Evidence of meeting #28 for Finance in the 39th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was companies.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Avrim Lazar  President and Chief Executive Officer, Forest Products Association of Canada
Jayson Myers  President, Canadian Manufacturers & Exporters
Pierre Laliberté  Political Advisor, Manufacturing Sector, Fédération des travailleurs et travailleuses du Québec

3:35 p.m.

Conservative

The Chair Conservative Rob Merrifield

We'll call the meeting to order.

We want to thank the witnesses for coming forward. Pursuant to Standing Order 108(2), we are studying direct assistance measures and the fiscal environment for the forestry and manufacturing sectors, so it's great to have you here with us to be able to share your input with regard to that.

I believe we have short statements from two or maybe three of you. We'll open with your short statements, and then we'll go into a question and answer period and process.

Just to let the committee know, I'll be leaving the committee for a short half-hour and we will have the deputy chair take my place for that period of time. I know everything will go fine during that period of time, so don't be alarmed.

At any rate, with that we will start.

Mr. Avrim Lazar, you will go first, and then we'll go to Jayson Myers and Pierre Laliberté. It's great to have all three of you here.

3:35 p.m.

Avrim Lazar President and Chief Executive Officer, Forest Products Association of Canada

It's good to start in the forest and work our way into the industrial heartland as we head across the table.

First of all, thank you for inviting us. We know how busy you are, and your interest in this is very important to us.

As you know, the Canadian forest industry is the largest, most successful forest product exporting industry in the world; and we're Canada's largest industrial employer, the largest employer of aboriginal people, and the lifeblood of 300 communities. Even though we've lost 12,000 positions over the last year, we still have 300,000 people directly employed. So we're not quite gone. In fact, we are the largest industrial employer.

You all know we're suffering under very difficult circumstance—the U.S. housing decline, the huge rise in the dollar, the softwood export quotas and tariffs—and I suppose that's why you wanted to chat with us.

The question, no doubt, that is in the front of everyone's mind is, can anything be done about this? The answer is yes, and it requires action from three quarters.

We have to depend most upon markets; the markets have to come back, and the indication is that they will. The demand for forest products globally is increasing very quickly. The U.S. will get through what Warren Buffett calls a recession, though I don't think the Fed has called it a recession yet. But the markets will eventually come back; there will be markets, and we will be in a very privileged position to respond to demand from those markets. Our competitors are having land use conflicts. There will be huge demand for what we make in Canada, so the future, in terms of markets, is very positive.

The second thing we need is to be competitive, and that's industry's job. We have to be top-of-the-world competitive. Our softwood industry in the interior of British Columbia is the most efficient in the world; it is Canada's productivity champion. We've improved our productivity twice as much as the U.S. has each year. And now our pulp and paper facilities are catching up. The number of newsprint facilities in the top global quartile in competitiveness has doubled over the last couple of years. So there've been huge improvements, and the industry is working really hard to get itself to a place where it is competitive.

I can't say it's been a pretty process. It's involved rationalization, it's involved dislocation, it's involved layoffs and people having very, very painful times; but it's worth remembering that it is resulting in much better cost competitiveness and much more sustainable jobs as we go forward.

So the first bit is that markets will come back. And we're working hard at competitiveness, if not in a pretty way. The third piece is a competitive business climate, and there is where your role as government comes in. You can't fix this for us, but you certainly can play your part.

We don't want subsidies; we don't want bailouts. You don't have enough money to fix it this way, and long experience will tell everybody that it simply doesn't work that way. We don't want you to choose one company that's faltering, save them, and have another company that's doing well falter as a result. So no bailouts, no subsidies.

But there is stuff you can do that's positive and constructive. You can attract investment into Canadian mills, and that's why we've been favouring a five-year straight-line extension of the CCA two-year writedown. That costs nothing unless people invest in Canadian mills. Any other tax measures benefit people regardless of whether they invest in Canada. But that measure only—only—takes effect if people do exactly what we need, which is to invest in Canadian mills. That's why we've been hoping that eventually the extension to three years will be made into an extension for five years.

The other thing you can do is to make the tax credits for R and D refundable, so that when companies are in trouble they have access to those tax credits. Right now, you only have access when you're profitable. When you really need access to those credits is when you're not profitable. We don't want people to try to get out of trouble by asking for government handouts, but we want them to innovate their way out trouble. Refundable tax credits for R and D do exactly that. Again, they don't cost anyone a penny unless Canadian enterprises invest in research and technology. It's a very, very highly leveraged measure. I know it can be expensive, but it could easily be capped.

The other things government can do are to invest more in research and our research institutes—right now in Canada we invest less than our competitors do—and to invest more in market diversification and in telling Canada's story outside of the country.

The last budget pointed in some of these directions. The CCA was extended by one year. In the next two years a phase-out will basically take that back, so it will be an eight-year writeoff instead of a two-year writeoff. So in effect, it's been a one-year extension. We recognize that and appreciate it, but frankly, the capital planning cycles are such that people would have to move at a speed that is just not practical to take big advantage of that.

There was $10 million for market outreach; that's a pretty small number for Canada's largest industrial employer. We're very grateful for it, but we don't think it went as far as the government could do; it was quite a bit less than what was given to the Olympic torch relay. Quite a few of my members called and said, come on, Avrim. So it was a good gesture, but we also know this is not the end of the government's actions; the government has done many, many positive things in the past, and we're looking forward to many, many positive things in the future.

I'll leave it at that. Thank you.

3:40 p.m.

Conservative

The Chair Conservative Rob Merrifield

Okay, thank you very much.

We'll move on to Mr. Myers.

3:40 p.m.

Dr. Jayson Myers President, Canadian Manufacturers & Exporters

Thank you very much, Mr. Chair, and thank you, members of the committee, for inviting us here today to speak on such an important issue.

As Avrim was saying, we're representing a sector of the economy that is really the most productive, the most innovative, the sector that is at the edge of international competition and may be today paying the price for that because of the impact of the Canadian dollar.

This is the manufacturing sector in Canada, the forestry sector. This is the source of high-paying jobs within the sector, and across manufacturing there are two million people still employed. But we often forget how dependent the high-value and high-paying services jobs are on manufacturing--whether it's transportation, communications, financial services, business services, you name it--and in the resource sector, how much that depends on adding value to our resources, to our skills, to the R and D that we do in this country.

This sector is at risk. We all know we're facing tremendous challenges from newly industrializing markets. We all know we have to specialize. We all know we have to become much more customized, much more responsive, much more innovative. Canadian companies are being forced to do all of that at a time when the value of the Canadian dollar has risen 66% against that of its major trading partner. It's the only manufacturing sector anywhere in the world that is putting up with these currency fluctuations at the same time as it has to respond to the longer-term competitiveness issue in the economy, at a time when commodity and energy prices are coming up and both of those factors are constraining profitability.

In an average eight-hour production shift at the end of last year, it took manufacturers seven hours and fifty-four minutes on average across the country to cover operating costs, pay their taxes, cover depreciation costs, and then pay their financial charges. They had six minutes to make money--six minutes out of every eight-hour production shift--and that's the money that goes into the new product, the new market, the new training, the new organization that everybody knows they have to invest in in order to continue to grow. The biggest problem right now is cashflow in the industry. It's the cashflow that's constraining investment in research, that's constraining investment in new productive assets, that's constraining investment in R and D.

The recommendations that were put forward by the industry committee of the House of Commons and were unanimously accepted by that committee and unanimously supported by this committee went some way in offsetting those cashflow constraints. That's why they were so necessary. We have made the point that the corporate tax rate reductions that the government has introduced have been very important. This gets you in the game. But right now, given the condition of the cashflow, the condition of our key value-adding sectors, you need much more in order to compete in a game where countries around the world are subsidizing; providing tax incentives; investing directly in skills, in innovation, and in productive assets--assets that actually produce things of greater value.

So the recommendations--the five-year extension of the window of eligibility for a two-year CCA, the tax credit for employer training, the refundability of R and D credits--were important because they were incentives to encourage manufacturers to invest in innovation, in productive assets, in skills. And I think that is still essential if we're going to remain in the game. As Avrim was saying, the five-year window of eligibility for the two-year writeoff was particularly needed, just in order to give companies the time required to make a decision about investing in new technology--getting the technology, customizing it, having it delivered, and putting it in place. All of this has to be done before a company can take advantage of the streamlined writeoff. These were important issues.

To conclude, I agree with Avrim that government can't solve the economic problems that the manufacturing sector is facing. They can't do anything about China. They can't do anything about the faltering U.S. economy. They can't do anything to bolster the U.S. dollar. The onus falls on manufacturers and businesses themselves to make these decisions on competitive adjustment. But governments can do a lot to create the business environment that encourages investment in productive assets, innovation, and skills. That's essential if we're going to continue to build the world-class competitive manufacturing sector that we need to build in this country.

Thank you.

3:45 p.m.

Conservative

The Chair Conservative Rob Merrifield

Mr. Laliberté, you don't necessarily have to make a presentation, but if you'd like to, the floor is yours.

3:45 p.m.

Pierre Laliberté Political Advisor, Manufacturing Sector, Fédération des travailleurs et travailleuses du Québec

Good afternoon. Thank you for this invitation. It was significant enough for us to brave the storm and travel here today. Obviously, this is not the first time we are appearing before you, and there is a feeling of déjà vu. That in itself is not necessarily good news.

To summarize the severity of the problem, during this period of global growth, Canada lost 350,000 jobs in the manufacturing sector, of which 140,000 jobs were lost in Quebec alone: this is of great concern to the FTQ. The situation in Quebec has changed radically. To illustrate the importance of the change in the manufacturing sector, the province of Quebec once recorded a trade surplus of $9 billion, and is now running a deficit of $10 billion. The manufacturing sector provides for 85% of exports leaving Quebec. This is not minor. Often, it is said that we are now in a service-based economy, and that the manufacturing sector, or even the natural resources sector, are part of the old economy. However, as is reflected in annual reports, it can be shown that it is within the manufacturing sector where we are on the winning side of commercial exchange with our economic partners. Therefore, this is a major concern, not only for the people we represent, but for society as a whole.

The appreciation in the value of the Canadian dollar is a major factor, and increases the competitive pressure under which our businesses operate. Some say that this is not so bad because such a situation provides for business incentives and the possibility of upgrading technological equipment in Quebec and throughout Canada. In Quebec, we observed that capital expenditures in the manufacturing sectors for 2007 hit record lows since 1994. In comparison with the peak cycle, this represents a rather considerable decline of 40% since 2001. Generally speaking, the investment we would like to see in equipment is not necessarily being made. This does not mean that this is consistent throughout all sectors, but generally speaking, and in actual fact, investment in capital and equipment is simply not being made.

As we speak, the problem in Canada is that we tend to generalize. People say that unemployment rates are not so bad. Overall figures on investments lead some to believe that things are not so bad. Presumptions are being extended as a result of what is going on in the resource sector, mainly the oil and gas sector, and even the construction sector.

I wanted to provide you with that context and state that we are here again today because the problem remains ongoing. We are now facing a looming recession in the United States which could have a domino effect on other economies, including ours, since the U.S. is our main trading partner. This is not a particularly rosy outlook.

What can we do from a tax perspective? From the outset, I would say that I personally am in full agreement with Mr. Lazar and Mr. Myers. Their comments on capital cost allowances and refundable tax credits are absolutely relevant. The same applies to investments in research and development. We believe all of these must be enhanced. In that regard, the status quo is worrisome.

For several years now, Canadian exports have been increasingly comprised of non-processed products. Yet, up until the early part of this century, value-added products had been consistently increasing throughout the country. I firmly believe that we must take advantage of the lead that resulted from the resource sector boom and allocate a portion of the revenues being generated by this economic activity to help sectors that are under pressure.

The focus is truly on the issues of value-added products and productivity. It would be more appropriate to take a sectoral approach, given the respective histories and dynamics of each sector. I think we all subscribe to this idea.

We wish to emphasize two or three points. Obviously, there is the issue of training. Employers are the first to state that there is a shortage of skilled workers, and if the shortage is not evident yet, it soon will be. We have noted with some concern the proposals to open the doors to temporary workers, whereas there are many workers who are under-utilized, and who worked in now defunct industries. These very people could be trained for other jobs and trades. Yet, the money is not there. It is as simple as that.

Right now, under the provisions of the Employment Insurance Program, the federal government could invest almost one billion additional dollars to be distributed to the provinces for the purposes of training. Let us recall that we have been running a $2 or $3 billion surplus for several years now. This is not a trivial issue. For example, a mine in the area of Level-sur-Quévillon is bringing in 200 workers from Tunisia, and yet there are 300 forestry workers living in the community, who are more or less unemployed. Aberrations such as these are occurring, and make no sense. We need the resources now, not in five years.

For several years now we have been calling for the strengthening of the Employment Insurance Program. The objective is not to encourage people to wait for a handout. The program was originally conceived to help people in difficulty make a new start. One cannot plan for relocation when one is lacking time and necessary resources. This factor must be taken into consideration. Once again, we are disappointed. We've been calling for measures to be taken for years now. New budgetary surpluses being announced each year prove that we have the means to take action.

Obviously, one component of the problem we are confronting is monetary in nature. We have already had the opportunity to speak briefly on the Canadian dollar. The Bank of Canada slashed rates yesterday, which was the right thing to do. I do not know if this issue falls within the jurisdiction of this committee; however, this topic must be discussed.

3:55 p.m.

Conservative

The Chair Conservative Rob Merrifield

We have a point of order.

3:55 p.m.

Conservative

Dean Del Mastro Conservative Peterborough, ON

I appreciate what the gentleman is saying. I think we have a number of questions for some folks, and I wonder if you have established a time limit for each one.

3:55 p.m.

Conservative

The Chair Conservative Rob Merrifield

We won't let it go on very long. He actually said he didn't have a presentation.

3:55 p.m.

Conservative

Dean Del Mastro Conservative Peterborough, ON

We have some questions.

3:55 p.m.

Conservative

The Chair Conservative Rob Merrifield

That's fine.

Go ahead very quickly to finish off.

3:55 p.m.

Political Advisor, Manufacturing Sector, Fédération des travailleurs et travailleuses du Québec

Pierre Laliberté

May I conclude?

3:55 p.m.

Conservative

The Chair Conservative Rob Merrifield

Are you finished your presentation, or do you want to finish it quickly?

3:55 p.m.

Political Advisor, Manufacturing Sector, Fédération des travailleurs et travailleuses du Québec

Pierre Laliberté

If they'll let me, I will finish.

3:55 p.m.

Conservative

The Chair Conservative Rob Merrifield

That's what I suggested to you. Don't worry about him. I will let you finish if you do it very quickly.

3:55 p.m.

Political Advisor, Manufacturing Sector, Fédération des travailleurs et travailleuses du Québec

Pierre Laliberté

I will conclude on that note. Mr. Del Mastro, I would have appreciated your giving me my two minutes. Obviously, you were not listening, since I stated I was about to conclude. I find it rather rude on your part, but we can move on to questions.

Thank you.

3:55 p.m.

Conservative

The Chair Conservative Rob Merrifield

Thank you very much.

We'll now move to questions and answers.

Mr. Pacetti, you have seven minutes.

3:55 p.m.

Liberal

Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC

Thank you, Mr. Chairman.

Thank you to the witnesses for appearing.

Up until the last comment, I was very pleased to hear you speak, Mr. Laliberté, because you proposed a few solutions. The committee is trying to formulate measures regarding direct assistance and tax measures to be recommended to the Minister of Finance. Two other people have raised points that we have already heard.

My question is essentially the same one I will also ask of Mr. Myers and Mr. Lazar. It is certain that the challenge, if everyone is placed in the same basket... Even in Quebec, one cannot state that the entire manufacturing sector as a whole is in crisis. For example, the aerospace sector is not experiencing difficulty. We are looking for ways and solutions which will help the sectors that are in most need of aid over the next year. However, we have to earmark this assistance to a given industry or sector for more than a year. Otherwise, we will find ourselves with the same problem the year afterwards.

You talked about staff training. We can invest in training, but we will not see the results of this training for one or two years, depending on the type of training provided. I prefer the solution suggested by Mr. Lazar and Mr. Myers, that is to invest more money in R and D and provide businesses with refundable credits. This is a very positive measure.

What can we do immediately to help industries and businesses in need? People believe that the situation is uniform throughout Quebec, but thas is not true.

You mentioned that the markets will come back. I'm wondering which markets and what regions. Your sector is faced with challenges as well. I don't believe some of those markets will ever come back. You have to correct me if I'm wrong.

Mr. Myers, it's the same thing. I think you have a challenge where certain industries in central Canada are doing well and some are tied to the fact that we're doing quite well in the resource area. But as Mr. Laliberté said, I'm not so sure the solution is to take money from the resource area just because they have money and give it to the people who need money.

I'm looking to you guys for more concrete answers--something we can put on paper. You guys have the solutions. We've already addressed the R and D situation. With the accelerated CCA, I think the government has made one step forward.

You're here today because we're trying to conduct a study on direct assistance and measures. I haven't really heard that, other than building skills. I think that is going to be more of a long-term solution than a short-term solution.

4 p.m.

President and Chief Executive Officer, Forest Products Association of Canada

Avrim Lazar

Direct assistance is a loaded term. If by direct assistance you mean writing cheques to companies that are in trouble, that's not assistance at all; that's basically dooming us to a lack of competitiveness. It's not the role of government.

We'd all like to have magic wands and pixie dust to wave at struggling industries. The marketplace will have its way whether we like it or not.

4 p.m.

Liberal

Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC

I don't mean to interrupt you, Mr. Lazar, but I'll just give you some background. The Conservative and Bloc members believe in direct assistance. They're the ones who put forward this motion, so that's why I'm asking the question. We agree with your position.

4 p.m.

President and Chief Executive Officer, Forest Products Association of Canada

Avrim Lazar

I think everybody will agree with what I've said so far. The question I heard you ask, which I assume everyone is interested in, is can something be done now that would not be destructive, that would be constructive? The answer is yes, things can be done now. They won't be magical solutions, but they will increase the number of mills and the number of jobs that are kept in Canada.

Refundability of the research credits would put cash in the pockets of those mills, those companies that are investing in research. It will put the cash in right now, rather than holding the cash in the federal treasury until at some point these companies become profitable. Rather than the government hanging on to it, saying they want to see if you're going to survive and then they'll decide if you can have your money, they could give it to you today so you could invest more in research. That's something that could be done today.

Market expansion. You asked whether there was going to be a market. The global economy is desperate for raw resources. The increase in demand for forest products is more than the entire production of B.C. every year. The fact that we are facing a difficult marketplace now in the U.S. is a temporary aberration. There will be huge demand. One of the things government could do right now is help with our market expansion and diversification program so we can get into those markets as quickly as possible to increase our penetration of them as they emerge. That can happen now.

4 p.m.

Liberal

Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC

What is that program you're looking for, for market expansion? Do we match dollar for dollar?

4 p.m.

President and Chief Executive Officer, Forest Products Association of Canada

Avrim Lazar

We would love to see a--

4 p.m.

Liberal

Massimo Pacetti Liberal Saint-Léonard—Saint-Michel, QC

You don't want us recommending. You have to recommend what you want to see. If we recommend it, you're not going to like these other guys' solutions.

4 p.m.

President and Chief Executive Officer, Forest Products Association of Canada

Avrim Lazar

I like all you guys.

We would like to see a fund available for industry-government partnerships to tell Canada's story of environmental excellence and product quality in overseas markets. There is, right now, the Canada wood export program. It's running out of money.

All of it is in our submission to you, by the way.