International Trade Committee on Feb. 12th, 2009

[The Chair, Conservative, Lee Richardson]

Good morning. This is our third meeting of this session of the Standing Committee on International Trade.

We have had some difficulty on short notice getting all the witnesses that committee members have requested. We are pleased that Karl Risser is again here to appear today as a witness. We will continue to pursue the other witnesses you have all listed. We have called more than 20 in the past few days, but with the short notice it is very difficult. I think we will have better luck with almost two weeks' notice. We will bring in witnesses and have several at the meeting on February 24, at which point I hope we can wrap this up.

Today we have Mr. Risser from the Canadian Auto Workers, Shipbuilding, Waterways and Marine Workers Council, who has an opening statement. We also have with us representatives from the Department of Finance as well as from the Department of Industry, who will be pleased to answer any questions you have with regard to EFTA and I'm sure international trade in general. Perhaps I'll introduce our representatives from Finance. Dean Beyea, Patrick Halley, and Kei Moray are here. From the Department of Industry we have Gary McGee and Emile Rochon.

I'm going to ask Karl Risser Jr., the president of the Canadian Auto Workers, Local 1, Shipbuilding, Waterways and Marine Workers Council, to begin.

[Karl Risser Jr., President, Local 1, Canadian Auto Workers Shipbuilding, Waterways and Marine Workers Council]

I would like to thank the chair and the committee for the opportunity and the invitation to testify here on behalf of the men and women of the CAW marine workers, Local 1. It was short notice, so forgive me for any shortcomings; I just scratched some things down, to stay on point.

I myself am a third-generation shipyard worker. Over that time a lot has changed. I enjoy our job. It's a great job for me; it's like a continuation of childhood. You get to build something that Canada needs and you get to watch it sail out of the harbour. We take a lot of pride in that.

I grew up listening to the stories around the dinner table of my grandfather and father, talking about the shipyards and the good old days. They were colourful stories. There were well over 1,000 workers in the yard, working around the clock. You can imagine what some of those colourful stories were like.

Since then, the Canadian shipbuilding industry has rather moved away from subsidy and towards following the open market and deregulation and all of that. What it has done is leave the industry standing on far from level ground to compete with all these other countries.

The OECD and the WTO's efforts to ensure the level playing field have failed to eliminate or reduce the subsidies and all that face us. Canadian shipbuilders systematically encounter competition from production subsidies, generous financing, market protection, state ownership, and in Canada's biggest potential market—the United States—we are cut out completely, with the Jones Act.

Canada's policies do not support this industry to the level it needs in this world market. It leaves Canadian shipbuilders to compete largely for domestic work. In the work that we do, we support transportation, fisheries, oil and gas, and most importantly we support government procurement.

Unfortunately, in all those areas we haven't seen a whole lot of action in the last while. This leaves the shipbuilding industry to service and maintain the vessels that are already here. This makes it very difficult for the industry to improve its production methods, retain its skilled workers, and get investment in the industry.

Right now we have some pent-up domestic demand. I think we have a perfect opportunity to take some time, in this period of economic depression, to create some good skilled jobs—actually, to create thousands of skilled jobs building vessels that Canada needs today very much. Canada needs these vessels, and we'd love to build them for it. They include everything from joint support supply ships to coast guard vessels, arctic patrol vessels, ferries, and replacements for the Laker fleet.

Sadly, if we don't take action as a government to get involved, this could all slip away and our industry could continue to fall. What we need to do is put in policies that recognize shipbuilding as a strategically important industry to Canada's sovereignty.

It's pretty serious stuff, when you think about it. Before we go ahead with this deal, we have to take a step back and recognize that shipbuilding is very important to Canada. Our country features the longest coastline in the world, borders on three oceans, and includes a major inland seaway and the Great Lakes. The defence, transportation, and trade implications around that should be obvious to everybody.

The governments of leading marine shipbuilding countries, including the United States, Norway, Iceland, Japan, Korea, and more recently China, have long since acted to build and support their industry and create domestic shipbuilding powerhouses. They built these industries over many years, using all manner of procurement policies: subsidies, tax relief, loan guarantees, infrastructure development, and tariff protection. These actions have allowed them to secure large parts of the international market, unfairly. With these volumes of work, they have made continuous improvements to their production methods and have improved the overall health of their industries.

Understanding all of these factors, it is very disturbing to me to hear some Canadian politicians talk about our industry's not being able to compete, its not being competitive with Asian and European yards. These yards have benefited from government policies that are clearly outside the OECD rules and the WTO guidelines that Canada faithfully follows. I think it is one of the only countries that faithfully follows these rules, but I could be wrong.

Our shipbuilding industry and marine services industry have been sacrificed, I think, through not having the proper policies in place to support them, and also by not addressing key issues in deals we've signed in the past, i.e., the U.S.A. with the Jones Act and Chile under NAFTA. We've seen major losses to our industry because of those deals.

I know I'm a little brief, but just in closing, I'd like to urge this committee not to move ahead with this deal or to carve out shipbuilding in this deal or to take actions before they move ahead.

I would have liked to have gone into a little more formal presentation, I would have liked to have had Andrew here, maybe the economist from our union, and I would have liked to have had some more numbers for you and maybe thrown in some more details, but there is a lack of time. I thought it was important to be here and say a few words on behalf of everybody.

I would like to throw out some rough numbers I've put together. This is a mid-sized shipyard. It's been operating at about 40%, 50%, so these numbers are based on about 500 employees; an annual average payroll of about $24 million; $400,000 in property taxes; payroll taxes, CPP, and EI around $9 million; purchase of local goods and services in Nova Scotia with this mid-sized yard of about $35 million; and the capital investment since 1995 of around $30 million.

This is in a yard that is only operating at 40% capacity. There's lots of room for that yard to grow, and then you can multiply that quite a bit when you look at a yard like Davie's, which is much larger.

Just some recommendations around policies--we need some key things and I am going to touch on a few. There are already some programs out there, ACCA and SFF. I think if we could combine those two, that would go a long way for shipbuilding. I think supportive tax policies and maybe some extended financing....

We've got guys who can go out and finance a car over 10 years, 20 years. We're talking about a ship that has a life of 30, 40 years, and it can only be financed over 12. We need to extend that financing period and we need to continue the government...continue our “made in Canada“ policies.

If we take some action on that and continue the EDC that we did for Davie's...I thought that was a great step. We encouraged our shipyards to sell our products overseas. In this time, when we're talking about the first time we've seen a real trade deficit--we are not exporting more than we're taking in--I think it's because we rely a lot on resources, and that is going down. So we have to find things we can produce in Canada and send overseas, and ships are one of them.

Again, I think it is key that we realize what you can manufacture in Canada that's bigger than a ship and can employ more people, skilled jobs.

The last thing I'd like to say is that it's not a sunset industry. I've heard that said before. It's a very high-tech industry. It supports everything from the skilled trades workers right up to the top engineering, top design people. To maintain all that, we need consistent work.

I think it takes a lot of work by government, industry, and the people involved to get together and make this work. I think if we take these actions we can improve the overall health of the industry. We can increase investment. We can sustain industry growth and eventually we can eliminate the tariffs, but we need to take these actions first. We can't continue to sign trade deals and think we'll talk later about the policies. The policies have to be in place first. We need a chance to get up and running. We need to get on our feet and then we'll compete.

What you're asking us to do is to jump into the ring and fight a professional fighter, and we haven't had any fights. These guys have been up there. They've been competing against each other. They've had their bows, and we haven't been in the game.

Let's get in the game. We can compete in the international niche markets. We're not going to be world leaders in shipbuilding, but we can pick niche markets in international markets. We can control our domestic work and I think we can be successful.

On that note I'll close. I want to reiterate that time was short to get here and I'd like to have had more time to prepare something more formal for you and have some of my counterparts here.

Thank you, Mr. Chair.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Risser.

Before we continue, I want to run through the process again. In addition to the witness we have just heard, we have today representatives from the government, from the Departments of Industry and Finance.

I want to remind committee members, particularly new committee members, that the officials present today or at any time aren't here to discuss government policy. They are the implementers of government policy and they can talk about how these processes are working through their department or give you background information on various things, but we'll save the political questions for the ministers, when they appear before the committee.

Let me say that the particular topic today appears to be shipbuilding virtually exclusively, so we have, from the Department of Industry, Gary McGee, who is the director of the defence and marine directorate in the Aerospace, Defence and Marine Branch of Industry Canada, with Emile Rochon, who is the senior program coordinator for the Aerospace, Defence and Marine Branch of Industry Canada.

From the Department of Finance, I think you are aware, we have Dean Beyea, senior chief, International trade policy division, International Trade and Finance; Patrick Halley, chief of tariffs and market access; and Kei Moray, who is the assistant director of the business income tax division with the Tax Policy Branch.

So we have lots of firepower here. They should have many of the answers you require. We'll begin.

We're going to remind members that on the first round the first four questioners will have seven minutes for questions and answers. The next round will be of five minutes. I think we should have lots of time to get through a couple of rounds today. We will stick closely, with our clerk and his stopwatch, to the set time as agreed by the committee.

We'll begin today with Mr. Brison, for seven minutes.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Mr. Chair.

Thank you to the witnesses for being with us today.

First I'll address Mr. Risser and his point. He mentioned Andrew McArthur, who represents the shipbuilding companies. I was speaking with Mr. McArthur, in fact, yesterday, and we had a discussion last week on some of these issues.

I want to confirm for the benefit of the entire committee that in fact other countries.... Norway, for instance, has had a 30-year period of direct investment in their shipbuilding infrastructure, and at the same time protectionist policies that have garnered significant support for their shipbuilding industry and have given them a significant competitive advantage at this point. But there are measures, as you mentioned, that exist currently—such as the structured finance facility and the accelerated capital cost allowance and government procurement—that can help provide a level playing field for our producers.

Specifically, if the structured finance facility is refinanced, and if Canadian ship buyers have access to both the accelerated capital cost allowance and the structured finance facility—which foreign buyers of Canadian vessels, it's my understanding, could qualify for in their own countries—and if government procurement is more focused on supporting the Canadian shipbuilding industry, which is a unique industry in which other countries really do take a more active role.... We always talk about the U.S. situation, the Jones Act, but other countries take a more direct role than we have at various times in our country's history. If those measures are done—again, refinancing the structured finance facility, making the structured finance facility and accelerated capital cost allowance simultaneously available to our buyers, and a refurbished government procurement program—the industry can compete even if faced with increased competition through, for instance, EFTA.

[Karl Risser Jr.]

I think your point is a good one. With Norway, we're talking about a country that has supported its industry for 30 years through its oil and gas, through all its policies. They've recognized--and I think Canada is one of the only countries for over the last 50 years that hasn't recognized--the importance of shipbuilding and put in place a real policy to make sure it's there when we need it.

So, yes, I think we could compete, but I think we need time. We need time to catch up. These guys have been building their workforce. On the North Sea, they've been using their oil and gas industry to allow them to reinvest into their shipbuilding. Their government has strongly backed up their shipbuilding for 30 years, creating more productivity, and they keep getting better and better, while the shipyards in Canada have been left alone to kind of maintain and repair the vessels we have and do sporadic builds that aren't back to back.

I think, given the proper time and the proper circumstances, we could compete.

[Scott Brison, Liberal, Kings—Hants, NS]

I have a further question for our officials: what is the state of the structured finance facility? It's my understanding from talking to Mr. McArthur that it needs a reinvestment at this time. I'd appreciate knowing that.

Second, what is the implication of making the structured finance facility and the accelerated capital cost allowance available simultaneously to Canadian buyers?

[Karl Risser Jr.]

I believe the Conservative government, through Minister Peter MacKay, announced a renewed approach to shipbuilding. He talked about $50 million in SFF in the short term and about re-funding it, and I think that money has been used up. I think the Canadian shipbuilders have used up most of it.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Mr. Risser.

Do your officials know?

[Gary McGee, Director of Defence and Marine, Department of Industry]

Just as an introduction, most parties, if they understand what the SFF is--it's the structured financing facility, and the program is to provide financing support to domestic and foreign shipowners, reducing their interest costs when they choose a Canadian shipyard for vessel construction or modernization.

In 2007, as part of the government's renewed approach to shipbuilding, the SFF program was renewed. It was given a budget of $50 million. Currently, there's $28.2 million available for usage in the program.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you.

So there's about half of that still there. It was introduced in 2007?

[Gary McGee]

That's correct.

[Scott Brison, Liberal, Kings—Hants, NS]

Which budget year was that for?

[Gary McGee]

The program will run until 2011.

[Scott Brison, Liberal, Kings—Hants, NS]

Okay. So within the first year it has exhausted about half?

[Gary McGee]

That's correct. We have disbursements of approximately $3.5 million of commitments and signed commitment contracts for approximately $14.3 million, which brings our total down to approximately $28.2 million.

[Scott Brison, Liberal, Kings—Hants, NS]

So there are about three years left in the program, but half the money has been invested in about the first year?

[Gary McGee]

Yes. The program does terminate in 2011.

[Scott Brison, Liberal, Kings—Hants, NS]

Okay. So I think that does indicate the take-up from the program and perhaps the need for further investment.

I'd appreciate the opinion of the officials on the measure of making it available simultaneously with the accelerated capital cost allowance for domestic buyers.

[Kei Moray, Assistant Director, Business Income Tax Division, Tax Policy Branch, Department of Finance]

The accelerated capital cost allowance is only of benefit to firms that are profitable, or only of immediate benefit to firms that have a loss they can carry back—if they pay tax on the previous three years, they can use it—so it's not of benefit to all firms. Those who lease do not benefit. The ACCA is available only to owner-operators. Because some groups were not able to benefit from the ACCA, the structured financing facility was introduced in order to provide a comparable benefit to them. It was never intended that the structured financing would be on top of the ACCA. It was instead of the ACCA.

If you were to provide both, you would end up with some groups of owner-operators who are profitable benefiting from both, but the unprofitable still would be able to benefit from only the structured financing. So you would sort of have a different level of assistance to the different groups.

[The Chair, Conservative, Lee Richardson]

Go ahead, Scott.

[Scott Brison, Liberal, Kings—Hants, NS]

Foreign buyers, however, can qualify for an accelerated capital cost allowance in the tax systems of their own countries and benefit from the structured finance facility offered by Canada. As such, that is the area we're concerned about, in that domestic buyers, effectively, don't have the same incentive to buy Canadian. In fact, foreign buyers may have, through their own domestic tax systems, the accelerated capital cost allowance that other countries are providing in addition to what the Canadian government is providing.

What would be the cost of making the two simultaneously available?

[Kei Moray]

I'm sorry, I don't have the cost.

[Scott Brison, Liberal, Kings—Hants, NS]

Could you provide that to the committee, the cost of having the two programs, the accelerated capital cost allowance and the structured finance facility, available simultaneously? That would be helpful to the committee.

[Kei Moray]

I'm not sure if it's available, but if it is, we'll provide it.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you.