Finance Committee on Oct. 6th, 2026

[Tania Lee]

Okay.

Canadian exporters of tobacco can export to other countries without the excise tax embedded in that, as long as they can prove a verified export channel that they're exporting to. Duty-free is the most highly controlled, regulated export channel that CBSA has, yet we have excise attached to our product before we buy it. That is the asymmetry we're talking about. We would like the excise removed at source and collected only when it comes back through the border.

[The Chair, Liberal, Karina Gould]

Thank you.

On behalf of the committee, I'd like to thank all three of you for this hour. I appreciate your time and your testimony.

Committee members, we will take a brief five-minute break as we turn over for the next panel.

Thank you.

[The Chair, Liberal, Karina Gould]

Colleagues, we will begin our second hour.

I would like to take a moment to welcome our second panel of witnesses. From the Aerospace Industries Association of Canada, we have Mike Mueller, president and chief executive officer. From Canadian Manufacturers and Exporters, we have Mr. Alan Arcand, chief economist. From CropLife Canada, we are joined by Pierre Petelle, president and chief executive officer; and Émilie Bergeron, vice-president, crop protection.

I would like to remind participants of the following points. Please wait until I recognize you by name before you speak. For those participating by video conference.... Well, today it's just Dr. Martin. She knows how to do this.

I would like to remind witnesses that committee members may ask questions in either French or English. If you require translation, please have your earpiece on already so that we can run the meeting smoothly and take full advantage of the time allotted for questions and answers.

You will each have five minutes for your opening remarks.

With that, we will begin with Mr. Mueller from the Aerospace Industries Association of Canada.

[Mike Mueller, President and Chief Executive Officer, Aerospace Industries Association of Canada]

Good afternoon, Madam Chair and members of the committee. Thank you for the opportunity to appear today on behalf of the Aerospace Industries Association of Canada and to offer some comments on Bill C-31.

I also want to thank this committee for its continued support of and engagement with our industry. In particular, your support through the repeal of the luxury tax in the last budget was a significant victory for jobs in Canada, and your support for a national aerospace strategy to complement the government's defence strategy will be essential to the long-term future of aerospace in Canada.

Madam Chair, this committee, over the years, has been a consistent and supportive friend of Canada's aerospace industry, and it is truly appreciated.

Members of the committee, it's our understanding that some of the legislation, in particular division 16, has not been updated since the fifties. As you have heard me say in the past, an industrial strategy is long overdue. It's also my understanding that new legislation was just introduced. I have not yet had the opportunity to review that legislation. We do, however, welcome the changes and leadership provided by the Prime Minister, Minister Fuhr, CEO Guzman, the public service and all parliamentarians.

My members support changes that will enable the Defence Investment Agency to move forward with the resources and authorities needed to ensure efficient, effective and timely investment in Canada's defence industry and procurement for the Canadian Armed Forces. As this legislation provides a mandate for new regulations and policies, governance and ensuring outcomes will be critical. The current policies are not reflecting the ambition of the government's direction, so an update and a clear path, which this legislation provides, are essential. We urge the government to prioritize early, transparent and ongoing engagement with industry, supported by clear demand signals that enable companies to make informed, long-term investment and workforce decisions.

This is particularly important as Canada's defence industrial ecosystem continues to expand in response to the defence industrial strategy. The establishment of the Defence Investment Agency presents an important opportunity to improve the efficiency and effectiveness of Canada's defence procurement system.

To support meaningful industry participation in capability development at earlier stages, the government should also accelerate security clearance processing. Since the responsibility for security clearances remains with PSPC, the DIA minister should work closely with the PSPC minister to ensure that adequate resources and sustained attention are dedicated to reducing clearance timelines. This remains a barrier to industry and a barrier to investment.

While industry strongly supports the government's commitment to making defence procurement faster and more efficient, greater clarity is still required regarding the mechanism, processes and timelines through which companies can engage in procurement opportunities. Although we give credit to our DND and government partners for making engagement a priority, earlier engagement for the long-term needs of DND is essential. As the government advances and implements this legislation, there needs to be a process to clearly communicate the rationale for any expanded exemptions to competitive procurement processes in order to maintain transparency, accountability and public confidence.

As Canada advances the defence industrial strategy, we are recommending that steps be taken to establish a clear understanding of the country's existing sovereign industrial capabilities. This should include a comprehensive mapping exercise to identify the products, services, technologies and capacities currently available within the Canadian defence industrial base in order to address the fragmented and piecemeal assessments that are presently conducted across multiple departments and third party organizations. Although bits and pieces of this work are done, a more comprehensive overview and mapping exercise is required.

As the DIA develops programming to support industry, the approach needs to foster innovation, accelerate industrial growth and ensure that firms in Canada are better positioned to meet current and future defence requirements. Industry supports that enable industry secondment programs within the DIA are a means of strengthening collaboration, improving mutual understanding and enhancing procurement outcomes. It's important that safeguards be established to ensure that participants are not subject to undue restrictions upon returning to their organizations, including unnecessary limitations on engaging with government or participating in future opportunities.

In closing, I want to thank the committee again for the opportunity to appear here today and for your continued support. I look forward to the discussion and questions.

[The Chair, Liberal, Karina Gould]

That's great. Thank you very much, Mr. Mueller.

Mr. Arcand.

[Alan Arcand, Chief Economist, Canadian Manufacturers and Exporters]

Thank you, Chair and members of the committee.

I'm pleased to appear before you today on behalf of Canadian Manufacturers and Exporters, and I appreciate the opportunity to comment on Bill C-31.

Canadian manufacturers are operating in an extremely challenging environment. U.S. tariffs have disproportionately targeted manufactured goods, while repeated changes to those measures and continued threats of further tariffs have created persistent uncertainty for businesses. However, the sector's difficulties did not begin with the trade disruption. Long-standing gaps in investment, productivity growth and technology adoption had already eroded Canada's manufacturing competitiveness.

Clearly, Canada cannot control decisions made by our trading partners, but we can control whether Canada is a competitive place to invest, build and make goods. With that in mind, I want to focus my remarks on three areas. These are business investment, defence industrial capacity and regulatory competitiveness.

First, the CME strongly supports measures that improve the investment climate. Bill C-31 provides temporary immediate expensing for eligible manufacturing and processing buildings as part of the productivity superdeduction announced in budget 2025. The CME welcomes this measure.

More recently, the government announced the productivity mega deduction. Although it's outside the scope of this study, it makes immediate expensing permanent for a much broader range of capital assets, including manufacturing and machining equipment. This addresses a major and long-standing priority of the CME and gives businesses greater certainty when making major investment decisions, but Canada's long-standing weakness in business investment means there is still more work to do. Like others in the business community, we believe a comprehensive tax review would be worthwhile to ensure that Canada remains competitive in encouraging investment, securing major projects and attracting and retaining top talent.

Second, Bill C-31's defence provisions represent an important opportunity to strengthen Canada's industrial base. The bill would establish the Defence Investment Agency under its own legislation and provide new authorities related to defence production, procurement and investment. The CME supports using increased defence spending to strengthen Canadian industrial capacity. To succeed, manufacturers need predictable, long-term demand signals, accessible procurement processes and meaningful opportunities for firms of all sizes, including SMEs, to participate in defence supply chains. The goal should be to ensure that increased defence spending builds the domestic capacity needed to sustain critical defence and security capabilities while supporting stronger firms, deeper supply chains and more production in Canada.

Third, regulatory competitiveness remains critical. Manufacturers consistently tell us that unnecessary regulatory complexity, duplication and delays make Canada a more difficult place to invest. We've been encouraged by recent federal action. While Bill C-31 contains targeted amendments to the Red Tape Reduction Act, I also want to make note of Bill C-39. Although, again, it's outside the scope of this study, it addresses several competitiveness issues manufacturers have raised, including faster project approvals and more reliable transportation infrastructure.

These are important steps, and there's an opportunity to build on this progress. The CME has recommended embedding economic growth and competitiveness more directly into federal regulatory decision-making, broadening the one-for-one rule and strengthening the quality and independent review of regulatory cost-benefit analysis. Importantly, regulatory reform is also one of the most cost-effective ways to strengthen Canada's competitiveness.

Chair and members, Canada is at an important economic moment. For manufacturing, the stakes are particularly high. Bill C-31 contains several measures that can help strengthen investment and industrial capacity. Combined with other recent federal initiatives, they represent important progress.

The priority now is twofold: Continue building on this progress through additional policy actions and reforms, and implement effectively the measures already in place. These will be key to turning policy into more investment, more production and more well-paying jobs in Canada.

Thank you. I look forward to your questions.

[The Chair, Liberal, Karina Gould]

That's great. Thank you very much, Mr. Arcand.

We will now continue with Mr. Petelle for five minutes.

[Pierre Petelle, President and Chief Executive Officer, CropLife Canada]

Madam Chair and honourable members of the committee, thank you for the opportunity to appear before you today on behalf of CropLife Canada.

My name is Pierre Petelle. I'm the president and CEO. I'm joined by my colleague, Émilie Bergeron, who is the vice-president of crop protection.

CropLife Canada represents the developers, manufacturers and distributors of crop protection products and plant biotechnology innovations. Our members invest heavily in research and innovation to provide Canadian farmers and others with the tools they need to manage pests, protect crops and improve productivity.

We're here today to speak specifically to division 13 of part 4 of Bill C-31, which proposes important changes to the postmarket regulatory framework for pest control products. CropLife Canada supports these amendments. As Émilie explained to the Senate agriculture and forestry committee last week, we see this as an important opportunity to modernize Canada's pesticide regulatory system by moving away from automatic, time-based re-evaluations and toward a more targeted science- and risk-based approach.

I want to begin by addressing an important point of clarification. Bill C-31 does not eliminate postmarket oversight. It simply changes how that oversight is triggered. Under the proposed amendments, the minister must initiate an assessment no later than 15 years after the relevant decision or previous assessment. That assessment must consider available information and determine whether the health or environmental risks associated with the product have increased significantly. Where there are reasonable grounds to believe they have, the minister must initiate the re-evaluation.

It is not accurate to characterize the bill as simply removing re-evaluations or ending continuous oversight. What changes is the relationship between the passage of time and the regulatory response.

Today, the statutory clock itself triggers a re-evaluation every 15 years, regardless of whether new evidence indicates that circumstances have materially changed. This approach has contributed to a growing backlog, longer review timelines and significant demands on regulatory resources.

Instead, Bill C‑31 would require the regulator to look at the available evidence and determine whether a significant increase in risk warrants a full re-evaluation.

This is not less science; it's a more targeted use of science.

Most importantly, the legislation does not create a regulatory vacuum between assessments. The Pest Control Products Act continues to provide the regulator with authorities to respond to new information and emerging risks.

Bill C‑31 also maintains transparency requirements by requiring publication of the minister's determination that there are reasonable grounds to believe risks have increased significantly, along with the reasons for that determination.

CropLife Canada has consistently called for clear, transparent and consistently applied criteria for determining when a significant increase in risk warrants a re-evaluation. We also believe Canada should make appropriate use of assessments and regulatory decisions from trusted peer jurisdictions. Where leading regulatory authorities have reviewed a product and continue to permit its use, that information should form part of Canada's assessment of whether circumstances have materially changed.

There is another important point. The objective of regulatory modernization should not be to conduct more reviews simply because a statutory clock has expired. The objective should be effective regulatory oversight that is proportionate to the evidence and the level of risk. That distinction matters to farmers, regulators, innovators and, ultimately, Canadians.

We also see value in the provisions that allow the pesticides regulatory directorate to better coordinate re-evaluations with special reviews. These provisions can reduce unnecessary duplication and allow regulatory resources to be focused where they are most needed. This is particularly important given the Government of Canada's broader objective of reducing regulatory backlogs and improving the timeliness of Canada's regulatory system.

Finally, the implementation of Bill C-31 should be considered alongside the important changes already made to the PRD's mandate through Bill C-30. As Parliament has recently recognized, protecting human health and the environment remains paramount, while Canada's pesticide regulatory framework also has an important role to play in supporting national and regional economic security and food security.

For CropLife Canada and our members, these objectives are complementary. Canadian farmers need access to effective crop protection tools. They need confidence that those tools are rigorously assessed, and they need a regulatory system that is timely, predictable and science-based.

We encourage the committee to support these amendments. Thank you very much for the opportunity.

[The Chair, Liberal, Karina Gould]

Thank you very much, Mr. Petelle.

We will commence a round of questions with Mr. Guglielmin for six minutes, please.

[Michael Guglielmin, Conservative, Vaughan—Woodbridge, ON]

Thank you, Madam Chair.

Thank you to our witnesses for being here today.

Mr. Arcand, you came before this committee back in June, and you told us that manufacturers in the United States invest more than $55,000 per worker, while in Canada it's roughly $20,000. You also said our manufacturing capital stock has declined by about 13.5% since 2000, while U.S. manufacturing stock has risen by roughly 40%. What's driving that investment gap?

[Alan Arcand]

That is a very good question. I would say it's multifactorial. It's not just one thing.

Canada does have a lot of advantages in manufacturing, and—I hear it all the time from members—a very highly skilled and productive workforce, so that's one of our main advantages. We also have a relatively clean energy system, which is another advantage, but the challenges the sector faces are pretty numerous, especially when it comes to Canada against the U.S. We're always comparing ourselves to our southern neighbours.

We used to have quite a significant tax advantage compared to the U.S., but the U.S. has had multiple rounds of tax reform in the last 10 years or so, and that advantage has pretty much disappeared, so that's an issue.

China is obviously a problem, too. It entered the WTO at the end of 2001, and—let's face it—it's basically the world's factory. You can see Canada's manufacturing sector erode—

[Michael Guglielmin, Conservative, Vaughan—Woodbridge, ON]

If I could just interject for a second, I'll touch on something you said a few moments ago.

Prime Minister Laurier once said that if Canada truly wants to be more competitive than the United States, it can't compete on market size or population. What we need to look at are the burdens of government, essentially taxation and regulation.

You touched on taxes. We know there are some 110,000 regulations just on the manufacturing sector alone. Do you think that's driving part of this manufacturing investment problem?

[Alan Arcand]

Yes, I would agree. I was just speaking about the relative competitiveness of Canada's tax system, but the other issue would definitely be on the regulatory side. We've made good progress the last couple of years, which we really welcome and support, but there's still more work to do. It's more than just at the federal level. A lot of regulation is at the provincial level, including interprovincial trade barriers. The federal government can continue to keep pushing on that issue as well and take leadership.

[Michael Guglielmin, Conservative, Vaughan—Woodbridge, ON]

Let's look at Bill C-31. A manufacturer is able to deduct up to 100% of the cost of an eligible manufacturing or processing building in the first year, provided that it qualifies and that it's done before 2030. In my previous life, I spent a lot of time in operations, responsible for capex projects.

One of the things that stick out to me is how there's a temporary timeline for this. Do you think the temporary timeline undermines some of the certainty manufacturers require when conducting major expansion capex projects?

[Alan Arcand]

Bill C-39 is permanent, though.

[Michael Guglielmin, Conservative, Vaughan—Woodbridge, ON]

This is Bill C-31.

[Alan Arcand]

It's Bill C-31, the building side.

We welcome Bill C-39, because it will make the manufacturing and equipment side permanent, which is a long-standing ask by CME. An additional benefit would be to make buildings permanent, too, because that's all part of the package when you're considering whether to invest in Canada or not. Many major manufacturers in Canada are multinational corporations, and when Canadian operations are competing for mandates against other offices within their own corporation, every little advantage would help. That would be another way to help boost our competitiveness.

[Michael Guglielmin, Conservative, Vaughan—Woodbridge, ON]

In Bill C-31, would you like to see those permanent as well?

[Alan Arcand]

We would welcome that and support it.

[Michael Guglielmin, Conservative, Vaughan—Woodbridge, ON]

You have supported investment deductions, and we were just talking about how they announced the new mega deduction. When you take those measures into account, what would you say are the two biggest barriers to manufacturing investing in Canada? Which two biggest barriers remain?

[Alan Arcand]

There are more than two, but I think the challenge, again.... The productivity mega deduction really helps, but that's the marginal tax rate. The average corporate tax rate still matters, too. You could argue that the marginal tax rate will impact how much you invest, whereas the average corporate tax rate will impact where you will invest. There's always an opportunity to look on the average tax side.

The other one would be just to restate what we talked about. The regulations are still a challenge in Canada, especially with the fact that we still have several interprovincial trade barriers that are challenging.

[Michael Guglielmin, Conservative, Vaughan—Woodbridge, ON]

Would you say there are manufacturers, particularly smaller firms or companies, that might be making new investments that may not have enough taxable income in the early years for a project to fully benefit from immediate expensing?

[Alan Arcand]

I should mention, to go back to my old question, that the biggest challenge right now is tariffs.

I don't know of any specific cases of that, but I could see it being a challenge today because of the situation we're in, especially considering the elevated uncertainty we're facing. It's a very challenging environment to make big plans in right now.

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Guglielmin. That concludes the first round.

We're going to continue now with Mr. Leitão for six minutes, please.

[Carlos Leitão, Liberal, Marc-Aurèle-Fortin, QC]

Thank you very much, Madam Chair.

Good afternoon, ladies and gentlemen. I'm not ignoring you; I'm setting my timer.

I have to time myself. Otherwise, I will go on forever, and that's not a good thing.

Mr. Mueller, thank you for coming. We ran into each other just last week and were talking about—surprise, surprise—defence, the defence industry and defence industrial capacity. In fact, as you're well aware, one of our objectives is to take the massive investment in national defence as an accelerator for re-industrializing Canada.

You pointed out, now and in previous discussions, that the Defence Investment Agency.... Again, a new bill was tabled today and, like you, I haven't had time to take a full look at it. I think it's just a continuation of what we are looking at here with Bill C-31, which is to accelerate the entire process of public procurement.

In that context, you mentioned things that are not necessarily directly linked but are usually important, like security clearances and timelines. Perhaps you could elaborate a bit on that. How could we accelerate that process? There are the hardware and the industrial capacity, but then there are these other issues. How could we accelerate that?