Industry Committee on June 15th, 2006

[Marta Morgan]

In many cases, our mills are located in rural areas where there is no other method of transportation, and/or where trucking, which would be the natural alternative, is prohibitively expensive, because of the nature of our products and the markets they're destined for. So it's not a viable competitor.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Okay.

I'm interested in finding out where you felt reviewable matters, which I think are consistent with the European and U.S. restrictions on any merger proposal.... I take it your concern is to bulk up the act that was rewritten in 1986 primarily to allow that. Section 96 of the Competition Act has been used before by other industries, particularly the propane industry, to create a veritable monopoly, because if you could demonstrate inefficiency, regardless of its impact, you could virtually have a monopoly, as long as it was efficient.

I'm wondering if you could give this committee illustrations, or tangible examples, of where you felt the Competition Act, or the bureau in terms of its investigation, may have sent that so-called—I think you referred to it as a chill in the marketplace, such that it would have prevented the kind of bulking up you believe your industry so desperately needs.

[Marta Morgan]

There have been a number of examples of mergers in the early part of the decade on the pulp and paper side of the industry, and most recently on the solid wood side of the industry, that the bureau scrutinized very closely. In many cases, the bureau imposed conditions on the merger. I would be happy to provide you with more detail on that.

Our issue is twofold with competition policy, and one part is its application. It's our view that the markets we're operating in now are not being properly understood by Canadian competition authorities to be what we perceive them to be, which are global markets in which Canadian firms are essentially global price takers. The impact of mergers on domestic competition is being overstated, because of the lack of appreciation of the way that markets have changed over the last 10 to 15 years.

So it's partly an implementation issue and partly an issue of competing policy priorities, where—

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

What are the circumstances in which you have an international takeover, say Weyerhaeuser taking over MacMillan Bloedel? How would that improve your association, which is made up of Canadian companies, if you make the restriction any more amenable to takeovers to, as it were, bulk up? How would this improve the Canadian lumber industry or the Canadian forest products industry, if indeed they're taken over by international conglomerates?

[Marta Morgan]

In my view, it would be easier right now for a Canadian forest products industry to be taken over by an international company than to merge with another Canadian company. That is really the dilemma, because as you know, when the head office migrates somewhere else, there are a lot of jobs and economic activity going with it.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

That's extremely helpful.

I've noticed from some of the papers today that there's a U.S. slowdown, probably not just because of energy, but also demand for housing and autos. They're referring to it as a “soft landing”, and I think these are some of the concerns we have in terms of how to best address that.

If interest rates rise at any point in the not-too-distant future, what impact do you see this having on your industry overall, not just in terms of housing, but overall with respect to the picture in the U.S., where I presume most of your exports go?

[Marta Morgan]

A steady increase in the interest rates in the U.S. would likely lead to a further deceleration of the housing market. It will make debt-financed housing, which is what most of us rely on, more expensive.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McTeague.

We'll go to Monsieur Arthur.

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

Both of you have emphasized how proud Sweden is of its forest industry and how envious you are of the Swedish government promoting its own forest industry.

Following up on Mr. Lapierre's question, I'm from Portneuf--Jacques-Cartier. When you see Saputo-Tembec close an industry that was modern and operating very well, and leave everything there, with big fences, in a total disrespect of a mono-industrial locality, when you have Bowater in Donnacona, which keeps taking its own employees hostage to get more subventions, and then you come to the Hill and say that the Government of Canada should promote your industry, how do you think it should be taken by the victims of the behaviour of the companies that pay your fare here?

[Marta Morgan]

The decision to close any facility is a very difficult one for a company. Our companies are well aware of the difficulties it creates for their employees and for the communities they live in.

When we look at the Scandinavian example, one of the things the Scandinavian countries did in the early 1990s and through the 1990s was to consolidate and rationalize their production into larger, more efficient, more productive mills, which they're benefiting from today. That is a step they took that has proved for them to be a contributor to their competitiveness and to their overall employment in the sector.

But certainly we see this every day. Our companies live this. They don't take these decisions lightly. They would certainly be happier to be in a better financial position and be able to keep more facilities running.

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

My point was, how would the Government of Canada look if it had decided to promote your industry the day before Saputo-Tembec did what it did? The government would look like a fool. Why do you want the Government of Canada to step behind your companies while even you must admit that their image, when they do such things, is very bad? Why would the government invest its own credibility with your industry when your industry behaves like that?

[Marta Morgan]

We see ourselves as an industry that produces useful, sustainable, high-quality products that are produced in the most sustainable way possible. We treat our workforce with great respect. We take these decisions with difficulty, but we see this as a great Canadian industry that has been through periods of change and transformation before and will continue to be a great Canadian industry that we can all be proud of.

[Shawn Dolan]

I would just add that the notion of the Canadian government getting behind our industry the day before a plant closes in Quebec is obviously a terrible one, but I think what we're trying to go towards is the Canadian government and the industry working together to promote this industry on its merits to Canadians so that, not the next day, not the next month, but further down the line, fewer and fewer of those stories occur.

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

That would be the day when government would feel safe in going behind you.

[Shawn Dolan]

It's the chicken and the egg.

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

You cannot ask the government to put its own credibility behind organizations that behave like Saputo did.

[Shawn Dolan]

Well, I'm not going to get into an argument about one particular case. We're very comfortable standing behind our industry as a whole. We're not asking the government to put its credibility on the line.

I would only pose this question. Why do the procurement policies of the Canadian government favour importing steel to build an arena in the small town that you're talking about when wood is cheaper, Canadian, and more environmentally friendly?

[André Arthur, Independent, Portneuf—Jacques-Cartier, QC]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Monsieur Vincent, and then we have Mr. Fontana.

[Robert Vincent, Bloc, Shefford, QC]

First of all, I would like to tell Mr. Lapierre that we should revive the Program for Older Worker Adjustment. We asked for that for 18 months, but you did not respond. We are now asking the Conservatives and I hope that they will respond favourably.

In your view, how many people have been laid off in the pulp and paper industry since 2002?

[Marta Morgan]

It's approximately 11,000.

[Robert Vincent, Bloc, Shefford, QC]

Can you explain to me how, despite the loss of 11,000 jobs, production capacity has remained the same since 2002? In 2002, the production capacity was 92.1 per cent and in 2005, it was 92.9 per cent. How could we have lost 11,000 jobs and yet keep the same production capacity?

[Tom Rosser]

As we have mentioned on a number of occasions, the most important factor is the rise in the industry's productivity, which is ongoing. In fact thanks to that increasing productivity, fewer workers are needed to produce the same quantity of goods.

[Robert Vincent, Bloc, Shefford, QC]

As a result, the job losses were not caused by the rise in the value of the dollar but the use of new technology.