Industry Committee on Dec. 4th, 2014

[The Chair, Conservative, David Sweet]

Thank you very much.

Madam Sgro and then over to Ms. Gallant.

[Judy Sgro, Liberal, York West, ON]

I want to make a point that when we talk about the investments in R and D—and I appreciate all the investments that the department is making and all of that—the reality is that across Canada we have scientists doing massive letter writing, mailing, campaigns and rallies because of the lack of investment in R and D in Canada. It's not industry I'm referring to; I'm just talking in general of all across Canada, and it's a real rarity when you start seeing scientists start a letter-writing campaign.

On the issue of job creation, the minister mentioned the productivity concerns and so on. I recognize the department does a variety of different initiatives to look at how we can increase the productivity across Canada in various sectors. What is the department doing in particular on some of those sectors to deal with where those opportunities for investments are and what you can do to be promoting them and increasing productivity?

[John Knubley]

I'll give you a general answer and then turn to Phil to talk about the particular sectoral activity that we've got on under way.

In general it's the productivity problem and it's been this way for many years. If one of my predecessors, Kevin Lynch, were here, he would be telling you exactly the same story that I'm about to say. For many years Canada has been, as we indicated earlier, very strong in terms of its basic discovery research and very strong in terms of its highly qualified personnel, but where it falls down is under investment in terms of business R and D, in commercialization, and bringing ideas from a lab to the marketplace.

This has been the focus of many studies, but most recently the Tom Jenkins report which I referenced earlier.

The initiatives that I referenced earlier, for example the transformation of NRC to focus on a more business-led applied research approach, is part of the attempt to address this weakness that has been in Canada for many years in terms of commercialization.

The government's investments as well, in terms of $40 million on incubators where we're trying to encourage the growth of startups, which are high growth and oriented to the marketplace, is another area where for example we're trying to address this weakness in the productivity side of things in relation to business R and D and investments.

I'll let Phil talk specifically about the sectoral approaches that we take. Phil is the assistant deputy minister responsible for the sector that deals with all of the individual sectors. It's called the industry sector and that's what they work on.

[Philip Jennings, Assistant Deputy Minister, Industry Sector, Department of Industry]

To start at a high level, investments in innovation is a key part to how you can address the productivity challenges. What the government has been doing, and partly through advice that we're providing, is trying to figure out how we can get better outcomes from the money that we support in terms of investments that are made by the private sector.

We're trying to, as John was mentioning, turn early stage R and D into commercial products that are developed and manufactured in Canada.

When David Emerson did his report on aerospace, one of his key conclusions was that there was a lack of federal programs in the space between basic R and D and commercialization, or what he called the valley of death. There's a lot of federal programming at the front end and some in the back end. One of his key conclusions was that we needed to have more programming that allows companies to make those difficult and costly, and leap of faith investments between the early to that.... He recommended, and the government did adopt that recommendation, to create a technology demonstration program. It's about trying to bring those innovations and trying to increase productivity.

The other part of it is about trying to get better value for the dollars. One of the key criteria for that program is about trying to demonstrate that you're working with a supply chain and that you're also working with academia. You're trying to make sure that the R and D has better value than just to one firm and you're trying to widen that out.

That's just one sector. In space through the same report, but in a different volume, he recommended that the Canadian Space Agency double its investments in terms technology and investments in industry. That recommendation was also adopted by the government.

In the auto sector, which was talked about earlier, the initial tranche of money, $250 million that was announced in 2008, was over-subscribed and the government has since made two announcements about topping up that fund. That's geared towards trying to bring better innovation in the auto sector. A number of OEMs and some key Canadian suppliers have taken advantage of that to increase our productivity.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Jennings.

Madam Sgro. We're way over. It's about six minutes, so we're way over.

Madam Gallant.

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

References have been made to supporting different R and D. When a company does accept funding for R and D from the federal government, to what extent must a company surrender intellectual property rights to the government?

[Lisa Setlakwe]

Generally, the federal government does not take ownership of intellectual property. It may differ from one program to the next. I'll give you an example under the strategic aerospace and defence initiative. We do not take ownership. We require that the company maintain the ownership, that they protect the intellectual property, such that they are able to benefit from it and capitalize on it. There are no requirements that we own it. I think in years gone by we were in that business, but we got out of it. We let the companies perform their R and D and make sure they use the intellectual property toward commercialization.

[John Knubley]

I think that's just a strong recognition today that what we're trying to do—and it relates to this commercialization issue—is to encourage firms to develop their intellectual property and use it.

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

Industry Canada is requesting an extra $12.9 million to “support operational requirements due to declining repayments under the Defence Industry Productivity Program”. What are the main reasons for the declining payments?

[David Enns, Chief Financial Officer, Corporate Management Sector , Department of Industry]

The main reason for the declining payments has to do with the aging product lines that are associated with those legacy programs. Some of those programs date back 50 years. There are royalty repayments on the products that are sold and with time, those revenues have decreased.

Our budget is dependent to a degree on repayments from those programs, $33 million. You'll see there are two items in the estimates on page 52 that relate to that, first to the reinvestment of revenues received. That's the $20.1-million figure you'll see there. Those are the actual repayments we received. But the department has the authority to access up to $33 million in funding, so that $12.9 million reflects the difference between $33 million and the $20.1 million that we collected in the prior year.

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

The request from Industry Canada similarly declined when repayments increase?

[David Enns]

Yes. The $33 million is both a floor and a ceiling. If the repayments exceed $33 million, they are returned to the fisc; if they are under $33 million, then we are compensated from the fiscal framework.

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

Okay.

The National Research Council of Canada's requesting $6.4 million “to help outstanding and high-potential incubator and accelerator organizations expand their services to entrepreneurs”. What methods do you use to measure the impact of these grants and contributions on the services provided to Canadian entrepreneurs?

[Lisa Setlakwe]

This program is just getting launched. Fifteen incubator accelerators have been approved for funding. Not all have been announced yet. Ultimately, the funding will allow for these organizations to mentor and provide advice to these high-potential companies—in some cases they may physically house them—and also put them in touch with key networks, whether financing or marketing networks, whatever the case may be. The objective is that the companies will grow. In some cases success will look like companies that are able to access capital that they may not have been able to do on their own. I don't have the particular performance measurement strategy that's associated with the program, but we can provide that.

[John Knubley]

I think typically as well there would be an evaluation after a reasonable period. A concrete example of these incubators is Communitech in Waterloo. These kinds of incubators have been quite common in Silicon Valley and have been very successful. I think we're quite pleased to see how many incubators have been successful in this new program. They offer real opportunity, I think, in supporting these dynamic start-ups, typically owned by younger people, to be successful and to grow to be larger companies.

[The Chair, Conservative, David Sweet]

Thank you.

We have 11 minutes to divvy up, so you just have one question each.

Mr. Warawa, go ahead.

[Mark Warawa, Conservative, Langley, BC]

What kind of time are you allotting to each?

[The Chair, Conservative, David Sweet]

Three minutes.

[Mark Warawa, Conservative, Langley, BC]

Thank you.

I would like to ask a question about the spectrum auction, and why the critics underestimated it. Before I do that, I'll just make a quick comment.

The minister highlighted that there are 43 free trade agreements now. Previously, under the decade of darkness of a previous Liberal government, I think there were three. Obviously, it was not a high priority for the government of that day. The NDP, of course, has a track record of not supporting free trade agreements. I think we've seen a tremendous growth in the free trade agreements, because it has been a priority of Canadians to improve trade.

We highlighted the Detroit-Windsor bridge. That highlights the priority of the government for trade, and not just trade into the U.S., our biggest trading partner. I'm from the Vancouver area, and Vancouver is one of the major gateways for trade into Canada and trade with Asia. We've announced the free trade agreement with Korea, and we'll continue with China and Europe.

Trade is growing exponentially under this government. That means lower costs of goods, lower taxes for Canadians, and a bright, bright future if we continue to head in this direction.

One of the major accomplishments that I am so pleased about is the spectrum auction. That means more choice for Canadians. It also means lower prices for Canadians. I know Canadians like that. I am constantly hearing how happy they are with the lowering of prices.

Why was the amount that we would get from the 700 megahertz spectrum auction underestimated? I believe it was $5.27 billion that we got from that. Why was it so underestimated by the critics?

[John Knubley]

I'll let Kelly explain in detail.

As you noted, the main objective of the 700 megahertz auction, or indeed any auction, is to promote competitiveness and to provide more bandwidth, if you like, to the various companies. The revenue goals are not the prime focus of the auctions themselves. Of course, they are of great interest to my colleagues in the Department of Finance and to Canadian taxpayers.

I'll turn it over to Kelly.

[Kelly Gillis]

As Mr. Knubley said, we don't set revenue projections. When we look at an auction, we look at the context of the dynamics within the sector overall, of what policy objectives on access, investment, and competition we are trying to achieve.

For this particular auction, it's sustained competition and access. This was a really good spectrum. It would go far. It would go through buildings. It would be great for Canadians to have access to it across the country, because it penetrates buildings. It's great for rural, as you would need fewer towers to deploy it.

We were hoping that it would get out, that people would buy it, and that it would allow for a sustained fourth player across the country. We are very pleased that of the 98 licences, 97 were sold across the country, allowing for a fourth player to have this great spectrum to be able to deploy and provide services to Canadians.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Warawa.

You may ask one brief question, Mr. Côté.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Thank you, Mr. Chair.

I would be remiss if I passed up the opportunity to talk about Statistics Canada.

In the supplementary estimates (B), there is an adjustment of $3.9 million in capital expenditures for the planning, design, development and testing of questions, systems and processes for the 2016 census of population.

Clearly, after the changes made to the procedures, everyone was able to see the shortcomings of the 2011 census.

Could you tell me what shortcomings were pointed out to you by the users of the Statistics Canada data and what you intend to do to correct them for the 2016 census?

[John Knubley]

I think we are talking about the future here.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

That's right.