Industry Committee on Dec. 5th, 2007

[Dr. Jayson Myers]

I would just warn the committee members that the U.S. Fed is in a very difficult position right now. Given the credit market problems in the United States, the downturn in the U.S. economy, we likely will see the Fed funds rate fall probably by a percent over the coming year. That's going to put again renewed pressure on the Canadian dollar. There are some fairly well-placed economists in Washington who are warning that the U.S. dollar could fall by another 15% on a trade-weighted basis. That would put our dollar at $1.20 or $1.25. That's not out of the question.

So I think we've been focused on recent movement, recent volatility, but clearly the risk is on the upside going forward.

[The Chair, Conservative, James Rajotte]

Okay. Thank you.

Thank you, Mr. Masse.

We'll go to Mr. Simard, please.

[Raymond Simard, Liberal, Saint Boniface, MB]

Thank you very much, Mr. Chair.

Thank you for being here, gentlemen.

I would like to start off with two quick questions to Mr. Lazar. I believe it was Mr. Nantais who mentioned the aerospace industry, and I'm very close to that industry in Manitoba. One of the reasons for their success is very targeted programs like TPC, for instance, and the second thing they tell me was that the sector councils kept them very close to government and allowed them to actually develop strategies with government.

Is there a sector council in the forestry industry? That is my first question.

My second question is about what you said about the fact that we have natural resources the rest of the world wants, but I didn't hear you speak to adding value to those resources. I hate seeing round logs being shipped into the U.S.

Should part of our strategy or part of our recommendations here be that the government should support basically adding value to these natural resources, if you will?

[Avrim Lazar]

Thank you for both questions.

Our industry adds value to almost everything we ship. We don't ship...raw logs is a tiny exception. What we ship is pulp and paper. The reason there are 825,000 jobs is that we've been adding value.

As soon as you go up the value chain to furniture and things like that, you go straight head-on in competition with the Asian labour market, and so we pay 50% above the average wage. In the value-added sector, once you go two or three levels of value-added beyond that, you're talking about very low wages. Of course we need it, but it is not where our competitive advantage lies. It's two or three levels of value-added, and that's what has created a huge volume of jobs.

On the question of sector councils, we are creating a sector council, but the focus is on human resources. What I am suggesting is that we have a task force of parliamentarians to ask what the winning conditions are to use our competitive advantage in global markets for Canada's forest industry. It's an area where we have a natural advantage. We're not taking advantage of it. Industry is ready to work with parliamentarians.

I think we should just get on and make the plan, because the market is out there waiting, and while we're talking, the jobs are disappearing.

[Raymond Simard, Liberal, Saint Boniface, MB]

Thank you.

Mr. Myers, we've talked about the surge of the dollar and you also talked about a lot of the businesses not making profits and not being profitable in the next little while. You talk about the perfect storm, but we are also facing the whole subprime commercial paper tightening of credit here in Canada. I'm wondering if your members are feeling this already or if you anticipate a disaster down the road based on this.

[Dr. Jayson Myers]

They're certainly feeling the downturn in the U.S. market in those three key areas of housing, automotive, and consumer products. Many companies are also saying that as a result of credit problems in the United States their customers are having more difficulty paying, and they're finding later payments as a result of that.

Within Canada it's not so much the impact of the credit market per se as the fact that cashflow is under pressure--

[Raymond Simard, Liberal, Saint Boniface, MB]

Your bank has to be there for you.

[Dr. Jayson Myers]

--and therefore bank lending is also under pressure. In that sense a credit facility like EDC, where they guarantee bank loans for investment on the part of exporters in new technologies, is a very positive program. It would be nice to see that expanded across the supply chain for exporters as well.

[Raymond Simard, Liberal, Saint Boniface, MB]

We also had the municipalities come to the Hill a couple of weeks ago to talk about this $120 billion to $130 billion infrastructure deficit. I know Mr. Lazar spoke to it briefly. How important is that to your competitiveness? If the government were to act on that, where would the priorities be--roads and bridges, transportation? I guess it would vary by industry, but you must have some priorities there.

[Brian Masse, NDP, Windsor West, ON]

The Windsor bridge.

[The Chair, Conservative, James Rajotte]

I know you have priorities, Brian.

[Perrin Beatty]

More infrastructure would be a very good place to start. We have serious problems there. The impact upon industry is very direct, and if we can cut the various Gordian knots that exist in moving ahead and accelerating investment and border infrastructure, it will be a major shot in the arm for industry.

[The Chair, Conservative, James Rajotte]

You have 30 seconds.

[Raymond Simard, Liberal, Saint Boniface, MB]

I had the pleasure of visiting a plastic extrusion business in Winnipeg lately and was told that people are finding markets elsewhere in the world. How can people basically ramp up and provide these products in such a short period of time? How does that happen? Or are they just there and ready to sell to the U.S.?

[Dr. Jayson Myers]

I think many companies have very specialized products and have been relying on the U.S. market for a long time. They are now in the position where they have to find other markets, so they're putting a lot more effort into new market development. It's more difficult for small companies, in terms of where to go to find a reliable partner/distributor in these markets. We've already seen the overall percentage of our exports to the United States fall from 87% to 75%.

So companies are definitely looking at new markets, particularly in Europe, Australia, Japan, and China, but it depends on the business strategy. It comes down to the ability of businesses themselves to adjust their marketing, but in order to do that you need a new design, products that meet new regulations, and products that will match customer expectations in these markets.

On the infrastructure issue, I think we could do a lot for Canadian manufacturers and Canadian business as a whole if we put in place a program like the United States has--a buy-Canada program for infrastructure spending or government procurement spending, at least at the municipal and provincial levels in Canada.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Monsieur Petit.

You have five minutes.

[Daniel Petit, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

My question is for Mr. Lazar or Mr. Beatty.

Mr. Lazar, I heard your description of the forest industry. In Quebec, my province, there are a lot of forest product companies that come under the federal Labour Code. Transportation, railways, air transport, telephone services and even, in some cases, water transportation such as barges and ships are regulated under the Canadian Labour Code.

You have kept saying this morning that our dollar is too strong, that it rose too fast and that this has caused all sorts or problems.

What do you think of the fact, Mr. Lazar, that the Liberal Party tabled a bill called Bill C-415, An Act amending the Canadian Labour Code (Replacement workers)? If the high dollar causes you a problem, imagine what would happen if you had a strike on your hands and were unable to do anything about it.

I would like to hear your opinion. People talk about partisanship. But you are here representing employers, and these employers obviously have employees. Are we not erecting barriers for businesses? I cannot put this question to Mr. Nantais since his company is entirely unionized. But you may still have some room to move, an opening. But his industry is completely unionized.

So I would like to know your opinion and that of Mr. Beatty on this subject.

[Avrim Lazar]

The competitiveness of labour costs is a big piece of keeping jobs in Canada. We've done an analysis of labour costs in Canada relative to our productivity. Our labour costs in the forest industry are the highest in the world. Our labour productivity is middle of the road.

We've done a further analysis that shows that as we increase the sophistication of the machinery in Canada, our increase in labour productivity does not sufficiently reflect the increase in the sophistication of the factory. For example, in Europe, you see a one-on-one movement: a sophisticated machine, and labour productivity goes up. In Eastern Europe, it's almost a flat curve; no matter what they do, the labour productivity is poor.

In Canada, it's middle of the road. We do not translate our sophisticated machinery into sufficient improvements in labour productivity. We're doing a study to find out why, but it's pretty clear that it is because of work organization, that our history of management-labour relations has built-in rigidities that are, to some extent, holdovers from the past. In Europe, even though they're highly unionized and there's a lot of protection for the workers, they know how to work with management to improve productivity. We are still in a more adversarial frame of mind.

So if you wanted to ask, what's the solution, the solution lies both with management and with labour to learn how to translate investment in machinery into productivity, because without productivity, we can't keep jobs.

Specifically—I wasn't dodging your question; I was contextualizing it—do we think we need labour laws that would increase the divisiveness, the polarization, in Canada's marketplace? I don't think we need that right now. I think what we need is to work together to keep the jobs in Canada.

[The Chair, Conservative, James Rajotte]

Mr. Beatty.

[Perrin Beatty]

Your question was addressed to me as well, and if I understood your question correctly, you were referring to the private member's bill that deals with replacement workers. We strongly oppose the legislation. We think it would be very damaging to the Canadian economy.

[The Chair, Conservative, James Rajotte]

Mr. Petit, you have one minute.

[Daniel Petit, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

I have a question for Mr. Lazar. I am not sure he will like it.

Mr. Lazar, you have an overview of what is happening in the forest industry. You know there is a crisis. Since you are asking us to help you, I would like you to suggest in a few words ways to overcome this crisis. The crisis is caused by several factors: the dollar rose too fast, employees and employers did not adapt quickly enough, people dragged their feet for 20 years, etc. Today, we need some feedback from you.

What do you expect from us to overcome this crisis? I am talking about that in Quebec, but I might as well talk about that in Northern Ontario or British Columbia.

[The Chair, Conservative, James Rajotte]

Mr. Lazar.

[Avrim Lazar]

What I suggested was to immediately set up a task force on the future of the industry, but we have provided recommendations on market penetration, improvements in infrastructure, removal of barriers to industry rationalization, smart regulations, and elimination of overlap and duplication of federal-provincial regulations, more investment in research and innovation, implementing the SR and ED refundability, and extending the two years to five years on CCA.

I have to say, though, we're still investing $4 billion a year. Provincial regulations have stopped us from investing more, because—and now I'm going to point my finger at the Province of Quebec, because they're slowest to improve this—they insist that each stick of wood is targeted to one little town. As a result, if someone wants to invest in a high-quality, modern mill, they can't get the wood supply. The province actually stops it.

That is one of the reasons that when the dollar was low we didn't do the necessary investment in rationalization. We are investing $4 billion a year—I want to put that on the record. But the necessary restructuring into world-class mills did not happen in eastern Canada because the provinces simply said no, if you don't allow a mill in each town, we won't allow you to have trees in this province.

B.C. fixed it, but a little bit later.

[The Chair, Conservative, James Rajotte]

Okay, thank you, Mr. Lazar.

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