Industry Committee on Nov. 20th, 2006

[Jim Irving]

What you say is right, Don; they do build very large ships. But over time, as the world market changes, they will develop the expertise and capability to build smaller ships.

So they are a threat. They are a problem. They have cheap labour, and they're skilled. They are and they will be a serious competitor. I feel just as strongly about Korea as I do about Norway--for different reasons, but just as passionately.

[Jean Lapierre, Liberal, Outremont, QC]

Thank you.

From listening to your presentation, especially on the offshore, I understand that you're nervous about Norway. But are you asking us to be more protectionist? Or does the regime we have now, with the 25% tariff, seem to be sufficient?

[Paul McEachern]

We would advocate that for now you maintain the status quo until you get an answer on either the benefits or detriments to the country. It was stated that this has never been brought forward to the cabinet table. There are, as you know, literally hundreds of proposals always making their way through the federal bureaucracy. This has been raised with cabinet ministers of previous governments, and with the current government. Right now what we'd like to do is....

You know, I'm sure you meet all kinds of groups who say “Change everything--except for our little neck of the woods.” And we're not being facetious or even flippant when we say this, but our real problem is that we have never been able to get, through official or unofficial channels, any kind of analysis on the benefits of this agreement to the country at large. We could understand it if somebody told us, look, there are some very large opportunities for the aviation industry, or the pharmaceutical industry, or the pulp and paper industry, or whatever. But we have not been able to get that analysis.

There are three Canadian products that senior officials have told us could have an advantage under this agreement: horsemeat, radishes, and french fries. I'm not making this up. This is on the record, in the notes from meetings with department officials at international trade and foreign affairs.

Our difficulty is that we've never been able to get any kind of articulation on this. It's not just the industry that's having this problem. I know it's the same for the governments of Newfoundland and Nova Scotia, and I believe the Government of Quebec has been interested in this as well.

Our real concern, where I work, is the supply boat business. You have to understand that the offshore oil and gas industry is transnational. We need multinational organizations and companies with resources to put that kind of dollar up front to explore and develop. We understand that. There are international companies working here. We've been able to compete with many of them. But what you're looking at now is that we have an economic benefit from this industry that is just starting to grow. The supply boats really are part of that chain. They need electronics, they need hydraulics, they need fuel, they need food for their people, and they need skilled workers. A lot of those requirements come from my companies in both Newfoundland and Nova Scotia, but primarily Nova Scotia. We're genuinely concerned about the “creature of habit” factor--namely, you go to those who you know. We have a very strong suspicion that Norway will do that.

The second thing is that their ships are paid for. They have been built under a very protectionist policy. You cannot penetrate the Norwegian market. I don't see anything from the foreign affairs, international trade, or industry departments that articulates any kind of plan to break that wall.

Although I can't speak on behalf of Atlantic Towing or Secunda Marine, I do know that Secunda has competed pretty well everywhere in the world, except they can't get into Norway. The foreign affairs department doesn't tell us how we're going to get into Norway, but they're very clear about how the Norwegians are going to get into Canada. That's our problem.

[The Chair, Conservative, James Rajotte]

We're actually out of time.

Can we ask you to comment on a further question? I think this question will be coming up again and again.

We'll go to Mr. Crête.

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

Thank you, Mr. Chairman.

[The Chair, Conservative, James Rajotte]

Please go ahead.

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

What is interesting in the case of a possible free trade agreement with Norway, it is that the committee received the same answer with regard to the agreement with Korea. Canada's chief negotiator told us that there was no other estimate other than the one for the automotive industry. Perhaps at the end of our trip will we recommend not signing any international trade agreement as long as a public assessment of the impact of such an agreement on the overall Canadian economy is not done.

Thank you for being here this morning. Your testimonies are teaching us things we would not have learned in Ottawa; they justify our crisscrossing Canada.

My question is for Mr. Irving or anyone else who wishes to answer. If we do not heed your recommendations with regard to accelerated depreciation, carbon dioxide issues, the anti-pollution market, what will be the impact on the manufacturing sector, and in particular the manufacturing sector located here in the Maritimes?

[Jim Irving]

Is that with regard to the maritime sector as well?

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

Yes.

[Jim Irving]

In the maritime sector, to support what Don MacLeod is saying here, in this business with EFTA, what bothers me is that we have been at this thing for four or five years, with every government and the bureaucrats, over and over again. We almost went out of the shipbuilding business. For all practical purposes, we went out of the shipbuilding business. Davies is bankrupt, several times. Madam Verreault is struggling down in your part of the world. I understand the receiver took over the fellows on the lakes this morning, the shipyard on the Great Lakes. We shut down a big shipyard in Saint John. We had the most modern shipyard in Canada, a big yard. The federal government had no procurement policy. It was a disaster.

When we're a nation that has so much coastal marine area, why can we be so disorganized about an approach regarding our manufacturing of ships and the operating of ships in this region? To me, it's a disgrace. I'll tell you frankly, I'm disappointed. Someone has to have a vision that says okay, let's build so many ships a year. Let's protect our home fleet. They do it around the world because it's just good sense. That's how most countries have protected themselves over the centuries. We should look after ourselves here in Canada.

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

What will be the overall impact on the entire manufacturing sector if we do not implement what you recommend?

We have a big problem here in Canada. We must convince people that even if the economy is running well, overall, thanks in large part to the energy sector, there are other sectors such as the manufacturing sector which are facing huge challenges.

Based on the tables that you presented, will maintaining the status quo bear the same effect it had on the pulp and paper industry?

[Jim Irving]

I don't think it is complicated. When you look at the charts on investment, which I will hand out to you, if you take the pulp and paper sector, for example.... I believe you come from the Gaspé, down from Rivière-du-Loup; you have a paper mill in that town, F.F. Soucy. One of the paper machines has been there since the 1950s or 1940s--for a long time. There are a number of paper machines that are operating in eastern Canada that were built in the 1920s. What else is there today that was built in 1920 that is manufacturing a product and still running?

It's not complicated, gentlemen. They're going out of business. The big global companies have a lot of choice. They look at the map and ask where wood fibre is inexpensive or where labour is accessible, or what the power rates are or where their markets are, and they move. The capital moves. People are not spending the capital in Canada because it has not been a competitive place to invest, for a whole lot of reasons. It's not just rates and depreciation.

The government, though, can set the tone. It can create the environment that says this is a good place to invest. Canada today is not a great place to invest, in this particular sector. This is true. You see it in the automotive sector with the folks from Ontario moving the jobs to other parts of the U.S. or other parts of the world. We have to wake up, as a country. The leadership of the country has to really wake up and say, by God, we're not going to let the jobs keep disappearing. They are going. Regardless of how good the numbers are--today, gas and oil and the mineral sector and those things are bumping up the average--the people from Ontario, the people from Quebec, and the people from Atlantic Canada are feeling the pressure enormously. I don't think we have seen the damage yet, but I think it is serious.

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

I have one last question.

Am I to understand that instead of lowering the GST by 1 per cent, a measure that reduces the federal government's fiscal capacity, it would be better to adopt the measures you're proposing in order to make the manufacturing sector more competitive?

[Jim Irving]

I can't tell you the impact of cutting the GST by 1%. I don't know. Personally, I don't think it has the impact that's required. I firmly believe that if you're going to do one thing to get productivity up in this country, it should be to change your rate of depreciation. Make it very aggressive. Make it so it can be accessed today.

People need to invest. It's the right place for young people. We have new technology. We need young people with the skills coming out of universities and our community colleges to take these new investments and to help run them, help us make them go. But there's no secret. The pulp and paper business as a global industry is doing quite well in a lot of places. It's just not doing that hot in Canada and North America, because we haven't invested.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go now to Mr. Carrie.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair, and thank you very much to all the witnesses for coming.

I've got to tell you, as a horsemeat, radish, and french fry-loving guy, I think we should look into this free trade agreement a little bit more.

As my colleague said, this is really the first time I've heard about this particular free trade agreement. I thank you very much for coming here and bringing it to our attention.

Do you have any ideas? Coming from Oshawa, I'm very much aware of the Korean free trade agreement, and what the auto sector is saying about that. I also want you to know that I've spoken to the ministers involved, and if it's not a fair trade agreement, they certainly don't want to make a bad agreement for Canada.

I have one question about that. Do you have any ideas that you can submit about a free trade agreement that would make it a fairer trade agreement, for example, in the dispute mechanisms and these non-tariff barriers you mentioned? That's one question I had for you.

The second question was that the new government has announced a defence procurement of $13 billion. I was wondering what that does for you, and if you have any ideas for the strategy as that unfolds.

The third thing I wanted to talk about is that I hear what you're saying about getting very aggressive about the CCA, and I agree with you very much. When we have these surpluses, we see it as an overtaxation, and we'd like to see the money stay with the companies and the people who create jobs.

You mentioned the skill-building idea that you had for non-taxable categories for employee incentives, and the health and wellness thing. I was wondering if you could expand on that, because I think those are very good ideas.

Those are my three questions for whoever would like to start.

[Don MacLeod]

I'll try to tackle the first one, dealing with EFTA.

Let me just give you a little bit of history so you have the context. About four years ago, the previous government came forward with a proposal to have a trade agreement with EFTA. Supported by the Conservative Party, the Bloc, the NDP, plus every provincial government in Atlantic Canada, we were able to convince the then industry minister that it did not make any sense. It went on a hiatus. We thought it was dead. Then with the new government, the officials brought this forward for consideration and discussion, and negotiations were re-entered with EFTA about three weeks ago.

We stopped it dead once. Now it has come back to life, so we're doing a replay, shall we say, of the same sort of thing. Everybody we talk to says this doesn't make any sense, and we need to stop it, so it's just taking a bunch of energy and time and investment to try to bring forward the information.

In terms of going forward, though, and trying to address the issues, I guess you can't have a trade negotiation with one department in isolation, especially when your competitor has a number of policy frameworks in place that support the industry. So, first off, the Department of Industry has to know what the consequences are. We've been asking who wins, who loses, if there has been an analysis done. The answer is that they don't know, and no. That is the first thing that has to be done.

The international trade department needs to gather that information together and decide if it makes sense, under the parameters of the information we have, to go forward. Are there winners? Are there losers? What are the benefits? That has not been done.

Some of the other policy supports that Norway has, for example, include a corporate fiscal arrangement, which is called a KS company. Essentially, that is roughly equivalent to a limited partnership arrangement whereby private investors can invest in a ship. They then can deduct depreciation and losses against other income at a high rate of 150%, so they're able to attract investment into a capital-intensive business.

There are issues like those I touched upon dealing with rules of origin. The trade negotiator didn't even understand what that meant or the consequences of that until about two weeks ago, when I started writing him and explaining what the process was. You need to have a government-wide analysis of what the impact will be on the elimination of the high tariff policy, in light of which policy frameworks are in place in the country where we're negotiating the free trade agreement. If they have four or five different policies in place, and we eliminate the one that is here for us, then we have to have at least the equivalent tools to be able to compete with the foreign competitors that are being brought into our own marketplace.

That would be my suggestion.

[Colin Carrie, Conservative, Oshawa, ON]

Would you be able to give us something in writing as well?

[Don MacLeod]

Absolutely.

[Colin Carrie, Conservative, Oshawa, ON]

That would be wonderful.

With regard to the second question, on the defence procurement announcements, what is that going to do for your industry? Do you have any ideas for how it should be rolled out, or any strategies in that regard?

[Jim Irving]

In particular, on the defence strategy, number one, we're relieved to see that all this money has been announced. Number two, though, we're waiting to make sure it gets spent, because we've been the willing bride more often than not, and we've been left at the altar, so we'd like to make sure this is going to happen. We hope that it happens, because it is absolutely important.

As we said earlier, the defence sector in the U.S. has a policy whereby they designate certain yards to do certain work, and it's laid out for the long term. You build skills in the management. You build skills in the people, and the government gets good value. We're trying to encourage that. We're working with the federal government now, and we're trying to take a different approach--a value approach--that is very transparent, with scorecards and different types of measurement so we can improve the value that we give the federal government. Is this good for Canada? Absolutely.

You have to decide if you're going to put things like EFTA through, and if it's going through, don't expect to have an industry in Canada that is reliant on the commercial shipbuilding business, because you won't have a business. You just won't have that. It's going to be riding on the Government of Canada.

In our mind, it is absolutely essential if you're going to have a business in Canada. Otherwise, if you're not, somebody should just tell us, and we'll go and do something else. It will be good, providing it happens and provided there is a longer-term plan, not just a plan that's going to be good for five years or seven or eight years. We have to think longer-term than that.

[Colin Carrie, Conservative, Oshawa, ON]

Do I have time for my third question, Mr. Chair?

[The Chair, Conservative, James Rajotte]

I'm sorry, we're about a minute and a half over.

We'll go to Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

To the witnesses, thank you for being here. I apologize for my coughing and my voice. I've been struggling with a cold, but I wanted to hear your testimony.

I had a chance to tour the Irving yards just last summer. They are very similar to the automotive industry in many respects, in terms of trade training and the challenges being faced with competition elsewhere.

I'd like to start off with a question about the FTA. This sounds a lot like the situation with Korea. Back in June our international trade committee passed a motion by our critic, Peter Julian, to actually get an analysis of the effect of the auto industry in terms of Korea. It finally came forward when the CAW tabled their own analysis of Korea, and the department that night, at around 5 p.m., posted their own studies on the Internet.

How long have you been asking for this study? You mentioned a few years. And has this been put in writing? Who have you actually said that to in terms of getting an analysis?

[Paul McEachern]

For five years we've kept Mr. Irving's pulp mills busy producing paper on this. And the requests are coming not only from industry; they are coming from provincial governments as well. I know that the intergovernmental affairs department of the Government of Nova Scotia, the Government of Newfoundland, and I believe the Government of Quebec have all asked for this, as have the industry associations and the CAW. I believe it's CAW that represents the shipbuilders in the Irving yards.

So yes, we've been asking for this since 2001.