Industry Committee on Jan. 31st, 2008

[Stephen Poloz]

That effect is quite significant. We can see it in the numbers already this year. The slowdown in the U.S. has been under way for some time. It affected the forestry sector, first of all, because of the housing impact, but that has spread to consumer goods sectors supplying other things for homes--doors, windows, furniture, and that sort of thing. So those sectors have been labouring for about a year now.

Our most recent survey of exporter confidence was just released about a week ago, and it has been crushed in the last six months. It's gone to a level that's lower than it was in the aftermath of 9/11, when there was almost a global recession at that time. So exporters are saying their outlook for the next 12 months is quite poor. There still are a healthy number who believe their exports will be the same next year, or grow a little, but in terms of the readings, these are the worst we've seen. We expect that the world will be fairly resilient to this, that we won't have a global recession, but the U.S. is dragging everybody down to a degree, so we expect our exports overall to go down during 2008--not to grow, but to actually go down modestly.

[Peggy Nash, NDP, Parkdale—High Park, ON]

I think that's a fair predictor, given the situation right now with the dollar and oil prices and the slowdown in the U.S. We are, as you say, more dependent on the U.S. Partly it's an economy of scale, where they're much bigger than us. We're right next door; France and Italy are dependent on each other.

Is there anything that the companies you're representing are calling for to help buffer the impact over the next few months? Hopefully, it's a short-term situation. Is there anything you're hearing that would help them just get through this period and hopefully see a brighter future after that?

[Stephen Poloz]

The stress has been accumulating for some time. As you know, the dollar has been high for quite a while now, so the story is just getting another layer, another icing on the cake, if you like, now that the U.S. slowdown has become so tangible.

We are seeing companies respond by putting increased emphasis on those other markets where growth, even if it slows, will remain rapid. So it's why we can see such good numbers on our export growth in places like China, India, South America, emerging Europe, and Africa. There are very big numbers in Africa. So it is working as a strategy. When you spend another dollar marketing this year, you won't spend it in the United States because it's going to be in a recession or the next best thing; you'll spend it somewhere else.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Do you find companies investing more in machinery, equipment?

[Stephen Poloz]

They're investing more. That's correct.

[The Chair, Conservative, James Rajotte]

Just briefly.

[Stephen Poloz]

And they're investing more, not just domestically but abroad, in order to get their foot in the door in these markets that are growing rapidly. So that combination is improving their competitiveness in key areas.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Ms. Nash.

Mr. McTeague, please.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Gentlemen, thank you for being here today. I just wanted to take up where my colleague, Mr. Brison, left off.

Mr. Blackburn and Mr. Poloz, these are very interesting comments you made here, and very helpful. I wanted to let you know.

One of the things you mentioned was the positive relations with key nations. I'm going to wear my Foreign Affairs hat, where I was for a few years. One of the engagements in the previous government and the government prior to that, with previous prime ministers, was always to lead with our prime minister at the very top. So whether it was Mr. Martin with countries like Libya that were once considered nations that were less favoured, for obvious reasons, or China with Mr. Chrétien, we always recognized that the issue of human rights, the issue of concern, could always be engaged face to face and very publicly if necessary, at the end of all this, recognizing, of course, that Canadian companies will from time to time go to nations that are having difficulty. I think it's not lost on many of us that, with many of those cases, if we don't do it other countries will certainly do it.

When you're talking about positive relations with key nations, Mr. Blackburn, are you referring to the potential political conflicts that Canada may have with changes in government? I'm referring, of course, for instance, to China, where on the issue of human rights we've taken certainly a public position that has been very different from the past. How does this affect industry in its continual relationship with countries like China, with which we've had a dialogue, arguably as a pioneer, since the early 1970s?

[Robert Blackburn]

Mr. McTeague, I would return to my generality, which is to say that basically outside North America or the OECD countries, it's very hard to distinguish the political from the economic and from the good personal networks. That's why it's very important for us to have a Canadian government presence in these key markets.

For instance, Foreign Affairs and Trade have been cut and cut again over the last 10 or 12 years. Their resources are so slim that they've had to pull a lot of people back from growing markets where we really need them. Yesterday, I was at a seminar on the Middle East. We need much stronger relations in the Middle East, and we do need ministerial, prime-ministerial, senatorial, and MP visits. These are really important. They may not seem so important. You say, gee, what's the substance of this? What it does is show respect for people. One of the Arab ambassadors yesterday was saying, “Don't just keep talking about us as a market. We're people. We have a culture and we have a history. We don't just want to be seen as a market.”

That's a tendency. Maybe in Canada we think we just buy stuff over the Internet and it doesn't matter who we're dealing with. In the developing world it's very important to have good relationships and to be showing respect and to be there—not just to be coming in, in a suitcase, but to have an ambassador on the spot. To have a prime minister or a minister visit, or to have a parliamentary delegation, makes all the difference.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

That is music to the ears of some of us who have actually tried that, Mr. Blackburn, and I think it's good instruction for this committee to recognize its connection with trade as well.

[Robert Blackburn]

And the resources of Foreign Affairs.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Yes. Well, I cited the example of Libya because I know that your company, for instance, has done very well in terms of building, or being a partner in building, a very large aqueduct where Libya found literally billions of litres of fresh water that they can now bring to the north. One of the companies involved in the development of that project was yours, but what was critical was the engagement at the highest levels between leaders of that country and leaders of our country. I also know, from the perspective of Canadians abroad, that diplomats could talk all they wanted about it, but the reality was that in order to engage, respect meant elected officials meeting with elected officials.

That brings me to other companies. You mentioned Sherritt, which of course has been in Cuba for some time. There has obviously been some controversy by some as to its presence there.

I'm wondering, in order to diversify Canada's impacts around the world in the service sector in particular, do you think Canada can and should be doing more, to the extent we can--for instance, using and upgrading its Foreign Affairs and International Trade departments in those countries--to bring a greater presence, a more amenable presence, to the relationships to which you were referring?

[The Chair, Conservative, James Rajotte]

Just very briefly, Mr. Blackburn. We're running against time.

[Robert Blackburn]

I think we do need strong representation and relations in countries where there are strong growth markets. As Steve mentioned, in Africa and Asia their growth rates are much higher than anything we've seen in Canada or the OECD for many years.

So we need to be there. That's where the future is.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. McTeague.

I'm just going to finish up, as the chair, with three questions. I appreciated your presentations very much.

Mr. Blackburn, I want to pose three questions for you to address. The first one concerns regulatory certainty and efficiency. I agree with you 1,000% on that. I've been hearing from all sorts of industries on that with respect to federal-provincial environmental regulations. My question, which you may want to answer later, is how do you do this? I welcome, actually, industry pressure at both levels of government to get together and harmonize regulations, but it is a big challenge to first of all get the provinces together, and then to get the provinces on the same page as the federal government.

My second question is with respect to labour challenges. Perhaps you would give us a sense of labour challenges going forward, or even just a figure from your company's perspective.

The third question is with respect to corporate tax. You mentioned that we need a competitive tax system. In the fiscal update, we're going down to a 15% corporate tax rate federally by 2012. Should that be accelerated? Is that enough? Is that not enough? If it's not enough, how far would you go?

[Robert Blackburn]

On coordination, it is complex, but it is in the interests of both sides, federal and provincial, to have a structure that promotes investment. So there's an interest there, and usually if there is an interest you can find a way.

One of my concerns is that we don't resist regulation at all, but often the federal departments that have the responsibility don't have the resources to be efficient. Environmental regulations are a good example. The departments that get tasked with regulating a particular project need the resources to do it. We'll get asked for information and we'll provide it overnight and then it takes three weeks to get feedback on it. So regulate, but resource.

Second, on labour challenges, particularly in Alberta and B.C. right now, the labour market is of course really tight. Wages and competition are both so high for professionals. It's a real challenge finding and keeping skills. But it's not just in western Canada, it's around the world.

In the businesses we're in--resources and infrastructure, oil and gas--the expertise squeeze is formidable wherever we go. I don't have a number for that, but we have about 18,000 employees around the world and two or three times that number working on projects on contract. It's a challenge to find the resources, these days, every time.

Third, with regard to corporate tax, even after full phasing in we are still going to be higher than the competition. We've looked at that. OECD countries right now range from 12.5% to 34%. Even with all the phasing in, we're still going to be higher, with federal and provincial put together, than a lot of our competition.

[The Chair, Conservative, James Rajotte]

I have just one final question, then.

If we do the 15% federal and the provinces follow suit and do the 10% provincial, won't the 25% then be competitive on an OECD level?

[Robert Blackburn]

Yes, but they're moving as well.

We'll be better off all right. And of course one of the problems always is that the feds are worried that if they make room, the provinces will just move into it. It's been my experience--and I was in the industry department for years--that if you go and tell what you're going to do, sit down with the provinces and say, look, here's how this works, if you're trying to locate investment, you can get cooperation sometimes from the most unusual places.

The main point is it's something we need to keep addressing. We need to be competitive here.

[The Chair, Conservative, James Rajotte]

I welcome pressure on that angle. And I thank you very much for representing one of Canada's flagship companies.

I should mention as well, Mr. Poloz, with respect to EDC that certainly during the manufacturing study--for those of us who were here--EDC was uniformly recognized and praised in terms of its work within the manufacturing sector. I wanted to mention that as well.

Thank you both for being here. If you have anything further to submit to the committee, please do so through the clerk.

Members, I'm going to suspend for one minute, and we're going to go in camera just for a five- to seven-minute session, hopefully. I have two witnesses the members want to bring forward.

[Proceedings continue in camera]