Industry Committee on Nov. 23rd, 2006

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

Thank you, Mr. Chairman.

This afternoon, the Minister of Finance is expected to present an update on the state of the economy before the Finance Committee, probably in Ottawa. What would you like him to say about the manufacturing industry? Are you expecting a quick political position on this matter and, if so, which one?

[Peter Hrastovec]

Once again, I want to just formally apologize to the francophone members for speaking so quickly before. And to our translators, I apologize again.

Allow me to answer the question. I appreciate the candour with which you're speaking on this specific issue.

This is not a political issue. This cuts across all political parties, all constituencies. This is about the survival of our economy. It is extremely important that the message be relayed back to the minister, to the deputy minister, to all those in that portfolio, and to everyone in Parliament. The issues have to be fundamentally set and the policies have to be addressed to allow us to create incentives for manufacturing.

We've heard a lot about R and D today. R and D is very important—research and development, of course. But you can't have research and development without the manufacturing component. If you look at our life, our livelihood, our lifestyle, this is not about politics. This is not about nationalism. This is about putting food on the table for our children and the survival of our country as a viable entity in the world order.

We're peacekeepers. We're also incentive-based in terms of everything we do in the world community. We lead the way on human rights issues. We do a lot of things that should be considered the model for citizenry across the board. Why can't we, then, take care of our industry so that we will be able to continue along those lines? That's why I say it goes far above and beyond political affiliation here. This is about survival.

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

Are you aware of public opinion? In Canada, in general, economic growth largely depends on Western Canada’s energy and oil. It is very difficult to convince senior public servants in the Department of Industry, for example, that we are facing an outright crisis.

For my part, I went to Western Canada last week. It is a totally different situation. I am not against the growth that the West is experiencing. It is not a bad thing in itself. Actually, it is very positive.

What message would you like to add, so that the government is fully aware of the current situation?

[Mike Hicks]

Oil is oil, but manufacturing is all-encompassing. There are several manufacturers. Again, I'm representing mould making and so is Mr. Storey. But throughout this community, there's a wide variety of manufacturers. Look at the have provinces. Alberta is a have province, but Ontario always has been a have province because we have a strong manufacturing base. It's as simple as that. Auto may be down, but other manufacturing may be up, and so on and so forth. But if oil is down, oil is down, and you're down and out. You can't put all your eggs in one basket. That's why you should continue, obviously, to support our manufacturing base here.

[The Chair, Conservative, James Rajotte]

Mr. Kanters, do you want to respond?

[Ed Kanters]

Yes.

Just to add to that, it's proven in economic analyses across developing countries in the world that any country relying solely upon natural resources for economic growth does not have a sustainable model. You have to develop an infrastructure of industry and an infrastructure of services so that there is something left when the natural resources are gone.

It's a wonderful thing that we have this resource, particularly out in the oil sands in Alberta. That can provide a lot of the wherewithal to develop this country further. But that part of Canada was initially developed and got to the stage it's at because of the core of the country at the time, being Ontario and Quebec, providing a lot of the resources to do it.

We need to take a national view of things, not just an energy view of things. There has to be some more support for the manufacturing side of this country, so that there is something left when the resources are gone, so that there's something sustainable that will help us to maintain our lifestyle.

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

At the beginning of your presentation, Mr. Kanters, you talked about problems at the border. You have probably heard about the plan to impose an additional $5 tax on every vehicle transporting fruit and vegetables entering Canada from the United States. It was supposed to be in effect on November 24, but it seems that the Americans have delayed applying the measure.

Actually, it will apply not only to vehicles transporting fruit and vegetables, but also to all vehicles crossing the border. Were you aware of this? Have you lobbied on this issue or are you planning to? If not, do you think it would be necessary to do so?

[Ed Kanters]

It's not something I was aware of, but it doesn't surprise me. On the issues we have seen as far as the holdups and the problems at crossing the border are concerned, it's a continual stream.

Just this week, we were faced with the fact that there was a change in the way Customs was handling all of the trucks crossing the border from Windsor to Detroit. The result of it was seven- and eight-hour delays for product going across the border. That impacts our customers and it impacts their view of dealing with Canadian suppliers.

We need to have more information to allow us to react in advance to the things that are going to take place, that are going to affect our ability to ship to the U.S., and some better way of transporting our product across the border without incurring a huge additional cost to try to do it.

[The Chair, Conservative, James Rajotte]

Thank you, Monsieur Crête.

We'll now go to Mr. Van Kesteren.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair.

Thank you, all, for coming. I have two questions.

Much of what you have said we've heard. I don't want to minimize it, but you're just re-emphasizing what's taking place across the challenges. But there are two things that jumped out at me and the committee members as a whole.

The first question I'm going to direct to you, Mr. Kanters, because you raised the issue about patents. We heard this morning that when your companies develop things, some of the multinationals take these developments to China and get these things made in China. Do you want to elaborate on that? That was just absolutely shocking.

Does anybody want to elaborate on that, someone who knows about it? We heard this from the last bunch of witnesses.

[Mike Hicks]

I can elaborate on that if you'd like.

Again, we've been to a lot of meetings and we've seen a lot of things happen, and this is all part of the China situation. That's why I thought things would take care of themselves, because of what's happening.

Say a company like Black & Decker spends the R and D money here in North America. They take the product to China, and the shops in China build two tools, one for Black & Decker and one for another company. Then, everything's suddenly wiped out. And to enforce patent laws in China, it's the wild west.

We had Butzel Long law firm in this building during our last trade fair. We had 300 people there, and they were talking about that and how they deal with it. Do you mind if I use some blunt words with the committee here? They asked Butzel Long law firm how they enforce patents in China, and this is what a lawyer from the Butzel Long law firm said. The United States has the cowboy mentality. He said they take the Chinese in a room—and this is paraphrasing a quotation from him—and say they're Americans, they bombed Japan, and they'll do the same thing to the Chinese, so stop stealing U.S. intellectual property, and that's how they'll make it stop. Is that a country you want to deal with?

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

So we're taking R and D money and developing great innovation, and there are companies out there that are taking these things, stealing them from you, and taking them to China and having them developed there.

[Mike Hicks]

Yes. Absolutely.

In my bag of tricks, which I didn't submit to the committee, you can read Sports Illustrated. They did it with golf clubs, like the Ping and King Cobra golf clubs. A person in these plants makes $10,000, but they get paid $200,000 to take it down the road. These are the things that are going on in China. This is why I thought it would take care of itself, because of what's happening.

You mentioned Black & Decker. They're starting to return work to North America because of this intellectual property being stolen. However, what's happening, especially in automotive, is that the automotive companies are catching on. They knew all the crap that was happening in China, so they're putting the onus on the mould shops now: “You take care of our crap”.

Just as Mr. Storey mentioned about the pricing situation, they come in and say we have two choices. We can either have that mould built in China or we're not going to get their work. That's what they're telling us. The thing is, it's a losing battle. As Mr. Storey mentioned, if that work goes to China, he's responsible for the quality of the content when it comes back here, so he has to bring everything up to snuff. If it's built properly, he's picking and choosing his replacements, because the OEM doesn't want to go over there, roll dice, have things stolen, and so on and so forth. They're putting the onus on the shops an the shops are becoming like circus animals.

The problem is this gap, as I mentioned. If the gap were closed.... Again, I've been around the block in this business, and I really thought this would take care of itself. Again, there will always be emerging countries out there. Again, that's why we do need the innovation and why we need everything else to help us. This is a battle we cannot win without the help of the government.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I have another question for you, Mr. Hrastovec. I bet you want to jump on that one too, but I have another one.

You're fighting for your life. I'm asking you this because I think you're a liaison man between the companies and labour. We have a lot of advantages, let's face it, and they have their advantages. What I'm talking about here is the competition that's giving us so much trouble.

Another thing that was very disturbing was the talk about the companies pitting one manufacturer against another and causing this delay in payment. It was 120 days after a prescribed time. Is there talk about a partnership between the manufacturers and the union, maybe, to stop this practice? This sort of stuff is just not right. I think it was asked by the media, too, what the government can do. That's very difficult to legislate. Again, it's your choice, but they have you in a corner. They have you up against the wall. Has there been some discussion between the union and the companies about working together?

I'm asking you, but I can open that up to anybody.

[Peter Hrastovec]

I'm glad you asked that question. Thank you very much for that.

In my other life—my real life, I suppose I can say, because here I'm a volunteer as chair of the Windsor Chamber of Commerce—my full-time career is that of a practising lawyer, mostly in labour and employment here in this community.

I've seen a lot of interesting things happen in this community, and one of the most interesting and intriguing things came most recently. We met with Mike Vince, who you heard from earlier today, from Local 200. We met with him at the chamber, to talk about the issues that are plaguing the trade unions in this community. One of the things I said to Mike Vince, and which I'm saying to all the trade unions in this community, is that it's not a question of suggesting that trade unions are not relevant. They still are relevant, but they have to reinvent themselves in terms of how we market this community and talk about our broad-based labour and employment staffing, again with highly technically trained individuals who can supply the labour market for any new investors who come to this community. That's the one thing we talk about.

On another level, we talk about the very thing you are addressing, and that is the fact that there are a lot of companies that have now developed this mentality that they can finance their operation by just taking time to pay. I can tell you—and the legal professionals will, too—that we see this happening. It's taking 60 days, 90 days, 120 days to get our accounts to be paid. Of course, we are like any other small business, because, notwithstanding the fact that we're a profession, we have our GST obligations and every quarter we make our remittances. I can tell you and my financial administrator will tell you, because he talks to the other administrators from the other firms in this town—and I'm not from Butzel Long, by the way, although I do respect them—that the fact of the matter is that whether you're a big firm or a small firm, it doesn't matter. We're all facing those same obligations.

So whether you're in the professions, whether you're in industry and trade, whether you're in manufacturing, whether you're a simple small service provider, a ma-and-pa business, everybody is facing the reality that people are not paying their accounts within 30 days or 60 days. They're taking much longer, up to as much as a year in some cases. I've seen that happen as well.

We're talking to the trade unions about it to a large degree, but they're also fighting for their survival and for their livelihood. Dare I use the C word? They have to seek and negotiate concessions with manufacturers in order to keep their employees alive. If you have 2,000 people who are working in a plant, you may not be able to keep 2,000 jobs, but isn't it a good thing to keep perhaps 1,600 jobs if you make a deal to keep those people working, as opposed to seeing the whole thing go by the wayside?

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Van Kesteren.

We'll go now to Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

My thanks to the delegations for being here today.

I'm going to ask three questions, and then I'll turn it over to the panel to answer all of the questions if you want, or part of one question, or two questions, or whatever you think is appropriate for a response, to allow everybody to give input on certain things.

The first question is an issue with regard to what Mr. Kanters brought up in terms of non-tariff barriers, and that's the issue of the border and the costs of shipping and receiving goods across the region here.

We have some of the highest costs per crossing. In fact, they're higher than in Buffalo. They're higher than in Niagara Falls. They're higher than in Sarnia. They're higher than just about everywhere else in Canada, except for one other privately owned bridge in Fort Frances. The concept being floated is that we're going to have a public–private partnership and potentially toll roads. Citigroup actually did a recent study showing that private toll rates are actually up to 35% to 40% higher than public ones. How important for all industries is it to keep border costs lower in terms of the actual cost of shipping and receiving?

Mr. Kanters, I've probably consumed several of your gelatin products over the last week, as I've been struggling with a cold.

Secondly, with regard China, are there any other hidden subsidies that China is providing, with regard to attracting investment, subsidies that we don't really hear a lot about? Does anybody have any knowledge of that?

Lastly, if we lose our industries, do you think it will affect national security? I still think it will. If we lose our manufacturing base, then we can't respond. I'd like to hear about that.

Thank you.

[Ed Kanters]

I can maybe begin to respond as far as the cost of crossing is concerned. Of the product that we manufacture here in Canada at our facilities, about 80% to 85% of it goes across to the U.S. To the extent that it becomes more expensive, both through the actual outlay of costs to get across the border and, as I mentioned before, the infrastructure we have to have in place to smoothly get product across the border, it reduces our competitiveness against other businesses. It's a direct cost that we have no choice but to pay. If it continues to escalate and continues to go up, it's just going to continue to squeeze our profit margins, reduce our ability to invest in development of new products and of new processes, and reduce our competitiveness. So there's a flowthrough effect to it becoming more expensive and more difficult to get our product across to our major market.

[Brian Masse, NDP, Windsor West, ON]

Are there any other comments from the panel?

[Bill Storey]

To your question on subsidies from China, Mr. Masse, the Canada Border Services Agency has investigated alleged dumping of fasteners into Canada, and also the possible subsidy given by the Chinese government to Chinese farms. What they've found, according to my research, is special economic area incentives; grants provided for export performance in employing common workers; preferential loans; loan guarantees by the Government of China; income tax credit refunds and exemptions; reduced corporate tax rates for export-oriented enterprises—they seem to be keying on export—exemption reductions of corporate income tax during start-up periods; income tax refunds of amounts invested in special economic areas; relief from duties and taxes; deduction in land use fees; and reductions on purchases of goods from state-owned enterprises. All of this puts us at a negative competitive balance.

[Brian Masse, NDP, Windsor West, ON]

With that, are there any suggestions in terms of Canada looking at putting in some type of tariff barrier? I want to hear that.

[Mike Hicks]

Absolutely. I agree with everything Mr. Storey said. Also, when I said I thought the law of economics would take care of itself, in China we heard that as they're going through working with western countries and so on and so forth, they've gone to a looser free enterprise system. We were told the shops were for-profit and that 50% of all the loans guaranteed to the industrial companies that we're competing against would be lost. They would not be able to pay them because they're just not financially able to pay them. That's not coming to fruition, so that's another issue.

I absolutely agree. I know “tariff” is a naughty word and that obviously you'd like us to take care of our own problems. Obviously, again, I can't reiterate enough about the SR and ED programs. The border issue is very important. The Chamber of Commerce has been working diligently. They have a special committee, and we applaud them for that because it's very vital to us.

[Brian Masse, NDP, Windsor West, ON]

Very quickly, Mr. Kanters, on the SR and ED credits and what not, can you be more elaborate in terms of what specifically would help to get the next wave of investment? You mentioned about improving them. Are there any specific suggestions that you have, or does it need a whole review?

[Ed Kanters]

I believe it needs a whole review, but something that translates itself into more direct input into providing some support for the costs associated with that.

I'll be honest. It's been a while since I've looked through the details of the program, but from what I understand of them, they are basically tax credits to be received or to offset against the taxes paid on net income. I'm not quite sure how long ago this was, but in the past there was more direct input about grants, about cash infusions to support specific programs that were proposed to Industry Canada or other agencies, to support the development of a new product, the development of a new process where the benefits are clear and defined, where there is the opportunity for employment and growth through opening up new markets, or where protection of markets exists.

So a little bit more direct, upfront participation is what would be helpful.

[The Chair, Conservative, James Rajotte]

Thank you.

We will now go to Mr. McTeague.