Thank you for this opportunity to address the committee. In the interest of everybody, I will refer to a prepared text, and my topic is shipbuilding.
The Government of Canada is currently reviewing options for the renewal of the government fleets, based on a commitment to build in Canada, at a nominal cost of more than $40 billion for more than 50 ships over the next 20 years. It would be very good news indeed for the entire shipbuilding industry in Canada if at least some of these contracts for these vessels were awarded over that 20-year period, because it's been almost that long since the crown awarded any major contract for shipbuilding. If the crown wants and intends to build ships for the federal fleet in Canada, given the sporadic nature of the demand, steps must be taken to ensure that there is a sustainable commercial shipbuilding industry.
There have been no new ships built for the Canadian Great Lakes fleet since the shipbuilding subsidies were eliminated in the mid-1980s. At this time, the average age of a laker is 40 years; new ones are only 25 years old. The shipyards in Ontario survived on major repair and overhaul of existing ships, including the replacement of up to 80% of the hull structure in a process known as a forebody conversion, but this type of conversion work can be done only so many times.
There is a clear need to replace the Great Lakes fleet, which currently numbers some 60 Canadian-flagged ships, partly because of fair wear and tear, but mainly because of the need to meet modern environmental standards for ballast water management and emissions reductions.
At this time, a laker can be delivered FOB a shipyard in China for less than one-third of the price for the construction of a similar ship in Canada. This is no reflection on the productivity of Canadian workers. By any objective measure, such as man-hours per finished tonne of steel work, the productivity of our shipyards is first-rate. The shipyard in St. Catharines has set standards of less than 24 hours per tonne, which are unparalleled at even the most efficient overseas shipyards.
Asian shipyards in particular have obvious price advantages from subsistence-level wages. But just as important, these facilities are not subject to the same standards of occupational health, safety, and environment that are rightly required for Canadian workers.
As an illustration, by the regulations of the Ministry of Labour, a welder working in a confined space—and a ship is nothing more than a complex array of confined spaces—must be under constant observation by a sentry, the result being that two workers are required for the same job. Moreover, these overseas facilities derive benefit from a supply chain for equipment and material that operates under the same discount conditions, although everyone has seen some of the quality issues that emerge from such systems.
The federal government has several policies in place intended to encourage the construction of ships in Canada, including an import duty on vessels built overseas and entered into Canadian flag registration. The structured financing facility, an interest rate buy-down program for ships built in Canada, administered by Industry Canada, can reduce the overall cost of a ship by up to 15%. The accelerated capital cost allowance for ships permitted to Canadian owners by Finance Canada is also available.
It should be noted that the structured financing facility and the accelerated capital cost allowance are mutually exclusive. When building a ship in Canada, a Canadian owner must choose one or the other--although, interestingly, should a foreign owner elect to build a ship in Canada, in many of the flag-of-convenience countries, that owner would be able to benefit from the Canadian SFF, the structured financing facility, as well as capital cost allowance in the country of registration.
Every maritime nation, including our NATO allies, takes steps to preserve an indigenous shipbuilding capability, not just for commercial reasons but also in the interest of national security and sovereignty. In June 2007, Peter MacKay said, “Canada is a maritime nation, and a viable shipbuilding industry supports our security and our sovereignty”.
It is clear that the current policies are not sufficient to support this viable shipbuilding industry, and it should be made clear that we are in favour of free trade, certainly in our company. But we think it must also be fair trade. To insist on appropriate health and safety standards for Canadian workers, while permitting international competitors to avoid comparable standards and benefit from huge price advantages for goods sold in Canada, does not seem to suggest a fair trade practice.
So we suggest three things that we think would improve the conditions for Canadian shipbuilding. The first is to ensure that the structured financing facility is sufficiently funded rather than being subject to periodic and arbitrary top-ups. The second thing is to permit Canadian owners to combine the structured financing facility and the accelerated capital cost allowance for ships built in Canada. The third recommendation is to establish a tax credit program for direct investment in the marine industry.
Such programs have been previously established for the oil and gas industry, as well as for labour funds. In Germany the kommanditgesellschaft financing, more commonly known as KG financing, and more pronounceably—my apologies to any German speakers—is highly successful in promoting investment in the marine industry. It's actually one of the world's leading contributors to marine development.
I'll leave the rest there. I've got one other comment, if we have some time.