Finance Committee on Nov. 22nd, 2007

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you, Chair.

I'd like to go to the lonely end of the table, to Mr. Darby and Mr. Fenn.

Mr. Fenn, you described briefly the Minister of Finance's grandstanding with one of the Harry Potter books, and other than causing fights to break out in your stores and making a very awkward situation for retailers to explain to their customers the input costs on a product, what effect has the volatility of the dollar had on your sales in the last six weeks?

[Jordan Fenn]

As soon as the dollar started to fall, consumers started paying attention to the variance in retail pricing. As a result, publishers had to immediately address this and start to bring our pricing down in line with what's happening in the American market. The result of our prices being decreased by as much as 25% is that it's impacting our revenues.

All of our budgets are done, obviously, at the beginning of our fiscal year, if not before that. So the impact is lower revenues. But again, our costs are all static, so it's having a devastating impact on the entire publishing community, not just the Canadian companies but also the multinationals.

[John McKay, Liberal, Scarborough—Guildwood, ON]

So it's just taking a good year and turning it into a lousy year?

[Jordan Fenn]

We were having a fantastic year. Our fiscal year ends April 30, and we know that the next quarter is going to be a very difficult one because we are just closing our spring publication list. All of our prices were set for all of our books, which were acquired 18 to 24 months ago, and we have had to lower all of our prices to try to be competitive. We will not be profitable, as a result.

I think we're going to see a lot of smaller, independent Canadian publishers suffer, if not go away, as a result of this.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you.

You would like to see the finance minister use his bully pulpit in a positive way.

I want to direct the next question to Mr. Darby.

We do have a reference where the finance minister did use his bully pulpit in a proper way, which was to try to express concern about the volatility of the dollar. Of course, the Governor of the Bank of Canada also used his bully pulpit in a responsible way and tried to jaw the dollar down, or jaw some stability into the dollar.

Almost all the witnesses from the economic side of the equation, Mr. Darby, said we have space for the Bank of Canada to reduce interest rates. I'm assuming that you endorse that position, but from an economic standpoint, work me through the situation in which if interest rates were reduced, how that would help, say, Mr. Lazar's industry or others, and what would be the inflationary impact of that kind of move on the Bank of Canada?

[Paul Darby]

The most direct impact on Mr. Lazar's industry would come from the movement in the Canadian dollar that would result from lower interest rates. Canadian financial assets would be seen as less attractive vis-à-vis American assets. There would be a smaller inflow of cash to buy those assets in Canada, which would take some pressure off the Canadian dollar, and money would flow elsewhere. Given the sensitivity of the forest sector to the Canadian dollar, I think that's by far the most important route by which a lower interest rate leading to a lower dollar would impact upon his business.

When we say we have room to lower the dollar, I think we're talking mainly about the possibility of a slowdown in the United States and the fact that the United States has lowered its interest rates to some extent. But I would be careful, frankly, because the inflation aspects are non-trivial at this point. Canada is in a strange situation I think of looking at a slightly split economy geographically, and we are looking at some substantial inflationary pressures out west, as we know. There is a sense that the Canadian economy as a whole, absent sectors that are obviously hurting from the dollar, is pretty close to full employment, if not there already. Further massive stimulus, if you like, through a substantial decrease in interest rates, I would argue, is probably not the most prudent course.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Just two seconds.

Would 50 basis points have any effect for more than five minutes?

[The Chair, Conservative, Rob Merrifield]

You have five seconds to answer that.

[Paul Darby]

Yes, 50 basis points would have an impact for more than five minutes.

[The Chair, Conservative, Rob Merrifield]

Mr. Fast, you have five minutes.

[Ed Fast, Conservative, Abbotsford, BC]

I'm going to pass to Mr. Wallace.

[The Chair, Conservative, Rob Merrifield]

Okay, Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair. I get the pleasure of going again, which is great.

This is not a different topic but one where we're talking about demand and so on, so I want to ask our forestry friends this one.

You like to talk about the recommendations, and I'm not going to argue with my colleagues about how much of it has been implemented and how much has been announced. I've been in the private sector; I've worked for big, bad oil, I've worked for Imperial Oil, I've worked for Texaco Canada when they existed in this country, and I've worked for very small businesses. Business moves at a different speed. The larger you get, the slower it gets, there's no doubt about it. Government is no exception to that. We are working our way through it, but one of the recommendations—and I'm talking about the recommendation from the committee, because you talked about them all--was the importance of an impact analysis of any free trade agreements with South Korea and the European Free Trade Association. Does your organization, representing the forestry industry, have any comment on what's happening, the potential with South Korea or with Europe?

[Avrim Lazar]

We strongly support free trade in all directions. There are no tariffs on forest products coming into Canada, there are tariffs going out to some of our customers, and we strongly support the government in acting strongly anywhere where there is a possibility of opening up the channels to trade. Canadian workers sell their stuff in world markets, completely unprotected in Canada, and we'd like to see a level playing field that way.

[Mike Wallace, Conservative, Burlington, ON]

Of the marketplace that does exist in Canada—I know we're a small player compared with some of the other markets—what is the percentage of forest product that is imported into Canada? Do you have any idea?

[Avrim Lazar]

It would be very small. We are the world's most successful forest products exporting nation. No one else exports like Canada does into global markets. We're almost double our nearest competitor, which is the U.S., and as much as Finland and Sweden combined. There's very little coming in. What does come in is brought in by our big customers for price discipline. So if we try to move the price of a tonne of pulp up by a penny, all of a sudden they start calling China and we move it back down. But mostly we are an export industry.

[Mike Wallace, Conservative, Burlington, ON]

Thank you.

I have a question for Mr. Jones, if that's possible.

I'd like you to elaborate a little bit, if you could, on the open skies policy. My understanding is that we have recently signed a deal for an additional open skies partner. If we are able to allow more foreign competition, I guess you would say, in terms of flight stabilities, why is that important to your industry? And where should we be headed first on this?

[Christopher Jones]

Thanks. That's a good question.

Just by way of background, Canada has two open skies aviation agreements at the moment; the United States has 70-odd. We are just now embarking on negotiating one with the European Union.

It would assist our industry immensely if there could be a greater range of destinations from outbound markets into Canada, a greater range of flight options and fares, and more airlines flying. For Canada, the more of that the better. Many markets in Canada, from Newfoundland to British Columbia, claim that what they lack, from an inbound visitation point of view, is significant airlift and air capacity. These kinds of negotiations are incredibly helpful, and we need to encourage our Transport Canada officials to negotiate more of them.

The single biggest issue here, if I can just take a few seconds to talk about this, is that the domestic cost, the structural cost, of aviation in this country is a massive disincentive to travel, both within Canada by Canadians and by foreigners. The airport rents, the air travellers security charge, and a series of other fees and levies all combine to make landing a plane at Pearson, according to IATA, the most expensive airport in the world at which to land a plane. That has a massive knock-on effect on tourism, convention businesses, and all kinds of things that depend on Pearson being a gateway for foreigners. So anything that can be done to reduce the structural costs of aviation in this country would be much welcomed by our industry.

[The Chair, Conservative, Rob Merrifield]

Thank you very much, and thank you very much to the witnesses.

Just to let the witnesses know, and as a reminder to the committee, there was a reference made to a report from an all-party committee that worked in a non-partisan way in the best interests of Canadians. We also will have a report. We're trying to do that. Regardless of the political jabs you might have discerned around the table, I can assure you that the chair is trying to do the same thing here at this committee.

So thank you for your presentations, and we will now ask for a replacement at the other end.

Go ahead, Mr. Crête.

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

Mr. Chair, I would just like to announce that, next Wednesday, I would like us to deal with the motion of which I have given notice and which reads as follows:

That, in accordance with standing order 108(2), the Standing Committee on Finance recommends that the government promptly introduce the tax measures in the unanimous report of February 2007 dealing with the manufacturing sector, and entitled: [...]

The title will have to be added.

At the end of next Wednesday's meeting, I would like us to deal with this motion, of which notice will have been given 48 hours in advance.

[The Chair, Conservative, Rob Merrifield]

Okay. We'll debate it at the end of the next meeting. That's fair enough. We'll just reset the schedule.

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

We have no problem with that. Thank you.

[The Chair, Conservative, Rob Merrifield]

Good. Thank you.

We will adjourn now for a minute or two while they reset the table.

[The Chair, Conservative, Rob Merrifield]

As we start, we want to first of all welcome our witnesses.

We have a gentleman, Stephen Jarislowsky, by teleconference.

Mr. Jarislowsky, can you hear us?

[Stephen Jarislowsky, Chairman and Director, Jarislowsky Fraser Limited]

I can hear you splendidly.