Industry Committee on Nov. 1st, 2012

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Are you saying there is financial help required from the government in terms of legal fees?

[Rami Abielmona]

Not legal fees, but in the end, it's offsetting costs. In the end, as I said earlier, we have to decide whether we go through enforcement or not. If we don't have the cashflow to manage that, then we'll just let that litigation go and we'll move on to another product or another service or another contract.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

In terms of international filing, do you have the right contacts? Are the people who are working the trade desks in the different countries doing what you need them to do in terms of IP protection?

[Rami Abielmona]

I don't have an answer to that. In the Government of Canada, if there is an agency that we can turn to that could facilitate that, that would be very helpful. There might already be such a department, but I'm not aware of it.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Abielmona.

Thank you very much, Madam Gallant.

Now on to Mr. Harris for five minutes.

[Dan Harris, NDP, Scarborough Southwest, ON]

Thank you very much. It's nice to get another round.

Mr. Lavoie, I wanted to ask you a little bit about the Canadian Manufacturers and Exporters' position on SR and ED. I believe they have made some comments that they believe there may have been an underestimation from the government as to how much has been reinvested. What comments has your organization made on that? How much do they think the government has underestimated their reinvestment?

[Martin Lavoie]

When we say “underestimation”, it's pretty much based on the way it has been calculated by Finance officials. In the last budget, what they have calculated is the impact on government revenues. Now, government revenues on SR and ED are spendings. You have to keep in mind that if you are not in a profitable situation as a large company in Canada, you can carry them forward for 20 years. What we know is that about 65% of the companies use it the same year they claim it. There are another 35% that don't use it the same year. So in terms of government revenues, if you carry them forward, it doesn't impact the revenues that same year.

[Dan Harris, NDP, Scarborough Southwest, ON]

It's hard to measure the exact impact right now.

[Martin Lavoie]

What we calculated is the impact on the financial incentives. From a company point of view, whether you use it in the same year or use it in three years, it's going to disappear. The gap, just on federal, we estimated as $663 million per year instead of $500 million. The other thing you need to take into account is that all provinces except Quebec that offer a provincial SR and ED use the CRA to administer their own SR and ED program. All of the measures announced in the budget—excluding the ITC rate reduction because each province can choose their rate—in terms of capital expenditure, the reduction of the proxy use to claim overhead costs, and the profitability aspect of third party...they would probably automatically just reduce in the same way, just to copy the federal model. You have to add another $80-something million to that.

In total, you are talking about $750 million in reduced incentives for companies. How that will impact companies' actual investments in R and D...based on the surveys we have done, the reduction of business R and D expenditure will be between 25% and 30% as a result of these measures. You're talking somewhere between $1 billion and $1.5 billion, according to the survey we conducted this year.

[Dan Harris, NDP, Scarborough Southwest, ON]

Thank you for that. That's frankly quite an alarming number—a 25% to 30% reduction in R and D—considering the importance of innovation, research, and development, and making sure we're prepared for the 21st-century economy.

In your opening remarks you also mentioned that your industries had a growth percentage of about 0.3%, which seems very low. Of course, considering all the assistance that has been available, it would seem that without that, the industry would be even worse off.

I want to ask about the high Canadian dollar and what kind of impact you think that has had on your industry in terms of job creation or job losses.

[Martin Lavoie]

The majority of the job losses—a big part—that happened in the manufacturing sector are due to the rapid appreciation of the dollar. It's not that the high dollar is necessarily the problem, but the rapid appreciation has been the problem. You don't adapt to a 40% increase in your dollar in two years. The way you adapt to it is through, as I said, productivity.

[Dan Harris, NDP, Scarborough Southwest, ON]

It takes time.

[Martin Lavoie]

Productivity doesn't happen overnight. We're starting to cope with that. If you look at employment, manufacturing is about 10% of total employment in Canada. It's now stable since last year. If you look at TD Economics' forecast, you are talking about between 10% and 12% of total employment in the next couple of years. We're expecting some jobs to be created in the sector, but it's not going to go back to what it was. As I said before, we're going to be less job-intensive. That being said, our contribution to exports will by far exceed any other sector, as well as R and D.

[Dan Harris, NDP, Scarborough Southwest, ON]

Okay. Excellent.

Mr. Gupta, I haven't asked you any questions yet today, but one comment you made in your opening remarks was about the importance of a digital economy strategy. I won't have much time here. You could perhaps make a small elaboration, and if you have anything in addition to share with the committee on that strategy, perhaps you could do so afterwards by submitting it to the clerk, and then it could be distributed.

[The Chair, Conservative, David Sweet]

At this point, any input on a digital economy strategy will have to be distributed to the clerk.

Now we go on to Mr. Lake for five minutes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair.

In regard to that comment about the high Canadian dollar, I guess the one thing I would assert is that a high Canadian dollar is a good thing. It may present some challenges, but overall the high Canadian dollar is a sign that the Canadian economy is strong. I think we always have to remember that. Our economy right now is stronger than just about any developed economy in the world. That's a good thing for Canadians.

There are just a couple of things I want to focus on here in terms of the conversation around SR and ED. I guess the two principles I want to focus on here are the concepts of balance and constant improvement, in a sense. Canadians would expect that the government would look at ways to constantly improve the balance we have, in terms of whatever mechanisms we're using.

The word “balance” also comes into play with my constituents a lot. The priority is to balance the budget by 2015, so they're taking a really good look at what we're spending money on. As you look at these changes, one of the things we're trying to do here is to make sure that while we're making a change in one area, we're also adding something in another area.

As for IRAP, I'll read from the budget:

Economic Action Plan 2012 proposes an additional $110 million per year starting in 2012-13 to the National Research Council to double Industrial Research Assistance Program. This will allow the National Research Council to support additional small and medium-sized businesses that create high-value jobs, and to expand the services provided to businesses through the program's Industrial Technology Advisers. The National Research Council will also create a concierge service that will provide information and assistance to small and medium-sized businesses to help them make effective use of federal innovation programs.

Maybe I'll start with Mr. Davies. How important is that step in improving the environment for small and medium-sized businesses in Canada?

[Gordon Davies]

Well....

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

You were one once.

[Gordon Davies]

Yes. I guess I'm surprised you started with me, as we don't necessarily consider ourselves a small or medium enterprise.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I'm thinking about where the suggestion originally came from. You might have some connection to that.

[Gordon Davies]

I guess I would briefly say that we certainly do think it's important. It's where you're going to foster innovation. The focus on small and medium-sized enterprises, from that perspective, will allow the fostering of innovation. For them to be able to protect intellectual property and the results therefrom has to be seen as positive. Indeed, as you say, that's what we grew from.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Go ahead, Mr. Abielmona.

[Rami Abielmona]

Yes, I think it's a great thing that the Government of Canada is actually looking out for us through IRAP. As I said, we've run through two IRAP projects and they were great. The IRAP ITAs, the whole landscape, the whole symbiotic relationship between the IT administrators as well as the companies are great. They have business ITAs; they have technological ITAs. They can vet the ideas through, across the Canadian landscape.

They can put you in touch.... It's not just about funding; IRAP is about networking. It's about the availability of corporate intelligence, knowledge, and so on. IRAP is not just about dollars. Dollars help, obviously, so that we can hire R and D employees and not services or consultants, so that we can grow our Canadian IP, but we still have that disconnect, as I mentioned, which is the technology valley of death.

I'll point to one other thing, which I'll steal from engineering. We have these things called measures of performance and measures of effectiveness. Measures of performance are, are we doing things right? Measures of effectiveness are, are we doing the right things? It seems to me that we have to come up with some measures of effectiveness to see how this injection of cashflow into IRAP is effectively helping out the SME landscape across Canada.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you.

I'm just going to go further on that. It's an IP-related issue, in a sense. One of the challenges we've heard over and over and over again through this committee study is that there needs to be an education process for small businesses, for startups, in terms of IP. I would sense that a transition to an increased investment in IRAP, an increased investment in these industrial technology advisers, would be a real step forward in terms of giving the tools to small businesses.

[Rami Abielmona]

I completely agree with you.