Natural Resources Committee on March 13th, 2008

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Cohen.

Could we have Mr. Hanlon or Mr. Matters on the second question?

Mr. Matters, go ahead, please.

[Bob Matters]

If I can just take one second first, Catherine mentioned log exports. I don't think it gets enough play here, and I've got to tell a two-second story.

The largest private landholder on Vancouver Island--and I won't name the company, as they're currently suing me, and I don't want my second lawsuit--is responsible for about 80% of the log exports. They closed down their last manufacturing facility. If you can imagine this, you have a company that has nothing but private land and is only in business to do two things: first and foremost, sell those logs off short--sell them off short--and second, sell good stuff for real estate.

I know Mr. Irving would love to have a sawmill to which he can direct nothing but grade A prime logs 24 hours a day. With this company owning some of the best land in British Columbia, selling only the best logs in the world, that company could put nothing but number one prime grade A logs into his sawmill and have the biggest competitive advantage over anybody because he's only got grade A stock going in--nothing else.

They closed the manufacturing plant. They've got no manufacturing left.

All they wanted to do is export logs. There's something wrong with that in Canada. We heard the professors talking about how the rest of the world is taking our product and how we're being overrun. They're not exporting crap--excuse me--they are exporting only the very best logs, and all of British Columbia and all of Canada is being exported. I'm sorry; I just had to say that with respect to log exports.

With respect to the community trusts, there is some stuff going on, but as the professor has already indicated, most of the stuff is.... God bless the communities; they're trying to survive. He used the example, and I know it's true, of a couple of communities that are building longer runways so that they can bring more tours in from Europe without having to stop in the major centres first. As I said earlier, when communities are trying to survive, they'll do anything for the long term; they'll look anywhere for dollars and cents. God bless them. Some of the initiatives may look good on paper, but those dollars being spent on building that runway, making it longer, aren't doing anything to create jobs for those guys and keeping them working in the communities. That's the problem.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Matters. Thank you, Ms. Bell.

We go now to Mr. Allen, for up to seven minutes. We are looking forward to your questions, sir; please go ahead.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you, Mr. Chair.

I have so many areas we could go in. I think I'll just go in two of them. One is innovation, and one is regulation.

Mr. Irving, you talked about spending 125% of your depreciation on capital improvements, over the last number of years. From what we can understand from previous witnesses, I don't think this has generally been the case in the industry. They have not kept up with capital improvements.

If industry has not kept up and we want to encourage them to invest as quickly as possible, does extending the accelerated capital cost allowance for a long time achieve that objective? Or are we going to get more of the same—few actual investments? That's the first one.

Second, with respect to innovation, it's one thing to replace your capital and another to innovate. Can you tell us how much of that 125% of new capital has been based on innovation, as opposed to simple capital replacement?

[James D. Irving]

Mr. Allen, there are two parts. Maybe we're a little unusual. I guess we are in regard to reinvestment. It has to do with what Mr. Matters was saying about closing down the facility and exporting the logs. Some other folks have talked about small and medium entrepreneurs. This gets back to having a big corporate structure that has a global view of the world, which is fine. The capital moves around the world, and that's what's happening here. We told the provincial government in New Brunswick that we've lost a lot of world-class companies. They didn't leave the business; they just left New Brunswick. These people have deep pockets, but they're big and they have the capacity to invest.

You have folks like ourselves, who are much smaller but local. New Brunswick is home, like the Maritimes and the state of Maine. So for us to shut a facility down causes a lot of heartache. We know the people. We know the communities. We agonize over this, and we try to limp through.

We try to invest as much as we can to make sure we're competitive, because we know we cannot run our businesses with old equipment and technology.

This is one the federal government is not going to fix. It's going to be that whatever they do, they do for everybody. To answer your question, encourage the tax system to support this. If you are a private company, for a lot of entrepreneurs and smaller and mid-sized companies, raising capital is a big job. If you're large, you'll raise capital around the world on the stock market. If you're much smaller, if you're private, the capital comes from the banks or it comes from your private equity investors or your cashflow. That's why I get back to the structure of financing. If you want to invest, if you want the technology, you need to create a vehicle for it. That's why I think the tax system is a good way to do it. There are opportunities to finance things.

It's not going to happen that you didn't invest and you're still in business. You're either going to invest or you're going out of business. That's what is happening in this country today. There's no question about it.

Is that satisfactory on the first part?

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Yes, and the second part is, what component would you say? Is it based on innovative products, or is it capital replacement just to keep up?

[James D. Irving]

Look, we're a small company. New Brunswick, the whole province, makes less than 0.5% of the world's forest products business. We're part of that, so put it in context. Yet we have patents pending for tree research. We're planting more trees than anybody in Canada, certainly on a private basis. We've been at it for fifty years. We bought the first online supercalendar for making the equivalent of coated paper. We installed it three years ago. We're pioneering great innovation and technology in the logging business. We're using some of the management training systems that you folks were talking about a minute ago—Lean Six-Sigma and advanced computer technology. The most sophisticated forest logging you can do today, we are doing in New Brunswick.

Are we spending? I can't give you the exact split, but I can tell you we're spending millions of dollars training our folks on the best technology. Again, the tax system should support that. It doesn't today. If you want to take somebody to upgrade their skills, they really should be on unemployment to qualify for federal money. But if you have employees who need upgrading—and we're spending millions of dollars to do it, with the latest technology—you don't get any support for it.

These are the creative, bold ideas we need to think about.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

How much time do I have, Mr. Chair?

[The Chair, Conservative, Leon Benoit]

You have two minutes.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

I want to go quickly to the regulation side of things. We're trying, at least at the federal level, to cut red tape as best we can by fall 2008. What are some of the things we can be thinking about at the federal level and I guess in a relationship with the province? Maybe you can just give some examples of some of the regulatory aspects you run into that governments--federally and provincially--could help you with.

[James D. Irving]

The federal regulations from the forestry perspective are really driven around the big environmental issues--water, air, and so on. In order to understand where we're going to go vis-à-vis our outputs on air emissions and Kyoto, and what all this is going to mean to us, we need clear direction. We can't fuss forever here, if we're going to make decisions.

At the big federal level, it's a lot of bureaucracy--water permits today and air...and my God, it's an enormous number of people, with what we're trying to accomplish. We'd like to be, both on a provincial basis and a federal basis, very much outcome-based. Tell us where we have to be. Leave us alone. Let us go and do it. If we don't do it, then hit us with a fine, whatever it's going to be. But don't try to manage it day to day.

Particularly on the provincial level, I know this is not about provincial regulations here, but we have an enormous amount of red tape, and I think it's the same across the country. We need to get away from that. It's just strangling the country from a productivity point of view.

Outcome-based....Tell us where you want to be. Don't change the regulations every five minutes, because we can't keep up. It takes a lot of bureaucracy, a lot of cost to keep up. Get it clear and then live with it for a period of time so we can settle down, and hold us responsible for the outcome, not the day-to-day management of it.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Allen.

We go now to the second round, for five minutes each.

Mr. St. Amand.

[Lloyd St. Amand, Liberal, Brant, ON]

Thank you very much, Mr. Chair.

I'll be splitting my time with Mr. Tonks, so could the clerk perhaps cue me at the two-and-a-half-minute mark?

To the panel members and to committee members as well, Mr. Boshcoff and I sit on two committees and we were engaged in the committee from nine o'clock to what we thought would be eleven this morning. It turned out to be eleven-thirty because of a vote. So we apologize for our tardiness, but it was unavoidable.

To you, if I may, Mr. Hanlon and Mr. Matters, vis-à-vis the community fund, to what extent was your sector consulted before the community fund was introduced?

[Joe Hanlon]

There was no consultation, no discussion.

In regard to the fund, I was talking to the mayor of Thunder Bay yesterday. The federal government and the provinces haven't even sorted this out in regard to how much money Ontario is going to get.

The other point is we have to recognize that this is for manufacturing also. It wasn't just people in the forest industry. So we're talking about a forest crisis, yet a lot of the money in Ontario will be going to manufacturing--not that they don't need it, but what has happened to the forestry in regard to this?

So on the fund, there should have been dialogue, there should have been discussion. Before it was announced there should have been consultation to find out where the money is going to go, because our members continue to ask us on a daily basis about when this money is going to be there. It's not there.

[Lloyd St. Amand, Liberal, Brant, ON]

If I may, then, again to either or both of you, with respect to Mr. Irving's recommendation, or one of his recommendations in terms of skill-building, he suggests that the Government of Canada should establish a non-taxable category of employee income, whereby a tax-free bonus of up to $2,500 would be paid to employees who have demonstrated productivity. I presume Mr. Irving means that not just in forestry, but also across the board.

You perhaps haven't had time to consider that. What would be the reaction of your membership to a proposal like that?

[Bob Matters]

To be fair, you're correct, this is the first time I heard about it, so this is just, boom, off the top of my head.

Any time we can participate in great results sounds interesting, first and foremost. Secondly, when you think about it, I know what would happen. We'd have collective agreements open up all over the world and there'd be a new base, and the new base would be much lower than it was, but if you do better, you're going to get more incentive.

So there would immediately be an issue with us around bases, wages, etc., and there would obviously be a huge impact on the taxation system and income from the result of that.

It's interesting, but I'd be very cautious.

[The Chair, Conservative, Leon Benoit]

Mr. Tonks.

[Alan Tonks, Liberal, York South—Weston, ON]

Thank you very much, Mr. Chairman.

Thank you to all of you for being here and to those speaking with us from British Columbia.

Mr. Irving, thank you. In my constituency you have a plant, and it's very engaged in community-based work with non-profits on retraining, skills upgrading, and so on. I thank you for that. It isn't often recognized that you have made a very close relationship between community building and trying to use the local resource--human--and bringing that together with the natural resource, and bringing high-value-added activity.

This morning I was at a meeting, Mr. Chairman, and the chairman of that meeting was talking about what happened during the war when we transformed our whole production capability to a war footing, and people were mobilized to meet that need.

The description of climate change as being tantamount to an international and global catastrophe as we speak has been refuted on the one hand but more often is recognized as a real threat. All of you have talked about how your particular interests vector into being part of a strategic response to climate change. In particular is the opportunity lost for restructuring the forestry industry and the opportunity now to see Finland, to see what's happening in Europe, to recognize the trends in China and India, and to see what we've been doing wrong.

We talked about a national round table. Would you take it that we could, in that round table, focus strategically on what the forestry industry can contribute to climate change, in terms of biomass, biofibre, and all of the technology and the commercialization, and the challenge that we have to do this quickly? Could you see that national round table at least taking that kind of a theme from forestry, bringing people in and highlighting it so that government then could have a list of recommendations that would be a strategic response, and using the round table to do that, from each of your perspectives? The university perspective would be on research and development from capital formulation, so that we have a total response.

[The Chair, Conservative, Leon Benoit]

Unfortunately, Mr. Tonks, your time is more than up, so we'll have to have extremely short, really concise responses if we could.

Let's start with Mr. Bouthillier. Go ahead.

[Luc Bouthillier]

Of course the answer is yes, and we have to stress the fact that with forest products, whether it's bio-refinery, energy, or forest products commodities, there is a competitive advantage for Canada to emphasize the fact that while you are using the forest, you are improving the situation of climate change. But we have to express to the consumer that there is an advantage to buy a green product made from the Canadian forest by Canadian companies through Canadian workers who are highly skilled and trained.

[The Chair, Conservative, Leon Benoit]

Okay.

I think we'll have to go to the next round here. We are short of time.

We'll go to Monsieur Ouellet.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

Thank you, Mr. Chair.

Hello, Mr. Irving.

My question is for all witnesses, and I hope you will be as brief as I am. Messrs. Irving, Matters, Saddler and Bouthillier, you referred to the domestic market. If you had only one recommendation to make to the government with a view to relaunching our domestic market, what would it be? We have completely lost the construction sector; steel is everywhere. We have also lost our market for secondary paper products, and we are in the process of losing our market for wrapping paper. We're losing everything. What is your recommendation? You have 30 seconds.

Mr. Irving.

[James D. Irving]

Fix the tax system. Get the depreciation right, quick.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

Thank you.

Mr. Bouthillier?

[Luc Bouthillier]

The building codes prohibit construction using wood in forestry-based countries like Canada.