Industry Committee on May 19th, 2016

[Lloyd Longfield, Liberal, Guelph, ON]

Should we include that in our study?

[Christyn Cianfarani]

I think you should, yes. There are things that are not complete that were talked about in the Jenkins report.

[Lloyd Longfield, Liberal, Guelph, ON]

Could you provide us any ideas for the study? If you sent us a copy of the report, saying it is about innovation in Canada, something that we're studying five years later, that would be very helpful.

I have limited time, and I'm just touching on this. I'm sorry, but I'm going at high speed.

I'm very interested in the cosmetics industry, as my buddies here have told me how important the industry is in Canada. We can't know everything, but I'm building my knowledge of your industry as well.

We do have some nanotechnology being developed in Guelph, taking nanoparticles from corn to make face creams, hand creams, and sunblocking agents, and the University of British Columbia is also using nanotechnology, but the start-ups are having trouble breaking into your industry. Do you have any advice that we could put into the report that, “If you're developing nanotechnology particles...”? Finish the sentence on how we can get into the industry.

[Beta Montemayor, Director, Environmental Science and Regulation, Canadian Cosmetic, Toiletry and Fragrance Association]

I think nanotechnology is one of those things that is still very cutting-edge in terms of where they are at. There's a lot of uncertainty associated with those materials.

I think the first thing we have to do is to better educate the public about what these materials are; what their safety profile is; what we do as industry to ensure that these products are safe, although innovative; and that industry is able to deliver innovative efficacy and create a difference as these innovative products move forward.

As with anything, it's really important to make sure that the consumer understands that these products are regulated, that they are well studied, that they have risk assessments done to ensure that they're safe, that they can be used safely, and that they do not present a risk to Canadians.

[Lloyd Longfield, Liberal, Guelph, ON]

Again, it is leading-edge, breakthrough technology. Beautiful.

Thank you, Mr. Chair.

[Beta Montemayor]

Absolutely.

[The Chair, Liberal, Dan Ruimy]

Mr. Lobb, you have five minutes.

[Ben Lobb, Conservative, Huron—Bruce, ON]

My first question is for Christyn.

With the military and the Jenkins report, does the committee need to report back on any barriers to doing business with military and military procurement? Are there any improvements or suggestions we could make?

When we look at some of the newer technologies involved—software, hardware, technology, or whatever it is—a company in Ottawa, Waterloo, or wherever might just say, “You know what? It's just too much of a burden for us to deal with this; we'll just stick with non-military businesses.”

[Christyn Cianfarani]

As you know, the industry is heavily regulated, so the challenge is always creating a product that will be able to meet the regulations as it goes to market. Traditionally, those products have been components. We do a lot of that. We don't do a lot of platforms from the buildup. That means that we're usually part of a supply chain of a larger firm that does have regulations and will send it out to market. So the caution is always providing an enabling environment.

It's within companies, so it's a bit of a challenge for government to become involved, but it needs to provide whatever kind of environment is possible to increase the ability of small to medium-sized businesses to be able to get accreditations like security clearances expeditiously, to be able to get through international traffic in arms regulations expeditiously, and through the export control regime. Those are the regimes in place that are the traditional barriers.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Another one is obviously the large shipbuilding contract for the combatant and Arctic offshore patrol vessels. We'll see how it turns out in the end, but we want this to be a success so that it employs Canadians and we have Canadian businesses leading the charge here.

Where I'm from, Bruce Power is a large nuclear plant. Although the jobs are not exactly similar, a lot of the positions for boilermakers, welders, etc., are in high demand and are hard to fill. When the oil and gas sector picks up, they're going to be needing the same kind of workers. How do we ensure that in 2020, or whatever year it is, we have enough qualified people to do the jobs? This is going to be a huge issue for Irving and others. How do we do this?

[Christyn Cianfarani]

I can't offer an opinion on how Irving is managing skills training to be able to manage its workforce.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Not Irving, but is the pool of people in general—the colleges and universities—engaged?

[Christyn Cianfarani]

To my knowledge, they are engaged. It depends on the nature of the work. If you look at the Canadian surface combatant program, we will do the manual labour on the exterior of the build, but there is significant value for the country in skills and training and research and development activities, systems engineering, and combat systems, in the second wave. Right now you've got a wave of people who are going to build the ship and you're going to have a second wave, which I would argue is the area where we should be significantly focusing to position ourselves, because that's the area where intellectual property will or could reside in Canada.

We need to be looking at whether or not we've got universities on board to collaborate in what I would call the “guts” of the ship, where we have foreign design houses being directed to provide work to Canadian companies that will be working on the components within the ship and integrating them. That is where the future exportability will come from as we evolve this. That's where you get the two for one, which is in the inside of the ship as opposed to being on the outside. That is where I would put the effort in the skills and training.

[Ben Lobb, Conservative, Huron—Bruce, ON]

My last question is on the next generation of fighter jets. There are obviously always going to be debates among different members about whether we need fighter jets or not. What are we going to do? We're on the ground floor with the F-35. We had worked it so that Canadian manufacturers shared in the beginning of this program. Regardless of how that goes beyond today, what do we need to do to make sure that we have some manufacturing in this country for whatever jet is approved?

[The Chair, Liberal, Dan Ruimy]

We're out of time, but if you are very quick, you could take 10 seconds to respond.

[Christyn Cianfarani]

The one thing we need to ensure is that we have an intellectual property transfer on whatever fighter aircraft we get. That's what we had on the CF-18s in the past. No matter who supplies the platform, if we don't have any intellectual property transfer for the future, we will be left out of the 40 years' worth of tail-end work on that aircraft.

[The Chair, Liberal, Dan Ruimy]

Mr. Jowhari, you have five minutes.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Given five minutes, I'm going to focus my questions on the automotive sector and defence. I send my apology to Mr. Praznik.

I'm going to start with defence.

Madam Cianfarani, you mentioned two things that stood out for me. You identified a commercialization gap, and also two key ingredients that are needed to support innovation. This dovetails with the question that was just asked. You specifically said that you want Canadian prime contractors to be given priority. You also said you want IP transfers from the foreign primes into our primes.

Can you merge the two and find a way out for us?

[Christyn Cianfarani]

There's a subtlety there, because a foreign prime most likely may not transfer the entire set of intellectual property into another Canadian competitor, because that's their crown jewel. We will have to find a mechanism, and usually that's by buying data rights. The crown would have to purchase it to make that happen.

Nevertheless, as I mentioned, on any usual platforms you would incentivize those prime contractors to do that. We would do it nowadays by using our value proposition construct. We would say, “You could lose a competition, company X, company Y, prime contractor. You are going to be in a fair fight, one for one, and one of you is potentially going to transfer work into a Canadian entity.” That's how you might win. It really is a point system scoring that will incentivize that happening in a competitive environment.

The other thing you could do is to look really long term. Canada is buying a number of pieces of equipment from a certain country, perhaps. If there is a certain strategic country we want to buy from, you would start doing a government-to-government deal where you would start to say, “We want this type of job and this type, and this type of job in Canada, and we will end up purchasing that platform as long as we are assured that we will be getting that type of job over the long term sustainably in Canada and the intellectual property rights that make it happen.” When you get those rights, you want to be able to allow for the re-export of any foreground intellectual property. Basically, we create something in Canada so that the prime gives us the intellectual property, we create something in Canada in a Canadian variant, and we can export that to the rest of the world. You may sometimes hear it called a “world product mandate”. That is the motherlode, if you will, of intellectual property transfer. It is entirely possible to make it happen.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Quickly touch on the commercialization gap.

[Christyn Cianfarani]

We've got a commercialization gap in the country. I think we know that. Usually we get to about TRL 6 and the whole thing falls apart, meaning that it's very hard to get it to market. It's even harder in defence to get it market because of your—

[Majid Jowhari, Liberal, Richmond Hill, ON]

So what can we do as a government?

[Christyn Cianfarani]

You're going to need to create a construct that bridges TRLs 6 to 9 and actually provides a landing pad for these types of programs. That means we have to get around the idea that someone who has produced something will inevitably be in an advantaged situation in a procurement. This is what, in our world, causes great consternation: when we feel as though in an open, fair, and transparent competition that if someone who has developed something is then targeted for a particular procurement, somehow this isn't a fair procurement.

We are going to have to get around that. We do have tools to do that. Most countries will do things like apply national security exemptions. They will apply Canadian content policy rules. They will apply things like our value proposition construct.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Sorry, I'm going to cut you short because I want to go out to Mr. Champagne.

Can I ask you to send your recommendations to the clerk so we can include them in the report?

[Christyn Cianfarani]

Of course. I'd be happy to do that.