Thank you, Chair.
It's a pleasure to be here today to outline some of the measures our government is taking to support the Canadian manufacturing industry and, of course, in particular the shipbuilding industry. As the member of Parliament for Parry Sound—Muskoka, I'm used to only dealing with and talking about steamships, so it's a real pleasure to talk about larger vessels and how they are important to our industry here in Canada.
As you know, the Canadian manufacturing industries are facing some significant economic pressure across the border. The current context is challenging for our businesses and our workers, and global economic conditions, as we know, have deteriorated to the point where the IMF is forecasting just a 0.5% world growth for 2009. You may know some of these statistics already, but the IMF expects Canada to outperform other G7 countries, largely because of the measures previously taken by this government and the relatively sound and effective financial system we have in place in Canada.
This is not to say that we're out of the woods—far from it. We know that Canada is not immune to the global economic situation. We also know that the IMF is forecasting a contraction of the Canadian economy for 2009.
Canada's government recognizes the importance of the shipbuilding industry. This industry is commercially viable and promotes the enforcement of government policies in terms of the sovereignty, safety and security of all Canadians.
Recently the government announced supply contracts for shipbuilding materials of an approximate value of $43 billion over the next 30 years. We are aware that the maintenance of the competitive nature of the industry is critical for the country in order to ensure that Canada can ensure the achievement of these projects and be able to derive the maximum benefit from them.
In 2008, the Canadian shipbuilding industry employed about 5,000 people and had revenues of approximately $525 million. Today's levels are far lower than those of the 1980s and 1990s, of course, but the industry has experienced a significant upswing since 2001 whereby employment numbers have grown over 20% during that period.
You probably know this, but the industry is comprised of 13 large yards and 20 smaller yards spread out all over the country. Of these yards, effectively five yards—the Washington Marine Group in B.C.; Seaway Marine in St. Catharines, Ontario; Davie in Lévis, Quebec; Irving Shipbuilding in Halifax, Nova Scotia; and Kiewit in Marystown, Newfoundland—could currently fulfill major federal government procurement requirements.
With regard to our discussion today on the European Free Trade Association agreement and the impact it will have on the shipbuilding industry, I believe it is important to note that for Canada's most sensitive shipbuilding products, which include ferries and offshore supply vessels, tugs and pusher craft, dredgers and salvage ships, and light vessels, there will be a 15-year phase-out of Canada's existing 25% tariff. For less sensitive products, including tankers, fishing vessels, drilling platforms, production platforms, cable ships, and research vessels, the total phase-out period is 10 years. In all cases, however, there will be no reduction in the import tariff for the first three years of the agreement. Moreover, the CEFTA also includes a safeguard mechanism, which offers additional protection to the Canadian shipbuilding industry. If imports from EFTA are found to be causing injury to Canadian shipbuilders within the 10- or 15-year phase-out period, then the tariff rate can revert to the pre-free trade rate of 25% for up to three years.
Canada will not open its government procurement market for the shipbuilding industry within the framework of negotiations of free trade agreements. Federal and provincial governments will always have the right to limit their calls for tender to Canadian shipyards for purchase, rental, repair or retrofits for all types of ships.
Under the provisions of CEFTA, Canada is not obliged to modify its Buy Canada policy for shipbuilding supplies. As you all know, within the framework of the Buy Canada policy, the government has committed to maintaining its acquisition policy for repair and retrofit of ships in Canada, conditional upon of course the necessity of the service and the existence of a competitive market.
Clearly, Canadian negotiators have been sensitive to the importance of shipbuilding. The length of the phase-out periods included for shipbuilding is unprecedented, and these long phase-outs provide Canadian shipbuilders with time to benefit from government measures.
Included in these measures are domestic procurement, the structured financing facility or SFF, accelerated capital cost allowance, export financing by the EDC, and the tax measures for capital investments announced in the last budget.
I want to turn my attention, Chair, if I may, to the first two items.
As I mentioned, the government announced its intention to procure over $43 billion of maritime vessels over the next 30 years. More recently, budget 2009 announced the investment of $175 million on a cash basis for the procurement of new coast guard vessels and for undertaking vessel life extensions and refits for aging vessels. Given our commitment to the Buy Canada policy, these procurements will mean significant opportunities for domestic shipbuilders for many years to come.
As many of you know, the shipbuilding and repair industry is relying on a speedy solution to this issue of federal naval procurement. The continuous challenge with naval procurement has been the cyclical nature of the procurement process. Many of the major shipyards rely on government procurement for revenue, yet project continuity has been lacking. The peak and valley characteristic of the cycle makes Canadian shipyards extremely hesitant to invest in new internal infrastructure projects, as there is no guarantee that the shipyard will have use for the expanded infrastructure after the completion of a project. This diminishes Canada's naval new build capability, and that's an important element of Canada's naval defence strategy.
It's for this reason that when renewing the national shipbuilding policy in 2007, the federal government committed to using government procurement as a policy tool to support the shipbuilding industry once the larger volume of government procurement started to be realized. To improve upon the situation, Industry Canada has been working diligently with our counterparts at DND, the Canadian Coast Guard, and Public Works, along with a variety of outside actors and stakeholders, to ensure that an acceptable and efficient outcome is met. While we recognize that this task is a challenge, we are confident that we will meet an outcome in the near future that will satisfy the industry's need for predictability and the navy's and coast guard's extensive technical requirements, all while taking into consideration the federal government's budgetary constraints.
It's important to mention that a commercially viable shipbuilding industry in Canada must exist to ensure that these federal procurements are realized. To this end, the government announced on June 7, 2007, the renewal of the structured financing facility until March 31, 2011. Through the $50 million SFF, the government has made financing support available to domestic and foreign shipowners while providing interest relief when companies choose a Canadian shipyard for vessel constructions or modernization. Currently, $28.3 million of the original $50 million budget remains available for support.
While our officials continue to have high-level discussions with potential applicants, unfortunately the current global economic situation has had some serious impacts on shipbuilding order books domestically and indeed internationally.
Earlier on, I spoke about procurement policy in Canada and the Structured Financing Facility. These two elements are part of a group of four components of Canadian shipbuilding policy. The other two components are the accelerated capital cost allowance which will allow companies to write off their costs over a four-year period; the final component is the 25% tariff on imports which is imposed on vessels that are built outside Canada, with the exception of countries with whom we currently have trade agreements.
Our shipbuilding policy does not include direct subsidies, but rather is a more comprehensive and, I believe, robust strategy focusing on the long-term viability of the industry via innovation, opportunities, technologies, trade, and investment. It's designed to encourage innovation and growth by focusing on developing the technology and skills related to high value-added work rather than providing new forms of protection. It is a reasonable and balanced approach designed to help the industry resolve the difficulties it faces in a world where, as we know, competition is fierce.
Ultimately, the success of the shipbuilding industry is dependent on new ideas and solutions developed by the industry itself. Given that the shipbuilding and the industrial marine industry is a forward-looking industry with a strong high-technology component, we're confident that the industry, with the support of the Canadian shipbuilding policy, is well positioned to weather the current economic storm and to exploit new export markets in the future.
The continued viability of this industry will lead to downstream economic benefits for other Canadian industries as well. Industries that benefit from a strong shipbuilding industry include the industrial marine and the oil and gas industry.
We know that global trade in the shipbuilding sector is distorted by a variety of measures taken by other governments, including subsidies, border measures, and procurement preferences.
As far as subsidies are concerned, the government will continue to work together with the World Trade Organization in order to plan for new disciplinary sanctions and also to create a more competitive environment for the shipbuilding sector and other Canadian industries. But its action will not be limited to the WTO. For example, the Government of Canada has actively participated in discussions with the OECD on the reintroduction of standard competitive conditions for the world shipbuilding industry.
Moreover the government and the Export Development Corporation of Canada will continue to play an active role in the formulation and development of international disciplinary measures targeting export credits in order to carefully monitor and ensure that exporters around the world will be competing on an equal footing.
I want you to know that our government is committed to undertaking efforts to make Canadian companies more productive and competitive in the global economy. One of the most important ways, of course, is through trade. Trade and investment flows are key drivers of productivity and innovation. We know that, and those are key themes for our government. As such, the government has and continues to negotiate free trade agreements with countries around the world.
Ultimately the result will be the achievement of several key objectives: negotiation of better and more secure access to other markets for Canadian exports through lower tariffs and the elimination of non-tariff barriers; clarification of rules pertaining to the provision of certain funding or enhanced rules for foreign investment; and focusing on specific sectors, given their importance and prominence to the economy.
The EFTA agreement is an example of such an approach. This agreement eliminates tariffs on all industrial products, with the exception of Canada's tariff on imported ships, upon entry into force of the agreement. Canadian sectors that could benefit from tariff elimination include newsprint and wood products, cosmetics, and prefabricated buildings. Chief benefits will be seen in the agricultural sector, which anticipates immediate duty savings of $4.4 million.
Furthermore, as you know, our government has engaged Canadians and industry leaders in broad consultations to discuss how Canada would weather the current economic downturn. Our economic action plan has put forth a broad range of measures to stimulate the economy, protect those hardest hit by global recession, and ensure that Canada exits this economic phase an even stronger country.
I could go on about our plan, but I know time is short. I would just say finally that we are intending to work with the Canadian manufacturing industry, and in particular with the Canadian shipbuilding industry, to ensure that it remains a strong, competitive, and vital part of our economy. We expect that by working together as industry and government we can overcome the current challenges facing us and emerge from this experience stronger and more competitive than ever.
Thank you, Chair.
