Debates of Feb. 16th, 1998

European Common Market

[Gerald Keddy, Progressive Conservative, South Shore, NS]

moved:

That, in the opinion of this House, the government should instigate a study of non-tariff trade barriers to the European Common Market, specifically the ban by the European Common Market of Canadian forest products that have bark or needles attached.

Madam Speaker, I will be sharing my time today with the hon. member for Richmond—Arthabaska.

[The Acting Speaker (Ms. Thibeault)]

I am afraid that you have 15 minutes to start with. You are the proposer of the motion so you cannot share your time unless you get unanimous consent of the House. Is that your wish?

[Gerald Keddy, Progressive Conservative, South Shore, NS]

Yes.

[The Acting Speaker (Ms. Thibeault)]

Does the hon. member have unanimous consent of the House to share his time?

[Some hon. members]

Agreed.

[An hon. member]

No.

[Gerald Keddy, Progressive Conservative, South Shore, NS]

Madam Speaker, I rise today to bring to the attention of the House a trade irritant that has cost the Canadian softwood lumber industry $700 million per year. This amount does not include the numerous other industries related to softwood lumber as well as the Canadian Christmas tree market. I am referring to the non-tariff trade barrier imposed by the European Union on Canadian softwood lumber.

This trade barrier is disguised as a plant protection measure. I am speaking of the kiln drying that the European Union imposes on all softwood lumber being imported from Canada.

First let me give a summary of the pinewood nematode. The presence of the pinewood nematode in North American prompted the European Plant Protection Organization to assess the risk of transmission from North America to Europe via the lumber and the wood chip pathway of pinewood nematode.

Assessments by the European Plant Protection Organization identified the pinewood nematode as a quarantine test and recommended kiln drying as the only accepted quarantine measure. This was based on the belief that lumber, with only pinewood nematode and no insect vector, posed a risk of transmission by other carriers. The United Kingdom did not support this conclusion and continued to allow imports of green material under a visual grub hole program which eliminated the insect carrier.

Other member states continued to accept lumber with only freedom of bark and still allowed the presence of grub holes. With trade harmonization of the European community, all member states began to focus on the plant health risks of the pinewood nematode.

The first regulation enforcing kiln drying as the only acceptable plant health measure was imposed in 1989. Canada did not support the kiln drying as a plant health measure since kiln drying is a commercial mark and is based solely upon moisture content. Canada maintained that moisture content was not the element which eradicated the parasite but that heat was the important element. A Canada-European Union joint research program was started in 1990. Canada invested $800,000 to determine that 56° centigrade for 30 minutes was the temperature that pinewood nematode dies.

In 1993 the European Union required all coniferous lumber except cedar to be heat treated to 56° centigrade for 30 minutes. Cedar was exempted based on survey information of non-incidence of pinewood nematode in cedar trees. This information was supplied to the European Union by the Plant Health Committee of Canada.

In April 1993 the European Union extended the regulation for visual inspection to eliminate grub holes by four months. However this was revoked in June when live larvae were found in the United Kingdom in green Canadian imports certified to be free of grub holes.

The loss of the program for visual inspection of grub holes resulted in a $400 million loss in trade since all green coniferous lumber destined for the European Union, except for cedar, had to be heat treated. To this day Canada continues to maintain that heat treatment is unduly trade restrictive based on the actual risk. Canada and the U.S. have disagreed with the European Union on a number of scientific arguments related to the risks of pinewood nematode in the forest of Europe.

In September 1993 the governments of the European Union, Canada and the U.S.A. convened an international panel of experts from China, Japan, Europe and North America. The discrepancies between the conclusions of these experts and the earlier 1998 meeting were the result of extensive scientific research conducted between 1988 and 1993.

The first discrepancy was that the European Plant Protection Organization assumed the moderate risk of pine wilt disease north of the 20°C mean summer isotherm and concluded that pine wilt could possibly occur in northern Europe if certain conditions prevailed. The ultimate conclusion was that northern Europe was not at risk from pine wilt disease and the economic impact of pinewood nematode was restricted to southern Europe.

The second discrepancy was that the European Plant Protection Organization's 1988 assessment indicated that there had been interceptions of pinewood nematode into the European Union. In fact pine wood nematode was intercepted on one shipment out of 630 surveyed.

The survey was designed to survey the worse case scenario. Therefore the survey results had no statistical validity. In order to determine a statistically valid incidence level Canada surveyed its export lumber between July and December 1993. In those six months no pinewood nematode was found in 1,157 random samples. This translate into a 99.7% reliability level. Canadian lumber is free of pinewood nematode. The conclusion was that pinewood nematode is rarely, if ever, found in Canadian lumber exports.

The third discrepancy was that the European Plant Protection Organization's 1988 assessments concluded that nematodes were capable of active, independent movement and could leave the wood which they inhabit to move to adjoining or nearby wood.

The European Union, Canada, U.S.A. and international experts met and concluded that the research demonstrating this was inconclusive. In the experts' view there was no supportive evidence of natural transmission without the carrier except through root grafting.

The European Union technical team therefore concluded that the risk of transmission of the nematode without the carrier was negligible, meaning not worth considering. The conclusion was that the pinewood nematode could not move independently and that the insect carrier must be present for transmission to occur. Therefore eliminating the carrier will eliminate the risk of transmission.

Since 1989 Canada has lost billions of dollars in exports and has invested millions of dollars in research to demonstrate that the presence of pinewood nematode poses a negligible risk to the European Union and any associated risk can be managed effectively through appropriate mitigating measures.

Heat treating meant that Canada lost 71% of its market share for solid wood products in the first year and the market was closed permanently to other products such as Christmas trees.

From 1993 to 1997 Canada lost 92% of its historic market share to Europe for solid wood products alone. This amounts to an excess of $700 million in trade. Millions of additional dollars of lost trade are incurred through eliminating the potential exports of other valued forest products.

This brings us to 1997. In September 1997 the Canadian forest products industry, working in co-operation with provincial governments interested in resolving this trade barrier which is disguised as a plant protection measure, agreed that the Department of International Trade should exercise its World Trade Organization options and explore a solution to dispute settlement.

This is one instance where industry and provincial governments are in full agreement that enough is enough. There have been enough studies, enough time, and enough market shares have been lost to warrant action by the federal government. To date the Minister of International Trade has not indicated his acceptance of these recommendations. Canada has not yet requested formal consultations with the European Union on this important trade irritant.

I urge the Canadian government not to give up on this critical issue. The demand for Canadian lumber is being replaced by exports from northern Europe, the Soviet Union and former satellite countries of the Soviet Union.

There are some who would argue that the American dollar has had a great effect on this situation. It has certainly allowed the American market to replace our traditional European market. This has been further assisted by the results of the American embargo on softwood lumber, which did not apply to Atlantic Canadian lumber exports.

Let us not allow ourselves to be co-opted into thinking the Canadian dollar will stay at 69 cents. No one in business and certainly no country can afford to lose market share.

There is still a demand for softwood lumber in Europe. Heat treating rather than kiln drying should be the least that we accept from the European Plant Protection Organization. Plus it has never been proven that Christmas trees are carriers for pinewood nematode transfer and should not be part of the embargo.

If our lumber, wood chips, round wood, pulp and Christmas trees could possibly introduce pinewood nematode to Europe, obviously after 500 years of trade to Europe it is there now. If this is the case it would be a cross-border pest and not applicable to a European plant protection embargo.

It is time that the Government of Canada stood up for the loss of a $700 million industry and called the European Union to task. At best, this should be a minor trade irritant. Instead it is a blatant example of protectionism in a non-tariff trade barrier.

In conclusion, I urge the Parliament of Canada to study this very important issue which has a significant impact on the Canadian economy.

[Gerry Byrne, Liberal, Parliamentary Secretary to Minister of Natural Resources]

Madam Speaker, I thank the member for raising the important issue of non-tariff trade barriers which prevent the export of Canadian forest products with bark and needles to the European community.

I recognize that the member for South Shore has particular interest in Christmas trees as he, I understand, is a grower. The issues involved are much broader and affect the forest products industry as a whole. As Parliamentary Secretary to the Minister of Natural Resources I take the motion quite seriously.

The Canadian government has been working with Christmas tree growers, indeed the entire forest products industry, to preserve existing markets and to develop new market export opportunities.

This sector is of vital importance to the Canadian economy. Ten per cent of the world's forests are Canadian and there are well over 300 forest dependent communities across Canada. All in all 840,000 people rely directly or indirectly on the forest for their livelihood.

In addition, Canada ranks first in the world in terms of forest products exports. Products ranging from world class light weight coated paper to engineered panels for home construction are a vital component of Canadian exports. Forest products producers, especially those with expanding production, face the constant challenge of finding and securing new markets. The Government of Canada wants to help them rise to this challenge.

Christmas tree growers in British Columbia, New Brunswick, Nova Scotia, Ontario and Quebec already supply millions of Christmas trees every year to world markets. These Christmas trees are already being exported to the United States, Central America, Greenland and even the Caribbean. Increasingly Christmas tree farmers have been looking even further abroad to find new markets for their natural products.

The federal government supports these efforts just as it backs other Canadian industries taking advantage of globalization. The establishment of the World Trade Organization and the expansion of free trade in both North and South America have delivered on promises of open markets. This new dynamic is helping Canadian businesses grow and prosper in every part of our country.

Even so, barriers to trade remain. It takes constant vigilance and ceaseless work to prevent creeping protectionism from reducing access to markets opened by freer trade. As tariffs have fallen, countries have turned to non-tariff barriers such as health and environmental regulations to restrict or even ban imported products which are challenges to domestic industries in Canada.

The Prime Minister and the government have worked hard to open up markets and remove trade barriers for Canadian exporters. That was in evidence during the many team Canada missions he successfully supported around the world. That is also the case on the other side of the Atlantic in Europe.

Over the last 10 years the Government of Canada has contested the way the European community uses health and environmental or phytosanitary regulations to prevent certain imports. No one questions the right of governments to protect the health, environment and safety of their populations, but in many cases these regulations are unnecessarily restrictive. One example is the restriction imposed on the Canadian softwood lumber shipped to Europe.

The majority of countries also require that imported wood products be free of bark. This kind of non-tariff trade barrier is increasingly coming into play while international agreements are being implemented to expand trade and promote economy growth.

Canada recognizes that countries have the right to prevent the movement of foreign pests, but the Government of Canada also takes the position that trade restrictions have to be reasonable and in line with the real risks to health or the environment. In addition those risks have to be calculated on the basis of sound scientific research and not unfounded fears.

This is why the departments of foreign affairs and international trade, agriculture and agri-food and natural resources Canada have led the way in providing hard data on these types of issues.

I am pleased to inform the member for South Shore that the study proposed in his motion is being undertaken. Canada has already launched a joint study with the European commission to reduce trade barriers and to facilitate trade. This study is one of the provisions of the joint Canada-European Union action plan signed by the Prime Minister in December 1996.

Under this process Canada has identified European regulations which restrict the entry of Canadian products, which act as trade barriers and which must be addressed.

I assure the House that the Canadian government has been making strong representations to the European commission in an effort to resolve these issues. At the same time Canada is keeping all its options open including provisions of the World Trade Organization.

While the Canadian government is working diligently to open up world markets including Europe, it also has to be recognized that this is a two way street. Canada has its own regulations which protect Canadian forests, farms, lakes and people from imports which could lead to disease and animal and plant pests gaining a foothold in Canada.

Canada is confident however that its phytosanitary regulations are based on sound science and are aimed only at significant risks. This means that Canada cannot dismiss the European concerns about importing green Canadian softwood products. This is why the Canadian government is committed to working with the Canadian forest products industry to convince Europeans that there is no significant risk.

The Canadian forest service of Natural Resources Canada has already generated a wealth of knowledge about forest pests and effective measures to control them. The research conducted by the Canadian forest service is cutting edge and will continue to serve Canadians well.

The work is demanding and time consuming. There are no quick and easy answers to these types of issues. Opening up the European market for Canadian forest products is a challenge but one that will be met, with the potential to bring great benefits to Canadians. The Canadian government is prepared to invest the time and the energy to pursue this very worthy goal.

[Gary Lunn, Reform, Saanich—Gulf Islands, BC]

Madam Speaker, I thank my friend from South Shore for bringing the motion forward. I admit that I do not know a lot about the pinewood nematode, the beetle in the wood which is causing the ban of the export of Canadian forest products to Europe. However I would like to bring this debate to the larger picture.

I am from British Columbia. The issue of trade barriers to softwood lumber is very big as it threatens the forest industry in British Columbia. In light of that I support anything we can do to remove all trade barriers.

I thank my hon. friend opposite for his comments. He advised us that a study is under way.

I do not know if the forest industry in British Columbia right now is in a crisis situation but it is definitely moving in that direction. We constantly read in the newspapers and see on the evening news items about sawmills and forest product companies that are going under. A lot of it is due to the difficulties and challenges they face today, some of the difficulties and challenges being trade barriers and access to foreign markets.

In the last few years the forest industry in British Columbia has faced trade barriers with the United States which have had a devastating impact on the industry as a whole. The industry has had to fight to overcome those barriers. I believe the House is aware of those trade barriers.

We are moving toward globalized trade. Trade barriers are coming down. If we are to succeed as a nation with all of our forest products we will have to fight to ensure that trade barriers are eliminated and that Canada's interests are first and foremost.

Having said that, when the government considers this study I ask it to look at all potential markets. We must do everything we can do to eliminate trade barriers to ensure that our producers have access to as many markets as possible and that there are no unfair practices and scientific data that are unchallenged which we believe are incorrect and will pose threats to our forest industry.

The hon. member for South Shore quite correctly pointed out that our 69 cent dollar to the U.S. is an incentive for Americans to purchase our softwood lumber products. However it may not be that way all the time. I understand that if our currency increases by one cent it represents hundreds of millions of dollars to the Canadian forest industry alone. I believe that 85% of British Columbia's market is exported to the United States.

My colleague from Vancouver Island North, who is a professional forester, will probably be able to speak better than me on the technical aspects. However, bringing this back to the larger picture, the motion is very specific to one insect or bug that is within our softwood lumber and is causing the European ban. I am not sure of the answer.

Also I would like to ask the government when it does its study, whether with respect to the pinewood nematode this is targeted at the Christmas tree industry or where it is specifically generated. It sounds like the trade barriers are having far reaching repercussions to all of our softwood lumber. British Columbia produces a majority of softwood lumber. Does this ban also apply there? What can we do to ensure that our forestry companies have access to these markets?

I support the member for South Shore in his initiative to have a study brought forward on this. I ask to have the larger picture looked at to ensure that our forest companies have access to as many markets as possible.

[Benoît Sauvageau, Bloc, Repentigny, QC]

Madam Speaker, I am sure you will not mind if, before reading and speaking to the motion introduced by my colleague for South Shore, I take a few minutes on this lovely Monday morning, on this historic and special day, to greet the people from my riding who have come to pay us a visit here in Ottawa, as well as the many delegations from all over Quebec who have come here to make known to Canadians and to Quebeckers our great regret and dissatisfaction with the reference that began before the Supreme Court this morning.

I thank the people from the riding of Repentigny for being here this morning. I would also like to express my appreciation for the support shown by mayors and municipal politicians who, upon receiving a letter pointing out the importance of respecting democracy in Quebec, told us of their interest in following this debate and their satisfaction with the Bloc Quebecois' particular contribution to it.

In May and June of 1997, our slogan was “The Bloc is there for you”, but today, tomorrow and throughout the week, we are going to show that the Bloc will be there to defend Quebeckers' interests.

Now, I am going to speak more specifically to the motion from the member for South Shore. Please bear with me while I read it in its entirety, because, as I am sure you will agree, it is rather complex: “That, in the opinion of this House, the government should instigate a study of non-tariff trade barriers to the European Common Market, specifically the ban by the European Common Market of Canadian forest products that have bark or needles attached.”

That is quite specific, but as my colleagues have already said, it is important nevertheless because, in a number of areas of international trade in which Quebec and Canada are playing an increasingly large role, as soon as we step out of line the least little bit, we are put into our place with references to the court of international trade or some other court for trade disputes.

For this reason, we must pay particular attention to all these referrals to trade tribunals.

We were pleased—as was the hon. colleague for South Shore, I am sure—to learn that the Liberal government was already examining the possibility of reference to the court. It is worth pointing out, although I believe the parliamentary secretary did so inadvertently, that the figures he quoted were perhaps a bit exaggerated. What is being referred to here is not lumber in general but rather, mainly, the specific trade in Canadian forest products with bark or needles still attached.

This is, therefore, a market of some $11 million. That $11 million figure is significant, definitely, but far from the $700 million figure we were given earlier.

In the Canadian lumber industry, that is a small market. It is a market that is not expanding, but rather holding its own, for the businesses involved in this sector are small or very small.

As the previous speakers have pointed out, what is involved is mainly Christmas tree exports. In Quebec, we are so much into celebrating Christmas that we keep our trees for ourselves. To all intents and purposes, we are pretty well absent from this market, although we do export a few trees.

The problem, or the query, from the European Community concerns grub larvae. There are a number of scientific sectors that allow us to look at the real concerns of the Europeans and the European Community in general in the matter.

We are told, for example, that there is scientific proof. We were also told there was scientific proof on asbestos. Our Conservative colleagues from the area will certainly agree with me: these studies can be made to say almost anything.

This is the same European Community that had such an influence on the seal hunt. It is the same one that had something to say about dubbing films in French. It spoke out about lumber exports generally, in environmental terms, and now it is concerned more specifically with forest products that have their bark and needles attached.

As was said earlier, I think we must be open about these trade disputes. Canada must get involved, as the parliamentary secretary has said. It should also raise the awareness—ring a few bells, as we say—of those negotiating the multilateral investment agreement so we do not increasingly find ourselves in this sort of bind being pulled hither and thither by the various stakeholders in this era of globalization.

The subcommittee on international trade tabled a report with the Minister for International Trade focussing on the clarification of rules in trade disputes in the context of the MIA. We have had no response to this report from the subcommittee. We hope to have a response soon, and especially a positive response on the legitimate questions raised by my Liberal colleagues, because the report was not tabled by the Bloc alone, but supported by the Bloc following the Liberals' recommendations. They agreed to recognize the importance of clear handling of trade disputes and of acknowledging a general cultural exception.

This motion by the member for South Shore reminds us of the importance of all these events surrounding disputes and of clear international trade and well established rules. With a rare point of consensus—although I have not heard the NDP on the subject—all of the parties in the House apparently agree to support this motion.

[Yvon Godin, NDP, Acadie—Bathurst, NB]

Madam Speaker, I rise in this House today in support of Motion M-181 put forward by my hon. colleague from South Shore.

Motion M-181 suggests that the government should instigate a study of non-tariff trade barriers to the European Common Market, specifically the ban by the ECM of Canadian forest products that have bark or needles attached.

The Canadian forest industry is one of the most dynamic industries in the country. It generates $58.7 billion in revenues every year. In addition, Canada is the largest exporter of forest products in the world, with $38.3 billion in exports in 1996. This industry is also important in that it contributes both directly and indirectly to the creation of 842,000 jobs across the country. It is from this job creation perspective that I will argue the importance of the study suggested by my hon. colleague from South Shore.

The non-tariff trade barriers imposed by the European Union on Canadian lumber have dubious origins. Having to kiln-dry Canadian pine wood, as required, to kill potential bugs costs the Canadian industry $780 million.

Steam treatment of wood is an expensive process affecting Canada's competitiveness with respect to forest products. I consider that imposing such criteria is necessary when there is a high probability that some bugs will be transmitted from one country to another. However, there does not seem to be a high probability of transmission in this particular case.

The hon. member for South Shore emphasized the absence of an international consensus about how the said bug is transmitted.

Moreover, a Canadian study shows that 1,157 shipments of Canadian forest products were totally free of pinewood nematoda. This means there is only a 0.3% probability of finding this parasite in Canadian shipments.

Given that international experts are unable to reach a consensus, and given the low probability of finding pinewood nematoda in Canadian shipments, the Canadian government must review the issue. One of the objectives of the Canadian Forestry Service is the promotion of international trade and investment. Protecting Canadian interests is an integral part of this mandate.

The study proposed in the motion would allow us to reassess the scientific findings in this case and eliminate the confusion that seems to prevail within the international community. The study is all the more important since it could lead the European Community to reconsider its criteria on kiln drying for Canadian forest products. This could, in turn, promote job creation in Canada, to meet the renewed demand from the European Union.

We often talk about the monetary costs of non-tariff barriers, but we tend to forget that these barriers also impede job creation. The Canadian labour force in the logging industry is extremely skilled.

In my riding of Acadie—Bathurst, logging is vital to the region's economic prosperity. Unwarranted non-tariff trade barriers affect not only logging companies, but also the workers of these companies, who find themselves out of work when the European market becomes less accessible.

As legislators, we have a responsibility to see that any non-tariff barrier that adversely affects the logging industry is carefully reviewed, to make sure that the resulting loss of jobs is absolutely justified.

Perhaps the study will show that the criteria imposed by the European Community are fully justified. However, given the current lack of consensus on pinewood nematoda, we must protect the interests of Canadians and take a very close look at the issue.

[Sarmite Bulte, Liberal, Parkdale—High Park, ON]

Madam Speaker, Canada has launched a joint study with the European Commission to reduce trade barriers and facilitate trade. This study is one of the provisions of the joint Canada-European Union action plan signed by the Prime Minister in December 1996.

By May 1998 we hope to have first, a list of barriers identified in terms of their economic significance for Canada and the European Union; second, options for reducing or eliminating these barriers, including trilateral agreements with the United States and multilateral agreements; and third, an identification of the best means of addressing the most significant barriers.

Canada has identified the European Union's phytosanitary regulations affecting Canadian lumber exports as a barrier for the purposes of this study. Canada has been making strong representations in an effort to resolve this issue bilaterally and is now considering its options under the World Trade Organization.

As a WTO member which is bound by the agreement on sanitary and phytosanitary measures, Canada recognizes the rights of all members to adopt measures necessary to protect plant health. Canada and other members, like the European Union, regulate the importation of plant material in their territories in order to prevent the introduction and spread of pests or disease that could threaten the health of their forests.

Sanitary and phytosanitary measures by their very nature can result in some restrictions on trade. This is currently the case with respect to Canadian exports of certain plant products to the European Union.

With respect to live trees or forestry products with bark and needles attached, like Christmas trees, the European Union has been concerned for many years with a number of pests that can be found on coniferous trees. Canadian plant health officials have similar concerns with respect to imports from the European Union. In addition, the European Union is regulating the importation of green coniferous lumber from Canada and other countries to prevent the entry of pinewood nematode, a pest which the European Union fears can cause damage to its forests.

The Canadian government, with the co-operation of the Canadian industry, has conducted various surveys and studies to analyse the risk of transmission of pinewood nematode to the forests of Europe. The Canadian government has also worked with the Canadian industry on control measures to mitigate the risk of transmission of pinewood nematode from Canadian shipments of green lumber.

To date, however, European Union plant officials are not prepared to provide access for Canadian green coniferous lumber or other untreated forestry products.

The new WTO agreement on sanitary and phytosanitary measures builds on previous trade rules to restrict the use of unjustified and unnecessary sanitary and phytosanitary measures while maintaining the right of every country to provide the level of protection it deems appropriate.

The government will continue to work with the industry and the provinces to ensure that Canada's rights and obligations under the agreement on sanitary and phytosanitary measures are protected along with the interests of the Canadian forest industry.

[The Acting Speaker (Ms. Thibeault)]

If the member for South Shore is to sum up, it will be understood that no other member will be able to rise on this issue.

[Gerald Keddy, Progressive Conservative, South Shore, NS]

Madam Speaker, in summary, I think there are several issues at stake which all members of the House, especially the members on the government side, should be aware of.

The reason I worded the motion to deal with forest products with bark and needles attached, specifically relating to the Christmas tree industry, is that there has never been a proven link between the Christmas tree industry and the introduction of pinewood nematode into Europe.

For members here today who may not be completely cognizant of this issue, pinewood nematode is a parasite that lives in the gut of wood boring insects such as the sawyer beetle. That was the reasoning behind European plant protection measures asking to identify bore holes in the wood. They thought if the vector was not there or the insect was not in the wood that would reduce the incidence of transmission.

I deliberately spoke about the value of the lumber industry and the potential to transmit pinewood nematode to Europe versus the Christmas tree area of this motion.

I want to state this once again. The reason the motion is made on Christmas trees is that Christmas trees should not have the same classification as lumber. I will deal with the lumber issue in a minute. Christmas trees are a separate issue. There has never been a proven link by plant health Canada or by the European plant protection agencies that they can transmit pinewood nematode into the European forest. Therefore we should be opening that door in order to get the rest of our lumber supplies into Europe.

I would like to make a few comments on the government's actions since December 1996. I am in agreement that the government has instigated a study. The lumber suppliers I have talked to have felt that the studies have been bogged down and that there is no heart on behalf of our scientists to push this as a real relative issue into Europe. They feel there is definitely something we should be doing here. As parliamentarians and as people who represent our constituencies and the rest of the nation, it is our job to bring those points forward.

There are a couple of things we need to understand. Plant health Canada spent $800,000 on a study to prove that heat treating eliminated pinewood nematode in our forest products. There is a big difference between heat treating and kiln drying. The European plant protection organization enforces the kiln drying law. Kiln drying is a longer process. It is much more expensive. There is no comparison in the two processes. The only certification we get out of kiln drying is when we put the kiln dried seal on a piece of lumber it certifies that there is less than 20% moisture content in it. There is no certification of heat. There is nothing else there. It is strictly a certification of moisture content.

The least we should accept for the Canadian lumber industry is the certification of heat treating which would be a lot cheaper and would allow our product to go to Europe without that extra cost of kiln drying.

The other point I do not think we can speak enough to, and I realize I have only five minutes, is that we have traded with Europe since the Vikings were here in the 10th century. We have traded with Europe for 500 years of recorded trade. If there is any danger of transference of pinewood nematode into the forests of Europe, surely this House would agree it is there now.

We have never had any significant studies by the European plant health organization that it is not already there. It has not proven to us that it does not already have the problem. If it does, it is not a foreign pest. It is a cross-border pest and the plant health organization regulations would not apply.

Look at our history of trade with Europe. We used to ship millions of board feet of lumber across the ocean in log barges with the bark attached. We have exported Christmas trees to Europe for 75 years. The last market to fall was when Italy joined the common market in the early 1990s. Until that time we sold Christmas trees to Italy.

All of a sudden the door closed. They said no, now that we have signed a piece of paper, we have a trade agreement, we are a member of the European Union, your treaties are no longer acceptable. Nothing changed. They were not a threat the day before, they were not a threat the day after.

In conclusion, I would like once again to ask for the unanimous consent of the House to make this motion votable.

[The Acting Speaker (Ms. Thibeault)]

Does the hon. member have the unanimous consent of the House?

[An hon. member]

No.

[The Acting Speaker (Ms. Thibeault)]

Since no more members wish to speak and the motion was not selected as a votable item, the hour provided for consideration of Private Members' Business has now expired and the item is dropped from the Order Paper.

[Marlene Catterall, Liberal, Ottawa West—Nepean, ON]

On a point of order, Madam Speaker, it being not quite noon, you might find consent in the House to suspend until noon when the House could move to Government Orders.

[The Acting Speaker (Ms. Thibeault)]

Is there unanimous consent to suspend the sitting of the House until 12 noon?

[Some hon. members]

Agreed.

(The sitting of the House was suspended at 11.54 a.m.)

The House resumed at 12.00 p.m.

Small Business Loans Act

[John Manley, Liberal, Minister of Industry]

moved that Bill C-21, an act to amend the Small Business Loans Act, be read the second time and referred to a committee.

Madam Speaker, I am very pleased to have the opportunity to introduce Bill C-21, an act to amend the Small Business Loans Act, in the House of Commons. This is an important bill because its purpose is twofold: to maintain an element of government framework in order to support small businesses in Canada and help them prosper, and to ensure improved operation of this element.

Small businesses play a vital role in Canada's economy. They number more than 2.5 million, including the people they employ. Half of all private sector jobs are in businesses with fewer than 100 employees, and 43% of this sector's productivity comes from such businesses. In 1996-97, small businesses created 81% of all new jobs. It is clear that Canadians see small businesses as one of the great engines of economic growth and that their importance is continuing to grow.

The business community has often said, however, that the absence of reasonable financing is a significant obstacle to the growth of small businesses. It is for this very reason that the small business loans program exists.

The objective of the Small Business Loans Act is to increase the availability of loans for the establishment, expansion, modernization and improvement of small business enterprises by encouraging lending institutions to make loans at reasonable terms and conditions. These fixed asset loans are available for such things as the purchase of land or equipment or for making improvements to a leasehold. They are not available for the purpose of financing the purchase of shares, working capital or existing debt. They are not based upon goodwill or other intangibles.

Virtually all small businesses are eligible to borrow under this program. Eligible borrowers include almost all enterprises in Canada that operate for gain or profit provided the annual gross revenue of the business does not exceed $5 million. Farming operations and religious and not for profit organizations are excluded from this program.

The small business loans program was established back in 1961 and its overall record is one of great success. Preliminary information indicates that in fiscal 1996-97 alone some 30,000 small and medium size businesses used the SBLA to access about $2 billion of financing. Clearly the small business loans program provides significant and obvious benefits to Canadians and their economy.

The program is subject to a cut-off clause and has been extended many times since 1962 for fixed periods. Unless Parliament decides otherwise, however, no new loans may be approved under the program after March 31, 1998.

The bill we are introducing today would enable us to continue to meet the needs of small businesses in Canada where long term loans are concerned. It would extend the SBLA by one year, and would increase the total loan envelope.

More specifically, Bill C-21 amends the Small Business Loan Act by extending its application to March 31, 1999 and by increasing the total envelope by $1 billion, thus raising it from $14 billion to $15 billion.

Passage of this bill will allow the SBLA program to continue beyond March 31, 1998. The extension of the program for another fiscal year is important to continue to meet the expanding needs of small business during this period of strong economic growth.

At present, lending under the program has reached $12.7 billion and has a ceiling of $14 billion. The $1 billion figure contained in Bill C-21 was arrived at because this is the amount that current economic forecasts have determined to be necessary to allow lending to continue for one year.

As I have stated, the SBLA program has served Canadians well since its adoption in 1961. The program is supported by the small business working committee which includes representatives of the Canadian Federation of Independent Business, the Chamber of Commerce and other Canadian business leaders. It was also supported by the Standing Committee on Industry in its report “Taking Care of Small Business”.

But those who support the program have also encouraged us to continue improve it, to increase its effectiveness and to lower costs for the taxpayer. Indeed the SBLA program is at present undergoing a comprehensive review with input from both private and public sector stakeholders.

Moreover Canada's auditor general audited the SBLA program and released his report in December 1997. I am pleased that the auditor general noted that we have made considerable progress toward increasing productivity and reducing the overall costs of the program. The auditor general's report will be a very useful tool as we review the SBLA and design ways to make the Small Business Loans Act even better in the future.

A one year extension of the act will provide the time needed to complete the review of the program. The extension will also allow both private and public sector stakeholders to consider the auditor general's recommendations and thus become better prepared to participate in the ongoing comprehensive program and policy review.

In 1993, the previous government made in-depth changes to the program, resulting in a heavy increase in the number of loans made. When we came into power, we saw that the program's sustainability was in jeopardy. As a result, the government made major changes in 1995 in order to move in the direction of a cost recovery program, for the first time.

We imposed annual administration fees, the purpose of which was to compensate for claims for losses on loans extended after March 31, 1995. As the auditor general pointed out, however, we inherited a heavy burden, which will weigh upon us for some years yet.

The average period before a loan defaults is about three to five years, but the major program changes were approved by Parliament effective January 1, 1996. Thus we are now living with the costs associated with the massive build-up of lending under the 1993-95 SBLA rules. We did not wait for the auditor general's report to act responsibly to address this problem. As I said before, we took necessary action in 1995 to move the SBLA program toward cost recovery.

Consider the facts. The SBLA at present guarantees to the SME community loans worth approximately $2 billion per year. Are we to scrap this worthwhile program because of losses that were incurred as a result of 1993 program changes as some critics have proposed? That would be throwing out the baby with the bath water.

The sensible and responsible course of action is to pass Bill C-21 and to continue the SBLA program for another year, using that time to complete our comprehensive review so that the SBLA can be made into an even better instrument for responding to the needs of small and medium size businesses.

Certainly there is room for additional improvements. That is what the review process is all about. For example an improved monitoring process could provide for a better means of tracking performance and verifying cost recovery. Likewise a better forecasting system could make the program more flexible and better able to respond to economic conditions and the changing needs of small business.

While the SBLA lays out clear objectives for the program, we do need a more detailed and updated evaluation framework. This framework will be developed as part of the comprehensive review being undertaken this year.

Those are the sort of questions being asked in the review that is under way. To date, the studies and consultations have addressed the following points: general advantages of the program; possible extension of the program; specific consequences relating to inclusion of capitalized leases among the activities eligible for financing.

Other studies are either under way or in preparation on: program costs; the possible inclusion of operating costs in the expenses eligible for loans; the consequences of improved start-up loans; possible changes to program parameters; possible changes to the regulations, and the auditor general's recommendations.

We want to make sure that the SBLA program remains relevant to the needs of the small and medium size enterprise community. The auditor general's report will help the government ensure the effectiveness of this valuable program.

The types of questions that are being asked and answered by this comprehensive review illustrate why it is both relevant and necessary to constantly consider both the costs and the benefits of the program. The government therefore is encouraging interested parties to come forward and participate in the review process over the coming year.

The private sector financial market is at present in a period of rapid change with new financial products and services being added on an almost weekly basis. The impact of these changes on the SME access to financing is as yet unclear. Therefore it is important that we keep some stability in the system by keeping the SBLA program in place. It is also important that we take this evolution of the SME financing environment into account as part of the comprehensive review process to ensure that the program remains both relevant and sustainable.

It is true that there is a wide diversity of private and public sector programs which provide financing to SMEs. However the SBLA is unique. Under it the government does not provide money directly to small businesses. The program provides private sector lenders with a government guarantee for those lenders who sustain loan losses. The lenders are the sole decision makers as to whether or not a loan is made.

Thus it enables the vast majority of SMEs to have access to fixed asset financing. It is accessible through more than 1,500 different lenders: banks, caisses populaires, credit unions, Alberta treasury branches, loan and trust companies, and other institutions.

Far from duplicating the services of other programs, the presence of the SBLA program has allowed federal and provincial programs to focus on other usually more narrowly defined gaps in SME financing.

That program bears no resemblance to a small business subsidy program. The loans that are now being guaranteed under the terms of the program are made in keeping with the principle of cost recovery.

Thanks to the SBLA, the government, the financial institutions and the small business borrowers share the risks inherent in capital loans. By pooling the risk, the SBLA is supporting one of the most dynamic growth sectors of the Canadian economy.

The Small Business Loans Program meets a need that would not be met otherwise. The average amount loaned under the program is extremely modest: in the vicinity of $65,000.

Moreover the success rate of the program is quite high. In the history of the program some 94% of SBLA loans have been repaid. This suggests that the lenders are exercising good judgment when they decide who gets an SBLA loan, since it is the private sector lenders who decide who receives a loan under the program and not the government.

The small business loans program is an integral part of our programs and services to promote growth and job creation in Canada's small business sector. By passing the act before the House we will allow the SBLA to continue to back loans to SMEs for another year, a year during which we can complete the comprehensive review of the SBLA that is under way. The debate on that review will help determine the longer term future of the Small Business Loans Act.

Madam Speaker, I thank you and I ask hon. members for their co-operation in the swift passage of this legislation.

[Jim Pankiw, Reform, Saskatoon—Humboldt, SK]

Madam Speaker, it is a pleasure to participate in the debate on Bill C-21, an act to amend the Small Business Loans Act. The purpose of the bill is to extend the SBLA for another year until March 1999 and to raise the government's total liability to $15 billion, a $1 billion increase.

Under the Small Business Loans Act businesses can apply for a government guaranteed loan up to a maximum of $250,000. Before changes were introduced in 1995, SBLA borrowers were subject to a 2% registration fee and the taxpayer would cover 90% of any loan that had been defaulted. However, changes were introduced in 1995 where an additional one and a quarter per cent administration fee was passed on to the borrower and the taxpayer would cover 85% of any defaulted loan.

These changes were introduced to move the SBLA toward full cost recovery. While that is certainly a laudable goal there is some question as to what effect these fees have had on bankruptcies and whether the program can reach full cost recovery. Concerns surrounding these matters can be found in chapter 29 of the auditor general's report of December 1997. The auditor general has raised serious concerns about the operation of the SBLA, and his analysis of the functioning of the program constitutes the basis for Reform's opposition to this bill.

Reform is acutely aware of the difficulties that face small businesses in terms of obtaining financing. Access to financing continues to be a major impediment to the growth of small business in Canada. However, we must ask will more government funds alleviate the problem? Will putting the taxpayer on the hook for another billion dollars be the surest way to increase access to financing? Will Bill C-21 contribute to growth in the small business sector and help to address Canada's chronic unemployment? The answer to these questions is no.

Government spending programs do little to create employment. Government intervention in the marketplace creates an unlevel playing field and ultimately does more harm than good. Studies examining regional development programs like the Atlantic Canada Opportunities Agency indicate they simply promote and protect inefficient enterprises. They may be handy for the government in buying votes but real long term, good paying jobs are rarely the result.

Jobs created by the Liberals under these types of government programs are always overstated, and the SBLA is no exception. The auditor general found that with respect to the Liberals' infrastructure program job creation numbers were highly inflated. An audit of ACOA found the same problems. The problem is the Liberals simply accept job projections as actual jobs created.

In a press release of November 20, 1997 the industry minister claimed the SBLA created more than 73,000 jobs in the 1996-97 year. However, the actual number of jobs created is probably closer to 14,000. The auditor general found that under the SBLA, like other government spending programs, job creation figures had been inflated by as much as five times. I invite the minister to issue an erratum to his press release given this huge discrepancy.

I also encourage the minister to speak with his SBLA officials considering this discrepancy and the many other serious problems the auditor general has found. It seems as though the Minister of Industry has been asleep at the switch, and it took the findings of the auditor general to prompt a total review of the SBLA. And yet before this review has been completed and given the auditor general's findings, the minister comes before this House and asks for an endorsement of another $1 billion secured with taxpayer money.

We have to say no to this Liberal solution, throwing good money after bad. The errors in the minister's November 20 press release do not end with job creation figures. The release states that government payouts are covered by user fees built into the interest charged to borrowers. That is wrong. While there are user fees, taxpayers are on the hook for $210 million in defaulted loans for the period between 1993 and 1995. The auditor general does not believe that new user fees will lead to full cost recovery.

The minister's release goes on to say that Bill C-21 will allow the SBLA to operate for another year at little or no cost to the Canadian taxpayer. Does a $210 million payout in defaulted loans qualify as no cost to the Canadian taxpayer?

The errors in the minister's release are quite glaring, and I suggest to him that before he issues another one on the SBLA, he may wish to consult with the auditor general and get his facts straight. Clearly the minister is not getting the whole story from his SBLA officials and they are keeping him in the dark.

The auditor general has a great deal more criticism for this program. He stated that studies done for industry found that between 30% and 50% of SBLA loans were unnecessary. These firms would have received loans from their financial institutions anyway.

The minister has known about this since 1994 and a second study was done in 1996, but nothing has been done to curtail the program or streamline its operations and thereby reduce the risk to the Canadian taxpayer.

What this government has done is returned again and again to this House asking for an increase to the liability ceiling of the SBLA. More money, more money, more money. That is the motto of the Liberal when it comes to public funds. They think that Canadians are a bottomless pit of financial resources and therefore they can continue increasing taxes year after year.

Canadians are fed up with tax and spend governments. We have had enough of politicians fixated with continually expanding the size of government and increasing taxes every year to pay for it.

The auditor general also found that the SBLA has been abused by borrowers and lenders. Borrowers have split their companies into subsidiaries so that they can receive more money than the $250,000 SBLA limit. Lenders have charged SBLA applicants additional fees for their loans and they have not exercised due diligence in approving the SBLA applications. Because defaulted loans are covered by the taxpayer, many lenders simply do not care and they approve questionable SBLA loans.

Again, who foots the bill for these abuses? The taxpayers, ordinary Canadian families. Do the Liberals care? No. They come forward with a bill requesting that Canadians cover another $1 billion in liability.

The auditor general was also critical of the SBLA's lack of accountability to Parliament. He states parliamentarians do not have the information necessary to assess whether the SBLA program is managed efficiently and is achieving its objective. The minister himself does not even have this information. That is why we see such a damning report from the auditor general.

His report outlines a program that is inefficient with no clear goals or objectives. It has taken a scathing report by the auditor general to prompt the minister into action to conduct a full review of the SBLA. Why was this review not done earlier? What has the minister been doing while the SBLA has deteriorated to this terribly inefficient state?

I will tell members what he has been doing. He has been cosying up to big business like Bombardier and its many affiliates with grant after grant after grant. Meanwhile small businesses, the engine driving the economy and job growth in this country, takes a back seat to the minister and his chosen aerospace companies in Montreal.

The auditor general has found serious problems with the SBLA, but here are the Liberals asking for another $1 billion in taxpayer guarantees, promising to finish the review later. We know what effect reviews, studies and royal commissions have on this government. None at all.

Since 1994 the Liberals have known that there were problems with the SBLA and yet here we are, four years later, receiving a report like this from the auditor general. Unfortunately it is the taxpayer who ends up on the hook for this Liberal complacency.

If the Liberals had any real concern for small business financing and growth and creating jobs in this country, they would not be asking for an additional $1 billion in public guarantees. They would be asking the finance minister for $1 billion in tax relief.

Survey after survey shows that Liberal taxes are draining the lifeblood out of the economy and it is small businesses that suffer.

The Canadian Federation of Independent Business found in its October 1997 survey that 80% of small businesses cited the total tax burden as too high. In its prebudget submission, the CFIB stated that tax levels continue to be the number one concern of small business.

However, the Liberals have hammered small business once again with a further increase in CPP premiums, a move that everyone knows will kill jobs in our country and force many small businesses into bankruptcy. Indeed, studies done by the finance department show how increasing payroll taxes kills jobs. It is not that the government does not know, it just does not care.

The CPP hike is retroactive to 1997 and changes to employment insurance premiums still ensure the Liberals will collect an extra $5 billion each year from hardworking Canadians. If the finance department knows payroll taxes kill jobs, why are they punishing us with ridiculously high employment insurance premiums? Why not reduce EI premiums to a level where the fund is breaking even?

It is because the finance minister uses this fund to reduce the deficit. Thanks for eliminating the deficit should not go to him but to hardworking Canadians whose quality of life suffers because of the high tax policies of the Liberal government.

The small business deduction limit of $200,000 has not been changed in 16 years. Even just accounting for inflation, the limit should be at $315,000 today. However, keeping the limit low allows the Liberals to extract more tax dollars from more small businesses.

Steadily increasing taxes are leaving small businesses with no retained earnings. All their funds are going to Ottawa. Retained earnings are essential for small businesses to grow.

Rather than demand another $1 billion from taxpayers under Bill C-21, why not leave $1 billion in the pockets of small business owners?

In a January 27, 1998 news release the CFIB called on governments at all levels to rein in forms of taxation that drain small firms of valuable retained earnings. The CFIB sent a pre-election small business survey to all political parties. The Liberal answer to questions on job creation was more government spending programs. The Liberal answer to questions on small business was more government spending programs.

The Liberals just do not get it. Government does not create jobs. Redistribution of wealth does not create jobs. Government spending programs are not the answer to addressing unemployment in Canada. We need to bring in broad based tax relief, lower income taxes and reduce payroll taxes. That encourages spending and prompts firms to hire more employees. That is how to lower unemployment.

Between 1990 and 1996 the CATO Institute in the United States did a study comparing 10 high tax states with 10 low tax states. The tax cutters increased employment by 10.8% while the high tax states created zero net new jobs. The tax cutter economies grew 22% faster than the high tax states.

I know these facts fall on deaf ears within the Liberal cabinet. It has passed up opportunities to cut taxes. It continues to spend and it continues to believe that big government is good, government knows what is best and government programs are the answer.

Small businesses know that Reform is on their side. We want to cut the GST and eliminate the 3% and 5% income surtaxes introduced by the Tories. We will reduce capital gains taxes to encourage investment and reduce job killing payroll taxes. These are the measures that small businesses have been asking for, and Reform has been listening. These policies will leave more of their hard earned dollars in their pockets and create an environment where small business can succeed and grow. These policies will allow firms to retain more of their earnings, allowing them to build equity and therefore provide them with a better opportunity to obtain financing.

The Liberals are way off target in demanding another $1 billion for the SBLA. They should be giving $1 billion to small businesses in the form of much needed tax relief. Given the auditor general's findings, it is incredible that the minister would demand another $1 billion for the SBLA program prior to the completion of an analysis of the effectiveness and efficiency of the program.

Had the obvious inefficiencies been addressed when they should have been, the minister would not be asking taxpayers to cover an extra $1 billion because as much as $6 billion would not have been wasted. Had the Liberal government acted properly, the taxpayer liability could be reduced by $6 billion instead of facing yet another increase.

Accordingly the Reform Party does not support Bill C-21.

[Francine Lalonde, Bloc, Mercier, QC]

Mr. Speaker, I am pleased to rise on behalf of the Bloc to speak at second reading, that is, when parties take a stand on the principle of a bill, in this case in favour of Bill C-21, which extends by a year and $1 billion the availability of funds under the Small Business Loans Act.

I would add right off that we feel obliged to vote in favour of the bill so as not to deprive small and medium size businesses of credit in the months to come, even though it is inadequate and the guarantees of government management were sharply criticized by the auditor general. We feel we must vote in favour of the principle of the bill, even though we will no doubt make recommendations during committee hearings and at third reading.

The Canadian Small Business Loans Act dates from 1971. It was revised in 1995 and serves to guarantee loans to small and medium size businesses. However, we have many criticisms of it. After looking at the broad use of this legislation in Quebec, I will have a look at the criticism levelled by the auditor general and, no less importantly, by the Canadian Federation of Independent Business, which is an umbrella organization for many small and medium size businesses, which it regularly surveys.

I would first like to say that, again, Quebec's take on this issue is unique. The caisses populaires in Quebec administer more than half the loans under the SBLA, the Small Business Loans Act. In 1995-96, over 6,000 loans were granted by caisses populaires for a total of $321 million, whereas the banks gave out 5,600 loans worth $385 million. Financial institutions have therefore given a total of 11,952 loans worth $732 million.

I should point out here that, even though the bill allows the loans to reach the maximum of $15 billion, it does not mean that the government is lending out $15 billion. It means that the government has agreed to pay back the lenders, either the banks or the caisses populaires, up to 15% of the loans granted, but never more than 10% per borrower.

So the figure of $15 billion can be bandied about, but in fact the risk to the government is much less, understandably. It is not in the business of lending money.

I would point out that this $732 million for 1995-96 represents Quebec's share of a total amount of $2.233 billion and 34,000 loans across Canada. The number of loans for 1996-97 is slightly lower in Quebec as well as across Canada. The amount loaned and therefore guaranteed is also lower, that is to say $662 million in Quebec and $1.999 billion for Canada as a whole.

I think it is interesting for those who are following this debate—although I am pretty sure that, in Quebec, many more are watching RDI and following the supreme court proceedings, which I would no doubt be doing if I were not here, but for the benefit at least of those who may catch the replay this evening and those following the House of Commons proceedings live across Canada, it is certainly interesting to know that the auditor general reiterated that the purpose of the departmental program is to encourage lenders to extend loans on reasonable terms for the establishment, expansion, modernization and improvement of businesses.

We readily agree with this objective. The problem, if I may challenge the auditor general, is that loans extended as provided by the act for the purpose of buying land, building offices or plants or acquiring new equipment cannot in any way meet the objective stated here. The objective is to provide small business with reasonable terms to get set up—in other words start-up assistance—and expand or grow. It is as risky for a business to expand as it is for it to start up.

While statistics vary, it is generally agreed that, over a ten year period, two or three businesses out of ten or two out of every five will make it. It is not a matter of life or death. Studies have been conducted, but there is a close link between the capacity of a small business to start up and develop and its management of course, but also the availability of capital.

I would add that it is all the more true, and the auditor general emphasized this point at the end, that, in this era of knowledge-based economy, the necessary investment and working capital may be much greater than for a small or medium size business in the service sector, for example.

The auditor general made a number of interesting points, some of which are worth mentioning for the benefit of Canadians. He said that, in recent years, many studies were conducted on the small business sector. At the federal level, the 1994 report prepared jointly by the Department of Finance and Industry Canada on the development of small businesses—nice, but what does it really mean?—pointed out that the growth of small businesses is a determining factor for job creation in Canada. So, the growth of small businesses is a determining factor for job creation in Canada.

I will get back to this, but let me first continue. He added that the report also stressed the critical importance of having access to capital, and the need for an operational environment that promotes the growth of small businesses. The report mentioned the means that the federal government—but we know that some provincial governments are just as active in this area, in a totally independent fashion, which can lead to overlap and even contradictory policies—intended to take to create such an environment: to work in close co-operation with the other economic stakeholders, and to set up new policies and programs to support small businesses.

That was in 1994. The important point is that the review of the Small Business Loans Act in 1995 was very limited. I would like to mention here that Bloc Quebecois members on the committee stressed how unwise it was not to include working capital as eligible for loans under the Small Business Loans Act.

I was pleased to hear the minister say earlier, when announcing a review of the act, that he was thinking of including working capital. How many problems, lost jobs and failures of small businesses could have been avoided if the government had considered loan guarantees for working capital.

This may sound technical, but it is really very simple. When people set up a business, or when are looking at a period of growth, they incurs expenses and then wait for the money to come in. Often, owners of businesses put everything they have into getting a business started. Accounts payable are often due in 30 days, but accounts receivable sometimes go to 90, with the result that, if the owners do not have the necessary working capital, they lose everything they have put in. Often, they lose your savings, as well as the savings of their friends and relatives.

Ensuring that the SMEs have sufficient access to allow them to start up and expand operations—and this includes working capital—it was extremely wise of the colleagues in the Bloc Quebecois to point this out.

The auditor general continues. He makes an extremely important observation, repeating a comment by the Committee. He said “The Committee also believed that the government guarantee should be used to increase the availability of credit rather than to allow lenders to reduce their risk on loans that they would have made without the guarantee”.

Further on, the auditor general went on to say that it was found—in a variety of ways—that close to half of the loans were made without government guarantee.

Since these guarantees are being used on loans that would have been made in any case, they limit access to credit where they would have been really necessary. The banks need to be followed up on closely, since they may be tempted to take advantage of this opportunity. It is understandable, too, that it is not necessarily easy for the department to follow every action of the banks. This matter must be looked into, most definitely, as the auditor general says.

Another passage that he gives emphasis to, and one which merits repeating here, is a committee recommendation which was not followed up on. It recommended a series of initiatives to provide a sound basis for small business growth and development. Those initiatives included increasing financial institutions' participation in debt financing, together with using the government's leverage to encourage competition among financial institutions to significantly increase their appetite for lending in the small business market. The auditor general reiterated his interest in this question further on.

What did the auditor general recommend further? That the program's objectives be clear. That the projected results be equally clear.

He notes that the objectives include recovering costs, not losing money, as the Reformers insist the government ought to do, but he also stresses that the target of creating jobs must comprise a precise strategy for doing so, be it through the establishment or the expansion of businesses.

The auditor general points out that certain loans intended to modernize businesses kill jobs rather than create them. Naturally, it can sometimes be said that it is better to modernize and lose a few jobs rather than lose all the jobs a few months later because the business is no longer competitive. The question remains: how can this program be used to help create jobs?

The auditor general proposes an optimum design for the program. If the aim is to promote growth, this objective should be made clear. For it to be made clear, the approach must be considered.

He pointed out, after studying the situation, that only 54% of loans granted to small and medium business, including new business, could be considered to contribute to growth. This is not a significant proportion. Here we come to the most important sentence in his report “We consider that the dual objectives of increasing the availability of loans at reasonable rates while recovering all costs need careful analysis”.

This is the most important point, and I wonder if the government or our colleagues from the Reform Party gave it much thought. On the one hand, there is indeed a need to recover the amount of the loans guaranteed with taxpayers' money, but on the other hand, if this curtails the effectiveness of the program as a whole, then we are no further ahead.

Small business is one of the main engines of growth, job creation and wealth in Canada as well as in Quebec. It needs us to give serious thought to what can help it start up, develop and modernize, instead of constantly struggling to survive, which gets in the way of being the engine of growth that it can be.

When he talks about serious consideration, are these two objectives incompatible? This is an issue we will come back to later as it is a crucial one, especially in this knowledge and information age.

The auditor general does indeed ask very important questions. The most important one is no doubt: is this particular program effective? There are currently small and medium size businesses that have loans they are happy with. However, the study conducted by the Canadian Federation of Independent Businesses shows how unsatisfactory this program is in meeting its intended purposes. I repeat, the purpose is the establishment, development, modernization and improvement of businesses.

If these loans only allow them to struggle along, to get going only to come crashing down, what is the point. Because it should be pointed out that banks cannot demand personal securities on loans guaranteed under the act, but they do in other areas and, as a result, the loan as a whole becomes tied to the business owner's home, with all his belongings, his RRSPs and so on.

We do not realize enough how important small business owners are to economic growth and job creation, often at their own expense, displaying a virtue seldom heard of these days, namely self-sacrifice. For years, many small business owners can only pay themselves a small salary, well below that of senior public servants, or even steel workers and workers in other sectors. These owners pay themselves a smaller salary. They risk losing everything they own. They work long hours. If they calculated their hourly wage—and I am not trying to make a bad joke—it would often be equivalent to that of MPs, at least those who work hard, which is the vast majority of them.

The men and women who own small businesses deserve—the word “deserve” has a moral connotation—or, rather, have the right to get help, because they make the difference between real growth and a stagnant economy. We have a duty to help them, to the extent that this depends on policies. Major companies are also important, of course, as well as new innovative businesses, and I will get back to them after discussing a poll from the Canadian Federation of Independent Business.

Here are some of the major findings: 29% of small business owners said that credit availability was a serious problem for them. The situation had improved somewhat, but only for businesses with 20 employees or more.

It is important to note that fewer and fewer businesses apply for loans. They do not bother doing so because they are convinced that their application would be rejected. Mrs. Swift said that economic growth is jeopardized when businesses do not have access to an adequate line of credit. The fallout hurts everyone. The lack of money and the inability to get credit hurt everyone, because this means slower growth, fewer jobs and less wealth. Eleven per cent of loan applications were rejected, which is 2% more than in 1987.

Mrs. Swift pointed out that the main reason for these rejections is the turnover among bank executives. This is a very concrete issue and perhaps the department could make appropriate regulations, or at least establish some guidelines or policies. It is easier for businesses to get loans when bank officials have been in place for more than three years.

The smallest businesses, those with five employees and under, are seeing interest rates that are increasingly higher than for other businesses. They have a great deal of difficulty obtaining credit. Yet these businesses, like self-employed workers, are the ones now creating the most new jobs. Not giving them easier access to credit is like shooting ourselves in the foot.

She points out that, in order to improve access to credit for the smallest businesses, workers' funds like the one in Quebec have been created, but that, elsewhere in Canada, these funds have often not been around as long and do not always meet small businesses' capitalization requirements. Therefore, she says:

“The small business sector represents the future of the economy and its financial well-being should be a priority”.

I think these criticisms say a lot about the need for a complete review of the Small Business Loans Act. But there is another criticism as well and it is one of my own, or rather I base it on a Privy Council document made available to the Standing Committee on Industry.

The Privy Council is concerned about Canada's low productivity. The result of this low productivity is that, even though there is economic growth, it is not being accompanied by wage and income increases, by a real increase in wealth, and might only be due to the fact that Canada used the dollar's devaluation to bump up its exports. That is one hypothesis.

This hypothesis leads to another, which the Privy Council took as a warning. This one has to do with the fact that small and medium-size businesses, which are more numerous in Canada than in the United States, often have a lower rate of productivity. What does that tell us? It does not tell us to forget about small and medium-size businesses, but to be very sure that they have the capacity to innovate. Care must be taken to give small businesses access to innovation, to keep them informed, but also to ensure they have the capacity, and by capacity I mean purchasing capacity, training capacity, operating fund capacity, and in general an environment that is pro-development.

Yet when these small businesses have every possible difficulty in obtaining sufficient credit in time, and at competitive rates, it is understandable that there is a degree of stagnation in the economy, even if they are playing a role.

When the minister re-examines the act, we are most certainly going to be involved from A to Z, so that things can be better for small businesses, better than the hard life they have now, particularly the women entrepreneurs, who are forced to put everything they own into their businesses and then meet conditions that force them into bankruptcy, as they become keenly aware that they do not have the same opportunities as the major corporations do.

I am thinking of my colleagues' concerns for what this would cost the government. Let me tell you, those major corporations, those who can easily get around paying taxes, have access to the stock exchange and can get funding very readily. The people behind them are not forced to risk everything they own, all their personal assets.

Small business owners are nothing like the CEOs of major companies, who can buy thousands of stocks at $1 and sell them again the same day for $17, as I have seen one Quebec entrepreneur do this past weekend. That is just small potatoes compared to some.

The conditions imposed on small and medium size businesses, and those imposed on major corporations are so different that the whole situation must be reviewed. Otherwise, employment, development and growth will remain a dream.

Let us not forget the role played by banks in bankruptcies. A few years ago, when I was working in a workers' co-operative, I was able to see firsthand small and medium size businesses going bankrupt. It was common knowledge that when a small or medium size business was experiencing difficulties, the entrepreneur would often first pay a visit to his or her bank manager. We used to say that this was the last thing to do, because the bank manager would deal the final blow to the entrepreneur.

This measure is not provided for, but we will have to take a look at it. Banks do their job, and it is up to us to do our job and to be critical. Bank officials told the committee that small and medium size businesses were perfectly happy with the services provided to them, and that there was no problem.

This assessment was based on an annual survey. However, the businesses that may have gone bankrupt because of problems with their credit are no longer there to criticize the banks. I asked bank officials why they did not conduct a longitudinal survey and have certain questions answered by the same businesses year after year. This would provide a more accurate picture.

Their most recent survey also showed a high proportion of rejects for start-up loans. We were told that these were young businesses, that they were not fully prepared. The fact is that, to start a business, one must be very tenacious. It is normal to be tenacious and to be prepared. Still, the requirements imposed on entrepreneurs are much greater than any kind of assistance we are prepared to give them, and I am not referring to loans.

I am happy to say that, in Quebec, the expertise developed in every region is being offered to established and fledgling businesses alike, across the province; we are trying to develop a spirit of co-operation and to make management tools available to businesses. They are informed of every kind of loan available to them, especially through the SBLA. They get management advice.

I think something important has been initiated and must be pursued. But because the Small Business Loans Act is limited to assets, it is difficult for small businesses that have access only to the SBLA program, and for Quebec businesses that need complementary programs, to develop.

In spite of all this we will support this bill for a very simple reason. It is a start. The minister should have thought about it before. The minister knew the auditor general was reviewing the SMEs. If we did not support the bill, it would not be the minister we would be punishing, but the SMEs, which have already had it up to here.

We should push for a new bill to be introduced in the House. It would really be helpful in this information age and knowledge-based economy and would take into account all the constraints facing SMEs. We must not, however, cut off whatever little help they are getting now.

I say this particularly because we can keep an eye on how the department is being managed. Nothing can prevent us from tracking down what it is doing through the House of Commons and the Standing Committee on Industry.

I would invite my colleagues from the Reform Party, some of whose criticisms I agree with, to speak more often about what is being done to help SMEs. SMEs must have access to loans. But it must be more than just credit for assets. Nor can it be limited to businesses in the information and knowledge sector.

I believe it would be important for the government, in its upcoming budget, to set the credit for workers' funds at $5,000 per person and for all of us in this House to do as we did in committee and urge workers' funds to invest in very small businesses.

We were told in committee that the age and size differences among the various funds make it difficult for them to lend too much of their money to SMEs. We were also told that in Quebec, at least, things were moving very fast. The solidarity fund is well established. We also have SOLIDE, small business banks located across the province that make money available to small businesses needing small loans, and the same is happening in Ontario and western Canada.

[The Acting Speaker (Ms. Thibeault)]

Resuming debate with 20-minute speeches followed by a 10-minute question and comment period.