Industry Committee on March 15th, 2012

[The Chair, Conservative, David Sweet]

I call the meeting to order.

Good afternoon, ladies and gentlemen.

Good afternoon, everyone.

Welcome to meeting 22 of the Standing Committee on Industry, Science and Technology.

We have witnesses today. First and foremost, the Honourable Christian Paradis, Minister of Industry, is with us, as well as Richard Dicerni, deputy minister; Simon Kennedy, senior associate deputy minister; and Kelly Gillis, chief financial officer, comptrollership and administration sector.

So that you are aware, the minister will be with us for the first hour and the officials will be with us throughout the second hour.

We'll go to the minister now for his opening remarks.

Minister, do you have 15 to 20 minutes of opening remarks?

[Christian Paradis, Conservative, Minister of Industry]

Mr. Chair, it will probably be less than that.

[The Chair, Conservative, David Sweet]

Okay; please go ahead.

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

Thank you very much, Mr. Chair.

Thank you, colleagues, for having me here today.

This is a pleasure.

I would first like to thank you for giving me the opportunity to speak to the members of the committee today on the main estimates for the Department of Industry.

As you said, Mr. Chair, I am here with Richard Dicerni, Deputy Minister, Simon Kennedy, Senior Associate Deputy Minister, and Kelly Gillis, the department's Chief Financial Officer.

Industry Canada is part of a group of 10 agencies and councils, as well as the department, that report through me and two ministers of state.

As presented in the 2012-13 main estimates, the department anticipates a total of $1.3 billion in spending for the year, and the portfolio organizations together anticipate a total of just over $3.5 billion.

Our goal is to help make Canadian industry more productive and competitive by advancing three strategies: one, supporting business; two, fostering the knowledge-based economy; and three, advancing the marketplace.

Overall, we have made significant progress towards reaching our goals. As government members, we have taken action to support businesses and to create jobs across the country.

During the global recession, we have acted decisively to counter the downturn with a targeted action plan.

More Canadians are working now than before the downturn. Actually, over 610,000 net jobs have been created since July 2009. That is a testament to Canadians' efforts.

Over the past 10 years, the Canadian economy has seen stronger growth than any other G7 economy. And we continue to find ways to give Canadian businesses a competitive edge.

We have cut import tariffs on manufacturing equipment. We have reduced federal corporate taxes to 15%; we have the lowest tax rate on new business investments in the G7, which is also less than half the rate of our American neighbours.

We have extended the 50% capital cost allowance rate through the straight-line method for machinery and equipment.

We have also extended work-sharing agreements to help workers. We continue to support research and efforts to market innovation. Our net debt to GDP ratio is still the lowest in the G7.

Our accomplishments have been recognized around the world. Forbes magazine ranks Canada as the best place on the planet for businesses to grow and create jobs, the Economist Intelligence Unit has rated Canada the number one place to do business in the G-7 for the next three years, and both the International Monetary Fund and the Organisation for Economic Co-operation and Development forecast that our economy will be among the strongest in the G-7 this year and next.

This is all within the context of a low-tax plan that leaves more money in the hands of Canadians.

Today's meeting comes at an appropriate time. Over the past few weeks, we have had the opportunity to set in motion some key initiatives that are going to help us maximize our opportunities.

As you know, Canada is one of the few nations with the whole range of design and manufacturing capacities in the aerospace industry. With almost 80,000 high-level jobs, several of which are in small and medium-sized businesses, this industry has a significant impact on Canada.

The 2011 budget committed our government to reviewing programs and policies related to the aerospace and space industries. That is why we created a committee—which I announced last month in Montreal—to undertake this study. The committee will be chaired by the Hon. David Emerson, who will share with us his vast experience and expertise in the field.

This study will cover key features, such as trends in the global aerospace industry and their impact on the Canadian industry; key opportunities and challenges in this sector; the sector's strengths and weaknesses; and, finally, long-term objectives for a sustainable domestic industry.

Mr. Emerson's study will also deal with the issues related to the space industry. To that end, I have recently announced that Canada intends to renew its participation in the International Space Station. Our commitment will contribute to maintaining Canada's leadership role in space technologies. I am particularly proud that Chris Hatfield will be the first Canadian commander of the International Space Station during its mission, which is scheduled to start in December of this year.

I'll turn now to the automotive sector. It is the largest manufacturing sector in Canada, representing 12% of our manufacturing output and 20% of manufactured exports. In 2011, the auto industry directly employed more than 109,000 Canadians and created another 332,000 jobs indirectly.

That's why we have invested in the automobile sector, including in clean vehicle technologies. These investments are a catalyst for further private sector activity and innovation, and they foster Canadian competitiveness.

Beyond the sectors I've mentioned, we know that our competitiveness ultimately depends on supporting business innovation throughout the entire economy. That is why support for science and technology has been a priority for our government since 2006. To this end, Canada has invested heavily in science and technology. Federal science and technology expenditures reached $11.7 billion in 2011.

We have supported new world-class policies and programs and are expanding private sector participation in science and tech. We are building Canada's knowledge base and are successfully branding Canada as a destination of choice for talented, highly qualified S and T workers and students.

But, as you know, we could get better innovation results in our country. Private businesses in particular are lagging in innovation. That is the case despite our excellent record in research and development by higher-education institutions and despite our strong support for research and development by businesses.

Our government recognized this problem and it received a report this past fall from a panel of experts tasked with reviewing federal support in research and development. Over the past few months, we have gone over the report and, under the leadership of my colleague Minister of State Goodyear, we will soon take action to fix the problems identified in the report so as to strengthen Canada's global competitiveness in a broad range of sectors.

At the heart of the digital economy are information and communications technologies. Technology adoption boosts productivity, accelerates innovation, and generates new products and business models. To this end our government has launched the digital technology adoption pilot program to promote adoption by small businesses using community colleges as partners.

This complements recent initiatives by the BDC, which has set aside $200 million for loans to entrepreneurs to adopt ICTs and has created an online resource centre that offers technology tools for small businesses. We are also boosting our support to increase university capacity in key digital skills disciplines.

I'm also looking forward to this committee's report on e-commerce in Canada.

Speaking of the digital economy, I'd note the swift progress of the copyright committee chaired by our NDP colleague from Sudbury, Mr. Thibeault. I know that Mr. Regan, Mr. Lake, Mr. Braid and Mr. McColeman worked long hours on that committee as well.

Bill C-11 attempts to achieve a balance between the rights of consumers and creators. While all of us know finding that balance has been challenging, this legislation is about strengthening Canada's ability to compete in the global digital economy. It is important for this bill to be passed as quickly as possible.

Turning to telecommunications, just yesterday I was pleased to announce significant decisions for our wireless sector. We understand that Canadian families work hard for their money, and they want their government to make decisions that will help them keep more of it. The measures I outlined yesterday will ensure the timely availability of world-class wireless services at low prices for Canadian families, including those in rural areas.

These measures include lifting foreign investment restrictions for telecom companies with less than a 10% share of the market; applying caps in the upcoming 700 megahertz spectrum auctions; applying measures to ensure that rural Canadians have access to the same advanced services; slowing tower proliferation by improving and extending roaming and tower-sharing policies; and reserving a portion of the 700 megahertz spectrum for public safety users such as police and firefighters.

I am proud of the balance that has been reached with those decisions. As Canadians are increasingly relying on wireless technology, it is important that we make good decisions to provide prompt service with more choice and lower prices.

In addition to the legislative changes I mentioned earlier, we are moving towards strengthening other pieces of legislation and policies related to the economic framework. We have made a commitment to ensure that the review process under the Investment Canada Act continues to promote investment while providing a net benefit for Canadians.

Meanwhile, we are continuing to review the act, especially in terms of transparency, to make sure that it is balanced. We have to be clear that the purpose of the Investment Canada Act is to promote foreign investment in Canada. Our government strongly believes that free trade and the ability to attract investments to our country play a fundamental role, not only in our economic recovery, but also in our country's long-term success. As a result, when we bring forward proposals for change, the changes will be about promoting investment that will benefit Canada.

In addition to the work accomplished on the Investment Canada Act, we have also been successful in introducing Bill C-14, Improving Trade Within Canada Act.

We are also acting on a number of other fronts, such as moving forward with priority trade negotiations, including with the EU and India. We are cutting red tape in order to boost productivity and reduce the compliance burden on businesses, especially the small and medium-sized businesses that drive our communities, whether they are located in large cities like Edmonton—whose Chamber of Commerce I was pleased to meet with in the fall—or rural centres like my own town of Thetford Mines.

In conclusion, Mr. Chair, I believe that those initiatives will contribute to strengthening the competitiveness of the Canadian economy and to support job creation and economic prosperity, which is at the heart of a strong Canada.

Thank you for your time. I will be pleased to answer any questions the members of the committee may have.

Thank you.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Minister.

There are a couple of things before I call on Mr. Lake to begin the questioning.

Just to be clear, we are dealing right now with Standing Order 81(4), which means that the main estimates have been referred to us. I'm calling for vote 1 right now.

The minister will be answering questions on his main estimates only. If there are any other questions that can't be dealt with by the officials, we can talk later regarding what other resources you want to have.

Behind me to my left you will see a stationary camera. It will move to the speaker who is dealing with the question, of course, and the answers. I just want you to be aware of that before we start.

[Geoff Regan, Liberal, Halifax West, NS]

Mr. Chair, I must say that I'm pleased that when I'm asking the minister questions, the camera will have my good side. That's good to see.

[Voices]

Oh, oh!

[An hon. member]

So will all Canadians.

[Voices]

Oh, oh!

[The Chair, Conservative, David Sweet]

I resemble that remark.

[Voices]

Oh, oh!

[The Chair, Conservative, David Sweet]

A number of you have motioned to me regarding the temperature in the room. That has been dealt with. I hope it'll be a more moderate temperature shortly.

Now we'll go to Mr. Lake for seven minutes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair, and thank you to the minister and the officials for coming here today.

I'm going to focus my line of questioning on the most recent announcement to do with the spectrum auction and the loosening of foreign investment restrictions in the telecom sector.

Maybe you could just speak to the benefits to the Canadian economy and to Canadian families of the decisions announced yesterday.

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

Yes, thank you.

First of all, we had to take some steps to make sure that we could sustain competition. One other policy goal was to make sure that we would enhance investment and innovation. Finally, we wanted to make sure that we could have the newest technologies available to people wherever they are in Canada.

Some steps have been taken. We have lifted the restriction on foreign investment for small companies with a market share of less than 10%. The idea is to make sure that these new entrants, if they want to compete, have access to capital. These are the companies that need it most.

On the spectrum itself, we have put in a cap of one prime block per incumbent. As a result, there will be four prime blocks, and we can ensure that there will be a fourth player in the running, wherever you are in the country, in each of the 14 licensing areas.

When you get into that business, it takes a lot of cash, and becoming cash positive is quite an issue. This is why access to capital is important.

We followed the recommendations of the Red Wilson panel and the competition report that followed.

After that, there were roaming and tower-sharing issues. As we know, more and more people want to have access to wireless, but fewer and fewer people want to see towers in their backyards. We had to deal with that issue, so we will expand the roaming policy for an indefinite period of time. All carriers will benefit from that policy. For tower-sharing, we will consult with the stakeholders, the industry. What we intend to do is ask for more transparency and information sharing.

You know that for both of these aspects, there is an arbitration process. We will make sure that we tighten the rules to make sure that when there is litigation, it is effective. We heard a lot of frustration, so we said that we would tighten the rules to make sure that we have a process for resolving litigation effectively.

I think we will have a balanced approach down the road. We had to get in the game, but we tried to have the least intrusive measures possible. All of this was done keeping in mind that we wanted to achieve the four main goals I mentioned at the beginning of my statement.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

With respect to the consultation process that went into this, if I remember correctly, there were three different consultations: one on the 700 megahertz band, one on the 2500 megahertz band,and one on foreign ownership.

Could you maybe speak to that consultation process?

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

I mentioned the two reports on foreign ownership. When I became Minister of Industry, I sat down with all the players in the industry. That is what I did, but the consultations were over in spring 2011. Maybe it would be more appropriate for the officials to explain what they've done exactly.

[Richard Dicerni, Deputy Minister, Department of Industry]

On the foreign ownership issue, the government had released a discussion paper that was widely commented on and discussed. Similarly, the department released a discussion paper on the 700 megahertz and 2500 megahertz bands and sought input. It was done in a very transparent manner. It was all done on the departmental website. To close it off, as the minister mentioned, we met with all the major stakeholders to ensure that he had a personal understanding of the views of the different companies.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

The thing about the history leading into this, the 2008 spectrum auction and the result, is that we've seen wireless prices come down a little since that time. To what extent is that the case—

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

Yes, this is a good point.

Back in 2008, we were dealing with the AWS spectrum, so it was less scarce than the 700 megahertz spectrum. It was decided at the time to make a set-aside so that new entrants could come in. Today we have new players such as WIND, Public, Mobilicity, Vidéotron, and there are now one million subscribers with these new entrants. There was another market created. You can find a package for a very low price—something like $15, $20 a month—and after that the incumbents went with packages other than those they usually carry, just to have competition.

The stats show that average prices went down over 10% since 2008, so this was the right thing to do. However, since we are going once again with the spectrum auction, there was a matter of access to capital, so it was time to lift the restrictions.

Given that we are dealing with a scarce spectrum, the 700 megahertz one, making a set-aside was very dangerous for the government because we could not choose which block would be set aside. As a result, we decided to go with the less intrusive approach, to go with caps. After that the prime block will be available for new entrants and will be dealt by the market. Depending on which block you deal with, it has an impact on the ecosystem, the devices, and there is a lot of complexity and technical stuff.

We decided that the wise approach would be to let the market go. This is a balanced approach, a whole bunch of tools to make sure that we can achieve these goals. If you speak of tower-sharing, roaming, spectrum, or access to capital, you cover basically all.

[The Chair, Conservative, David Sweet]

Thank you, Minister.

That's all the time left for that round.

Mr. Caron, you have seven minutes.

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

Thank you very much, Mr. Chair.

Mr. Minister, you must be aware of the current Viterra situation, which seems to be of interest to a number of investors. That raises several issues.

In your view, is it a coincidence that the interest of companies in Viterra comes so soon after the government's decision on the Canadian Wheat Board and the vote that was held?

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

You know just as well as I do that the process under the Investment Canada Act has rather strict criteria. Personally, I don't think that it is appropriate to speculate on cases reported in the media. In fact, the act does not allow it. Whatever the case may be, if there was any movement in that area, the situation would be reviewed under the process in question. In my view, it would not be appropriate for me to speculate on that.

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

In Viterra's case, but more specifically in terms of the Investment Canada Act, there are concepts like net benefit and strategic asset. An expert from BMO Capital Markets has defined Viterra as a potential strategic asset for Canada. Yet this definition is not in the Investment Canada Act.

How do you define the terms “net benefit for Canada” and “strategic asset” in relation to Viterra, for example?

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

There are several criteria that we can look at. In my view, it is a question of balance.

As I said earlier in my opening remarks, we want to promote foreign investment as long as there is a net benefit for Canada. Then we will have to see.

If commercially sensitive information is communicated, that can have an impact on commitments made by investors. In my view, what's important here is for decision-makers to weigh all the criteria under the act when the time comes for Industry Canada to conduct studies. So we will reach the conclusion to support the initiative if there is a net benefit for Canada. If there isn't, we will have to say why, depending on what the process reveals.

Each case is unique. If we standardize criteria too much, we are bound to hinder the sharing of commercially sensitive information on both sides, which could slow down investment. We have to be careful about that.

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

Okay.

Let me go back to telecommunications.

In terms of the decision, I have followed the whole file and the discussions that took place to determine the three options that we were going to choose. You chose the option to allow foreign ownership for companies with a less than 10% market share.

I see a problem with that. Let's say a company currently has a 2 or 3% market share. A major foreign company could buy it, and later, after 10 or 12 years, its market share could go up to 15%. One of the current three major players in telecommunications would then see its market share drop to about 15%. So you would end up with two companies of a similar size operating under completely different rules.

How do you justify this decision, given the possibility of having a two-tier system in the future?