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

4 p.m.

Conservative

The Chair Conservative Rob Merrifield

Thank you.

Monsieur Crête.

4 p.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Thank you, Mr. Chairman.

Thank you for accepting to appear before this committee again one and a half weeks following the tabling of the budget. You could have had the option of saying that we never listened to you well enough the first time, that you had done your job, and that you were tired of repeating the same message to people who were not listening. But instead, you decided to come back and continue trying to convince us.

I'd like to digress briefly. For us, direct assistance is not necessarily synonymous with subsidies. There are forms of direct assistance, such as Technology Partnerships Canada, among others. The debate is not about that.

If the government does not react to the additional demands being made, what type of impact will this have in the future? In a news release issued yesterday, the Bank of Canada stated, and I quote:

At the same time, there are clear signs that the U.S. economy is likely to experience a deeper and more prolonged slowdown than had been projected in January [...] These developments suggest that important downside risks to Canada's economic outlook that were identified in the NPRU are materializing and, in some respects, intensifying.

These are the words of the same people who, three or four months ago, were saying that there was no problem. This shows me that a catastrophe is in the making if the government does not do its utmost. I believe that we should have invested a portion of this year's surplus, among other measures. Please tell us if you have anything to add with respect to this issue.

On the other hand, what will the consequences be if we do not have a more robust and aggressive action plan to assist the manufacturing and forestry sectors?

4:05 p.m.

President, Canadian Manufacturers & Exporters

Dr. Jayson Myers

Let me go first.

I think, first of all, the half percentage point cut we saw in the Bank of Canada rate yesterday was probably a good indication of looking ahead and thinking, things don't look too good. Four or five months from now, demand in the U.S. economy is expected to be very weak, and our key export markets are already in recession.

But I'll respond to your question and build on the previous question. There are new opportunities in western Canada for manufacturers in Quebec, Ontario, and across the country to take advantage of the development of energy resources and infrastructure spending in western Canada and in energy markets in the United States. There are new markets. The global economy, even with the downturn in the U.S., is growing by six Canadas a year. There are a lot of business opportunities. But in order to take advantage of those opportunities, companies have to invest in new products, in market development capabilities, in new skills, and so forth.

When we're looking at targeted investment measures, or targeted measures to assist here, I think we need to change the terms of the debate. We shouldn't be subsidizing companies. What we should be doing is looking at those measures that encourage investment in some very significant areas, like productive assets. There's a difference between store shelving and equipment. Store shelving is an asset that actually gets better CCA treatment than equipment, without the two-year writeoff. Equipment produces things. Manufacturing technologies produce things of greater value; they should be more important than other assets.

Skills development is an important investment. Innovation is an important investment. Wherever companies are selling, whether it's in the United States, in other markets, or in western Canada, they're going to be successful because they're specialized and because they're innovative. These are the key investments that we should be making in order to assist those companies make the adjustments they have to make, because the business world is very different today. I think that's where we really should be focusing our measures.

If you want specifics, apart from the ones that we've been giving, consider investments in research establishments that focus on transferring research to industrial applications. Industrial innovation is important. Manufacturers bring 80% of the new products to market. We invest billions of dollars in the research. Why don't we assist in connecting that research to the industrial applications, the solutions, that businesses are trying to bring to the market? Without those linkages, it's very easy, frankly, for the Americans, the Chinese, the Japanese, and the Europeans to step in.

4:05 p.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

What will the repercussions be if we do not have a much more robust action plan than the one being proposed by the current government?

4:05 p.m.

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

Pierre Laliberté

We are asking our businesses to take action with very little leeway. As was said earlier, it takes seven hours and 54 minutes for them to barely cover their costs. This statistic is most appropriate. Businesses perhaps need exactly that kind of leeway.

I agree with the general philosophy that is emerging here. We must help our businesses become more innovative, and competitive, and not unduly hand out subsidies to lost causes. I think everybody agrees on this.

I think we also have to see if there are not other tools available right now. Some of our trading partners comply with the rules, others do not. For several years, we have been pointing out that some sectors deserve safeguard measures. For example, as we speak, in Montreal, not very far from the FTQ headquarters, 600 female workers at Golden Brand are being laid off. They will be losing their jobs in a matter of weeks.

Generally speaking, the government could have shown more willpower to protect these rights. This does not mean that we need to protect the garment and textile industry indefinitely and forever, but we could have given the manufacturing sector a chance to retool itself and carry on with business. From this point of view, we are not entering the market with equal weaponry. This is obvious. Monetary and trade policies are also important factors.

4:10 p.m.

Liberal

The Vice-Chair Liberal Massimo Pacetti

Thank you, Mr. Laliberté.

4:10 p.m.

Bloc

Paul Crête Bloc Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Can Mr. Lazar...

4:10 p.m.

Liberal

The Vice-Chair Liberal Massimo Pacetti

No. Other members will ask their questions. We have a lot of time. Your seven minutes are up.

I simply want to remind witnesses that members have seven minutes for questions and answers.

Mr. Del Mastro, it is your turn.

4:10 p.m.

Conservative

Dean Del Mastro Conservative Peterborough, ON

Thank you, Mr. Chair, I appreciate that.

Mr. Myers, I appreciated your presentation. I just have a couple of things I want to talk to you about.

In Advantage Canada, I've gone around and made a lot of presentations, and one of the things I've talked about is the need for the government to create the proper environment for business to flourish. I really think that's government's role. You've mentioned specific targeted initiatives, targeted investments that governments should make. I think we're making those. I think they're the right thing to do as well, in particular if you want to encourage investment into new machinery and technology and keep Canada on the cutting edge so we can compete.

Advantage Canada speaks of five different measures. So with the knowledge advantage, certainly manufacturing and industry has to appreciate the amount of money the government is investing into post-secondary and trades: a 40% increase in last year's budget, a further inflationary increase this year, plus new grants and loans to help students and help train people. With the infrastructure advantage, obviously we've brought forward Building Canada, a $33 billion fund; we're talking about things like the new Windsor-Detroit crossing, which is critically important for manufacturing. With the tax advantage, we've already talked about moving to the lowest corporate tax rates in the G7, a 15% total tax; we've brought forward accelerated CCA rates for manufacturing, and we've extended that. With the entrepreneurial advantage, we're looking at trying to reduce the burden on business. Certainly as a person who was in small business, employing about 20 people, I know what it's like to meet a payroll and I know what it's like to have to put up with bureaucratic red tape. And of course we're working to pay off debt.

Specifically I wanted to speak to you about a couple of issues. First of all, I assume you're aware that yesterday--and I would argue that this plan is making real progress--we had a very significant announcement from ALCOA of a $1.2 billion funding for operations in Baie Comeau, Quebec. It will create 7,000 new jobs. Obviously we know that will have an exponential effect on spinoff jobs in Quebec. I'm very excited about that.

It seems to me that the environmental changes we're making are working in attracting investment. Do you agree with that?

4:10 p.m.

President, Canadian Manufacturers & Exporters

Dr. Jayson Myers

I think, giving full credit to the government for lowering the corporate tax rate, introducing the two-year writeoff last year in the budget, making the commitment to improve regulations to invest in infrastructure and the borders, and investing in R and D and schools and things like that--these are all extremely important things. Are there things that could be done better? Sure. Often this isn't an issue of funding; it's an issue of actually getting it done and connecting the dots and making sure that research gets into the hands of industry. That's not a fiscal issue; it's an issue with how the programs are implemented.

Going to the CCA issue, there's one particular issue at play here. I think we all have to realize that when Finance talks about CCA, its fundamental idea is that the depreciation, the capital cost allowance, should mirror the useful life of the asset. I don't think that's right and I think it distorts business decisions. On average, a company will get a return on the investment to cover the cost of an asset from a particular product line in about three years. Really what we're talking about here is not on the tax side, not government redirecting revenue to provide a benefit; it's just taking less money away from business. It's leaving money in the hands of the businesses that can spend it best. So I think the idea of the useful life of an asset is a good model; it extends the writeoff period to a time far beyond the financial payback the company itself sees. So there are some fundamental policy problems here. The five-year window was very, very important, just to ensure that the two-year writeoff works.

It's a great announcement about ALCOA. We have other investments that are coming in. I would guarantee, though, that ALCOA will not be able to use the two-year writeoff. I think we need to--

4:15 p.m.

Conservative

Dean Del Mastro Conservative Peterborough, ON

I understand what you're getting at, and I do apologize, because I don't have a lot of time.

I think the finance department strategy behind this comes from GAAP, or generally accepted accounting principles. That's how they're approaching it. I don't disagree with you for a minute that accelerated capital costs change the economics on whether an investment should be made or not. That's the finance side. I think they're working from an accounting side, which indicates that useful life and depreciation should be roughly matched.

I wanted to talk to you about interprovincial trade barriers, and I wanted to talk to you about VAT taxes. I am going to Alberta to work to help some of my local manufacturers and some Ontario manufacturers tap into the boom in Alberta. How can we help them with that?

4:15 p.m.

President, Canadian Manufacturers & Exporters

Dr. Jayson Myers

That's a good question.

I hope you're going out in March and you'll be participating in our national buyer-seller forum.

4:15 p.m.

Conservative

Dean Del Mastro Conservative Peterborough, ON

I am.

4:15 p.m.

President, Canadian Manufacturers & Exporters

Dr. Jayson Myers

That's excellent. We have about 900 companies from across the country coming out to do business in Alberta.

When you look at the issue of interprovincial trade, I think it's a good case study of what we have to do to remove some of these cross-border issues.

Some companies cannot install equipment—they can't use welders from Ontario, Quebec, Atlantic Canada, anywhere outside Alberta, to work in Alberta itself, because of compulsory certification in Alberta. There are transportation regulations that impede the movement of trucks across the country. Because of the lack of mutual recognition of product standards, you can't manufacture outside Alberta to go into Alberta, without going through more regulatory red tape. If you're trying to operate competitively across the country, this doesn't make a lot of sense.

When you're out there, ask about some of the difficulties. It's a great case study to identify these interprovincial trade barriers, and we should be working together to eliminate them.

4:15 p.m.

Liberal

The Vice-Chair Liberal Massimo Pacetti

Thank you, Mr. Del Mastro.

Mr. Mulcair, sept minutes, then Mr. McCallum.

4:15 p.m.

NDP

Thomas Mulcair NDP Outremont, QC

Thank you, Mr. Chair.

My first question is for Mr. Laliberté. I'd like to know if he's aware of the situation in Chibougamau, at Chantiers Chibougamau. Cutting rights are now being handed over to American companies rather than the local company of Chantiers Chibougamau. Are you aware of the situation?

4:15 p.m.

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

Pierre Laliberté

I'm not aware of the specific details of this particular situation.

4:15 p.m.

NDP

Thomas Mulcair NDP Outremont, QC

The situation is of concern to us, and one that we are monitoring currently.

4:20 p.m.

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

Pierre Laliberté

I can say that generally speaking, we asked the Government of Quebec to define clear rules on CAAF transfers. It is abundantly clear that along with industry restructuring, each factory, each mill, each village and community is at risk of losing its supply and finds itself in competition with another. Therefore, in this case, the Government of Quebec must...

4:20 p.m.

NDP

Thomas Mulcair NDP Outremont, QC

...do its part. You are right, this falls largely under provincial jurisdiction and is indeed a responsibility of the minister. The situation is being turned upside down in communities, and is yet another concern that is being added to the ones we are talking about.

Mr. Laliberté, Mr. Myers, and Mr. Lazar, in light of the difficulties we are aware of, I would like to know if there are any innovative ideas that are being studied using available resources. For example, I can think of different technologies which are currently being developed and some which are being used. There is the SilvaGas process that is used in the United States, but there are others which are being developed, using forestry biomass energy to replace combustible energy. We are trying to come up with a form of energy that could be used and transported, given the fact that roads, bridges, and human resources are already in place. If a factory can no longer be used as a mill, it can perhaps be retrofitted and used for different purposes.

Have you looked into that?

4:20 p.m.

President and Chief Executive Officer, Forest Products Association of Canada

Avrim Lazar

The use of ecoENERGY and the general approach to biorefineries--thinking of a tree as a source of all sorts of chemicals--is something we've been working on quite aggressively.

There are two things that can be done right now that would speed that progress. One is the government's ecoENERGY renewable initiative for renewable power. The government did a very good job of extending it from wind to biomass. That's helped mills move to renewable energy and stay competitive. That fund is almost empty. It's a great program, but it's going to be useless in a couple of months because it's empty.

If that were refurbished with more cash, it would help more mills switch over to renewable energy. There is no problem with countervail, it improves our greenhouse gas performance, and it makes us more competitive. That is something that can be done right now--I don't know if any of those guys are listening--with a cash infusion into what is a brilliant program, which you guys created, that is now oversubscribed.

A second thing could be done right now to help move to a better use of bioenergy or the biological capacity of trees. Our Canadian Forest Innovation Council is doing research on how to extract not just more energy but more biochemicals from the trees we have in order to get more value from every tree cut down. Some contribution from the federal government to that institute would make a big difference.

Finally, and this is quite interesting, they have technology, which they have already developed, that some of the companies are not adopting because they are in such desperate shape that they don't have any receptor capacity. So funding extension workers from the institute who would go out and help companies understand and use this new technology would be very useful.

None of these are hugely expensive. All of them could be done today or tomorrow. None are anti-competitive. They are all pro-competitive, and all would make an impact.

4:20 p.m.

NDP

Thomas Mulcair NDP Outremont, QC

All would pass the test of countervail in the softwood lumber deal.

4:20 p.m.

President and Chief Executive Officer, Forest Products Association of Canada

Avrim Lazar

They would pass the countervail test, absolutely. They are all simple things that can be done, all in the direction of stuff that's happening but that could go further.

Could I just answer on Advantage Canada for two seconds? I know that wasn't your question.

4:20 p.m.

NDP

Thomas Mulcair NDP Outremont, QC

That's fine, go ahead, and take your time.

4:20 p.m.

President and Chief Executive Officer, Forest Products Association of Canada

Avrim Lazar

Advantage Canada is fabulous. It's just too slow. Finance has it right in its direction. Your government has it right in its direction. But what we're facing is a marketplace that's moving much faster than Advantage Canada is. We're in a terrible global bloodbath in which everybody is trying to take everybody else's job. And now our largest customer is heading to a recession. Our currency relative to our largest customer has gone up 36%. And we're moving at a measured pace towards the right place, but we have to go faster. It's not that you're doing the wrong thing; you're doing too little of it.

The Finance officials who are saying that we're going to be insulated, that it's all going to be fine, are depending on the petro-dollar, and that's not a good place for a country to go. Let's enjoy every penny we can get from oil and gas, but let's not become completely dependent on it. That's a fundamental economic mistake.

We're saying yes to Advantage Canada, but we're saying yes, please, let's get at it at a much faster pace. Let's not pretend that we are insulated. Let's not pretend that our current well-being is our birthright. Let's realize that, just as industry has to work really hard and fast to adapt to a high dollar, the government's business climate policy has to work just as hard and just as fast.

When we close a mill and put all these people out of work, we want to see you doing something just as painful to government finances. There's no way for us to sit still, wait, and hope that we can do it at a slow pace. We've been suffering pain and working really hard. You're doing the right thing, you're just doing it as if the world was unfolding at a stately pace. And it's moving at a vicious pace.