Finance Committee on Oct. 7th, 2014

[Mark Adler, Conservative, York Centre, ON]

Okay, thank you.

Mr. London, what are some of the constraints around producers right now of REEs? Are there any in Canada right now that are an impediment to further development of REE?

[Ian London]

Financial markets are soft, but we're bringing things into production. Rare earths are not commodities. They're not like copper or any of the base metals, and you have to complete a supply chain.

They also present some unique chemistry issues, so producer A can produce a concentrate, producer B can produce its concentrate, and no two deposits are ever the same. One of the challenges is how you separate them. And all rare earths appear the same; there are 17 elements that all come together and they have to be peeled off, like an onion. Can we develop a centralized facility to take feeds from different units? The answer is yes. But no two feeds are the same, so you now get into questions like what the chemistry issues are, what the innovative solutions are, and then whether you can demonstrate it. The answer is that I think you can.

There are a number of other technical.... As I said, we've brought together a group of innovators—the theme talked about before, which I liked—where engineers from the technical leaders from each of the companies got together and said, “No, we can't talk”, “No, we don't have any problems”. But at the end of the day they prioritized seven common projects and said, “We have a similar kind of issue. We are finding that this reagent scheme is probably the best. It's only produced in one location and happens to be controlled by the Chinese. It could be re-engineered. How about we collaborate and solve this problem, reverse engineer it, tweak it as need be, and move forward?”

It's that collaborative platform. As I commented before, with CREEN and the Conference of Metallurgists, we've demonstrated that the ability is there for the juniors to do it and draw upon some of the bigger organizations. In conversations with the CIM, the Canadian Institute of Mining and Metallurgists, and the Mining Association of Canada, some of the larger folks are asking, “How do we support you, and how do you draw on some of the capabilities we have to solve problems we don't even understand, but individual skills are there and that's what innovation is. I have solutions and how do we apply them?”

[Mark Adler, Conservative, York Centre, ON]

Okay.

Mr. Robinson talked earlier about brand Canada. How important is this for Canada?

[Ian London]

As I mentioned in my opening remarks, China is integrated. The Critical Metals Institute is in the U.S. under the DOE. I've been invited by Erocon to talk to the European Community next week.

Did you notice that I didn't name a country? I named nations or individual companies.

The Rohstoff Allianz, an association of German manufacturers, is saying, “I have this demand, you have that demand”. They don't necessarily want to share what their individual demands are, but by aggregating them, these become national interests. To the Europeans I think the European free trade agreement is a perfect opportunity to bring.... Europeans are manufacturers, they're assemblers, and they bring equipment. Canada brings mining and metallurgy. Together we can combine that to develop a.... That doesn't mean selling one product to the other, but it could, if Canada takes interest in some of these further downstream and as an end user looking upstream and saying, “We can work these out”.

But if you look at it, there are actually U.S.-EU-Japan trilateral meetings handled annually—that's nation to nation to nation—and they bring the industry and the collaborators together.

[The Vice-Chair, NDP, Nathan Cullen]

Thank you very much, Mr. London.

Thank you, Mr. Adler.

We're out of time.

I would like to thank all of our witnesses for presenting today. It's been very informative.

[The Chair, Conservative, James Rajotte]

I call back to order meeting number 47 of the Standing Committee on Finance. We are continuing with our 2014 pre-budget consultations.

I want to welcome our second panel of witnesses here this afternoon. In order of presentation, I have, first of all, the Canada Green Building Council president and the CEO, Mr. Thomas Mueller. Welcome. Second, we have the Canadian Manufacturers and Exporters. The president and CEO is Mr. Jayson Myers. Welcome back. We have Mr. Shawn Murphy from Co-operatives and Mutuals Canada. Welcome to the committee. From the Information Technology Association of Canada, we have the chair of the tax and finance committee of ITAC, Ms. Karen Atkinson. Welcome to you.

We also have with us Martin Beaulieu, from Société de promotion économique de Rimouski. Welcome to the committee.

You will each have five minutes for your opening statements, and then we'll have questions from members.

We will start with Mr. Mueller, please.

[Thomas Mueller, President and Chief Executive Officer, Canada Green Building Council]

Thank you, Mr. Chairman.

The Canada Green Building Council is an industry-driven organization that has been in existence for 12 years. We focus very much on market-driven solutions. One reason that green buildings—these are environmentally responsible, high-performance buildings—have been successful is that for the owners and the developers there is typically a very good return on investment.

Globally the construction industry is a $6.8 trillion business. It's one of the largest industry sectors in the world. Buildings also have a tremendous environmental impact in terms of carbon emissions—about 30% to 35%—water, waste, etc., aside from the amount of land they consume. So this is a significant opportunity for reduction of environmental impacts and for innovation globally.

Canada was one of the early adopters of green building and we are considered to be a global leader. We are often visited by delegations from all over the world, including China, Europe, and Latin America, for our expertise in the area of designing high-performance buildings and communities.

Globally green building has been on the rise, particularly around new construction, but also around the retrofit of existing buildings. It's now firmly established. Over a hundred countries in the world have strong green building programs and, as I said, Canada is a leader in this area.

This is an innovation opportunity to really achieve high-performance and low-impact buildings. I can give you an example of some of the countries that have been served by a study done by McGraw Hill Construction on the construction sector for the world body in 2013.

Between 2012 and 2015 there will be an increase of between 20% and 30% in firms and businesses doing green buildings. That's a significant increase in green building activity.

If you look at green building growth by sector in Canada, over the next three years there will be significant growth: 44% in the commercial sector, 44% in the institutional sector, 31% in the high-rise residential sector, and 51% in existing buildings. So across the board more and more buildings in all sectors are going to be built to higher environmental standards.

Our council, along with some of our industry partners, commissioned a study this year that showed us how green building activity in Canada will increase. In 2011, 37% of Canada's architectural firms, developers, and building owners built 30% or more of their projects green. By 2014, the current year, this has increased to 56%. So 56% of firms are now building 30% or more of their projects green, and it's expected that by 2017 that's going to be 71%.

So if half of those firms are building more than 60% of their projects green, that means that green building—design, construction, operation, product manufacturing, etc., including infrastructure—has become a core business for many firms in Canada, and that's mirrored in other parts of the world as well.

The issue is that many of those products and technologies that are being used in very advanced buildings, including those of the Government of Canada, which are built to a high green building standard, particularly the LEED building rating system, use products and technologies that are actually imported.

[The Chair, Conservative, James Rajotte]

You have one minute remaining.

[Thomas Mueller]

They are imported from China. They are imported from Europe. The question is why more of these products and services and technologies are not homegrown.

As I said, Canada is a world leader, but there is very little research at this point to support this relatively new sector. The innovation that's happening is really done by engineers and builders and designers who innovate as they apply these technologies and products and designs to new buildings.

It's a wide open field with significant opportunity for investment and for commercialization of new products and technologies and a great opportunity for Canada to stay globally competitive, because other countries, including the U.S. and Australia, are very aggressive in this area and Canada hasn't been.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll go to Mr. Myers next, please.

[Jayson Myers, President and Chief Executive Officer, Canadian Manufacturers and Exporters - Ontario Division]

Thank you, Mr. Chair. It is always a pleasure to meet with the committee members.

Thank you very much.

I'm joined today by Lorraine Royer from Williams Energy and Ken Faulkner from NOVA Chemicals, two of our members who have spent the last day and a half with a contingent of members in meeting about 150 MPs on the Hill to talk about manufacturing, the importance of manufacturing, and a number of challenges and opportunities facing the sector.

I'd like to focus on one specific set of issues. I've distributed copies of our latest membership survey, as well as some of the recommendations we've made in our pre-budget submission. I'd like to focus on two challenges or opportunities.

One is investment in some of the technologies that are radically changing the business of manufacturing, from 3-D printing to the Internet of Things, new materials, and mechatronics. We're facing right now a time when manufacturers need to make these investments simply to be competitive with the rest of the world. The second is the ongoing competition for investment, and the need to make a good business case for investment in new product and to retain product mandates here in Canada.

The one policy measure that I would like to speak to is the accelerated depreciation for investment in machinery and equipment. This has been an exceptionally important measure for manufacturers. It has given them an upfront cashflow of about 10.4% on every dollar of investment. As a result of this, we are now seeing record levels of investment in machinery and equipment in Canadian manufacturing. It's a very, very successful tax measure, not only to incent investment but also to attract the investment that we need to grow this very important sector.

I'd like to ask Lorraine Royer to say a few words. She's much more literate than I am on this issue, and she can speak to how important it is in her own business.

[Lorraine Royer, Manager, Stakeholder and Corporate Relations, Williams Energy, Canadian Manufacturers and Exporters]

Thank you. I'll stay within the five minutes.

As the chair knows, Williams is a large natural gas infrastructure company headquartered in the United States but with assets in Canada. We're that essential middleman that gathers, processes, and delivers natural gas and natural gas liquids to our customers. We have an innovative gas-processing business in Alberta. We capture natural gas from oil sands and we process and separate it and create marketable products like propane and ethylene. These things get turned into plastics and a whole host of other products.

We are actually well positioned to take advantage of supply growth coming from new shale reserves in the United States and in Canada. This means that we're a company with choices as to where to invest next. It's in this context that I can speak about the accelerated capital cost allowance.

We have a project that we have announced for Canada, in Alberta, which will be in the order of around $1 billion and is still undergoing some internal scrutiny as we continue to refine our engineering and implementation plans. Not knowing whether the 50-50 flat ACCA will continue or whether the rate would revert back to the old 30% declining balance is one factor that could impact our economic decision here. What we do know is that the old declining balance of 30% is at a disadvantage when compared to what the U.S. system uses for depreciation of equipment used in the manufacture of chemicals and fertilizers—those specific comparisons.

Having examined the two systems, we calculate that with all other things held equal, the difference in CCA rates between Canada and the United States is in fact significant and can have an impact on our investment decision. We wanted to underline this as a current and real-life example of the things that can impact an investment decision in Canada.

Of course, there are many, many factors in any business decision, and Williams enjoys doing business in Canada for a variety of good reasons, but we in the Canadian office compete internally in Williams in North America for every investment opportunity, so every small measure counts, and we have determined through our analysis that this one is a significant factor. That's what I have for my experience.

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. Royer.

We'll go now to Mr. Murphy, please.

[Shawn Murphy, Manager, Government Relations, Co-operatives and Mutuals Canada]

Thank you, Mr. Chair.

First, please allow me to thank you as well as all the members of the committee for your kind invitation.

Today I'll be speaking directly to the topic of how the Canadian cooperative sector can increase the competitiveness of Canadian enterprises through its research, development, innovation, and commercialization.

I would like to start by making a recommendation to this committee. Co-operatives and Mutuals Canada is asking the federal government to provide concrete support to cooperative development by investing $50 million in our Canadian cooperative investment fund. For years accessing capital has been a major challenge for cooperatives and mutuals, particularly start-up cooperatives. Whether it is for new cooperative ventures, business expansions, bridge financing for seasonal operations, or business succession, co-ops need capital to meet the needs of their members and compete in an increasingly competitive marketplace.

Unlike publicly traded corporations, co-ops don't have access to the stock market. Although they can seek financing from traditional lenders, member-owned businesses often find it difficult to meet the required equity and asset criteria. Capitalization is not a new issue for co-ops and mutuals. However, in 2012 the Special Committee on Cooperatives undertook a review of the Canadian cooperative landscape. The committee, like the co-op sector, found that capitalization was a problem for co-ops and made the following recommendation: that the Government of Canada review the issue of capitalization of cooperatives, including its causes, effects, and potential solutions.

This recommendation did not come as a surprise to the co-op sector. In fact, co-ops had been discussing the development of a national fund for some time to help the sector with its capitalization issue. The recommendation, however, solidified the sector's resolve for the development and implementation of our own national investment fund. Financed by the cooperative sector, the Canadian cooperative investment fund is designed to assist cooperatives to access capital that they might otherwise not have access to. It will be a national fund that is knowledgeable about cooperatives and mandated to structure investments appropriate to cooperative principles and the role of capital in cooperatives.

The goal of the fund is not to replicate or replace any of the current financing sources within or accessible to the sector. Rather, it is to assist securing such resources by topping up the cooperative members' investments through quasi equity, which will in turn leverage the currently available loan offerings provided by credit unions and other financial lenders. Ideally the fund will partner with financial lenders to provide cooperatives with a combination of traditional debt and subordinated debt beyond what may have been possible with the financial lenders alone.

At the moment, we have a total of roughly $15 million pledged by seven organizations. This money all comes from within the co-op sector, from co-ops and credit unions that believe in the need for this fund. We are hoping to reach $20 million very shortly.

Why, then, are we asking the federal government for $50 million if we already have $15 million? To answer that question, I must first state that the co-op sector is moving forward with our investment fund with or without a contribution from the federal government. However, let me tell you the difference this $50 million could make. With a $20-million fund, we are predicting that over 10 years the fund would provide 180 investments totalling roughly $45 million and create approximately 3,600 jobs across the country. Now, compare that with a federal contribution of $50 million, bringing the fund total to $70 million. Over the same 10-year period, we are predicting 735 investments totalling $183 million and the potential to create over 14,500 jobs.

The $50-million contribution would be a one-time payment into the investment fund. We are not looking for a cooperative-specific program. We are looking for the government to invest into a thriving and stable sector of the economy.

Co-operatives and Mutuals Canada, CMC, is the national voice for co-ops and mutuals across the country. We represent more than 18 million cooperative members from 9,000 co-ops. I can guarantee that every member in this room has at least one co-op, credit union, caisse populaire, or mutual in their riding.

We have come to the table with a solution to the problem. We now kindly ask that you, the members of this committee, recommend a $50-million investment into the Canadian cooperative investment fund.

Thank you.

[The Chair, Conservative, James Rajotte]

Ms. Atkinson, go ahead, please.

[Karen Atkinson, Tax Partner, Ernst & Young, Chair, Tax and Finance Committee, Information Technology Association of Canada)]

Good afternoon.

ITAC is grateful for the opportunity to join you for this discussion on fiscal measures to increase business competitiveness through innovation and commercialization.

I'm Karen Atkinson and I'm with Ernst and Young, and I also chair ITAC's tax and finance committee. ITAC is the voice of Canada's information and communications technology industry. Some important points about this industry are that it contributes $155 billion to Canada's economy, 1 million jobs, and at $4.8 billion annually, it is the largest private sector investor in R and D in the nation by far.

We strongly believe that ICT adoption is the engine of growth and that it can power up productivity across all industries and all sectors of our economy. Our experience has taught us that the recipe for building sound businesses is based on new innovations. You start with a great idea, you add a great measure of smart men and women to develop and test the idea, and then you bring it to market. At the same time, you need to add some capital to keep those people, labs, and offices going, as you go through challenges and bumps on the road until you finally get to that sweet moment when you actually generate revenue.

The secret seasoning in this formula is at least one good customer to help you hone the product and help you tell the world how good you are. Our 2015 pre-budget submission suggested a number of ways that various policy instruments could be used to help make this recipe a success.

Let's start with the task of finding the idea. Since the earliest days of Charles Babbage and Alexander Graham Bell, the only reliable route to finding technological breakthroughs has been through hard-core, grinding-out research and development. Canada's own public policy innovations have created tax credits to encourage R and D, and those have helped us build a strong, innovative ecosystem in Canada and an ICT industry that punches above its weight globally.

We continue to believe in the importance of tax-based incentives to encourage investment in R and D. Our members include the top R and D performers in Canada. They stress the importance of the scientific research and experimental development credit to their ability to establish research mandates and the highly paid jobs that fulfill them in Canada and will produce the knowledge-based industry that Canada needs in the next century.

CFOs and CEOs of all these companies tell me that they have experienced job losses in R and D departments to other jurisdictions around the world—not just the U.S., but China, the Philippines, and India—due to changes made in the 2012 federal budget. Our recommendation is to restore some of the value removed from SR and ED by increasing the tax rate on SR and ED qualified expenditures from 15% to 17% and to return capital expenditures to SR and ED eligibility.

The second ingredient is talent. We believe we must do more to improve our lacklustre performance in the creation of engineers, scientists, technologists, and mathematicians to guarantee our ability to compete in a fiercely competitive technology-driven global industry. Only 13% of Canadian degrees are in STEM disciplines, 9% in engineering. In terms of Ph.D.s in science and technology, Canada ranks 25th among the 30 OECD member countries. We must address this poor performance if we want to compete with other nations and, in particular, India and China. It should be a national priority.

[The Chair, Conservative, James Rajotte]

You have one minute.

[Karen Atkinson]

Thank you.

We think our health care delivery system is an important area where increased ICT use would also be beneficial for preserving the health care system and advancing the smart companies that design solutions to improve efficiency. We are recommending continuing reinvestment in Canada Health Infoway, which is the national engine for the rapid evolution of an e-health enabled health care system.

But in an economy of 30 million people, we have to recognize that the most important customers for Canadian innovations are going to be found abroad. So we believe that we must continue to invest in programs such as the trade commissioner service and EDC to ensure that emerging Canadian companies have the services they need to penetrate foreign markets successfully.

That's a short summary of our recommendations for improving innovation and commercialization for Canadian innovation and firms.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Beaulieu, the floor is yours. You have five minutes.

[Martin Beaulieu, Director General, Société de promotion économique de Rimouski]

Good afternoon everyone, and thank you very much for your time. Now for the French part of the afternoon.

I would like to begin by thanking the agencies that contributed to the brief submitted by Société de promotion économique de Rimouski. I am referring to Institut des sciences de la mer de Rimouski, Centre de recherche sur les biotechnologies marines and Technopole maritime du Québec. Joining me today is Ariane Plourde, Director of Institut des sciences de la mer de Rimouski. We really hope to highlight the strength of this network collaboration among Quebec maritime stakeholders.

As mentioned in the brief, I would like to point out the wide variety of sectors in the maritime economy that give rise to numerous collaboration opportunities. The maritime economy, or blue economy, extends far beyond coastal regions. In addition to marine activities such as transportation, fishing and marine biotechnology, we are now seeing geomatics-based projects as well as other projects emerging. So the maritime economy is not limited to coastal areas and now includes technologies that are traditionally based on solid ground.

You should know that the maritime economy, with all its sectors, is the second largest value-added economy in the world. It represents $2 trillion, surpassed only by the agri-food industry. So that gives you a sense of just how big the maritime economy is on the global scale.

We are convinced—and hope you will be, too, after today—that oceans and coastlines can play a decisive role in solving numerous challenges facing the global economy. The sector holds tremendous potential, and initiatives are emerging all over the world. We believe that Quebec's maritime region and, more specifically, Rimouski, owing to its unique centre of maritime expertise, are well-positioned to contribute to Canadian maritime initiatives.

It is important for you to know what is happening in the blue economy around the world. The European Union approved 20 projects, launched under the theme "The Ocean of the Future" and funded with an overall budget of €180 million. The U.S. established a national ocean policy, which now makes it possible to bring together all sectors of the maritime economy under a single project type.

A growing number of countries are not just entering the maritime economy, but also taking a very active role in it. Traditionally, France and Norway were very present, but today, we are seeing Ireland, Portugal and China becoming more and more involved.

The model that was put forward 15 years ago in Rimouski was based on the creation of the Institut des sciences de la mer de Rimouski and the Technopole maritime du Québec. Ten years ago, the Centre de recherche sur les biotechnologies marines and other research centres came on the scene, rounding out the region's offerings in the area of research and technology transfer. This facilitates the optimal transfer of technology among the various users. Complementing the expertise in Quebec's maritime sector, the ACCORD strategy emerged about seven years ago. It is a provincial program that promotes increased collaboration within our maritime cluster. The strategy's recent renewal has given the members of the cluster an opportunity to engage in joint strategic planning. Armed with a common strategic vision, we are looking to the future and believe that Canada can, and must, play a leading role in the maritime sector.

Synergies like those in our maritime cluster can be established between businesses and institutions. It is important that our cluster maintain its traditional role, and by that, I mean our role in leadership, research, networking, industry partnership and, ultimately, marketing. And that role is increasingly vital if we want to compete on the world stage.

For Rimouski, specifically, keeping our scientific expertise in the region is imperative. I want to point out that we are open to different funding methods that would afford greater flexibility around maintaining regional expertise as well as collaborating with research centres and industries elsewhere in the country.

Our vision for the future also takes into account a variety of challenges that must be overcome. I would be happy to discuss them in greater detail should you have questions in that regard. As I was saying earlier, in addition to the current infrastructure, we have certain considerations we must address in the short term in order to keep our important place as far as the Technopole maritime du Québec is concerned. Even with our leading edge analytical capacity, we are faced with the challenge of maintaining that capacity from a scientific publication perspective.

Obtaining results hinges on having high-quality equipment, a source of ongoing concern for us. Our international activities are expanding, and it is essential that support for those activities be the overriding concern of every stakeholder. Funding for clinical studies in the case of marine biotechnologies and health applications is a worry for many of our members.

Similarly, the financial investments required to support efforts in the field—oceanography, vessels and sampling—are tremendous.

We would also like to put simple and flexible projects in place in order to take advantage of research findings, and to that end, more flexibility is needed around how often funding is renewed.

Thank you very much for listening.

[The Chair, Conservative, James Rajotte]

Thank you kindly for your presentation.

Mr. Caron, we'll start with you. You have seven minutes.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you, Mr. Chair.

I would like to thank all our witnesses for their compelling presentations on an equally compelling subject.

I am from Rimouski, so my comments are directed at you, Mr. Beaulieu.

When you talk about the maritime economy, I don't think you are talking only about Rimouski. It extends from Vancouver all the way to Halifax, Nova Scotia. It's a fascinating sector that we don't hear much about as far as all of Canada's industrial and research sectors are concerned.

In your brief, you talked about the European Union, the U.S. and China but little about what was happening in Canada.

Do you think we have missed the boat, not to be funny, when it comes to the blue economy or, more specifically, the sectors of the future such as biotechnology and research areas with commercial potential in the maritime economy?

Where would you rank Canada in terms of what's happening in the rest of the world?

[Martin Beaulieu]

At this point, Canada's position is still enviable, but competition is fierce. Some have already bet on the benefits of the maritime economy, establishing a national maritime strategy that draws on governments and departments to advance the maritime economy. On the one hand, they saw the sector's economic development potential. On the other hand, the blue economy is very closely linked to the green economy, and so sustainable development is quite often front and centre in the minds of researchers, developers and businesses active in the maritime economy.

That's also something we are seeing in the shipping sector. Concerns around sustainable shipping exist across the board. Canadian shipowners transit the world and must compete with all the other shipowners who have already implemented projects to save energy and optimize shipping routes, in order to cut costs. Those are the kinds of research projects we are working on in Canada, precisely to help our partners in industry remain competitive internationally.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

We are familiar with a number of the sectors affected by or involved in the blue economy because we hear about them. Offshore oil and gas development, shipping, port operations and marine infrastructure come to mind. But when it comes to marine biotechnology and other sectors of the future with a heavy R and D focus, what products are we talking about exactly? Could you give us some examples of research-based products that are consistent with a vision for the future?

[Martin Beaulieu]

In the biotechnology sector?