We were coming out of a recession, and we had all been visited by many small business owners who were complaining about the treatment they had received at the hands of the banks. It's just interesting to notice that the line of questioning was much different.

I want to ask about the comment in your presentation that 55% of the banks' business borrowing clients have authorizations under $50,000. In previous years, I used to accuse the bankers of not really wanting to lend to small business because it wasn't, apparently, profitable to lend under a certain amount. I notice you mentioned that technological advances have allowed the banks to offer more diverse product lines.

But could you comment on this question of profitability? I was told in the past that the banks were willing to lend small businesses relatively small amounts of money, but they were hoping they'd bring other business along with them, including their personal business, and that would tend, over time, to make the relationship worthwhile. Has that changed? Has technology played a role in that?

Ms. Lynda Brochu: We are certainly interested in the other business small business customers can bring us, but technology has definitely played a role in lowering costs to delivering to this marketplace.

Previously, a small business would have to bring in a stack of paper and you'd have to sit with them for hours on end, going through everything. Now—again back to the importance of personal credit rating—we've come to realize that the small business owner is the business, so we can do a lot of that analysis through a quick hookup to the credit bureau. You can get that information very quickly, add in the bits of information the customer may give you over the phone, over the website, or in person—it's their choice—and make that decision in minutes, sometimes hours, sometimes in a day or two. It's no longer the three weeks it used to take us to churn through buckets of information and stuff like that. So it has definitely lowered the cost.

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Mr. Ian Murray: That's interesting.

You also mentioned turnaround units. You said you have turnaround units in most member banks. I just wanted to know if that is a relatively recent phenomenon. This goes back to the sorts of horror stories we used to hear as politicians from small business owners who said the banks should have held their hand through the recession, for example, but didn't. Were there turnaround units then, or is this a recent phenomenon?

Ms. Lynda Brochu: There were units. I'm going back probably 20 or 30 years, but they used to be called workout units, which was a very different thing. Then we realized it was better to keep that person, that business, on the books. It's much cheaper to keep a customer than it is to let them go and get a new customer. The small businesses were also willing to work with us. So the Bank of Montreal, and I'm pretty sure all the other banks, changed focus away from workout to trying to get those customers back on their feet.

Yes, it's been a change in focus and it's been very successful. We've been able to repatriate a lot of customers back to their community banks and they've gone on to make money.

Mr. Ian Murray: Good. That's all I had for questions. Thanks for coming to see us again.

The Chair: Thank you very much, Mr. Murray.

Mr. Cannis.

Mr. John Cannis (Scarborough Centre, Lib.): Thank you, Madam Chair. I want to welcome the panel and apologize for having stepped out unexpectedly.

I'd like to echo what Mr. Murray said; the dialogue today seems to be totally different from what it was several years ago. I'm pleased to say that we have started to find common ground in communicating. That has helped us speak to our constituents. You identified some of the changes that needed to be made so that we could indeed get to this productivity gap that I really want to focus on.

My question was more to Mr. Drake, who has given us these graphs. I think access to capital has something to do with the productivity gap. One of the biggest debates that has been going on is this gap that exists between us and the United States, etc.

When I look at this graph, Mr. Drake, it compares the 1970s, the 1980s, and the 1990s. Could you just elaborate on that for me? How was it measured then? How was it measured in the 1980s? How was it measured in the 1990s? We all agree—at least I am of the view—that with the tools we were using then and the type of society we had at that time, the way productivity was measured had to be totally different from the way it's measured today. Access to capital is one example.

You talked about the fluctuation in currencies. I mean, 30 or 35 years ago we had a Canadian dollar that was almost at par with the United States. When we look at this graph, the gap is very minimal. Then we look at the 1980s and we see a variance there. All of a sudden we see it rising again. What has changed? We have to give a response to our constituents. They see one thing: the productivity gap between us and the United States. We're missing out. We're losing out, our society.

We know it's measured differently by different sectors, by different organizations, by different people. Different methodologies are used. Can you summarize for us this productivity gap? Can you give us some kind of a signal or some kind of comment so that we can say we heard from the CBA and Mr. Drake specifically, and this is how they view it?

Mr. Peter Drake: Those are all extremely good questions.

Mr. John Cannis: I tried to lump them all in one.

Mr. Peter Drake: There's no question that productivity is terribly important. It's also really complex because you get productivity growth from a huge variety of things. You get productivity growth from businesses investing. You get productivity growth from governments investing, so-called infrastructure, transportation, communications. You get productivity growth from a responsive education system. You presumably even get productivity growth from a good health care system. So it's a very complex thing.

Mr. John Cannis: Public dialogue.

Mr. Peter Drake: Indeed. I think one of the difficulties with getting a good public dialogue going in productivity is that with the restructuring and the changes in the workplace environment that we've seen in the last 10 years, when you mention productivity to the average person, the response tends to be, “Look, I'm already doing the work of five people. You're talking to me now and you want me to do the work of ten people.” Of course that's not what we're talking about. We're talking about providing a series of tools and an environment where that person can work smarter, can produce more, but not necessarily by extending their hours or going home totally exhausted at night.

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In terms of the differences in measurement, I think the major difference that has had to occur and is still occurring is the ability to measure properly the output and the productivity of the service industries, which have become much more important in our economy. Again, if you go back 15 or 20 years, people would say, “How do you measure services?” You can measure the output of goods.

The example I like to use is that I happen to live close to an automobile plant near Oakville, and at the end of the day you can say that this plant bought so much in the way of supplies and it turned out so many pickup trucks or so many minivans. That's pretty easy to do in terms of banking or financial services or writing computer software—those other things. There are a whole bunch of other measurement challenges.

I'm not going to tell you that I think this is done perfectly, but certainly there's been a lot of progress made on it. That's very important because, roughly speaking, the service sector accounts now for about two-thirds of economic output.

As for the issue of where we are going and why our productivity performance is apparently so poor in the last couple of decades as compared with the 1970s, I'm not sure I can give you a definitive answer, but I think I can give you some indications and then perhaps tell you where we may be going.

The 1970s was a very good decade for commodities. In a sense it was scary in that we saw the big oil price increases. In the early to mid-1970s we saw very strong increases in commodity prices. Those were the days when we were discussing potentially huge oil and gas developments in the Arctic and so on. I think I may even have been at this committee at that time discussing that. So it was a good decade for commodities, which were at that time a much bigger piece of the Canadian economy.

In a sense we had the right products at the right time, and I think that accounts for part of Canada's strong performance. Remember, those are fairly capital intensive if you have strong markets and strong production gains. So I think that probably accounts to some extent for what happened in the 1970s.

What happened in the 1980s and the 1990s? In the second half of the 1980s in Canada we lost a lot of our international competitiveness. The demand for goods and services was very strong, but we got the labour-capital mix wrong. We tended to hire too much labour and we paid too much money. At the same time our dollar was rising. In other words, all of the things that could go wrong in terms of international competitiveness went wrong. We hadn't yet gotten on the bandwagon, if you will, of moving our industries in order to be able to compete in current economic conditions.

In the 1990s we had to solve a couple of serious problems. First we had to solve the problem of the fact that we'd lost our international competitiveness in the last half of the 1980s. This was a period of getting used to the free trade agreement with the United States. It was a period of saying that if we're going to be internationally competitive, we are going to get our inflation rate down below the United States. That meant very severe monetary conditions, very tight monetary policy in the first part of the 1990s. So it meant not only a recession, which was actually only a year long, but several years of very slow economic growth.

Restructuring is this wonderful, sterile term that economists use. What it means is that you tear apart industries. It's a very painful, very difficult process. You pick up the pieces that you think work best and put them back together. If you've done it right, you wind up with something that is much more efficient. In fact, I think that is much of what happened.

The second thing that happened in the 1990s was that we needed to get government finances under control. Let us not forget that it was quite a spectacular change. It was only six or seven years ago that it was not hard to find commentators in Canada who said that we were going to have to go to the International Monetary Fund and bring them in to impose discipline on our governments in Canada. That didn't happen, and in fact our government finances have turned around really spectacularly.

The solution to each of those problems was that output was held down. It didn't do much to contribute to productivity gains at the time. I think it's important to try to take a reasonably longer-term view of this. Having solved those problems, our government finances are fundamentally in much better shape than they were at the beginning of the 1990s.

• 1030

When you combine those two things with the fact that we are seeing a strong growth in business investment, again, one has to be careful not to give the impression that this sort of thing is guaranteed. I think you'll find increasing analysis that we in Canada are perhaps about to embark on something of the period of productivity gains that we've seen in the United States.

And I'm trying to phrase that carefully. I'm not trying to indicate that yes, we're going to have absolutely the same sorts of things. I think this combination of a very healthy business environment, which is investing, and a much healthier government environment.... And that cannot be overemphasized because governments are now in a position where they have some freedom of choice. Those shackles of deficits have, by and large, been removed. They can then begin to address some of these issues of where we should be spending money in order to try to enhance Canada's economic performance.

So I'm much more optimistic about the outlook now than I would have been if we'd been meeting here five or ten years ago.

Mr. John Cannis: Thank you very much.

The Chair: Thank you very much, Mr. Cannis.

Mr. Lastewka.

Mr. Walt Lastewka: I just want to touch on three more items. One is an item that I think is more an irritant than anything, and Mr. Laursen and I were talking about it a little earlier. That's the change in service charges. As soon as any of the banks change their service charges, we can bet we're going to start getting letters and phone calls and so forth. My concern has always been whether or not there is a better way of making those changes, especially when it comes down to the person who has the basic account and so forth.

As soon as one of the service charges are made, it's assumed that all of them are made and we get into an area of communication between members of Parliament, offices and people, banks and CBA. Has there been any thought of taking a good look at how we change our service charges and how we communicate to avoid what I call the spike on service charges?

Mr. Ron Laursen: Perhaps I can take that, Lynda. What we were discussing was the communication process. In fact, I would think that if you looked at the combined impact of all these service charge issues that you hear about from your constituents, you'd likely find that at the bottom line it's changed very little. In fact, with the advent of technology that Lynda was talking about, most of the service fees have come down, because we can use technology; we can offer them very reduced rates.

I think communication is the issue. We admitted a few years back that as banks we had to do a better job on communication. I think we're still striving to do that. What we've done mostly has been to try to simplify the fee structure so that as we focus on small business, we have tried to understand they're very time-pressed people. They really don't have a lot of time to spend on trying to figure things out.

You're right. There's no getting away from the fact that it creates noise in the system. We've tried very hard in the last few years, I would say, but what we have to keep going at is simplifying the communication even more and putting tools in the hands of the customer so that they can figure out what they're getting charged for, what the best package is for them.

If you were to look at most of the major banks right now, you would see that they do have these self-help tools on the web, but also in the branches they are able to say, put down what you do as a businessperson and then let's talk about what the best package is. And I think engaging them in that conversation is what we need to keep doing.

Ms. Caroline Hubberstey: It works on two fronts, from the CBA's perspective. We've been working with Industry Canada. Last year we worked with them to develop the small business service charges calculator so that business owners, as Ron indicated, can go up and actually shop and compare between various institutions and find the package that best suits their needs. The CBA also has, as part of the consumer education program, a service fee booklet that instructs consumers and business owners about service fees and the fact that they can shop around and find the package that best meets their needs.

• 1035

Mr. Walt Lastewka: My other question was—and I don't want the next two questions to be doom-and-gloom questions—going into the field of bankruptcies. We get so many bankruptcies a year, and I always wonder, is there enough statistical work done by the banks, by the industry, and by us as a government on the whys of bankruptcies, such that we can lower the amount of bankruptcies? What work has been done by the banks or the CBA to analyse the bankruptcies?

Ms. Caroline Hubberstey: I know a lot of work has been done by Statistics Canada, one research document in particular by John Baldwin, which was released in 1997, Business Bankruptcy in Canada. It was part of a series.

The first study was on successful entrants. Why do entrants coming into the market succeed? What are the factors? What are they doing right? Then Mr. Baldwin and his team looked at what happens when a business fails: what are the key components of failure? They found it was really internal deficiencies, things such as they didn't have that skill base in place that we talked about before. That core foundation was not solid. Really financing played little role in the eventual bankruptcy of the company; it was not having the marketing skills. A quarter of businesses may have failed because they didn't choose the right location for their business in the first place, or because they didn't have solid, good money management skills in place.

That's part of the reason we started moving forward with things such as “There's Something about Money”: to talk to young people and would-be entrepreneurs about the need to develop good money management skills, because of the type of research John Baldwin undertook in 1997. He has done some subsequent research, but not in the area of bankruptcies.

Certainly we are seeing, and I think the latest statistics that have come out of the Office of the Superintendent of Bankruptcy are indicating, that bankruptcies are declining on both the consumer and the business side.

Mr. Walt Lastewka: My last question is this. One of these times, Mr. Drake or his replacement will come here one day and say, “Well, our forecast is going down. We could be heading into a recession sometime down the road.” What are we doing to prepare our small businesses such that we don't dip as we did the last time we had a recession, to make sure they have some additional skills such that we don't go as deep as we did last time with small business, which seemed to be the way in the early 1990s? What work is being done?

Ms. Caroline Hubberstey: On a number of fronts, we certainly see a collective effort, and we've both talked about it.

The health and growth of small businesses is the responsibility of a number of stakeholders, and it's the stakeholders who are working together to ensure our small business community has the skills in place to be able to deal with any potential downturn that may occur in the economy—to ensure they have a good capital structure in place to be able to deal with a similar issue.

Certainly we've seen over the last little while the economy has grown at a very steady pace, unlike what happened previously, so it has allowed small businesses to grow and to build a better capital base and a better debt-to-equity ratio within their company, to be able to deal with any uncertainty that comes along. That's economic or even just within one's own client base and changes that may occur with one's business.

Mr. Walt Lastewka: I use my own example. I was an executive for seven years before we got into what I call bad times, so I learned a lot about how to operate during good times, but I had very little or no experience during bad times. My concern is, because we have so many new small businesses and they've all been operating under good times, expanding times, outlooks such as Mr. Drake has brought here for us today, they will have very little experience of how to operate during tougher times and what they need to do. My concern is whether the banking industry and the government are doing enough for those small businesses in advance.

Ms. Caroline Hubberstey: [Inaudible—Editor]...on skills development at this time, both from the individual bank's perspective and certainly the CBA's. We are focusing a lot on ensuring that small business owners have that core skill base in place.

• 1040

That's why we're working right now on dealing with e-commerce and making sure small business owners are aware of e-commerce and how it may impact on their business. It's an emerging issue, so as it grows and starts to ramp up, they need to be better prepared to deal with it. Is it going to be part of their business strategy, or how are they going to deal with it when it comes along? So we are focusing a lot on that in the CBA and in individual banks.

Ms. Lynda Brochu: I'd like to add one point. Technology is helping us a little bit here too, because there are always early warning signals that something's happening. You will get early warning signals in businesses too that something's happening. Technology is enabling us to see those things a lot earlier and then bring them to the attention of our customers by calling our customers up and saying, for instance, “Did you know we have some information on our website? Do you want me to come and talk to you about how you can access your customers a little better?” We can proactively go at those customers who we see may be taking the wrong direction and correct that early.

So hopefully, with all this additional information and with this technology helping us to see those early warning signals, we can head off some of that misery we saw in the late 1980s and early 1990s.

Mr. Alan Young: And as Lynda said in her response to an earlier question, there's a different mindset between a workout team and a turnaround team. So you're seeing more of the focus on keeping the small business customer and working with the small business customer, because the customer loses if he or she fails and the bank loses as well, so there's a joint interest in turning things around.

Mr. Peter Drake: I just might add something on the economic environment. Anything I can say here in no way diminishes the importance of the points you've brought out, but it's worth noting that what central banks are trying to do, in terms of the way they run monetary policy these days, is reduce the volatility of the changes in the interest rates they deal with, and they do that by trying to move more quickly. In other words, unlike in the old days, when you waited until you were certain inflation was well established before you tightened monetary policy, now you try to anticipate it and go in and change it a little bit, with the hope that you will change it less.

If this is successful—and I don't think we have enough experience to know it will be successful—it's not that we won't have business cycles, but they may be less volatile than they have been in the past. If you're running a business, obviously you don't count on that. You deal with the things you mentioned. But I just thought it might be interesting to raise the point that we may be in a period when, yes, we'll still have cycles, but they may be somewhat less volatile, and if they are, then the down cycle should be less hard on businesses than it has been in the past.

The Chair: Thank you.

Thank you, Mr. Lastewka.

Lastly, Madam Jennings, please.

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you.

First of all, I apologize for not having been here for your presentation, but I have read the brief very carefully and looked at all of the charts you've provided.

I'd like to start off by commending CBA and all of the major banks for the initiatives you've undertaken, particularly that series of seminars, “There's Something about Money”. I know the schools in my riding were very appreciative, and it appears to have been a success. I hope the seminars you'll be doing on e-commerce will be just as successful.

I just have a couple of questions to try to understand some of your figures. In the chart “A Summary of Business Lending by the Major Banks”, under “Q4, 1999 Statistics”, if we look at the second page, where it lists customers, it says there are approximately 777,000 SMEs, and approximately 95% of the major banks' business borrowing customers are small and medium-sized enterprises. On the first page, you talk about small business, which is defined as having less than a $250,000 credit authorization, and it states that approximately 85% of the seven major banks' business borrowing customers are small businesses. That means 10% are medium-sized enterprises—that is, their credit authorization is over $250,000 but a maximum of $1 million.

Has that changed percentage-wise from when you began your quarterly reports in 1995? Has that 95% SMEs changed? Do you still have 5% of your customer base with a credit authorization of more than $1 million? Was that the case in 1995?

• 1045

Ms. Caroline Hubberstey: The numbers are pretty much consistent over the quarters. We see about 5% who would be considered large, 95% considered SME, and 85% considered small.

Ms. Marlene Jennings: Okay. So when we talk about the number of small businesses or the number of SME customers borrowing from the banks as having increased by 10.9% since the first quarter of 1995, it's a little bit misleading, because what it means is the number. But in the large scheme of things, the number of your large customers has also increased because they still occupy 5%. So that means they as well have increased 10.9% in terms of numbers.

When we're talking about the number...if you look at the second paragraph on both sheets, it says the number of small business customers borrowing from the banks has increased by 10.9% since the fourth quarter of 1995. The number of SME customers borrowing has increased by 10.9% since the fourth quarter of 1995.

Ms. Caroline Hubberstey: It depends. I actually have the statistics right here for you, so I can give them to you.

Actually, the growth has happened at the over $1 million to $5 million band, so you may see some of the previous medium-sized companies grow and enter into the higher dollar band for authorizations. So there's growth there.

But actually, for authorizations over $5 million, the large large, if we look at Q4 95 and Q4 99, it's actually decreased by 4.2%.

Ms. Marlene Jennings: Okay. But in terms of SMEs, the actual percentage that SMEs occupy in terms of the total number of customers really hasn't changed. Their share of the pie hasn't changed. The number has changed, but that's because the whole pie has gotten much bigger. And where it's really gotten bigger is in that $1 million to $5 million, which is not SMEs.

Mr. Ron Laursen: I know what you're getting at, but I do believe, just from personal experience, in the last three years we've seen quite a shift actually in the percentage of total business customers who are SMEs. And that speaks not just to the numbers you see, but the percentage.

I think when you start to look at dollars outstanding, you get much more of an impact on the large end. But the percentage—

Ms. Marlene Jennings: But I'm not talking about the dollars outstanding. I'm talking about just the numerical. I just want to understand whether or not the actual share of the numbers pie, in terms of the total number of customers, has actually increased for SMEs. And it hasn't, because Caroline has just said it remains more or less stable. So that means the entire pie has gone up 10.9%. SMEs still occupy only 95% of the total number of customers.

Now, what you're explaining is that where you've seen a real growth is in the $1 million to $5 million of your large customers—the smaller large customers. But they're too big to be SMEs any more.

Ms. Caroline Hubberstey: It depends on the definition. I know Industry Canada sometimes uses a definition—

Ms. Marlene Jennings: I'm using your definition.

Ms. Caroline Hubberstey: I know, but they actually include SMEs as borrowing up to $5 million.

But we're looking over a period of time, the last four or five years, and as things have happened, not all customers have stayed at their place.

Ms. Marlene Jennings: Which is good.

Ms. Caroline Hubberstey: Which is good.

Ms. Marlene Jennings: But I just want to understand the figures.

So the actual real growth in terms of share of the pie of numbers of customers—I'm not talking about credit authorizations—is with SMEs who have gone beyond SME, according to your definition.

Ms. Caroline Hubberstey: That's correct.

Ms. Marlene Jennings: That's all I wanted to know. Thank you.

The Chair: Thank you very much, Madam Jennings.

I have two brief questions before we move on.

There was an article in La Presse on March 6, 2000, that notes that financing still remains a primary concern amongst women entrepreneurs. Among other things, the article says that bankers still seem to have a certain number of prejudices against women entrepreneurs. In the article itself, there are comments from representatives from the Canadian Federation of Independent Business, and it talks about how we're asking for husbands to co-sign a wife's loan and that there appears to be an overestimate of the risk of lending.

The federation does go on to say that some things are changing. I'm just wondering what you think. I know there have been a number of seminars, there have been a number of different avenues. I'm wondering, maybe Ms. Brochu or Mr. Laursen, how are things different at your bank, or how are things changing?

• 1050

Ms. Lynda Brochu: It really interests me to think that those comments are being made, because as a female banker, I've seen a huge amount of change in the past 10 or 15 years. Each bank has tried to put an equal representation of women on the front line, so that when women come to our banks, they have a choice of whom they want to deal with. We've all changed the way customers can access the banks. You can now sit on the phone. You can do it through the website, where no one needs to know if you're male or female.

The thing about co-signing loans is interesting, and I would venture to say, yes, we do ask husbands to co-sign loans, but we also ask wives to co-sign. I myself have had to co-sign for my husband, which always makes me laugh.

We've all done huge amounts of research into what this perception amongst women business owners is that it is more difficult to get loans, and we find that women approach banks in a very different way. They like to come in and get as much information as possible up front, then go away, and then come back again.

So we've all made great strides in putting that information within our branches where people can come in and pick it up. There are our websites, and you can access us by phone. As an added bonus, we've started to find out that very young entrepreneurs like to do the same thing. So we've picked up a share in both markets just by increasing the amount of information that's available before you would come in to formally apply for a loan.

But I would say that we make none of our credit decisions based on whether you're male or female. If we try to go back and do surveys to see of there is a bias, we find no bias, and I think the Canadian Bankers Association's own researchers show no biases.

So it's still a perception, and it's a perception we're fighting as best we can.

The Chair: Mr. Laursen, do you have anything to add?

Mr. Ron Laursen: Yes.

What we do find in our research is that this push toward more information and skill development is seen by our women entrepreneurs as exactly the right thing to do, and if we do it well, they will come and see us. I think that's the real issue—whether they will feel comfortable to come and see us, discuss the issues, and get the information Lynda's talking about. I think we've improved in that area over the last three or four years, and it's still improving. As we give more information, our research is showing that women entrepreneurs...and I think over 50% of small businesses in Canada now are either run or co-run by a woman. This information movement is exactly what they want, so I think we're on the right track that way.

The Chair: Thank you.

The other question I had was to do with the fact that as part of collecting the quarterly statistics for the last seven years—

[Translation]

Mr. Michel Bellehumeur (Berthier—Montcalm, BQ): Madam Chair, could you speak a little louder? I am certain that what you are saying is interesting, but the interpreters cannot hear you.

[English]

The Chair: No problem. I'll talk louder. I can do that.

As part of your exercise of providing the statistics, you've also been providing the loan-loss data. The loan-loss data for the 12 months ending October, 1998 was available in June 1999, so I'm assuming that the loan-loss data for October 1999 should be available now. Maybe it's not available today, but I'm wondering if you expect large differences between what we saw in 1998 to what we saw in 1999.

Ms. Lynda Brochu: On an individual bank basis, we don't expect to report a large difference.

Mr. Ron Laursen: That would be the same for Scotiabank. I think, as was referred to earlier, we're seeing a fairly stable economy, and if our credit policies are working properly, we really should be seeing an appropriate level of risk in the system. I think that's what we're seeing right now.

Ms. Caroline Hubberstey: The loan-loss statistics will be released with the Q1 2000 data, the data ending March 31. That will be released June 30.

The Chair: Okay. Thank you.

To pick up on something that Mr. Drake said earlier and conversations that took place with regard to the automotive sector, there was a time a while back in this committee where it was determined that to some extent the automotive sector was a guideline or an indicator of which way we were heading in the economy.

• 1055

One of the first areas to head into bad economic times and to head out of them was the area I come from, which is Windsor, Ontario. Windsor has diversified itself, and it now has a much larger tourism industry and jobs that relate to that.

From a banking perspective, are we reanalysing how we determine these things?

We've also heard, as I think Mr. Pickard alluded to, that Ontario will be a larger market this year than any state in the United States. It will be the largest market in North America for the automotive sector. Your comments and what we heard last week from other economists in the automotive sector are causing me a bit of concern because they don't meet. I'm really not sure how to put that together.

Mr. Peter Drake: I think there are two or three things to think about here. We'll just talk about motor vehicles for a moment. There's the overall North American market and where demand is going. In terms of the U.S., to borrow that old phrase from the 1980s, consumers really have shopped until they must be ready to drop by now. That, along with the interest rate hikes we've seen—and we have to remember that the first of those took place a little less than a year ago, and it takes that long to have some effect—the further 50 basis points that we expect, suggests to us that in the U.S. we are going to see some slowing of demand for motor vehicles. Whether or not it actually declines, there will certainly be some slowing in growth.

In terms of the Canadian market, as I eventually picked up on, we're more optimistic, because that cycle has been behind that in the U.S. So I would expect fairly substantial growth in the Canadian market this year. We have to remember, of course, that the U.S. market is much bigger, and that has a much bigger impact on the output of motor vehicle business.

In terms of how that affects Ontario, you make a perfectly valid point that with the diversification, the sort of thing you're seeing in Windsor and indeed we're seeing in any number of areas in the province, it offsets the cyclicality of the so-called durable goods production, of which motor vehicle production is very important. It's not just motor vehicles; it's manufacturing in general.

What has happened, though, over the last several years, especially the last decade—the free trade agreement with the U.S. was begun, I think, at the beginning of 1989—is that Ontario has become more dependent on the U.S. market, so that we do tend to look perhaps more closely at the U.S. market and where we think that's going when we're trying to determine the overall growth for Ontario. To the extent that dependence has increased, then clearly if we are going to see some slower economic growth in the U.S., we will see that reflected in Ontario.

I should point out that even the slower growth that we've put in our forecast is still pretty spectacular by anybody's historical benchmark.

The Chair: When you look at interest rates and at what has been happening, at the last committee meeting there was a prediction, I guess you could say, or a forecast of what would happen with interest rates that said they would go up, they would peak, and then they would come back down. I keep seeing them going up and up. I don't recall that economic estimate being that they would go up continuously, but they did say that they would go up sometime this year and then come back down.

My understanding is that in the United States, the reason they're raising interest rates is because they're at capacity. Michigan is a good example. They're at 0% unemployment. We're not at that in Canada, so why are we raising interest rates?

Mr. Peter Drake: Actually, it is not badly illustrated in this chart. We did raise interest rates in Canada in August 1998 because of a very shaky dollar. But if you follow those—and I apologize to the committee for the fact that the two lines are very difficult to distinguish—I think you will find that the Bank of Canada has not lowered interest rates more than the U.S. For example, it lowered interest rates a couple of times in the spring of 1999 when the Federal Reserve didn't lower rates. Then the Bank of Canada did not react to the first two increases that the Federal Reserve did, the first one being in June 1999 and the second one being in August 1999. The Bank of Canada has followed the Federal Reserve so far.

• 1100

So if you look back over a little more than a year, the first conclusion is that the Bank of Canada has run generally an easier policy than the Federal Reserve. Although the Bank of Canada has matched, as I mentioned, we expect the Bank of Canada to raise rates less than the Federal Reserve for exactly the reasons you pointed out.

We think—and there are widely varying estimates of this—that in Canada we're either at capacity or close to it. We're also, by the way, just entering into that debate in Canada, which has been going on in the U.S. for a year and a half or so, as to just what our capacity limits may be. If you read, for example, the public information from the Bank of Canada, you will see that discussion beginning to come in.

I think the answer is you're absolutely right, it is appropriate to have smaller interest rate increases in Canada in this period than in the United States. We think that's how it will come out, but the wild card is the Canadian dollar. With a little bit of luck, the dollar won't enter into it, and we'll see interest rate increases appropriate for domestic economic conditions in Canada.

The Chair: Thank you very much, Mr. Drake.

I want to thank everyone for being here today.

There are a lot of questions I could ask, but I made some points at the last meeting—and I'm sure you've taken some of them into consideration—as to what's going to happen in the agricultural sector this year. I'll just leave those for another time.

I do want to thank everyone for being here. We do appreciate it. We do appreciate the seminar work you've been doing. As has been stated a number of times, the “There's Something about Money” seminar has been a wonderful success, and I believe your electronic commerce seminar will also be very informative and helpful to small and medium-sized business out there and hopefully will help Canada move along its target in that world.

We do appreciate your working with the Department of Industry as well. We look forward to having more fruitful discussions on statistic gathering in the future.

We're going to suspend for about two minutes to allow the witnesses to change places.

• 1103

• 1115

The Chair: I'll call the meeting back to order.

We're going to resume where we left off with consideration of Bill C-5, an act to establish the Canadian Tourism Commission.

We have received a notice of motion from Monsieur Brien.

[Translation]

Mr. Brien.

Mr. Pierre Brien: Madam Chair, on the heels of our work of last week, having begun our hearings for our study of the bill, I had expressed my wish to hear additional witnesses, one in particular. I decided on Thursday to give you advance notice of the following motion that I am now going to read, after which I will explain to you my reasons. I believe that all members of the committee have already received a copy of the motion in both official languages. It reads as follows:

That the Standing Committee on Industry delay the clause-by-clause consideration of Bill C-5, an act to establish the Canadian Tourism Commission, until it has heard from the following witnesses: the Department of Industry, Attractions Canada, Canada Economic Development and an expert in federal-provincial areas of jurisdiction in connection with tourism (from the Department of Justice or Intergovernmental Affairs).

Although the motion is clear, it would perhaps be useful that I explain my reasons and aims, both with regard to the process of the study of the bill in committee and the substance of the question itself.

I will begin by giving a little recap of the way in which we have worked on this file. We have proceeded in a very surprising way. First of all, the responsible department did not come to explain the reasons for this bill and did not attempt to convince us of the advisability of changing the status of the commission, which has that of a special organization within the department, to make into a Crown corporation. I would remind you that the Canadian Tourism Commission was created not that long ago—indeed five years ago at the most. Just today we have been told that it must be a Crown corporation so as to become more efficient. It is rather surprising that we were not given this opportunity at the very outset. Why is it that shortly afterwards a new status is being asked for for this commission?

I would remind you as well that the government invests important amounts of money in the Canadian Tourism Commission—approximately 65 million dollars as a matter of fact. It is worrisome that such a large amount of public funds would be submitted to a control mechanism that is certainly not as broad as that presently exercised by parliamentarians. I am not speaking here of the control that might be exercised by Cabinet, the Council of Ministers or the Executive, but for all of us, members of Parliament, there will certainly be a different accountability that I would qualify as very partial, that the Commission will grant us.

Of course, it may appear on occasion to report on its activities. Opposition members and even government members might ask questions during the oral question period, but our ability to question its activities will be different in Parliament, since the minister will be able to say that the commission is independent, quote unquote, except for the nominations, that it will control. As to the operations of the commission, it could always say that this does not come under it and that its responsibility is limited to the appointment of the members. I will come back later to the details of the make-up of the commission.

There is really, therefore, a matter of accountability. I would have liked the Industry Minister to be more explicit, to come and defend his viewpoint and to present to us convincing arguments.

• 1120

Numerous concepts have been put to us. We have been told that we could establish more efficient partnerships with the private sector. I would like to see examples of this increased efficiency. As far as I know, the only example we have been given is the creation of an Internet site for fundraising and which we could use for advertising purposes.

This leads us to the whole issue of the flexibility departments have to carry out this work themselves. Is this impossible for them under present rules? I should even have added other witnesses to my list, namely officials from Treasury Board, who could have come to speak to us about the standards governing departments. How is it that when we want greater flexibility, we are automatically told that we should call upon a Crown corporation because within government, there is an incapability to have this flexibility that would allow for efficient partnerships with the private sector?

I was very surprised to hear the witnesses who appeared before us, including those from the commission itself, present this argument to us, just as I was very surprised at this being taken for granted. We say that it will be easier to make partnerships, but there needs to be some demonstration of this. I would have liked to have been told that it is because of some directive of Treasury Board that this is more complex and that we cannot partake in such and such a type of activity, because this could have led us to another conclusion, namely that we might have to explore another avenue aimed, if necessary, at easing up the rules.

This seems to be a reflex that is not specific to this situation. It seems that we tend to take public funds and to entrust them to separate organizations. I will not give you a long list of such cases, but I would site the example of the Millennium Scholarships. In the case of numerous other initiatives, we have tended to take public funds, to hand them over to another stakeholder, be it a Crown corporation or another organization, and to invoke the fact that this is easier and more efficient. I have great difficulty accepting this solution because administrators are not accountable to the public in the same way that we are. They do not have to explain to people how they have spent these amounts of money. They do not have to account for their actions. This can be frustrating.

I heard an argument that did not convince me. I was told that as long as they were able to ensure the management aspect, they would not be subjected to the same constraints as far as contract letting is concerned. In my view, it is normal that there be rules governing the letting of contracts when you are dealing with public funds. If the rules are stricter when contracts are granted by departments than when they are granted by Crown corporations, there are reasons to ask oneself questions. Are we too permissive in the case of Crown corporations or are government rules too strict?

It remains that public funds are involved and that people are entitled to expect that they be, for one thing, well managed. As well, when contracts are granted to third parties, any company should normally have the same opportunity to get the contract. I was not reassured by what I heard. Here again, it would have been appropriate to hear the Industry Minister on this.

I would not go so far as to use the word "scandalous", but I would say that there is something very odd in all of these interventions by the government in the area of tourism . I would say at the outset that the bill attracted me because I was already concerned by the tremendous number of stakeholders investing in this area. There is obviously the federal government, that funds the Canadian Tourism Commission, as well as the provinces, the municipalities, large cities, communities such as ours, regional municipality structures, management organizations as well as community development assistance organizations, that are creatures of the federal government. There are therefore a lot of people involved.

This situation is not unique to the tourism sector. When there is expenditure of public funds, one could always ask how these funds might be managed more efficiently. Although I studied the issue of federal-provincial relations, which is to me important, I quickly came to the following conclusion: we must concentrate first and foremost on the matter of federal funding management rather than on that of provincial and municipal spending. Numerous stakeholders spend money on tourism.

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I cannot speak to you about the Western provinces nor about the Maritime provinces, because I am less familiar with the role that regional development agencies play there and with the local development structures that go hand in hand with these organizations, but in the case of Quebec, there is obviously involvement, as I indicated earlier, of both the federal government and the provincial government. As far as the federal government is concerned, there is the Commission that plays a role, as well as Canada Economic Development, which is very present and which has at its disposal more and more money that it invests in regional plans. During his visit to our region of Abitibi—Témiscamingue last year, the minister announced that he would be investing 1.5 million dollars in tourism, without specifying the criteria. All we know is that he would be investing in tourism. We did not know if these funds would be invested in construction or in infrastructure construction support or in marketing projects.

[English]

The Chair: Can I remind you that you're speaking to something that is not relevant to your motion?

[Translation]

Mr. Pierre Brien: This is perfectly relevant.

[English]

The Chair: You're not discussing the bill at this time; you're discussing the motion.

[Translation]

Mr. Pierre Brien: Yes, it ties in very closely with it.

[English]

The Chair: Speak to your motion, please.

[Translation]

Mr. Pierre Brien: That is what I have been doing, Madam Chair, since my motion is asking that the committee invite certain witnesses, namely Canada Economic Development, that I am talking about now. I am explaining why it would be important for us to hear these representatives. This appears to me to very relevant and I would illustrate this using the following example, the one that I know best, given that it relates to what is going on in my own backyard.

Since you have perhaps not understood correctly, I will repeat that it has been announced that 1.5 million dollars would be invested in tourism in the Abitibi—Témiscamingue region. The department's press release was not precise and when we called the agency, we were not given very precise information either. All we were told was that there was going to be money invested in tourism. Were these funds going to be targeting infrastructure, marketing or new development plans?

A year later, we see what has been financed. We still have no development plan and we do not really know what the priorities are. For my part, Tourisme Abitibi—Témiscamingue, which comes under the government of Quebec, already has a development plan and must carry through with it. We see no similar constraints with Canada Economic Development and we note over time that it funds projects aimed at marketing things that already exist, for example by subsidizing the development of tourism promotion plans. It therefore intervenes in the area of promotion and supports promoters with a view to helping them build the infrastructure. I have trouble understanding where the limits or constraints that exist begin and where they end.

You are driving along and all of a sudden you see a big road sign sponsored by Attractions Canada. You wonder what Attractions Canada is. Obviously, it is not very clear, but you finally realize that Attractions Canada does not come under the Canadian Tourism Commission. It does not come under the Department of Industry either, although this department is already active in the area of tourism, through, among others, the Canadian Tourism Commission. Since this department has a tourism component, it would have been appropriate to hear it explain its overall vision of the tourism industry within the department. You will note that Attractions Canada comes under Treasury Board. We must find an explanation to this.

[English]

The Chair: Mr. Brien, it comes under Public Works, not Treasury Board.

[Translation]

Mr. Pierre Brien: Excuse me, I should have said that this organization comes under Public Works. How is it that Public Works intervenes in the area of tourism? One must admit that this is slightly peculiar. So we have Canada Economic Development and Attractions Canada that come under Public Works, and the Department of Industry, without talking about all of the federal, provincial and other interventions. It seems very appropriate, when we are evaluating a bill aimed at ensuring that 65 million dollars of federal public funds... As a matter of fact, this is not very transparent and I will come back a little later to the report of the commission. The plan, therefore, is to grant some 65 million dollars in public funding to a Crown corporation so that it might be more efficient—at least this is what we are being told. How is it that we do not already wonder about the public funds that are presently managed under other hats within the governmental framework?

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We are told that the criteria for granting contracts or establishing partnerships are more flexible. However, Attractions Canada is successful in establishing all kinds of partnerships. It is easy to see: it has partnerships with nearly all chocolate bar producers, Caramilk and others, with VIA Rail, as well as with other players. It finances all sorts of initiatives. It establishes partnerships under Public Works and it does not seem to be complaining about any lack of flexibility in the rules. How is this? It must be subjected to the same constraints since it comes under a government service. It is subjected to all sorts of constraints that no one deems necessary to change. People say that everything is going well in the case of Attractions Canada, but not in that of the commission.

There is therefore an objective problem that I do not understand and that our work, our very brief work in this committee, or the debate on second reading in Parliament, have not made clear to me.

We are now being asked to take 65 million dollars from the federal coffers, because there is still more money where that came from, to give to people who are saying that we must trust them, that we must make a leap of faith and believe that they will do better. They are also telling us that we should not worry, that they are very independent because it is the minister who will be appointing them. Mr. Charles Lapointe, from Tourisme Montréal, gave us a very convincing demonstration of this when he told us that he had tremendous trust in our democratic system, that appointments were in no way partisan, and that political and other background was not necessarily taken into account. He affirmed all of this without batting an eye, he who is a former Liberal minister, appointed at the time as representative of Quebec, or recommended by a government that was at the time Liberal. If there is no link...

I do not mean by that that those who have gone into politics should do nothing else later on. Nevertheless, they should not play people for fools. There are ties that, at certain times, are easier to see than in other circumstances.

There is therefore a reason to inquire and to wonder how it is that, from the point of view of the government or the executive power, it is considered to be an advantage. I believe that the rest of MPs do not have the same point of view about what the legislative power should be.

This is very worrysome. As a matter of fact, we are not alone in thinking this. The tremendous control—and I do not have to explain this to government members, who live this even more than us—and all of the constraints come from the tremendous power exercised over the entire political system by the executive branch and by the Prime Minister. In reality, we have very little say indeed.

But the way in which we are working here, Madam Chair, might lead us to ask ourselves a certain number of questions in this regard. We are being told, despite the fact that we are nearly at the end of the session, that we do not have the time to hear several witnesses. The officials from the Department of Industry were not available. This bill has however been known about for quite some time.

This is why I am presenting my motion. It is not normal that I be obliged to present a motion to force them to appear. The minister announced his intention to move this bill a long time ago and he tabled it a long time ago. It was later renumbered, but we were already familiar with it.

Of course, we have an agenda, but often, at the end of a session, we find ourselves in a position where we must resolve certain issues very quickly. In certain conditions, it seems that we, of the committee, are the only ones to blame. Obviously, it is because we do not plan our work very well. But it is very clear the executive power is quite aware of all of this and acts most deliberately.

We find ourselves caught up in the mechanics of the thing, and on top of that, when we do the study here... it seems that things have gone so far that it is taken for granted that we do not have very much to say in any event and that we only talk about the bill for the pleasure of talking and in order to report it back to Parliament, where it will go through third reading, etc.

It is inadmissible, Madam Chair, that the order of the day for last Thursday's meeting provided for the hearing of witnesses as well as the clause-by-clause study of the bill. These witnesses were questioning the very relevance of the bill. They were expressing the viewpoint of the unions affected by the bill. It seems to me that this was extremely disrespectful of the opinions we have been hearing. We seem to be telling witnesses that whatever they say we are in any event going to move forward with the clause-by-clause study of the bill and its passage.

It is a little as if it were not necessary nor even useful to have a debate before the clause-by-clause study of a bill. Perhaps there are omissions in the bill and there is perhaps a need for an amendment to a clause or even for comments by the committee on the absence of an overall vision in the bill.

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But no! It is as if we accepted to do the clause-by-clause study of the bill without first having a debate amongst ourselves on all of the witnesses we heard, without asking ourselves if there is a need to reflect upon certain elements of the bill and without asking ourselves if there are no omissions in the bill.

Personally, if I were one of the witnesses, and if I saw—I am speaking about last Thursday's meeting—an agenda providing for... In the end, clause-by-clause consideration of the bill was put off for various reasons. It is however not at all normal nor even thinkable to work in this way, because in the end, we the members end up considering that the point of view we express here counts for little in the balance and that all we are doing is rubber- stamping the bill for it to be passed on to the other place.

This “rubber-stamping” role that is reserved for us here bothers me somewhat. It shows through in our work. It translates into a lack of interest. I can accept the idea of witnesses being heard with a reduced quorum, but it is nevertheless surprising that we have a role to play that could tie in with powers that I consider to be important in theory, and that there are so few of us who are concerned by this 65 million dollar outlay outside of the government and throughout the course of this work...

I will not speak about things that I cannot speak about and that would be judged unparliamentary under the Standing Orders. Nevertheless, the least we can say is that not much interest has been shown through any regular attendance at meetings to hear witnesses. But I do understand the reaction of individuals; it flows from a system within which our role is often limited.

Given what happened on Thursday, I said to myself that our work was not yet complete, that it was not true that we were going to adopt this post haste without more in-depth study. Furthermore, the witnesses had not convinced me. I had told myself that the witnesses would perhaps convince me of some obvious thing I had not seen in the bill, especially since those that we heard were the commission itself or at least persons very close to the commission. There was for example a former member of the board. We also heard people from the private sector, but who had up until recently had ties with the commission.

Therefore, the commission did its work by providing a few witnesses. However, we should not conclude from this, on the basis of the plea made by the commission and by those that came in its wake, that we are now apprised of the viewpoint of the entire sector and of the taxpayers. I do not believe this one bit.

Among the stakeholders involved, there are several that we have not had the opportunity to hear. Of course, the man or woman in the street, our fellow citizens, our constituents will not be beating down the door asking to be heard by us here. It is up to us to ensure that we are aware of their views. I believe that their concerns are of the following nature: how is the money they give us through their taxes being managed.

In the case of tourism, for example, is the money being used efficiently? Are there that many economic spinoffs? This has led me to ask myself a question that leaves me puzzled and that was even brought up by liberal MPs. When we asked the commission what proportion of its funds came from the public sector and what proportion came from the private sector, there was some confusion, that has not been cleared up.

I for example heard—I will speak about those I am more familiar with—the people from Tourisme Montréal say that out of a budget of some 15 million dollars, 3 or 4 million were public funds, one million came from the federal government, one million from the provincial government and one million from the City of Montreal. I am rounding off the numbers somewhat. We were also told that 4 million dollars came from private partners and 8 other million from what they considered to be the private sector, and I am speaking here of the product of a hotel room tax. In Quebec, and in the Montreal region in particular, the government has imposed a special tax of $2 per night spent in a hotel.

[English]

The Chair: Mr. Brien, your motion specifically is to call witnesses. Could you speak specifically to your motion?

[Translation]

Mr. Pierre Brien: Yes, that is what I am doing.

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[English]

The Chair: You're expanding into areas that are not relevant to your motion, that are not part of your motion—

[Translation]

Mr. Michel Bellehumeur: Come on, now!

[English]

The Chair: —and my patience is—

[Translation]

Mr. Michel Bellehumeur: It is very relevant.

[English]

The Chair: As is normal, we have the Department of Industry witnesses here again to clarify anything before we start clause-by-clause. That's normal procedure at this committee.

[Translation]

Mr. Pierre Brien: Madam Chair...

[English]

The Chair: So you're talking about things that we have to resolve here today. I'd prefer it if you'd speak to your motion.

[Translation]

Mr. Pierre Brien: Madam Chair, the fact that your patience is running out will not prevent me from sleeping tonight. It is in my opinion perfectly appropriate to examine the entire situation and to explain the reasons why I would like us to call these witnesses. I could simply tell you 25 times that I would like to hear this or that witness, but I believe that it is perfectly legitimate for me to be making this plea that is necessary.

As I was saying—you can make the link; you will see that it is easy to understand, but you must follow my reasoning—I do not share the view of the organizations that, like Tourisme Montréal, get $2 per night spent in a hotel and consider that these are private funds. I am sorry, but I believe that when we pay a tax to someone, the money paid out has certain similarities to public funds.

How does the commission, that is a partner of Tourisme Montréal, account for these funds? If 75% of the funding of such an organization is provided by the private sector, does it consider that it is 75% private? We could study this question more closely and examine the rest of the funding provided to the commission. Are the amounts received from the private sector as high as we have been told, or is the main source of financing not public funds? Furthermore, have not been accounted for here the other partners to the left and to the right, in particular the provinces that often provide grants when there is a private-public partnership. The situation is therefore not clear.

However, one thing is certain: the federal government is investing 65 million dollars, which is an important share of a promotion budget amounting to some 145 million dollars. It is obvious that most of the funding is being provided by the government. So when we are told of the tremendous role that the private sector will be playing in the administration of the commission and that it is normal that we be an important contributor, or even the main one, this is far from reflecting reality. In my opinion, this has not been demonstrated. The minister should have come to explain to us his own aims and the motives underlying them.

Madam Chair, I have here the annual report of the commission for 1998. I was surprised when I read it. We obviously find in it, at the beginning, the message of the minister where he already alludes to this eventual change, namely the transformation into a Crown corporation. And the minister goes on and on. After these introductory comments, we see the initiatives undertaken by the commission as well as a word by the chairman of the board, the director general, etc. I challenge you to find any simple explanation of the composition of the commission's revenue and the federal government's contribution.

Although the minister indicates in his introductory message that the government has invested important amounts of money in the commission, we find no breakdown of these amounts. I imagine that he was asked to add in this amount later, but that he did not necessarily take this into account when the report was tabled.

You will not find information on the source of the funding anywhere. You will find the estimates, etc. These funds are part of the budgetary envelope of the department at the present time, but there is no indication of the federal government's contribution. I find it very worrisome that there is no clear explanation of the situation in the commission's financial statements.

[English]

Mr. Walt Lastewka: On a point of order, Madam Chair, the member had all the opportunity to talk about budgets and dollars in previous meetings, where I did, and understood it.

The motion is about calling additional witnesses. I think we should decide whether we should proceed with the motion on calling additional witnesses. I think I've heard enough of where the member wants to go—

[Translation]

Mr. Michel Bellehumeur: No, no. I would suggest you look at the Standing Orders.

[English]

Mr. Walt Lastewka: —and I believe we should tend to the motion.

The Chair: Monsieur Brien, you've made your point that you don't think you have enough questions answered. If you have anything new to add to the debate—

• 1145

[Translation]

Mr. Pierre Brien: Yes, I have a lot of things to say.

[English]

The Chair: —on the four witnesses that you've proposed.... Anything new to add, specifically?

[Translation]

Mr. Pierre Brien: Yes, I still have a lot to say, Madam Chair.

[English]

The Chair: You're straying. You're still straying, Monsieur Brien.

[Translation]

Mr. Pierre Brien: I would remind you that I have brought with me a copy of the minutes of the meeting of Tuesday, May 30, which, if I remember correctly, was one of the first meetings during which we discussed Bill C-5. Mr. Francis, who works for the commission, appeared before us. I could provide you with some proof in support of my affirmation that several questions remained unanswered.

At the end of the presentation by the witness, I said that sometimes, upon asking questions, we realize it would be appropriate to ask other questions and that I was interested in hearing the version of Attractions Canada. I brought this to your attention, Madam Chair, and you answered that you agreed. This is what you said, and I quote:

[English]

We will. The clerk is going to undertake that as soon as we leave this room to see how we can accommodate that request.

The Chair: Yes, Monsieur Brien, and the clerk did undertake that, and Attractions Canada said they had nothing to add. They were in support of Bill C-5. They were not under the industry department. He reported that to you.

[Translation]

Mr. Pierre Brien: Madam Chair, the committee could easily agree that we must invite these witnesses to appear. We are perfectly capable of doing that. If you prefer to stick to the private version that we have heard with regard to Attractions Canada's opinion of the bill, that is one thing. I believe that I asked you if representatives from this organization might come and express their viewpoint and give us explanations. This would help us understand why their opinion is different from mine. I would have liked to have them explain to me how these partnerships with the private sector work. I would like you to explain to me why you believe it is not relevant to try to establish a comparison as to the way in which Attractions Canada establishes, without too many constraints, partnerships with the private sector.

The Chair: Mr. Brien...

Mr. Pierre Brien: We are told that the Canadian Tourism Commission seems incapable of giving more momentum to its private partners because it is held within the structure of a department. It seems to me...

The Chair: Mr. Brien...

Mr. Pierre Brien: ... that there is a link that is extremely...

[English]

The Chair: —I'd like to clarify, for the point of this discussion that's taking place, very clearly, the process that this committee undertook for Bill C-5. Several times we discussed it in steering committee. Several times we asked about witnesses in steering committee, of which you are a member. Several times since that point in time—as you said yourself, this has been going on for a long time—your office was contacted about witnesses, at which point you had no witnesses to offer. Very clearly.... If you like, I'll have the clerk speak to that. He spoke to your office directly, at which time you had no witnesses to offer.

Three weeks after it was referred to this committee, we began hearings. Within that three-week time period you provided no witnesses to this committee. We scheduled it. We had 25 witnesses who were in favour of this bill who wanted to appear.

As the chair, I took it upon myself to work with the clerk and the researchers to narrow that down so that we have no amendments before us on this bill, none from your party; we have no amendments from anyone.

The only person who proposed witnesses on this committee was Mr. Cannis.

[Translation]

Mr. Pierre Brien: Madam Chair, if you wish to have a debate on this, that is what we will do.

[English]

The Chair: That's just to clarify, for the record.

[Translation]

Mr. Pierre Brien: I would like you to give me the dates of the last meetings of the steering committee as well as the subjects that were discussed during these meetings. You have stated that this subject was discussed several times and I am asking you to give me the dates and the agendas of these meetings in support of your assertions.

Secondly, there is only one person working in my office in Ottawa. It is therefore quite easy for me to check if the Clerk did indeed call my office to ask me to supply a list of witnesses for our study of Bill C-5. Madam Chair, I have a version of the events that is different or perhaps even opposite to the one you have just given.

[English]

The Chair: The clerk's right here, Mr. Brien. I'll have him speak to that.

[Translation]

Mr. Pierre Brien: Word for word.

[English]

The Chair: The clerk contacted Mr. Penson's office.

Mr. Pierre Brien: And mine...?

The Chair: He contacted the Conservative office. He contacted the New Democrat office—

[Translation]

Mr. Pierre Brien: I have great respect for Mr. Penson, but I would not expect him to give you my list of witnesses. This list should be supplied to you by my office. I can tell you that no such checking was done with my office.

[English]

The Chair: You're right. It should have come from you, but it didn't. You're right.

[Translation]

Mr. Pierre Brien: Why? And what about the last meeting of the steering committee. You stated here not long ago that this matter was several times discussed at steering committee meetings.

I am asking you to give me right away if you can the dates of these last meetings of the steering committee as well as the issues on the agenda for these meetings in support of the statements you have made. Otherwise, I too could make any old statement and say that we did such and such. I have asked you, Madam Chair...

[English]

The Chair: I have a point of order from Mr. Lastewka.

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Mr. Walt Lastewka: There seems to be conflict between what the clerk has done and what has come from the offices. I'd like to hear the clerk's version on the work done to get witnesses for this legislation.

The Clerk of the Committee: Madam Chair, I took the usual procedures in determining whether or not there were any witnesses coming from all sides of the committee. We received a list of witnesses, as you indicated, from Mr. Cannis. I asked Mr. Penson directly in committee if he had any witnesses. He informed me he did not have any witnesses. I spoke with Mr. Brien's assistant on the telephone.

Mr. Pierre Brien: When?

The Clerk: I don't have the date in front of me, Mr. Brien. I believe it was when you were out of the country, which would have been about a month ago, if my memory serves me correctly. You can correct me on that if you like, sir.

I believe I mentioned it to Mr. Riis. I contacted him. With Mr. Jones' office, I believe I asked in passing on that one. Mr. Jones' assistant is here; he might jostle my memory on that.

[Translation]

Mr. Pierre Brien: I would ask the Clerk to tell us when these last official meetings of the sub-committee on agenda and procedure for which this issue was on the agenda were held.

[English]

The Chair: I can go back and find my notes if you want, Mr. Brien, where I've identified that Bill C-5 was in the House and we would be preparing for it sometime. We've talked about the schedule of this committee each time we've had a steering committee since September. We've talked about the fact a tourism bill was coming before the committee. We've given plenty of notice that it would be before committee. That has happened, and you were there when that was discussed.

Have you not been at steering committee once since September?

[Translation]

Mr. Pierre Brien: No. We did not discuss the witnesses for the study of Bill C-5.

[English]

The Chair: We never had a specific discussion since it came and was referred to committee. We talked about the generalities of how this committee would operate. We talked about the schedule for this committee and the fact that as soon as things were referred to this committee, it was up to individual members to get witnesses to the clerk's attention.

When it was referred to this committee we were having a number of meetings—

[Translation]

Mr. Pierre Brien: When I gave someone's name, you decided to not have the person appear.

[English]

The Chair: We didn't decide not to call him. I asked the clerk to contact the witness. The witness said they didn't have anything further to offer and they were in support of Bill C-5. We heard from several witnesses, which you asked about last week over and over again, that they didn't deal with Attractions Canada. They were very clear on that last week.

If you have anything new to add to your motion, Mr. Brien, I'd be happy to hear it.

[Translation]

Mr. Michel Bellehumeur: I would like to speak.

Mr. Pierre Brien: I have not finished speaking to the motion.

The Chair: Mr. Bellehumeur.

Mr. Michel Bellehumeur: Madam Chair, it seems to me that we do not agree on something. You have before you a motion that in my opinion is perfectly appropriate and which Mr. Brien has just begun to speak to. I believe that this is done in several other committees. It is not simply a matter of stating that he would like to hear representatives from the Department of Industry, Attractions Canada, etc. He must give his arguments. This is what he is in the process of doing and you have interrupted him at least three or four times. I find him very patient, Madam Chair, because you would not have done that two or three times to me. I find his comments most relevant.

The Clerk is there beside you. I know that he is perfectly capable of indicating to you the exact clause of the Standing Orders, clause 116, that sets out these precise rules. There is a very clear motion Mr. Brien is in the process of speaking to. In any event, even if you were right and if he had not asked that witnesses be called and had not given a list of witnesses, I would just as easily believe his assistant as the Clerk. The Clerk called, that is true, but we have been given contradictory versions of the events. The Clerk spends a lot of time calling people and he could have made a mistake.

Even if this is true, I believe that at this stage, Mr. Brien is entitled to ask that there be further witnesses. He is entitled to explain his views to the committee and he is entitled to demand that you listen to him. If you want to create chaos in the committee, well, chaos you will have . Mr. Brien is in the process of speaking to his motion. Let him finish. He has things to say and I wish to hear him. I am convinced that it is in your interest to listen to him as well. I am basing myself here on Standing Order 116. I would like you to read it, if you have not already done so.

• 1155

[English]

The Chair: Mr. Bellehumeur, I've given you the courtesy of speaking. Now I'll give Mr. Pickard the courtesy of speaking, and then I'll return to Mr. Brien.

Mr. Pickard.

Mr. Jerry Pickard: Thank you, Madam Chair. I support what the clerk just said and what you have said, that we've been very extensive in trying to listen to those who have put information forward. I believe we have now listened to Mr. Brien for well over half an hour.

I am now speaking to the motion, but I think we have some choices to make at this time on whether the question be put or whether we order lunch and stay here for the afternoon. Realizing that, I'm going to make a motion that we put the question.

[Translation]

Mr. Michel Bellehumeur: No, we cannot do that. Read Standing Order 116. It would be good for Mr. Pickard to read Standing Order 116. You cannot demand that the question be put.

[English]

Mr. Jerry Pickard: I had the right to ask that the question be put because I had the floor.

[Translation]

Mr. Michel Bellehumeur: He has not finished. He was interrupted.

[English]

Mr. Jerry Pickard: I will go through the order of speakers, Mr. Brien.

The Chair: Order, please.

First of all, we have a motion on the floor and I've taken a number of points of order. We cannot put another motion on a point of order. I'm well aware of that rule. I didn't recognize Mr. Pickard on a point of order; I did recognize him after Mr. Bellehumeur.

That being said, I have a proposal to make. If Mr. Brien is satisfied with this proposal, I have been notified that it is possible to have the Minister of Industry appear before us now, if that will satisfy Mr. Brien.

Mr. Pierre Brien: Is that the end of your sentence?

[Translation]

Is that the end of your sentence?

[English]

The Chair: I'm being interrupted by Mr. Bellehumeur while I'm talking, so I'm not really sure.

We have that suggestion. We also have with us Mr. Miller. As I tried to explain earlier, he is the legal counsel and can satisfy your concerns about federal-provincial areas of jurisdiction. I believe we have undertaken and tried to satisfy those concerns. I'm asking if that's satisfactory.

[Translation]

Mr. Pierre Brien: Madam Chair, representatives of Attractions Canada were not included in the list that I have given you. You knew that by my questions and I will re-explain it to you when I resume my argumentation, because I am simply answering your question. I would say that these representatives are on an equal footing with the Department of Industry or the Minister of Industry.

Mr. Michel Bellehumeur: You too should let him speak.

[English]

The Chair: I will suspend for five minutes.

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• 1240

The Chair: We will resume the meeting.

[Translation]

Mr. Brien.

Mr. Pierre Brien: I would like to clarify something, Madam Chair, and then I will come back to the discussion we were having before the break.

The sub-committee on agenda and procedure met twice, on February 16 and March 21. I will check more closely what was said about the matter of witnesses. But I would not like the impression to be left that my office staff and myself are people who do not tell the truth. I will therefore come back to this question because we have heard statements regarding the list of witnesses that appear to me to be incorrect.

That being said, when we interrupted our work, we were discussing the motion. Given what was said before our break, I believe that if I removed the words "Canada Economic Development" from the motion, there would be unanimous consent for its adoption.

I therefore move that the words "Canada Economic Development" be removed from the text of the motion. I believe, Madam Chair, that there will be unanimous consent to carry my motion.

[English]

The Chair: Is that agreed?

Mr. Lastewka.

Mr. Walt Lastewka: On a point of clarification, if the motion is passed as amended, I take it the clerk and yourself will schedule the people whenever we can schedule them. Is that the agreement?

The Chair: Yes.

Mr. Walt Lastewka: Mr. Miller will be representing the final area, which is the federal-provincial areas of jurisdiction, as the member from Justice working in Industry. Is that correct?

The Chair: Yes.

Mr. Walt Lastewka: Okay, thank you.

The Chair: Okay, so we're all in agreement with that.

Mr. Pickard.

Mr. Jerry Pickard: May I just ask a question? How many witnesses will we be having?

The Chair: Three.

Mr. Jerry Pickard: Do we know exactly when those witnesses will be able to appear?

The Chair: We're still not sure if, this afternoon at 3:30 p.m., we'll have two of the witnesses. We're still working on that. We have a meeting scheduled this afternoon on the draft report for the Competition Act. We have a meeting scheduled tomorrow afternoon. We have a meeting scheduled Thursday morning. We're going to see if we can juggle these witnesses within the timeframes we already have. If not, we'll schedule a special meeting for these witnesses. The clerk will work on it.

We have to be out of here because the fisheries committee meets to set up. They have a very expensive video conference scheduled for 1 p.m. and we're not going to pay for it.

The meeting is adjourned. We'll meet at 3:30 p.m.