Subcommittee on Canadian Industrial Sectors Committee on March 24th, 2009

[Billy Hewett]

I would have to defer a specific tax policy question like that to the Department of Finance.

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

Has it been looked at? That's my question.

[Billy Hewett]

I would say the government is aware that a number of different stakeholders have identified refundability and some of the rules around refundability as areas they do ask and have asked the Department of Finance to look at.

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

Do you know what percentage of companies doing work in these fields such as biotechnology and ICT are non-Canadian owned and working in Canada? Is there a significant number, in your opinion?

[Billy Hewett]

I don't know the specific statistics on that. There are a combination of multinational R and D-related activities as well as a large number of smaller Canadian-owned entities. I would have to get back to you, if you'd like, on specific information on that.

[The Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. Hewett.

Mr. Bouchard, did you want Mr. Delorme to finish that question before the last round? You were way over your time. I just have to keep the time as fair as possible.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Mr. Chair, is it my turn now, as I believe?

[The Chair, Conservative, Dave Van Kesteren]

My apologies.

I'll add, “when your turn comes”.

[Some hon. members]

Oh, oh!

[The Chair, Conservative, Dave Van Kesteren]

Mr. Lake.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair.

I'm interested in following up on the comment you made regarding competing against low-cost labour in other areas.

The first question I have in that regard is whether, in situations in which we are competing against jurisdictions where there's low-cost labour, there are any measurements of the quality of the products we're competing against. For the outputs that may have been traditionally strong outputs here for Canada, are there measurements of the quality of the products we're importing from other parts of the world, whatever they might be, in specific areas?

[Billy Hewett]

I don't know that we have broad measures, but certainly when we do work, for example, in the areas of logistics and low-cost country sourcing, the analysis that tends to come back will speak to the experiences of individual firms as they source product domestically or from one country or another. As a general statement, I would suggest that whereas we have seen, as countries move into international markets from a low-cost labour perspective, that the quality isn't necessarily all there at the outset, particularly when there is an almost commodity-based sort of pricing, increasingly, with the presence of large emerging market suppliers such as China and India, the quality is coming up. So the nature of the competition, if you will, is not static, and that essentially puts us in a position of having to be on top of our game, if you will, and continuing to strive to move forward.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

There are, I guess, a couple of follow-up questions to that. I'm looking at this in terms of life support versus transition support. Are there specific industries in which we might be better off cutting off the life support and moving to transition support, taking some of the skills of the workers? We have some really good skill sets that might be used in areas in which we actually have an advantage, if we invested in transition versus life support. Are there specific areas that you might be able to point to?

[Billy Hewett]

I don't think I'll be speaking directly to the idea of removing life supports, but there's always a balance to be struck. I mentioned macro policy and market framework policies. There are also funding and support systems at different levels of the government that apply to skills enhancement, training, education, communities in transition, adjustment--the ability, if you will, to adjust and be agile, such that, as the market forces and the life cycle of firms and industries are moving, they can help facilitate and enable those communities, those workers, or those firms.

In some cases we have some programming, such as in the textiles area, where we have had for a number of years some programming in place to help facilitate the transformation when firms are looking to go into higher-value, more competitive positioning; also in the innovation system, where we attempt to have funding in areas that will allow for market opportunities and for successful firms—your RIMs, if you will—to emerge.

Can I identify specific ones? Even in an industry such as textiles, where there has been a structural decline occurring, or.... I'll drop back for a moment to an industry I'm personally more familiar with, which is the agrifood sector. Just go back to the wine industry in Canada. A number of years ago it was seen as not being particularly competitive internationally. But through a process of adopting standards, putting in higher value and new breeds of grapes, adding technology to the processes, and doing some good marketing, it's an industry that has managed to turn itself around, and there are investments flowing into the grapes and wine industry.

[The Chair, Conservative, Dave Van Kesteren]

You're right out of time, Mr. Lake.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

It goes fast.

[The Chair, Conservative, Dave Van Kesteren]

Mr. Bouchard, have you thought about my proposal?

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

Yes.

[The Chair, Conservative, Dave Van Kesteren]

You have the floor, Mr. Delorme.

[François Delorme]

I simply want to add something, further to your question about the wood industry. In his presentation, Mr. Hewett drew a clear distinction between those industries facing structural challenges and others like the wood, steel, aerospace and auto industries that are grappling with recessionnary pressures.

I would like to respond to your comments about internal solutions. These industries are very export oriented. One of the keys to the recovery of these industries is, as we all know, the recovery of certain specific sectors such as the housing and auto industries in the U.S.

Currently, residential housing market indicators in the U.S. show that in about 16% of cases,—and the figures vary greatly from state to state—the value of the mortgage exceeds the actual value of the house. In some states, the mortgage may even be 50% higher. So then, we know that this is one problem that needs to be resolved.

We need to see some improvements in these sensitive areas and in the U.S. economy in general, as well as some solutions in order for the positive effect to rub off on highly export-oriented sectors of the Canadian economy.

For example, if we look at automobile dealerships in the U.S., we see that their inventory levels are at historic highs. When we compare their current situation with other recessions in the past 20 or 30 years, we realize that these high inventory levels are truly unprecedented.

Inventory levels need to come down, especially in the case of U.S. manufacturers, before the U.S. auto industry can turn the corner and before the general effect of this recovery is felt in the U.S. and Canadian economies. Obviously, the initial signs of a turnaround will be seen in sectors that are very much geared to exports. I just wanted to put this situation in context.

Thank you.

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

Mr. Chair, it is all well and good to wait until exports recover, but in the meantime, players are exiting the market. That brings me to my next question.

I've met on occasion with people who work in the wood industry. They maintain that their businesses are not registering any profits, but merely losses, on the R and D side. Money invested in R and D represents a non-refundable credit. They are wondering if maybe this non-refundable credit could be converted into a refundable credit. Even if they are not receiving any benefits, they could carry out R and D activities and derive some benefits.

I'd like to hear you views on this subject.

[Billy Hewett]

Unfortunately, I'll have to give a similar answer to the one I gave previously.

The operation of the research credits is a matter of tax policy with the Department of Finance. It's definitely an area that a number of industries perceive as beneficial. But from a tax policy perspective, to date, the refundability has been limited within the program. As I say, I'm not an expert in the program. I believe there is some level of refundability for certain types of enterprises below a certain threshold.

As I indicated previously, Canada is also exploring what it can do to assist firms with financing by their leveraging the credits they have. But I suspect the solutions there might tend to be individual, firm by firm.

I want to emphasize something that EDC and BDC stressed in their presentations to industries. For the most part, they're looking to deliver their enhanced level of service through, or working directly in cooperation with, individual banks or private sector financial institutions, because they are deemed to be a more effective way of getting right to the street level and connecting up with individual enterprises.

[The Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. Hewett.

Mr. Lake.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I'm going to follow up on my line of questioning, if I could.

In terms of the skill sets we have, one of the things I think we would be remiss if we didn't approach in this study would be opportunities coming out of this situation in the long term. There is obviously going to be a lot of focus on the difficulties in various sectors, but I also want to take a look at what our answer is and where we go with this.

One of the questions I have is what we can do in Canada that can't be done in other places. We talk about areas where we're losing on the labour costs because we can't compete against low-cost labour, but what things can we do, skill-set-wise, that can't be outsourced right now? What are our skill sets?

By way of an example, I'll throw something out. We have a structural issue in the auto industry. I think there's a recognition that a restructured auto industry will employ fewer Canadians than it did previous to this challenge. But there are those who would point to the fact that some of the skill sets auto workers possess would lend themselves well to making wind turbines and things like that, or rail.

What areas are there like that? What skills do we have that we'll be able to use in this global context moving forward?

[Billy Hewett]

I don't think we should be too specific, but over the last year or two, for example, we began to hear about companies such as the auto parts sector--so let's say a tool and die maker--where traditionally the market has been autos and they are looking at whether they can apply that technology, that skill set, and sell it into the oil sands. More recently there have been questions such as whether there are auto parts manufacturers that could, for example, apply the types of technologies in terms of advanced materials and whether some of the R and D that is actually taking place there, that skill set, can be applied in aerospace. Wind turbines are another one we've heard about.

So without being too concrete, we are increasingly hearing about firms trying to look around creatively to explore different market opportunities through diversifying: “I'm a very good production manager. I'm coming in on spec. I'm meeting my customers' requirements, but now I need to look at what other kinds of markets might apply to this.”

When I spoke earlier about there being a level of optimism out there, that was for those firms that are doing what you're referring to. They're looking at where the opportunities are--for example, finding low-carbon footprint energy sources, whether it be reducing the impact of oil sands production through application of technologies, or wind turbines, or other opportunities out there.

Those are the kinds of things we're hearing stories about. When and how they come into fruition, time will tell.