Industry Committee on May 28th, 2015

[The Chair, Conservative, David Sweet]

Good morning, ladies and gentlemen.

Good morning.

Colleagues, welcome to the 40th meeting of the Standing Committee on Industry, Science and Technology.

Welcome to the room that honours veterans. In my previous role as chair of the veterans affairs committee, we had the official parliamentary carver do the insignias of the different branches of the Canadian Forces and other aspects here simply to set this room aside to honour veterans. Every time I come in here I want to let people know we have done that work and how important veterans are to us.

To get back to the issue at hand, pursuant to Standing Order 81(4), main estimates 2015-16, you'll see the rest of the description here on your orders of the day.

We have before us John Knubley, a deputy minister at the Department of Industry; Philip Jennings, assistant deputy minister of the industry sector; Lawrence Hanson, assistant deputy minister of science and innovation; Paul Halucha—who's been here so many times before this committee that I feel you're almost one of us—associate assistant deputy minister, strategic policy sector; David Enns, chief financial officer, corporate management sector; and Fiona Gilfillan, director general of the spectrum licensing policy branch.

Colleagues, I'm going to let Mr. Knubley go ahead with his opening remarks. There's been discussion, so I will simply go around the table in a fair process. Whoever has a question can get up to ask one question. If that responds to supplementary that's fine, but we'll just have a free flow in that regard.

Please go ahead, Mr. Knubley.

[John Knubley, Deputy Minister, Department of Industry]

Thank you, Mr. Chair.

Just by way of introduction, I thought I would take a little time to go through our mandate, our three strategic outcomes, and a few words on the Industry portfolio and the main issues at hand.

Overall, Industry Canada helps create a strong business environment that promotes competition and instills investor and consumer confidence.

We do this by working with Canadians in all areas of the economy and in all parts of the country to create a fair and efficient marketplace, to encourage innovation, and to provide support to business.

The department basically has three business lines.

First is marketplace frameworks or the regulatory frame, if you like. The industry department is responsible for about 25 acts of Parliament that set these rules, including the Telecommunications Act, the Investment Canada Act, the Copyright Act, the Trade-marks Act, the Competition Act, and the Bankruptcy and Insolvency Act. Key objectives of these marketplace rules include providing businesses certainty through predictability and stability of the rules, achieving fairness of outcomes, incentivizing innovation, providing confidence in the marketplace, and aligning with international approaches and practices while recognizing unique Canadian interests. We try to promote well-functioning marketplace frameworks that generate positive outcomes for Canadians overall to create an innovative, entrepreneurial, and dynamic economy.

The second line of business is science, technology, and innovation. In the area of science and innovation we've seen a shift in governments focus and support. The Jenkins panel of 2011, and its review, took a hard look at overall levels of R and D spending, at the breakdown in federal innovation funding between direct and indirect investments, and at how to get more bang for our buck in terms of the effectiveness and impact of our federal support.

We've moved forward to implement the recommendations of the Jenkins panel. Whether it's transforming the NRC into a more business-oriented research organization, or changing the balance in SR and ED expenditures from indirect to direct support, we have truly been in implementation mode, and we'd be happy to talk about that.

Industry Canada also recently launched two important initiatives that will help shape support in the knowledge-based economy.

The updated science, technology, and innovation strategy announced in December 2014 focuses on three key areas. The first is people, attracting and retaining highly qualified and skilled individuals. The second is knowledge, strengthening support for excellence across discovery-driven and applied activities. The third is innovation, helping to bring new ideas and knowledge from the laboratories to the marketplace.

The second initiative of note is the Canada first research excellence fund. This $1.5-billion investment will enable Canadian post-secondary institutions to excel globally in research areas that create long-term economic advantages for Canada.

The third line of business is support for business overall. This last business line focuses on the importance of boosting the global competitiveness of key Canadian sectors. Typically we focus on the manufacturing sector, and historically Industry Canada's direct support is mostly geared towards the aerospace and automotive sectors.

Following the 2012 aerospace review by David Emerson, Industry Canada has implemented the report and its many measures to support the aerospace sector including, for example, the technology demonstration program; stable funding of close to $1 billion for the strategic aerospace and defence initiative, otherwise known as SADI; and the launch of the Consortium for Aerospace Research and Innovation in Canada, otherwise known as CARIC.

In any case, support for the automotive sector, on the other hand, is largely sourced from the automotive innovation fund, a program that supports significant, new, strategic, large-scale research and development projects to build innovative, greener, and more fuel-efficient vehicles in Canada. Budget 2015 recognized the important role of supply chains in the auto sector in terms of the future sustainability and competitiveness of the sector with the announcement of the automotive supplier innovation program.

Industry Canada aIso provides intelligence, analysis, and advice on key sectors, as I said earlier, primarily in the manufacturing area but including pharmaceuticals; information, communication, and technology; and some resource-based areas like food processing, which in the manufacturing area creates so many jobs.

Tourism is also a major source of employment in Canada and we will continue to examine ways to increase the attractiveness of domestic tourism to Canadians.

Lastly, Industry Canada has an entire team dedicated to small business. Whether it's supporting business through the Canada small business financing program, providing information to entrepreneurs through the Canada Business Network, or supporting the implementation of the venture capital action plan, we as a department are helping small and medium-sized businesses to compete and grow.

Before concluding, while I don't have any of the heads of agencies with me here today that are part of the industry portfolio, this is a diverse group of 12 organizations and indeed other affiliated bodies such as Statistics Canada, the Canadian Space Agency, the Business Development Bank of Canada, the granting councils such as NSERC and SSHRC, and the Canadian Tourism Commission, to name a few of the elements from my portfolio and the department's portfolio.

The entire portfolio, including Industry Canada, has a budget of $6.1 billion and about 16,100 FTEs.

We work in partnership with members of the industry portfolio as a department to leverage resources and to use synergies in a number of areas to further the government's goal of building a knowledge-based economy.

Let me just conclude with a few short words on the main estimates themselves. Industry Canada will receive $1.2 billion in the 2015-16 main estimates, which represents an increase of about $93 million from last year, the majority of which are in the grants and contributions area. The lion's share of this increase is from new funding from budget 2014, and specifically the largest item is $80 million for the connecting Canadians program.

Regarding the main estimates for the industry portfolio, the organizations will receive a total of $3.7 billion in the 2015-16 main estimates, representing an increase of $170 million over last year. The single largest increase in this total is $146 million for Statistics Canada to deliver on the 2016 census of population and agriculture programs. There are aIso significant increases to support SSHRC, NSERC, as well as space programs at the Canadian Space Agency.

Thank you very much, Mr. Chair. We look forward to questions.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Knubley and colleagues.

Go ahead, Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

I have just a couple of quick questions. Do you have the numbers from last year in terms of unused resources from different programs, the total that industry returned unused? I'll give you a good example with the automotive innovation fund. We weren't successful in getting a Ford manufacturing plant, so those funds still reside. Do you have an overall number in terms of other programs and services that didn't actually have expenditures?

[John Knubley]

I'll let Mr. Enns address this question in detail, Mr. Chair. I just want to point out as deputy minister that typically when there are these lapses, it reflects the expenditures. We are moving forward, particularly on vote 10, the grants and contributions, to allow for future expenditures in these areas. So the money continues within the program.

[David Enns, Chief Financial Officer, Corporate Management Sector, Department of Industry]

The total lapse that we're expecting to see in the public accounts later in the year will be approximately $8 million, I believe.

[Brian Masse, NDP, Windsor West, ON]

Sorry, say that again.

[David Enns]

I said $8 million.

[Brian Masse, NDP, Windsor West, ON]

Okay.

With regard to the tourism file, I raised the question with regard to Bill C-290, which is in the Senate and it's languishing. It's a real problem for many tourist destinations that we're competing with Americans and they're moving forward on single-sports betting. There was an attempt at the Canadian Tourism Commission at one point to move towards more international visitation. Now it seems that we're going to return to some more strategies on American visitation. Can you maybe highlight a little bit about that?

[John Knubley]

Yes, I can. It's true. Two years ago the Canadian Tourism Commission made a specific decision to focus on emerging markets. For example, the growth in China in terms of visitation is significant. Indeed, other markets, which would include India and Brazil, for example, might really change the numbers in terms of annual visits to Canada from other countries.

More recently, very much in consultation with TIAC, the industry association, the CTC has moved towards refocusing on how it would go back into the U.S. market. It's partly in the context, of course, that the United States itself has increased spending in terms of the market in Canada. I think the specific details of how this will be done are yet to be identified, but there's a strong recognition that in order for us to be successful in the tourism area we need to be excellent, if you like, in terms of attracting Americans.

[Brian Masse, NDP, Windsor West, ON]

My last question, Mr. Chair, relates to that. We're going to be consulting and working with CBSA. One of the concerns I've heard expressed is that the cuts it has faced have reduced the front-line operations. If we're going to have more border traffic coming across our major infrastructure nodes, is there going to be consultation with them to make sure that, for example, we're not creating longer lineups and delays and then frustrating our attempts at trying to win back some of that market?

I've heard some border operators express a little bit of concern about the planning. I just want to make sure that this might be in the works, hopefully, so they're aware that, if we're trying to increase the volumes, there are going to be the supports there to make sure people actually get through.

[John Knubley]

The short answer is yes. What we actually do in the department, from a tourism perspective, is run what we call the interdepartmental tourism strategy. We regularly bring together all the departments that touch the tourism area. I think that's one of the challenges, in effect, in managing tourism, that CBSA, Immigration, and all of them play roles affecting tourism. We regularly meet, we consult each of the departments individually, and we try to align ourselves, again, to support better outcomes in the tourism area.

[The Chair, Conservative, David Sweet]

Thank you.

Go ahead, Mr. Carmichael.

[John Carmichael, Conservative, Don Valley West, ON]

Thank you, Chair.

Thank you to our witnesses for joining us today.

I'd like to focus my brief time on the automotive sector and manufacturing.

Mr. Knubley, you spoke to both areas in your opening comments. I happen to be a big supporter of the automotive innovation fund, and we've seen some significant success with that fund, specifically in southwestern Ontario. I look at the Ford plant where they have now built a global centre for developing right-hand drive vehicles that are manufactured and shipped overseas. With CETA coming down the pipe fairly soon, we're going to have a great market opportunity for that company, and there are others who have also had successful results with the automotive innovation fund.

I'd like to direct today's discussion more to the supplier innovation program, if you could, and you spoke to that. I wonder if you could talk about the importance of this fund. Clearly when we have manufacturing sectors, there are clusters of suppliers, parts manufacturers, etc., that are around these. They tend to create a type of hub environment around these manufacturing facilities. Would you be good enough to speak to, from your perspective, the objective of the supplier program and the scale of it? What's the timing of this program to bring it on stream?

[John Knubley]

Thank you for asking that question.

I think it is very important to recognize that attracting new investment from large companies in the auto sector remains an important challenge for Canada, an opportunity. A big part of what we need to do in supporting the auto sector is to reinforce, if you like, the supply chain and the linkages between the small and medium-sized firms with those larger firms.

The automotive supplier innovation program is a five-year, $100-million program. It's designed to reinforce those supply linkages by promoting technology, demonstration, and development, and by prototyping activities of Canadian-based suppliers and ensuring that we have this strong supply chain in place. I think in terms of timing, we're looking to begin accepting applications in June, so very shortly, and we have been meeting with an advisory group in that respect.

Again I think the main focus is really contributing to the development of technology that will allow us to have high-value-added suppliers in Canada that are part of a strong auto supply chain.

[John Carmichael, Conservative, Don Valley West, ON]

Mr. Knubley, could you or one of your colleagues explain...? It's my understanding that it's a matching fund. In other words, when we invest a dollar, there's a dollar being invested on the other side. How do we manage, if you like, the accountability of those who are receiving those investments and are participating in the program to ensure that from a taxpayer perspective we're getting maximum value?

[John Knubley]

I think a big feature of the program is that matching characteristic, but I'll let Phil Jennings speak to the accountability issue.

[Philip Jennings, Assistant Deputy Minister, Industry Sector, Department of Industry]

Maybe I should first just address why we took that approach in terms of a matching fund. In some ways the program is really geared to trying to incent the suppliers to make investments where we think the future of the car industry is going. It's really taking higher risk, and we're trying to incent small or medium-sized companies to participate, companies that may have difficulty in accessing the right financing and in taking the risks that are necessary.

We're really trying to make sure that we're touching what we talked about, the TRL levels four to seven, which are really after basic research but before commercialization. It's really trying to make sure that we can fill that gap to essentially commercialize the discoveries. We see that as a tremendous opportunity in the sense of where the industry is going and what is being demanded. You think about the environmental regulations, safety regulations, and also in terms of what consumers are demanding. The suppliers will really need to be there to be able to participate in the cars of the future, participate in the supply chains in Canada, and also participate in global value chains around the world.

Talking about accountability, you really have to have a robust review, as you mentioned, in terms of making sure that we get value for money in terms of where we invest. We do plan on having a thorough due diligence that will be made by third parties as well as having an advisory committee or a common steering committee that will be reviewing the applications to make sure that we really are making investments in where the future is going and drawing on the strengths that already exist in Canada.

[John Carmichael, Conservative, Don Valley West, ON]

Great, thank you.

[The Chair, Conservative, David Sweet]

Somebody else?

Madame Papillon.

[Annick Papillon, NDP, Québec, QC]

I have two questions, and one of them is about tourism.

A conference board of Canada report recommends reforms in the air transport sector, where the high taxes and tariffs make Canada an expensive destination, unfortunately.

Does the department intend to act on that?

[John Knubley]

As I have just explained, the department is responsible for a committee made up of representatives from all of the departments that have anything to do with tourism. We work in close cooperation with the Department of Transport on air transport issues.

[Annick Papillon, NDP, Québec, QC]

So the matter of transport is studied.

[John Knubley]

We work on that because it is always a challenge in the tourism sector.

[Annick Papillon, NDP, Québec, QC]

My other question is about the long-form census questionnaire. I questioned the minister on this topic last Tuesday.

In the business world, just as in the scientific community, people are concerned about the changes made to the census. Businesses feel that they are the losers, quite simply. They say that this could have repercussions on market studies. When you want to open somewhere, you look at the household income levels in the area, as well as the social and economic components. That is what Martine Hébert pointed out, and she is a spokesperson for the Canadian Federation of Independent Business.

The Canadian Chamber of Commerce and the Canadian Federation of Independent Business have concerns about this. And yet the minister refuses to change the census. Given these facts, how are you going to be able to calm the fears of SMEs?