Industry Committee on Dec. 5th, 2007

[Michael Murphy, Executive Vice-President, Policy, Canadian Chamber of Commerce]

Sure. It's a really important issue.

When the measure was announced, we were very concerned and opposed it quite strenuously. If you look at the optics of the thing in terms of thinking about tax havens, no one is going to argue with the idea that you need to address that. I think the solution that was proposed, however, went well beyond that, and this was the concern we had. If your goal is by other policy means to encourage investment by Canadian companies either here or abroad, for the betterment or the competitiveness of our Canadian enterprises, this was one way to do exactly the opposite.

So we have deep concern.

[Scott Brison, Liberal, Kings—Hants, NS]

The Finance bureaucrats' goal seems to be to fill all the holes in the boat, and they're fixated on tax leakage. But at the end of the day there won't be anyone in the boat, and that's part of the problem with such a narrow focus. They don't consider long-term competitiveness.

Mr. Lazar, you mentioned the natural resource wealth we have and its benefit to the economy. I'd be interested in your feedback, or perhaps Mr. Myers' feedback from the manufacturing side, on whether or not our natural resource wealth is creating a Dutch effect in Canada, in fact pricing some of our other sectors in a negative way.

[Avrim Lazar]

Certainly there's a strong argument to be made that the rapid rise of oil prices, allowing the dollar to be driven up that way, creates a huge risk to the rest of the economy. Anybody who's watched markets over the long term knows that what goes up comes down. It feels as though it's never going to stop; when the dollar was rushing up to $1.10, people thought, gee, this is a trend.

You want to diversify the basis of your wealth. To look at job numbers that are based upon a petro economy without understanding how that's undermining the diversified infrastructure of the economy is a fundamental error.

I want to reinforce what Ms. Nash said: that we haven't seen the impact yet. Investments in the forest industry are being made today for tomorrow's jobs, and people are looking south. The AbitibiBowater decisions reflect Canadian business policy—and we have a choice: we can pull the investment dollars here or we can let them go elsewhere.

But we haven't seen the impact of the high dollar on our business climate yet. People just don't shut their factory as quickly as they can; they keep it going as long as they can. But if the investment isn't coming here, we really feel the pain later on, and the time to start reversing the flow of investment back into Canada is...you know, 5:15 would be good.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Brison.

We'll go now to Mr. Van Kesteren.

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

Thank you, Mr. Chair.

Thank you, witnesses, for coming.

Mr. Lazar, I want to congratulate you. I think often when we have industry visiting us that honesty sometimes isn't on the table. You've been very honest, and I appreciated your saying you think you missed an opportunity when our dollar was at 65 cents, and to acknowledge that.

Governments have to take responsibility for that as well. You're absolutely right, we were selling everything at wholesale, and now all of a sudden we're selling at retail and don't know what to do.

I think your recommendation is an excellent one. We forget about it. We tend to do that; we blame the one government, blame the other: “It was the old government at the helm when that was going on; they should have possibly had...” some tax. Or “What's this government doing?”

I like your recommendation; I think it's a wonderful recommendation, that we work together. That's how we as a committee have done the best work.

I'm going to direct my next question to Mr. Nantais. I have to ask you this: have we made the same mistake in the auto industry? I know we keep talking about that too. While we had all those advantages, did we let opportunity slip by?

That's my leading question. My next question would be, what can we do? Believe me, we all want the North American auto industry to flourish and come back. But did we make the same mistake, and if we did, can we still correct it?

[Mark Nantais]

When you ask whether we made the same mistake, I'm not sure what mistake you're referring to. Investing when the dollar was down...? I guess we could be criticized for that, like any other manufacturing sector.

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

I'm saying that while we had all those advantages, when the big three were the big three, did we not invest in enough R and D, possibly?

[Mark Nantais]

Let me answer that, for sure, because certainly the big three are the only ones who have invested in R and D in Canada to date. We have multi-billion dollars now invested in research and development facilities right here in Canada. No other company has that.

When you look at the design and manufacturing cycles in our industry, plants really are only good for five years. This means that every five years you're reinvesting in the plant, and every time you reinvest, you do a number of things. You improve the environmental performance of that plant; in the interest of competition, you improve the productivity and competitiveness of the plant. So I would suggest that we may be somewhat criticized, but consider the nature of our business—that it's global in nature and that we must remain competitive. Many investments have been put in place.

We have gotten probably a disproportionate share of new investments in Canada relative to the United States, for instance. I would suggest that we've done actually quite well.

You ask whether it can be fixed. Right now, I think we have a number of tools at our fingertips here. We have the industry committee, and certainly I can remember standing shoulder to shoulder with many of these people at this table, promoting your report. Everything in that report needs to be acted upon and acted upon urgently.

In the auto industry specifically, you also have the tools at your fingertips. The Canadian Automotive Partnership Council developed a report called A Call to Action: A Canadian Auto Strategy. That report presents a vision. It presents a series of recommendations that are still valid now for our industry and valid for many other industries. We would like you to take it and perhaps look at it more closely in terms of an overall comprehensive automotive strategy, which would include investment supports.

I think we have the tools at our fingertips. We have to get on with the job and put in place an automotive strategy that places us here competitively for the long term, so that we from Canada can capitalize on what's going on around the globe.

[The Chair, Conservative, James Rajotte]

Mr. Van Kesteren, you have a minute, but Mr. Myers wanted to comment. It's up to you.

[Dr. Jayson Myers]

I just wanted to correct the misperception that manufacturers weren't investing. There was $25 billion a year in new technology and in R and D in the late 1990s. This is the sector that was growing at that time and creating 650,000 new jobs. This was a sector that was making some adjustments.

[The Chair, Conservative, James Rajotte]

You have 30 seconds.

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

Mr. Beatty, I want to get your take. We had some talk about foreign investment, but we want to make Canada the best place to invest your money, through Advantage Canada and the economic update. Is that the right direction to be going in, or should we target individual manufacturers or sectors of the economy?

[Perrin Beatty]

What we need to do is look at the performance of the whole of the Canadian economy and get the fundamentals straight.

We have to ensure that we have a competitive skills base in our country; we have to ensure that our border functions correctly; we have to ensure that we have a competitive tax and regulatory system. The focus should really be on the fundamentals that apply across the board in Canada. All sectors of business will benefit from that.

There may be specific areas in which we're dealing with an uneven playing field, areas where there are subsidized foreign competitors or where there is some inequity. Clearly that would call for special attention, but what we want to do is to ensure that this country as a whole has an investment climate that makes it attractive both for foreign and for domestic investment. That means getting the fundamentals right.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Van Kesteren.

We'll go to Monsieur Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chairman.

You said earlier that political parties should work together. We worked for a full year with all players in the manufacturing sector in order to develop a plan with 22 recommendations—right here in this report.

The parliamentary secretary referred earlier to a list of measures taken. However, out of the 22 recommendations proposed by the sector, only one has been implemented, and only half way at that.

You talk about partisanship. We are indeed partisan. We behave in a partisan fashion, obviously. However, we are here to help your sector, the manufacturing industry, and to implement these 22 recommendations. This is what we want to do. If this is partisanship, we are indeed partisans, but of your sector.

We want to give another chance to this government and to these political parties through a new bill. I am giving you notice. It is Bill C-411 which is at second reading stage.

We often hear manufacturers say that there is dumping of imports from China, that our markets are inundated by an avalanche of goods and that they are unable to compete.

This bill will ensure that imports from China will be subjected to five evaluation criteria. These are the same five criteria used by the European Union and the United States. Since these two jurisdictions find these five criteria useful, Canada should adopt them also. We should use the same five evaluation criteria regardless of the country of origin. Presently we have only one and we are not even able to determine if there is a market economy in China or in other countries. We do not have enough criteria.

Are you hearing from people in your sector that imports from China are in direct conflict with products of your manufacturing industry?

[Dr. Jayson Myers]

If I could answer first, dumping and subsidization of product coming in today from China and from other countries are very important issues that concern a number of sectors within the manufacturing sector. In Canada, a number of industries are affected.

The recognition of what constitutes a market economy is critical to how we run our trade remedy system, how we make the determinations about what is fair and unfair trade, and how we enforce the trade rules that we negotiate in trade agreements. The criteria you've enumerated in your bill, Mr. Vincent, are the criteria used by the European Union and by a number of other OECD nations. That's extremely important, because the recognition of a market economy then puts the onus on Canadian companies to show subsidization or to show that there is dumping activity. In some economies, such as China's, it is very difficult now to show that.

It is a very important issue and it goes to the heart of one of the recommendations of this committee, which was to ensure effective compliance with the trade rules that we negotiate in our trade agreements.

[Robert Vincent, Bloc, Shefford, QC]

How much time do I have left, Mr. Chairman?

[The Chair, Conservative, James Rajotte]

Two minutes.

[Robert Vincent, Bloc, Shefford, QC]

I read in your document, in the document of the Canadian Chamber of Commerce, that tax reductions are good for the manufacturing sector.

How many companies benefit from these tax reductions? Obviously, if one does not pay taxes, one does not need tax relief. This means that only a portion of businesses in any given sector will benefit from these reductions.

Have manufacturers come to you saying that these tax decreases are useless to them since they do not pay taxes because they are not making any profits and that additional measures need to be taken?

I would like to hear you on this, Mr. Beatty.

[Perrin Beatty]

Thank you, Mr. Vincent.

I don't think you will find any manufacturer who will be critical of the reduction in taxes. What you will find are manufacturers saying that we need to look at ways in which manufacturers who are not paying taxes because they aren't profitable today are able to benefit as well.

Mr. Myers alluded to one proposal that's been made, particularly in the automotive sector. And I think the government should be looking at steps we can take to ensure that those people who are not profitable today have the opportunity to take advantage of some of the reductions and to use them to leverage their way back to economic health.

Another area is clearly the SR and ED tax credits. By moving to refundability in the SR and ED tax credits, we would give a much greater incentive to people to make the important investments in innovation that are critical to ensuring our success in the future. So you're absolutely right in suggesting that there are players within the manufacturing sector, but also in other areas, who don't benefit directly from tax reductions and who need some other measures put in place to assist them.

The argument I would make is that we need to be looking broadly at what sorts of measures we can put in place that will be of assistance to industry across the board.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Vincent.

We'll go to Monsieur Arthur, please.

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

Thank you.

Mr. Myers, how much of the bad effect on manufacturing by this superstorm can be related to the fact that for a long period of time we had a low Canadian dollar, and manufacturers and exporters had been receiving a subsidy from us? And now the subsidy has been terminated because the dollar has been going up, and they can't adapt to that. How much of this problem would be with us if the rise had been less steep and if the Canadian dollar had started rising earlier?

[Dr. Jayson Myers]

I wouldn't call it a subsidy, but clearly the falling Canadian dollar had a very beneficial effect on manufacturing in Canada. It boosted manufacturing output. It made manufacturing in Canada much more attractive for investment. Throughout the 1990s we had the most rapidly growing manufacturing sector of any developed country in the world as a result of that.

You make another very good point, which is that it's not necessarily the level of the dollar that is the problem; it's the very rapid rate of increase, the 65% price cut in four years. It's a movement of 20% to 25%, depending on the day, in the last five or six months. I think it's very difficult to respond that rapidly in your cost structure and pricing structure to that very rapid increase.

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

Mr. Nantais, is it possible, still today, that a car built in Canada by one of the two giants could be sold in Canada at a higher cost than it would be to an American consumer? Is it still possible? Two weeks ago it was.

[Mark Nantais]

Thank you for that question.

Mr. Arthur, first, I can't talk about vehicle pricing. I'm prohibited from doing so, collectively through the association and what we do, by the Competition Act. But I can say that as to what you've read in the papers, vehicle manufacturers are responding to that price differential by various means. Some of them have individually made decisions to reduce prices. Some have or, in addition to that, put in place certain incentives to take away that differential. Some vehicles have a higher differential than others, and quite frankly, our recommendation is that any consumers who venture down to the United States should be fully aware of what they're doing and what they could possibly get themselves into.

We still have, for instance, unique regulations in Canada. The most recent one is anti-theft immobilizers, for instance. We put in place a regulation in Canada that doesn't exist in the United States, and as a result, many of these consumers got caught at the border and are now faced with the possibility of having to return those vehicles, at their expense, in the United States.