Thank you very much, Mr. Chair, ladies and gentlemen.
I've distributed a deck to members of the committee. You'll be glad to know I'm not going to go slide by slide; however, it does point out the impact of the appreciating Canadian dollar on Canada's manufacturing sector. This is the largest business sector in the country. It also points out, though, that the impact it's having on manufacturing is being felt now right across the Canadian economy simply because there are so many other services sectors and primary industries that depend on manufacturing as a customer base.
So in regard to the impacts that the appreciating dollar is having on manufacturing, other businesses are feeling the same type of pricing pressure, the same type of cost pressure. For many business sectors, whether it's manufacturing, the primary sector, tourism, or the retail sector, the problem is it's just very difficult to change your pricing and your cost structure that rapidly to keep up with the 65% appreciation of the Canadian dollar that we've seen since 2002, and the 24% appreciation of the Canadian dollar that we've seen since last February.
As an economist I can tell you that nobody could have predicted in 2002 that the Canadian dollar would rise to $1.10 on November 7, 2007. And when it hit $1.10 on that date, nobody could have predicted it would be trading at about 98¢ today. The rate of change is unprecedented. The volatility in currency markets is unprecedented.
It's important to understand some of the fundamental causes behind the movement of the dollar. Clearly, global demand for Canada's commodities and for energy has been a contributing factor in pushing up the value of the Canadian dollar and boosting the Canadian economy. That's been very good for many sectors of the Canadian economy and, frankly, for many sectors of manufacturing.
What that has meant as well is that the impact of the appreciating dollar, as Mr. Beatty said, has been like a perfect storm. The impact of an appreciating dollar on our export sector has acted like a price cut on export sales. Fifty percent of what's manufactured in Canada is exported through the United States. Most of that is priced in U.S. dollars, so we have an immediate price compression.
The second part of this perfect storm is the higher commodity and energy costs. That's pushed up business costs. By the end of last year the manufacturing sector was operating at a profit margin in which every eight hours it took about seven hours and 53 minutes for manufacturers to simply break even to cover their operating costs, their depreciation costs, pay their taxes, and pay their financing charges. They had about seven minutes to make money. And it's that money that goes into cashflow, that goes into additional investments in new technology, new product, innovation, new market development, and better training. It's that money that companies depend on in order to grow and to compete in the future against some of the long-term strategic challenges that they're facing, like competing with China and India and making sure they're able to overcome the demographic changes going on within the workplace to obtain and to change workforce capabilities.
All of these are long-term priorities, long-term challenges, for Canadian industry and Canadian business. All of that is made much more urgent by this rapid appreciation of the Canadian dollar. What it's meant for many companies is that they simply don't have the cash today to make these investments.
The dollar started out at about 84¢ at the beginning of this year. It rose to $1.10 in early November. What we're seeing now, though, behind this rapid increase in the Canadian dollar is something that's frankly beyond the control of Canadian industry, Canadian business, or Canadian governments. That's the weakening that we're seeing in the U.S. economy, the problems of the U.S. credit market, and the weakening that we're seeing in the U.S. dollar against other major occurrences. That's pushing the Canadian dollar up higher because the Canadian dollar is one of the few freely floating currencies, and it has tended to take the brunt of the impact of U.S. dollar depreciation.
What we're seeing right now in manufacturing, however, is the fact that we have weakness in key export markets--in the housing market, the automotive market, and the consumer products market. That means overcapacity for North American manufacturers, and more than ever before it's put Canadian companies under the gun to save investment and to save product mandates. Many companies just cannot make the argument today that they're in a competitive position. As businesses consolidate on a North American basis because of overcapacity in the North American market, we're seeing closures across Canadian industry.
The Ontario Ministry of Labour tracks closures, the termination of collective bargaining agreements. There were 37 in 2005, 32 in 2006, 125 in the first three months of this year, 136 for the second three months of this year. Closures and the weakening of the U.S. market, combined with the dollar, means that the challenges going forward over the year ahead are going to be daunting for Canada's export sector and especially for the manufacturing sector.
This shows what Canadian manufacturers have been doing in light of the appreciation of the dollar, in response to it. Everybody's focused on cutting costs, on improving operating efficiency, on improving supply chain efficiency. I don't know any company that isn't trying to do their very best to improve productivity. There isn't a lot of cashflow to invest in new equipment, and the outlook of the market isn't that strong for many companies to make these investments in such a short period of time.
So that's the situation. I think it's a very challenging situation, and unfortunately, going forward into the new year, we probably are going to see another loss of 50,000 jobs, at least, by June of this year. We'll see more closures of companies that cannot make the pitch for investment because they're high-priced today. I think this just means that the issues are more urgent than ever.
Our recommendation from CME, from Canada's largest industry association, on behalf of the Canadian Manufacturing Coalition, which consists of 40 industry associations speaking with a common voice about the priorities of manufacturing, is for the government to move quickly to implement the recommendations that this committee has made in its report on manufacturing competitiveness.
I think there are some key things that have to be done and should be done immediately, and then some longer-term challenges. The longer-term challenges I think Mr. Beatty has laid out in terms of making sure we have borders working well, a logistic system that works well, that we've got skills and innovation systems that work well. But some of the immediate challenges are cashflow challenges for our exporters for manufacturing. That's why I think it's important for the government to extend the window for the two-year writeoff, but also perhaps to look at ways of monetizing: either tax losses by allowing those tax losses to be applied backwards for more than three years into a period of time when companies were more profitable, or to allow some degree of refundability for the depreciation that companies would otherwise be able to make.
As for the surge of the dollar, we really haven't seen the full impact of that on profitability, but I can tell you that it will make many companies unprofitable this year, and so these companies won't be able to take advantage of the two-year writeoff. We've made recommendations to make the R and D tax credit refundable. This, again, would provide immediate cashflow to businesses that are struggling on the cash side.
Certainly what the Bank of Canada did to bring interest rates down yesterday is very important. It knocked out a lot of the speculative pressure behind the Canadian dollar. But I can guarantee that the bank will continue to reduce rates going ahead because of the weakness of the U.S. economy and the problems of the U.S. credit market. That will be important. I think it's essential for the bank to keep its eye on the future, on the impact that this is going to have on the economy, and not be looking in the rear-view mirror at stats that talk about economic performance two or three months in the past.
In conclusion, we recommend that the government move quickly and this committee support quick movement by the government on full implementation of the recommendations that this committee has made on manufacturing competitiveness, but also to look perhaps at options for in some way monetizing some of the tax losses that companies are realizing right now that just preclude them from making these investments that every company in business today knows they have to invest in, not only to survive the short term but to put themselves in a better competitive position moving forward.