Industry Committee on Nov. 24th, 2006

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thank you, gentlemen, for being here today.

It's interesting. We've gone around for a number of months now and listened to all this testimony. It is very frustrating to hear about intellectual property rights, knock-offs, and even cars. Coming from auto town, I can tell of you the frustration there.

It would also be interesting to look at what Canadian natural resources are being shipped and then used in knock-off products that are sold back into our country. I'm looking at some reverse ownership in terms of our natural resources.

I know we've been talking here about Ontario—and I come from Windsor, Ontario—and access to the development out here. How do we do this in terms of the current context of our infrastructure? For example, if I wanted to get out to Manitoba, even to the border from Windsor it's 18 hours of driving through the Canadian side. Does our current rail, road, and air service accommodate this type of ambition? I think it's a great thing that we should be doing. It seems that we're behind the eight-ball because we don't have that element right there. Are there things we need to do now to start thinking about this, if we really are sincere?

I worry about the Pacific gateway project that's opening up, and you guys out in this section have easy access to send natural resources over to Asian markets that then build products that are shipped back into Ontario. As well, not having access to their markets for different things, we're not participating in this whole thing.

So what can we do about that? Or what do we need to do about making sure the trade time between our provinces is reduced and the efficiencies are there?

[The Chair, Conservative, James Rajotte]

I have Mr. Ouellette first.

[Peter Ouellette]

Right now, the establishment of interprovincial barriers for trade is significant. There's been some work done between Alberta and B.C. The barrier has been quantified as a $4 billion barrier, and that's what they're trying to tear down. Interprovincial trade barriers were recently quantified at $80 billion per year. This has been acceptable in the north-south approach to trading that we've had.

If we're going to combine the capacity and capability of our manufacturing sectors across the country, we have to tear those barriers down, whether they be trade and regulation, or simply the ability to move freight. You can't move trucks across this land currently in the springtime when we have breakup. So we have to encourage the railways to allow interprovincial shipments. They're much more interested in moving from the port into Chicago, where they can move Wal-Mart products from China and make a lot more money.

So there's some interest that we have to have interprovincially on regulations and on infrastructure on interprovincial transportation.

[The Chair, Conservative, James Rajotte]

Would anyone else like to comment?

Mr. Svendsen.

[Mel Svendson]

One of the concerns I have is that we bring some steel in from China and the guys who supply the steel can ship from Shanghai to Calgary more cheaply than, or as cheap as, you can from Montreal to Calgary.

I have another concern, which perhaps is not in your mandate, but some of the international ownership of companies is becoming awfully big. Mittal, for instance, has a huge lock on the steel industry. There used to be two competing mills in Montreal for our product, both good mills, both good competitors. Today they are owned by the same multinational firm. They're going to squeeze the hell out of forging quality products in Canada. I'm afraid they're going to make many Canadian companies uncompetitive, but in the big picture it will make Mittal more profitable.

So I have some concerns that we're seeing large global conglomerates. I would like to not maybe use the word “conspire”, but certainly their strategy no longer takes into consideration any kind of loyalty towards their employees in Canada, and consequently, there's not much loyalty to their customers in Canada. For us, it doesn't matter as much; we'll survive one way or another. But I do know that it's going to hurt many people who need special bar quality in central Canada, making it that much more difficult to compete.

[The Chair, Conservative, James Rajotte]

Mr. Masse, you have one minute.

Mr. Ouellette, did you want to go again?

[Peter Ouellette]

Very quickly, there is a forum right now that has the potential of being functional, but it seems to have a tremendous amount of drag, and that's the Canadian Steel Partnership Council. It is not moving forward fast enough, but the forum is there to address these issues in the entire supply chain, from mining right through to the customer base, whether it's a constructed model for pricing and costing or whether it's the concentration of power.

[Brian Masse, NDP, Windsor West, ON]

I have a question. In terms of capital reductions, in terms of depreciation, briefly, one of the concerns I have about this is that we've seen in Windsor, Ontario, some companies bought and literally harvested for their equipment and machinery to be brought over the China and other areas. Would there be any objections if we moved aggressively on this file? I think it's actually one of the things we could do, but there would also be an ownership penalty if the machinery and equipment was not maintained in Canada. Would that be agreeable?

[The Chair, Conservative, James Rajotte]

Mr. Svendsen.

[Mel Svendson]

Are you talking about something in addition to the recapture penalty that currently you would normally pay?

[Brian Masse, NDP, Windsor West, ON]

Yes, if we went really aggressive on this, even potentially beyond what's being requested, to show to the world that we're serious about this, would there be an objection to additional penalties?

[Mel Svendson]

In my company, we'd be happy to see that. It doesn't do us a hell of a lot of good either to see companies take advantage of a tax writeoff here and then simply move the equipment elsewhere to compete against us.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Masse.

We'll now go to Mr. Shipley.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Mr. Chairman.

Again, welcome. One thing we've found is there's a huge diversity across this country. This tour has just been amazing.

To Mr. Svendsen, and also to Mr. Scott a little bit, I always love the analogy that we can easily relate to, and it's the golf club and the $150 to the $2,500 value of the copycat one here. If we produced them for nothing and we gave them the material, we couldn't do it for the $150. How does manufacturing then, and how do we as a country, deal with that? How do we have the manufacturing industry, as they're talking to us, saying they can't compete against this....? I listened to your comments about one tier and two tier, first generation and second generation. How does manufacturing deal with that and say, this is what we can do, but this is what we can actually be competitive in?

[Mel Svendson]

Would you like--

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

To help us understand when we're hearing these kind of issues.

[The Chair, Conservative, James Rajotte]

Mr. Svendsen.

[Mel Svendson]

I think in the case of the golf clubs, obviously it's a fairly extreme comparison, because for things like golf clubs, the big costs are marketing and advertising and that sort of thing, which they are able to totally avoid. If you take a look at golf clubs, much like springs, we forge them, we heat-treat them, and we do a number of things to them. We don't spend any money on television advertising, obviously, but we do spend money on R and D. So we are trying to make sure that our research and development is protected through patents that are enforceable.

In China, they occasionally raid certain areas and shut down these black market marketing areas. I think the real issue is how we get to the core of protecting this intellectual property. Having stronger international agreements on intellectual property and forcing China to live up to their commitments would be number one, but it takes a concentrated effort on the part of the developing countries to do that.

I think that without international cooperation we're not going to get there, but on the other hand, we can't just simply say here in Canada, well, we only have one golf club manufacturer, so we're not going to worry too much about it. We have to look at the whole principle behind it. If we're going to develop intellectual property, then we must protect intellectual property.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

I can see the relationship with that if only you used it, but it goes to those easy copy things and the whole auto sector--

[Mel Svendson]

Absolutely.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

That's really what my point is. It's about protecting those small plastic things, which are integral components of our auto sector, for example, and that's going to be hard. But, man, how do you protect that intellectual property over in Shanghai and in some of these other countries? I think what I've been hearing--and I heard it earlier--is that it's very difficult.

[Mel Svendson]

I know what it is too. If we're going to chase our markets, and those markets move to China.... In the case of our products, we're chasing the international shipping container market, and that has largely migrated. First of all, it started to migrate from the U.S. and Canada to Mexico. Now it's largely migrating to China. Yet we're trying to hang onto our component in that, so we're going to continue to work with those customers.

We have to work with the end-user to keep our market share.

[The Chair, Conservative, James Rajotte]

I have Mr. McDougall and then Mr. Scott.

[John McDougall]

Just quickly, there are actually a number of issues that emerge. The first one is actually that IP, whether you're fighting China or anybody else, is a real issue. Everybody today is reverse-engineering. If you actually patent, you in a sense give them a step up to do that, because you teach them how you're doing what you do now, and they'll find another way to do the same thing, even if they respect your IP. It's a very competitive world.

In working with China, we've been concentrating on know-how rather than the patentable kind of IP. A classic example of that is a material we've developed here, which Toko is now building a $300 million facility to produce. It produces a core material that will actually be sent to China, where they will add value to it, but they won't be able to really replicate the mill or the know-how of how to produce this particular product. In our view, it's very unlikely that will happen.

So part of it is the way you do the deals too. I would agree, though, that you'd never want to give up on aggressive positioning with respect to counterfeiting and avoiding of IP. You just have to keep on in that case.