Industry Committee on Oct. 2nd, 2012

[The Chair, Conservative, David Sweet]

That's all the time we have, Madam Freeman. I'm sorry about that.

Now we'll go over to Madam Gallant for five minutes.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you, Mr. Chairman.

In terms of procurement, it was mentioned that there are a couple of areas where the federal government could help get through these impediments in IP. One that was mentioned was procurement. Could you elaborate on that? What further could the federal government do to stimulate further IP and get through this valley of death?

[Tony Stajcer]

Actually, in the business we started, the government is the first purchaser of the product. They are using it and developing it, and it is helping tremendously to have the government adopt it internally. It is very important if our own government adopts it and validates the product; now we can export and get it out to the world.

I do think that government procurement, and even IRBs if possible, should have a stance whereby the government doesn't simply go outside and purchase something but looks internally to what's being developed. That helps absolutely through that valley of death. It does help sustain that drive to get to the larger export market. Canada is still a fairly small market on the global scale, and we really are an international company; we have to be that way to gain an advantage and drive economic growth in Canada, because the jobs are here.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

In that regard, we do have the Canadian innovation commercialization program for small and medium-sized companies. Are you suggesting that we apply that in addition to the IRBs to larger companies?

[Tony Stajcer]

Actually, we have just recently, because we are looking for R and D participation dollars, put in an application for the CICP program. We haven't had experience with it yet, but we are hoping that is a source of funds we could utilize to improve our competitiveness and push our IP further into the market. That is a good example. I don't know all the details of that program yet. We have not worked with it, but we're hoping it's an avenue to help us commercialize and take it outside the country.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

For the IRAP program, certainly a company with the number of employees you have would not qualify, but would it be that type of model that would enable you to get to commercialization?

[Tony Stajcer]

I think IRAP is a good program, and from what I remember in the reports, it can be supported more widely.

I am thinking on all of these that the timing is very important. We have to make these funds accessible, and quickly. Timing is one of the things that drives the market very much, and if we delay on these funds.... Even with what's there now, if we can make that happen more quickly, it would be to our benefit. We would drive growth much more quickly and help those companies get into the market sooner.

That is a useful model, and if there were larger funds available to even larger companies, that would help as well.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Okay.

Earlier a witness referred to universities and the partnerships therein, but we also have a constellation of national laboratories. They are federally funded, so we would have more input in direction, perhaps, as to the types of technology that could be funded.

What are you doing presently? Are you forming partnerships with these different national laboratories to enable your access to research at a more economical level?

[Tony Stajcer]

As an example, I actually am licensing patents from CRC. We also looked at some technology in patents being developed at NRC. We are looking at collaborative models utilizing those research institutions because we cannot do it all internally.

I think there does need to be a model. One of the things about IP is that there are strong anchors to that IP within those areas, so we need to find a way to work with them. They've already invested. We will invest further to take it to the market, but we have to find the right balance on that IP agreement as we transfer it from the laboratory to the final market.

In one case, we have a development licence from CRC to develop certain IP, and we will then start royalties upon product introduction. Unfortunately, between times—sometimes that time can vary—they were also asking for annual minimum payments, which is difficult to do because you haven't introduced a product yet.

Therefore shortening the timing and having an understanding.... I think part of it is also understanding and being somewhat flexible. We can actually work with those research institutes to develop some good models, I think, but I think everybody needs to be willing—

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

More flexibility—

[Tony Stajcer]

Yes.

[The Chair, Conservative, David Sweet]

That's all the time we have now. That concludes our second round.

Now we're moving on to our third round of questions. It will be a five-minute round. We'll go over to Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

Thank you, guests, for being here. I'm sorry that I had to slip out. I did hear everyone's presentations, but I actually had a meeting with some people from RIM, in which we were talking about the same topic we're talking about today, so I was happy to be there. I'm sorry I missed the questions, so if I'm repeating something, my apologies.

One of the things that will be happening this fall, which we announced in our budget, will be some changes to the tax system, the support system for research and development, basically based on the Jenkins report. Some of that is being implemented probably in the next budget implementation bill, but it won't actually take effect until, I believe, 2014.

I would appreciate any comments you have on what your organizations or individual companies have to say, or any comments on the Jenkins report and any of the recommendations, or whether to deal with SR and ED or, as Cheryl said, with IRAP. You covered off IRAP somewhat, but I'd like to know what your comments are on SR and ED.

[Tony Stajcer]

In brief, our company thinks that SR and ED is a single tool that helps all companies, regardless of what they do. You're not going into a specific fund like the green tech fund, which is only supporting the green companies.

We think it's a great tool for all Canadians to utilize. I think one of the things that they went backwards on was lowering the rate to 15%. We believe that generally streamlining that process would be the most beneficial thing that can be done to make sure that people understand the rules and what's applicable and what isn't.

Also, we would like to see it go back to 20%, actually. We're in somewhat of a.... We don't understand how the money that's being saved is going to go back—

[Mike Wallace, Conservative, Burlington, ON]

Then your company is actively in SR and ED?

[Tony Stajcer]

Yes, we are.

[Mike Wallace, Conservative, Burlington, ON]

Do you know how much money that is per year?

[Tony Stajcer]

Over the year, we generally have an overall development budget. That includes R and D and non-recurring engineering. It's in the range of $20 million to $30 million per year, so we are fairly active in that area. We are a $200 million company, or in that neighbourhood, so we are fairly active, but we definitely believe in that system. We think that as a minimum it should continue at the level it was.

[Maryse Harvey]

SR and ED is the number one R and D instrument utilized by the aerospace industry. It comes even before SADI.

However, I believe that one of the intentions of the government is to lower the rate from 20% to 15% but to increase direct support, direct investment—

[Mike Wallace, Conservative, Burlington, ON]

That's correct—

[Maryse Harvey]

We've consulted with our members, and what they say is very clear: the aerospace industry needs both. We need SR and ED to plan long-term investment plans or programs. It's more a long-term instrument, whereas SADI is going to help fund transformational technologies in the company, so they really do complement each other. The industry definitely needs both.

I'm a little worried about the changes to SR and ED, I must admit, because it cannot be taken in isolation. The R and D tax incentive is something, but a more or less effective direct support mechanism is another. The rest of the environment, the dollar being at par, and all those variables have a global impact on our competitiveness as an industry. My point is that SR and ED should not be taken in isolation. From our perspective it should be put in a broader perspective.

[Mike Wallace, Conservative, Burlington, ON]

Do you have anything to add, or can I ask my next question?

[Karen Mazurkewich]

I was only going to say that some of those changes were made to deal with some of the smaller companies. They find that SR and ED can be onerous, and sometimes you need PricewaterhouseCoopers to fill out those forms. I work with a lot of small start-ups, and direct investment was to focus on some of them.

[Mike Wallace, Conservative, Burlington, ON]

Okay.

My next question—

[The Chair, Conservative, David Sweet]

You have 20 seconds.