Subcommittee on Canadian Industrial Sectors Committee on March 12th, 2009

[Daniel Roy, Assistant Director, Fédération des producteurs de bois du Québec]

Steps were taken more than 15 years ago for the federal government to put in place tax measures adapted to the operations of private forest owners. Measures have previously been announced; you have to be honest. They included assistance for the intergenerational transfer of properties under development; that is to say that an owner could transfer his property to his descendants in the next generation on a tax-free basis, as long as the property remained under development by the new family owner. That measure assists owners and is sensible.

However, there are many other measures that we would have liked to see put in place. We've been talking to the federal government for 15 years. And two parliamentary committees have come out in favour of introducing tax measures for private forest owners. The Standing Committee on Natural Resources and the Standing Senate Committee on Agriculture and Forests recommended in 2008 that the federal government use the tax system to support private forest development across Canada, including Quebec.

Countries like Finland and Sweden regularly use these mechanisms to encourage the development and production of their woodlands. We saw that again last year. In some Scandinavian countries, income tax has been amended to stimulate wood production and development.

We think that the current crisis is an opportunity, as Mr. Roy said, for the government to seize to be innovative, in order to encourage the rural communities and private forest families across Canada to carry out development activities that will not only enable them to get through this difficult period, but also to help better position our industry for the future.

As Mr. Roy said, this is highly productive land, which is not currently producing at full capacity. We are far from producing, in private forests, what the land can generate in terms of quality wood, adequate development and support in setting to work owners who are interested in developing those forests.

Thank you.

[The Chair, Conservative, Dave Van Kesteren]

Merci, Monsieur Roy.

We will now go to the Conservatives.

Mr. Harris.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Thank you, Mr. Chair. Thank you, gentlemen, for your presentations.

I know we all agree on one thing: the forest industry is facing a serious set of challenges right now in many parts of the country, not the least in mine—being from central B.C.—as well as Quebec. I'm sure we're going to find a lot of life support for companies across the country. Even though we have a problem, there are two ways we can look at this. There is, believe it or not, a positive side as we look to the future and the opportunities that await Canadian lumber producers and forest product companies because of the emerging and increasing world demand, as Mr. Lazar pointed out. We did hear from Mr. Roberts, the gentleman from CIBC World Markets, when we had the forestry study in the natural resources committee last year. As time goes on, there will be some huge opportunities.

We all agree on that. Where we don't agree, in some cases, is just how much the government is doing for the forest industry. I'm sure in the economic action plan, otherwise known as our Budget 2009, a significant amount of funding has been put in specifically for the forest industries. I would like to touch on a couple of them. For example, someone talked about money needed for research and development of new products. There was $80 million put into that through FPInnovations and others, and they're very good at what they do. We're going to see new wood products emerging on a continuous basis from them. Another $50 million that someone talked about to increase the marketing of our products abroad was put in over two years to do exactly that, to market our products and to try to get away from having all our eggs in one basket, such as the U.S. market, and try to expand it. We don't want to be caught in the U.S. housing slump again.

Of course, we have the support programs for the forest workers, the extension of the work-share program to 52 weeks even if a company has been on that already and it's gone, as well as the five weeks for the EI program. These are all good things.

Mr. Chevrette, I know you have some questions about the softwood lumber agreement, but I would argue we're in a far better position now with the SLA than if we didn't have it, even though our position isn't very good, considering this downturn in the industry.

I would argue that if we didn't have that SLA we would be hard pressed, given the hard times in the U.S., to ship a single stick of lumber across the border because the southeastern U.S. firms would be arguing they can supply all the wood that's needed right now. If we did, there'd be a far greater penalty. Of all the programs we would like to have, we do have to consider the SLA and recognize...and I'm sure you know the lumber coalition has a battery of lawyers whom I believe are working 24/7 trying to catch us at something. They're trying to find something they can argue, even if it's not real, to try to confound our industry and give them an advantage.

Mr. Chevrette, what I would love to get from you, sir, is a list of all the things you believe the government should and could do specifically for the forest industry that would not violate or spark a complaint by the U.S. lumber coalition. That would be very good.

You don't have to go through all of that today, but I would like to get it. I want to take it to the lawyers that I know, who say we have to be a lot more careful than what has been suggested, who say that these things could trigger.

I'm sorry, that's a long dissertation, but I wanted to get to that question. If you could do that for me, sir, I would certainly appreciate it. I like some of the things you're suggesting; I just don't know whether we can do them.

[Guy Chevrette]

I am glad you've asked me that question because it enable us to say what we've done. Quebec was the only province that officially voted in favour of the agreement, by a recorded vote of its members. Check and see what provinces held a recorded vote in favour of the agreement reached by Mr. Harper two years ago.

As president of the CIFQ, I am the only person who has an action plan for the agreement to last not seven, but nine years, if possible. We are not opposed to the agreement, but we are opposed to the abusive use or fear of doing something that puts us in a position that paralyzes us.

If I lend you money at 8%, which is an entirely normal rate, how am I subsidizing you? I'm simply lending you money at a reasonable rate. If I lend you money at 30%, that's usury. But we don't want to be victims of usury because the industry is facing a great deal of risk. We don't have access to credit—

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Mr. Chevrette, if I could just interrupt, I want to make it clear that I'm not afraid of the Softwood Lumber Agreement. I have no fear of it, and neither does the government. What we're aware of is that Canada's wood producers don't need any more very expensive challenges by the U.S.; they don't need to spend hundreds of millions of dollars on lawyers to fight ongoing cases. So before we do something, we just want to make sure that we're on first base before the Americans are.

[The Chair, Conservative, Dave Van Kesteren]

Mr. Harris, you're out of time.

I apologize, sir. Maybe you can get back to it. We want to keep going.

Mr. Thibeault.

[Glenn Thibeault, NDP, Sudbury, ON]

I want to thank all of the guests for coming today. I also want to apologize for my voice; I've caught one of these great Ottawa colds that go around here in this warm weather. I am from northern Ontario.

Speaking of northern Ontario, my riding of Sudbury is known as the mining capital of Canada, if not the world. We too have been hit by this forestry crisis in the sense that we've lost almost 900 jobs over the last few years in Sudbury and area with the shutdown of the Nairn Centre mill and a few other places.

My colleague on the other side mentioned something about $80 million in R and D and $50 million for another program. We've heard a lot of talk right now about the auto sector and about the crisis that sector is in as well. They're talking about $4 billion. We've heard about $130 million. If we add a little more to that, let's say there are a few more programs out there, that's not even 1% yet of what's going to the auto sector.

Maybe I'll ask this of Mr. Chevrette. What percentage do you think would be fair, if you can come up with that, for the forestry sector?

[Guy Chevrette]

A commercial loan rate is set by the market; you know that very well. A regular commercial rate may be 8% at one point, and the following week, it may be 9%. It's the loan market rate.

[Avrim Lazar]

That wasn't the gist of the question.

What percentage of what the auto workers are getting would be fair?

What percentage of the subsidy granted to the automotive industry would be appropriate?

[Guy Chevrette]

I repeat, it's not a subsidy that we want. We're talking about a budget envelope; that's no doubt what you mean. I suppose that the budget envelope would be comparable to that of the automotive sector.

We represent some 300 members in Quebec. The small organizations are definitely requesting a very small amount in order to refinance. It's all well and good to have invested $170 million over two years in research and marketing programs to encourage innovation, but if the businesses are unable to get through the crisis, they'll never be able to benefit from those amounts. All the government programs presuppose a contribution by the industry. You're not completely subsidizing the research institute. To conduct research, the industry has to add its share to those of the governments; that's normal. However, we don't even have any more money for that. We are now perceived as people in a critical position, sources of risk for the financial institutions, and they are prevented from lending us money at a commercial rate or at a market rate.

Bombardier is operating on loans at market rates. How is it that it's good for Bombardier and for the automotive sector, but not good for an industry that employs 825,000 people across Canada? In Quebec, 100 of the 300 businesses that were members of our council have shut down indefinitely as a result of bankruptcy. So we're operating with one-third of the businesses. Imagine that hit the populations, resource regions and the regional economy are taking. It isn't just the forest industry that's in poor shape, but also the businesses, like the hairdressers and all the others.

We're asking you to think about that budget envelope. What is preventing the government from deciding to make $2 or $2.5 billion of its accessible credit available to the forest industry and to provide a single channel? It might be Canada Economic Development, or whatever. That's where we would send applications, which would be processed on a priority basis and very quickly. That would be taking positive action.

That's what we're asking; it's not difficult.

[Glenn Thibeault, NDP, Sudbury, ON]

I still have time. Thank you.

I'd put a similar question to you, Mr. Lazar. On the survivability of your membership, when we see the primary industry disappearing, would there be something you would like to see in a percentage, so to speak?

[Avrim Lazar]

Our situation is so different from the automobile industry, and frankly, we feel we're in a much better position because we have been doing our competitiveness homework. We haven't been asking the government to freeze the status quo. It would be easy to interpret what's happening in the automobile industry as that kind of request, but we just don't think that will work.

I think it's important to ask why we're here. We're here to find practical solutions to what we're really facing. So let's acknowledge what the government has done, which is excellent. Let's acknowledge what has to be done, which is to access credit. Mr. Chevrette and I and all of Canadian manufacturing and industry from coast to coast are very clear that credit is like oxygen. Even if you're a very competitive athlete, you're going to turn blue if you can't get credit.

Extending the mandate, scope, and funding for EDC is one thing the government announced that we loudly applauded. We're not asking for a guichet unique or une voie unique; we're only asking for the cash and loans. I fully understand Mr. Chevrette's frustration that even though it's all been announced, it's not flowing yet. I understand that you have to pass legislation and whatnot, but the question is not whether there is a guichet unique; the question is whether or not there are loans. If the government can deliver on what's been announced, and the mandate of EDC can be expanded in amount as well as scope so that more domestic-oriented loans supporting export-oriented industries can be made, that will give us a huge step up.

Beyond that survival is competitiveness. Certainly the money from marketing and research is excellent and necessary, but not sufficient. There are many other things that can be done. We've been asking for years that the money we invest in research become refundable. That would put cash in pockets right now and keep people working.

We've been asking for years that the Competition Bureau be more sympathetic to the restructuring of the industry. We've been asking for years that there be more assistance to the transformation of the industry--not just to green energy but to the lowest environmental footprint. That could be done softwood-safe and have social, environmental, and economic benefits.

One of the environmental groups suggested to me the other day that we go to the model that's used quite often, where money is paid for the transformation and the company pays it back through savings. It would be free for the government and it would really improve our competitiveness. If the money is paid back, it's trade-proof.

So I think the focus has to be on stuff that's been done. More stuff is planned and we're anxious to see it. What can be done, practically, in addition to what's been done? A lot of that has to do with industry transformation.

[The Chair, Conservative, Dave Van Kesteren]

Thank you. We're into round two and you have five minutes. I ask members to keep questions as brief as possible.

Mr. Garneau, please.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you for the space jokes.

My question is for Mr. Lazar. You may or may not want to answer this, but I'm going to ask you the question directly. Mr. Chevrette believes that loan guarantees at commercial rates are perfectly acceptable. I'd like to hear your opinions on it.

[Avrim Lazar]

You're right that I'm not going to answer, simply because I'd rather it be referred to trade lawyers. It's easy to say this particular instrument is safe, until you actually look at the detail of it. I think Mr. Chevrette was quite clear that it's not loan guarantees as such, but a measure that has the same impact of creating access to credit at commercial rates, whether it's through BDC, EDC, or some other instrument.

So I think it's necessary that we move aggressively on making credit available, and consult our trade lawyers to make certain we're doing it in a softwood-safe manner. There has never been a challenge to the use of the Export Development Corporation. It has been tremendously helpful. They just need a bit larger mandate, a lot more money, and perhaps a bit more political bravery for these times when the commercial lenders aren't here.

I don't see any benefit in having a legal technical argument here. We should take Mr. Chevrette's insistence, that we not hide behind the softwood agreement, and find solutions that allow credit to flow, as a very sound proposal.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

So if I understand what you're saying, if we do it properly there's a possibility it won't lead to countervailing action.

[Avrim Lazar]

I am certain it can be done in a way that doesn't lead to countervailing action. Whether it's a loan guarantee or other methods of making credit available, I am certain of that. It's been done in the past and it will be done in the future.

I haven't sensed any reluctance on the part of the government to doing it. What's been announced is certainly heading where we want them to go. It's actually putting it on the ground. As we're sort of gasping, we're hoping the options will flow sooner rather than later, because we may not be around to breathe it.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you.

Amongst the actions you suggested the government might wish to consider, you spoke about SR and EDs and making them refundable. Could you expand a little on whether that would apply to the whole sector you represent or to a limited part of it?

[Avrim Lazar]

We've always suggested that refundable SR and EDs should be for all manufacturing. That was the recommendation of this committee's report on manufacturing; it was a recommendation of Natural Resources.

It's a beautiful instrument, because unless a company puts its own cash into innovation, it doesn't cost the government a penny. It supplements the public sector stimulus, the money that's coming from taxpayers, with private sector stimulus, money coming from private enterprise into research. We are innovating now. We're still investing in research and innovation, and what a great thing to encourage by making it refundable.

One of the ironies of the current SR and ED program is you only have access to the government's help if you're profitable. Maybe it would be smarter to use the government money to encourage companies to innovate their way out of trouble when they're not profitable, rather than to only reward those who are already out of trouble.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Do you differentiate between whether it's Canadian-owned or foreign-owned?

[Avrim Lazar]

If it's foreign-owned it's subject to Canadian tax policy. So if they want to invest in Canada, I think we should say, “Welcome. Come invest in Canadian mills.”

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

You talked about our transportation system needing some changes. Could you educate me in about 20 seconds?

[Avrim Lazar]

Yes. Eighty percent of our mills are held captive by a single railway company. Since they're monopolies, they do what they're legally required to do and maximize profit for their shareholders. As a result, because they have monopoly powers, we get bad service and are overcharged. In a country with such a vast geography, this is a big competitive disadvantage. It's not that the railways are bad; the railways are brilliant. But government policy is bad in giving them this monopoly power.

[The Chair, Conservative, Dave Van Kesteren]

Thank you, sir.

Monsieur Gourde.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

I'm going to ask Mr. Gagné a question.