Industry Committee on Dec. 5th, 2007

[The Chair, Conservative, James Rajotte]

We will call this meeting to order.

It's the ninth meeting of the Standing Committee on Industry, Science and Technology, pursuant to Standing Order 108(2), continuing our study of the impact of the appreciating value of the Canadian dollar on the Canadian economy.

We have with us here today five witnesses.

First of all, from the Canadian Chamber of Commerce, we have the president and CEO, Mr. Perrin Beatty. Welcome. From the Canadian Chamber of Commerce we also have executive vice-president for policy, Mr. Michael Murphy. From the Canadian Manufacturers and Exporters, we have the president, Mr. Jayson Myers. From the Canadian Vehicle Manufacturers' Association, we have Mr. Mark Nantais, president; and from the Forest Products Association of Canada, we have Mr. Avrim Lazar, president and CEO.

Welcome, gentlemen, to all of you. I know you're all experienced witnesses before this committee and other committees.

We will start with the Canadian Chamber of Commerce and work our way down. Each organization has up to 10 minutes for an opening statement, and then we'll go right to questions and comments from members.

Mr. Beatty, perhaps we'll start with you.

[Perrin Beatty, President and Chief Executive Officer, Canadian Chamber of Commerce]

Thank you very much, Mr. Chairman and members of the committee, for your hospitality in inviting us to be here with you today.

As many of you know, the Canadian Chamber of Commerce is the largest and most influential advocate for business in Canada. We have members of all sizes and from all sectors of the economy in all regions of the country. We're very pleased to have the opportunity to participate in the committee's hearings.

I thank the Committee for this opportunity to share the viewpoint of the Canadian Chamber of Commerce on this important issue.

Mr. Chairman, on November 20 I wrote to the Prime Minister and to each of the provincial premiers. In those letters the Canadian Chamber of Commerce proposed a number of immediate measures that could be taken to strengthen Canada's economy and to help our businesses grow and prosper. I've brought with me copies of those letters, in English and in French, for members of the committee if they'd like to take a look at our recommendations in greater detail.

I can tell you, however, that many of our members face unprecedented challenges that grow daily. Fierce competition from emerging economies like China and India, weaker demands south of the border, where 77% of Canada's merchandise exports go, and the stunning appreciation in the Canadian dollar since 2002 have created the perfect storm for export-oriented businesses and companies facing competitors here at home.

Canadian manufacturers are on the front line. Since late 2002, over 330,000 manufacturing jobs have disappeared; more than 80,000 have disappeared so far this year. The loss in competitiveness in Canada is evident in the rapid escalation of unit labour costs, which are the costs of wages and benefits of workers per unit of economic output.

Unfortunately, Canada's productivity is rising too slowly to negate the lost competitiveness. More challenges lie ahead of us. The Bank of Canada predicts that the Canadian dollar will average 98 cents U.S. through 2009 and that Canada's economy will grow by 2.3% in 2008 and 2.5% in 2009. The Department of Finance and the Bank of Canada have stated that the risks to the Canadian economy are tilted to the downside.

In view of the challenges I just mentioned, it is important to implement competitive policies which will have a direct impact on the productivity and wealth of our nation and that of all Canadians.

The Canadian chamber calls for immediate action. Governments must put in place policies that encourage flexibility and adaptability and lay the foundations for a more competitive economy.

Mr. Chairman, I'll touch very briefly in my opening statement on a number of these issues today and the recommendations that we make, but I'd be very pleased to go into any of them in greater detail with the committee.

In our view, the federal government must work with provincial and territorial governments to first lighten the burden of regulation. Overlap, duplication, and fragmentation are time-consuming and costly and they hamper Canada's ability to compete.

Second, we need to knock down the interprovincial barriers to trade. Internal barriers keep firms from growing large enough to compete effectively in foreign markets. They cause investors to look elsewhere. They artificially raise prices and they increase the cost of doing business.

Third, we need to better utilize skilled immigrants through the recognition of foreign credentials and improved labour market access and integration. Employers across the country are facing major labour shortages. Many foreign-trained professionals and tradespeople can't put their skills to work.

Employers also report long delays in the processing of people whom they've identified for specific jobs. We need to and we can take immediate action in Canada to accelerate the placement of these people, particularly skilled workers from abroad who've been identified for posts here in Canada. The goal there, Mr. Chairman, is to ensure that all businesses in all sectors, faced with the challenges, including the dramatically escalating dollar, are better positioned to compete.

Fourth, we need to keep the Canada-U.S. border open for legitimate travellers and business. Border delays and complications harm productivity and jeopardize jobs. Additionally, rapidly escalating border compliance costs are wasting hundreds of millions of dollars each year, putting domestic producers at a serious disadvantage relative to their offshore competitors.

Fifth, we need to ensure a competitive tax environment. Budget 2007 and the recent economic statement contained a number of positive developments to help business compete. But more needs to be done. Significant economic benefits can be realized by eliminating provincial capital taxes, by harmonizing provincial retail sales taxes with the federal GST, and by making permanent the accelerated capital cost allowance for investment by manufacturers and processors in machinery and equipment.

Mr. Chairman, the Canadian Chamber of Commerce believes that these measures provide an important first step toward a more competitive Canada. They should be implemented now as a means of helping Canadian businesses respond to urgent and growing pressures. To delay would risk the jobs of Canadian workers and the prosperity of communities across our country.

Mr. Chairman, your specific reference today is to look at the impact of the rising Canadian dollar upon the competitiveness of Canadian industry, and we believe, from the perspective of the Canadian Chamber of Commerce, that there are serious challenges that Canadian business faces, both from the rise of the dollar itself and also from a range of other changes that are taking place in the global economy. By putting in place today the measures I have outlined, we could help to ensure that all Canadian businesses can compete more effectively in the global marketplace.

Mr. Chairman, I thank the committee for its attention. I'd be very pleased to answer any questions you may have during the question period.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Beatty.

We will now move to Mr. Myers, please.

[Dr. Jayson Myers, President, Canadian Manufacturers & Exporters]

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.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Myers.

We'll now go to Mr. Nantais, please.

[Mark Nantais, President, Canadian Vehicle Manufacturers' Association]

Thank you very much, Mr. Chairman. Thank you to the members of the committee for the invitation to appear before you today on the question of the impact of the Canadian dollar.

The CVMA represents Chrysler, Ford, General Motors, and International Truck and Engine Corporation. These companies account for 70% of all production in Canada, about 55% of all sales. They employ and have retirees in excess of 150,000. So clearly they're a major force in terms of an economic or a value-added sector of the economy.

On the surface, Canada's auto industry looks to be in fairly good shape when one reads news reports about record levels of new vehicle sales across the country and the very significant recent automotive investments in Canada, the majority of which are from Chrysler, Ford, General Motors, and International Truck and Engine Corp. The reality, however, is quite different. The rise of the Canadian dollar is just one unanticipated event, albeit a very major one. The major challenges impacting Canadian automotive manufacturers and exporters have come both fast and furious.

It must be recognized that the auto companies are indeed taking every action possible within their power to cut costs and invest in productivity enhancing improvements to the extent of their available cash resources. However, the challenge, quite frankly, is bigger than they can reasonably manage alone. There should be no misunderstanding, and on the theme of the perfect storm, I would suggest the auto industry is about to be hit with a category 6 hurricane. This storm has a significant impact on Canada's ability to attract and maintain automotive investment and could severely impact our industry's footprint in Canada.

In November, Canadian sales dropped 5% compared to 2006 levels, and it's expected that 2008 levels will be lower yet. In the U.S., a similar pattern has emerged. With the ongoing housing and credit crisis, the sales this year are off 2.5% from 2006 levels and they are not expected to rebound in 2008.

Already, production cuts have been announced for the first quarter of 2008 that will impact Canadian assembly and parts manufacturers. In fact, more of those were announced today. This is in addition to the already announced production cuts in 2008, which in Canada has resulted in two lost shifts at our most productive, highest-quality plants, as well as a significant reduction in OEM parts and components output, and a commensurate drop in employment levels. The parts sector alone has lost over 20,000 jobs in the last two years.

Canada's situation is unfortunate, given the global realities of automotive manufacturing. Consider what is going on outside North America. Global automotive production is undergoing a significant expansion. That's not the case in Canada. By 2011, global production will increase by nearly 17 million units, to over 80 million units. On the contrary, Canada's vehicle production is forecast to drop by roughly 160,000 units over the same period. That's about equivalent to one good-sized assembly plant that would employ about 2,000 people.

If Canada wants to remain in the top tier of global automotive producing nations, we must do more to attract investment, and we must work together to do so. Canada has already fallen from seventh place in global production to ninth, and is projected to fall to tenth place by the end of this decade. In addition, North America continues to be the only auto producing jurisdiction globally that will continue to be a significant net importer of finished vehicles, with just over 4 million vehicles imported in 2006.

Asia-Pacific manufacturers, specifically those in Korea and Japan, export over 7.5 million vehicles annually to other markets, with roughly 3 million of those vehicles ending up in North America, and Canada, of course, receiving its share.

Without new investment in product mandate, product levels will dry up, plants will close, and Canadians will be unemployed. Canada had a couple of cost advantages to help attract investment, including the lower Canadian dollar compared to the U.S. dollar, and the often-repeated labour and health care advantage. The rapid rise of the Canadian dollar means that the costs of all local inputs have increased significantly. Today, as a result, Canada is the highest-cost jurisdiction globally for many auto manufacturers. Canada, therefore, is at a competitive disadvantage at attracting new automotive investments to remain globally competitive. If we are going to attract the level of investments necessary to maintain a high level of high-value-added auto production in a viable supply chain, along with the associated employment levels, we require a comprehensive automotive investment strategy that as a consequence will help lessen the direct impact of the rise of the dollar.

Our plan includes five critical elements. First, it is essential that Canada ensure a globally competitive investment fund and corporate taxation regime. The recent economic update of the government is directionally correct, but we need to recognize that in the current situation many companies are now operating without profit, especially in the auto sector, and are therefore not able to take advantage of the recently announced corporate tax cuts, accelerated depreciation allowances, or even the traditional SR and ED program, as all these federal policy areas are essentially based on reducing your tax bill.

While we fully agree that tax cuts are a good policy for the broader Canadian economy, we must be fully aware that they do not help manufacturing and exporting companies that are in a tax loss position to adapt and enhance productivity. As such, globally competitive investment funds are critical to help attract new investment, especially the large-scale, multi-billion-dollar investments necessary for auto assembly.

Every auto-producing jurisdiction, big or small, provides investment supports for auto manufacturers. Australia, for example, applies revenues from the vehicle import tariff to support investment in its large domestic industry. That's just one innovative solution. U.S. municipalities and other jurisdictions worldwide continue to offer millions of dollars' worth of municipal tax incentives to auto companies that make large assembly investments and/or reinvestments.

The federal government is clearly not opposed to providing competitive supports directly to industry, as seen in the recently established government incentive programs for aerospace and defence sectors. We must ask, will similar supports also be available to the auto sector?

The second critical element is supporting the auto industry's efforts in environmental sustainability. Canada needs to introduce national vehicle standards, in particular fuel economy standards—these are standards that I call deep-impact standards—that are in line with the dominant North American standard.

The third element is creating a smart, efficient, and cooperative regulatory regime within Canada and with our major trading partners.

Expanding critical trade infrastructure and simplifying border processes is the fourth major element of the automotive investment strategy for Canada. Simply put, it is 27,000 times more difficult and costly, from a customs perspective, to get 4,500 North American-built vehicles into our own market than it is to import those vehicles from offshore. This does not support automotive investment. During the production of a vehicle in North America, parts and components can cross the border six or seven times, each time with the necessary paperwork and security checks, while on the other hand, imported vehicles simply clear customs by the boatload, or about 4,500 units at a time.

The last but not least important element of an automotive investment plan for Canada is opening foreign markets through free and fair trade agreements. Canada's auto industry and Canada as a result have benefited greatly from free and fair trade, especially with our NAFTA partners.

Currently we are negotiating an FTA with South Korea that may result in continued one-way trade in automobiles and no broader economic benefit for Canadians. A complex system of recurring non-tariff barriers has been used in Korea for the past 20 years to keep their market closed. The proposed FTA, as we see it, will not open this vibrant and wealthy automotive market. Meanwhile, Korean assemblers will continue to get unfettered access to our market.

Why does this have an impact upon investment decisions? In today's global industry, companies attempt to maximize production of each of their global assembly plants to maintain a competitive position. If Canadian manufacturers cannot access foreign markets, their production mandates will be placed in other jurisdictions. An FTA with Korea that does not create free and fair trade will result in continued increases in imports with no foreign market access to offset domestic sales and will therefore result in a reduction in local production.

The proposed Korea FTA could undermine all other aspects of an automotive strategy for Canada and as a result must not continue along its current path to completion. Canada needs to focus on negotiating FTAs to help Canadian auto manufacturers and exporters in other industrial sectors gain access to these lucrative markets.

In summary, I cannot stress enough the difficult situation our member companies in the OEM parts sectors are in within Canada. The rapid rise of the Canadian dollar is just the latest strike against domestic auto manufacturers and exporters, with roughly 570,000 Canadians either directly or indirectly employed in the industry.

We urge the government to immediately enter into partnership with industry to develop and implement an automotive strategy, as outlined in the five elements above, to help restore a competitive advantage to investing in Canada's critical auto industry.

Mr. Chairman, thank you. I'd be pleased to answer any questions.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Nantais, for that presentation.

We'll go now to Mr. Lazar.

[Avrim Lazar, President and Chief Executive Officer, Forest Products Association of Canada]

Thank you, and thank you for inviting us.

You probably don't understand how important to us it is that you take a chance to hear us, or how much we depend upon your attention and how much we appreciate it.

The impact of the dollar on the forest industry is not hard to calculate: everything we sell, we sell in U.S. dollars; all our input costs are in Canadian dollars. If the dollar goes up 40%, our cost structure is up 40%. The result is massive layoffs—almost 55,000 since 2003.

At the same time, there is good news. We have an industry that is responsible for 820,000 jobs still. That's 12% of Canada's manufacturing employment, and we're the largest employer of aboriginal Canadians. It's an industry that has business relationships with 1,600 aboriginal businesses and is situated in a global marketplace in which there's massive expansion of demand. Global demand for our products is going up 3% a year, which is equal to twice the production of all of Quebec every single year.

The good news is that we've got what the world wants: natural resources. We've got the water, the energy, and the fibre that the whole world is asking for. There's huge demand, and unlike many other sectors of the economy, our sector actually has a natural advantage—so we've got to ask ourselves how it is that we're closing so many mills at a time when the world needs what we produce.

Some of my friends in Toronto say, “That's globalization, Lazar; just suck it up and relax. It happens.” I think that's wrong. I think it's mistaken and I think it's misguided. It's not globalization; it's a failure to adapt and to adjust to globalization. It's a failure to have foresight. It's a Canadian failure, by all of us, to have the vision and will to do what's necessary to succeed in a globalized world.

Ten years from now, when this Parliament is judged, it's going to be on one factor and one factor only: whether or not there was the vision to prepare Canada for new economic realities. With all the competition coming out of China, Indonesia, and South America, if we get ready for Canada to compete in this new global economic reality, we will be judged to have done the right thing. If we don't, we will have doomed Canada to an impoverished future.

If you read all the books about the new global economic reality, they're quite clear: what we see today is just the beginning. They're also quite clear that it creates a huge world of opportunity for the sorts of things Canada can produce. In the forest sector, that means a huge opportunity to sell to the world what we have in abundance. Why are we not doing it?

The answer comes in many parts.

The first is that we are doing it today. We are the world's most successful nation in exporting forest products. We've got the know-how. We've got the track record.

The second part of the answer is that we have grown a little easy in our seats because a low dollar allowed us to export at an advantage. Governments and industry enjoyed that advantage, and we did not restructure and rebuild the industry when the dollar was low.

Governments can look at themselves in the mirror because they prevented rationalization, prevented consolidation, and taxed and regulated at rates that were only affordable at a low dollar. Industry can look at itself in the mirror and say that at a time when there was capital to invest, we went along with government's sense of ease and just played the game. Now that the dollar has gone up, we're all looking at ourselves in the mirror and asking if we can do anything now. The answer is yes, we can. The answer is yes, we have the competitive advantage if we have the courage, vision, and foresight to act.

Certainly what this committee came up with last year is a very good first step, and implementing that report is urgent. Most urgent is the refundability of the SR and ED credits, because you want industry to innovate their way out of trouble. Why would the government abandon that support, those tax credits, just when industry most needs them, when there is no profit?

Expanding the CCA writeoff for five years—I actually prefer my colleague's concept of “for eternity”—makes a lot of sense, because you want people to invest their way out of trouble, but that is not enough. We need a sector-specific policy. We need a sector-specific vision.

I am calling on parliamentarians from all sides to form a task force on the future of Canada's forest industry. It can be a subcommittee of this committee, it can be a subcommittee of natural resources, or you could actually get together and do it.

Industry has put out a vision for the future based upon markets and competitiveness. We need governments to partner with us in shaping and delivering this vision. We have seen from this committee what happens when parliamentarians put aside partisan stances, partisan positioning, and actually try to solve our problems.

We'd like to see that replicated in a future forest sector committee—all parties, this committee, natural resources, however you think you have to do it—and let's make it an urgent task. We'll work with you night and day to develop a path for prosperity. It's entirely doable. It's within our grasp. We have the natural resources. There is global demand. We simply have to get on with it and we need governments to partner with us.

I'll stop there.

[The Chair, Conservative, James Rajotte]

Thank you very much for those comments, Mr. Lazar.

We will now go to questions and comments by members.

We have five witnesses here today who are very well informed. I caution you to be very brief in your responses, as members have very limited time in which to ask questions.

We're starting now with Mr. McTeague, for six minutes.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Mr. Chair, thank you.

Witnesses, thank you for being here today.

We're glad we had the opportunity, as a committee that has worked by consensus in the past, to have a chance to review some of the work that was done last year. All of you here played a very important role in developing what I thought was going to be a template for how this minority Parliament should work, and I like to believe that the recommendations we made were a very strong basis for that.

All of you have touched on the recommendations that were made, but not many of you have actually made statements as to whether or not you believe there is some urgency to the rest of the recommendations taking place, save and except for what Mr. Lazar has just pointed out.

There were 22 recommendations in all. To my knowledge, only one has actually been implemented. I'm wondering if, politely, your organizations.... I suppose emphasizing the one recommendation that was implemented might begin a process, at some stage, of encouraging and urging the government to implement the other 21. It seems to us to be a little pedantic to have you come before the committee again to ask for very much the same things you were asking for before. We recognize that you, as a group, all of you here, have passed wonderful comments on the one recommendation, but it's clear to me that the other 21 are missing.

To that question, Mr. Myers, your industry has spent a considerable amount of time trying to respond, not so much in terms of productivity and things you've outlined.... Can you explain to us a little bit how your industry is managing--you are representatives of industries that you certainly care for--in terms of financial hedging, in terms of anticipating the dollar?

[Dr. Jayson Myers]

To your first point, Mr. McTeague, the situation is urgent, and we have been calling on the government to implement all the recommendations in the report. I think they were all extremely good, from the tax recommendations to the issues of ensuring fair trade, borders, logistics--everything. The problem with the dollar has just made implementation all that much more urgent. And I want to say again, on the record, that this is urgent, and we are calling on the government for full implementation of the recommendations.

In terms of the impact this is having on companies, I think there are two ways companies have been trying to hedge. The first is by establishing some form of natural hedge, so they're looking at opportunities to outsource more, to import more of their components and raw materials. Many are trying to establish production facilities in other markets, such as in the United States, where they'll have direct access to the market and where they'll be able to take some of the edge off the export side. All of that natural hedging may be good for an individual business, but from the economic point of view, there's not much of an economic benefit in taking your suppliers and offshoring those suppliers to the United States or any other country. So the overall economic impact of that type of hedging is a negative one.

If you look at financial hedging, in our membership and in Canadian manufacturing, 90% of these companies are small and mid-sized companies. Sixty percent of these companies have fewer than a hundred employees. We expect small businesses to be financially expert in terms of export and market development, expert in terms of engineering and product management and operations improvement. They don't have the capabilities as small companies to do that.

The larger companies, of course, are hedging. Many of the mid-sized companies are hedging. But even for the large companies, if you hedged at par in February, and you're getting paid in a contract when the dollar is at $1.10, you're still making a loss of 10%. And nobody could have forecast the dollar rising that rapidly.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

To shift for a moment—this committee is also studying the issue of the services sector—I hear time and time again that there seems to be a perspective out there, perhaps a belief, that manufacturing doesn't necessarily have to be that important. We can have our widgets made in China, and we can manage to maintain our standard of living.

How tough a job is it for you, Mr. Myers, to convince Canadians—it takes no effort to convince me and Mr. Carrie, who have large manufacturing facilities that employ most of our constituents--that manufacturing actually counts in Canada?

Mr. Nantais, you may want to comment on this as well.

[Dr. Jayson Myers]

I don't think we have too much of a problem convincing people who live in communities that depend on manufacturing how important manufacturing is for those communities. In some other communities, and in larger urban centres where the contribution that manufacturing makes is not that apparent, we have a significant challenge. But even in Toronto manufacturing is the largest business sector. So this is extremely important.

The second graph that I provided here shows just how dependent various sectors--service sectors as well as primary sectors--are on manufacturing. About a third of all the professional technical services jobs in this country--engineering, business services--depend directly on manufacturing as a customer base. Close to 15% of financial services depend on manufacturing. There wouldn't be very many people trading equities if there weren't manufacturing companies to trade on the stock market. There wouldn't be many customs agents if there weren't exporters shipping across the border. So this is extremely important. I think we have much--

[The Chair, Conservative, James Rajotte]

Mr. Myers....

Mr. McTeague, you wanted Mr. Nantais to respond as well.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Yes.

[Dr. Jayson Myers]

We have much more difficulty convincing economists in the Department of Finance about this.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

Mr. Nantais, I'll give you 30 seconds.

[Mark Nantais]

It is the same thing. We don't have any problem convincing people in communities. We don't have any problem convincing the provincial government in Ontario about what's at stake in terms of their home-based industry, which is manufacturing. So that's not an issue for us. Convincing the others is, as Mr. Myers points out.

You know, the auto industry alone accounts for 570,000 jobs, direct and indirect. You add the forestry industy to that, and that's another 820,000 jobs. Manufacturing is the cornerstone. So if we lose that, I would suggest that we're in very dire straits. You have a whole host of other issues that flow out of that. All I can say at this point is that there is no problem addressing those people, those communities that are going to actually lose their jobs.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. McTeague.

We'll go to Madame Brunelle, please.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Thank you, Mr. Chairman.

Welcome, gentlemen. Thank you for coming.

My first question will be to Mr. Lazar.

I greatly appreciated what I might call your plea for support in adapting to globalization. It is true that we of often have a lack of foresight and courage. I believe that if entrepreneurs have the courage to operate a business, politicians should have the courage to help.

We, at the Bloc québécois, try to convince the government of the urgent need to act to solve the crisis wether in the manufacturing industry or in the forestry sector. We devoted an opposition day to this theme. I keep asking the government questions but am obviously very disappointed by the answers I get. They keep referring to tax cuts and the low unemployment rate. There is a lack of political will.

That being said, it is true that the report of the Committee made important and useful recommendations. We talk, for example, about giving tax incentives to companies who go to resource rich regions, who try to diversify. The idea of providing loans or loan guarantees seems good. Some talk here about training and providing tax credits for training. All of these measures could be very constructive.

So I would invite you to provide additional arguments to try to convince the government that it needs to act without delay, that we cannot wait any longer.

[The Chair, Conservative, James Rajotte]

Mr. Lazar.

[Avrim Lazar]

It's 820,000 jobs, it's the largest employer of aboriginal Canadians, and it's the sole employer of 300 towns. I don't think any member of Parliament needs to be convinced this is urgent or that giving this up through inaction would simply be irresponsible. I don't think there's anyone in this room who doesn't understand how urgent it is.

I think our problem is not a lack of motivation; it's a lack of sense of direction. What do we do? What's the right answer? We tend to come up with small solutions; we'll guarantee a loan here, do a bit of training there. We need all of those things, and we need urgent action on refundability of SR and ED credits and the extension of the CCA . But we also need a much more ambitious vision. It has to be market driven. We should have a government-industry program that is much more ambitious, to penetrate new markets and to secure deeper penetration of existing markets. We are under-investing in research. Our competitors' governments put much more money into forest industry research than we do. There is the possibility of moving to new products, to smart papers, to bio-refineries. We have the natural resources, but we are under-investing in research and in the research adoption programs for this to happen.

So there's marketing, research, and there's industry structure. We have strangely thought that if we keep the industry structure small, having a little mill in each town, that somehow or other this will keep us strong. Little mills can be brilliant and profitable, and big mills can be brilliant and profitable, but when government dictates industry structure, it almost inevitably gets it wrong. Let the marketplace decide the structure of industry.

Transportation. We have rail transportation in which 90% of our mills are captive to one railway. They do what every good monopoly does: they exploit and give poor service to their clients. We can't afford this as a nation that is far-flung.

There's lots that can be done. I don't think there's any lack of motivation. I just don't think we've organized ourselves to look at it from the marketplace through to the infrastructure, the industry structure, and the human resources.

Again, I'm going to point to the vision document we've given to all of you, and also a competitiveness task force report in which we do this. Industry is willing to do its part. You guys can't solve this; industry has to solve it together with our workers. But we can't do it ourselves; we need the changes in business climate.

Again, I think the only way we're going to get the urgency, madame, you talk of is to put together a task force of parliamentarians, leaving partisan positioning aside, and say, if we want to keep these jobs in Canada in an area in which we have a natural competitive advantage, what do we have to do? And then we should get it done.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Certainly, for us it is not a matter of partisanship. Trois-Rivières, in my riding, has been a paper town and the Mauricie region relies a lot on forestry. Whenever a company closes, as happened with the Belgo plant in Shawinigan last week, family hardship and human tragedies are the result. This is what we see as MPs. It has nothing to do with partisanship, it is a matter of finding the best possible solutions.

Mr. Myers, do you believe that some action could occur quickly? You said that the solutions proposed by the Industry Committee are positive and appropriate. Do you think they can be implemented and that we will be able to overcome somewhat partisan differences of opinion?

[The Chair, Conservative, James Rajotte]

Mr. Myers, just a brief answer to that, please.