Industry Committee on Nov. 20th, 2006

[The Chair, Conservative, James Rajotte]

Order.

Good morning, ladies and gentlemen. We are very pleased to be here in Halifax to start our cross-country tour on the challenges facing the manufacturing sector.

This is the 29th meeting this session for members of the Standing Committee on Industry, Science and Technology. We have been studying since spring the challenges facing the manufacturing sector. We hope to complete this study at the end of this week in terms of hearing from witnesses. Then we will move right into the report that we will present to the government, hopefully in mid-December, in preparation for the budget in February or March.

We will go right to witnesses. We're very pleased to have with us, for the first hour and a half, from Offshore/Onshore Technologies Association of Nova Scotia, Paul McEachern, managing director; and Don MacLeod, legal counsel. Following them will be the president of J.D. Irving, Mr. Jim Irving.

We'll go now to the ten-minute opening statement from Mr. McEachern.

[Paul McEachern, Managing Director, Offshore/Onshore Technologies Association of Nova Scotia]

Thank you, Mr. Chairman.

Just to clarify things, Mr. MacLeod is vice-president of Secunda Marine Services and their legal counsel. I didn't think it was necessary for me to provide my own lawyer to appear before this committee.

Thank you very much for coming to Nova Scotia and providing us with this opportunity to address you today.

Very quickly, OTANS is a trade association that represents about 400 member companies in the Maritimes and Newfoundland and Labrador. These companies are involved in the supply of goods and services related to energy--primarily offshore oil and gas--although some do work in the renewable area as well. Approximately 30% of our companies do exporting, and they've successfully competed and won business in such areas as the United States, Europe, and to a lesser degree South America and the Middle East.

As I mentioned, with me today is Mr. MacLeod of Secunda Marine. Secunda is a member of our association and is based in Dartmouth. It has a fleet of offshore supply vessels and associated marine assets, which employ between 300 and 400 Canadians here in Halifax and Dartmouth and operate around the world.

I propose to make a quick introductory statement and then open the floor to your questions and comments for both of us.

Your task is to examine Canadian competitiveness. Our role today is to discuss measures that may seriously impact on our ability to do so, not on a global basis but here in our own front yard. Canada is a trading nation, and we welcome opportunities to open new markets for our member companies and our employees. However, we wish to advise the committee of the dangers to a fledgling industry, namely the offshore oil and gas industry, and the resulting economic benefits to our region and country posed by current attempts to reach a free trade agreement with EFTA, which is the European Free Trade Association.

We'll wrap up our comments with a few words on the Canadian shipbuilding policy.

The European Free Trade Association is made up of four European countries: Norway, Iceland, Switzerland, and Liechtenstein. Canada, if successful, would have a so-called free trade agreement with these four small European countries. From a philosophical standpoint, we're not opposed to free trade. EFTA, however, doesn't constitute an initiative that would liberalize trade or benefit the Canadian economy as far as we can see. This very narrow initiative would in fact cause great harm to certain sectors of the economy, not just the offshore oil and gas industry here in Atlantic Canada but also, in particular, the offshore vessel operators and the shipbuilding industry.

It has been suggested that Canada is falling behind the United States in the signing of bilateral trade agreements with other partners around the world, and that we will lose ground if we don't keep up with our neighbour. We can assure you that any agreement that the United States would ever sign would have a carve-out of the Jones Act that preserves U.S. coasting trade for U.S.-built ships.

Four years ago we, as well as many other parties including several provincial governments, came to the conclusion that an EFTA free trade deal just didn't provide enough benefit to Canada. We were advised that carve-outs for shipbuilding and the 25% tariff on vessel importations would not be palatable to the Norwegians. Without such a carve-out as that provided for U.S operators under NAFTA, an agreement with EFTA would not be acceptable to Canadian vessel operators and shipbuilders.

We'd like to make a couple of points on EFTA, but they are also applicable to some degree to the Singapore and Korea discussions. First of all, what is the benefit of this for the country? FTAs must be mutually beneficial, and they must lead to economic benefits for both parties. When officials in the Government of Canada have been asked for the statistical analysis and data that show some type of a cost-benefit analysis for such an agreement, they've been unable to produce any such information for us. We believe it's because they haven't carried out such studies. Officials also suggest that an agreement with EFTA countries would somehow allow us to gain access to the European Union, but no explanation is forthcoming as to how that would be arrived at. We see no benefit to Canada out of these negotiations as they're constituted. We fail to see how any agreement with this European rump would allow Canadian entry into the European Union.

On the rules of origin, under the proposed rules of origin--I know this is complicated for those of you not in the shipping industry--there would only have to be between 35% and 50% Norwegian content in any vessel exported from Norway to Canada. That would allow the Norwegians to build the hulls of the vessels offshore in low-labour countries such as Romania and then bring them to Norway to be outfitted. Therefore about 50% to 65% of a so-called Norwegian ship could be built outside of that country but would be treated as a Norwegian vessel and allowed to enter Canada without paying duty.

A Canadian owner, on the other hand, would not be able to import a similar hull from a low-cost country and outfit the ship in this country without the attraction of a 25% duty on that hull when it entered service.

Clearly the Norwegians knew what they wanted when they came to the negotiating table, and the Canadian negotiators did not have an appreciation of what they had agreed to with the Norwegians.

For national policy objectives, all free trade arrangements provide for or allow specific exclusions for sensitive industries. Under NAFTA the United States specifically carved out the shipping industry and shipbuilding under the Jones Act, which precludes Canadian vessels or Canadian-built ships from participating in the coastal trade of the United States. The U.S. felt it appropriate to protect these sectors. Under the circumstances through which Norway has developed its offshore oil and gas sector with very strong protectionist policies, we believe Canada would be wise to do the same with EFTA.

When it comes to the offshore on the eastern coast of Canada, and eventually the north and British Columbia, it is an important element that EFTA be considered and that it be stopped. The development of this industry in Atlantic Canada is perhaps the single most important economic impetus to hit this region in the postwar period. Given that the offshore oil and gas industry in Newfoundland and Nova Scotia is at its beginnings, and it is a stated policy of the federal government, both this one and previous governments, to ensure that Newfoundland and Nova Scotia are the primary beneficiaries of offshore oil and gas development under the accords, it is entirely appropriate that this sector should be maintained for Canadian companies.

If Norwegian vessel operators are allowed into this market at this stage, they will bring their various support companies, their service industries, and other elements of the offshore oil and gas industry with them. Atlantic Canadians and all Canadians will be out of luck, and we fear they'll be out of business.

Norway has a very successful offshore, one that we're very envious of. For the last 30 years they've grown into one of the world's largest oil exporters. Foreign competitors have not been able to penetrate the Norwegian market due to non-tariff barriers, including government-regulated tendering processes that essentially preserve the Norwegian offshore for Norwegian companies. In addition, Norwegian vessels have been built under subsidy. As well, Norwegian vessel operators have had very favourable tax regimes and corporate structures that enable them to grow and develop, having had the advantage of a strong protectionist policy and strong government support.

Today they now seek free trade with this country. Obviously the playing field is not level under those circumstances. That country has approximately 400 offshore supply boats. In its fleet they've built more than 200 since 1997. Should the Canadian marketplace become accessible without the requirement to pay a 25% duty on vessels, Norwegian companies could dump their vessels at very low prices. Canadian operators, who have been forced to operate under the existing regime, where they have to pay either expensive Canadian and U.S. vessels or pay the 25% duty on foreign-built vessels, just wouldn't be able to compete. Essentially we'd be sitting on the shore while the Norwegians helped exploit Canadian resources.

On tariff policies, EFTA, should it proceed, would be in direct contradiction of the established federal shipbuilding policy. The Government of Canada views the development of Canada's east coast offshore oil and gas sector as a key development in the growth of that shipbuilding industry. On the one hand, the shipbuilding policy is premised on the fact that there will be an expanding and growing Canadian offshore industry from which Canadians will benefit. On the other hand, through EFTA a very strong foreign competitor would be able to unfairly enter the Canadian market before our industry had a real opportunity to establish itself and set down roots.

We have yet to get an answer from government, particularly from its officials, to several pertinent questions. We are asking you to go back to Ottawa, ask these questions, and please share the answers with us.

First, where is the analysis of the benefits of such an agreement in the type of detail that one would deem necessary when committing a country to such an arrangement? It is not that we merely don't like the answer. The fact is that officials are unwilling or unable to provide us with such an answer and a requisite analysis.

When asked directly what sectors of the Canadian economy could possibly benefit from an EFTA agreement, there is no substantive answer forthcoming. We've asked for five years on this and we still don't have an answer. It is presented merely as a leap of faith. Surely a country does not enter into such a set of negotiations without articulated, accepted objectives and an ability to inform Canadians on the specific benefits and potential downfalls.

As I mentioned before, we believe any trade negotiations with EFTA would be at variance with the federal policy of ensuring that Newfoundland and Nova Scotia are the key beneficiaries from offshore oil and gas development, as stipulated in the federal and provincial legislation known as the accords. Not only would shipyards and vessel owners be severely hurt by this initiative, but all of the emerging offshore service and support companies that supply shipyards and vessel owners in Canada would be hurt as well.

Not only will shipyards and vessel owners be severely hurt by this initiative, but all of the emerging offshore service and support companies that supply shipyards and vessel owners in Canada would also be hurt. It is mainly those people whom I represent today. We represent shipbuilding and shipowners in Atlantic Canada, but we also represent a large supply chain that we think is at risk.

To be blunt, we believed that we had turned the page on this chapter several years ago when this was put on the back burner, but apparently this is not the case. We urge the committee to ask the questions that we have and insist that the government put forward an open articulate case before embarking on their chosen path.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. McEachern.

We'll now go directly, I believe, to Mr. MacLeod.

Mr. MacLeod, did you have a statement as well?

[Don Mac Leod, Vice-President, Secunda Marine Services Limited (Nova Scotia)]

Yes, I did.

[The Chair, Conservative, James Rajotte]

I see.

[The Clerk of the Committee, Mr. James M. Latimer]

My understanding was that there was ten minutes for the organization.

[The Chair, Conservative, James Rajotte]

Okay.

Could we ask you to make it very brief? Our understanding was that there were only two presentations this morning.

[Don Mc Leod]

I see. Is there enough time for three?

[The Chair, Conservative, James Rajotte]

Is that okay with everyone?

I'm sorry about that. We had a misunderstanding.

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

We are here to listen.

[The Chair, Conservative, James Rajotte]

Mr. MacLeod, we'll go to you.

[Don Mc Leod]

Thank you very much.

The topic under discussion is manufacturing and competitiveness in Canada. It's maybe a bit odd for a service company such as Secunda Marine, which owns and operates vessels, to be here talking about manufacturing, but we use ships that are built, and they're manufactured, and therefore the policies that are implemented with respect to vessels have an impact on our business. Actually the regime that has been in place has dictated and created a set of circumstances such that our company has actually had to become a manufacturer of ships in order to be competitive.

To give you a little bit of background on our company, we own and operate a fleet of 16 vessels that work worldwide. We're based in Dartmouth, Nova Scotia. We're a one hundred percent Nova Scotia Canadian-owned company based here in Halifax and Dartmouth. We work in the domestic market as well as in the international market. In terms of competitiveness with the Norwegians, we work in the Gulf of Mexico, we work in the North Sea, we work in west Africa, and we work here. We know about competition, and we know how well suited and well positioned the Norwegians are as far as our sector is concerned.

In Canada we have one policy with respect to shipping and shipbuilding, and that's a high-tariff policy. I will try to explain how in Norway they have a whole range of policies and initiatives in place that support their very vibrant and strong shipping and offshore sector. In what's being proposed in the EFTA situation--this negotiation with the powerhouses of Switzerland, Liechtenstein, Iceland, and Norway--our main concern is with Norway. The fact of the matter is that if you were to choose the strongest competitor in our sector, and open the door to them, and let them come in and walk over us, that competitor would be Norway. So it just isn't logical.

I have a whole list of questions here, which I've been posing to everybody in the government for about three months. Madam Denise Verreault, who runs Verreault Navigation in Quebec, summed it up in one sentence: What's in it for Canada? What's in it for us? Nobody can answer that question. They say we're falling behind the United States in the number of free trade agreements we've negotiated, or that we need to get access to the European market. In response to that I ask, how do you get access to the European market with a rump that is not part of the EEC? The reason they're not part of the EEC, particularly in the case of Norway, is that they want to perpetuate their protectionist policies and do not want to comply with the open trade policies that are in place with the EEC.

I get a sense that somebody in the bowels of the Lester B. Pearson Building has decided free trade agreements is what they do. This is what is exciting for a new minister, so let's float this trial balloon and see where it goes. So something that we thought had a stake in the heart four years ago is rising from the dead like Lazarus. We're faced once again with having to mobilize people to explain things to a new group of trade negotiators who really don't know anything about our industry. The new lead trade negotiator just got his job about three weeks ago, and he's off to Norway to negotiate our industry away.

In any event, let me just address a few of the issues that Paul has touched upon.

In terms of the size of our company and the offshore, the offshore is extremely important for Nova Scotia. Our company has been a success in terms of exporting homegrown technology and expertise worldwide. We have an asset value of over $300 million. We had revenues last year of $95 million. We employ upwards of 450 employees based here in Halifax, and also in all of the small communities in rural Atlantic Canada. It's not just Halifax that's benefiting; it's all of the places like Sheet Harbour and Mabou, and Shelburne, and little towns in Prince Edward Island and New Brunswick and so on. The economic benefit from this industry is not localized in one area, but spreads throughout the region, so the impact is tremendous.

In the past fifteen years we have spent over $160 million in terms of major retrofits and conversions on ships. We retrofit and convert vessels because of the high tariff policy. We bring in a vessel at a low value, pay low duty on a low value, and then do upgrades--sweat equity--to improve the value of a ship here in Canada so that we don't have to pay the high duty.

A picture is worth a thousand words, and since it's in neither French nor English, I think it would be acceptable to everybody for me to pass around a couple of pictures to demonstrate what we do. This has a direct bearing on the question of rules of origin.

The top picture is of a Russian hull that we purchased and brought back to Canada. We had two of these vessels. At the dock on the Dartmouth side of the harbour, in a span of nine months, we converted the two vessels into the vessel that's shown below. The ship has been working at Petro-Canada on the Terra Nova project for six or seven years now.

That's an example of how our company has worked within the existing framework of the high duty to bring value to Canada and do the work here, because we have to live with the fact that we pay 25% on the importation of a vessel that's built outside of Canada. If we were to build a vessel in Norway or in Singapore or wherever, we'd bring it in, pay 25% duty on it, and off we'd go. Of course it's difficult to finance that; it adds costs to the project and so on.

So we've built our company around the existing policy. What's odd is that under the rules of origin that will be implemented in the EFTA agreement, which Paul alluded to, a Norwegian shipyard could import a hull from, say, Romania, outfit it in Norway with Norwegian kit, using Norwegian employees, and it could have maybe.... They haven't decided what the threshold is going to be, but we've heard a couple of numbers. They could have between 35% and 65% non-Norwegian content in that vessel, yet to bring it into Canada, under EFTA, it would be treated as a Norwegian ship, and therefore brought in duty-free.

Again, that's 35% to 60% non-Norwegian content in a Norwegian ship, imported to Canada on the same status as a Canadian-built ship. If we were to build a ship like this, where we bring in a hull and put, say, 95% Canadian content value added to it, we would still have to pay the duty on the hull we bring in. It's ridiculous.

I guess that's an example of the fact that our negotiators and our people who are looking at industry policy don't really understand the policy, and are out negotiating and making decisions with respect to our industry without really appreciating the consequences.

I go back to Madam Verreault's question: What's in it for us? Nobody can tell us. If you had winners and losers, you could understand. You could understand that one sector benefits, another sector loses. But no sector seems to win as a result of this EFTA agreement. Why are we doing it? I get a sense that there's a momentum to do free trade agreements regardless of the consequences. But if you're in business or if you're a country, whatever you are and whatever you do, just to do something for the sake of doing it is not a good reason. And I get the sense that's what's happening right now.

Mr. Irving's organization and our company met with the Minister of Industry a couple of weeks ago to discuss what's going to transpire in terms of the future policy of shipyards and the marine industrial sector. At that time we put forward a number of proposals. Before I address those very briefly, let me give you a sense of Norway.

Norway has built vessels for the past fifteen, twenty, thirty years on subsidies. They have a protective procurement policy. They have a regulatory process that protects the sector for Norwegian operators. They have fiscal policies akin to limited partnerships that allow investment in vessel-owning companies, which attracts investors. Here in Canada, for capital-intensive business we don't have a similar regime. A whole host of policy initiatives need to be reviewed, considered, and studied before they eliminate the one policy for shipyards and ship operators, the high tariff.

The Norwegians will have all of those other policy initiatives in place to prop up and support their sector, whereas the one policy that is in place for Canada will be eliminated, and we will be at the mercy of a very strong, very vibrant international competitor.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. MacLeod.

Now we'll go directly to Mr. Irving.

[Jim Irving, President, J. D. Irving Limited]

Good morning, gentlemen.

It's a pleasure to be here with you this morning to participate in trying to put our point of view across to you on this most important subject.

My name is Jim Irving, and I'm president of J.D. Irving Limited. If you don't know too much about J.D. Irving Limited, we're a New Brunswick-based company. We've been in business since 1882, and we're a fully integrated company in forest products, consumer packaged goods, shipbuilding, retail distribution, transportation, and food processing. We have over 15,000 employees in Canada and the United States. Our major markets are in the United States and Canada, and our head offices are in Saint John and Moncton.

I had a presentation to hand out to you, but I understand we're non-compliant, so we'll do the best we can with it. Hopefully, we'll get it handed out to you during the course of the morning after it gets translated for proper presentation. You'll have to bear with me a little bit.

There are three key things that we'd like to talk to you about this morning: encouraging capital investment and new technology; trade agreements regarding shipbuilding and the marine sector; and encouraging productivity improvement and employee skill-building.

I'm going to hold up a chart, if you don't mind. The first one is going to be in the context of the forest products business. We're in the forest products business. The forest products business is a major industry in Canada. New Brunswick is a province in which forestry is of major importance. My first three or four slides are background that could be used in any business--the automotive sector in Ontario, the mining business, or any other manufacturing and exporting part of this country.

The first chart shows the importance of the forest products sector to New Brunswick. It shows all the provinces in Canada, and it shows the importance of forestry to the provincial economy in New Brunswick, of which it makes up about 9%. We're the part of Canada's forest products sector that is the most dependent on manufacturing.

I'm going to go right to slide three, which shows how dependent New Brunswick as a province is on manufacturing. Of all the Canadian provinces, New Brunswick is the third most dependent on manufacturing. I'm going to illustrate with a fourth slide, which talks about the global capital. Maybe just before I show you that, I'll give you a little more background.

Because of our capital intensity in the forest products business, this fourth slide shows capital additions and capital expenditures on a global basis and how Canada ranks in that field. These numbers are in billions of dollars. They show Asia at $13 billion between 2000 and 2007. This is in capital investments, in this particular case in the forest products, pulp and paper sector: in Asia, $13 billion in this timeframe; South America, $7 billion; Europe, over $12 billion; the U.S., $3.3 billion; and Canada, slightly over $1 billion. Again, that speaks to the capital expenditures on a global basis in the forest products business, a business in which Canada historically has had a major global position.

As well, this particular slide is a little more detailed. It shows the rate of capital expenditures in North America in the pulp and paper sector. This one will show this as a percentage of depreciation. Historically in a business, as most of you know, you should spend about 100% of your depreciation to be in the game, to keep up to date. This chart shows us, starting in 1975, up here at over 200%, and where we are today, at 2001, with less than 50%. In 1975 the industry was spending at the rate of about 225%. Today, in 2001, the industry is down here, at slightly over 50%.

So the North American industry--Canada and the U.S.--is not spending its depreciation. Actually it's spending less than half, so we are in a serious state of decline from the point of view of capital investment in this capital-intensive industry.

So what do we do about it? That's the fundamental question, and that is the backdrop for a key part of our presentation this morning. Our recommendation--and this is not a new recommendation, we've made this repeatedly, but we have not been successful in its implementation--is to increase the capital cost allowance, or the CCA. This is an amount for manufacturing and processing equipment. We recommend an increase in the CCA--or capital cost allowance--from what is presently a 30% declining balance to one of perhaps 50% on a straight-line basis.

This really all goes to the tax rate that we're going to pay. If you have a business today, you're writing off your equipment in your plant. You're taking that depreciation against your current year's tax bill. What we're advocating--and we've had it in this country in the past--is that you could go, and you could make a capital expenditure, and you could accelerate the depreciation, take more depreciation in that year. Yes, your payments to Ottawa are less in that year. Your tax bill is less, but you've made an investment in new technology. The federal government then, or the provincial government, depending on how the thing is structured, will receive its tax revenue at a later date--perhaps it's deferred for two or three or four years, but it will definitely come. The result is that rather than have businesses not being invested in and subsequently going out of business and bringing all the social and economic problems that go with that, we'll have businesses that will have up-to-date technology and a strong base, particularly for people in the manufacturing business in this country.

If you're manufacturing and if you're exporting, you're subject to the strong Canadian dollar or the fluctuations of the dollar and high energy costs. It takes a lot of energy to manufacture your product or to get it to market, and you're subject to a lot of fierce global competition, which everybody is. These are fundamental problems that are affecting the manufacturing business, and I'm sure you've heard it across the country in your tour. You'll hear it from a lot of people. They'll be in different industries, perhaps, but they'll have the same problem.

We think this is a fundamental elementary basis that we have to put into the manufacturing segment in Canada. We have to be more aggressive. We can't just design the tax laws to capture all the tax and have businesses that don't reinvest. We have great surpluses in Ottawa. Clearly that's been well run, but if we're going to be progressive and bold--which we surely need to be in the manufacturing business in this country--we need to have a tax structure that represents that.

If, for example, you take the CCA on buildings that are used to house manufacturing plants, today at a 4% depreciation rate it takes 57 years to depreciate 90% of the asset. If we had a 30% declining balance, nine years would depreciate about 95% of the asset. We're living in the past to think we can write off buildings at such a slow rate. Nothing today is staying at that speed. I think as a country there are enormous opportunities for us, if we can get our mind around it.

At the present time, under the available-for-use rules, if you have a fish plant or you have an automobile factory in Ontario or you have a pulp mill in B.C. or a ship, and you go out and make a major capital investment, you're only allowed to start to depreciate that investment once the investment is up and running, say in 12, 18, or 24 months. You've spent your money, and you've incurred all the costs, but you have no depreciation to set off against your tax bill. What we had at one time was ready-for-use.

If you committed New Year's Eve to spend.... Pick a number. Mr. MacLeod over here wants to buy a new ship New Year's Eve. We'll give him a good deal on one--say $50 million. He could take his depreciation that year on that ship against his taxable income. He's made the commitment.

Provided you've made the commitment, signed the purchase order, and entered into a contract, you can start to depreciate the asset. Even though you haven't got the asset, you can start to depreciate it--today, 18 months or 24 months.

This is a form of financing. It's a smart form of financing. It's well done around other parts of the world. It's a method that is not countervailable, not seen as a subsidy. It's well in practice in other parts of the world.

I think we're missing a big opportunity here: (a) we should change our rate of depreciation, be very aggressive; and (b), we should make sure, if the laws are changed, if you are successful, that you can take advantage of that depreciation when you make the commitment, not when you can use the asset. That would be a subtle but enormous change to the success of the investment.

Again, relating to depreciation, we have the half-year rule. With regard to the asset you buy, you can depreciate it for six months only in the year you make the acquisition. Forget about it; let's make it that whenever you buy it during that year, you can accelerate it and maximize the depreciation very aggressively. You might not do this in all sectors, but clearly the manufacturing sector, clearly the sector that's exporting, and clearly the sector that's capital-intensive should receive very favourable rulings in this regard.

That's our presentation so far. I hope I'm not taking up too much time. I have a couple of other points I'd like to raise on the acceleration side.

[The Chair, Conservative, James Rajotte]

You have two more points?

[Jim Irving]

I have about three more points.

[The Chair, Conservative, James Rajotte]

We have less than an hour for questions. If you can summarize the final two points, we'll go right into questions.

[Jim Irving]

All right.

With regard to power regeneration in this country, again, we think we should get very aggressive about people who want to reinvest in biomass, people in the pulp and paper sectors or other sectors where they have wood waste. When they can make modifications to the plant to use biomass or wind energy, they should get very favourable treatment.

Everybody wants it to be environmental, to be green, but wind energy is very expensive. Let's get bold and aggressive and have a tax regime where we can write off our investment in the first year, perhaps even 150%, so that we can attract investment in these highly capital-intensive investments and do something. Otherwise nothing happens; the power is too expensive, and it's not practical for industry.

I have a brief point on carbon sequestration. Canada is blessed with 120 million hectares of forest land. We can sequester 100 million tonnes a year of carbon dioxide. We need the government to do three things. First, let's regulate carbon dioxide emissions. Let's find out what the numbers are going to be and be clear about it so that we can make our plans. Let's also permit trading of carbon credits. We need to have a market there. Or let's create an offset system where they can be traded; we think that's essential there.

I'm not going to talk about the trade agreements regarding EFTA. Don and Paul have covered that off quite well, so I'm not going to get into it.

My next point is on skill building and productivity improvement for our employees, for Canadians, for the workforce. I recommend that the Government of Canada introduce a non-taxable category based on employee incentive. An employee could receive up to perhaps $2,500 a year--providing he didn't make any more than, say, $50,000 a year--on a tax-free basis. We have to get everybody in this country thinking more about productivity, and money motivates people. It's not everything, but clearly we have to find a way to create more enthusiasm. So I'd like to put that thought out there.

For example, at the present time, let's say we give an employee a $50 jacket for achieving a production record or a safety record. We have two $700-a-year categories. If we give somebody a $50 credit, that impinges on that $700 tax-free category. Forget about that; let's have a category where you have a pool of perhaps $700 or $1,000 that can be used also for recognition, employee recognition, for health, safety, productivity.

We have to be more visual. We have to be proud of our accomplishments. We have to celebrate those wins. Everybody has to know about them. If somebody wins a safety award or a production award, it shouldn't be a tax burden. They shouldn't get a T4 for it. It shouldn't be a taxable benefit, as far as I'm concerned. We have to be more aggressive.

With regard to health and wellness, we think there should be a proactive approach. It needs to be realized that the employer and the employee get recognized in a different fashion. The government should encourage greater employer participation in certified fitness programs, smoking cessation, or approved weight loss programs by making the employer, where they reimburse these programs, tax-exempt. As an employer, if we're going to say that we run these programs....

In our organization, our employees can come through once a year, on a voluntary basis, with their spouse to see a doctor. They can get their blood, their cholesterol, and all their vital signs checked once a year. Up to 70% of our employees are blue-collar workers, and oftentimes they don't get to see a doctor until it's too late. We say, no, let's....

You want me off, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Yes, I'm sorry, Mr. Irving.

[Jim Irving]

No, that's okay.

So we think that's important. We have to be of a different mindset for productivity.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much.

Thank you to all the witnesses. We appreciate the presentations. They were very thought-provoking.

We will go now to members' questions.

Mr. Lapierre, six minutes.

[Jean Lapierre, Liberal, Outremont, QC]

Thank you, Mr. Chairman.

Messieurs, welcome. I've been back in politics for three years now, and frankly, this is the first time I've heard about this Norway business. Even when I was a member of the federal cabinet for two years I never heard of it. I don't know where this is coming from. I guess someone in the Lester B. Pearson Building must be very excited about it.

I don't know if you guys have heard about it.

[A voice]

No.

[Jean Lapierre, Liberal, Outremont, QC]

It's very good we came down here to hear about this.

Surprisingly, you didn't talk about Korea at all. Everywhere else, people are very nervous about Korea. In the shipbuilding industry, aren't they players? Aren't they a force to be reckoned with?

[Don MacLeod]

As a vessel-owning company, we're not as concerned about Korea. They don't build, or don't have the expertise in, the types of ships we build. They generally build larger vessels.

Plus there's the geographic distance. Norway, being in the North Sea, is relatively close. It's easy for them to have vessels go back and forth in an economic fashion. As well, the Norwegians are in the sector. They own and operate ships as well as build ships. Korea is not really a powerhouse in terms of the service sector as far as the offshore is concerned.