Thursday 4 April 1991

Cross-border shopping

John Winter Associates Ltd



Chair: Wiseman, Jim (Durham West NDP)

Vice-Chair: Hansen, Ron (Lincoln NDP)

Christopherson, David (Hamilton Centre NDP)

Jamison, Norm (Norfolk NDP)

Kwinter, Monte (Wilson Heights L)

Phillips, Gerry (Scarborough-Agincourt L)

Sterling, Norman W. (Carleton PC)

Stockwell, Chris (Etobicoke West PC)

Sullivan, Barbara (Halton Centre L)

Sutherland, Kimble (Oxford NDP)

Ward, Brad (Brantford NDP)

Ward, Margery (Don Mills NDP)

Substitution: Murdock, Sharon (Sudbury NDP) for Ms Ward

Clerk: Decker, Todd


Anderson, Anne, Research Officer, Legislative Research Service

Rampersad, David, Research Officer, Legislative Research Service

The committee met at 1007 in committee room 1.


The Chair: We have a quorum now. I would like to welcome the Minister of Revenue this morning to the standing committee on finance and economic affairs. If we could begin with your written presentation and then we will move into the questions. If you would like to begin now, Minister.

Hon Ms Wark-Martyn: I would like to thank you for the invitation this morning to come and speak with all of you. I would like to also thank you for taking on this issue and recognizing it as an important issue across this province and actually across the country.

With me this morning is Roy Lawrie, assistant deputy minister for tax revenue; Burke Williams, director of the retail sales tax branch, and Ralph Robertson, senior manager of legislation in the retail sales tax branch.

The Ministry of Revenue has been doing some work on cross-border sales. Being from a cross-border shopping community, I also am very aware of the problems and some of the complaints and some of the avenues that were suggested to solve the problem.

Underlying reasons for cross-border shopping are many. The first one and the most obvious one to the consumers is that goods are cheaper in the United States, so it makes dollar sense for them to go there and purchase what they are looking for. The Canadian dollar is high, which also makes goods even more appealing in the US. The marketing practices: In the US the retailer is more likely to buy directly from a manufacturer, while in Canada the tendency is more to buy through wholesalers or distributors. Economies of scale: There is more demand in the US because of the larger population than what we have in Canada and Ontario. Business taxes are lower in the US and this is the result of different health, social and educational services that are offered. And in Canada, the provincial support is at a higher level.

The free trade agreement created a perception among consumers that they could go to the US and get their articles cheaper and pay less tax or, in some cases, no tax. Also, the tariffs have affected that. The goods and services tax also, after it became law in January, increased the amount of people cross-border shopping, and one of the reasons that they were giving was that because of the goods and services tax it seemed to be cheaper for them -- economic sense for consumers -- to go there.

I believe a very small reason is not enforcing the collection of the retail sales tax. Many consumers believe that when they cross the border, they have paid all the taxes they have to pay to the province and also the differences in what we would be charging tax on compared to what the federal government collects, the customs offices collect. So there would be a minimal effect, I think, of collecting the retail sales tax at the border, and I think that has to be an educational experience where people are educated on that.

The ministry has been lobbied by border area chambers of commerce, merchants in close proximity to the border who are losing business, border area city and town councils and, I assume, we will be lobbied in the very near future by the new committee that was set up by the area mayors who were in the city yesterday to meet.

Many people have talked about collecting retail sales tax at the border. It is our understanding that in order to do that, the province must join the federal government's GST before the federal government will consider collecting retail sales tax at the border for us.

The least expected is a harmonized tax base. Our bases are different from the federal government's. The training of customs staff would be very difficult and would have to be taken into account. The issue has been explored at the senior staff level with Revenue Canada, customs and excise, and also with other provinces. No other provinces have yet achieved it, not even Quebec and Saskatchewan, which did harmonize with the GST. The federal government is still not willing to collect retail sales tax for them at the border crossings. The difference in bases includes the following items exempt in Ontario but taxable under GST: children's clothing, books, newspapers and shoes under $30.

Canada has a returning-resident exemption which Ontario has not adopted. Difficulties for Revenue Canada caused by residents of other provinces crossing into Canada via Ontario: Something else that we would have to take into account is travellers who just end up coming through a border crossing, not because they are cross-border shopping, but just because of their travelling plans.

Ministry of Revenue border collection has also been looked at. It would be a very costly project to begin. It would require at least five people at all border crossing points, and there are 14 US-Ontario border crossings. Consideration would also have to be given to establishing the same type of collection at provincial borders and at the international airports.

Without a returning resident-exemption, the retail sales tax would be payable when the GST and duties are not. There could also be a constitutional argument, as Ontario may not have the right to check on international border points.

Ontario could place employees in the Revenue Canada customs offices to collect retail sales tax. We would have to ask for permission to do that, and most of the border crossing offices are now too small for the staff who are in there. So the thought of bringing in more staff I do not think would be accepted by the staff who are presently there or the federal government.

Recent federal action: the express lanes that were set up in Vancouver. Apparently there is going to be one set up in Ontario; I believe it is this summer at some point. We have not been consulted on any of what the federal government is planning to do with that.

The rule for the express lane is that it is a special lane at the border, set up for permit holders only. The users must be lawful residents of Canada or the US. They must be frequent travellers between the US and Canada. They must apply for a permit and pay a $10 annual fee. The permit is not transferable. The permit holder must report loss, theft or sale of the vehicle. Only family members listed on the application may be in the vehicle. No controlled or restricted items may be carried, no business materials, professional goods or goods for resale. All items must be for personal use and adults are entitled to 1.14 litres of alcohol. Canadian residents would use the traveller declaration system and pay tax with Visa or MasterCard. The 24- and 48-hour tourist exemptions may be claimed by qualifying travellers.

So far the Ministry of Revenue has limited to vendor mailouts explaining the obligations of returning residents. An advertising campaign and education campaign was considered by the previous government, but it felt that it did not want to go ahead with that for its own reasons. The present newspaper articles on cross-border issues have also made the public more aware of cross-border shopping and the effects it is having on us as a province and the effects it is having on the municipalities directly affected.

Co-operation with other jurisdictions has begun. Exchange-of-information agreements have been signed with all provinces. An agreement has also been reached with the state of Ohio, and we are actively pursuing agreements with other states. This addresses, unfortunately, only the instances where the goods are shipped into Ontario and exemption is claimed in the sending jurisdiction, so the agreements will not address the Ontario residents shopping in the US and returning with their purchases. The branch is able to assess tax on the purchases made and shipped to Ontario from the data received from other jurisdictions.

Sunday shopping also has a minimal effect, I feel, on cross-border shopping. In meeting with people through the whole time period before the ruling came down from the Supreme Court, the chamber of commerce people did not feel that having the stores open in their community was causing more people to stay in the city, in that municipality, to shop on that Sunday. People were still going cross-border shopping, so they did not feel that had an effect.

The two main articles that are purchased when people go to the US have been gas and groceries, both of which we do not collect retail sales tax for. So collecting retail sales tax at the border would not mean that we would be collecting on those two articles, which are the largest purchases that people make when they go to the US.

There have been explanatory talks at senior-official level with regard to the collection of retail sales tax by Canada Customs. The differences on the tax paid would create a lot of difficulty and therefore would make it almost impossible to do unless we were willing to have the same tax base as the federal government has. As I said, where the tax base has been adopted by other provinces, as in Quebec and Saskatchewan, the federal government will still not collect the tax for them.

We are presently working on an agreement to go to Mr Jelinek, the Minister of Revenue for Canada, to ask if he would agree to collect the retail sales tax at the border. In order to do this, we have to be prepared to have a bargaining tool to take with us. I am prepared, in consultation with the Treasurer and other ministers affected, to introduce an amendment to extend the federal returning-resident exemptions to retail sales tax. All the indications we have got from the federal government thus far have said quite plainly that it will not collect our tax. Maybe by offering to have the same exemptions as they do, we may be able to collect some. I do not know, and that is something that we are presently working on.

Mr Kwinter: I have several questions that I would like to pursue. One of the things that bothers me about this whole issue is that I do not think we really have a handle on the magnitude of it. I think that all of the figures are predicated on what happens with declared goods at the border. I do not know what the proportion is, but it could be one fifth, a tenth, a hundredth of what really comes across the border.

Do you not think it would be valuable for the Ministry of Revenue to at least identify, as accurately as it could, the magnitude of the problem? You can come across the border and if you have gone over for the day and if you claim that you have bought less than $20 worth of goods, you just say that and away you go. Again, without trying to impute any motives to people, I would be surprised if anybody goes over to Buffalo for the day and spends as little as $20, but they come across and they say that they do.

If we could get at least an idea of the size of the problem, it might justify some measures that might seem to be terribly expensive, given the problem as we see it on declared goods, but may be very, very small in comparison to the actual dollar value that is flowing out of Ontario.

I do not know if any of your officials or anyone has an idea or has thought about trying to identify the size of the problem.


Hon Ms Wark-Martyn: We have definitely thought about identifying the size of the problem and realized that it is a very large problem. We do not have a handle on probably how serious the problem is, because as you say, a lot of people probably go through, they say what they have purchased but have not said what they have not purchased, or have acknowledged what they have not purchased.

I think doing a study -- we have talked about it in the ministry and I have talked about it with the officials -- would be very hard to do. It would have to be a study to get a magnitude from one particular area. I could ask Roy if he wants to comment any further.

Mr Lawrie: I think that only Canada Customs is in a reasonable position to size the problem, and I think it does have occasional surveys of people crossing the border, where they are asked to fill out a detailed questionnaire on what they purchased. From our perspective, it would be nice to know exactly how much revenue that we are missing, but we would require a further breakdown than the federal government would to determine which of the items would be taxable from the point of view of retail sales tax, which is not the same base as GST, as you know.

We have also examined the possibility of trying to estimate the loss over time through looking at our own tax role in the border areas, but there are problems with that, particularly with chains, where most of their revenue, according to the tax roll, is attributed to the head office of the chain. It is not on a retail outlet basis. That is not how our tax roll is structured, basically because that is not the way the vendors want it. They want one account for the entire business. So there are difficulties in estimating it by way of a drop corresponding to an increase in statistics out of Canada Customs and also out of various studies that have been done by municipalities on increasing border shopping.

So there is a problem. I agree with you; it would be nice to be able to quantify it, but Canada Customs is really the only people who are able to do it, and even then only by way of a partial survey. As you know, you do not always make a written declaration to customs, coming back over the border.

Mr Kwinter: That is exactly my point. I would say that the bulk of the people who come across the border who have been day shopping do not make a written declaration. They just say, "I spent $20," and away they go.

Mr Lawrie: That is right.

Mr Kwinter: It would seem to me that given the fact that we have pollsters and researchers who can supposedly determine within three or four percentage points the accuracy of anything that they want to poll --

Mr Sterling: Except for Goldfarb.

Mr Kwinter: Well, there are some notable exceptions.

You would think that they would be able to do a survey. I am not as concerned, although I am concerned, about the loss of revenue as far as the Revenue ministry is concerned, about not getting its 8% retail sales tax. That is an issue, but I am far more concerned with the loss of economic activity in Ontario that is going over to the United States. The numbers would pale in comparison, like the loss of retail sales tax compared to the dollars that are being spent in the United States and are not being spent in Ontario.

So it would seem to me that some creative researchers could devise some method whereby they could actually sample people coming over, and as I say, if they did it properly, where they could assure them that they were not in any way trying to catch them or fine them or do anything else but just to get a realistic evaluation of: "How much did you spend and on what kind of objects? It's not attributable; we're not going to do anything about it other than just to try to get a handle on the issue."

It would seem to me, as I say, that there are companies that could creatively do that, because it seems that until we really know the size of the problem, we are not going to be able to come up with a solution.

If I could just go on to another area that follows on this, which deals with the size of the problem, have there been any studies by the Ministry of Revenue or any other ministries in the government to determine the impact of crossborder shopping as it applies to municipalities that are not normally considered border communities? The minister announced that she, in fact, lived in a border community. We discussed this the last time this committee met. It would seem to me that if you have Thunder Bay, which I think is about 200 miles away from the border, considering itself a border community and considering itself impacted by cross-border shopping, virtually every municipality within 100 or 200 miles of an American border-crossing point would have the same impact. Has there been any research to determine the size of that particular problem?

Mr Lawrie: Not as far as I know. There may have been by other ministries.

Going back to your original question, I understand that the Ernst and Young study that was done in Sault Ste Marie was on the basis of detailed surveys done, asking people what they purchased when they were away. My understanding is that one result of that study was that 36% of total dollars spent were spent on gasoline and 27% of total dollars spent were on groceries. There is one study, I do not know how extensive it was and how statistically reliable the results were in predicting overall patterns, but it has been tried and there have been estimates of who is spending what.

It is certainly clear, as I am sure you know, that driving to the United States for a weekend, particularly to take advantage of $100 exemption, is now not an uncommon thing as far away from the border as Whitby or Oshawa, whereas it used to be. There has been a tremendous rise in the number of Ontarians going across in the last few years.

Mr Kwinter: If I can just end by making two comments. One, the minister referred to the potential of an advertising campaign to educate Ontarians as to the economic effects of their shopping in the United States. I would suggest that could be a double-edged sword. By buying cheap goods in the United States and the benefits that are there, you are depriving Ontarians of a place to work, although I support it. You are also going to have the problem of bringing it to the attention of a lot of people who may not have been doing it, who may say: "This must be something that we should look at. I guess somehow or other we are not as bright as some of these other people. We should be going over to the United States and dealing with this."

The second comment is about the Sunday shopping. I think it is true that when you talk to the mayors they say that Sunday closing is not the reason people go across to the United States. But what I think is true is that up until recently, when Sunday shopping for the last nine months or so was wide open, people were going because of the economic benefits. I think there is no question that that is the driving force.

The fact that there is Sunday opening in Ontario or not is not going to deter those. But there are people who normally would be able to shop on Sunday. They would not go to the States, even when they could. But now that Sunday shopping is closed, they will go. So it will not impact on the people who are already going, and Sunday openings or closings are not going to change the number that is there. I have no proof of this, but it would seem to me that the people who were not going across to the United States, more of them will be tempted to go if they cannot shop on Sunday here and they can shop there.

Mr Stockwell: Other than some gut feeling, such as Sunday shopping has very little to do with the cross-border shopping, the GST and free trade that brought some kind of perception that shopping in the United States is better or cheaper or so on, you have very little data to offer us as far as lost revenues and rationale and reasoning. Would that be fair to say?

Hon Ms Wark-Martyn: Yes, it is very hard to obtain data for lost revenues, because we are not at the border crossings right now. We do not know. Our tax bases are different from the federal government, so that makes it very hard to measure.

Mr Stockwell: You have very little hope in the very near future, other than this meeting with Mr Jelinek where you are taking a chip to negotiate with, that we will have any glimmer of hope in the future as far as marrying some goods with the federal government so that we can collect tax in that way.


Hon Ms Wark-Martyn: We are doing what we feel we can. We feel increasing the tax base would only drive our consumers more so over the border.

Mr Stockwell: Yes. I do not disagree with you.

Interjection: Do not drive them any further.

Mr Stockwell: No. The other question is, do you believe that your ministry has any role in resolving this problem and, if so, what?

Hon Ms Wark-Martyn: Our ministry does have a role in resolving this problem. I think there are many ministries and many people in municipalities that have a role. Business has a role; we all have a role in resolving this problem.

Mr Stockwell: I am far more interested in your role and what you see it as.

Hon Ms Wark-Martyn: Okay. I think we should educate the people on the retail sales tax, that it is something that people should be paying, because most people whom you talk to after they have gone through the border crossing feel that they have paid all the tax they have to pay. Many people are not aware that there is also a retail sales tax that they should be voluntarily paying. Maybe people do not realize, and that would be where the education comes through, why they have to pay this retail sales tax, where this goes to. The dollars go to our social system, our health system, our education system, municipalities receive grants. We need this tax base to stay in our province so that we can stay as a province and be able to build economically.

Mr Stockwell: Anything else? Because that is pretty hopeless. You can talk all you want and try to convince people to pay tax; they are going to say, "Buzz off, I already pay enough tax." If they can get away with it, they are going to get away with it.

Hon Ms Wark-Martyn: If it is done properly and effectively, and if there is more than just my ministry doing things to heighten people's awareness, I think it will have an affect.

Mr Stockwell: The other question is, if we wanted to get to the root of this problem and bring the proper ministry in to question what the heck your government is doing -- and I am not suggesting it is your problem or whose problem, I do not know who is picking the ball up on this one in your government -- I would really like to talk to that person. Who is it that we should be bringing in to ask very key, probing questions, exactly what is going on, how you are resolving the problem and trying to help these border towns resolve the issue? Clearly it is not you. Who is it, do you think?

Hon Ms Wark-Martyn: I have a role to play in this.

Mr Stockwell: I know, yours is in education.

Hon Ms Wark-Martyn: So do a lot of other ministers. But the real person you should be talking to, I really feel, and I would feel you may have more of an impact on this person than I do, is Michael Wilson.

Mr Stockwell: He will not come, I am sure. He probably will not come. We have a lot of trouble getting guys like you down here. We would probably have a very great deal of difficulty getting Mr Wilson down here.

Besides that, I know you suggest that and I keep hearing that, but there must be some role your provincial government could play. All I am asking you specifically is, who is it that I have to request to come to this meeting who can answer some questions? What are you doing?

Hon Ms Wark-Martyn: You have to ask all the ministers who are involved, border town community mayors, the mayors group. Those are all people who are involved. All levels of government are involved in this issue. It is not an issue that the Ontario government is going to pick up and say, "We have this problem, we are responsible for this problem, and we can solve this problem," because we cannot do any of the above on our own; not one person in this government, not one ministry in this government.

Mr Sterling: I guess the only solid figure that we have in terms of the problem is the actual declared amounts that are being made. What are the declared amounts coming into Ontario in a year?

Mr Lawrie: Our system is not set up to analyse the source of retail sales tax paid voluntarily, but I think it is fair to say that we feel it is well under $1 million annually in terms of voluntary payments from people returning from cross-border shopping trips.

Mr Sterling: Okay. I wanted to ask that question, so I appreciate the answer, and that was later. My question was, in terms of the people who do declare -- and I think it is, as Mr Kwinter has said, a minority of the number of people who do come across -- how much is declared in a year across Ontario borders and at the airports under the federal government? Surely you have that figure.

Mr Lawrie: We would have to get that information from Canada Customs, but we will try and get it right away if your are interested.

Mr Sterling: You mentioned that there are differences on the tax base. I think you mentioned, Minister, there were really only three differences, shoes or something under $30. What were the other ones?

Hon Ms Wark-Martyn: Those were the only ones that I mentioned.

Mr Sterling: Children's clothing?

Hon Ms Wark-Martyn: Children's clothing, books.

Mr Sterling: So relatively speaking, you know we are talking about a minority or a very small number of items that might have been brought across the border and declared. What I cannot understand for the life of me is that we have a serious problem here. I do not think there is one member of this committee who would think that if you were collecting retail sales tax at the border that would have a very sobering affect on people going across to the United States and shopping there. Quite frankly, I am amazed you do not have the basics to start from.

I am flabbergasted that you come into this committee and you do not know how much has been declared coming across into Ontario by the federal government, because my empirical analysis would be that I would say we collect a million dollars from people voluntarily. There is so much being brought in; multiply that times the provincial sales tax and you have a rough figure, where your very low estimate would be. I am just absolutely astounded that we do not have even that kind of concern on the part of the minister to provide this committee with anything that is of any value.

I hate to be so outspoken on that, but I would have thought that there would be -- and I believe that the Ministry of Revenue, when it goes to collect the tax, figures out what are the possibilities of the revenue to the government, and then you calculate how much it is going to cost you to collect that. If there is not a good ratio there -- in other words, if it costs you more to collect than what you are going to collect -- then forget about collecting. It just does not make any sense to do that, but I thought that would have been the first step that you would have done.

You have to have some kind of estimate as to what you are losing. You know the low estimate I am talking about. Do you have any kind of estimate? Is it $1 million, is it $10 million or is it $30 million?

Hon Ms Wark-Martyn: The Ministry of Industry, Trade and Technology did an estimate for eight border communities in Ontario and its estimate was $340 million to $360 million per year.

Mr Sterling: Okay. So let's take $340 million. If you offered to the private sector a contract to collect or put out a tender to the private sector to collect, do you think you would get a tender under $340 million? It astounds me again to hear your arguments and say that it is an impossibility to collect this $340 million.

Mr Hansen: You are talking 8% of $346 million.

Mr Sterling: Okay, so we are talking $26 million.

Mr Lawrie: No, the $340 million is total retail sales. Not all of it would be taxable. In fact, most of it would not be.

Mr Sterling: Okay, so you have no figure on what it is. Now, you say it would take five people at each border crossing. I find it hard to believe that in Prescott you are going to need five people. I know you have to cover all the shifts, etc. I do not know whether that is an average that you are using or whatever. There are how many, eight border crossings?

Hon Ms Wark-Martyn: Fourteen.


Mr Sterling: What kind of cost are we talking here? Have you done any cost analysis at all on what it would cost to collect it?

Mr Lawrie: I believe our rough estimate of total costs would be in the $10-million range. That is ignoring the provincial borders, the borders with Quebec and Manitoba; only road crossings and international airports and providing a 24-hour service.

Mr Sterling: What would it cost to do it with the federal government?

Mr Lawrie: It would depend on how much they wanted to charge.

Mr Sterling: Are you offering them money to collect the provincial sales tax?

Mr Lawrie: We would expect, from our experience in other taxes, that they would want to recover at least their costs, and of course we would want to pay at least that. It is a question of how you prorate those costs. If you are collecting with federal and provincial tax, then some of the costs should be prorated.

Mr Sterling: Oh, absolutely. If you go and talk to Otto Jelinek, I think you should be prepared to put some money on the table. We pay them for collecting income tax; I forget what it is, 1% or whatever it is of the tax collected. I do not see any reason why you cannot enter into a similar agreement on this end of it.

I just do not understand why you are not being more aggressive in trying to strike a deal with them, even if you can break even on what is happening here. Because it is obvious from the deputations that we heard in the prebudgetary consultations that cross-border shopping is having a very, very significant impact on border communities, particularly for members down in this area.

I do not like putting taxes on shoes under $30 or on books or whatever, but it seems to me that those are pretty minor, insignificant changes to make, considering the overall effect of what is happening here in Ontario. Even if you have to alter your tax base on three items, it does not seem to me that is a significant situation.

I am also concerned about the fact that you are talking about a great deal of training required for the collection of tax. We ask our private sector, of course, to make changes in collecting tax at the drop of a hat. I do not quite understand the significant amounts of training involved in doing this task.

You can blame the feds, you can blame everybody else, but I am really upset that the provincial government is not aggressively going after finding the solution and putting some money on the table when it is talking with the feds, to say: "Look, we are going to benefit. Our revenues are going to be increased, our communities are going to be better off if in fact we collect provincial sales tax." By Jeez, it is about time the Minister of Revenue and this government did something about it, because they have, in my view, all the means to do it. Why do you not do something, Minister, that is aggressive?

Mr Williams: If I might say a few words on that, we are, of course, not the only province that is involved in the cross-border shopping issue. Some of the other provinces before us have in fact pursued it aggressively and the federal government has refused to negotiate any agreement to collect the tax at the border.

We suspect that unless they can get all provinces at the same time to join GST, then they will not go ahead with any agreement to collect tax for any one province, because if they collected it for one province, then that province would be at a disadvantage vis-à-vis any other province. If Ontario were having its tax collected at the border, then everybody would cross into Quebec and come back into Ontario that way, just to avoid paying the tax.

In addition, you ask about the exemptions. You said there were --

Mr Phillips: I will drive from Buffalo.

Mr Stockwell: Yes, and we are going to go through Manitoba, that is for sure.

Mr Williams: In the Brockville area, it would not be quite that far. But you mentioned the exemptions, of shoes of $30 and under and books, as being rather small. I think that you would find the issue of children's clothing much larger.

Mr Sterling: Maybe you have to train your people to make an exception under those circumstances. But notwithstanding that, which problem is bigger? I do not know. Maybe you do something in terms of giving people who have children some kind of rebate on their provincial income tax form to offset that if you want to continue to have it.

I say doing nothing is -- you are just watching the retail trade go down the tubes in Ontario and you are continuing to fob it off on the federal government as though it is its problem.

Look, Quebec has said that it is in. If Ontario is into this thing, then it is done because you have probably 70% of the cross-border shopping done in those two provinces. I do not understand the reluctance of this government to be aggressive on the issue.

Mr Williams: The three provinces identified as being the highest cross-border-sales issues are British Columbia, Ontario and New Brunswick. Quebec is not a big issue, apparently.

Mr Sterling: What percentage are we?

Mr Williams: The studies do not indicate. There is only one border crossing in British Columbia.

Hon Ms Wark-Martyn: I am curious, do you really think that if the retail sales tax was collected at the border, people would not cross-border shop in these towns?

Mr Sterling: I think it would have a very, very sobering effect on the practice. It depends on how stiff you make your collection procedures at the border, how many searches are done, all that kind of stuff.

Mr Hansen: I cannot understand why the federal government is allowing the amount of tax lost on gasoline, just the same thing as the provincial government is losing.

I have not got all the solutions to the problems. I had been thinking about this for quite a while. It has been an ongoing problem in our particular area for actually the past couple of years. If the feds do not want to collect at the border, it is too bad that we did not have an envelope that when they went in declared on GST that we had a copy from the federal government of their payment of GST. You can turn around with just an envelope there that a person picks up to send the money in to Ontario. If the person fails to send it in, then we bill them for the service charge for the money that they owe. It is just an idea. I am not a professional finance person, but I am just coming up with a few ideas. Could you comment on that, or have you looked at that already?

Hon Ms Wark-Martyn: Yes. The federal government will not give us that information. We have already looked into that.

Mr Hansen: The other thing is -- and Mr Kwinter is just sort of relating -- we went through this discussion with other people and our own committee on the actual amount of money that is coming across the border. It is an area that we really do not know, because you can get four ladies in a car and each person, say, with $35 worth of groceries, plus fill the truck up. If there are four different families, they take a look at four different purchases. If you come across with your family, they look at it as a family purchase, only one, say $35. I am talking about street talk, what I hear, what goes on at the border. I am not very far.

The other thing that someone brought to my attention this last weekend is an ad that appeared in the Welland-Port Colborne Evening Tribune on, I believe it was, Saturday. The ad in the paper stated -- and I was talking to somebody on this and as I say, this is street talk; I have not investigated it at all -- they are advertising pools in the United States, a 24-foot round for around $1700 delivered to your driveway in Ontario. In other words, it is going to get dropped off.


I understand -- and this may be an area we have to investigate -- that you purchase the pool in Buffalo, you pay for it in Buffalo, and it is going through a distributor here in Ontario which is the very same company, but actually you pay New York state tax because it is cheaper than paying Ontario sales tax. So I would like it if the retail sales tax branch would get back to us on exactly what is happening. I think we have to be a little bit of a detective too, to find out where we are going wrong, not just saying, "What can we do?" But I think, as Mr Sterling is saying, we have to get into the problem and see what we can do to solve it.

Mr Williams: The issue that you are raising is where the vendor outside of Ontario makes delivery into Ontario of goods, and we would certainly obviously like to know who those people are. We would even more like to know who the customer was and therefore we could raise an assessment.

We have an agreement with each of the other provinces, as the minister indicated earlier, where in fact we can get this information if it comes from Manitoba, if it comes from Quebec, if it comes from Alberta, if it comes from Nova Scotia. It does not matter, we can get that information. So far, we have only been able to get an agreement of that nature with the state of Ohio. We have been actively pursuing it with the state of New York and the state of Michigan. Unfortunately, they have legislative problems in being able to provide that information or to give us such an agreement, but they would like to do it and they are working on it.

Under these agreements, they would list for us all sales which they made exempt of their own tax because the vendor delivered it outside of their own state. They would provide us with that information, they would provide us with the name of the customer, and we would simply ask if the customer has paid the tax, and if not, "Here is your bill."

Mr Phillips: I think the presentation kind of highlights the challenge we are going to have, and that is to get the data. My recollection of MITT was that it was going to give us in two or three months where the cross-border shoppers are coming from. I think they said that. That is one thing. All of us have opinions but nobody has facts, opinion being that the cross-border cities or towns are moving closer and closer to Toronto or further and further from the border and past Toronto.

The second thing is I am trying to list the facts we are going to need in the end to deal with it. One is, where are they coming from? The second is, what is the magnitude of the problem? I think we have heard today you are not sure of it, no one seems to know.

The third thing I am learning here is that this is a bit of a tar baby and nobody wants to grab hold of it because the solutions are not obvious. So I realize it is convenient to say, "Well, go and see Mr Wilson," and then it is Mr Wilson who will say, "Well, you go somewhere else." We are going to have, I think, a challenge with this one because no one wants to get hold of it. I do not think that will be an acceptable answer for the people who are going to be impacted by it. They are going to want this Legislature to do something.

The other thing is, I think the study may in the end show us the prices, Canada versus US. When all is said and done, if in fact you can go over there and buy dramatically cheaper, legally, all the other stuff we try and do in the end may just be fooling people. That does not say there is not a bunch of things we have to do. I do think there is a bunch of things we have to do over the next two to three years, but if, when MITT's study or the federal government's study lists all these items for us -- and as I say, if there is a dramatic difference legally, you can go and buy dramatically lower, we may be trying to push water uphill.

Having said all that, one thing that I believe mayors will be coming to us for is Sunday shopping, even though the minister says that is not an issue. I think the city of Windsor already has said it is an issue and has moved on it. So I have two questions really; that will be one of them. The second one is, I think they will be asking for some differential in gasoline prices on taxes away from the border. In other words, the tax will be, whatever it is, 5 cents a litre at the border and 10 cents a litre in Hamilton and 15 cents a litre here, that sort of thing.

My questions to the minister: One is, apart from the opinion, do you have any evidence that would support your Sunday shopping belief that it really is not a particularly relevant issue in here? For example, what percentage of cross-border shopping is done on Sundays and what were the differences in cross-border shopping before and after the openings? Are you planning to track Windsor shopping before and after Sunday openings? Presumably, they have closed for a little while.

My second one is, have you plans to have a tax differential on petroleum products from the border or away from the border?

Hon Ms Wark-Martyn: This is a challenge. It is a challenge for all of us and it is something that I think everybody who has been affected by it wants to get a handle on, but the only way we can get a handle on it is if we all decide that we want to work to resolve it. The problem that everybody is facing is with the federal government and the value of our dollar. That is a real problem in getting them to deal with it and to learn what it is doing to each of the provinces and the communities and getting them to want to help us resolve it. It has to be something that is very serious and is a very key issue in resolving the problem. It is not that no one wants to resolve it -- people do want to resolve it -- but everybody has to be in on the game to resolve it. We cannot resolve it on our own without the assistance of the federal government. No one can resolve it.

Mr Phillips: Can I just comment on that, because we had the MITT and it said that the tariffs are, on average right now, 12%, I think it is. They are going to go down over the next eight years to zero. No one is predicting that the Canadian dollar is going to drop 12% versus the US dollar. So, if a lower Canadian dollar is your solution, you may be grabbing smoke there.

Hon Ms Wark-Martyn: The other thing is, there were some studies done on Sunday shopping when the cross-border communities did have Sunday shopping. I know the Thunder Bay Chamber of Commerce did one. They see no difference in the shopping in the community on Sundays. People were still going to the US for the weekend, for a trip, to get away, and were doing their shopping in the US across the border. They were still not staying in the city to do their shopping. Fewer people were going out on Saturday and you had a few going out on Sunday, a Saturday decline in the workload in the stores in what they were bringing in. They were bringing in more on Sunday, but they did not see Sunday shopping, having the stores open on Sunday, bringing any more dollars into their stores.

So there were some studies done. Sunday shopping and cross-border shopping I think are two very separate issues. People are grabbing at straws to say, "Well, if you let our stores be open on Sunday, then we will not have cross-border shopping." You will have cross-border shopping because consumers feel it is cheaper to go across that border and pick up whatever it is they need and bring it back.

Mr Phillips: Do you have any evidence of that? That is all I am saying, because I think Windsor, just last night or a couple of nights ago, did not think it was grasping at straws; it thought it was doing something significant. I gather St Catharines or Niagara Falls is going to deal with it tonight, not thinking it is grasping at straws. But do you have any empirical evidence that would help them or us determine what impact Sunday shopping has?

Hon Ms Wark-Martyn: I know the chambers of commerce have done studies. I have talked with them. Sunday shopping was an issue. I know when the northwestern Ontario chamber of commerce was here, it did not link Sunday shopping and cross-border shopping as the same issue. They said that it was totally separate, and doing one will not resolve the other. They were two separate issues that they were looking at and did not see them as affecting their economy in such a way that they would stimulate a lot of economic growth by being open on Sundays.

Mr Phillips: The gasoline tax?

Hon Ms Wark-Martyn: The gasoline tax is under the jurisdiction of the Treasurer, as you are aware. If you put in the gasoline tax around border areas, you would have a domino effect within the province because, as you said, people from the middle of the province now are going out to cross-border shop. So I think that would be something that would have to be looked at very carefully.

Mr Phillips: Has anyone looked at it?


Hon Ms Wark-Martyn: Yes, we have talked about it. But it is under the jurisdiction of the Treasurer, so he will be making the final decision in bringing it to cabinet. But it has been something that has been discussed.

Mr Phillips: Is the belief that it would positively help border communities?

Hon Ms Wark-Martyn: There is some talk that it may; there is some talk that it may not.

Mr Phillips: Well, that pretty well clears it up.

Hon Ms Wark-Martyn: Yes. People go over to buy and they end up getting their gas there, but they probably end up getting other things while they are there.

Mr Phillips: That is the point the cross-border people make, that they go for gas, then they are getting other things that, if they did not go for gas, they would not get.

Hon Ms Wark-Martyn: It is something that we are discussing. I do not have a firm answer to give you on that right now.

Mr Phillips: I am just trying to get the information. We are going to want recommendations, and if there is some evidence that would be helpful to the committee in terms of the impact of a gas differential -- because I will repeat what I said earlier, I have a feeling that our solutions will have four or five things, none of which will solve it, but all of which will be mildly helpful. That is why I think Sunday shopping will not solve it, but it may be mildly helpful for a portion.

Hon Ms Wark-Martyn: Okay. Do you have some stats?

Mr Lawrie: Yes. Obviously, the province of Quebec has a differential gas tax rate the closer you get to the border with Ontario, as well as the border with the United States. Our information from there indicates that it does not really achieve the intended objective, the reason being that there is a drop in retail gas prices initially, but very soon it disappears, within one to two years, because of marketing practices inside the trade. There is also massive evasion.

Mr Phillips: There is massive what?

Mr Lawrie: Evasion. There is a built-in reason to show that product is being sent to low-tax areas when in fact it is not. Also, there is a built-in incentive to actually move product that is sent to a low-tax area to a higher tax area to sell, and unless you put in a lot of compliance resources, auditors in other words, inspectors, to track the flow, the volume of product, then you are going to get massive evasion.

So the three things that I think have been experienced in Quebec are that it did not achieve its original policy intent; it was very much more expensive in terms of lost revenue than you would otherwise think -- really, the evasion problem -- also, if you want to have it monitored in any reasonable way at all, it is very expensive.

I have some figures for Ontario with respect to that, because this is an issue that we have looked at. We have looked at it before, not only with regard to the US border but other specific areas within Ontario. Right now, 1990-91 fiscal year, our total expected revenue in gas tax is $1.4 billion. Our total cost of collection is $1.6 million, everything. So roughly speaking, it costs 0.1 cent for every $100 that we bring in. It is a very cheap tax to administer. I think it is our cheapest. The basic reason for that is that it is levied at the refinery wholesale level. There are only 45 collectors in the entire province. We do not need to track where gasoline goes, as long as this rate is the same in Ontario. All we need to track is gasoline coming into the province and gasoline going out of the province. So you do not need an army of auditors.

Basically, there are about 10,000 retailers of gasoline in Ontario. There are about 3,000 of those within 48 miles of the US border. The present rate is, I think, 11.3 cents a litre on unleaded. In other words, for each cent a litre, you bring in about $120 million a year, and there are 10,000 retailers. So for every thousand retailers, you bring in $12 million a year. So if you were to drop the tax by three cents, for example, for the 3,000 or so retailers close to the US border, it would cost you $108 million in revenue in a year initially. In order to prevent evasion and avoidance, mainly evasion, you would probably need to double the existing costs of administration because you would need to carry out audits, you would need to track product and you would also need to carry out audits at gas stations, reading of the meters, to make sure that the figures were not inflated and that you are not on a paper chase. So it is very expensive.

Mr Phillips: Yes. How much do you think we are losing right now to the US?

Mr Lawrie: We have not tried to estimate that. Perhaps they have in Treasury in terms of day trips and gasoline bought outside the province. I have not got the figures at my fingertips, sorry.

Mr Phillips: Presumably if we are losing in those areas 15% to the US, you could offset your 3 cents a litre very quickly.

Mr Lawrie: If the differential was enough. If you are looking at a differential gas tax rate, perhaps it should be participated in by other governments. Perhaps the federal government should participate in it. Surely an incentive is there for it too. At least that would be the policy rationale. Perhaps the municipalities that think it is a big problem might be able to share in it in some way and perhaps industry might be able to share in it in some way too. It is not a particular provincial tax problem. As a solution maybe it would work but it would need a lot of policing. It is obviously done in Quebec now. I cannot possibly say that it is not possible to have such a differential rate; it is possible. It is a question of how tight you want it to be.

Mr Kwinter: I would like to talk about this gasoline tax and the differential. I really think it is a mug's game. What they are really talking about is that the market would deal with it. If you are in Quebec and you are near the Ontario border, the gasoline wholesalers and retailers would adjust their price to take care of what they perceive to be the marketing differential, if they are losing market share. But for the government to get into it is just going to exacerbate a problem that in the years that I have been here I hear of constantly, and that is people in the north complaining that they are paying too much for their gas compared to people in the south, people in the east complaining that it is too much more than what they are paying in the west.

You would have a situation where, as I talked about earlier, people would be saying, "Well, I am in effect a border town." whether they were or they were not. And how do you define what is a border town? The other major issue is, even if you are, say, in Fort Erie or in Windsor, not everybody in Windsor who drives a car goes across to Detroit to buy his gas. But by reducing the price, you would get everybody who buys his gas at reduction and it would probably more than offset any of the advantages that you would get. As I say, it really is a mug's game to my mind. I would love to see someone come up with a scheme that he thinks would work.

I cannot see how it could possibly work, because the differential at the present time is too great. To bring it down to a level that was going to make a difference would give benefits to the general population in the area that would more than offset it, plus get pressure from the areas that are too far to be classified as a border town saying, "You are just exacerbating the situation," as it is now. The people in northern Ontario, it is going to be worse for them, so I do not see that as a solution.

I also want to talk about the Sunday shopping. I think there is a misunderstanding about the issue. I do not think anyone is suggesting that if you had open Sundays it would solve the cross-border shopping. I agree that they are not related in that way. The people who are going to the United States to shop are going on Sunday whether it is open or it is not. We have been discussing this issue in this committee before the Supreme Court came down with this ruling and we were concerned about cross-border shopping. So it was not that we were concerned that if Sunday was to be shut down it would be a problem. It was a problem then.

I think it is fairly logical that it is going to be exacerbated. It is going to get worse because people who were able to shop on a Sunday will not be able to. The only alternative, if they want to do Sunday shopping and they live in a border town, is to go across to the United States, where they might not go if they could do it. I do not think it is going to lessen it. It is just going to increase it. To my mind, I think that is a very obvious conclusion.


The other comment I want to make is on the discussion about whether or not effectively implementing the 8% retail sales tax would really be worth while and generate any revenue of a meaningful kind, seeing how much of the goods which are brought across are sales-tax-free anyway, or exempt.

The concerns that I have are the concerns that Mr Hansen raised and some of the concerns that this committee has heard. It is not the normal, typical householder who goes across the border and buys her groceries and buys her milk and buys her gasoline and buys the odd little thing. The stories that we have heard are where people are going across with trucks and buying truckloads of siding, plywood and roofing materials and all of these things and bringing that back.

Without the economies of scale and without the distribution advantages and without all of the other things, that 8% in itself may be an incentive. The guy is having a large enough purchase and he feels that if he can go across to a US border community and save 8% on a $3,000, $4,000 or $5,000 purchase, where he will pay the federal duty, pay the GST, but save 8%, that in itself might be enough incentive. I think that is something we should be looking at.

Mr Hansen: As Mr Kwinter just mentioned, we are talking about the simple things that are coming in. I have a block supply company in Beamsville and I met with the chamber. They were complaining about cement blocks coming over here to Canada, where just down the street there is a cement block plant. We are getting down, not just to the milk and the gasoline and those purchases of cigarettes etc, over there, but it is getting into some of our basic products that we produce in the Niagara Peninsula. So it is becoming quite competitive.

I think it would be very interesting on the day that Tony Commisso -- he was one who I had said should appear before this committee -- not asking as a committee, but as an individual knowing Tony and involved with this. He has been very aggressive as a businessman in the Niagara area with his ads. I think he had four litres of milk for $1.99. You are not going to get it cheaper across the border by the time you exchange it. So I can see a lot of aggressiveness by the retail trade in our particular area. But they still get stepped on because we have advertising coming in from the United States advertising these loss leaders to attract customers across there. Here we are, trying to get it to work in our area and being stepped on, especially when it is printed in the USA, delivered across the border and inserted in one of our local papers. Next week I think we will find out quite a bit.

The other thing is that I live in Ontario, but I always thought I lived in Canada too. I am not trying to knock the federal party on that point, but I think I am a Canadian. If we get into looking after Canada, looking after Ontario and BC and the rest of them to follow, if we are going to cut the price of gasoline on taxes at the border, then the feds should be matching what we do at the border. This is a problem for Canada. It is a problem for Ontario, and I think that we should be talking to Mr Wilson to say, "This is a problem for both levels of government, not just the provincial level." I do not think we have to support everything here in Ontario just from the provincial level. We should be coming together as Canadians to fight this problem.

Mr Stockwell: I think the last statement was very clear, it was very to the point. I agree with it. Somebody has to give up revenue somewhere. I am not going to suggest for a moment that the province is the only one that needs give up the revenue; the feds need to give up some revenue as well. I agree, we are gouging them; at the gas pumps we are gouging them. If we were in the private sector, you would be charged with gouging for the amount of money you are generating in revenue off some of these things: the sin tax, the gas tax and so on down the line.

Mr Kwinter: By the way, there is no such charge as gouging.

Mr Stockwell: Yes. There is no charge of gouging. What do they call it?

Mr Kwinter: In interest rates they call it usury.

Mr Stockwell: Usury, that is it. Okay, let's just leave it. I like "gouging" better, it is a better word. The difficulty is that somebody is going to have to give us some revenue. You can have all these tremendous plans, which is the $1,000 free credit in the shopping, and you can have revenue -- different taxes at different points in the province, which is totally unfair in my opinion, and you can go through all this theory and you can get all the information you want. Frankly, I am shocked you do not have it. I thought you would have had it, but it really does not matter. Even if you did have it, so what? We would still be losing it. We would just know exactly how badly we are being burned. Maybe it is better we do not, sometimes.

The question is, though, that somebody has to give up some revenue and it is either the feds or the province. If you are going to become competitive again, as I said before, someone is going to have to come forward and cut a deal with the federal government to reduce the tax on some of these items that are crossing, because once you are even through all this, and Mr Kwinter made the point last meeting, once you are through all these little programs and adjustments and so on, if it is still significantly cheaper, they are going to cross the border. Case closed, done. They are going to cross the border. So I would ask this minister to go see the Treasurer and make this point very clear to him, if he is not prepared to reduce some of the taxes on the hooks -- and I classify the hooks as gas and alcohol, cigarettes and so on. I think those are the hooks that people go over the border for and then they happen to finish their shopping, because there are significant changes. If it is getting to the point where they are going over for cement blocks, then we have some really serious problems in this country -- very, very serious problems -- and this problem is going to be far bigger than any of us thought it would be.

So I would ask this minister and this ministry to go back and quantify the results of the amount of moneys we are losing. But you had better examine the fact that we are gouging them, and until you deal with the gouging that is taking place on taxes in this province, you are never going to resolve this issue. Frankly, it is a waste of our time to sit around talking about this and talk about hokey smoke-and-mirror inducements and thoughts of resolving this issue when no one seems to want to look at the real issue, and that is the tax issue, how much people are paying on tax in this country and how much they are not paying across the border. Unless you are going to make it illegal to cross the border and come back with products, they are going to continue to do it.

You can laugh all you want. If you want to go down and cross the border yourself and buy a product across the border -- I know people who are going across the border and buying stereo systems, from Etobicoke, where I am from. They are driving all the way to Buffalo for an hour and a half or two hours and buying two or three stereo systems because they are going down together in a group and they are literally saving 50% or 60% of the cost of the stereo system. You cannot tell me that we are that uncompetitive because we are not as bright or we are not buying as well. There has to be something more to it and that includes the tax position. If you want to fob it off to the federal government, go right ahead. I think they are as much to blame as you are, and the Liberals were, but it is not going to resolve the problem.

Hon Ms Wark-Martyn: I would say to the member, if we were to cut all these taxes, which services were you planning to cut?

Mr Stockwell: I have a list this long.

Hon Ms Wark-Martyn: I am very sure that you are aware of the differences between Canada and the US in our health system, in our social system, in our educational system --

Mr Stockwell: I am very aware of it. I have a list this long, if you want it.

Hon Ms Wark-Martyn: -- and our workforce differences that we have between the countries which explain a lot of the differences in the past.

Mr Stockwell: I totally understood it, but if you are not competitive, it is not going to be different for very long.

Hon Ms Wark-Martyn: The other things that you mentioned here for solving the problem, you talked about harmonizing with the GST, increasing the tax burden so that our people are paying more tax and the larger tax bureaucracy, all three of which were different from what you were campaigning on in the election, so I would really like to get it clear where you stand. You do not even stand with your own federal party.

Mr Stockwell: No, that is true. I made that very clear too.

Hon Ms Wark-Martyn: I think you have to go back and do some insight into your thoughts and what you are talking about. The differences between Canada and the USA are very phenomenal. The differences between Ontario and the USA are very phenomenal, and what they have and what we have. There are many reasons why people go cross-border shopping. People have to understand, and people in Ontario, people in Canada, do not mind paying tax. It is when they pay tax and they do not know what they are getting for the taxes they are paying that they start to mind. I do not hear people in Ontario saying: "We don't want a health care system. We don't want an educational system. We don't want some of these social programs."

Mr Stockwell: You might be right.

Hon Ms Wark-Martyn: In that case, they do not mind paying the tax as long as we are able to tell them where their tax dollars are going. So I think that explains a lot of the differences between the two territories when you are talking about why people are going shopping and why they are buying in the USA.

The Chair: Okay, I get the last word in this, if there are no other questions. There is a way that we might be able to get a handle on the amount of money that is being lost in cross-border shopping and it is not by looking at taxes or looking at the amount of money or the number of people who go back and forth. We may want to get some very clear indications of the source, the origins, of the current account deficit, how much Canadian money is being exchanged into Canada from various locales near the border, Buffalo, Lewiston and so on, so that we know how much Canadian money is actually being spent across the border.

The second source of information that we may be able to correlate is to get an indication of how much American money is being exchanged in the peninsula area.

Mr Hansen: We know that.

The Chair: That will give us an idea of how much is then going to be spent across the border. If we looked at that in a year block, we may come up with a fairly close absolute dollar figure in the amount of money that is being spent.

Mr Hansen: I might just add, I have not got it in front of me, but in Port Colborne alone at one bank there is US$150,000 a week exchanged, and you know the size of Port Colborne. That is not counting credit cards and other means.

The Chair: So it may be more useful to take a look at the other end of the dollar and see where the dollars are going, and how much.

If there are no other questions or comments, then I would thank the minister and her staff for coming, and if we have other further questions we will send them along.

Hon Ms Wark-Martyn: Thank you.

The Chair: Is there any other committee business? Okay, seeing no further committee business, this committee is adjourned until 3:30 this afternoon.

The committee recessed at 1124.


The committee resumed at 1536.

The Chair: There is a quorum here, we have a member from every party, so I think we should begin this afternoon's hearings with Mr Winter of John Winter Associates Ltd, if you would like to begin, please.


Mr Winter: Good afternoon. My name is John Winter and I run a small consulting company. In the past couple of years we have been commissioned by a number of municipalities to look at this cross-border shopping issue, and so we have assembled, especially over the last year, a considerable amount of data about it. I have summarized it in a small handout that I brought with me today. I would just like to hit some of the highlights of the cross-border shopping data that we have and draw some issues and conclusions from them.

The topics that I would just like to run over briefly are the consumption patterns, what patterns you find shopping from the border; why have we had such a very rapid, catastrophic, as it were, increase in border shopping over the last few months and why is it increasing exponentially; a few comments on why we cannot here in Ontario apparently sell for less than they are doing in the United States; look at one or two economic consequences of cross-border shopping, and conclude with a few issues and some suggestions from my perspective that I have on this issue.

On page 2, I have a typical distance decay factor. Border shopping changes as you get away from the border. There is the convenience zone where it is a way of life. People do it because that is the way it has always been done in the border communities. The farther you get away, the less propensity there is for people to travel for gasoline or for beer or for everyday groceries and the greater propensity to shop for things like clothing and other larger-ticket items.

One of the discouraging things we have seen in the last year has been people willing to travel from major cities like Toronto down to Detroit, picking up very low-cost electronics, for instance, and then shipping them back to Toronto and being able to do it at a price that is a fraction of what we can actually buy them for in the stores here.

Then a year ago I defined a zone that was about 90 minutes away, which was protected by distance. It was what I called the zone of happy retailers. Unfortunately, the way things have gone in the last year, there are very few of our cities in Ontario that are actually protected now by distance. People are willing to travel farther to go after these bargains, and that is part of the problem. Indeed, I summarize that at the bottom of page 3. The trend that we have seen in the last year, notably in the last six months, is that people are willing to spend more when they go across and they are also willing to travel farther, and that has changed the problem.

We know how people are spending their money at 15 minutes from the border, half an hour, one hour, an hour and a half, and because we know how many people there are in those zones, we can multiply through and get a reasonable estimate of how much money is leaking out of this province, escaping our retailers.

I did the projection six months ago. Today it is already out of date because of the changes that we have been seeing, the rapidity of these changes. And if we do nothing as a province, I anticipate that we will be losing around about $1 billion out of this province this year in retail sales in all types of retailing, including restaurant meals. That need not happen of course if some policies are implemented, but it is not going to be easy, because there is no one simple explanation of why this is happening, there is no one force behind it, and if that is so, then there is no one simple solution to solve it.

Let us look at a border community where I have the latest data, and it is on page 4. I try to address the question of why a very rapid recent increase in cross-border shopping. It comes from Fort Frances, an isolated community towards the northwest of Ontario, and it has a sister city across the border, one minute away, International Falls. They are both isolated by distance. The difference in price on one side of the border is incredible compared to the other side of the border.

The middle picture on page 4 shows the average noncommercial -- that is, residential, normal population -- revenue collection that was actually declared at the border. This does not include smuggling, of course. You can see it has gone up rapidly and it has gone up exponentially.

Now, there are a number of reasons why this may have occurred, but there is no clear relationship.

First, some people declare that it is due to free trade. Well, if you have a look at the shape of that increase, when free trade began, we did not see a sudden increase of cross-border shopping; it took time. Indeed, one of the factors coming out of some of our surveys is that people were expecting lower prices. So we had a very divisive federal election on free trade and they were expecting lower prices in the stores. Those lower prices may come in 10 years' time, but they were expecting them now and they are taking them now. They are taking them across the border. They appear to have been somewhat disappointed that they did not see these price reductions. One of the great accomplishments of the free trade agreement to date may have been the fact that the guilt has been removed from the cross-border shopping issue. "Hey, we've got free trade. Why can't we just go across there and buy?" Indeed, where are our economic nationalists at the moment, when we really need them in this province?

Another reason that is put forward is the appreciation of the Canadian dollar. At the bottom of page 4 you can see the pattern. It has increased in value over that period, but again there has been a lag effect. It has not suddenly caused a great increase in shopping.

One of the factors is that the appreciation of the dollar has given a sort of discount coupon to everybody who goes across; they get a discount. The higher the value of the dollar, the less it is going to cost across the border. One of the discouraging things from the surveys is that when you get an 87-cent, 86-cent dollar, people are doing much fewer calculations than they did when they had a 75-cent dollar. They did all the calculations in their head. They seem to be perceiving an 87-cent dollar as much closer to parity than with the 75-cent dollar that we had very recently.

Another reason that is put forward of course is the recession. As we have sunk into recession, and there are some of these border communities that have been very hard hit with the loss of jobs, it is only natural that people start thinking about the price that they are paying in the stores. There are massive structural changes going on in our economy at the moment, and there is a great deal of anxiety out there. Indeed, there is a great deal of anxiety with the retailers. We never hear about the anxiety of the retailers. We hear about consumer anxiety, but, my goodness, those retailers in these border communities are really hurting. So this recession has spurred the trend to the lower prices.

And of course people feel foolish. Nobody likes to pay more than he really should for a commodity. You talk to your friends and they say, "Oh, I bought that for half the price." You feel like a real dummy and nobody likes feeling like a dummy, especially for things that are essential for your way of life.

There are three additional forces which I highlight on page 6: first, the goods and services tax imposition. We have already seen there has been a jump of about 15% nationally at the border crossings in January. When we asked the question, "Will the GST encourage you to do more shopping in the United States?" we got a considerable number of people who said yes, it would. So there has been in the first month and the second month of this year an absolute disaster in retail sales, and one of the reasons why, I think, is that more consumers are going across the border. The GST had a really negative effect on border communities.

I would like to bring your attention to the fact that when we last looked at the Sunday shopping issue on a very comprehensive basis, in the Ontario Law Reform Commission report in 1970, the New York stores were not open because of the blue laws. They are open on Sundays now. I show in my documentation on page 5, in the middle diagram, that the major new regional mall out in Cheektowaga, Walden Galleria, advertises in our markets: "Hey, you guys are closed. Come over and shop with us," and there are some new attractions going into the Buffalo area. One of the most attractive stores in the Windsor area, the Pace Warehouse, is coming into the Niagara area. WalMart, which is the most aggressive retailer in the United States, is also arriving, and there are plans for a casino in Cheektowaga that will again attract some of our consumers away. One of the attractions of going from Thunder Bay to Duluth is that the Indians run a gambling casino right across from the major malls, so there are a number of other things pulling people across, and it looks as if the attraction of the Buffalo area, which has absolutely nothing but some dumped merchandise and good chicken wings, is going to be increasing.

I think there is a very important question that we have to ask in all this: Why cannot Ontario sell for less? There are a number of points that I would like to bring up about this whole matter. First is the gasoline issue. Of course, as you know, it is provincial taxes. Second, there is the whole marketing board issue. It is quite remarkable if you compare and contrast prices on both sides of the border. In Canada you can get this little turkey. Let's say you are a family and you want to put some food on the table, have a great Thanksgiving dinner. You can have a little turkey or you can go to the United States and get a humongous turkey and it is the same price, and people being who they are, they would like to be good providers at Thanksgiving and at other times. Those issues are already well known.

I would like to focus on a few costs of doing business, because those too are important. First, it has to be pointed out that the Niagara area closest to us is one of the great dumping zones in North America. If you are a manufacturer, if you are a retailer, you are not going to dump in New York City or in Los Angeles or near Chicago; you are going to get rid of that merchandise, if you have to get rid of it, if you have seconds and ends of lines and things, in border communities like Niagara Falls. So this is one of the great dumping zones in North America. A lot of our consumers, of course, are attracted over for the prices of the seconds.

Rents, for instance, are much lower in the United States. They do not have an Ontario Municipal Board to restrain the enthusiasm of developers. In Fort Frances-International Falls, for instance, about a third of International Falls is currently vacant, and of course you know what that would do to rents. Indeed if you were to set up a retail store in Fort Frances, you would probably be paying 50% more than your competitor across the border before you even open the door.


One of the interesting points, I think, is on page 9, municipal taxes, because our municipal taxes are considerably higher than those in the United States. I have a comparison of what supermarkets pay in International Falls and Fort Frances. You can see the tax burden is certainly onerous on Safeway compared to its competitors. No wonder its competitors can their ketchup for somewhat less than Safeway.

When you have a look at the net municipal operating costs, a resident in Fort Frances of course pays considerably more than in Intemational Falls, but what is never pointed out in some of the commentaries is that our residents get considerably better services than in the United States. If you have a look at Fort Frances and International Falls, we have a professional fire force; they have a volunteer fire force, with all the attendant costs that raises. We have a larger police force. Although they have a much smaller one, they have more cruisers, typically, being American. You have a look at the roads, you have a look at the street lamps, and the standard of municipal services is much higher. But then of course the taxes are much higher, and those taxes somehow ultimately get on to the cost of doing business.

I think the point at the very bottom of 9 is extraordinarily important. We have great strengths as a province, but those strengths are not exportable. We have higher municipal standards, we have health insurance. Why are OHIP cards bootlegged in US border cities? Because they want to come over and get some free OHIP services. So our strengths are not exportable; their strengths are exportable. They have lower costs and they can export their ketchup and their goods, and our consumers take advantage of this.

In tough times, when you are worried about your job, you want to feed your family, it looks very attractive to go over and getting those humongous turkeys rather than a tiny one at the Safeway store, and we tend to forget how good our police force is or our fire force or our drains at times like that.

There are a number of other reasons. We have higher taxes, we have higher regulations, indeed at times we have higher labour rates. With all those higher costs, if you look at the middle diagram on page 10, it is not really surprising that there is not just a small gap but an enormous gap between a basket of goods sold in International Falls and a basket of goods sold in northwestern Ontario.

One of the things that I want to draw your attention to is that the costs of goods in Canada appear to be much higher in many cases than they should be or they might be. Quite often we are finding the wholesale price in Canada is much higher than the retail price in the United States. This is a phenomenon; I do not totally understand it myself. I do not understand why, for a vast range of products, we cannot buy even close to what the United States retailers can buy for.

If you think of retailing, the major cost is your inventory cost. It may be two thirds, it may be four fifths of your total operating costs. If your retailer starts out paying double what a comparable United States retailer will pay, it is obvious that the guy is not going to be able to shave anything off the prices, and so your prices are going to be higher and his are lower. I give some examples of televisions, watches. I give another example in the footnote here of Pepsi, comparing International Falls and Fort Frances. A case of Pepsi costs $6 to $7 in the United States. In Fort Frances the normal retail price is $17. What is this? Consumers say to this, "Hey, we're being ripped off," so they go across the border and they buy their Pepsi across the border.

There is a small Xerox here from the Fort Frances Times of 20 March. We have an enterprising retailer in Emo, which is just to the west of Fort Frances. He goes across the border, buys the Pepsi at a normal retail price and tries to put it on sale in Canada, but of course he cannot do that because he does not have any French labelling on the cans. The Ministry of Consumer and Corporate Affairs comes along and tells him that he cannot sell it any more. So he goes back to selling the pop at the inflated prices.

Now, what does the consumer see? The consumer sees outrageous prices for Pepsi in the store, but it is not the retailer. One of the things I want to get through in this presentation is that it really is not the retailer taking the abnormal profits here. The retailer is paying, off the truck, about $16 for a case of Pepsi. He puts it on sale for $17 and, my goodness -- oh, I thought you had a question.

Mr Jamison: I will wait till you are finished.

Mr Winter: Oh, thank you. So again, the consumer says: "Ah-ha. We're being ripped off by the Canadian retailer," so he goes across the border to shop. But it is not the retailer in the vast majority of cases doing these inflated markups. It is somewhere back in the system. I do not understand totally how back in the system this is working, but time after time, for necessities as well as for more luxurious goods, we are paying more than the United States. Indeed, it is not just fractionally more. On page 11, I have a price comparison of some 250 brand names compared to Fort Frances and International Falls, and you can see that there are enormous differences in price. We hear a lot about unleaded gasoline, but look at the difference in price of Pepsi and other commodities.

So these consumers who are going across the border certainly are not wrong. There is a major difference in price.

Mr Phillips: I am sorry. How do you read this chart again?

Mr Winter: The one on page 11?

Mr Phillips: Yes.

Mr Winter: We were comparing Fort Frances prices and International Falls prices, the per cent difference in the price, and Intemational Falls usually, when the line is above zero, that indicates the per cent of Fort Frances prices that are higher than International Falls. So unleaded gasoline may be 60% higher, Pepsi may be 150% higher. Those are just a few brand name commodities we were able to find in Fort Frances that were somewhat more affordable across the border.

Mr Phillips: I see. So that 250 is along the bottom.

Mr Winters: The 250, yes. They have been ranked from the lowest to the highest, so it is indicating that it is not just a nickel-and-dime issue here. There are enormous differences in prices, and this is what is attracting the consumers.

Mr Phillips: It looks, on average, of those 250, that there would be an average 50% higher.

Mr Winter: Oh, at least, and you would need a massive change in the Canadian dollar if you were going to try and wipe that difference out just by the dollar. It is not just a little change that is needed; it is an enormous one. And I can only see one hopeful sign in all this.

Mr Phillips: Where is it?

Mr Winters: You never hear a comparison between Eaton's prices and, let's say, a comparable store to Eaton's, like Hudson's in Detroit. You always hear the comparison between Eaton's or a full-line retailer and a super discounter or a warehouse store. Finally, in the Toronto area we are getting the warehouse outlets. I believe there are two outlets of Price Club here already. Cosco from the west coast is coming in. In those warehouse clubs, we are starting to get prices that are comparable to those in the warehouse clubs in the United States, and I have a comparison, for instance, on page 12. At an Ontario supermarket for Heinz ketchup, you might get seven fluid ounces for one Canadian dollar, whereas if you went across the border to a normal supermarket you might get 13 ounces, almost double the volume. But if you went to a warehouse club and bought your Heinz, then you would get almost three times the volume for the same dollar. We are starting to get this in Ontario, but we are 10 years behind the United States, almost, in the warehouse sector.

Now, my question is, by the time we catch up, are we still going to have a reasonable retailing sector left in the border communities? Unfortunately, these price clubs, these warehouse clubs, are not going to do anything for northern Ontario, because they need a certain threshold of consumers to support them.


Economic consequences of cross-border shopping involve a loss of sales taxes, loss of jobs, and then jobs of retail spiral backwards throughout the economy, so you lose something at wholesaling or in farming or in manufacturing elsewhere in the province, so it is a vicious circle. In the retail store, once you see your consumers dropping off, you cannot afford to have the same amount of inventory. Your attractiveness falls and that too goes into a vicious spiral and you lose more sales. So the implication of this exponential increase is that we are going to lose more retailers in border communities, and if you talk to the mayors of -- let's say Bill Smeaton of Niagara Falls, the man is going out of his mind. There are terrible economic conditions down there at the moment, and you can understand why, because in a recession you want to get the absolute best value. I say, do not shoot the retailer in all this. It is not his fault, largely. It is the inefficient economic distribution supply system behind the retailer that is causing many of our problems.

You see, it is poised to get much worse. On page 13 on my second diagram, the leakage out of the Toronto market is about $200 million a year, but that survey was done three months ago, four months ago, so it is probably quite considerably out of date. All you need are two people to shop every quarter, and bang goes half a billion out of our retail system, to the detriment of Ontario retailers.

That summarizes my review of the data that we have at hand and the trends and some of the information that comes from these trends. Todd asked me to run through a few issues, as I see them, so I would just like to highlight a few of those issues.

There is no panacea for these problems. There is no quick fix. It is not going to get better soon and it is not going to be easy to stop the flood. Everything seems to be going in the favour of the US retailer and there are many barriers with the Canadian retailer. Of course, as you go down Interstate 75 out of Windsor, down to the suburban shopping centres, you do not see some of the problems in the black ghettos of Detroit, where without a government insurance plan they have an infant mortality rate that is as high as Haiti's. So you could argue that they should have higher prices, but they do not. It seems to me that the Ontario retailer and the Ontario government is getting the worst of both worlds. You can escape these higher prices of Ontario very easily.

I do not think, for the second point, that time is on our side, because in these things the pendulum swings one way and it swings the other way, but at this very moment it has gone viciously against the Ontario consumer and the Ontario retailer. I think it is going to take time, and what level of damage to our communities of Windsor and Niagara Falls and Chatham is acceptable? Are we going to say, well, 20% vacancy in our stores is acceptable? Is it 30%, 40% vacancy? What level of vacancy for the small Ontario retailer, who is the backbone of Ontario communities? What level of damage is going to be acceptable if we let some of these trends continue?

I think there is no alternative but to clamp down at the border more than we have been doing. I think it is ridiculous to speed up Canadian consumers so that they can buy more easily in the United States. I think the border communities are a very strange amalgam because they have economic and social links both sides of the border, but I think that for the remainder of our major markets, London and Toronto and other markets, we have to protect those retailers, and also move towards lower prices in our stores. One of the big issues in my mind is, why are suppliers charging more to Canadian retailers than to United States retailers? Why does MacMillan Bloedel charge considerably more for wood in Thunder Bay than when it sells to Menards in Duluth. Indeed, you are getting remarkable movements of the lumber up there, and sometimes the lumber does not even go out of Ontario but gets sold at US prices to special people.

I think it is remarkable that retailing has become such an international service. But those retailers in Buffalo and near Chatham and in Duluth really are not serving our communities well. We too often see retailers taking money into their tills, but Ontario retailers give a lot back to the community in many ways, if only just in subsidizing the little leaguers and sending the hockey teams out and all the rest of it. You do not get anything back from those New York retailers. They have other agendas.

I think also there is an issue for the retailers both in Ottawa and closer to the Manitoba border, because you are getting a lot of flow out into Quebec and/or into Manitoba because you can beat the provincial sales taxes by buying in another province and then getting a rebate of taxes back. I would suggest that you also, in this whole issue, look at that phenomenon.

Todd also asked me for some ideas towards an amelioration of this issue, and I think it goes without saying that you cannot do anything alone as a province. It is going to need some type of co-operation with the federal government. I think that one of the great things that would stop the daily or frequent shopping trips across the border for milk and cigarettes and just to fill up your car would be a levy on the passenger cars at the border. It seems to me that you pay a levy if you go by plane. It seems to me that if you are driving a commercial truck you have to pay a levy, and I do not see why the consumers and their cars should not have to pay for the service of going through customs. Indeed, that would help to cut down the frequent trips from the border communities. That would be one of the great things that could be done.

I also think there should be some co-operation with the federal government so that they impose provincial sales taxes. I do not see why this province should lose the sales tax potential at the border, if only because it is bound to come back on to me as a consumer somewhere else. If you do not get it at the border, if it is going off to New York state, then you will put provincial taxes up somewhere else. It would be very easy for the federal government, as it does its little calculations -- "Oh, that is 10% duty, and we are going to add the 7% GST" -- just to add another factor of 8% on to the bill and remit that to the Ontario government, because that too would help slightly to balance the equation.

I think there needs to be better vigilance at the border and I think that one of the key things is that retailers in this province have to be able to buy at more competitive rates. I am not sure what that is going to take, but I cannot understand why consumer good necessities cost so much more here in Ontario than they do in the United States.

Mr Kwinter: I have some questions and some comments. First of all, I want to thank you, John. It is kind of nice to see some of the figures. I cannot attest to how accurate they are, and I am not questioning whether they are accurate because I am just taking your word for it. You have done some work, and someone may come up and say these are not the right figures, or another figure, but at least --

Mr Winter: They are probably higher today.

Mr Kwinter: Yes. Well, what I am saying, at least there are figures and at least there are some of the things that we have been concerned about that have been addressed. For example, what is a protected distance? I am pleased to see that effectively there is no such thing any more in Ontario. Given the differences, 90 minutes from the border is just as attractive as 15 minutes, not on a daily basis but certainly on a weekly basis.


Mr Winter: Or on a frequent basis, yes. There are very few locations that are really protected any more in Ontario. Perhaps Peterborough might be one of the last ones. If you think of Canada, there are very few cities, Chicoutimi, there is Newfoundland, of course, and there is Edmonton, and I cannot think of many others that are protected by distance. Our perception of distance has changed quite radically, I think, in the last year.

Mr Kwinter: I think there is another point that you brought home that I had not really focused on, and that is that we seem to think about cross-border shopping as just going to the United States. That is where the greatest benefits are, but there are certainly whole areas of Ontario where cross-border shopping is a way of life into other provinces.

I have travelled extensively into Kenora, Thunder Bay, Rainy River, Fort Frances, and I was stunned the very first time I went there that their total orientation is to Winnipeg. When they said, "We're going to the city," I just assumed they were going to Toronto, given the fact that I am a Torontonian. I figured that if they said they were going to the city, that is where they were going. They said: "Toronto, are you kidding? No, we're going to Winnipeg."

The daily paper is the Winnipeg Free Press. You cannot get the CBC, even before it shut down the stations. In Rainy River the only Canadian channel you get is channel 11, for some reason, Hamilton. I could never figure out why, but whenever I go up there and turn on the TV set, it is all American or Manitoba, with the exception of channel 11. Even before the GST and the escalation of the Canadian dollar, because of the sales tax and because of the proximity, people were going to Winnipeg to get their things.

As a matter of fact, we had a situation in Ontario where a few years ago we had an ice floe wipe out the community which is now called Peawanuck up on Hudson Bay. It wiped out the whole community, which was only 29 houses, and they were replaced by a Winnipeg company because it was much closer than any Ontario company to get there. So those are some of the problems.

The other thing that concerns me, and I do not know how you tackle it, is that when you talk about the strengths that we have in Canada or Ontario not being exportable, whereas the strengths that the Americans have are and their weaknesses are not, that is precisely why we have this problem. You hear the old cliché, "It's a nice place to visit but I wouldn't want to live there," and that is what is happening. People are paying their taxes in Ontario and getting the quality of life that they want, but they are trying to then sort of offset that by buying cheaper things in the United States, which means that where they live they pay their taxes, but they want to minimize the impact of that by then going to the United States, taking advantage of the cheaper products so that the impact is not as great. I do not know how you deal with that. Do you have any ideas?

Mr Winter: I think you have to emphasize that quality of life is partially dependent on the price of the goods. We are paying Ontario taxes, we are paying GST. That is 15% there that is helping to pay for the social services that we all like, and that is part of living here in Canada. But obviously you can escape it, individually you can escape it. You do not have that collective attitude, "Well, we must spend our money here." It is wonderful when you do these surveys and you start talking to perhaps 5% of the people who say: "Oh no, I would never go across there. I live here in Ontario. I must spend my money here."

Mr Kwinter: As a researcher, as a sampler of public opinion, do you really believe that is saleable? It would seem to me that if you did a survey and asked people, "Why do you go to the United States?" their answer would be virtually unanimous. The other things are fringe. I would say, "Because I can save money."

Mr Winter: That is right, and that is why I believe we have to clamp down as much as we can at the border, because it is going to get worse. Why should we pay three times the price for Oshkosh children's clothing? Indeed, why are we paying three times the price for Oshkosh children's clothing?

Mr Kwinter: Can I ask you another question, because it concerns me. The one solution that you see is the proliferation of Price Clubs and Cosco as being a possible solution in the more populated areas, but not in the north because it does not warrant it.

Mr Winter: That is right.

Mr Kwinter: Okay. I just wanted to make sure that my premise is right. I see that as trading one devil for another. I will give you an example.

I have a place in Florida. When I was down there at Christmas a company -- it is not like a Price Club or a Cosco. It is supposedly a drug store, but it sells everything from chicken soup to furniture. It is called Phar-Mor. They have stores that are 100,000 square feet in size and, to describe it only one way, they are mind-boggling when you walk into them. When they announced they were constructing one in the neighbourhood I live in, the local merchants got a petition to try to stop them. They said: "There goes our business. If Phar-Mor locates, we're done."

I think one of the problems we have is that if you feel the only solution is to have the Price Clubs and the Coscos, then what you may really be doing is shifting some of the business away from the United States to these American stores that are now located in Ontario or anywhere else in Canada, but you are not in any way addressing, and probably compounding, the problems of the small retailer. Those who have a conscience or whoever you have been able to sell this story, "Hey, every time you go to the United States you're doing your neighbour out of a job or you're doing yourself out the quality of life," will now be able to do the same thing in their backyards or in their neighbourhoods to the detriment of the small, independent store. How do you deal with that?

Mr Winter: I believe you are quite right. Probably a number of the very small, independent retailers' days are numbered. We have far fewer today than we had 30 years ago when I came to Canada.

Second, I think the solution for northern Ontario is to source out of neighbouring states and not out of Toronto, because the cost of actually bringing or hauling merchandise into Toronto and then shipping it up by CN to Thunder Bay or points north of that is so enormous that people should be able to reorient their buying patterns and buy out of Minneapolis or Duluth or other US cities. But that pattern of trade has not established itself yet. When you talk to the small retailers, one of the problems is that if they are not in a buying group, they cannot buy in sufficient volume from the US wholesalers and warehouses to make it worth their while to put French labels on and get the CSA approval and all the rest of that stuff to bring it into northern Ontario. So it all gets funnelled down here through Toronto and then way up there, with all the attendant costs that are associated with that.

Mr Sutherland: I just want to ask you a couple of questions. First of all, I thought your presentation was very good and very thorough in outlining the issues we have to try to deal with. You mentioned the recession and spoke about older consumers and unemployed Ontarians being considerably more attentive to prices paid in the stores. One of the surveys we had indicated, though, that the higher the income you had, the more likely you were to be cross-border shopping. I am just wondering if you can reconcile that with your statement here.

Mr Winter: Yes. If you are from the Toronto area, you are probably more likely to travel and pay the gasoline and make those big purchases all at the same time. When I was writing that, I guess I was thinking about the union guys in Fort Frances who have been laid off whom I have talked to, and people in Welland, the economy of which has just been devastated. Those people are concerned about the price of necessities. There was a bank manager I talked to in St Catharines. A couple of years ago he used to change $10,000 of US currency a month and he is now up over $250,000. So what are the people doing? They are going and they are taking their paycheques, cashing them, getting US dollars and off they go to buy their basic necessities of life because they cannot get those types of prices in Ontario.

Mr Sutherland: Do we have a sense then that it is not only the people who are laid off? It may be some of those people who are working in some of the vulnerable areas right now, manufacturing, who are still employed but are still concerned. So they are also going across the border, even though they are still employed.

Mr Winter: I think there is a deep-seated anxiety at the moment about where our economy is going. That is very prevalent in some of these border communities that have been hit, Windsor for instance, with a loss of jobs and things like that.

Mr Sutherland: Mr Kwinter mentioned the advertising campaign. I was wondering if you could comment on how effective -- I mean, all of us being politicians and watching some of this stuff and realizing what goes on in elections and seeing what went on in -- you know, when you watch some of the commercials for American elections how hard-hitting they are. I am wondering, with that type of ad campaign, whether you think that will have any impact.

Mr Winter: Well, no, because consumers are not stupid. They are not dumb, they know that prices are considerably lower there, so what are you going to say, "Shop here, please"? They will just continue shopping over there. I think you have to put some barriers in their way. I think you have to put the provincial taxes on as they come back over the border. Perhaps that will slow up everybody at the border another 15 minutes. That would be good too. Until we can change the retail system here in the province, it is going to take time. I do not think you have the time. We have talked to the small retailers in the border communities and they are weeks, if not days, away from bankruptcy. So what do you do?

Mr Sutherland: I know you have made some comments about the Sunday shopping issue and how it affects border communities. This may be outside your parameters; it may be the sociologists who need to comment on this. But I find it intriguing, in a lot of the surveys about Sunday shopping, about shopping being a family activity. I worked in a grocery store for seven years and packed many peoples' groceries, a regular occasion, and I want to tell you, I was never left with the impression that it was a great family activity to go shopping.

Mr Kwinter: Not to a grocery store, but to a mall it is.


Mr Sutherland: I guess my comment is, if that is the extent of what we consider a great family activity in this day and age, then I think we have some larger-scale problems as well.

Mr Winter: First, I do not want any one-upmanship here, but I worked 10 years in my uncle's grocery store and put myself through college doing that. I will agree with you, for the food, the drop-in convenience items, men do that more frequently than ladies.

Second, I have a bias here because I am the vice-chairman of my local business improvement area in the Beach. It is very serious down on the Beach if we are closed on Sundays because a quarter of our sales are done on Sundays, so I have a bias towards that. Third, I have seen the surveys that have been done relatively recently by International Council of Shopping Centers, ICSC, the shopping centre people in New York, and it does appear that people shop together. It is something you do in the big malls with family and friends.

Mr Sutherland: The other issue you talked about, the Price Club and Cosco, I think four to five years ago we also had some Price Clubs. I believe Titan was one of them. That was around. They came on to the market but seemed to disappear very quickly. I do not know whether you are familiar with them and what happened to them, whether it was just strictly bad management. But if you look at that, the track record of that type of warehousing does not seem to be that great, or is it just that things have changed that much now that you figure their prospects are better?

Mr Winter: I think they are run better. In retailing, we always have to look at management, because it is a tremendous management feat to actually run a retail store, especially one of that size. I think they have better capitalization. They are now run by the Price Club out of the United States. The point I would like to make is that they are not really retailing; they are investment banking. They turn their product so fast that in 20 days they get 90 days' credit and they are making points at the bank. That is why they can make it so cheap in the store.

Mr Sutherland: Just one final question. You talked about where all the economic nationalists are and I guess my basic concern is, do you not feel there is a way we can get the message out to people that you cannot have your cake and eat it too, in terms of all the benefits you receive of living here and the quality of life and lower crime rate and some of the things you mentioned about better health care, lower infant mortality?

Mr Sterling: Wake up and smell the coffee cake.

Mr Sutherland: That cannot be sold to people in terms of any type of aggressive advertising campaign in selected border communities or throughout the province? I mean, we have the Madison Avenue whizzes who are making all these people go out and buy it and appeal to people to go across the border with their effective marketing campaigns. Are there not the effective marketing campaigns to keep them here?

Mr Kwinter: Yes, the bottom line is price. If it was higher you could not do it. You have to use a marketing campaign to try to convince people to spend more money than they have to spend somewhere else. You do not need a marketing campaign to get people to go and pay less.

Mrs Sullivan: If you can buy a $40 shirt for $7.99, the same quality, same merchandise, 15 minutes from your home, how are you going to counteract that?

The Chair: We have a long list here.

Mr Stockwell: Did you want to answer that, by any chance?

Mr Winter: I do not know.

Mr Kwinter: Let's try everything. The sales thing is going like that, the leakage is going up exponentially, let's try everything.

Mr Jamison: I have a number of questions for you and if you will bear with me, I would like to walk you through them. The first one, for the committee's purposes, really I am asking you to expand further on the list of 250 products, if you can give us more information on the particular graph that showed the two examples, gasoline and so on.

I am concerned also as a representative retailer, the retailing sector. You are not aware of where these price differences developed and seem to be thoroughly confused about the large differences on some very basic items. I think it is important that this committee consider that and take a look at why those price differences exist. That is why I asked you to give us as many examples as you could that we can really look at.

Of course we realize there are a number of factors contributing to the problem we are experiencing, but in your presentation you mentioned the GST and you had equated a 15% jump in the volume of cross-border traffic, really. How did you arrive at that? How were you able to arrive at that particular equation?

Mr Winter: Canada Customs counts the number and Statistics Canada puts it together and published about one week ago the increase in trade from the previous January. So it jumped quite significantly in January. People were very, very angry about this tax.

Mr Jarnison: Do you find that people are continuing to show animosity towards that particular tax in that manner?

Mr Winter: I think the federal government got off the hook very nicely because there was a war, and that diverted consumers' attention. By the time the war was over, we were two or three months down the road and the focus got off the GST.

Mr Jamison: This was just more or less another kick.

Mr Winter: Puts up prices, yes.

Mr Jamison: I would like to turn my attention basically to interest rates, and I would like to ask you a question that really reflects the cost of doing business in that fashion --

The Chair: I am having a little trouble hearing.

Mr Jamison: -- that asks you to point out the difference in cost, if you can, of doing business with an interest rate that is lower in Buffalo, as far as a retailer is concerned, compared to one that would be in Niagara Falls, for example. What effect would the spread have right now?

Mr Winter: Well, the effect has the spread, if you are building space, that it is going to cost you more because your mortgage rates from the bank are going to be considerably higher. And then a retailer always has to carry inventory, so he gets a loan from the bank at our rates rather than their rates and of course that puts up the prices as well. There is nothing magical about this. It is very simple.

You have your costs, you have your small markup to cover your risk and make a profit and at the bottom fall your prices of your goods -- higher costs, higher prices.


Mr Jamison: In your presentation there was a discussion about whether it is saleable to start programs that would promote "shop Ontario" or "shop Canadian." In my experience, and it is limited as far as shopping cross-border, I am aware there is an ongoing campaign in the United States about buying made in the USA. That campaign, when I have had the opportunity to talk to people we are connected to about that, is seen over there as being successful, is seen as flipping a switch in people's minds. We have neither a federal campaign to really speak to that issue nor a campaign of a similar nature provincially. How do you feel about that?

Mr Winter: As I said, I do not think there is any one solution and I think we should try everything, but it still will not address the fundamental issue that things cost less there. I think we have to address that issue and move towards solutions of why suppliers seem to charge more in Canada than in the United States, not just more, but considerably more, in certain areas. The other thing is that I am not a representative of the retailers so I am not --

Mr Jamison: Well, I am not saying that.

Mr Winter: I think you will have Mr McKichan next week to talk to. He is the retailer.

Mr Jamison: Yes. Okay. Again, all of us have certainly had this concern on our minds for a period of time. I found, when I talked to people and really went through the whole conversation about why you would cross-border shop, that the obvious reasons were there but there were also some underlying reasons. I have had a number of people really talk to me about customer service and customer satisfaction. Some people have said, "Listen, I not only go over there and shop and buy what I want for less, but I seem to be appreciated over there more than I am in my own home town."

Mr Sterling: That's only since you were elected.

Mr Jamison: Having been rudely interrupted, I find that to be a concern to me because maybe people are really handling that end of business differently. I know there is a strong drive on to have cross-border shopping continue as far as Buffalo and those relative communities are concerned. What do you feel about that?

Mr Winter: Again, Thunder Bay is making a very concerted effort to improve customer service in the stores. The chamber of commerce has a big program at the moment to encourage better service. I know when I checked in the small town of Fort Frances I was quite astonished by how good the customer service was. The retailers knew everybody by name, they greeted them, they were attentive, they complimented them on their purchases. I do not see how in some of the smaller communities you could get much better.

Of course retailing is not just price, but I think the motive of driving people across is first price and then selection and then there are all these other reasons. One of them that turns up, but not as frequently as selection and price, is service. Yes, we have to improve. We are in a competitive environment and the more we can do to improve customer service, as well as other aspects of retailing, the better.

Mr Jamison: Just a final comment. I found your comment on the value of the Canadian dollar as opposed to the dollar in the US interesting. What I found interesting was your opinion that people now do not even stop to do the calculation in their minds; they know it is close enough to being equal to them that there is not really an assessment; it is taken for granted that there is a saving. In some cases there may be and there may not be, but again, it is something that is in their minds. Having said that, those are my questions.

Mr Phillips: May I just ask three or four questions for clarification and then a fairly large one. On page 3, the $1 billion, what percentage of retail sales would that be in Ontario?

Mr Winter: Well, last year Canada did about $180 billion in total. Ontario is 43% of Canada, so whatever 43% of $180 billion would be -- somewhere about $70 billion or $80 billion.

Mr Phillips: It is around 1.5% or something like that.

Mr Winter: That is right, but where is it concentrated?

Mr Phillips: Right. On that share lost to International Falls, the knife, fork and stuff, is that grocery sales?

Mr Winter: I am sorry, that is restaurants. The groceries are --

Mr Phillips: The 12.5%.

Mr Winter: The 12.5%

Mr Phillips: Right. The price comparisons, the 250-item thing, were you comparing Canadian prices to a Cosco, Price Club type of thing?

Mr Winter: One of the problems with International Falls is that there are a number of aggressive discounters there such as K-Mart, which is certainly far more aggressive in the United States that it is here, so there is an enormous K-Mart crossing. But there were also comparisons in the supermarkets of brand names, Campbell's Soup there, Campbell's Soup here, brought back on to the same volume basis, because sometimes their cans are a little bit different.

Mr Phillips: I take away from that a 50% higher price in Canada than in the US on the 250 items.

Mr Winter: About, yes.

Mr Phillips: On page 12, on the Nintendo and the prices and what not, are those Canadian organizations sourcing that product in Canada, do you think? Or in the US?

Mr Winter: I believe that they would be sourcing the Nintendo from overseas, because it certainly has a French label on the box. So they are probably sourcing it from somewhere else. Very few retailers in Canada source from the same place. For example, Sears Canada does not source from the same place as Sears USA, unfortunately, because if it did, we might be able to get some of their volume-buying discounts.

Mr Phillips: My big question is one that I think the Ministry of Industry, Trade and Technology also was recommending when it was in here, and that is a concern about kind of one of your solutions. And by the way, I thought this was a very thoughtful presentation and very helpful to us, and really in an understandable form. I really appreciate it.

My concern is that I sense a growing feeling that maybe a fast way to help the retailers out is by perhaps increasing the sourcing from the US somehow or other. I am quite concerned about that, because I think we will find, as a committee -- and one of your recommendations is to talk to suppliers -- if we got Pepsi in here, it would be able to go item by item all the way down and show why it costs that much more for it to make its product here in Canada than in the US. Indeed, I dare say that a huge part of our food processing business, if it had its druthers, if it could without any muss or fuss bring the product in from the US, would be bringing it in. I am personally concerned that we have to be careful in tackling this immediate problem of retailers and cross-border shopping that we do not look to a solution which moves a lot of our manufacturing out of here to the US. We source for their Canadian retailers out of the US and then we find, lo and behold, it has impacted tremendously on our manufacturing sector.

Similarly, I would think another group we would have in here would be the farm community. It would say that the reason it costs that much for a turkey in Canada versus the US is these things. So I guess my question to you is, I know that right now the thing that is driving us is concern about retailers and cross-border shopping. Is there any risk that your solution 6 would lead to, yes, we could help solve the retailers' problems, but we would emasculate our manufacturing sector?


Mr Winter: Well, of course. There are things you may not know, like Canadian Club is no longer made with Canadian grain. It is too expensive. They are buying it on the world market and bringing it in from Australia because our grain is too expensive. Campbell Soup Co Ltd is bringing in chicken through some little loophole because it cannot buy it cheap enough from the marketing boards. So the chicken you get in Campbell's chicken soup here is not Canadian chicken.

The Pepsi example: They can make Pepsi and sell it in other markets for what you and I would consider a reasonable price, and there seems to be some internal reason why it costs twice as much to transport it to a border community like Fort Frances. It is transported from Kenora to Fort Frances, which is a reasonable distance, whereas from International Falls it is brought in three or four times the distance at a fractionally lower price. I would like to see you bring in Pepsi and ask this bottler, "Why are your prices so astronomically high?"

I think you are right about the sourcing problem. Who knows if Heinz or the ketchup bottlers are going to stay in Ontario? It would seem to me that they can bring in ketchup from Paris, Texas, to International Falls, which is an enormous distance, and sell it much cheaper than they can by bringing it in from Leamington up to Fort Frances. It is a very big issue in our economy today whether many of these manufacturers will not move down to the Texas border, or even do as Green Giant has just done. They moved out of southern California at $7 an hour so that they can pay $4 a day to the Mexicans. What are they doing down there? It is frozen something or other.

We cannot stop that. Those are decisions that are being made by other people, and our economy is changing very rapidly now that we have this free trade agreement. I think we have to concentrate on some of the bottlenecks that are affecting our retailers and ask those questions, "Why is the wholesale price in Canada higher than retail in the United States?" and get some answers on that.

Mr Phillips: I speculate the answer will be the same reason you outlined for the retailers. It is everything. It is just the cost of doing business in Canada.

Mr Winter: But that does not explain why Oshkosh is three times more expensive in Toronto, which is the fifth largest market in North America. You have New York, Chicago, Los Angeles, Detroit-Ann Arbor, and then you have Toronto.

Mr Stockwell: Different governments.


Mr Phillips: I appreciate it, John. I am just saying I think I know the food processing industry quite well, and there is a substantial risk that it will all leave here.

The Chair: I guess one of those recommendations we have to figure out is how to keep it here.

Mr Phillips: Well, that is right.

Mr Kwinter: Could I just make a comment on this?

The Chair: Quick.

Mr Kwinter: During the free trade debate, I chaired the cabinet subcommittee that travelled around. We had a leading executive of one of the major food companies in the world, the Weston group, and he said that in his opinion, if the free trade agreement goes through, as far as the food processing industry is concerned, anything that has a longer shelf life than two weeks will no longer be made in Canada. The example he used is that the Oreo cookie factory in Chicago would run for a couple of extra hours on a Friday afternoon to make all the cookies it would need to service the Canadian market. That is the problem -- the economies of scale and the volumes.

Mr Sterling: When you go to the solutions or towards amelioration, I guess my focus on trying to ameliorate the situation is to allow people in our country to compete -- the overused cliché -- on an even playing field. I am not interested in saying to our consumers, "We are going to give an unfair advantage to one side or the other." If our people cannot compete, then they should not be in it and somebody else should be providing that service.

Now, I think that we can compete if we make some changes. Part of those changes, as my colleague mentioned, is that our taxation structure is far too burdensome on our small business people. I think the health tax levy which was introduced by the past government was extremely hard on the small business people in this province. But I am looking for other parts of the solution.

I was at an urban planning conference in late October of last year and I heard Michael McCracken of Informetrica, who actually made a presentation to this committee in our pre-budgetary consultation. One of his comments, I thought, was interesting -- I do not know if anybody has mentioned it yet in this committee -- and that was that our municipal governments had made no attempt to plan or zone for what you would call second-class or third-class retailing. They have attempted to do all of their zoning for retailing as first-class retailing. Therefore he saw as part of our problem in competitiveness in the retailing business that we were far overstocked or oversupplied with retailing space which was "first-class" and we were far understocked with retailing space which was second- or third-class or whatever you want to call it. I think that is perhaps something positive which some of the municipalities can participate in, providing some remedy in keeping the business here. Because if you have to pay $54 a square foot at the Manulife Centre, then Creeds can no longer exist, or nobody could buy Creeds at $54 a square foot.

If Manulife would not move off $54 a square foot, then the space is empty, as it is now. I think that part of the problem is not only on the basis of our fixed costs or our leasing costs being too high, but maybe it can be traced back somewhat to a planning problem as well.

Mr Winter: Well, we have far less retail space than the United States and partially that is because the Ontario Municipal Board keeps a restriction on the amount of commercial space that you can build. In the province of Ontario you have to go and say to the municipality, "There is a market for what I want to do," or it will not let you do it, and then you have to fight it out at the Ontario Municipal Board. You do not have that restriction in the United States. You can go and build whatever you want and you can go broke if you want. So, yes, we certainly do seem to go with Cadillac standards.

If you compare a supermarket on the Ontario side and on the Minnesota side, the cleanliness, the presentation, the quality, are far better with Safeway in Fort Frances than they are across the border. However, we are paying for that and that ultimately gets on to the price of the butter and the margarine and all the rest of the necessities. We are used to high standards and we pay for them.

Mr Sterling: I just do not think we are competitive in our retail space and I think that a lot of the small business people who are going out of business along Yonge Street and Bloor Street and areas that I see here in Toronto are not as a result of -- well, it is partially as a result of, you know, a dramatic plunge in sales, but I also feel they are being gouged. And they are being gouged, I think, because there is a system where there is not that adequate supply of other kinds of retail space which they can rent at a reasonable cost. So I think we should actually look at the planning issue and say to municipalities, "You have to be willing to provide an adequate number of spots for this kind of second-class retailing to go on."

The Chair: I am just going to comment on that. I am sorry if I am interjecting, but when I was looking for office space for my constituency office, there were at least eight or nine empty facilities within 50 yards of where I finally chose. I asked each one how much per square foot because I was looking for the best price that I could get, like the good socialist that I am, right? I said, "Well, I've got a quote from this person over here." I figure supply and demand in the marketplace is going to give me some kind of relationship, some kind of bidding war because there are eight or nine of them that are empty, and more coming. I could not get anybody to move. "No, leave it empty." Eventually I went with the best deal that I could get, but within the whole area where I was looking there was hardly any variation and there was very little movement in terms of what you would expect in a supply-and-demand situation.


Mr Sterling: I guess what I am looking for are ways that we can make the system so that retailers can be more competitive. I think we have a real problem with taxation on small businesses but I think there is also a problem in terms of lease costs in this area which just makes it almost impossible for retailers to exist.

Mrs Sullivan: There are a couple of things that I was interested in. First of all, following up, I wanted to know a little bit more about your methodology in terms of the work that you did in Fort Frances and International Falls, because you have emphasized Fort Frances more in your paper than the other communities where you have done household surveys. What other work did you do besides household surveys? Were you visiting in the supplier community, in the warehousing? What were you doing?

Mr Winter: Yes. I talked to probably all the retailers, because retailing is very person-oriented so you have to talk to the consumers and the retailers, talk to their suppliers as well, talk to the US suppliers to try to get a handle on what they are charging. One of the most difficult things in retailing is to get what people have actually bought their product for. It is a great challenge. It is one of the little secrets. It is really eye-opening to sit down with a merchant and have him show you his invoices. There was one guy who was selling some type of skidoo. I do not know which Canadian make it was. He was showing me the invoices he got from a competitor across the border. His prices from the Canadian company were considerably higher than what it was selling in the United States. This is the type of work that I was doing there.

Mrs Sullivan: Was the Canadian manufacturer shipping across the border?

Mr Winter: Yes, he was shipping across the border and the price that was asked was considerably lower. It is just like MacMillan Bloedel in Thunder Bay. The price for Thunder Bay is considerably higher than Duluth. Why is this? Partially it is because the retailers have not complained. They have not got together. I believe some of the retailers in Thunder Bay have started to kick up a fuss and asked these questions and they have been getting lower prices. But still, Menard's down in Duluth is getting much better deals.

I was only quoting Fort Frances more often than some of the other studies because it is the most up to date. I feel that the work I did in Windsor almost a year ago is no longer up to date, because you can see the trend in the Toronto area over the last few months and it has gone up just in the people who are curiosity seekers. They go off and then they tell their friends and they go off and it comes into a vicious circle.

Mrs Sullivan: I was interested in that, because when I look at the communities that you have looked at, Fort Frances and International Falls as a community are almost like one town and certainly this issue has been one that has been a part of life in that area for as long as people remember, from the time they were children. There were certain shops that you went to to buy certain things on one side and the Americans would come back to buy certain things on the Canadian side. Perhaps one of the things that has deteriorated there is that there are fewer Americans coming across now, but once again that could be a price situation.

When you were doing your work, were you looking at the kind of retail co-operatives that would enable an increased volume of purchases, an increased retail inventory, from a supplier?

Mr Winter: Yes, but one of the recommendations to the retailers was that they had better get together with compatible retailers elsewhere and form buying groups so that they could buy at a greater volume. There was one guy, for instance, who was selling Maytag dishwashers. Now, he could get a really good deal if he ordered 54, but it is a small community and he is never going to get sales of 54. But if he was able to join together, Maytag would actually send it up there without any charges and he would be competitive. But he can only get that deal with such a size. So certainly there is a need to join buying groups and have more buying power, but you run up against the problem of smaller, independent, family businesses that believe that one of their strengths is their independence and the service that they give. That is the way they see it, and they do not want the same type of merchandise as the competitor down the road has got. So it is not easy.

Mrs Sullivan: I was interested in your comments about the wholesale cost to retail merchants, and I think it might be worth while for the committee to have a future look at those areas. I tend to agree with Gerry Phillips that on Canadian manufactured products, the various items you have identified as making our retail sector less cost-competitive are also going to be reflected in the manufacturing sector and probably in the distribution sector as well. That is something we might want to look at.

Were you able to identify any new trends in retailing that appear to be a move away from existing retail operations that in fact may break some of the consumer habits as they exist now? You have identified, for instance, the Price Clubs, the warehouse operations, as being very attractive. There are other alternatives that are used, for instance, in Europe and we have seen some of them come to Canada, such as Ikea, with the integrated manufacture and retail operation, providing extraordinarily good quality -- Habitat is another one -- with low prices. Do you see any other trends along that line that retailers perhaps are not grabbing on to adequately or could develop?

Mr Winter: I think the whole discount sector in the United States, the whole off-price sector, we have very few off-price warehouse-retail outlets. There are a few quite brilliant retailers in Toronto who will sell seconds. They are not in the malls, so many people do not know where they are. I think that has been restricted because of the concentration in Canadian retailing with the big department stores and the big Canadian Tires and so on. They do not like to see the same products being merchandised 10, 20 miles away at a dramatically different price. There are some opportunities. There is one just in norther Kitchener where the Mennonite market is. They have a chance of setting up an off-price discount mall that may rival Niagara Falls. They certainly have the known location and the draw for other reasons.

So I think it is going to come very gradually, but I do not think we have the time to wait for some of that and I do not think our small retailers are expendable. I do not think we should just shrug our shoulders and say: "Well, those guys are not competitive. Too bad." I think we have to do something.

Mrs Sullivan: You see, every alternative that you have suggested as an approach relates to moving into the cut-rate, lower-priced opportunity. Now, Bi-Way was in that operation, a beautifully managed, highly profitable operation for years and years. Abe Fish did a wonderful job with that company and it is in virtually every community or region of the province.

The cut-rate opportunity has been available in Ontario for a long time, but it seems to me that if the downtown retail merchant is going to be competitive, something other than a cut-rate warehouse operation is going to be vital, and I just do not hear how the downtown merchant in a community is ever going to be competitive, particularly if the new retailing trends are immediately to the low-priced, seconds operation.


Mr Winter: We are having a dichotomy in retailing. We either go for low price or we go for some type of value added and extra service. You pays your money and you takes your choice.

A lot of people, because of the recession and other reasons, are taking their choice for lower prices. I think there is room for both, but probably we have too much of one and not enough of the other.

Mr Stockwell: Some comments maybe and they will maybe arrive at a question. First, I represented municipally an area known as Long Branch, New Toronto, Mimico, the Lakeshore. I am sure you know about it, being from the Beach in East Toronto.

Twenty-five or 30 years ago, they wailed and screamed when Sherway Gardens opened. Sherway Gardens was in the shopping mall bonanza that took place some 20, 25 years ago, and in Toronto there were a number of them -- Yorkdale, Sherway, Cloverdale, some others that opened.

They are still living in that era. Even if you walk down the street today, they would still complain about our allowing Sherway to open.

Now you find Sherway store owners complaining about the Price Club opening and the Price Club stealing business from them, etc. It seems to me that if we are going to be in a free market system, these things are going to happen. Although it may be difficult to say and difficult to accept, but to try and protect certain segments of our business community such as the small strip shopping area such as the Beach -- well, the Beach is different, but let's say Mimico, New Toronto and Long Branch, because the Beach is a little more specialty, high-end, artsy kind of shopping area -- but if you did try and protect the New Toronto-Long Branch-Mimico area, are you just wasting your time? Is it really something that can be done to achieve a viable return to those days when they were a going concern?

Mr Winter: I do not think I am talking about going backwards. I am talking about negative changes that are happening in our society and what implications -- if we do not do something, a few years down the road we are going to have enormous vacancies.

Mr Stockwell: But you are calling them negative changes.

Mr Winter: Certainly.

Mr Stockwell: You are suggesting they are negative.

Mr Winter: The dollars are going across the border to other things.

Mr Stockwell: I agree with that.

Mr Winter: I remember when Sherway opened and Dixie was just clobbered. It took them, what, 10, 15 years to get back to some type of reasonable --

Mr Stockwell: Dixie mall.

Mr Winter: Yes, Dixie mall. Cloverdale had problems for a few years.

Mr Stockwell: Yes, but what happened to Dixie Value Mall is they found a new niche in the market.

Mr Winter: It took them a little while.

Mr Stockwell: But they found it. Now they are busier than Sherway.

Mr Winter: But I do not think you are going to find another niche in the market in Windsor or Niagara Falls once the little guys go out of business.

Mr Stockwell: Okay. The other question is, I have very great difficulty with some of your recommendations: "If we cannot compete, if we are not going to be able to compete, then let's charge somebody to go across the border." That seems totally counterproductive. We are not resolving the issue. We are just saying: "Okay, yes, we charge you a lot in taxes and real estate is high and so on and so forth, so what are we going to do to solve the problem? We'll slap a new charge on you if you decide to go over the border." It seems totally counterproductive to me.

Mr Winter: We happen to be paying for some of our social services by these taxes that people can escape by shopping across the border. Those taxes, indeed, make some of our retailers uncompetitive.

Mr Stockwell: A $5 charge, you feel, will stop the cross-border shopping for the gas and milk and such things.

Mr Winter: It will certainly cut it down a considerable amount, I feel.

Mr Stockwell: Let's move on to the bigger ticket items. Five bucks is not stopping somebody. I heard of a friend of mine who is planning on going down to get a car. Tell me something. What are we going to do about that? A $5 charge is not going to make one whit of difference to that person.

Mr Winter: I get different stories about cars. I believed from one source that we now had restrictions on car purchase and that you cannot buy a Canadian model in the United States, and a Canadian model is a very simple change. You have to have a baby restraint system and you have to have lights on all the time, something that you could go to Canadian Tire and within five minutes they could change the US car and make it a Canadian car. I believe you cannot do that. There is a restraint, how we protect our automobile market. I do not see why we cannot introduce some other protection against the people who have built our border communities.

Mr Stockwell: The other point you make is on buying power. You have suggested if we had better buying power, we could if you listened to what Mr Phillips said about Pepsi walking in and itemizing it, why would not the same problems that a retailer faces be faced by a manufacturer, a wholesaler or a middle man? For instance, he still has the health tax, workers compensation, unemployment insurance, business, realty, municipal, all these taxes folded into his operation. Why is it so astounding that his prices are higher also than the middle man's in the United States?

Mr Winter: I believe his prices are higher, but what we are talking about is not just 10% or 20%; we are talking about Pepsi at three times the price.

Mr Stockwell: I know, but I ask you, how much of that is made up in just the simple, non-competitive position that our country is in right now?

Mr Winter: I believe the Pepsi manufacturer that we were talking about has a monopoly. He can charge what he likes.

Mr Stockwell: So you think there is gouging involved as well.

Mr Winter: For that example there appears to be, when you have a look at what he is selling at in other markets.

Mr Stockwell: Okay, so gouging is taking place.

Mr Winter: But who is doing the gouging? I do not think it is the retailer.

Mr Stockwell: It is academic, because if there is gouging taking place and people decide to cross-border shop, somebody is going to cut his prices because he is obviously losing sales. Be it the retailer, be it the wholesaler, be it the manufacturer, somebody is going to feel the pinch.

No, he is not making as much money. If he cuts his prices, he realizes his profits are going to go up.

Mr Winter: But they go across the border and buy the Pepsi there.

Mr Stockwell: The point I am trying to make to you is, so they cross the border in droves; eventually somebody comes to the realization, "Let's drop my price, because I am losing all that business to the United States." I mean, if it was that simple, it would be that simple to resolve. The free market system would level the playing field.

Mrs Sullivan: He cannot price it at $10 below his cost.

Mr Stockwell: I guess the point I am trying to make is, there must be more to it than somebody simply gouging. There has to be something more to the equation than somebody gouging, because if he was losing a tremendous amount of business to cross-border shopping, any idiot would say: "Well, I'm losing so much business, I had better drop my prices. I've got a 100% or 200% markup in this. Let's take 40% or 50%."

Mr Winter: I do not understand.

Mr Stockwell: You do not understand the question or you do not understand why they do not drop their prices?

Mr Winter: Part b.

Mr Stockwell: Well, frankly, I do not agree with you. I do not think there is that much gouging taking place. I think there is more to it than simply he is overcharging and that is why he is not dropping his prices.

Mrs Sullivan: He would be wise to buy it at the Price Club and have it shipped in.

Mr Stockwell: Yes. Well, it is true. The sad commentary is, the Price Club's retail price is less than the wholesaler's price to the retailer. It is obscene that that in fact takes place.

You talk about the savings by crossing the border. One of the points during your conversation was the Sunday shopping issue. Open Sunday shopping was adopted in this province for the previous eight months. Did you notice any major difference between cross-border trips because we were open Sundays or not?

Mr Winter: We had done some work in Niagara Falls and there was a significant proportion -- and I can get it for you -- who said, "Well, we would shop for our convenience items here, but the stores are closed, so we are going across the border." That was before the legislation was struck down. I did not have the opportunity to survey in Niagara Falls because it is all driven by what the client wants and where the client is located. I have been very fortunate to be able to have worked in certain communities at more or less the right time, but I did not have the opportunity to run that survey when everybody was open to see how those patterns have changed, so I am afraid I cannot help you with that.

Mr Stockwell: All right. The last question is, from the percentage of shoppers that do cross-border shop, what is the percentage that responded to you that price was the number one reason for shopping?

Mr Winter: That is usually the highest. I can get you that for Windsor and --

Mr Stockwell: Give me an idea: 60%, 70%, 80%?

Mr Winter: Yes, it is up like that. Then the next reason, probably 10%, 15%, in that range, is selection and --

Mr Stockwell: Service.

Mr Winter: And then service comes down, and then going to see their family and friends and all the rest of it are reasons in border areas.

Mr Stockwell: Do you believe that if these were adopted the problem would be resolved?

Mr Winter: I do not think we are ever going to resolve the problem; I think we can ameliorate it. I think we have to do some radical things now or else the condition in the border communities, in Windsor, in Niagara Falls and in Chatham, where it is really hurting, will get dramatically worse.

Mr Stockwell: You say "now." Like in the next couple of weeks? I heard you say that people are declaring bankruptcy today, tomorrow, a week or so down the road.

Mr Winter: I do not know how fast you guys work.

Mrs Sullivan: Slow, slow.


Mr Stockwell: It depends. Well, tell me now. You think in the next couple of weeks that we are going to see some more major bankruptcies along the border towns.

Mr Winter: Certainly, and we are going to see some more retail bankruptcies too.

Mr Stockwell: You are not overstating the problem. We are looking at some huge numbers.

Mr Winter: In January, some of the retailers I knew, even in Toronto -- there was small retailer who is a jeweller, and there were days when nobody came into his store, or people came into his store and just bought a watch battery: $6 total sales all day. It is really serious out there in retail right now and the figures are showing it. It takes some people a little while to realize how serious it is in retailing. It is even worse in the border communities and that is why some of the mayors are jumping up and down and saying, "Hey, let's do something."

Mr Stockwell: So we do not really have a lot of time to consult.

Mr Winter: I do not think we have the luxury of time to spin this out for years while we come up with a solution.

Mr Stockwell: Months, months. I am trying to nail you down. My problem with this government is it consults, it reviews, it discusses, it answers its questions in the fullness of time. Really, what I would like you to give to me is an impression of what we are looking at here, your time lines that you think something needs to be done.

Mr Winter: I would like to see in the next budget some means by which you apply provincial sales tax to cross-border shopping.

Mr Stockwell: And then also charge for people to cross-border shop?

Mr Winter: I do not believe that it is your jurisdiction. I think you have to say to the federal government, "Look, guys, you're going dramatically the wrong way."

Mr Stockwell: Last, how did you get involved? You have a management consultant business. Do you have a retail business?

Mr Winter: No. I used to work in retailing, but I have a management consultant business and we have been hired by a number of municipalities to help them come up with a strategy to face this issue. I also have had the luxury, because we do other types of survey, to sneak in questions that I am interested in when we do other types of surveys. Most survey firms do this, but I have a wide database on this issue, along with a number of other issues, I may add too.

Mr Stockwell: My last question is, if you could leave us with one thought, it is that speed is very important when it comes to this issue. We do not have time to hang around, debate and discuss, consult and review it and all those kinds of lovely words.

Mr Winter: It certainly is a good summary.

Mr Stockwell: Thank you. I can use that.

Mr Hansen: I just wanted to clarify; maybe Mr Stockwell was not here earlier when I handed this out. Here it says, "Price in US dollars." This is an advertisement that was in the Tribune. There is a 7% GST, there is an 8.3% duty, no provincial sales tax, and one thing I forgot to add, no state taxes also in New York state. This will be delivered to your driveway. This is the one I was talking about and this to me is very aggressive. There is an outfit in Ridgeway, I believe, that is into pool sales on a wholesale basis. It is not very competitive for him when this comes in and there is no sales tax. That is an 8% difference right there.

I am sorry, Mr Stockwell. I know you have asked a few times about when we are going to get going. In this committee we have tried to get going as soon as we can. I think Mr Kwinter will say that we discussed, before we even had pre-budget, that we get going on this right away. So we are doing the best we can. We do have to consult a little bit, but the thing is that I can see that this whole issue has ballooned since January because when the GST did come in, there were people writing letters to the paper to say: "It is a revolt. Refuse to pay the GST." Even if they paid 4% in New York state, they were looking at the revolt that they were getting even.

Mr Winter: This is the Canadian equivalent to proposition 13: "We're not going to take it any more, so we're going to go across the border."

Mr Hansen: Yes. So it is something that we have been looking at. I know you say you are not on the government side, Mr Stockwell, but you are part of the government and your participation and your ideas are welcomed on this side, within reason.

Mr Stockwell: That is not true. You know that.

Mr Hansen: To help the retailers out there, I think it is very important that we all work together. The one thing I mentioned this morning, since you were not here, and some of us have repeated ourselves to give you the idea of where we are coming from, I think the biggest thing we have to take a look at and pound a little bit harder is co-operation with the federal government at the border to wind up to see some means of collecting the 8% to keep it even there. I think this is about your line.

I have to really say that this -- and you do not have to blush -- is the best report I have seen condensed, very short, so far. It seems to be right up to date. It is hard to keep on top of this because it changes. In the period of time that it carries on, if it goes on much longer, this report will be obsolete in another two months.

It gives us a little bit more insight into the amount of money that is flowing across the border and the effects that it is having. Being a representative of the Niagara area, I can see it quite clearly. Maybe Mr Stockwell there, being farther away, does not see the effects as much as living right in there. As I say, I could walk up the street and on a clear day I could see New York state, so that is how close I am to the border.

I just wanted to comment that it is a good report and, living in the area, I see there is a lot of truth there. I have to take a look at some of the figures and I have to believe a lot that is in there.

Mr Christopherson: Mr Winter, I would like to echo the comments of Mr Hansen and compliment you on an excellent brief and thank you for taking the time and lending your expertise. A few of us here are pleasantly surprised at the number of business people, consultants and others, who are prepared to come forward and literally put their time and money forward in the interest of public service. It is appreciated very much.

Just a couple of points, because I think we have covered most of the ground. At the time the recession lifts, how much of an issue do you think this will be to the municipalities that are hurting, the retailers in those municipalities and the drain on the provincial economy overall?

Mr Winter: It is difficult to separate one reason from another for the cross-border. I think what you see in retailing is a pattern developing and it is difficult to change a pattern once it is solidly established. What we have been seeing in the last six months are so many people going across just because they hear about it in the media or they have heard about it from their friends. They might not have known, going out from the Toronto area, that there are such bargains to be had. I think it is going to be difficult to reverse a trend such as this if it gets on a consistent and repeated basis and people get used to it. I think it is going to be difficult.

It probably may not be as driven by the people who travel two hours to buy something for their children; they might buy it more at home when we do not have a recession, but they will certainly know that opportunity is there. It seems to me that the opportunities are getting better on the Buffalo side with Wal-Mart coming into that market first and with Pace Warehouse coming and some of the other attractions, so I think it is difficult to reverse.

Mr Christopherson: Your recommendation regarding clamping down: I have also had suggestions about, why does the government not lean more on the issue of the smuggling aspect, quite frankly, of goods that are not being declared as another way of, to use your words, clamping down? How would you separate slowing down or removing some of the ease of going across and shopping, and in many cases not declaring, as a way of offsetting this from those individuals who you want to have good, easy access by virtue of the business they do, whether that is truckers, which is an obvious one, you can have a trucking lane, individuals who are going across to do business; people who perhaps work in one city and live in another? How would you see on a practical level those separations taking place?


Mr Winter: In some of the border communities you do not have enough lanes across. The Windsor tunnel, for instance, is constricted, but the Ambassador Bridge is not. I think a lot of it at the border is a scheduling problem. I think the federal government should ask a supermarket operator how to operate checkouts. The key thing would be to have enough people on when the demand is highest. They know when the demand is highest and they could quite easily schedule more people to work at those high, peak times. Have you ever come into Pearson when three or four jumbos are coming down and they know they are coming down and there are only a couple of people checking people through? What is this? If a supermarket operator did that, he would be out of business very quickly. It is a scheduling problem.

You could quite easily take some part-time people, put a funny hat on them, let them sit at the border and say, "Please, open up the trunk of the car." Those guys do not even get out of their little cabins. "Have you anything to declare? Where do you live? Welcome back to Canada. Have a nice day." I do not call that work. They have the option of not charging duties and not charging GST, whereas our retailers have to charge GST on minuscule amounts. Those guys, if they do not feel like it, if there are a lot of people there, can just wave them through. What is this? Meanwhile our Ontario retailers are going down the toilet because these guys are not doing their job properly. They should be collecting those taxes. They should be taking every dollar of taxes that they should be doing.

Perhaps we need to go back to the system that we had in Canada 200 years ago where the customs guys got a percentage of what they collected. If you linked their pay to productivity --

Mr Kwinter: They found out that the guys were making more money than the government, so they cut it out.

Mr Winter: If you had some type of bonuses for those guys, linked to the amount of money that they collected, would you see them opening up the trunks of more cars? "Would you please open up your trunk, sir? I want to look in." Sure they would.

I think it is a scheduling problem. You just look and see how many checkouts they have open. I would ask whoever runs Loblaw to give some advice to the federal government on how to run a checkout, because he runs them pretty good on Saturday mornings when I want to get through.

Mr Hansen: If I can just interject, one thing that happens is that those bridges built in Fort Erie and Niagara Falls were built for tourist trade; they were not built for shopping trade. I think that is the big problem right there. They were not designed for the amount of traffic going across.

Mr Winter: On some bridges, like Rainy River, there is no charge whatsoever, so there is absolutely no restriction. You do not have to pay your $1 or 60 cents; you just drive across.

Mr Hansen: The other thing too is the long lineups. It gets so backed up I think that the people who are doing the inspecting are getting telephone calls saying, "They're four miles back from the bridge causing traffic jams," so they wind up, "Next" and going through. I know it is wrong.

Mr Winter: Put more checkouts open on a holiday Sunday night because, yes, there are problems at the other end of the Windsor bridge. It is on Jefferson Avenue in Detroit. Sure it backs up in Detroit, but if you put more people on when you know that there are going to be peak periods, then you would be able to process them faster and you would also be able to ask them whether they have something in the back.

Mr Christopherson: Another question: Does anything come to mind as an obvious answer if the tax on gas or anything else were slashed, whereby the price that the Americans are paying in terms of their cities and their quality of life would not happen here without having to pass on those taxes somewhere else? I realize it is an economic question, and a political one, but it is kind of the other side of another question that was asked by someone else.

Mr Winter: One of my solutions, one that I think works with the market, is to try a test market where at a border point you permit a gas station to sell gasoline at US levels, so if you are going to drive to the border and if you are going to go across, you may as well buy your gas at that border point. You have driven there anyway. You will buy it in Canada. Now, you as a province are going to get a lot of taxes, because those taxes are going across the border. There are state and federal taxes in the United States that are considerably lower than in Canada, but it would be interesting to see, and that would be a test that would be quite easy to do. You set up an intervening opportunity where you can buy the gas.

In a small community like Fort Frances it might be that you would not be able to build a gas station at the border, but you could rotate it among the gas stations in the community. If you are going to drive across, then you can get it. And that process of driving across for your gas engenders a whole lot of purchases, because you may just as well stop there and pick up your cigarettes or pick up a nice, humongous turkey for Christmas or for Sunday dinner, and so on.

Mr Christopherson: I follow your logic. The only thing I have had trouble getting over on this issue, quite frankly, is that I still see us just moving the border in terms of the cost of gas. In other words, no matter where we lower it and where we put it, there is going to be somebody on the periphery of that line who is going to say, "You've drained my business." The communities are going to claim it; certainly the gas station operators will. I know that the zoning idea has been suggested, and there is a Quebec experience. I do not think we have seen anything definitive, and maybe that does work, where you feather it out. But that is always my concern about that; no matter where we put it, if we just isolate it in one place and say, "Here, you can have the same benefit as there is across the border," you are just moving the problem somewhere else and someone in another community is going to feel that he is being wronged by it.

Mr Winter: I believe if you are going to drive to the border, you may as well be able to buy it on the Canadian side rather than the US side. I think that is worth a try. It will not cost you anything. Indeed, it will be revenue-positive because you will get more taxes. Let's see how it works on certain locations. It is a reasonable idea. It sure works for the market.

I know the Quebec experience is they lower the taxes as you get closer to the border, but I do not think that is going to be dramatic enough. Okay, you are going to spend 52 cents instead of 54 cents, but they have got it over the other side at 26 cents, so you will still drive if you are determined to fill up your gas tank at half the price.

Mr Christopherson: I appreciate very much your time and your answers and thoughts.

Ms M. Ward: I think most of the things that I had in mind have been discussed and answered. One of the things that I was going to ask you has been touched on slightly. You were saying in here that the GST had an effect but it is certainly not a major explaining effect in terms of price. You have identified a lot of causes and some possible solutions, but what I was wondering about was really asking you to delve into people's minds, and I think your surveys maybe do some of that. How much does people's perception about taxes, in the sense that if they feel taxes are unfair, then they give up their national sense of responsibility -- you were saying, "Where are all the nationalists now?" I guess I am a nationalist, because Mrs Sullivan was giving the example of something $7.99 and some other tremendous price. I would go for the higher price if it were Canadian. I do not understand why there are not more of those.

But what I was getting at about the taxes, if people feel that taxes are unfair, does that make them just decide to give up their national sense of responsibility to buy Canadian, do you think? Like the anger over the GST, I can see that spreading to increases in municipal taxes also, just a sense that taxation is unfair.


Mr Winter: I think it is like the free trade debate. We had a very divisive debate on the GST, which unfortunately did not work. Hey, retail sales shut off like a faucet in January. It was just a disaster. It might have been better if they had introduced it in the middle of the summer when we were all feeling better, but in the depths of winter, in the middle of a recession -- anyway, we are told that we want to become one big market, so why are those advantages not in our stores rather than in their stores?

What I have seen is that people have been sold a bill of goods on the GST. They expected things that it would not produce, and unfortunately they were led to believe there were going to be some changes that they would see. They have not seen the changes and they are taking them. That is one force here. Now, how important that is in the total scheme of things, I could not say.

Ms M. Ward: Yes, it is maybe not very large. I think you mentioned something about 5% of people would buy Canadian no matter what.

Mr Winter: In the surveys they come through. Now, those may be the wives of retailers in the town, for all I know.

Ms M. Ward: There should be other reasons, but is there any chance of expanding that?

Interjection: The kids.

Ms M. Ward: I am not a retailer's wife.

Most of the other things I was wondering about have been discussed. One other thing: The Fort Frances and International Falls situation here that is covered in your paper, I am not familiar with International Falls. What is the size of that, relative to Fort Frances? Are they both the same size?

Mr Kwinter: Very small communities.

Ms M. Ward: So it is not an attraction of a bigger --

Mr Winter: There are 10,000 people in the hinterland around it on each side, so it is 35,000 total, both sides. But it is nice because it is isolated and they are equal distance from a large city. The trouble when you have price comparisons in Windsor versus Detroit is that Detroit-Ann Arbor is four million or five million people and Windsor is only about 250,000. The advantage of this area was that they were both relatively isolated but relatively the same distance from major urban areas.

Ms M. Ward: The other thing I was going to comment on, and I think Mrs Sullivan discussed this also, or maybe Mr Phillips, was the effect on other businesses, such as production. You were speaking about the manufacturers. It must also have an effect on small producers. You know, your supermarkets do buy from the small farmers and so on in the surrounding areas. You can imagine other groups being affected, such as people involved in crafts and so on. Is that a factor also?

Mr Winter: Of course. There is a negative spiral all the way down through the economy. You see the retailer's problems first. It is difficult to put a finger on, let's say here in the Toronto area, if you are selling bedding or linens, why your market is so poor at the moment. Look, we are losing out of Toronto 9% of our linens and bedding market to the Buffalo stores. There are a number of reasons for that, but that is high.

What level is acceptable? If you are in that market now, you may not realize how much is going across, because it is such a large and diffuse market, so you cannot put your finger on the fact that somebody in handicrafts has suddenly got his market cut off or reduced significantly because people are going across the border. Some of these things are difficult to nail down, but you can see the processes involved and they appear to be negative for the economy in general.

Ms M. Ward: One last thing just occurred to me. Is there any chance that this is cyclical? I can remember years ago people used to talk about going to Buffalo. It was a big thing. I was only a kid at the time, believe it or not. Is this something that ebbs and flows and so on? Do you think it may die down again?

Mr Winter: Yes, I think there is a pendulum. I think it does go from positive to negative. I think it is very significantly negative at the moment. I remember 12, 13 years ago our gas prices were actually lower than in the US and in some border communities there was a flood over to our side, for the gasoline only, not for these other things.

Mr Kwinter: That was a supply problem.

Mr Winter: Always the supply, because it is remarkable to see in Fort Frances that the truck goes through Fort Frances and the gasoline halves in price. It is all Canadian gasoline being sold on the other side. It is all the government taxes.

But, yes, it swings. I think it is significantly negative at the moment. If our economy continues to be weak, it will continue to be solidly negative against us for the short-term future.

Ms M. Ward: It is not just prices, though, and economics. It is also attractiveness, is it not, of the area that you are visiting? Buffalo for a number of years was not an attractive place at all.

Mr Winter: That is right. Buffalo has come a long way.

Ms M. Ward: I would not go there, so I do not know.

Mr Winter: I do not really know why you would go there, besides the Knox-Albright gallery and the chicken wings.

Ms M. Ward: Thank you. I appreciate your report also.

Mr Phillips: Again, just a comment, because I feel rather strongly about it and I think it is important for us as a committee to keep focusing on this. I personally think that the cross-border issue is the first of a growing issue, and I think how we treat it is extremely important.

Mr Winter, I repeat, has done a fabulous job here. I just have a fundamental concern about one of your recommendations, because I think that what we are seeing with this cross-border shopping is a kind of a focus and a highlight of the difference in the cost structures, Canada-US, and the retailers are looking for a solution.

If we grease the skids that make it easier for products to come from the US to Canada to solve this, I think we are going to accelerate the problems for our manufacturing sector. Maybe there is no solution to it, but I think I know some of the industry well. I do not believe the food processors are gouging. I think the profit margins Canada-US are about the same, and many of them, frankly, because they are US-owned, would welcome greasing the skids and would say: "Your problems are over. We'll manufacture. We'll keep our plant in Rochester moving a little faster and we can sell Pepsi here in Canada for $6 a case. Don't worry about it."

I am just saying I think we as a committee have to really watch that we do not buy that solution, only to find we have undermined our manufacturing and our food processing sector -- our food producers, our agricultural community.

Mr Winter: I think we are having some change. Ontario for a long time could not get enough chicken market share, for some reason, and the prices were just driven high. My understanding is that we are addressing that problem and Ontario will get its reasonable share of the chicken quota. But I think that is going to take time, and how long have we got?

Mr Phillips: Believe me, I appreciate your recommendations. You are here just to help us and I am not trying to be critical. I am just saying I think we have to watch that one as a solution.

There may be some tax things we can do, I do not know. I have not really thought a lot about this, but the fact is that if you are crass, you would say, "Income tax catches everybody who resides in Canada, but there is a group of people who are avoiding sales tax and that sort of stuff." I do not know whether we should be trying to think creatively about the tax structure. Maybe it will not work, but there is, in a sense, an opportunity to inadvertently evade normal taxes here in Canada and maybe we should think creatively about that.

You have suggested one solution, which is an interesting one, of sort of the gasoline duty-free shop. It would be interesting. I imagine a bunch of people would sort of gas up and drive to the end of the bridge and turn around and come right back again, or maybe they would just back up from the thing, but I think that was a creative solution that you have given us.

I do not know whether you have ever considered, whether you have any recommendations generally on the tax structure that may be of assistance.

Mr Winter: I believe you are talking to the Retail Council of Canada next week. They continue to say that you should be looking at the taxes that are on the retailers. I would agree with them that the taxes are high, but when you look at the total scheme of things and how much taxes are as a percentage of your normal operating costs, they are pretty low. But anything that will improve the competitiveness of the Canadian retailer is good. But again, how long is it going to take?

Mr Kwinter: I just want to make two comments. One of the things about the taxes, we are saying the GST is not necessarily a factor and the retail sales tax may not necessarily be a factor. When you look at it, for those items that do not have to be declared, where they would be subject to the GST, the total is 15%. That 15% really represents the difference between the value of the Canadian dollar and the value of the American dollar almost exactly. So once you go over to the United States, and as long as you are buying something you do not have to declare, it is at par. You are really buying it at par. I mean, you do not have to calculate, it is exactly at par, because you are not paying 15% extra as you bring it back that you would have to pay if you bought it in Canada. So what you do is, you look at the bargain and you do not even have to calculate; it is a true bargain. Whatever you pay for it, that is the cost in Canadian dollars because you are saving that 15%. I think that is a significant number, a significant factor.

The other thing that I want to caution everybody against in any recommendations is that we are now into a free trade agreement and there are certain obligations on behalf of the contracting parties and you cannot erect nontariff barriers. You cannot suddenly put a charge on people coming back into Canada and not have it going the other way, because that will be seen as a non-tariff barrier. It would be a disincentive to trade, and anything you do of that kind, you have to be very careful that it can stand up to the test of the free trade agreement and also stand up to any challenge by any interest group in the United States. So that is just something that we have to really be aware of You just cannot unilaterally do things that may contravene the free trade agreement.

Mr Winter: But I believe the US has a test location where it is trying the $5 service charge. You know, it is user pay -- you use those services, you pay for them -- and I believe they have started one or two where they are testing it at the border. I think that is going to be the godsend, because if they put a $5 charge on, we could put a $5 charge on, and suddenly it does not pay you to go across and fill up your gas tank.

Mr Sutherland: Sorry, if I could just interject, this $5-charge experiment, is that $5 per person or $5 per car? That makes a difference as well.

Mr Kwinter: I do not know any of the details of it.

Mr Winter: I do not know, I think it is $5 per car. It is certainly $5 if you go across on a commercial vehicle, I believe.

The Chair: Are there any other questions from the committee? Then I would like to thank Mr Winter for coming. It has been a very informative afternoon. Thank you.

Mr Kwinter: It was really very good.

Mr Stockwell: The best we have had, no question about it.

The Chair: If you find out any information or anything that you feel you would like to share with this committee on an ongoing basis, we would appreciate any information that you could send along to us.

Mr Winter: We have just done something in Brantford, but we have not processed it, so we might know what the Brantford share is. Somebody is on the committee from Brantford, I believe?

The Chair: Brad Ward.

Mr Sutherland: I just wanted to bring up one other item of business before we adjourn. I wanted to discuss whether we were going to extend an invitation to this group of mayors that has kind of got together. I would ask either them or a representative from them to come and appear before the committee and I just wanted to see whether they thought that would be a good idea as well.

Mr Stockwell: Sure.

The Chair: The committee is adjourned until Thursday the 11th at 10 o'clock.

The committee adjourned at 1744.