Industry Committee on Oct. 24th, 2006

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

Do I have any time left, Mr. Chair?

[The Chair, Conservative, James Rajotte]

Sorry, we're over a minute over.

We'll go to Mr. Masse, for five minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

I just wanted to follow up with some of the solutions that are being proposed here.

With regard to the two years and the tariff safeguard, what other countries—you mentioned this at the beginning—are pursuing this? Are there any left that can pursue the safeguard that have chosen not to? Are we the only ones not enacting that?

[Lina Aristeo]

The United States has enacted safeguards. The European Union as a whole has enacted safeguards. South Africa has enacted safeguards. Some South American countries have enacted safeguards. I will send to every member of this committee a complete report; it just wasn't bilingual for today. We can look at every country. I'm sure there are some countries that haven't enacted safeguards, but our competing markets have all put safeguards in place. That's what is important here.

If all the places we're trying to send our clothes to are limiting Chinese imports, or if all those places that are also buying Chinese imports...if the imports are being limited...if these clothes aren't going to places all around us, they're going to come here.

It's easy. We're able to do it. There are still two years. The clock is ticking, it's true, and I think it will be absolutely devastating to not do it.

[Brian Masse, NDP, Windsor West, ON]

That's an important note, especially with the United States enacting it in their current industry.

One of the things that I thought was one of the more interesting proposals—and I think there is probably some support for it universally—is redirecting savings to an investment tax credit for new manufacturing machinery and equipment. Maybe you could expand on that.

I know the CLC has that, but I would like to hear from all the panel in terms of that as a potential solution.

Also, how do we make sure that procurement and that incentive stay in Canada, that we couple that with a good training program through employment insurance, where it should be used, and I guess secure that incentive over a period of time, as opposed to the general corporate tax cut, which is currently the status quo?

[Ken Georgetti]

We do support, for new manufacturing, investment through a targeted program, and tax cuts for those measures, rather than across-the-board corporate tax cuts, which mainly benefit the energy and financial sectors, which, frankly, today don't really need it, I would think. Building on the partial success of the automotive strategy, we support a temporary investment tax credit for investment in new manufacturing for machinery and equipment.

Let me just elaborate quickly on our suggestion on using EI for training.

In Canada, when maternity benefits were put into the EI act, there was a concern that we in the union movement would stop bargaining maternity benefits because it was provided for under employment insurance. The government put a program in place that said if you negotiate or if you're not in a union and the employer delivers maternity benefits that are superior to those in the act, they actually get a premium rebate on their unemployment insurance. Last year, Canadian corporations realized $1.3 billion in tax savings in their EI premiums for giving maternity benefits to Canadians that were superior to those in the act.

We say why not do the same thing with training, and incentivize training through that act rather than giving back money through notional unemployment insurance surpluses? There is lots of room to move without having to move too far or too radically in the tax system.

But blanket exemptions don't work. And when you keep doing the same thing and expect a different result.... I'm told that's the definition of insanity. That's what we keep doing.

[Jorge Garcia-Orgales]

As I mentioned earlier, and as Mr. Georgetti said, we believe in sectoral industry strategies and sectoral industry councils. We see the employers, the unions, and the federal and provincial governments working together in a strategy for that particular sector, which will allow the growth of the industry in Canada. We see all the taxes, loans, and grants that are coming out of proposals, and the ideas that those sectors will propose, being directed to the industry in a targeted manner. We think that research and development, investment in plants, equipment, and training are areas in which taxes could be effectively used for promotion. Instead of blanket tax cuts across the board, we think those moneys should be directed to promotion of the industry at all levels.

At the same time, we believe the industry, in all its components--workers, employers, and government--is the best body to develop those sectoral strategies and the tools they need to implement them, from investment to tax relief to whatever they consider necessary to put it in place.

[The Chair, Conservative, James Rajotte]

I'm sorry, we're over time, Mr. Masse.

Thank you. We'll go to Ms. Stronach for five minutes.

[Belinda Stronach, Liberal, Newmarket—Aurora, ON]

Thank you. First of all, I want to say that I appreciate your presentation and the concern you show for Canadian workers and their jobs.

I couldn't agree more with Ken that we need to be discussing these important issues in the House of Commons, and we need to elevate these issues, because they're not on the radar screen. We owe it to Canadians and we owe it to Canadian workers to be talking about global competitiveness and to develop a strategy to make sure we keep jobs in Canada.

I also couldn't agree more--and it's music to my ears when I hear you speak, Mr. Garcia-Orgales--about the need for a sectoral industrial strategy, a strategy sector by sector. That's something that I've been speaking about for a while, so I'm very happy to hear you talk about that.

In some ways, this question has been answered in part, but I'd like to ask what incentives should be put in place to establish more manufacturing operations in Canada.

I have another question that relates more to research and development. Patents are a good measurement of research and development and are what actually leads down the road to commercialization. Canada doesn't even rank within the top fifteen in the world in terms of new patents being developed. In fact, we now rank thirtieth at patent filings per Canadian resident per $1 million of R and D spending. We rank behind Japan, the United States, China, Russia, India, Sweden, and Brazil, and when you look at the remarkable rate at which China and Korea are progressing, that threatens the manufacturing industry and other industries in this country.

So what incentives should be in place? As a broader question, in research and development, what are we missing? What can we do to stimulate or to shorten the lead time, to see new patents, to see commercialization of those proprietary products or knowledge?

[The Chair, Conservative, James Rajotte]

Mr. Garcia-Orgales.

[Jorge Garcia-Orgales]

We think, again, the tax system is the proper mechanism to implement research and development and to guarantee implementation. We don't think there exists in Canada at this point a proper mechanism, even when there is a fund that is used once in a while, and I think last year $1.3 million was used in the fund to support new technology. We consider, number one, that there has been rhetoric about innovation going around for the last ten years, but there are very few tools in place to allow that innovation to happen. That mechanism is one of them.

Secondly, we believe in a green industrial policy. I mentioned earlier that we think there is a lot of opportunity, but that implies research and development. That implies a new way of thinking about all the opportunities we have around. Then we think a green framework that will allow for proper development of the industry also has to be in place.

We also believe that at this point in time there is not enough control in the education system of the use of the knowledge developed in our universities. In many cases, universities develop knowledge, professors develop knowledge, and I think, as you know, often that knowledge is opening a company someplace else and somebody else is making money.

We also believe that the opportunities companies have to work in partnership with universities, with educational institutions, should be monitored and controlled to make sure that the subsidies governments are putting into educational institutions and the subsidies that are, at the end of the day, transmitting this new knowledge stay in Canada.

Those are three measures that I can think of quickly in terms of research and development.

[Belinda Stronach, Liberal, Newmarket—Aurora, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Georgetti.

[Ken Georgetti]

I would just add one, Ms. Stronach. We also would recommend a sector development bank to assist in the restructuring of firms through injections of long-term equity targeted to firms, particularly in hard-hit sectors such as textiles and clothing and pulp and paper.

Given some of the news in the last couple of weeks, we'd be remiss to not suggest that we're going to have to, whether we like it or not, review the income trust laws in this country, the development of the income trusts, and the concerns about how that's going to restrict firms from reinvesting in developing their own products or expanding their own capacity.

[The Chair, Conservative, James Rajotte]

Unfortunately, we're out of time.

[Belinda Stronach, Liberal, Newmarket—Aurora, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

I have two members who've indicated they want to ask questions, and then I'd like to ask some final questions, if that's okay.

I have Mr. McTeague and Mr. Crête.

Mr. McTeague.

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

Thank you for being here today.

That was very interesting. This is a difficult situation, and I believe that all of you, in your own words, have described the extent of the problems. This is something very serious, especially for us members from Ontario.

Let me ask you a couple of questions, and I may do this in very short order.

There was discussion here a little earlier about the impact of China, and of course Canada does have a significant trade relationship, depending on where you go in the country, with that country. In regard to the issue of counterfeit products coming to Canada, have any of your organizations looked at this as a potential...to ensure that products that do come into Canada are in fact legal? We are noticing a larger proportion, and Canada seems to have some work to do with respect to laws as they relate to products that are here, and in particular with respect to laws that would protect some industries here in Canada.

I'll leave that to all of you to answer, if you wish.

The second question deals, Mr. Georgetti, with your comments with respect to training. I've spoken to a number of business leaders--not from the organization you had mentioned, from the old Business Council on National Issues, or whatever they're calling themselves these days--who talked to me about the fact that if they could work the EI system differently, in such a way that there'd be an incentive to train and to hire long term, such that you might have a situation where rather than sending this money back to the government to train someone down the road, they would in fact take the risk themselves. Often what happens is they will train somebody, say in the electrical industry, with a job for twenty- or thirty-year commitments, but that person may very well wind up working for another company. It seems that there's not a question of shared risk there. I'd like to get your observations on that, considering the problem I have in Ontario with maintaining jobs, but also the dearth of job applicants that exist in the chair's riding, in the regions in Edmonton, where they can't find enough workers.

[The Chair, Conservative, James Rajotte]

Mr. Georgetti.

[Ken Georgetti]

Again, I think the proposal you're referring to was one from the Canadian Manufacturers and Exporters Association, and we have been working with them.

Although our two suggestions are nuanced a little differently, I think we're saying the same thing. Our program would say that those employers that do train and worry about having their employees poached are at least going to get some form of recognition through an EI-type program. We think that's a good system. After all, the system was changed from unemployment insurance to employment insurance, and what better way to ensure employment than to use that fund to skill workers so that they themselves can prevent those periods of unemployment?

In terms of the question about China, though, I think that's a good question. Our trade deficit with China from 2002 to 2005 has moved from $12 billion to $22 billion. We shouldn't be constrained or hampered by trying to enforce or check all the cargo coming in; I think the responsibility is China's, and the fact that China doesn't enforce those rules, doesn't enforce environmental rules, and doesn't have the same kinds of environmental checks it would take to build a dam or a nuclear power plant is de facto a subsidy. Yet in our trading agreements we don't consider those measures subsidization. When we have to compete against different rules like that, we are at a disadvantage. That's the only rub we have against trade deals.

We are a trading nation. We think trade is good, but it has to be on a level playing field with equal rules. When you have a country that allows people to violate patent protections and copyright and get away with it, it's not our problem, it's theirs, and we should deal with it through sanctions, not through us having to put more enforcement mechanisms in place to check their bad behaviour.

[Jorge Garcia-Orgales]

I would like to add that the counterfeiting problem is important, but the real problem is the amount of manufactured goods that are coming into this country from China without a counter-balance--that is, manufactured goods going from this country to China. We believe that is where the energy has to be put.

The European countries, Japan, and many other countries are using their internal legislation and even their international trade laws to impose on China the obligation to buy more products if they want to sell. It's not the Auto Pact that we used to have, but there are mechanisms in place that the European Union is using with China. We believe, counterfeiting or no counterfeiting, we need to increase the pressure on China for China to import more manufactured goods from Canada.

China is making all kinds of products that are selling here, but they are not buying in Canada the equipment they use to make the cheap products. We could have good jobs in a highly skilled industry, the equipment industry. They are buying equipment from Japan to make cheap products to sell in Canada. That is the angle that I think we need to explore.

[The Chair, Conservative, James Rajotte]

Ms. Aristeo.

[Lina Aristeo]

I agree, so I won't add to what they said. But what's also becoming a problem with the goods coming in from China--because we all keep saying they're cheap goods--is that it's not going to be just cheap goods pretty soon. Some of these places that are struggling to stay alive here in Canada have models of suits coming in from China and are flipping out at how great the quality is. So we can't count on, oh, don't worry, we'll keep the good-quality market; we'll keep that niche.

Do you know what? We are able to keep it because we still have a bit of an advance over China, but they're coming up and they're coming up pretty quickly.

[The Chair, Conservative, James Rajotte]

Thank you.

Mr. Crête.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Mr. Vaudreuil, you said that if the capital tax were abolished, a way would have to be found to lead people to invest in businesses. So instead of paying the capital tax, we could tell businesses that, if they invest, they'll contribute less to that tax. Did I understand you correctly?