Thank you, Mr. Chair, and good afternoon.
On behalf of eBay Canada, thank you for the opportunity to present before the Standing Committee on International Trade. Before I dive in, I'd like to provide some background about eBay in Canada. Enabling small business to get online and participate in international trade is at the heart of our business model.
eBay is one of the world's largest online marketplaces. Launched 17 years ago in Canada, eBay remains the top e-commerce destination, enabling more than $1.5 billion of trade by Canadians annually. Each month our platform receives nine million unique Canadian visitors, nearly one-third of the Canadian online population.
In addition to changing how consumers buy, e-commerce has also changed the ways in which we sell. In fact, Canadians on eBay sell more than one million items each month. E-commerce is also levelling the playing field for rural retailers. By leveraging part of the Internet, platforms like eBay have effectively decoupled entrepreneurial success from the need to locate in population centres. Take for instance, Christine Deslauriers, who has been able to create a thriving sports apparel business in the tiny town of Blezard Valley, Ontario. This is due largely to the sales her eBay store receives.
eBay's platform is also one in which even the smallest business can engage in international trade. In fact, 99% of Canadian commercial sellers on eBay export internationally, which stands in stark contrast to the export rate of traditional SMEs at less than 15%, and these businesses reach vastly more markets than their traditional peers—18 countries for eBay sellers versus 2.5 countries on average per year for traditional SMEs. Finally, our data finds that, for eBay commercial sellers who export, more than half of their sales come from international buyers. These sellers are in fact micro-multinationals.
It's important to note that Internet-enabled trade differs significantly from traditional trade. Exporters don't forward deploy inventory or enter into foreign distribution agreements; rather, platforms like eBay drive demand in foreign markets and create the connection and the trust between consumers and retailers. Unlike traditional export, this trade occurs via individual orders criss-crossing the globe, with shipments clearing borders via consumer channels rather than commercial ones.
Given eBay's role in working with these micro-multinationals, my team and I are acutely aware of the frictions associated with this trade and the federal actions that could address them. Specifically, I'd like to recommend a change to the Canadian de minimis threshold to empower Canadian small and medium-sized businesses to thrive in the global economy. As you're aware, the de minimis threshold is the value above which goods shipped into the country can be assessed for duties and taxes. The $20 threshold was originally set in 1985, prior to the birth of e-commerce. In fact, had it simply been increased with inflation, Canada's de minimis threshold would now stand at almost $45. Instead, Canada's de minimis is the lowest in the industrialized world and among the lowest globally.
This low de minimis level causes major friction for Canadian small business. It negatively impacts their ability to access low-value international supply chains and creates red tape when purchases are returned from foreign buyers. In fact, a report from the C.D. Howe Institute found that an increase in the de minimis level from $20 to $80 would benefit Canadian businesses by more than $100 million in reduced red tape and other costs.
Furthermore, Canada's low de minimis threshold does not support what the Canadian consumer wants: fairness and choice. E-commerce gives rural Canadians or Canadians with physical limitations access to goods that are otherwise hard to find. It's not hard to understand why a poll conducted by Nanos research found that 76% of Canadians were supportive of a modest increase in the de minimis threshold.
Finally, an increase in the de minimis threshold would improve government efficiencies. The same C.D. Howe Institute report found that the Government of Canada is spending $166 million to collect just $39 million in duty and taxes on goods valued between $20 and $80. As taxpayers, we should all be concerned that the cost of enforcing the de minimis threshold dramatically exceeds the revenues collected on low-value purchases.
As a platform for small business, eBay respectfully requests that the committee consider an increase to Canada's outdated de minimis threshold through its review of ways to support progressive Canadian enterprise through electronic commerce.
I look forward to your questions.
Thank you to the committee for the opportunity today to express my ideas regarding this issue. As you mentioned, we're the oldest family private business operating in Canada. I think it gives us a unique view of the evolution of a variety of technologies that are starting to impact our economy, be they automation, AI, or the refinement of applied mathematics in managing our business.
As a national retailer, we're at the forefront of these changes. It has given us unique insight into how this third industrial revolution is going to impact our economy and our country, but more importantly, how it's impacting our values as a family business and our values as Canadians.
Today, I'm not here to lobby with a narrow vision for the retail industry or another egocentric, narrow constituency. I would like to speak today as a citizen, as the father of two children, as a technophile—I want to underline that—and as a proud Canadian with dreams of the potential for this great nation.
My thesis, my objective today is to impress upon our political establishment the necessity for courageous, visionary change, to ensure not only fiscal equity in the future but also our ability as a country to build our communities around the values and projects that we aspire to. That is what is at stake here.
Despite the awesome potential that technological change offers us, it's negative impact will cause enormous social turmoil, even upheaval, if we continue to address these changes with archaic fiscal legislation created a 100 years ago. An ad hoc approach of piecemeal actions that focus on easy change will not suffice, in my mind. Our government's efforts will appear arbitrary, and impossible to explain or defend, leading to further social inequality and instability. Ultimately, as a country, as a nation, we will be unable to afford the very values that define our project as a country.
We are in the early stages of a revolution. I'm on the forefront of it in retail. As McAfee wrote in The Second Machine Age, we're on the second half of the chessboard. This is a point where geometric acceleration will both outline and underline the potential and the dangers that await us. As a businessman, I have one foot in the old economy with stores, and one foot in the new economy with the second largest website in Quebec, one of the top 10 in our category in the country.
I want to bring to you today a view from the battlefield of what's going on. There has to exist a sense of crisis and urgency. In my mind, we need thoughtful action, or else we will no longer control our destiny. Ultimately, this revolution will arrive right here in Ottawa, at your doorstep. You will find yourselves facing eroding tax bases and the inability to offer adequate essential services such as education and health care, as well as the inability to effect essential change, for example to a more sustainable, low-emissions economy.
Until we clearly identify the problems and causality, we will find ourselves, I believe, in a cycle of austerity, then budget cuts, followed by a temporary surplus, and then austerity again. That is the direction until we identify the causes and modernize the legislation.
Quickly, I think, if you have this sense of urgency that I bring here today, the government has to look at a number of things.
First, if we believe in a global trading system, companies and citizens must accept that there's a new global fiscal framework to be put in place. We must engage with an emerging group of nations, such as France, Germany, and Australia, who are not only lobbying for their particular interests but are beginning to reflect on a 21st-century global consensus for fiscal equity. Access to open global trade networks is not a right. It is a privilege that has been built by hard work over the past decades. It comes with responsibilities. A refusal to engage transparently in the new global initiatives should be met very severely.
Second, we must understand that it is citizens who require services, and thus taxation must be accrued at the points of consumption. Without this fundamental principle, smaller, less populace regions will always be able to profit from the ability of individuals and organizations to transfer activities to less populace, more fiscally advantageous countries.
Third, tangible and intangible products must be taxed in the same manner. The reality is that most products today are a combination of both. In a restaurant, 25% is actual, physical food; the other 75% is experience. To imagine that we can separate these two, or consider them differently, is just nonsensical. It will lead to a massive erosion of our tax base as the economy continues to dematerialize, and this is going to impact our cities and our ability to evolve.
Fourth, governments must avoid focusing on small, limited actions, until a broader platform of ideas and directions are in place. This is, in my mind, a crisis. To focus on little items, such as employee discounts for the young woman who works 15 hours at Simons, which was an issue a couple of weeks ago, just doesn't have any vision to it at all. It will be seen as arbitrary by citizens, and consequently, change will be impossible to effect.
Fifth, sales tax in Canada must be collected on all products, both tangible and intangible. We must find a way to collect it at the point of sale, and accumulate it at the point of consumption.
Sixth, de minimis levels must be set at zero. I find it difficult to believe we continue to have this. I am for thin borders, easy trade. I'm a free trader. However, to not set de minimis levels at zero is basically destroying the idea of localizing tax collection at the point of consumption. Operating in Canada is a privilege. Companies must transparently and honestly accept the responsibilities accompanied with that privilege. Higher de minimis levels will decouple the connection between fiscality and the locality of consumption.
Seventh, governments must rethink industrial job creation policies and subsidies. That's where we're at. The core to the future is education, both university and technical.
Eighth, Canada must participate in a movement to redefine corporate taxation based on where actual sales, consumption, employees, citizens, and physical assets are located.
Ninth, I believe Canada must push—
Thanks very much. Good afternoon.
My name is Michael Geist. I'm a law professor at the University of Ottawa, where I hold the Canada research chair in Internet and e-commerce law. As always, I appear today in a personal capacity representing only my own views.
While there are many Canadian e-commerce success stories, often started small—everything from e-commerce platforms such as Shopify to services such as Hootsuite and retailers such as Clearly Contacts—there are also, as we've just heard, many smaller businesses that use a combination of e-commerce, social media, and online platforms to raise awareness and foster customer loyalty.
In my view, the question for this committee is what, if anything, the government should be doing to further facilitate e-commerce in Canada. Are there current regulatory or legal barriers? Are there opportunities for the government to help support e-commerce growth? Are there instances of an uneven playing field that disadvantages Canadian online businesses? I believe the answer is yes, and I'd like to quickly focus on five such instances.
I'll start with access as the first of these. It may be stating the obvious, but universal, affordable Internet access is the foundation for e-commerce. If Canadians are not online, they are not buying online. was right when he said earlier this year:
We need every Canadian to be innovation ready—ready to spot opportunities, imagine possibilities, discover new ideas, start new businesses, and create new jobs.
All Canadians need access to high-speed Internet, regardless of their income level or postal code.
Until we bridge this digital divide, Canadians will not reach their full potential.
There is still much to be done to bridge this digital divide. Too many Canadians still do not have affordable access, and our pricing, particularly for wireless services, remains among the highest in the developed world. We need public investment to support universal, affordable access, and policy measures designed to foster enhanced mobile competition. Moreover, proposals such as the committee heard earlier this week calling for an Internet service provider tax and Internet tax, which by the advocate's own estimates would add more than $100 million a year to the costs of consumer Internet access, should be rejected.
Second is consumer trust and confidence. Even if Canadians are online, their willingness to engage depends on trust—trust that their information will be used appropriately and trust that online sellers will deliver what is promised. The need to foster trust has a government policy dimension.
For example, concerns associated with fraudulent spam undermine the potential success of all e-commerce activities. The industry committee is currently reviewing CASL, the anti-spam legislation, and there are business groups criticizing the law as overbroad, yet it is having a positive impact, with some studies finding that there's a 37% reduction in spam originating from Canada and a reduction of spam into Canadians' inboxes.
It is essential that Canada have a tough anti-spam law to help facilitate online trust. Further, we need to ensure that long-overdue security breach disclosure rules come into effect as quickly as possible, ensuring that our privacy legislation keeps pace with global standards, particularly those emerging out of the European Union.
Third is intermediary liability. If you were to canvass many of the biggest digital-first businesses today—social media and companies and other online services—about the relative legal risks in Canada as opposed to in the United States, many would likely point to the absence of safe harbour rules for content and the contributions of third parties in Canada.
That's an issue that remains largely hidden to the general public, but in the United States, Internet giants such as Google, Facebook, Amazon, and indeed eBay, as well as small companies that invite feedback comments and user participation, are protected from liability for the content of third parties through a statute known as the Communications Decency Act, the CDA, which provides that an intermediary is not liable for the third party content it hosts but does not actively review.
The standard makes sense. In a world in which platforms may have millions or even billions of users, placing editorial responsibility on the site is a recipe for disaster, with users going elsewhere.
Canada does not have a statutory equivalent. In practice what this means is that sites either relocate to the United States, where they have that safe harbour, or they simply remove content—often perfectly lawful content—for fear of liability. If we want to compete on the global e-commerce stage, we need laws that do not place Canadian businesses at a competitive disadvantage.
Fourth is intellectual property laws. As I mentioned in my last appearance before this committee, on NAFTA, Canadian companies, particularly those active in the digital environment, may be at a disadvantage with our restrictive IP laws as compared with some of the more flexible rules found in the United States. For example, the availability of “fair use” in copyright in the U.S. represents a significant competitive advantage for U.S. businesses and creators.
Similarly, Canada's anti-circumvention provisions, often referred to as digital lock rules, are among the most restrictive in the world and create unnecessary limits on innovation.
Finally, fifth, the committee has heard as recently as earlier this week about the need for an e-commerce or digital trade chapter in our trade agreements. I think there is some value there, but we should be wary of provisions that undermine legitimate public policy interests, including privacy and security. For example, the U.S. has identified restrictions on local data storage, often called data localization, as one of its objectives. The Canadian government should resist those efforts within NAFTA, or within the restarted TPP 11, to limit the ability of federal or provincial governments to establish legitimate privacy and security safeguards through data localization requirements.
Limitations on data transfer restrictions, which mandate the free flow of information on networks across borders, can raise similar concerns. The U.S. has been seeking a ban on data transfer restrictions, and I think we ought to ensure that our privacy and security rules aren't superceded by trade agreements such as NAFTA or the TPP 11.
In sum, we're succeeding in e-commerce, but we can do better and there is a role for the federal government to help make it happen.
I welcome your questions.
The good news is that it's getting easier. Both getting online and using the Internet to enable exports is getting a lot easier now with platforms such as Shopify, effectively pay-as-you-go, and it can scale with the business. You don't have to have massive upfront infrastructure investments, software investments, in order to get online and to start exporting.
Certainly what we see is that small businesses might start somewhere, even start on eBay, and use that as a way to test the waters. It's a very low-risk way to dip your toe into exports, and eBay is creating a trust, it is facilitating the transaction, and it's providing guarantees on both sides.
That said, when we talk to the small businesses that trade on eBay, they are not as aware as they should be of all the programs and benefits that are open to them, to get them going.
We've had round tables with both the current and the minister from the previous government, and in both cases our sellers were asked, “What government programs have you availed yourselves of?” The answer was, effectively, “None”. There needs to be much better communication and much better, for lack of a better word, marketing to small businesses to let them know what's available to them.
Certainly getting online with eBay and similar platforms can take a lot of the heavy lifting out, because those platforms are able to immediately connect them with demand in any number of countries.
I think Canadian privacy law largely meets global standards, although we've started to see the European Union in particular, through something known as the GDPR, elevate those standards. I think we're going to rapidly face some challenges if the EU starts digging into whether or not we continue to meet those standards.
In terms of compliance domestically, we have a Privacy Commissioner, who of course enforces the anti-spam rules. It's a shared responsibility between the commissioner and the Competition Bureau and the CRTC. We have a number of players there on the domestic front.
How Canada can help develop better privacy protections on a global basis, particularly when Canadians may purchase or engage with foreign entities, to ensure there is adequate privacy protection, that's where there is, I suppose, the potential for trade agreements to play a role.
As I mentioned in my earlier response to Mr. Allison, it seems that one of the challenges we're facing is that the extent to which we're negotiating with the United States.... The U.S. has not been a particularly strong supporter of strong privacy protections. It tends to adopt more of an “anything goes” approach. As long as you disclose what it is that you're going to do and someone agrees to it, then so be it. I'd argue that's a bit of a fiction. Most people don't know the kinds of things they are clicking their way into.
Developing baseline standards of privacy protection is an important thing to do, certainly domestically. Also, as we enter into some of these trade agreements, whether NAFTA or TPP 11, or perhaps some others, we need to ensure that we establish an appropriate benchmark in those agreements.
Mr. Simons has obviously made a strong case for why he thinks there's a problem.
I'll say a couple of things. First off, I think there is an inevitability to sales taxes in the online environment, so with regard to this debate over Netflix sales tax, the notion that somehow there are a whole lot of people out there who are about to drop their Netflix subscriptions and go to something else strikes me as highly unlikely. It's a well-priced product, and if you added the sales tax I don't think it would move the meter very much.
That said, there are some countries that are starting to experiment. I think there are some dangers about implementing across-the-board sales taxes for anybody that happens to sell. The compliance costs, the enforcement costs for modest sales into Canada might well result in many of those businesses avoiding the Canadian market altogether, and that would decrease consumer choice and lessen competition.
The last point I would make—with all respect to my colleague on the panel here—is that no Canadian company succeeds in the e-commerce environment by solely targeting the Canadian market, so the notion that somehow if only we taxed everybody trying to sell into the Canadian market there would be opportunities for Canadian businesses to succeed online, with respect, I don't think that's consistent with what we've seen.
Over the last decade or so, we've seen consistently that Canadian companies can compete in the global market, but the only way you compete in the global market is by competing in the global market. Trying to increase costs in the Canadian market for some of that competition isn't really an effective way to do that.
Thank you very much, Mr. Chair.
It certainly is great to be able to speak to you. Again, one key thing that was brought up earlier was the Internet, and of course, how we're able to manage that. I was on industry, science, and technology, and we were about to study Internet capabilities in rural and remote Canada. Hopefully that's going to be continued and looked at. That's really one of the major criticisms and concerns that we have right now. It seems as though the costs associated with it and the coverage that is there is obviously where the major population is. That's something that has to be addressed. Again, I think the businesses are the ones that can help push governments to make sure that they're focused in the right direction.
The other thing to recognize is that what's taking place is the disruptive technologies that are out there. I do think back to Sears. To me, when I was a kid it was all the catalogue. I didn't know that they had buildings. If we're looking at what is happening now, they got lost on that. Of course, with so many businesses, we have these stranded assets that are there as they've put millions and millions of dollars into these things, but that isn't what is going to be needed in the future.
I think that's really one key thing that I'd like us to be able to focus on. From the panellists, are there ways that we can ensure that the requirements needed for our Internet services are up to par for all of Canada and not simply the corridors of population?
There's a reason that I started the five recommendations with access, because I really do think it is the foundational issue that you have to address. You are right to note that there is not a quality of access today, and access even where it is available in many places remains expensive, which creates, in a sense, two sets of digital divides in Canada.
We have a digital divide sometimes between urban and rural with communities that don't have any access at all, but even within urban communities where Internet is available, it may be unaffordable. That's why there is an emphasis, I think, both on affordability and on access.
We've seen various programs and successive governments from both sides endeavour to establish programs and prioritize the issue and we haven't made the kind of progress that I think we would have otherwise hoped for, given that there are still too many Canadians who don't have that kind of access. That can't help but create a real laggard when it comes to e-commerce adoption, whether as consumers or as businesses seeking to adopt.
I think that means, at times, investment where the market won't otherwise invest. I think it means finding ways to inject new competition, particularly in the wireless sector. It's things like NVNOs, which are seen as virtual companies riding on the network but offering up the prospect of greater levels of competition—we see these kinds of things in some other jurisdictions—and then continuing with spectrum policy that seeks to inject some of those new competitors into the marketplace as well.
It's not going to happen overnight, but unless it is a top priority with clear targets and objectives—and the CRTC tried to do that—I fear we're going to be here five years from now still talking about the number of Canadians who can't afford it or don't have access.
I'm glad you liked the five I started with. I think those are the kinds of issues, given that we are actively renegotiating NAFTA and negotiating TPP 11, that are very much current.
Taking the perspective that e-commerce is somehow a threat and that those jobs can leave isn't to view e-commerce with the fulsome kind of potential that it has. Of course, eBay provides a paradigm example of the way many people can succeed on a global basis, but there are many examples over the last number of years. In many ways, we should almost stop calling it e-commerce and just think of it as commerce, because it does reflect how people do business today.
I have every confidence that Canadians can compete. What we have to get out of is the mindset that what we need to do is erect barriers or have government come in with programs to help make it happen. This is not to suggest that there isn't a role for government to help educate, to help lay the foundation, as I talked about, with such things as access. But it's a global marketplace, and what we ought to recognize is that if we're not able to compete on the global level, other companies are going to come in and compete right here at home. Amazon we know, for example, is obviously a giant in the space, and not just with the traditional books, of course, but with just about anything, including now groceries.
When you start thinking about those kinds of paradigm shifts that are taking place from an e-commerce perspective, what we need isn't so much cheerleading. We need to, in a sense, embrace the commercial opportunities that the Internet has brought and recognize that we do have a lot to offer and we can compete.
The interesting thing about e-commerce trade is that it's going through consumer channels like you and I would send something to our aunt in Bethesda. It's not going through programs that have been set up for commercial use. That creates specific frictions. No one's going to be surprised when I say de minimis is one of those big frictions both in terms of increasing the cost of low-value inputs—the reality is these small micro-businesses are bringing inventory in to resell in the hundred of dollars—and then it also is a huge pinpoint in terms of processing returns.
Returns on e-commerce transactions are table stakes. It's something that you need to offer now in order to compete. When you're doing more than a half of your business outside Canada, as most commercial sellers on eBay are, you're bound to be receiving returns from international customers. They tend to get assessed for duties and taxes, which you can reclaim, but that process costs money and diverts time and attention away from what you really want to be doing, which is running your business.
For that reason, aligned with what Dr. Geist was saying, we need to have regulation that acknowledges this new kind of trade and removes some of that friction, while still focusing on the key things of preventing dangerous goods, preventing the kinds of things that CBSA really needs to focus on. It's clear that picking up a $21 package, assessing it for duties and taxes, costs way more than the revenues that this generates.
If we feel we need to protect Canadian retail, there must be a more efficient way of doing that and in a way that consumers can trust that this package is above the threshold so it will get assessed, but this is package below so it won't. We play duty roulette now. Half the time the stuff coming across the border is assessed; half the time it's not. That creates a lot of red tape. It doesn't permit Canadian consumers to participate in global e-commerce in the way that it appears other countries do, and to use global e-commerce to fill the gaps from what they're able to get domestically.
I want to quickly chime in, even on that last question about the regional side, and recognize that there are at least two sides to this coin. There is also a consumer side, especially in rural communities where they don't have some of the stores and where the amount of consumer choice might be far less than what is available in an urban community. That ultimately means that they've often not had the choice or they've had to rely on, let's say, the Sears catalogue, if we go back decades.
E-commerce has created a far more level playing field from a consumer perspective in terms of massively increasing consumer choice. I would argue that if what we did was to say to every one of those micro-businesses, wherever they're located anywhere in the world, that one of their obligations is to collect and remit Canadian sales taxes, we're going find that many of those consumers are going to face the frustration we face from time to time of being told, sorry, they don't sell into our jurisdiction because the costs are simply far in excess of the kind of revenues it would generate.
Yes, it makes it easier for Canadian sellers because they don't face that competition, but from a consumer choice perspective, particularly in some of the regions where there is traditionally less choice, it makes a big difference.
In terms of payments, to your specific question, we're already seeing a lot happening, but frankly, we see far more happening in the United States with innovative payment services. We're very proud of our banking system and how secure it happens to be, but what it also means is that type of disruptive innovation in the financial payment sector is happening at a far faster pace in the United States than in Canada. Part of it is that we get the benefits of a secure banking system, but we also don't get the type of disruptive innovation that we're seeing elsewhere. Longer term, that's a real risk to the growth of e-commerce.