Mr. Speaker, I am pleased to enter the debate in a more proactive way on Bill S-36, an act to amend the Export and Import of Rough Diamonds Act.
We have had a lot of good discussion today around the bill and it is a very important undertaking to ensure Canada's diamonds are certified as being diamonds that are not coming from conflict areas, or blood diamonds as they are often referred to, and that they have been through a process to certify that.
Canada is now the third largest producer of diamonds in the world, and that is quite an accomplishment. That was done in a fairly short period of time and that industry is even growing as we speak. The parliamentary secretary talked about new mines being developed in Ontario and other parts of Canada, so this is a great story and, with this bill, we are helping the diamond industry in terms of how they can market their product more effectively and create a good market for their production.
I spoke earlier in the debate about the need to add value to rough diamonds in Canada. In rebuttal, the member for Burnaby--New Westminster talked about the fact that we are exporting all these raw logs. We need to put that into some context as well. In fact, I worked for 12 years in the forest industry in British Columbia. The export of raw logs is limited by statute and they have to meet very specific tests or criteria. To be exported in the raw log form, they have to be surplus to domestic needs and they have to pass some other tests.
If we look at the average over many years of the export of raw logs in relation to total production of logs in British Columbia, it is somewhere around 3% to 4%. We need to be concerned about that but it is very different from diamonds, where right now in Canada we are exporting virtually 100% of our uncut diamonds to Antwerp, Tel Aviv and Amsterdam, which is where the cutting and polishing is being done.
I would like to see a diamond trading centre established in Canada. The experience in Antwerp and other cities has shown that if we set up a diamond trading centre, then the people who cut, polish and further process diamonds will situate themselves very closely to the diamond trading centre. The people who cut and polish the diamonds like to be close at hand to the diamond exchange.
There have been some discussions that people in the Northwest Territories, where a lot of the big diamond mines are now located, would like to see this diamond trading centre located in Yellowknife, and I can understand why they would want to do that. It creates high paying jobs and it is good for economic activity.
The parliamentary secretary from Yukon talked about the fact that we do have some cutting and polishing going on in Canada but it is after the uncut diamonds have been shipped offshore. Some of them do come back for some further value added but it is quite small in its size and scope. I think there is a real opportunity for Canada to get more involved in the added value part of the diamond industry.
I have talked with some of the players who are anxious to set up a diamond trading centre in Canada and they are telling me that establishing such a diamond trading centre in Yellowknife, for example, would be very difficult because they need to attract people with the right skill sets.
While I understand and respect what the parliamentary secretary is saying, that we do have some of those skills in Canada, but we do not have enough of them. I suppose setting up a centre have the centre in Yellowknife is, I suppose, a reasonable option but I have been told that these diamond trading centres are typically set up in very large urban areas close to airports with easy access to international flights because people come and go, they buy diamonds and work in their businesses in terms of the value added sector.
I began to wonder why we would not want to look at setting up a diamond trading centre in the city of Toronto. Toronto has many of those attributes. It is a large centre. It is easily accessible in terms of international flights. It has the kinds of amenities that many people in this sector would be looking for. I am trying to see if we can attract that kind of business to Toronto.
I am working with my colleagues in the Northwest Territories and we are exploring different options. Maybe there is a possibility of having some value added, more value added than is being done today in centres like Yellowknife. There might be some compromise solution but the diamond trading centre, as I understand it from the experts, needs to be in a large urban centre that is easily accessible in terms of travel and the like.
The experience on this has been quite clear that once a diamond trading exchange is set up, the other value added sector industries will follow. What we end up with is a cluster that is good for creating many high paying jobs, skilled jobs, economic activity and then, from the cutting and the polishing, it also grows into manufacturing jewellery. We would end up going right to the far extremes of the spectrum of processing within the diamond sector. It is something that is being explored now and it makes some good sense.
With respect to the diamond mining industry in the Northwest Territories, the federal government would make the decision to direct a percentage of the production from the Northwest Territories into, for example, a diamond trading centre somewhere else in Canada. Right now the major diamond mining companies in the Northwest Territories are owned and operated by foreign companies, such as De Beers and others, which take the uncut diamonds and move them to their processing facilities in cities such as Antwerp. They cut them and polish them there and then they work them back into the diamond market. The diamond market is a huge, some would say, cartel. It is a very exclusive club that pretty much controls the supply of diamonds into the market, but this would be a way of adding more value.
The other feature I am working on is to see if we could set it up in Toronto as a duty-free zone because in budget 2000 the government came out with some measures which would more readily allow for the formation of what we would call duty-free zones. They would not be described precisely like that but they would allow the movement of goods into a duty-free zone, free from duties and free from GST as long as the production is moving offshore and as long as initially the value added is going to be limited to a maximum of 20% as a starting point. With respect to uncut diamonds from Yellowknife, the duty-free zone does not really offer much in the way of attraction in the short run but once the centre is established and its cluster is developed we would then have some capacity for cutting and polishing.
Over time more of these uncut diamonds would come from other sources, such as South Africa and maybe Russia. As long as a good centre of excellence was created which was cost competitive, those diamonds would find their way into this diamond centre and then they could be worked on in Canada.
As long as they are exported to the United States or any other country, they would be exempt under these rules of the duty on the stones coming in and and also the GST. This was an obstacle that was eliminated in budget 2000 because we have a number of duty deferral programs in Canada but one of the constraints to setting up a geographical area and call it a duty-free zone was the fact that the GST still had to be paid and then refunded. Therefore as the goods came in there was some value added. The GST was paid once they were exported. Of course the GST could be rebated but it was an administrative problem and a cashflow problem.
In fact these duty free zones, if we look around the world, very much lend themselves to this sort of model of a cluster, a jewellery and diamond centre cluster. There are similar examples in the Middle East for example and I think it has some attraction.
We are looking at some sites and I am working with my colleague in the Northwest Territories to see if we can come to some solution where we optimize the value added input that can be achieved in the Northwest Territories but we are also realistic about the fact that the bulk of this needs to be centred in a large urban area.
I think Bill S-36 is important legislation and I would like to see us move more in the direction of adding value to this important industry in our country.
I had the opportunity many years ago to work as a young chartered accountant in South Africa. There I could see the huge diamond industry that exists and existed in South Africa. In fact, the number of people in the diamond processing industry in Johannesburg is absolutely staggering. In fact, I met more people from Belgium in Johannesburg than I have ever met before. The reason for that is a lot of them would come from Antwerp and places where the diamonds are cut, polished and made into jewellery. Many of them would find their way into Johannesburg because it was a big diamond trading centre as well.
I also had the opportunity years ago to work and visit the Northwest Territories. I discovered that an old friend of mine who I went to university with became president of one of the big diamond companies in the Northwest Territories, Diavik Mines. He came here one time when the Diavik mine was being developing. One of the challenges his company had was to get supplies in to develop the site. In the winter the trucks drive over the lake which is frozen over but they had to get a certain amount of supplies onto the site before a certain time. They were running into some obstacles with various regulatory authorities, not that there were any issues or problems, but just that they needed some very quick decisions and we were able to talk to Environment Canada, the Department of Natural Resources and the Department of Finance. I was happy that it was able to unblock some of those impediments and able to get the material on site on time.
This is a hugely important industry for the Northwest Territories and, as the parliamentary secretary noted, for many other parts of Canada as well. It is important that we encourage the mining industry to continue to explore and to find new deposits. Many mines in Canada now are close to being worked out.
Developing a mine is a very expensive process. First, they have to seek out the lodes where the precious or base metals are located. To do that, we need the proper set of incentives. As I commented earlier, a couple of years ago our government came in with a package that changed the way in which the government taxed mining companies. It replaced the resource allowance with the actual amounts that the mining companies paid as royalties.
Some sectors of the mining industry, like the potash sector, received less of an allowance than they paid the Saskatchewan government in royalties. The government said that it would not do the formula calculation any more. Instead it would allow mining companies to deduct the royalties they paid to the government of Saskatchewan. Although other provinces have potash, it is a very dominant industry in Saskatchewan. When the government did that, the industry was very happy because it now could deduct the actual royalties it paid to the Saskatchewan government.
The mining sector has a whole range of base and precious metals. Diamonds, for example, are clearly precious metals. When we changed the tax regime, precious metals, if I recall, came out pretty well. A sector of base metals had mixed results in whether this was advantageous to it. At that time, the government, realizing that replacing the resource allowance with the royalties would create some winners and losers, put in the exploration tax credit at 10%, although some of us argued for 20%. That is a good mechanism to encourage the industry to explore and continue to explore for new discoveries.
That, coupled with the flow through shares, which the member for Saskatoon—Humboldt referred to as well, have resulted in a lot of good behaviour by exploration companies. When I say “good behaviour”, I mean behaviour that causes them to find new deposits. I am confident our government will continue to keep those instruments in place.
The mining industry is a sector which is sometimes characterized wrongly. Often we conjure up images of the mining industry as environmentally irresponsible and that it is a dirty industry. People in the industry have fought hard. They have had some issues they have dealt with, but they have also tried to approach Canadians and people internationally to convince them they are responsible managers, and rightly so.
This industry is very important for the economy of Canada. It operates in an environmentally sound way, and it deserves our support. It creates a lot of jobs in urban Canada as well. People think that mining is a rural job creating activity, but a lot of work has been done to show that jobs created in the mining sector in remote parts of Canada or in rural Canada impact a lot of jobs in urban Canada as well, whether they be financial managers or investment bankers.
I will be supporting Bill S-36. It is a good start. It also is a good signal that we have a very important industry Canada which we need to grow further.