Subcommittee on Canadian Industrial Sectors Committee on April 23rd, 2009

[The Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. Nordenstrom.

Mr. Garneau.

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

Thank you, Mr. Chair.

Jay, in your presentation you talked about a temporary railway stimulus package from government to help your industry, and I want to make sure I understood you correctly. As I understood you, it involved the fact that you have a lot of rail stock that's old and on the sidelines at this point, and this would be a good opportunity to renew some of that.

The only thing that came up as a question in my mind was whether this would not be viewed, in this world where we have NAFTA, as something that would be unfair to our U.S. or Mexican competition. Or is there something that I missed there?

[Jay Nordenstrom]

This, in essence, is a job creation program for a growth market. We're not saying that.... If government would work with us to do this, we actually would love to make sure that the UPs, the CSXs, and the rail lines from Mexico could apply to this and could help buy Canadian technology to help them with what they need to meet their environmental and transportation needs. We're also hoping that the domestic market as well would invest because of that incentive, so we don't see it as a protectionist policy.

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

No, I didn't mean that it was protectionist. I was just wondering about it, because my sense was that if government is actually providing money to your industry so you can build new stock, it might be contested by your competition.

[Jay Nordenstrom]

We know now that it is not anti-NAFTA. We're not arguing tit-for-tat with the U.S., because the U.S. has a similar model.

Mind you, if you're going to get federal funds to compete in these RFPs or procurement processes, 60% needs to be made in the U.S. When you're assembling it, as an OEM would, 100% needs to be done. You can have different components, but 60% needs to be American made, and 100% needs to be done in the U.S. That's outside of the NAFTA purview and it's perfectly legal for that treaty. And that's a permanent thing. We're arguing that in the same vein, for the next two years, to make sure we're going to survive this, we implement a program right away so that we're not closing up shop and can continue to feed into these growth markets. We don't see that as protectionist.

Sure, we'd like to go through legal, just to make sure, obviously, but we see this in the same vein, except that we see it as a short-term measure. Then we would stop it. because we, as an association, as an industry, do not believe in that. We don't believe in protectionist policies either, but, like the government and most political parties, we do believe there's a place and time when you do have to stimulate. You do have to put some money into the economy to make sure things just don't stop on a dime and collapse in such a way that you'll never see a resurgence.

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

I'm going to ask you a question that I really should be asking the railway companies, but I want your opinion. This is based a little bit on my ignorance. People talk about a bright future for the railways, and you mentioned some of the reasons. Environment is certainly an important factor there. Is there enough railbed in this country to deal with the increase in railway traffic that might occur in brighter times ahead, or is expansion of the railway also dependent on creating new lines to take that traffic? It's off the topic a bit, but I'd like to know.

[Jay Nordenstrom]

I'm happy to give you my views.

We know that the railways are heavily capital intensive, with 20% of the revenues going back into the system, meaning the equipment, track, and rolling stock. A lot of it, to be honest with you, is going into positive train control right now. We're seeing legislation happening in California to deal with this in the U.S. by 2015. They're going to have to make sure that components are talking with each other electronically to make sure it's as safe as possible for people and dangerous goods.

We'll probably see something similar to that investment happening in Canada. However, the railways are always expanding. As soon as they were deregulated and were able to invest on their own, we saw a huge expansion in rail lines. We saw increased capacity.

Working with government, with all the gateways, has been a phenomenal success. I'm talking about Halifax, Montreal, Prince Rupert, Vancouver, and others. There's always going to be that large, heavy investment in infrastructure. We have to make sure that we're working closely with government for the level crossings and the rights-of-way. If we get faster and faster and more efficient at this, there are going to be some implications for more investments for dark territory or cold weather hazards to make sure that we can calculate as best we can.

We produce the software. We produce this technology to help the railways. The suppliers that do this get to tell their message about how good they are in this area, but at the end of the day we're working with them to produce this technology. We don't see a decline in that investment. If anything, we see that if we do rebound, we need to position ourselves to capture a lot of that market, because we're saving a lot of time from the port in Los Angeles. We know it's just a disaster down there, and we can offer a competitive advantage.

[The Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. Nordenstrom.

Mr. Lake.

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

I may continue on that a little bit, because the gateway strategy is something we're talking about from probably both sides.

Mr. Paton, perhaps you could talk a little bit about the importance of the investments in gateway infrastructure to moving your product to market.

If you want to add anything, Jay, feel free.

[Richard Paton]

Most of our rail traffic is going north-south. It's not going through the ports right now. That's not to say that gateways aren't extremely important to us. We have some companies.... I think Dow has a facility in the Vancouver port that has been very important and has been affected by various labour issues over the years, and we think Prince Rupert is an excellent initiative.

We're more concerned with the gateways in Ontario and Quebec across the board. Those are our main issues: bridges and the time it takes to truck things across the border. We're pleased with how the government has addressed those kinds of infrastructure issues, even though they are always very complicated.

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

If you want to add anything, Jay, feel free. Maybe you've said what you wanted to say on this issue.

[Jay Nordenstrom]

Let me add that what is good for the goose is good for the gander. We're seeing rail investments going down, on the bed, in locomotives, and in new information technology systems—“smart yards”, to use the term they're coining now—for more efficient movement of goods. That's good for our industry and for the suppliers who are developing this technology and working with the railways to provide this development.

Obviously, we see the bigger picture, the competitive advantage, for investments in our gateway strategies, and we're 100% supportive. We will go wherever you want and we'll talk about the greatness of these things. We just have to make sure we're involved with these investments as well.

There is another part of that investment in the infrastructure, in the technology and the equipment, and the Canadian rail manufacturers and suppliers need to be a part of that equation. They need to be feeding into that system, because at the end of the day we represent more jobs than all the railway operators out there. We're the ones who are making these things. I just put it to this committee that this is part of that concept; we're a part of that equation for growth.

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

Changing direction a little bit, I think one of you mentioned the work-sharing program, or maybe you said something that made me think of the work-sharing program operated through EI, which enables us to weather the storm a little bit by using the EI system to keep people in their jobs, by reducing the amount of time they work but having EI top it up a little bit.

Are you familiar with the program? Could you speak to how your companies are using it? I think it's a very important program as we look at companies that need to come through this, that need to cut back on their costs to weather the storm but need to come through it with a labour force that's still there when we come out so that they're not scrambling to catch up.

[Fiona Cook]

The last budget increased the duration of that program, I think it increased from 36 to 52 weeks. It is very positive. In fact, we've had one member company contact us for information on it. They've used it in previous downturns as well.

Again, because our sector requires such highly skilled people, you don't want to let them go. This program allows you to come to some kind of agreement to reduce their work week and use the program to supplement their hours. It's very positive.

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

Jay, do you have any thoughts on this?

[Jay Nordenstrom]

The concept is absolutely positive, as is the principle behind it. I just cannot speak knowledgeably about members who have accessed this program. I just don't know.

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

That's fair enough.

[Jay Nordenstrom]

What I usually hear about are not the good news stories; I get phone calls telling me they are in bankruptcy protection and have to furlough half of their employees and asking how I can help them or channel the government to help out.

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

Maybe you can pass on the word that instead of laying off half their employees, they can lay off a lot fewer and come out a little stronger by using the work-sharing program.

[Jay Nordenstrom]

Absolutely. That's a great point.

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

How much time do I have, Mr. Chair?

[The Chair, Conservative, Dave Van Kesteren]

You have a minute and a half.

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

I'm going to move quickly to R and D with Mr. Paton.

Your report card gives a fairly good mark to science and technology. I think you would probably agree that one of the challenges we have in Canada is in taking science and technology to commercialization. Could you speak a little bit to some of the challenges we have there and maybe to some of the things your organization's members are doing to facilitate commercialization?

[Richard Paton]

As Fiona was saying, the R and D tax credit is very useful to us. We have a number of companies that benefit from it. That probably is the reason they're able to do the amount of R and D they do in the country, notwithstanding the fact that R and D generally flows to the headquarters organizations.

The issue we have may be a bit of a different way of looking at this. In policy terms, what I see is that we tend to think that if you do the R and D here, then you will develop products here and you will produce them here. That's this linear model of thinking on R and D and that's not our experience in industry. If you don't have a viable manufacturer here, that manufacturer will not demand R and D to improve its product or adapt or change its product. They will have no position within the headquarters company to generate R and D.

Also, a lot of the R and D in our case is “D”: developing and modifying the product, making it more flexible, changing its nature. If you think of a pulp plant, it might be a certain type of paper or a certain type of water quality. You modify your product or your process to deal with that specific aspect. You invent a new way of dealing with it.

It's not a simple question of moving it from R and D to commercialization. In our view, you also need to have a very strong manufacturing sector with a very strong value-added type of dynamic. That will also help attract R and D, because that will be specific to our country. If we do carbon capture and storage in your province, Alberta, we will probably be the world leaders. Guess what we'll be doing then? We'll be doing what Jay's doing and selling that externally.

So when R and D are related, or the “D” is related, to the unique characteristics of our industry or our country, we have a much better chance to do the research and development and then commercialize it, because it is part of the fabric of who we are. You see that in some cases in the agricultural business. In certain areas of agriculture, we're leaders in the world because we have certain climates and certain types of grains and so on that enable us to be leaders.

I think it's a more complex issue than doing a whole bunch of R and D and assuming industry will come. I've seen this in Britain. I've visited places in Oxford where they're doing a huge amount of R and D. Notwithstanding the fact they did it and notwithstanding the fact they patented the materials, the reality is that because they didn't have the environment to support manufacturing, the Japanese or the Chinese came in, bought the stuff, moved it all offshore, and produced it somewhere else.

Having the R and D doesn't necessarily generate growth. You need to have the other conditions to benefit from it.

[The Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. Paton.

Monsieur Bouchard.