Finance Committee on March 10th, 2008

[Ted Menzies, Conservative, Macleod, AB]

I certainly don't want to interrupt you in your introduction, Chair, but we've just received some information that I want to share with the committee. Minister O'Connor has found time in his schedule to join us for one hour on Wednesday.

[The Chair, Conservative, Rob Merrifield]

This would be with regard to, I believe, Mr. Turner's motion, passed by this committee, to have the ministers come forward. I've done a little checking, and Mr. O'Connor was the one we were really looking for because he was the minister who actually made the decision.

Okay. The minister will be here for the last hour on Wednesday.

With that, we will move on to our very impressive witnesses.

First, from the Confédération des syndicats nationaux, we have Claudette Carbonneau. We are pleased to have you here. I'll ask for a short presentation, and then we'll move on before we get into questions and answers.

The floor is yours.

[Claudette Carbonneau, President, , Confédération des syndicats nationaux]

Thank you, Mr. Chair, honourable members.

The Confédération des syndicats nationaux represents 300,000 workers employed in all economic sectors. Half of our members work in the private sector. The current crisis that is plaguing the manufacturing and forestry sectors, particularly in Quebec and Ontario, is extremely painful. Since December 2002, more than 135,000 jobs have disappeared from this sector. Close to half of the 275,000 layoffs in this sector nationwide occurred in Quebec.

In the pulp and paper industry, the situation is particularly dramatic. In Quebec, 10,000 jobs have been lost since April 2005. If we were to include corollary activities, the number of jobs lost is 21,000. As regards the forestry sector, approximately 100,000 jobs, including indirect jobs, have been lost. These job losses have occurred mainly in the 240 single-industry towns and villages of Quebec that are now experiencing significant hollowing out problems.

At the heart of this struggle, there has also been the very rapid depreciation of the dollar. Considerable efforts must be made to modernize our businesses. Research, development and innovation must be enhanced so that we can compete with emerging countries internationally. Of course, assistance must be given to workers and their families. In single-industry communities, the situation is particularly dramatic.

Without wanting to insist further on the magnitude of the problem, I will share with you some solutions the CSN has formulated. Of course, when the federal government issued its economic update, many measures included tax cuts. Nonetheless, up until the very end of March this year, surpluses could still be allocated. We believe that it is particularly important to implement targeted measures in these sectors, and in the affected communities. I will make a few suggestions.

We have considered loans or guarantees as incentives to modernize certain businesses. Businesses are currently experiencing financial difficulties and are not making the necessary upgrades. Yet, it is the communities and workers who are paying the price, and jobs are disappearing. We would also have liked to see more substantial support to the secondary and tertiary processing sectors. This can be done in several ways. In the most recent budget tabled by the Government of Quebec, tax credits on processing operations were allocated to resource-based regions. We believe this measure to have been relatively effective. More than 5,000 jobs have been saved because of these measures. In the case of regions which have been particularly devitalized, the government should consider tax credits for young skilled workers who accept employment related to their area of study, located in their region.

The entire research and development sector plays a particularly crucial role. On that front, Canada does not rank very well. This country is not among the most outstanding countries of the OECD. To my mind, we must strengthen tax measures as a way of increasing investment in research and development. This would allow businesses to become more competitive on the international front. The government should also reinstate the Technology Partnerships Canada program, which has already proven to be useful. This program was eliminated by the federal government, but could prove once again to be extremely useful in these circumstances.

I will say a few words about the forestry industry. A catastrophe has befallen this sector. We feel that the diversification fund for the forestry industry, worth some $50 million over four years, which was abolished by the Conservative government, would have been particularly valuable for single-industry communities. In the same way, assistance programs such as the co-generation program could be extremely useful. We would like to see an increase in funds for industrial research assistance programs to help us get through this difficult crisis.

Obviously, there's also the entire issue of the enormous surplus of the employment insurance fund, which could be another way of helping us survive this difficult period. I also wish to draw your attention to a program that is absent, an income supplement program for older workers. The reinstatement of this program has been agreed upon unanimously by all union organizations in Quebec. Relatively speaking, the program is inexpensive, and highly focused. There are workers who are 55 years of age or older, who have worked for more than 10 years, and whose professional credentials will not take them into a new workplace. We have been able to carry out these assessments, particularly through reclassification committees. We must build a bridge by giving older workers benefits that are equal to employment insurance benefits, so they can reach a decent retirement at the age of 65.

I also wish to call your attention to international treaties, and how important it is for the federal government to implement safeguard measures so that we can adequately face the transition towards international competition and give our workers and communities a chance to keep their head above water in these circumstances.

I will conclude there. If you have questions, I would be pleased to answer them.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll move on to the Laurentian Bank of Canada.

Mr. Carlos Leitao, the floor is yours.

[Carlos Leitao, Chief Economist, Laurentian Bank of Canada]

Thank you, Mr. Chairman.

Good afternoon. I apologize that my head's in a little bit of a haze--too much cold remedy.

I want to make four quick points. First, I don't think we should put manufacturing and forest products in the same bag. They are two different situations and two different industries. I agree with my predecessor that the forest products industry, especially in Quebec, is in great structural change and in need of some serious assistance.

Manufacturing is a little different. If anyone had told us a few years ago that the Canadian dollar would be at parity, oil would be $100 a barrel, and China would be a major player, we would all have thought that manufacturing would be totally wiped out, but it's still here. It's undergoing a major restructuring as well, but all segments will be able to carry on.

This is also a worldwide phenomenon. It's happening in the United States. Its currency has declined quite sharply, and that has not prevented major layoffs in manufacturing in the U.S., Germany, France, and Japan. The new element in all this is intense global competition and integration coming mainly from China, which has now become the planet's manufacturer. This requires some adjustment on our part. I wouldn't sell our manufacturers short, because they have proved over and over again that they're able to adjust.

Complicating things further is the fact that the U.S. economy is now most likely undergoing a recession, and in my view it will not be a normal recession. It has been triggered in large part by a severe credit shock; therefore, it will take quite a while. This is not simply an issue that after a quarter or two or three the U.S. will be back. The U.S. won't be back at the same rates of consumption we saw in 2004, 2005, and 2006. Going forward to 2008, 2009, and 2010, you're going to see U.S. consumer spending much weaker than what we saw from 2002 to 2006. This is also a new wrinkle in this whole mess.

Does government have a role to play in all of this? Yes, it has a very important role to play. I wholeheartedly support the suggestion that was just made to help older workers, particularly in the forest products industry. More generally, governments should target assistance to individuals and not to firms or sectors. It's always a very complicated game if we try to pick winning sectors or firms, but individuals certainly need assistance, particularly older workers in single-industry towns in Quebec and other provinces. We support that wholeheartedly.

Finally, we are a small bank, but we have a cross-section of clients from different industries and sectors, mostly in Quebec but some in Ontario. Only about 20% of our commercial clients are in the export business. The other 80% serve primarily the domestic market, which in Canada is still doing reasonably well. Until further notice, Alberta and B.C. are still part of Canada, and the economies there are certainly going very quickly.

In conclusion, government has a role to play, and that role should be focused on assisting individuals and not firms or sectors.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll move on to Phil Vinet from the Municipality of Red Lake. The floor is yours.

[Phil Vinet, Mayor, Municipality of Red Lake]

Thank you.

Good afternoon, ladies and gentlemen.

The forestry industry has been active in the Red Lake area since the late 1920s, when gold was found in Red Lake and timber was required for the gold mining industry. Because there were no roads into there, they developed sawmills to build houses and mines and so on. In later times, the Red Lake area has been one of the primary sources of fibre for the pulp and paper mills in Kenora and Dryden and a sawmill in Ear Falls.

Like so many other towns, we have suffered, based on our population, large job losses. In Red Lake, out of a population of 4,500, we have lost 120 jobs in the forest business, which is almost every one of them. Our lone sawmill has been decommissioned for quite some time now.

In the last two years there has been considerable interest in constructing a value-added wood processing facility in Red Lake. This is a case where we're trying to leverage our geographic location, being at the very base of arguably the largest boreal forest left in North America. Negotiations and discussions have been held with the area's first nations, established communities, and with foreign forestry interests, mostly from Finland. This is now known as the Two Feathers project.

Throughout its history, Red Lake's economic base has been primarily driven by gold mining, which we all know is subject to world commodity pricing. Red Lake has experienced many boom and bust cycles from 1926 to date, when we are enjoying a boom gold cycle. To truly stabilize its economy, Red Lake needs to focus on industrial and commercial diversification, reducing its reliance on mining.

It should also be known that we enjoy a seasonal tourist component in our economy, but that too has been compromised by several factors. As was mentioned by my friend here, the American economy severely impacts Red Lake's tourism. To that end, in the last two years we've had trade missions go to Germany to attract a new type of tourist, and it has met with some success immediately.

Let me get back to the Two Feathers project. It is a value-added production facility that will contribute significantly to regional industrial and commercial diversification and the general well-being of the area's economy. This is leading-edge technology, and it would be the first facility of its type in North America.

The Two Feathers project has been the work of many partners: the Wabigoon Lake Ojibway Nation, Eagle Lake First Nation, Pikangikum First Nation, the City of Dryden, the Municipality of Red Lake, Wood Tech Group from Finland, and many government agencies. There is the possibility for further inclusion of other partners.

The planned business activities will benefit each of these partners. The project will benefit the entire northwestern Ontario region by establishing markets not reliant on the volatile U.S. commodity market. Integral components of the Two Feathers forest products business plan are foreign direct investment and sales to establish foreign markets, namely Europe, Japan, and Scandinavia. The manufacturing plant will produce value-added wood products that do not fit into the traditional wood commodities products markets.

A very ambitious HRSDC-funded trading initiative is in the planning stages and will train over 100 Pikangikum youth in its first year to ready them for jobs at the Two Feathers operations. A total of over 500 Pikangikum youth are slated to be trained by the program over seven years. With a 90% unemployment rate, Pikangikums consider this a very key component in their economic recovery plan. This training will occur at Pikangikum First Nation, in the municipality of Red Lake, and in the city of Dryden, resulting in positive impacts in those communities. There will be many other training requirements as this project unfolds, and to that end, the municipality of Red Lake is in discussion with Confederation College and Northern College of Applied Arts and Technology to provide a bricks and mortar site for training.

This type of discussion has now included the medical and service industry training requirements. As a result, we're seeing immediate benefit as a result of the Two Feathers project. We expect 500 direct and indirect jobs to be generated by the Two Feathers project. This is a big number for us.

Throughout Red Lake's history, projects of this magnitude are extremely rare. We must take advantage of this opportunity. This project is critical to job creation, with positive regional economic recovery ramifications. Red Lake will be well positioned to attract future businesses that will support and serve the Two Feathers forest products plan. There will also be opportunity for social, cultural, medical, and educational employment.

To begin the process, the Municipality of Red Lake, Two Feathers Corporation, and Goldcorp, a local mining company, forged a partnership for the procurement of 142 hectares of land necessary for this project. This was groundbreaking in itself, as throughout history it was unheard of for mining companies to divest property, particularly in Red Lake. They have been very protective of all mining lands due to their mineral interest properties, and for that we are thankful to Goldcorp.

The economic benefits resulting from this project are significant. Without going through the numbers, one can only imagine the impact of a project of this size. The project's total investment in the region will be approximately $160 million, including the biomass cogeneration site. This is nearly the equivalent of constructing a new gold mine. This does not include any investment associated with the adjacent 40-hectare industrial park. The Two Feathers project industrial park will generate considerable tax revenue for the municipality. This is a very important component of the municipality's involvement in this program. It is imperative that the municipality increase its assessment base now, because we simply cannot afford to keep raising local taxes.

I'll explain how we've become gold poor. Red Lake, as most of you know, is arguably the hotbed of gold mining in North America right now. The more gold is found, the bigger the mines become, and the bigger the mines become, the more their operations go underground. That, according to the Ontario Mining Act, excuses them from paying local taxes. These are mega-mines. They move their garages, fire stations, shops, lunch rooms, and engineering offices underground and pay no local taxes on them. So the more gold we find, the less tax we generate. It's not a good combination, especially with gold right now at about $1,000 an ounce.

Canadian and international businesses or industries will have considerable opportunity to invest in startup businesses, relocate businesses to or expand businesses in Red Lake. This leading-edge technology located in Red Lake may be a template for similar projects elsewhere. We envision Red Lake becoming the centre of excellence in value-added wood projects with this modern technology. This is an opportunity to utilize the pillars of sustainability that result in the best use and highest value from our natural resources. It is our desire to position ourselves so that all potential investors view us in a positive and favourable manner.

This is where the story changes a bit. What do we need to make this happen? The Government of Canada, through departments such as INAC, Industry Canada, and FedNor, are invited to participate in this joint venture. The participation can come in various forms, such as capital investment, commitment, and coordination efforts to keep the project on track. The Municipality of Red Lake will require assistance to upgrade infrastructure and service delivery to the project.

The project will require a well-trained, skilled, adaptable workforce that can stay ahead of global requirements. The project will require additional capital as we include new technologies to stay ahead. The project will include a biomass component with all of its benefits, including reduced reliance on hydro and the burning of fossil fuels. The project will need new marketing strategies that include offshore markets. This is a very market-driven project and needs immediate site development in order to begin construction immediately. Yes, we ask you to help and be a partner with us.

The Municipality of Red Lake is proud to be a partner in this project. We feel this is an opportunity for the federal, provincial, and municipal governments, first nations, private industry, and foreign investment to help get Canadian forestry back into the mainstream. We do not want to miss this opportunity that may create further opportunities down the road. We ask that you be the partner with us in this exciting endeavour that is a first for Canada.

In closing, on behalf of all the partners and the residents of Red Lake, I'd like to thank you for this very unique opportunity.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll move on to Ann Krassilowsky from the city of Dryden. She is the mayor.

We'll yield you the floor and allow you five to ten minutes. Go ahead.

[Anne Krassilowsky, Mayor, City of Dryden]

Thank you, Mr. Chair, and thank you, ladies and gentlemen, for allowing us this opportunity.

In Dryden we face some very serious challenges, due, in large part, to the downturn in the forestry sector. We know that both federally and provincially the governments fully appreciate the impact on resource-dependent communities like Dryden and know what we are undergoing. We're pleased to present Dryden's perspective and appreciate any direct or indirect assistance you may be able to provide that will return our community to prosperity.

We are, in fact, a very prosperous regional centre for business, health, and professional services. Our natural resources support our healthy, vibrant lifestyle and are the foundation of our very modern community. With your help, we hope to stay that way.

We're situated midway between Thunder Bay and Winnipeg. We have a population of approximately 8,200, with a trading area of approximately 35,000. If you should come by, I'll welcome you to our wilderness city.

We were, and are, resource dependent. Forestry probably accounts for about 70% of our local economy. The local mill has in fact, in the last five years, reduced employment from approximately 1,200-plus to, now, about 520 jobs. If you multiply that by four, in the ordinary family, that has a huge impact on direct and indirect business.

At the same time, the mill has invested about $250,000 in ongoing maintenance and upkeep. They are very good at looking at efficiencies that will help them stay in business and support our community.

The direct job loss, if it had occurred in this city, would result in the loss of about 67,000 quality jobs. You can imagine the impact. Many indirect forestry jobs have been lost as well. The situation is now commonplace in many forest-dependent communities in northwestern Ontario. As president of the Northwestern Ontario Municipal Association, we represent 35 communities, and I can tell you that almost every one of them is facing the same issue.

We had low unemployment. We were a prosperous business community. We had moderate growth and development. Dryden has, in fact, targeted economic diversification sectors, which include value-added forestry, mining, tourism, education, health services, and, especially, green energy.

The effect of these lost jobs is that now the average family's income is 16% lower than it is in the rest of Ontario, and there is a more than 50% increase in our Ontario Works caseload. We have a steady increase in demand at the local food banks. We have construction activity in the city that has just about dwindled away. It's probably the lowest it's been in 10 years.

If you watch the out-migration of our youth, it's very sad, and it's taking place throughout northwestern Ontario as employment opportunities disappear. Our city is being forced to increase taxes above the cost of living or to start dramatically cutting and reducing services. We need to do that to maintain and replace deteriorating, necessary infrastructure. As you know, we have applied many times through COMRIF intakes one, two, and three and have not been on the lucky end of the project. We are looking to replace our waste water treatment plant at a cost of about $21 million.

Right now, pulp and paper is undertaking an assessment review of taxation, which takes about $2 million out of Dryden's coffers, and that is going to have a huge impact on our community.

Policing costs are escalating, because of course the social fabric of our community is starting to come undone.

Businesses have shut down. We have vacancy signs around town, which we've never had in the past. Our response has been to develop a new strategic plan that focuses on economic growth. We've implemented the community improvement plan. We've put money into downtown revitalization, thanks to FedNor and OSTAR funding. We are, as I said, an active member in NOMA and the Ontario Forestry Coalition.

The city has worked closely with our mill and our forestry industry, and we continue to work with them to find answers and solutions. The forestry issues are a provincial jurisdiction. We know that, but restructuring, fibre supply, species at risk legislation, and stumpage continue to be an ongoing struggle for all of us.

Global impacts are beyond our control in Dryden. The Dryden Economic Development Corporation has been created to aggressively pursue economic diversification opportunities through business retention, expansion, and investment.

We applied for the NRCAN forest communities program, and we were not fortunate there either.

Right now we're in the process of pursuing the creation of the regional northern forest innovation centre to support value-added forestry research, development, and knowledge transfer from Finland, which is a Two Feathers project that my colleague has spoken about. We continue to work with our first nations neighbours on a number of projects and initiatives that will benefit Dryden.

We would especially like to see an increase in FedNor funding. We are working on developing projects and policies, photovoltaic, solar, and biomass energy generation, as well as our sustainable waterfront.

The opportunities for federal support of small resource-based communities is a very quick rollout of the recently announced community development trust and ensuring that its application is only to small, single resource-dependent communities.

We would like to see the release of funds for targeted infrastructure grant programs such as Building Canada. As we struggle for funding for our new waste water treatment plant, we need to know what's happening with that, how soon it's coming out, what it's going to do, and the criteria there.

We're looking for investment in the major transportation corridor. When highway money is allocated, the standard needs to be increased, so maybe you do shorter mileage, but you invest in a better road that's not falling apart six months later.

We need flexibility to tailor programming to the regional needs and, again, increased funding for FedNor.

With respect to temporary financial support, when there's a significant loss to the municipal tax base--between $8 million and $10 million--we need support for research, development, and training that will enable us to transition the commodity-based forestry sector and its workforce into value-added product development, and we need retraining and training support for citizens of the impacted communities that allows them to stay in their communities. We have people who are commuting across Canada, especially to the west and north, who have to phone their children to kiss them goodnight. That's not a good thing.

We need capital funding support for the creation of the northern forest innovation centre in Dryden that will serve regional needs and stabilize funding for the local, regional, and small airports across the northwest and across Canada.

There should be consideration for establishing greater federal employment presence in resource-dependent communities.

We also need an incentive for communities that partner on economic ventures with first nations in the private sector. And can you please accelerate the settlement of our neighbouring first nations land claims as a means that will stimulate northern and new economic activity and job creation?

The family impact of all of this is absolutely huge. It's destroying family life. That should not happen in a country like Canada. We're fortunate to live here. It's a great country. I ask you to support us.

Thank you for your time.

[The Chair, Conservative, Rob Merrifield]

Thank you very much for that presentation.

Now we'll move on to the Fédération des chambres de commerce du Québec.

We have Jean Laneville. Your comments, please

[Jean Laneville, Economist, , Fédération des chambres de commerce du Québec]

Good afternoon, and thank you for the invitation. It is always appreciated.

What is the Fédération des chambres de commerce du Québec? Very quickly, we are made up of 162 chambers of commerce and 57,000 members. We consider ourselves to be the most significant business network in Quebec, as well as the most representative given our presence in all administrative regions of Quebec, and in all economic sectors. This is why we are here today. Among members of our federation, there are representatives of the manufacturing sector.

[The Chair, Conservative, Rob Merrifield]

You may want to slow down a bit so our translators can keep up.

[Jean Laneville]

The Fédération des chambres de commerce du Québec is a very significant network.

Let's get to the real issues. Why do forestry and manufacturing companies need financial support from the government?

Whenever we talk about financial assistance for companies, two economic ideologies come into play. Some people believe in giving the market free rein, because they maintain that market mechanisms will redistribute the resources in the most effective way, and provide the highest net profit and gain for the population as a whole. Others maintain that the government should to some extent intervene, and believe that job creation and economic development require government support.

At the outset, I would like to say that the Fédération des chambres de commerce does not deal in ideology. Our members face real, tangible economic problems, and we believe that pragmatic approaches are required to solve those problems. The Fédération believes there are four reasons justifying direct government assistance and tax relief for the forest and manufacturing industries. First, competitiveness and investment; second, economic diversification; third, an even playing field for competition; and fourth—I think the two preceding speakers will be happy to hear this—regional development.

With regard to competitiveness and investment, everyone knows that since the early 2000s, foreign competition has led to significant restructuring in Canada's manufacturing industry, which was driven even harder by the very rapid rise of the Canadian dollar. The Fédération believes that the restructuring is both normal and healthy. The government should not take action to prevent it, but provide some support for companies as it occurs, and help them meet the challenges that it entails.

We believe that companies need help. At present, the restructuring is going ahead at a very rapid pace. This is a new phenomenon—we have never seen foreign competition invade both the domestic and foreign markets in this fashion. Fluctuations in the dollar are having some—and even a great deal of—impact on companies' business decisions. Similarly, because of the strong Canadian dollar, investments are becoming less profitable, when in the past, the relative weakness of the dollar gave us a comparative advantage. Nowadays, we have to focus on the competitiveness of our companies. Productivity and competitiveness are vital—they are the key.

The problem is that companies in the manufacturing and forest industries are hesitant to invest. The dollar is generating some instability, but also reduces their profit margins somewhat when they export products.

We believe the government has a role to play. First, the government should further reduce the tax burden on businesses. We therefore applaud its commitment to gradually bring corporate taxes down to 15% by 2012. However, we believe that the GST reduction made it impossible to lower corporate taxes more quickly, something that in our opinion and in the opinion of most financial experts in Canada and elsewhere would have been much more profitable for the Canadian economy.

The second good reason for which the government should provide assistance to the manufacturing and forest industries is economic diversification. Here again, I won't be teaching you anything new in saying that, because of rising prices in raw materials and the improved position of the dollar, manufacturing and natural resources industries—and indirectly the service industry—have expanded in Canada because of the wealth effect, while the rise in the Canadian dollar has had a negative impact on the manufacturing industry.

In our view, it is essential that the government make every effort to ensure that the Canadian economy remains diversified, for a very good reason—the natural resources boom can only be temporary. Some day the price of natural resources may drop, and in any case the resources will one day become exhausted.

Thus, in order to ensure Canada's long-term growth, we have to prevent the country's de-industrialization. That word might be a little strong, but we are now seeing a drop in production, jobs and investment in Quebec's manufacturing industry. We might begin to believe that we are in fact seeing de-industrialization.

In order to prevent that, the government must, in our view, maintain and improve its industrial policy. We recommend that industrial policy be geared to fostering more competitiveness. There must be investment in high-benefit projects. For us, competitiveness is a high-benefit approach, and we believe the government should focus on that aspect.

The third reason for which the government should support the manufacturing and forest industries is a level playing field for competitiveness—levelling the playing field is a sound economic argument. Some industries, like Brazil's aeronautical industry, are strongly subsidized. Embraer, for example, receives a great deal of government funding.

If we want to give Canadian businesses a chance to perform well internationally, we have to give them financial support. It's unfortunate, but the fact is that they are at an immediate competitive disadvantage on global markets because other countries subsidize their industries. It seems somewhat frustrating to be in the position of having to subsidize multinationals, but we have to accept the evidence and take a pragmatic approach. Other countries do it, and if Canada does not, it will lose businesses that are vital to its economy.

We talk about supporting the manufacturing and forest industries, and that involves the whole aspect of regional economic development. I won't be telling you anything new when I say that most governments have a long history of intervening in regional economic development. In fact, it is incumbent upon them to limit social disparities, balance economic development, and distribute wealth within their borders.

There are basically three instruments through which a government can do those things—taxation, transfer payments, and sector-based assistance. In recent years, other countries—particularly the U.S. and European countries—have focused sector-based assistance on manufacturing, among other things because of competition from countries like China. The third regional economic development instrument—sector-based assistance—has two goals: to protect economic sectors that are significant for the regions, and to strengthen competitiveness in the regions by supporting leading-edge and growing industries.

In our view, those two goals are complementary. The Conservative government did something very good in providing sector-based assistance to regions affected by the forest and manufacturing industry crisis. In the 2008 budget, that assistance is provided under the Community Development Trust. The funding will be used to restructure companies and industries that are in difficulty, and that are important for the regions because their production is based on regional assets. Those are companies that have a sound and well-justified economic foundation. In addition, the funding will be used to recycle workers who have lost their jobs in those industries, helping them to enter growing economic sectors, particularly mining.

However, we find it unfortunate that assistance provided to the forest and manufacturing industries through the Community Development Fund was not high enough. Quebec's share is lower than the relative economic weight of Quebec's manufacturing industry in terms of production and jobs. We have pointed out that the assistance to Quebec must be increased and also that the distribution formula must be changed. In this particular instance, apportioning the funding on a per capita basis makes no sense, since Quebec's manufacturing sector accounts for a larger percentage of the Canadian economy. So we did find the form that assistance took somewhat regrettable.

We were also surprised by the $250 million given to the automotive sector in the last budget, in the form of a fund for innovation. We know that the automotive sector is very highly concentrated in Ontario. Mr. Flaherty said that the amount would be used to create tomorrow's green automobile, or at least to design it. To our knowledge, however, there is not much automotive design in Canada. We therefore wonder whether the funding could have been better invested. We believe that the benefits of innovation might have been greater if the focus had been on life sciences or the aeronautical industry, sectors where Canada is involved in research and development, and where we really do see product design.

Since every taxpayer expects to be supported by the government if he or she does not have the resources to make ends meet, the Fédération des chambres de commerce du Québec believes that Canadian and Quebec businesses should be able to count on government assistance when they encounter difficulties that are to some extent outside their control. For example, they had no control over the recent rise of the Canadian dollar, something that caused them great difficulty. They are asking themselves a number of questions, one of which is whether they should continue to invest in Quebec or Canada.

Thus, the Fédération des chambres de commerce du Québec strongly urges the government to formulate temporary assistance policies aimed specifically at helping businesses that are in financial difficulty. Obviously, there must be a balance so that the government does not end up subsidizing industries that no longer have an economically justifiable raison d'être. The Fédération des chambres de commerce du Québec has long been asking the Canadian government to establish a competitive tax system that fosters wealth creation, and to formulate structuring policies, particularly assistance policies, that foster competitiveness and the long-term prosperity of the Canadian economy.

Thank you very much.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move on to our last presenter, before we open it up for questions and answers.

We have, from DesRosiers Automotive Consultants Inc., Dennis DesRosiers.

The floor is yours.

[Dennis DesRosiers, Independent Industry Analyst, DesRosiers Automotive Consultants Inc.]

Thank you very much.

I feel a little bit odd because I'm actually coming from an industry that's in reasonably good shape and in a strong position to face the future. We're not without our warts, mind you, and I'll talk about some of those, but we seem to have done more right than wrong.

First of all, when you talk about automotive, you have to look at the vehicle assemblers very differently from the automotive parts and tool sectors tied to automotive. They are very different. They're very global in nature, certainly on the assembly side; the automotive parts sector is much more North American.

We talk about three very distinct errors in automotive. I won't get into detail on any of them, but that first error occurred when Henry Ford came across the Detroit River and set up a plant in Walkerville. We ended up with about 60 or 65 years in the automotive sector in Canada that turned out to be incredibly inefficient, with high tariffs and no rationalization of our production base. It ended up in a royal commission in 1963, the Bladen commission, which identified all these issues and proposed a series of policies that, through a circuitous route, you might say, ended up as the Auto Pact.

That started our second error, an error through which the auto sector was very successful.

I think it's important to understand that the Auto Pact was a duty-free agreement, but far--very far--from a free trade agreement. The Auto Pact had significant safeguards embedded into it--production sales ratios and value-added safeguards--that highly protected the industry in its development stage. If there is a flaw in the Auto Pact, because of the nature of these safeguards, it forced the industry.... The ones that benefited from the Auto Pact were only the North American players--GM, Ford, and Chrysler--but it was a highly protected industry, and I think you need to understand that.

Coming out of the Auto Pact, it's also important to understand that the auto parts sector was decimated. A lot of people talk about the auto parts sector being in trouble today. The auto parts sector has gone through these regenerations. The Auto Pact eliminated well over half of the companies and about two-thirds of the jobs in the auto parts sector, but it did get down to a core strength, and this framework that the Auto Pact provided, starting in 1965, allowed the auto parts sector to grow, and grow very successfully. Our most successful company today actually started in the year of the Auto Pact, 1965; that's Magna International.

It did promote some very successful companies, but the auto sector changed. What happened in the auto sector very explicitly was globalization. The Auto Pact was good as long as we had a North American-based industry, because it was the North American companies that benefited, but it didn't have provisions to handle the globalization of the industry. Our industry became more and more and more global. We can see that every day; just walk down the road and look at the number of import nameplate products on the road. Consumers in Canada last year bought 55% import nameplate vehicles and only 45% GM, Ford, and Chrysler vehicles.

The Auto Pact wasn't the right policy to go forward. It ended up being phased out through free trade agreements and NAFTA agreements; ultimately the WTO challenge in 1999 killed the Auto Pact.

This has started the third era, the era our auto sector is in at this point. It is an era in which we are doing reasonably well. On the assembly side of our sector, we have virtually entirely reinvested in our assembly plants. We've attracted about $1.5 billion of innovation money into the automotive assembly sector, with substantial investments by Chrysler, Ford, and General Motors on innovation fronts with R and D facilities. Honda and Toyota are less focused on that; nonetheless, they also have R and D investments in Canada that are extremely successful. We're operating from a strong base.

Contrary to what you might read in The Globe and Mail in the morning, production of vehicles in Canada last year was up, not down; employment in the automotive assembly sector last year was up, not down. We do have this problem in the auto sector in that elements of the sector have deteriorated, and deteriorated quite radically. The traditional North American companies have lost about four million units of production. They are gone, never to return; the factories have been closed, and they're not coming back. But in their place we've ended up attracting five global investments. Four are open and operating vehicle facilities today, and another one is coming on late this year or early next year with the second Toyota plant. Every single job lost by GM, Ford, and Chrysler on the assembly side has been replaced by one of these other global players.

We've done quite well through that, going beyond just assembly investments, into innovation investments and investing in our people; it's amazing the amount of dollars dedicated to upgrading the skill set of the vehicle assembly sector. So we're very well positioned on that.

If anything, in the assembly sector, we have a crisis of confidence, in that when we look at the next go-round of investments, as typical Canadians, we say, “Oh, how are we going to get this? We don't have an Auto Pact, and we don't have this or that tool available to us any more.” Some of us have more confidence in the strength of Canada, knowing that what we have going on in Canada will help us along those lines. It doesn't guarantee it; we may just have to work harder.

The automotive parts sector is a little different story in this third era we talk about. Most of the parts sector we lost.... First of all, I'll go back. The auto parts sector was overwhelmingly successful once it got through the restructuring of the Auto Pact. We started at about 25,000 workers, and we got down, literally, to about 10,000 workers in the parts sector. That grew from the early 1970s, through to the beginning of this decade, to 100,000 workers in the automotive parts sector—a tenfold growth in this quasi-free-trade environment. As I said, it's duty-free trade, but protected by safeguards.

Since the restructuring at GM, Ford, and Chrysler, we've lost about 10,000 of those jobs, and that is where a lot of concern in the industry starts to come forward: “Oh my God, what are we going to do about that?” When you take a look at the jobs that have been lost, they fall into some very classic categories. First of all, virtually every single job lost—though I can't prove this—was in a company tied to GM, Ford, and Chrysler but was unable to go through the restructuring process that GM, Ford, and Chrysler did. So as they lost four million units in selling to those companies, they weren't able to participate in the four million units replaced by the global players, the Hondas and Toyotas of the world. That's point number one.

Number two, I've been in at least half or maybe two-thirds of the parts companies that have closed, and they're a throwback to another era. You go to these facilities and see that they didn't invest; they didn't innovate and they didn't invest in their human resources. I read in The Globe and Mail in the mornings about yet another one of these small plants closing, and I think, wow, why didn't that happen last year, or the year before, or the year before that? It's almost as if they deserve what they got, you might say—in most cases, but not all. This net, unfortunately, gets cast very widely, and some companies get caught up in it.

We're down about 10,000 workers, but we've done really well in Canada in the parts sector to offset some of that, going out internationally and attracting over 150 global players on the parts side of the business into this country, with the latest manufacturing technologies, the latest product technologies, and the latest human resource issues. They have replaced a lot of the auto parts sector that has disappeared. We're still net negative by about 10%, but we've transitioned our industry, or are in the midst of transitioning our industry, from being one that was highly protected from non-tariff barriers and focused, slowly, on three customers, to an industry now that is becoming very global.

The rules for engagement for automotive policy I think need to be set. Many of our policies in the past had a corporate tag on them. The Auto Pact, for instance, was solely beneficial to GM, Ford, and Chrysler—no one else could benefit but them. In this industry going forward, we have to be cautious as policy-makers to have complete neutrality between corporate players.

Just because one of the Japanese companies is ultrasuccessful today doesn't necessarily mean it will be ultrasuccessful tomorrow. Just as GM, Ford, and Chrysler may have issues today, it doesn't necessarily mean they won't solve those issues. These are big resource-intensive companies; they can solve their problems and become successful in the future. So keep absolute neutrality between our corporate players and get rid of these corporate-specific policies that have been put in place.

The second is that our industry, at least on the assembly side, has become very global and on the parts sector side is increasingly becoming global. So take a global approach to development at all levels in the industry, particularly investment promotion. Make sure you are pounding the back pavements in Europe, Japan, Korea, and China for the best of the best and convincing them to come into Canada. Don't just rely on your existing players in Canada to do it.

We have a running joke in the automotive sector that we don't need to take off any more than one glove, and we certainly don't need to take our shoes and socks off, to count the number of very successful Canadian-owned parts suppliers. Once you get beyond Magna, Linamar, Westcast, and Martinrea, you kind of ask who's number five. You might be able to come up with a fifth, and if you're generous, you might be able to come up with a sixth or a seventh, but that's about it.

So we have a relatively weak and small-success Canadian base, but we have these other 150 to 200 global companies that have come in and are doing quite well. So let's have more of that global approach; we can't be afraid of that.

Any success has to be pinned on understanding that we surround the lowest-cost jurisdiction.

I'll finish with this point: we've got to promote efficiency. That's the automotive industry. In a global industry like automotive, promoting efficiency is absolutely critical--investment promotion to get the best infrastructure development and tax regulatory policy for efficiency and human resource policies. And that's the secret to success with automotive going forward.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much, Dennis. You are in Canada; you are a Canadian. That kind of optimism is usually frowned upon.

[Dennis DesRosiers]

Actually, I'm doing really well today, but I'm Canadian, so I have to downgrade it a bit.

[The Chair, Conservative, Rob Merrifield]

We certainly appreciate it. I let you go on a little bit longer because you were so optimistic, and that's refreshing to this committee. Thank you very much.

We'll now move on to our questioning. Ken Boshcoff, the floor is yours, for seven minutes.

[Ken Boshcoff, Liberal, Thunder Bay—Rainy River, ON]

Thank you very much, Mr. Chairman.

I'll ask three quick questions and try to address them to specific people, but I'm sure other witnesses may want to respond.

The other day, the natural resources committee learned that the billion-dollar Community Development Trust will be basically, simply transferred to the provinces and territories, with a small base funding and a per capita amount, with no requirements specifically that it be used for forestry and there would be no federal conditions as to how this money would be utilized.

The billion dollars is spread over a three-year period. We all thought it was a one-year funding, so that further dilutes what many people felt was already an inadequate amount. No municipalities, labour, or industry were consulted on how to distribute it.

Perhaps, Mayor Krassilowsky, you'd like to address this when I'm finished my questioning. How would you like that money delivered, and what is a workable program for a municipality such as yours or Mr. Vinet's?

Mr. Leitao, I don't know if you are aware of it, but it's been said as of this morning that there are few, if any, forest companies operating in the black, whether it's lumber, OSB, pulp, paper, newsprint, or recycleables. We've also learned that many are now without a bank. I hope yours is the exception. So the question you may be able to help us with is this. What policy can the federal government adopt to ensure that banks are there not just during this crisis but after the restructuring is over, because they need you?

Mr. Laneville, you may have a particular advantage to understand this problem, which is new. I know we didn't need a new problem, but it's compounding, and it deals with the huge and growing issue of railway services to mills and plants, the lack of flat cars and pulp cars, and the increasing rates forcing many of these pulp and paper plants to stockpile. In that industry, if it's stockpiled, it's very vulnerable to weather and all those other kinds of things. That's a national transportation issue that I hope some of you can address.

Thank you, Mr. Chair.

[The Chair, Conservative, Rob Merrifield]

We have three questions there. Who would like to start?

Ms. Krassilowsky.

[Anne Krassilowsky]

Thank you.

That's kind of a surprise to me. I didn't realize it would come out over three years.

What is the exact criteria as to how we access that funding? When is it going to be available? What does “infrastructure” mean as far as making application for those dollars is concerned? Who is going to roll it out? Is it going to come straight from the federal government to the community? If it passes through the Ontario government, how much will be lost in administration?

I have a whole page full of questions.

My biggest concerns are how we are going to access that funding, when we are going to access it, what it's going to look like over three years, and how it is going to find its way to northwestern Ontario, where it's so badly needed, either through research or training or getting these people back to work.

Every day costs almost a life in Ontario. The impact in northwestern Ontario and across the north is huge. It might be nice to sit here and feel good, but it is darn tough out there in the world. We have families that are being torn apart because there's no money to invest in them--no money to restructure, no money for jobs, no money for the training needs. We have mining opportunities that funding needs to come to. Will Bell Canada be part of that? Will this money be part of that?

We need to have this funding now. Surely we can find a way to do that.

[Phil Vinet]

Yes, Mr. Boshcoff, likewise for us. We need the money now. Particularly with the Two Feathers project, three years doesn't cut it. We have a fear that the investors in place will walk away, and then we'll be back to square one.

Here we are, looking at 500 direct and indirect jobs in the value-added business, which is global in nature. It has to happen quickly.

[The Chair, Conservative, Rob Merrifield]

Mr. Leitao.

[Carlos Leitao]

Regarding the forest products industry, we have a small exposure to that industry. We do lend to some of those smaller sawmills. We continue to lend to those companies, usually in partnership with the Fonds de solidarité of the FTQ. We intend to remain a player in this industry.

However, we do have a responsibility to our shareholders and to our depositors not to blow money away. We are certainly not going to lend to firms that are not viable. If there is a considerable equity injection in the business, then certainly we will be there.

[Jean Laneville]

In regard to your issue, it's the first time I've heard about it. I'm truly sorry, but I can't say anything. We didn't have any of our members bring this up to us.